THE CREDIT UNION MODEL

7 January 2011 No Comments by The Northern Standard

THE CREDIT UNION MODEL
Local, trusted, serving you… The values emphasised by branches of the Irish credit union movement in asserting their attractiveness to existing and potential customers are well known from media promotional campaigns. They embody attributes that would seem to advantage them greatly in their form of lending, particularly at a time when these distinguishing characteristics appear conspicuous by their absence in many other facets of the beleaguered sector of credit institutions.
In one respect, credit unions – which aspire to operate as local co-operatives not driven by a profit motive and deeply entwined in the fabric of their communities – would appear to have a head start on their competitors when it comes to attracting savings and investment in difficult financial times.
Yet credit unions have not been immune from the downturn. They are grappling with the same spectre of bad debt that has blighted the banking sector, a situation compelling them to exercise a circumspection in the assessment and granting of loans that risks disaffecting their memberships. And credit unions have not been spared the attentions of the Financial Regulator, whose ongoing review of the sector may in the future lead to recommendations that will challenge the steadfastness with which they will be able to cling to some of the precepts underpinning their founding ethos.
Nonetheless, at a time when other areas of financial services are greatly inhibited in their ability to provide the stimulus needed to found an economic recovery, the credit movement union in this country – if it can preserve the motivation to build on its traits of trust, service and community integrity, and is permitted to by regulation – has enormous capacity to cultivate stability and confidence in the localities it serves. Without such a secure foundation, it is doubtful if any plan to restore the nation to a sound economic footing will prove sustainable.
The difficulties confronting Irish credit unions at present are the familiar ones of recessionary times. Unemployment and reduced income generally is in many cases causing members to fall into arrears on loans or seek to have loan terms renegotiated. And, while it is often found that people continue to save, and perhaps even put a little extra away, when times are tough, they are markedly less inclined to borrow – and it is the interest generated by loans that give credit unions the capacity to manage bad and doubtful debt comfortably.
The recent 49th Annual General Meeting of Monaghan Credit Union, which is reported on elsewhere in our newspaper this week, showed that loan arrears and reduced borrowing are factors which the organisation has to contend with as it moves towards a significant milestone in its history in 2011. Comparable scenarios will confront shareholders attending the annual meetings of their own branches throughout our circulation area as they take place. But the reports delivered at the Monaghan AGM also disclosed that the difficult financial climate had prompted, in Monaghan Credit Union’s case, a return to the assessment of core values and a re-emphasis of its role as a community co-operative serving the needs of members on as individual a basis as possible while preserving the collective good of the membership as a whole.
This back to basics philosophy, prompted in Monaghan’s case one suspects by the imminence of its 50th anniversary as well as by the need to respond to prevailing financial circumstances, is one that is required as never before in the credit union movement as a whole. At a time when the ‘basics’ of loans and deposits are under pressure, the movement will undoubtedly be tempted to revive the pressure it has exerted in recent times to be allowed to broaden the range of financial services it can extend to its membership.
But they must be circumspect, we respectfully suggest, in these ambitions. A diversification of financial products brings with it both risk and regulation. In addition, a move too far away from those important core values flirts with a situation where the demarcation between credit unions and other financial institutions becomes blurred in the public mind – an undesirable consequence at any time, but particularly so now. Credit unions should, of course, continue to work to become technologically responsive to the needs of its members by, for example, facilitating the electronic transfer of funds, but that is more a matter of improved service provision than of trying to out-bank the banks!
The Financial Regulator, of course, will determine to a large extent the parameters within which Irish credit unions operate in the future. While increased regulation is already making itself felt in their particular sector, more will inevitably follow. But it would be unfair and unjust if credit unions were to be made subject to equivalent stringencies as those being imposed on, and contemplated for, the banks.
While individual credit unions undoubtedly lent less than wisely in some instances in the unrestrained credit environment that prevailed in this country not so long ago, the movement is a negligible contributor to the problems that ensued from the lending frenzy. Regulation appropriate to the particular structure of credit unions, and which assists the movement in meeting its commitment to high standards of professionalism in service delivery, is required – a broad brush approach that treats the branches of the movement as indistinguishable from the Anglo Irish Bank will not assist in expediting recovery in either the financial services sector or the economy generally.
And credit unions undoubtedly possess the potential to fuel that recovery at local level. The organisations may have cast off the antiquated tag of the ‘poor man’s bank’, but the circumstances which led to their establishment in the mid-20th century are being replicated in many respects today. The founding fathers of the credit union concept applied the precepts of the co-operative movement to establishing a source of accessible credit to better the lot of their common bond areas and those who lived within them.
Credit unions stimulated an aspiration towards manageable prosperity that was a key, although often underestimated and undervalued, contributor to the growth of the nation. The restraints inherent in the good saving and borrowing habits they inculcated in their shareholders suggest themselves as a model of best practice for lending institutions generally which, if it had been fostered among our banks and building societies as sedulously as it was in the traditional credit union model, might have obviated a great deal of the trouble we now find ourselves in.
Alas, due to unmanageable prosperity, the Irish economy is now at low ebb and Irish people are searching for something to renew their confidence – evidence that there is hope for the future.
An obvious role suggests itself for credit unions that are empowered by both a renewal of their core values and recognition of the prudence and professionalism in financial management that the public good now requires.
Hopefully the Financial Regulator, and our national legislators, in attempting to right the wrongs that have beset the provision of financial services in this country in recent years, will recognise in the credit union movement a classical model to be fostered and emulated – and will resist pressure to unduly inhibit or tamper with it.

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