Councillors have agreed to loan £200,000 to a struggling credit union – with no guarantee of getting it back.

Kirklees Council Cabinet members have offered £200,000 to the Huddersfield-based Castle & Minster Credit Union, which has seen its membership slump in three years.

The so-called ‘subordinated loan’ was backed “in recognition of the ongoing and potential community benefits that the Credit Union brings” to the people of the borough.

But the deal means that Kirklees Council is loaning taxpayers’ money without a commitment that it will get all of it back.

It comes at a time when the authority is slashing millions of pounds from its budget and is looking to make drastic savings.

However, the council says the £200,000 is coming from a “windfall”, money it didn’t have to pay out in wages when workers went on strike earlier this year.

The financial support was agreed in private at last Tuesday’s Cabinet meeting but details have only just been released.

Kirklees Council director of resources David Smith confirmed that Cabinet had agreed to make up to £200,000 available as a loan. The money can be drawn on over the next two years.

Mr Smith said: “The paper was taken in the private part of the meeting as it outlined commercially confidential information.

“Councillors agreed that the credit union would better be able to support some of the most vulnerable people in Kirklees who rely on its services.”

The credit union, based in the Byram Arcade, is an ethical savings provider for people who live and work in Kirklees and was set up in 1995.

Savers invest money and can borrow at low-cost rates. Credit unions are seen as way to steer people away from payday lenders and loan sharks and keep them out of a spiral of debt.

Membership of the credit union has dwindled in recent years, from 8,000 members in 2011 to just over 3,000 members currently.

In 2013 it scaled back its services by reducing its opening hours and counter service, and it introduced a 75p charge for members to withdraw money.

A new leadership team has come in and a relaunch is expected.