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Shetland Islands Credit Union


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If you don't attract savers you won't have funds to lend out.

 

Exactly. The rate has to be competitive and if someone was to invest in the union, they would want an idea as to the income they will earn (be it interest or dividend) so that they can compare it with other options. With base rate so minimal, many savers are habitually scratching around these days for the best rates available and to invest in the union, not knowing what is achievable, is not a great-sounding choice.

 

I think the union could struggle to attract funds from those that shop around for best rates.

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As this seems to have become something of a questions thread, there's one I'd like to ask.

 

Having had a look over the site, the impression I got was that the Credit Union is set up to cater for folk who sign up to save regularly with them, and, correct me if I'm wrong, only folk who do so will be eligible to apply for a loan. Is this a fair description, or have I gotten hold of the wrong end of the stick?

 

Yes you will have to be a member to get a loan.

 

I'm asking, as while I don't envision the need for any kind of loan in the forseeable future, nor do I want to become tied down to a regular savings committment, I would not be adverse to considering depositing a modest "one of" sum with the Union and leaving it to earn for a period. Does the Union cater for this type of thing, or are they likely to in the future, and if so, would someone depositing a sum in that way have the same eligibility to a loan at some future time, should the need arise, as a regular saver?

 

I'm not sure on the credit union's exact policy on lending so I can't answer that. Anyone seeking a loan will have to prove they can repay it so evidence of regular income is probably the most important.

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Anyone seeking a loan will have to prove they can repay it so evidence of regular income is probably the most important.

 

Which brings to mind the old, somewhat tongue in cheek, but nevertheless somewhat truthful cliche, "if you can afford to pay it back, you don't need the loan".

 

Seriously though, I think the concept is good, but at the moment its being punted towards a rather small niche market. Maybe I'm not fully appreciating what is proposed, but it would seem to me that the "target client" group are those on low, probably fixed income, that could use a loan from time to time for larger ticket purchases, and would be capable of paying it off successfully on modest terms, but have no hope in either getting or paying off a similar loan on current financial institution terms. In between loans they'd be capable of saving a regular sum approx equal to the loan repayments they could afford.

 

Maybe I'm just grabbing at stereotypes here, but I'd see that client base being one that could only afford a very small regular outgoing, therefor their total savings with the Union would only be a relatively small sum, and any loans they were granted and serviced would be of relatively small sums as well. All in all, to work, the Union would need to attract a significant number of such people, as on an individual level, the contribution of each person both to saved capital available to be loaned out and to earn for the Union, and in interest payments they paid to the Union for any capital they themselves borrowed, would be very small.

 

Perhaps that is the MO and the point of the Union, to keep it small and compact, and only deal with small sum amounts. I'd tend to see it as a more useful and attractive vehicle if it seemed more welcoming to any and all potential depositors, regardless of whether they wished to deposit regular, semi-regular or one-off sums. As in doing so the Union would be more likely to attract larger sum depositors, who in turn would be more likely to be interested in a larger loan, and more likely to be able to service it, therefor earn the Union considerably more.

 

Better to have someone who deposits a one-off sum of £500, leaves it for a year, then takes out a £1000 loan, than five people saving £1 per week for a year, then each taking out a £50 loan.

 

As an aside, what is the Union's policy on defaulters? As if I'm right about the target customer base, it would be expected that people already struggling to make ends meet would contain a significant percenage of potential defaulters. If the Union attracts the quantity of clients from that target group they'd need to to make it work, there's potential for the Union to lose a significant capital sum to defaulters. Dealing in small amounts, that's going to kill it off pretty fast if it happens.

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The SICU has managed to attract some reasonably sized deposits so far. Goods returns are possible if things work out. Check out the bank deposit rates available here.

 

http://www.bankofscotlandhalifax.co.uk/savings/personalrates.asp#Halifax_Instant_Saver

 

The idea of credit unions giving loans to people on low incomes is based on financial inclusion. The criteria for joining up are not difficult to meet. Giving loans to them keeps them out of the clutches of money lenders with extortionate rates of interest (even legal ones - just Google payday loans)

 

The Departmant for Work and Pensions are keen on credit unions and have provided funds to ones in other areas. Their take on giving loans to people on low incomes is here.

 

http://www.dwp.gov.uk/other-specialists/the-growth-fund/questions-and-answers/

 

At the moment lending money is a leap in the dark. There will be a vetting process and robust default processes. If you default you are cheating your friends and neighbours, not some faceless corporation.(though that proabaly won't matter to some!)

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