Thursday, 30 June 2011

Credit Unions - a Changing Landscape

We live in difficult times. Credit unions, like all businesses in the country, are feeling the cold winds of recession biting at their balance sheets. Credit union members have been deeply affected by unemployment and austerity measures which have put intense pressure on household budgets. Nonetheless, despite these pressures, credit unions have managed to avoid the virtual collapse experienced by the Irish banking sector and have remained open for business, welcoming over 40,000 new members through their doors last year. As co-operative organisations, credit unions exist solely to meet their members' financial needs on a not for profit basis and have brought enormous benefits to communities and society generally in terms of volunteerism, social impact, financial inclusion and enablement in every corner of Ireland.

The new Government has recognised the important role of credit unions as a volunteer co-operative movement and the vast distinction between credit unions and other institutions. A Commission has been established by the Minister for Finance to review the future of the credit union movement and make recommendations in relation to the most effective regulatory structure for credit unions, taking into account their not-for-profit mandate, their volunteer ethos and community focus, while paying due regard to the need to fully protect depositors’ savings and financial stability. Various commitments were made in the Memorandum of Understanding with the IMF/EU and ECB in relation to credit unions which include bringing forward legislative and regulatory reform in respect of the movement. Credit union representation on the Government’s Commission will provide the movement itself with the opportunity to input into its own future which is vital to its continued success.

The retail financial landscape that was once so familiar is now barely recognisable. We are left with two indigenous pillar banks and an empty space where the mutual/trustee sector used to be. The Registrar of Credit Unions recently stated that “there is an opportunity for the credit union sector to take advantage in the current re-shaping of the financial sector”. Credit unions recognise that, in order to fill this space, change will be necessary.

Restructuring the credit union movement has received considerable media attention in recent weeks. Article upon article speculates as to the number of credit unions that may exist in the future. This is missing the point. Yes, amalgamations will be a feature of restructuring in the future. That is not a bad thing. In fact, the ILCU has facilitated many amalgamations in the past where credit unions have merged to serve their members to the highest possible level. The effect of this is that the local credit union office in the local community is retained but service levels to members are improved through, for example, increased opening hours and extended product offerings. Other movements (such as those in the United States and Canada) have successfully restructured their credit unions through amalgamations and mergers, significantly reducing the number of credit unions but almost always increasing the number of service outlets, through branch office networks and enhanced ATM service provision. The process of restructuring and reshaping is nothing new to the credit union world and the result – in real terms – has been increasing assets, improving technology, increasing member penetration and enhancing service delivery. An alternative model which is already emerging on a regional basis in Ireland, is that of shared services, whereby a number of credit unions share a common service provider with a view to obtaining better rates and charges as a result of economies of scale.

In the future, it is envisaged that the credit union movement will provide a full range of appropriate and affordable financial services to members, through movement-owned resources and infrastructures which will maximise economies of scale and will be available to all credit unions, regardless of size, through collaboration with their neighbours. The credit union movement has been quietly preparing for this outcome for some time now and has initiated transformational change in terms of a secure communications network, new and improved management systems and payment services which will facilitate closer co-operation and service development across the movement.

In this way, credit unions will continue to survive and thrive and fulfill the economic and social objectives of the movement and their communities. Not for profit, not for charity, but for service.

Jimmy Johnstone