The Leeds City Credit Union is working with local regeneration organisation Sharing the Success to create an 'enterprise loan' package that offers small loans to individuals for business development.
"We're taking money invested by the community and lending it to people in the community to build businesses for the community," said Simon Brereton, programme manager at Sharing the Success.
"We're offering loans that most other organisations wouldn't be able to offer - often just a few hundred pounds - so people with poor credit ratings can get tools and training and go into business themselves.
"We invest only on the basis of a sound business plan - it's sustainable finance, with the money recycled back into the same community."
Brereton expects more credit unions to use the same strategy, now that the Government has announced that it will give credit unions greater flexibility in the coming months.
Unions will have greater borrowing powers, greater membership flexibility and the ability to lend at higher interest rates.