The Department for Work and Pensions (DWP) has today awarded a £38 million contract to modernise and grow the credit union industry.

The Association of British Credit Unions (ABCUL) is the successful bidder to deliver the DWP’s project, which is designed to help meet the growing demand for modern banking products for people on low incomes.

A recent feasibility study showed that modernising the industry and helping it become financially self-sustainable would enable credit unions to help up to one million more people, giving them access to banking products, debt advice and affordable loans.

Around seven million people currently fall into the trap of high-cost credit, with some being charged more than 6,000% in interest on payday loans.

The DWP says the expansion project will save consumers up to £1 billion in loan interest repayments by March 2019.

Minister for welfare reform Lord Freud said: "Credit unions offer an alternative to vulnerable people who have few safe options to get cash when they need it most. They are the antidote to predatory loan sharks or high-interest lenders.

"We are pleased ABCUL will be carrying out our investment to modernise and make credit unions financially self-sufficient so they continue to help those in their communities who need it the most."

ABCUL is aiming for credit unions to have up to one million more members by 2019.

ABCUL chief executive Mark Lyonette said: "We are delighted to have been selected to run this ambitious and timely project. I look forward to working with the DWP to ensure that credit unions can expand their collaborative work and create the levels of service which will attract many more people to use their products."

"More credit unions will offer a wider range of products including current accounts, Cash ISAs and innovative budgeting accounts. The centralisation and streamlining of day to day tasks and the introduction of innovative modern access channels will make credit unions a much more attractive proposition to many more people and secure a solid future for the sector."