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									WARDS AFFECTED CITY WIDE REPORT OF DIRECTOR OF ECONOMIC DEVELOPMENT CABINET MEMBER (REGENERATION) NON KEY DECISION BIRMINGHAM CREDIT UNION DEVELOPMENT AGENCY (BCUDA) 1. 1.1 SUBJECT AND BRIEF SUMMARY OF PROPOSALS In Birmingham there are currently 200,000 people on low incomes in need of affordable financial services. An estimated 60,000 Birmingham residents have no source of finance other than down market creditor providers and moneylenders charging exorbitant interest rates. These predatory lenders can charge interest rates from 177% to 1000% APR. In Birmingham this represents a colossal drain of household income and in areas, which can cancel out the efforts of local regeneration investment. This type of lending represents a loss of £22 million to low income households due to excessive interest payments for loans for basic goods; see BCUDA business plan ‘Retaining Wealth Locally Mass Membership Strategy for Community Credit Unions - City Wide Business Plan for Birmingham 2004 – 2009’. The Birmingham Credit Union Development Agency (BCUDA) business plan ‘Retaining Wealth Locally Mass Membership Strategy for Community Credit Unions - City Wide Business Plan for Birmingham 2004 – 2009’ outlines a strategy and course of action for the next five years to tackle this situation. The business plan builds on the achievements of the last decade to address these problems. The strategy aims to build a mass membership of credit unions to tackle this problem directly for low-income households, stemming the loss of wealth and providing affordable loans and savings opportunities through the credit unions and credit union shop fronts. This strategy aims to build sustainable credit unions and to convert a loss of wealth into retained wealth and contribute to the City Council’s goal of creating ‘Flourishing Neighbourhoods’. Date: 19 April 2004

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RECOMMENDATIONS That the Cabinet Member for Regeneration

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Approves the payment of a grant totalling £155,000 in the 2004 / 2005 financial year to the Birmingham Credit Union Development Agency. Approves the payment of a further grant of £3,000 in the 2004 / 2005 financial year to the Birmingham Credit Union Development Agency to cover the costs of a launch and seminar event on 27 April 2004.

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R: Goverance/Cabinet/Cabinet Members/April-04/BCUDA GRANT AID 2004-05

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BACKGROUND Credit Unions are co-operative organisations, they encourage their members to save regularly and then enable them to borrow. They provide individuals with access to affordable credit once they have previously saved with the credit union. These organisations can help to alleviate financial exclusion and are an important component of a response to social and financial exclusion particularly in the regeneration areas of the city. BCUDA was established in 1987 to promote the promotion, registration and development of credit unions in Birmingham. Birmingham City Council has supported the organisation since that time. Its achievements have seen the establishment of the largest group of credit unions in the country within Birmingham there are    31 credit unions across the city an asset growth of £15 million within city based credit unions over 20,000 members in credit unions, including 6,500 in low income community based credit unions

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Of the 31 credit unions, 28 are community based in areas of the city with high unemployment and social deprivation of which 3 are associational credit unions. The remaining 3 credit unions are employee based, Citysave Birmingham City Council credit union, the West Midlands Fire Service and West Midlands Police credit unions. Three credit union shop fronts have been established in Kings Heath, Erdington and Handsworth all providing services to members and local credit unions. BCUDA based at the Bond in Digbeth, provides support and assists the development of credit unions across the city to build the capacity of the network. BCUDA provides training on running a credit union and over this past year this training has been directed through the various cluster groups. This assistance has been of a technical nature for instance in completing the Financial Services Agency’s quarterly returns forms from credit unions and developing action plans for the future. BCUDA also assists with training for volunteers and staff in registration, mergers and in developing new services. In 1998 BCUDA commissioned a major strategic review of credit unions in the city and of its own work over the previous decade. The outcome of this review and its recommendations was published in a report launched in April 1999. It set out a number of key objectives 1) to establish a credit union central administration centre to provide back office services to local credit unions to reduce transaction costs and to secure economies of scale 2) to develop six area based cluster groups of credit unions and the delivery of capacity building and training to prepare for a major expansion of membership city wide 3) to establish three credit union shop front developments in high street locations, in Kings Heath, Erdington and Handsworth and one merged group of credit unions to form the South East Birmingham Credit Union.

