When you are on a low income, it is very difficult to get credit. And yet, most of us could not manage certain purchases outright, even if we get a decent wage. This is where the Credit Union offers a real alternative.

Run by a volunteer board of directors which are elected by its members, a Credit Union is basically a financial cooperative, owned and controlled by its members.

They offer affordable loans and encourage members to save. By law, the maximum a Credit Union can charge is 12.7% and this is charged on an ever reducing balance, which means that every week or month, you will pay less and less interest. There are no hidden charges and you will not be penalised for repaying the loan early.

Anyone can join a credit union, as long as they are part of the 'common bond'. This could be people living in a shared area, working for the same employer or belonging to the same association.

So how do you start your own credit union?

The average time it takes to establish a credit union is between one and three years. The minimum number of members required for the initial set up is 21 and the maximum number of members once you are established is limited to just 5,000 people.

After you have secured enough members to start your union, there are a number of tasks which will need to be completed.

Firstly, decide on a common bond - where your credit union will operate

Get a group together with the necessary range of skills and experience to develop a successful community business

Carry out a pledge drive - find out just what demand there is for a credit union in the area you wish to service and use the information obtained to inform your business plan projections

Join The Association of British Credit Unions (ABCUL) as a Study Group member - for just 35 a year, you get a full manual and access to all of ABCUL's information services

Discuss and research your plans with the regulators - The Financial Services Authority (FSA) will need to approve your common bond and satisfy itself that your business plan and policies and procedures meet its standards. The FSA website www.fsa.gov.uk gives the regulatory requirements Credit Unions now have to meet to safeguard members money in the same way as banks and building societies

Obtain funding & sponsorship -and include the figures in your business plan

Choose officers - Officers and employees of the credit union will need to obtain Approved Persons Status from the FSA, and will need training for their roles

Think about marketing & promotion and how you will meet your business plan targets

Launch your credit union.

It is also vital to secure sponsorship from local sources, such as employers, housing associations, business groups or councils as setting up your own credit union can initially be an expensive process. ABCUL estimates the costs at between 30,000 and 70,000 in setting up a scheme with premises and staff for the first three years.

Credit unions in the UK are also required to reach a statutory minimum reserve of 10 per cent of aggregate assets to protect their members. Until they reach this level, credit unions should transfer at least 20 per cent of their surplus into reserves each year.

Covering you and your members

In the UK a credit union has to take out insurance to protect its members' funds from fraud and mismanagement. However, there is no industry-wide compensation scheme to protect members' savings should a credit union become bankrupt.

Before you set up your credit union from scratch, consider investigating if credit unions in neighbouring areas would be willing to expand their common bond to your locality or place of employment.

Many credit unions are expanding their common bonds to cover much larger populations, and your area may already be included in someone elses plans. ABCUL can advise you on initiatives happening where you are, and put you in touch with the right people.

To the wider community, a Credit Union improves the general financial knowledge of its member and offers training to its volunteers investing in local money.

It helps restore a sense of pride in disadvantaged and disaffected communities and provides a means of targeting financial exclusion.