Parliament has approved legislative changes that will allow credit unions to grow much larger and provide more services to customers.
The changes to the Credit Unions Act 1979, introduced yesterday through a legislative reform order, will be in place by January 2012.
The move means credit unions will be able to accept much larger numbers of members from a wider geographical area.
It will allow both incorporated and unincorporated bodies to become full members of unions on the same terms as individuals, meaning that credit unions will be able to provide banking services to charities and community organisations.
It will also allow credit unions to pay interest on accounts and pay any dividends they choose to shareholders.
Mark Lyonette, chief executive of the Association of British Credit Unions, said: "Credit unions in the UK are delighted that legislative reforms have been agreed by parliament, freeing the sector to compete on a more level playing field.
"Abcul has campaigned long and hard for these changes, so we’re happy that credit unions will be able to use the new powers from the new year."