The bank’s partnership with the Credit Union Foundation will see a further £1m in grants handed to the credit unions. 

The fund is designed to help strengthen the financial position of credit unions and grants include large awards of between £50,000 and £100,000, while seed funding provides between £10,000 and £20,000.

The news was welcomed by Simon Kirby, economic secretary to the Treasury.

“Credit unions play a vital role in their communities, providing access to affordable credit for those who need it most. 

“This funding from Lloyds will extend the reach of the sector even further and I look forward to seeing other banks following suit.”

Eleven credit unions will receive large awards which are intended to provide a contribution to their reserves and help remove barriers to growth and innovation. 

The other 10 will receive seed funding awards to help them make the changes they need to apply for a large award in a subsequent year or to pay for the costs of a merger.

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Robin Bulloch, managing director of Lloyds Bank & Bank of Scotland at Lloyds Banking Group, said its fund will help the sector to lend an additional £20m.

“We undertook the largest survey of credit unions to date and they told us the most important role we can play in the credit union movement is as a funder. 

“We are committed to being the leading supporter of credit unions in the UK, and our development fund underlines our public commitment to help Britain prosper.”

Liz Barclay, chair of the Credit Union Foundation and Development Fund Grants Committee, said it was proud to work in partnership with Lloyds Banking Group.

“Their £4m investment over four years is innovative and pioneering and now that we're into the third year of the scheme we're seeing a big impact on sustainable credit union growth.  

“Credit unions provide an ethical and affordable financial service to some of the hardest to reach and most financially excluded communities in the UK. 

“We're seeing good quality applications for these capital awards from credit unions committed to expanding and improving the services they offer those communities."