The Economy, Culture and Skills Committee met on Wednesday 4 February 2026 to discuss the role and advantages of community banks, also known as credit unions, in London's economy. The committee heard that community banks offer a more personal and community-focused service compared to mainstream banks, with a strong emphasis on financial inclusion and supporting vulnerable individuals. Key advantages highlighted included their not-for-profit, member-owned structure, which ensures profits are reinvested into services or returned to the community, fostering trust and long-term financial resilience for members.

Community Banks: Advantages and Challenges in London

Community banks, or credit unions, offer significant advantages over mainstream banks, primarily through their member-owned, not-for-profit structure and a strong focus on financial inclusion. These institutions provide a more personal service, catering to individuals who may struggle to access traditional banking, including those on lower incomes or with complex needs. This was highlighted by Ravi Ravindran, Chief Executive of Lewisham and Bromley Credit Union, who noted their role in serving vulnerable individuals and providing a friendly face compared to mainstream banks. Ben West, Head of Business Development at London Mutual Credit Union, emphasised that profits are reinvested into services or communities, rather than shareholders, fostering a focus on member well-being.

A key differentiator is the common bond requirement for membership, which traditionally links members through shared geography, employment, or industry. While this fosters trust, it also presents a challenge for expansion. Matt Bland, Chief Executive of the Association of British Credit Unions, explained that the current common bond limit of 3 million members restricts credit unions from covering the entire city of London. He advocated for raising this limit to 10 million to allow credit unions to serve all Londoners.

Financial exclusion is a significant problem in London and the UK. Matt Bland cited figures from Fair4All Finance indicating that 20 million people across the UK face financial vulnerability, and the Money and Pensions Service estimates that one in four working-age adults have less than £100 in savings. Dr Paul Anthony Jones, Associate Professor in the Social Economy at Liverpool John Moores University, corroborated this, stating that credit unions are vital in tackling financial exclusion by taking members on a journey towards financial health and stability. Ben West added that financial precarity affects not only those on the lowest incomes but also moderate to higher earners in London, where high living costs mean a single financial shock can lead to vulnerability.

Credit unions are legally restricted to charging a maximum interest rate of 3 per cent per month (42.6 per cent APR) on loans. While this rate can seem high, it is significantly cheaper than high-cost lenders, and credit unions are often the only lenders willing to provide small loans. The average rate across credit unions is around 15 per cent APR, with rates varying based on risk and loan type. Crucially, 97 per cent of credit union borrowers also save, helping them build financial resilience.

The sector faces challenges in increasing awareness and overcoming perceptions that credit unions are only for the poorest. Matt Bland noted that awareness levels in London are between five and eight per cent, and Ben West highlighted the perception that credit unions are akin to a food bank rather than a mainstream financial service. To address this, credit unions are investing in digital offerings, including online banking and apps, and are seeking to get onto price comparison websites.

Collaboration is seen as key to growth. Matt Bland mentioned the Credit Union Growth Plan and the potential for Credit Union Service Organisations (CUSOs) to invest collectively in digital technology, marketing, and new products. The Mayor of London's office has been seen as a potential catalyst for this, with interventions like the expansion of payroll services to TfL staff and the inclusion of credit unions in the Mayor's Good Work Standard being highlighted as effective ways to promote the sector. Ben West suggested the Mayor could use his convening power to bring together credit unions, businesses, and public sector bodies to foster partnerships that improve financial well-being for staff and contribute to community wealth building.

The committee also discussed the potential for credit unions to expand into business lending, particularly for social enterprises. While this is an emerging area, there are examples of credit unions in Greater Manchester supporting social enterprises with loan guarantees. The primary barriers identified were the lack of expertise in assessing business risk and the need for additional capital, potentially through government guarantees or partnerships with CDFIs.

The discussion also touched upon green lending, with emerging examples of credit unions lending to households for home retrofitting. Matt Bland noted that this aligns with credit union values and that there is potential for mayoral support in promoting such initiatives.

Finally, the committee explored the regulatory environment, with Ben West contrasting the UK's restrictive Credit Unions Act with the more permissive outlook in the US, where credit unions are seen as an integral part of the financial system. The panel concluded by emphasising the opportunity for growth and transformation within the credit union sector, particularly with current government support for the co-operative and mutual economy.

Key Participants:

• Matt Bland: Chief Executive, Association of British Credit Unions
• Dr Paul Anthony Jones: Associate Professor in the Social Economy, Liverpool John Moores University
• Ravi Ravindran: Chief Executive, Lewisham and Bromley Credit Union
• Ben West: Head of Business Development, London Mutual Credit Union
• Hina Bokhari OBE AM: Chair of the Economy, Culture and Skills Committee
• Alessandro Georgiou AM: Assembly Member
• Alex Wilson AM: Assembly Member
• Unmesh Desai AM: Assembly Member
• Anne Clarke AM: Deputy Chair, Economy, Culture and Skills Committee

Decisions Made:

• The Committee noted the report on Community Banks as background for the discussion.
• Authority was delegated to the Chair, in consultation with party Group Lead Members, to agree any output arising from the discussion.

