Compiled by Kate Lean
UK financial organisations are either ‘mutuals’ or public limited companies such as Barclays or Lloyds. Mutual organisaions are not owned by external shareholders but by their members. Mutuals work for, and only answer to, their customers. They exist solely for the benefit of their members.
Mutuals is a general term under which a number of financial organisations with different ownership models fall. Examples of these include building societies, co-operatives and credit unions.
Building societies date back to the late eighteenth century. They enabled people to pool savings together and to build their own homes. In the 1840s building societies began to accept savings from members who were not necessarily saving to build homes. As a mutual organisation, building societies’ borrowers and savers are members and therefore owners of the business. Members have a right to vote on issues regardless of how much or how little money they have with the society. Typically, those responsible for running the organisation are paid by the society’s members.
In the 1980s building societies were allowed to ‘demutualise’ to become banks. Members of each society had to agree to this change and to persuade members to encourage demutualisation many building societies offered windfall payments to their members. Building societies that became large banking organisations include Halifax and Alliance and Leicester.
Credit Unions are co-operative, mutual self-help organisations owned and democratically controlled by their members. The unions are operated on a not-for-profit basis, with all surpluses invested back into the organisation or returned to the members as dividends. The ethos of the organisation is to promote the concepts of community, co-ownership and co-operation. Credit Unions endeavor to encourage thrift and create a source of credit at reasonable interest rates. Traditionally credit unions are run by their members on a volunteer basis.
The origins of the movement can be traced back to Germany, where self-help societies, or people’s banks, were set up in the mid-19th century to help the needy out of debt and poverty.
These types of self-help societies were introduced into the UK in the 1960s and 1970s mainly by immigrants from Ireland and the Caribbean, who struggled to get financial services from mainstream banks. Familiar with this form of saving/lending in their own countries, these immigrants set up credit unions in their new communities. Legislation covering credit unions came into effect in 1979.
Credit Unions were formed on the basis of a common bond, whereby members were required to have something in common, such as living in a certain area or working for a particular employer. Operated for the purpose of promoting savings and providing credit at competitive rates, credit unions generally insisted that a member saved with the branch for a set period of time before they were allowed to borrow money. The board of directors, which is a non-paid position, is voted in via a democratic one-person-one-vote system regardless of the amount of money they have invested. Policies governing interest rates and other matters are set by the volunteer board of directors. As independent units, credit unions are able to self determine how they operate.
In 2012, new rules came into being that allowed credit unions to broaden their membership. Previously, credit unions could not pay interest on savings, only a retrospective dividend, but under the new rules unions can now pay interest on savings. Additionally, the concept of the ‘common bond’ has been relaxed, as has the ruling that only individuals were able to become members of credit unions. The new legislation means that organisations themselves can join a credit union (up to a maximum of 10% of the members) and use the financial services it provides.
In Liverpool, credit unions generally fall into two group, employee credit unions and community credit unions.
Employee Credit Union
NHS Credit Union
Police Credit Union
Liverpool City Council
Community Credit Unions
Halewood Community Credit Union
Central Liverpool Credit Union
Crosby & Thornton Credit Union