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So these are the achievements of BCUDA since 1998. During 2003 BCUDA undertook a business planning process, engaging the cluster groups of credit unions, the Birmingham Forum of Credit Unions the local representative body for credit unions in Birmingham and elected members to the BCUDA Board of Directors. A business plan entitled ‘Retaining Wealth Locally Mass Membership Strategy for Community Credit Unions: City Wide Business Plan for Birmingham 2004 – 2009’ was completed in November 2003. There is still some consultation continuing on the final plan with the cluster groups of credit unions and with Citysave. Significant discussion took place with the Cabinet Member for Regeneration and officers from Economic Development on the objectives outlined in the business plan and on the future investment needed from Birmingham City Council as continuing grant aid to BCUDA, with the purpose of achieving the ambitions outlined in the plan over the next five years 2004 - 2009. This report now summarises the proposals and details of future funding support sought by BCUDA against a clear set of objectives, to achieve a growth in credit union membership and assets, to build sustainable self financing clusters of credit unions across the City. The need for continuing growth and development of credit unions with on going support from the City Council has been highlighted with the recent announcements from the Post Office Ltd on proposals to close 29 branches in South Birmingham. Further proposed closures of post offices may be announced for the north of the city in the autumn of 2004. The City Council is considering its response to these proposals and a Scrutiny Review of Local Post Closures was undertaken in March 2004. The findings of the review describe how of the 29 proposed post office closures, one quarter fall within the 10% most deprived wards and under a half within the 10% – 20% most deprived wards in the city. The proposed closures will also have a significant impact on vulnerable members of the community, in particular the elderly, people with disabilities and people who use the post offices for money transactions such as collecting pensions and benefits. One of the factors behind the closure of post offices is the Department of Work and Pensions move towards direct payment of many benefits and pensions into individual bank accounts. Yet the Government’s Social Exclusion Unit has reported that 7% of households are unbanked and a further 20% do not have a current account. Whilst the proposed post office closures are being contested this situation highlights the importance of the credit unions and their services to such communities, particularly where there is no other source of financial service. Where people do not have bank accounts and are prey to high cost money lenders, credit union can offer low cost loans, savings and other services.

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MATTERS FOR DECISION The subject of this report is a request for continuing grant aid to BCUDA over the next five years 2004 - 2009, on a reducing basis year by year as the objectives of increased membership and self sufficiency of the four merged clusters of credit unions and four shop front developments are met. The proposal includes four strategic objectives to deliver this plan as follows 1) Fast Track Community Based Credit Union Growth and Employer Partnerships. This involves a mass membership drive and consolidation within the credit union movement resulting in  a complete geographical coverage by credit unions of Birmingham by early 2006  achievement of a self financing and fully staffed credit union network of four shop fronts by 2009  community based credit union growth rates of between 15% to 20% yearly  a doubling of membership within community based credit unions over the next five years to 13,000  £14 million in low cost loans made to members over the next five years 2) Expansion of the ICT network and back office services for the credit union shop fronts. A new infrastructure will be developed to allow the four shop fronts and a smaller group of consolidated and larger group of credit unions to manage a much higher level of turnover. This includes;  the processing of 4,000 credit union transactions a week by 2007  provision of a wider range of financial services year on year from 2004 onwards including different loan and savings products and household insurance services  self financing of back of office operations by 2008 from both fee and service income generation 3) Tackling Financial Exclusion and Retaining Wealth in Local Neighbourhoods BCUDA will develop new products and services tailored to the needs of vulnerable and low-income households delivered through the new credit union shop fronts. A new service the Birmingham Factor Four project is now being piloted from the Kings Heath shop with the Ladywood credit union to include a bill payment and budgeting service, a money advice health check and debt advice service, a home energy advice service and grant assistance with access to affordable credit. Npower, Severn Trent Trust fund and Barclays bank are funding this pilot service. Following this pilot phase the Factor Four initiative will be extended across the city 4) Self Employment Loan Fund and Micro Credit Services for Home Improvements BCUDA will initiate over the next five years other special projects aimed at attracting new investment for expansion of credit union services. One such product is a self-employment loan fund to be established in 2006 to implement a micro credit loan service for community based credit unions