Topics Discussed:

Advantages of Community Banks (Credit Unions) over Mainstream Banks

Community banks, or credit unions, were highlighted as offering several key advantages compared to traditional commercial banks. Their member-owned, not-for-profit structure means that any profits are reinvested into services or returned to members, fostering a focus on community benefit rather than shareholder profit. This structure cultivates a strong sense of trust and a more personal approach to customer service, particularly for vulnerable individuals. Unlike mainstream banks, credit unions often provide smaller loans and are more willing to lend to individuals who may not meet the strict creditworthiness criteria of larger institutions. They are also seen as engines for economic equality within their local communities.

Financial Exclusion and the Role of Credit Unions

Financial exclusion was identified as a significant problem in London and the UK, with millions of people facing financial vulnerability and a lack of savings. Credit unions play a crucial role in tackling this by offering affordable credit and encouraging saving habits. They provide a vital alternative to high-cost lenders and illegal loan sharks, offering loans as small as £50. The evidence suggested that credit unions help individuals build a track record of repayment and financial resilience over time, acting as a ladder out of debt rather than a trap.

Awareness and Perception of Community Banks

A significant challenge for credit unions is low public awareness and a perception that they are only for the most financially excluded. While awareness levels in London are estimated to be between five and eight per cent, credit unions are working to improve this through digital offerings, online advertising, and aiming to be listed on price comparison websites. They aim to present a proposition that is relevant to the entire community, not just a narrow section.

Digitalisation and Scale

Credit unions have made strides in upgrading their IT systems, offering online banking and mobile apps. However, achieving the scale necessary to compete with neo-banks and invest significantly in digital offerings and marketing remains a challenge. This is being addressed through encouraging mergers, consolidation, and the development of Credit Union Service Organisations (CUSOs) for collective investment.

The Common Bond and Expansion

The common bond requirement for credit union membership, which traditionally links members through shared geography, employment, or industry, is seen as both a strength and a limitation. While it fosters trust, it also restricts the potential membership base. There is a debate about loosening these criteria to enable sector expansion, with a proposal to raise the common bond ceiling from 3 million to 10 million members to allow credit unions to serve the entire city of London.

Lending to Small Businesses and Social Enterprises

While credit unions primarily focus on individual households, there is emerging interest in expanding into business lending, particularly for social enterprises. This is an area where collaboration between credit unions and organisations like the British Business Bank, which offers loan guarantees, is being explored. The main barriers identified are the lack of expertise in assessing business risk and the need for additional capital.

Green Lending and Ethical Investment

Credit unions are exploring opportunities in green lending, such as offering loans for household retrofitting and supporting a transition to cleaner energy. This aligns with their ethical values, and there is potential for mayoral support in promoting such initiatives.

Regulatory Environment

The regulatory environment in the UK for credit unions is seen as more restrictive compared to countries like the US, where credit unions are viewed as an integral part of the financial system. The UK's Credit Unions Act is described as tightly defined, treating a commercial for-profit model as the default. There is a call for a more empowering and permissive regulatory outlook that recognises credit unions as instrumental in driving economic inclusion.

The Role of the Mayor and Collaboration

The Mayor of London's office is seen as having significant convening power to promote community banks. Suggestions for mayoral support include:

• Promoting payroll deduction schemes: Encouraging employers to offer payroll savings and loan schemes through their staff.
• Utilising the Good Work Standard: Continuing to include credit union partnerships as a criterion within the standard to encourage businesses to work with them.
• Fostering collaboration: Using convening power to bring together credit unions, businesses, anchor institutions, and public sector bodies to explore partnerships and create a more holistic offer for Londoners.
• Visibility and Branding: Supporting initiatives to increase public awareness and create clearer branding for credit unions across London.
• Supporting CUSOs: Encouraging collaborative investment in digital technology, new products, and marketing through CUSOs.
• Championing Auto-Enrolment Payroll Savings: Backing a scheme that could transform savings habits and financial resilience.

The Mayor's Good Work Standard was highlighted as an effective tool for raising awareness among employers about the benefits of partnering with credit unions.

Barriers to Growth and Expansion

Key obstacles to credit union growth include:

• Limited Resources: Credit unions are not as resourceful as FinTech banks and face constraints in funding for advertising, promotion, and operational costs.
• Perception: The perception that credit unions are only for the most vulnerable needs to be addressed to attract a broader membership base.
• Scale: Achieving the necessary scale for significant investment in digital infrastructure and marketing is a challenge for individual credit unions.
• Capital Investment: A lack of capital within the sector hinders investment in technology and awareness-raising initiatives.
• Common Bond Restrictions: The current common bond rules limit the potential membership footprint.
• Regulatory Environment: The UK's regulatory framework is seen as less empowering than in other countries.
• Leadership and Governance: The need for entrepreneurial leadership and effective governance to drive sector transformation was identified.
• Technology: While digital offerings have improved, they still need to advance to match the competition, particularly with the advent of AI.

The committee noted the report and delegated authority to the Chair to agree any output arising from the discussion. The next meeting is scheduled for 3 March 2026.