Newsletter - February 2010

Rugby Credit Union
Annual Report & Newsletter
Presented to the Annual General Meeting to be held Wednesday 10th March 2010, 7:30pm

Another solid year - but even tougher times ahead?
It's been a difficult year with the credit crunch and the economic future never out of the headlines. Nevertheless we've made steady progress in our fifth year and remain on a sound financial footing. Despite the difficult economic climate our savings balance exceeded £130,000 mark - far beyond expectations - while the demand for loans picked up from the previous year and we actually reduced the level of arrears, thanks to painstaking work by the Credit Committee in chasing slow payers and a meticulous approach to making loan decisions. We reported at the previous AGM in March 2009 we passed the £250,000 mark for loans issued, rising to £300,000 by the end of 2009. All loans are of course funded by members' savings. We continue to operate school banks, the Christmas Savers' scheme, the Green Loan scheme and Heart of England Money.
We have recently introduced our "Handyloans" scheme to help people with short-term problems. This scheme is described elsewhere in this newsletter.
Long term funding remains a major problem. While we were well supported by our funders in the start-up years it is clear that grants are less forthcoming for ongoing expenditure, particularly in these difficult times, and as a consequence we have reluctantly had to make modest increases to our interest rates. We still need to recruit volunteers, whether their experience is in finance, fundraising, or general admin. Things are likely to get harder, but we will continue to develop our range of services for people living or working in the Rugby area. Never was the role of a credit union likely to be more essential.

Rugby Borough Credit Union Ltd. - trading as Rugby Credit Union
Authorised and regulated by the Financial Services Authority FRN 228814
Website: www.rugbycreditunion.co.uk E-mail: rugbycreditunion@btconnect.com

Membership
Since we started in 2004 over 700 people have joined Rugby Credit Union! Naturally some of those have moved on and are no longer members, nevertheless we increased our net membership last year by 18% with the year end figure standing at 434. A major problem is that many people join "to support the credit union", but then forget to set up a regular savings arrangement and consequently their savings remain at the original amount they deposited to open their account - sometimes as low as £1. Unfortunately we incur costs on those accounts because our affiliation fees to ABCUL are based on membership, while we send out annual statements and even add a dividend to those accounts. Recently we have written to all members with less than £10 in their accounts, asking them to consider saving regularly, however modest the amount. We explained that if we do not hear from them we will remove them from our list of members and their savings will be placed in a dormant account. They can of course recover these savings at any time, or donate them to the credit union if they wish. Also they can reinstate their account at any stage in the future, but until then they will not have normal membership rights and we will not include them in our membership figures.

Moving?
Please remember to notify us of your change of address, telephone number or your beneficiary.

What is ABCUL?
ABCUL stands for the Association of British Credit Unions Ltd, a trade association based in Manchester. There are several such bodies for credit unions in the UK, but ABCUL is the largest. They provide advice, regular newsletters and training courses for member credit unions. In addition they provide a link between ourselves and government where we can have a role in influencing legislation affecting credit unions. ABCUL is funded by a levy on credit unions, based on membership, and this is currently £1.20 per year per individual member. We are not obliged to join a trade association, but we would be somewhat isolated and ill-advised to operate without this important means of support.

Green Loans
Our Green Loan scheme, using funds provided by Rugby Borough Council, enables householders to make their homes more energy efficient, reducing the level of carbon emissions discharged into the atmosphere. Despite extensive leafleting and a display in Rugby library we have to report that interest has been disappointing. Clearly we have to find alternative ways of promoting this worthwhile scheme.

Logo
Could we improve on our letter heading with the "clocktower" logo? If you have any ideas we would be pleased to hear from you.

"Narrowing the Gap"
During 2009 we received funding from the Local Strategic Partnership to help us contribute to the "Narrowing the Gap" project. This was aimed at specific areas of social deprivation within Rugby, with the intention to make people more aware of what the credit union can offer them. One of the fundamental messages was that there is an alternative to doorstep lenders and their high interest rates - typically 270% APR, compared with our rates ranging from 12.7 % to 26.8 % APR. We distributed leaflets and invited people to attend local drop-in sessions. We also met with other groups involved with the project to spread the credit union message. We feel we achieved much of what we set out to do and will continue with this strategy to address problems which can only worsen in the present climate. Sadly even the LSP funding has been a victim of reduced budgets in 2010.

