PEARLS provides a series of financial ratios to monitor the financial stability of credit unions, and generates invaluable management information for future strategic planning. The system has been instrumental in the expansion of the credit union movement in other parts of the world. As it is designed specifically for credit unions, it monitors the social impact of an organisation as well as its financial strength.

ABCUL introduced PEARLS to Britain in 2002 with the support of Barclays plc. Barclays has provided £200,000 over the past three years to support the system’s introduction and have recently committed to a further £180,000 to enable more credit unions to benefit from PEARLS’ tools and wisdom.

In the pilot programme, nine credit unions benefited from a full programme of seminars and technical support starting with the system’s introduction in March 2002. All ABCUL credit unions have been able to share in the learning outcomes of the project and receive reports on their performance based on the PEARLS ratios.

The results of the pilot demonstrated that use of this tool as an integral part of business management and planning improved, substantially in some instances, four key aspects of a credit union’s finances: -

• reduced loan delinquency rates, down on average from 8.9% to 6.1% , which includes one example where the rate dropped from 42% to 15%
• growth in assets and membership, reversing a negative growth trend assets increased by up to 25% as members were encouraged to save, sometimes for the first time. In addition membership across the participating unions was up by 28% or 3,000.
• decreased operating expenses, down on average from 12.3% to 8.7% a key achievement as in some instances operating costs substantially exceeded income.
• improved net capital, key to both safe operation and growth ,particularly to credit unions who aim to achieve Version 2 status* and be able to offer a wider range of products to their membership. Overall net capital improved from 6.4% to 7.9%. As a result one credit union was able to invest in new premises in the heart of its community, vacating its derelict former home.

In addition, as a direct result of the PEARLS pilot, a number of credit unions have changed their lending policies making finance more readily available to those who need it, whilst ensuring that they do not extend credit to those unable to repay, thus worsening an individual’s financial position. In the past many credit unions have required an individual to be a member and regular saver for 13 weeks before a loan would be made. When a loan was then made it was often limited to a fixed multiple of the regular amount saved, irrespective of what the borrower needed or was able to afford.

Now a number of the pilot credit unions have moved to a capacity based lending policy which means that they will lend to a brand new member immediately on the basis of what they can afford to repay. This has meant that individuals with an urgent need for a loan have been able to borrow at the credit union rate of 12.68% APR rather than resorting to other forms of local credit with APR’s in the hundreds.

It is hoped that used longer-term the PEARLS system will also assist credit unions to reduce their reliance on grant finance and allow them to grow to financial sustainability within a reasonable timeframe. This is an important factor if credit unions are to achieve scale across the UK.

*Version 2 credit unions have more flexibility in their operations and have more stringent standards they need to meet. There are currently 11 credit unions with Version 2 status with the Financial Services Authority