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to be delivered through the shop front network. There is similar scope for micro credit loans for home repairs this will be explored with the Housing Department and with ART Homes. 4.3 In addition to the plans summarised above, BCUDA has joined with Birmingham Trading Standards and the DTI in a major initiative to tackle loan sharking activity in the city. The importance of the Factor Four pilot will become more apparent as successful prosecutions are secured. The services of the credit unions and Factor Four will need to be extended across the city to offer other services to those in debt, facing financial exclusion and to help break the cycle of continuing debt. Implementation 4.4 The BCUDA business plan outlines three stages to achieve economic self reliance over the next five years with self - sustaining clusters of merged credit unions and four shop front developments. A coming together of 28 community-based credit unions into four clusters is needed for consolidation and future growth of membership, assets and services. Funding from Birmingham City Council is needed for a further five years to cover core funding of BCUDA and provide leverage so as to bring in additional investment of £1.4 million from the private sector and other funding sources. Our funds allow BCUDA to pursue their funding strategy and lever in other funds from the regeneration zones, NRF, SRB6 and other sources. During 2003 BCUDA was successful in levering in £300,000 for the Birmingham Factor Four pilot, from the Adventure Capital Fund with contributions from the utility companies. Funding of £155,000 is required in the 2004 / 2005 financial year, tapering down over a five year period as follows 2005/06 £145,000 Marketing 4.7 A launch and seminar event entitled ‘Birmingham Community Banking Partnership – Tackling Financial Exclusion Practically’ is to be held on Tuesday 27 April in the Council House. This event will inform about the future plans of BCUDA with a keynote address from the National Federation of Community Credit Unions (USA) with speakers from Birmingham Trading Standards on the National Pilot on Tackling Loan Sharks and the New Economics Foundation on ‘Ways and Means of Tackling Financial Exclusion and Predatory Lending’. A further grant of £3,000 is required in the 2004 / 2005 financial year to cover the costs of publishing the BCUDA business plan ‘Retaining Wealth Locally Mass Membership Strategy for Community Credit Unions – City Wide Business Plan for Birmingham 2004 – 2009’ and of the seminar event on 27 April 2004. 2006/07 £125,000 2007/08 £100,000 2008/09 £69,000

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Key Milestones 4.9 The business plan gives key milestones for achieving the plan, during 2004 / 2005 stage one will be fully implemented which is work to identify mergers, agreements and expansion proposals for four area model of clusters of credit unions with four business plans implemented by July 2005. This will also include BCUDA pursuing their funding strategy to raise funds from other sources. Also during 2004 / 2005 BCUDA itself will undergo a change in its operation from a development agency to its future role as a service delivery organisation and community development finance institution in its own right. EVALUATION OF ALTERNATIVE OPTIONS The changing funding context for social enterprise activities means that increasingly funding resources are becoming available externally to the City Council. The investment from the City Council as grant aid to BCUDA underpins their financial strategy in securing external funding resources and is crucial as it serves to lever in other funding from a variety of different sources. The BCUDA business plan outlines the financial resources required to achieve the targets set out for the next five years, the total investment needed amounts to just over £2 million. Funding of £155,000 from the City Council in 2004 / 2005 represents approximately one third of the funds needed in 2004 / 2005. Without the City Council funding BCUDA will have to raise the shortfall from else where which will either detract from the growth in funds required as per the business plan or potentially lead to the closure of the development agency. The implications of this means that BCUDA will be unable to achieve the targets and growth outlined in the business plan with obvious implications for the credit unions and their clients. CABINET MEMBER CONSULTATION A number of meetings were held with the Cabinet Member for Regeneration and officers of Economic Development as the business plan was being prepared. A presentation was made by BCUDA to the Cabinet Member Advisors Group meeting on 4 December 2003 and a further meeting was held on 10 December 2003. Feedback and suggestions from the Cabinet Member for Regeneration and officers of Economic Development were incorporated into the plan. WHAT CONSULTATION (IF ANY) HAS TAKEN PLACE Consultation on the draft business plan has also taken place with the clusters of credit unions and their members to get their views and input into the plan. Consultation meetings were held with the various clusters on 1 March and on 31 May 2003. Once the business plan was produced six further feedback consultation meetings were held between the end of January and early March 2004. Consultation has also taken place with the Birmingham Forum of Credit Unions.