Slow progress on the Rent Bond Scheme
Last year we reported that we were in discussions with Rugby Borough Council about ways to help people in the private housing sector to save for their rent bond. Unfortunately at this time we are no further along, mainly because of personnel changes within the Council. The Council have not rejected the scheme, discussions are merely "on hold". The principle behind the scheme is that "approved" tenants can move into private accommodation without having to find the bond, instead saving for their bond with the credit union. When the amount has been saved the credit union pays the bond to the landlord who then places it in the Tenancy Deposit Protection Scheme, so the landlord is no worse off. The advantage to the credit union is that it increases our membership base and hopefully those new members will continue to save with us afterwards.

Staffing & Volunteering
Many of our members are aware that Pauline Masterman is due to retire from being a paid employee of Rugby Credit Union at the end of February, although she is staying on as a volunteer. Pauline has been with us since the outset when she joined as an Admin Assistant, stepping up to the role of Office Manager in 2007. She has been our anchor during her time with us and has carried out many duties far beyond her job description. We are in the process of appointing a replacement who can work the maximum hours we can afford. This means we are now more reliant than ever on volunteers to work in the office and deal with day to day enquiries, payments, etc. If you feel you can help, in whatever way possible, please get in touch. We would like to place on record our thanks for Pauline's efforts over the years and wish her all the best in her retirement, even if that involves sharing some of her time with the credit union.

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Treasurer's Report - Financial Year Ending September 2009
It is pleasing that we have survived an extremely difficult financial year. Our ordinary members have increased their savings by 30% and our junior members by 60%. Our loan book has also remained steady with a reduction in bad debt due to sustained effort by our Credit Committee.
Savings that are not being used for loans are retained in bank deposit accounts, the interest from which supplements our income. However, difficulties have been caused by loss of income due to the drastic reduction in bank interest rates.
Our main external income this year has come from council grants to support our financial inclusion activities and other council funding to support us as a worthwhile community activity.
Looking forward, next year could be even more difficult. We are desperately seeking all possible sources of funding to support our core expenses and hope as the general financial climate improves so will our chances of success.

Lin Bird - Treasurer

Credit Committee Report
As in previous years the Credit Committee's activities have been one of the keys to the success of the credit union. The Committee makes decisions on all marginal loan applications and the management of arrears and is responsible for reviewing and updating procedures relating to loan applications.
Unlike last year we have seen a significant increase in the number and value of loans we have granted back to levels similar to those in 2006/07. In 2008/09 we granted a total of 143 loans totalling £76,500 compared to 97 loans [£55,167] in 2007/08 and 140 loans [£81,091] in 2006/07.
It is heartening that this has occurred during a period when we have further tightened our loan procedures and despite the ongoing economic situation and natural concerns about the risk of loss of employment.
The increased demand for loans has coincided with a significant increase in savings. Our year end loans balance was £65,500, representing just 48% of our members' savings; the corresponding figure in previous years was 56.4% in 2007/08 and 88% in 2006/07.
The loan figures above do not include Green Loans as these are not funded by members' savings. The Scheme is regarded as a separate activity and reported elsewhere in this newsletter.

Chris Holman
Chair of Credit Committee

School Banks
Our School Banks project has continued with eight schools operating saving schemes and one secondary school interested in running a pilot scheme. The number of junior members has remained at around 160, with total savings of £6,000. The schools provide their own volunteers to operate the banks, thereby extending the range of volunteers indirectly involved with the credit union. However, it does cause a great deal of work in administration for which we gain no income, so please let us know if you can help in operating this worthwhile scheme.

Handyloans - a new initiative for Rugby
We have felt for some time that our policy of insisting that a new member saves for 3 months before making a loan application excludes a significant number of the financially disadvantaged, some of the very people we aim to support. Clearly we cannot grant instant loans to people with insufficient evidence of their ability or willingness to repay, but there are people who have demonstrated a good payment record with an earlier loan, either with the credit union or Heart of England Money. Those people may not have the necessary savings but we would regard them as reliable payers and could therefore offer them a small loan. Inspired by what some other credit unions are already doing, we launched the "Handyloan" scheme in January and intend to run it for a trial period. The maximum loan is £200 over a period of 12 months. The scale of payments, based on 2% per month interest (26.8 % APR) is calculated to enable the member to accumulate modest savings while they pay off their loan. The following tables illustrate the scale of loan repayments and minimum savings. Figures have been rounded to simplify data entry and make the scheme easy to understand.

Note: The Provident website offers a £100 loan for £3.32 per week over 52 weeks (272.7% APR) - with no savings at the end!

Interest on Loans
Our main source of income is interest on loans and the reality is the 1% per month interest rate we charge generates insufficient income to maintain a viable business - even the largest credit unions struggle on that basis. This is because it takes the same effort to arrange a £500 loan as a £5,000 loan, so with our average loan around £550 we can never compete with the banks. Legally credit unions are able to charge up to 2% per month, so after much deliberation we have reluctantly introduced a sliding scale of interest charges, to apply from January 1st 2010. These are:

Up to £500 ~ 2% per month
£501 to £2,000 ~ 1.5% per month
£2001 to £3,000 ~ 1% per month

By way of example the table below compares weekly payments on a £300 loan for the 3 different interest rates, indicating the additional payment per month is not excessive.

Note: The same £300 loan with the Provident would cost £10.50 per week
ie 272.2% APR (Source: Provident website)

The Financial Services Authority
The FSA, the authority which regulates the financial services industry, has a special section dealing with credit unions and is responsible for ensuring that we conform to all the relevant legislation. All our directors and committee members have to be registered with the FSA and their individual roles are displayed on the FSA website www.fsa.gov.uk The FSA is also responsible for the Financial Services Compensation Scheme (FSCS), which protects savers with banks, building societies and credit unions. The irony is that in 2009 credit unions had to pay an additional levy to the FSCS to help compensate those individuals who had lost savings as a result of the banking crisis, albeit in our case the levy was a relatively small amount.

Important information about compensation arrangements
We have a legal obligation to point out that we are covered by the FSCS. The FSCS can pay compensation to depositors if a credit union is unable to meet its financial obligations. Most depositors - including most individuals and small businesses - are covered by the scheme. In respect of deposits, an eligible depositor is entitled to claim up to £50,000. For further information about the scheme (including the amounts covered and eligibility to claim) please refer to the FSCS website http://www.fscs.org.uk/ or call 0800 678 1100.

Report of the Supervisory Committee
Following our last annual meeting it was good to obtain the help of another volunteer, Gerard Nosowski, who has joined Iris Edwards, Margaret Harris and myself in the performance of this necessary function of the credit union.
We have met on a monthly basis at the home of Iris Edwards. This avoids a room charge being levied and we are most grateful to Iris for this help.
These meetings are now held in the afternoon immediately following Board Meetings, which are attended by one of the committee in turn. This means that we are all kept fully in the picture as to what is going on. We also report back to the Board any errors which have been found and also any concerns which we might have. I am pleased to report that we have never had to report a significant error.
At our meetings we are able to plan our workload which will involve visits to the office in most cases. We wish to thank Pauline for her co-operation as this usually means finding time for us on the busy office computers.
However we recognise that correct arithmetic checks do not alone guarantee a successful credit union.
Finally I wish to record on your behalf our thanks to the members of the committee for all the hard work which they have put in during the past year.

David Bradford
Chair of Supervisory Committee

Rugby Credit Union
19 & 20 North St, Rugby CV21 2AG
Tel: 01788 577990
Opening hours: 10.00 am - 3pm, Tues, Wed, Thurs

Loan Type	Total Loans
Bill payments	£6150
Bond/rent	£2350
Consolidation of debts	£2930
Family emergencies	£2950
Furnishings	£4550
Holiday	£11520
Home improvements	£7050
House maintenance	£1250
Household electrical	£2200
Medical expenses	£750
Special occasions	£22700
Training/education	£5500
Vehicle purchase	£2000
Vehicle repair	£4600
Total:	£76,500

Amount of Loan	No. of Payments	Amount to Savings	Amount to Loan	Total Monthly Payment	Total Interest Paid	Savings after one year
£100	12	£3	£10	£13	£12.66	£36
£150	12	£5	£15	£20	£19.00	£60
£200	12	£7	£20	£27	£25.37	£84

Amount of Loan	No. of Payments	Amount to Savings	Amount to Loan	Total Weekly Payment	Total Interest Paid	Savings after one year
£100	45	£1	£2.50	£3.50	£11.93	£45
£150	49	£1.50	£3.50	£5	£19.23	£73.50
£200	51	£1.50	£4.50	£6	£26.66	£76.50

Assume loan of £300 over 1 year	Credit Union Loan
Assume loan of £300 over 1 year	1% interest pm	1.5% interest pm	2% interest pm
Weekly payment	£6.16	£6.36	£6.57
APR	12.7%	19.6%	26.8%