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WHAT REPRESENTATION (IF ANY) HAVE BEEN RECEIVED E.G. IN RESPONSE TO THE INCLUSION OF THIS DECISION IN THE FORWARD PLAN None. IMPLICATIONS FOR RESOURCES FINANCE, PEOPLE, PROPERTY, IT The recommended grant to the Birmingham Credit Union Development Agency is £155,000 in the 2004 / 2005 financial year. A further grant of £3,000 is recommended to cover the costs of the seminar event on Tuesday 27 April 2004. This funding is contained within the main programme revenue budget for the Economic Development Service (Employment) in the 2004 / 2005 financial year and will be the subject of a signed service level agreement / conditions of grant aid. IMPLICATIONS FOR POLICY PRIORITIES Flourishing Neighbourhoods

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The proposed grant to BCUDA contributes directly to targets within the Development Directorate and Economic Development Service Plans. It supports Area Regeneration by providing employment opportunities within key communities and more generally supports the achievement of Flourishing Neighbourhoods by promoting effective delivery of local services and creation and retention of wealth. In particular the efforts to provide affordable credit as an alternative to predatory moneylenders will retain wealth in the regeneration areas and in parts of the City where there is financial exclusion amongst low-income households. Service Improvement

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The proposals contained within this report represent a more effective way of targeting resources to local communities through the community based credit unions, in order to contribute to the achievement of cabinet, corporate and service priorities. ARE THE RECOMMENDATIONS IN THIS REPORT CONSISTENT WITH ANY APPROVED “POLICY FRAMEWORK” PLAN OR STRATEGY / OR THE APPROVED BUDGET The budget for the grants of £155,000 and £3,000 are contained within the Economic Development budget for the 2004 / 2005 financial year. The recommendations are made following the production of a five-year business plan and consultation with credit unions and the Cabinet Member Regeneration. These all take into account partnership arrangements, agreed strategies and commissioned research.

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REASON FOR RECOMMENDATION To support the further development of credit unions, including an expansion of membership and services to the citizens of Birmingham to combat financial exclusion. To allow City Council investment in credit union activity to take place in the context of wider strategic partnership arrangements and the City Council’s goal of creating Flourishing Neighbourhoods. BACKGROUND DOCUMENTS Retaining Wealth Locally Mass Membership Strategy for Community Credit Unions. City Wide Business Plan for Birmingham 2004 - 2009. Birmingham Credit Union Development Agency - November 2003. Birmingham Credit Union Development Agency Annual Report 2002 – 2003. People, Communities and Credit Unions - Report of the Birmingham Credit Union Research Project 1999. Scrutiny Review of Local Post Office Closures 25 March 2004. Report of Strategic Director of Development and Strategic Director of Local Services – Post Office Closures 5 April 2004.

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…………………………… JAN ROWLEY ASSISTANT DIRECTOR REGENERATION Originating Officer: Susan O’Shea

tel 303 4141 email: susan.o’shea@birmingham.gov.uk

My decision is to adopt the recommendations set out in this report – Proposed Grants to Birmingham Credit Union Development Agency (BCUDA) ……………………………. CABINET MEMBER FOR REGENERATION DATE…………………

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