joseph rowntree foundation 1 building better credit unions charles ferguson donal mckillop peter...

Joseph Rowntree FoundationJoseph Rowntree Foundation 11

Building Better Credit Building Better Credit UnionsUnions

Charles FergusonCharles Ferguson

Donal McKillopDonal McKillop

Peter GothPeter Goth


Some Statistics - 2004Some Statistics - 2004

Credit unions are in 91 countries; membership Credit unions are in 91 countries; membership totals 136 million and assets $708 billion.totals 136 million and assets $708 billion.

In the US 46% of the adult population belong to a In the US 46% of the adult population belong to a credit union. Australia (24%), Canada (21%).credit union. Australia (24%), Canada (21%).

In Ireland 70% of the adult population are credit In Ireland 70% of the adult population are credit union members (30% in Northern Ireland).union members (30% in Northern Ireland).

In GB approximately 1% of the adult population In GB approximately 1% of the adult population are credit union members are credit union members


The Credit Union IdealThe Credit Union Ideal

Credit Unionism; the social, philosophical Credit Unionism; the social, philosophical and ethical imperatives.and ethical imperatives.

The role and objectives of credit unions as The role and objectives of credit unions as financial intermediaries.financial intermediaries.

The achievement of sustainable credit union The achievement of sustainable credit union development.development.


Research ObjectivesResearch Objectives

Assess the role played by credit unions in Assess the role played by credit unions in the provision of affordable credit.the provision of affordable credit.

Identify the factors contributing to the Identify the factors contributing to the relative success of individual credit unions.relative success of individual credit unions.

Assess key trends within the sector; Assess key trends within the sector; mergers and new start-ups.mergers and new start-ups.

Identify measures to help boost the Identify measures to help boost the coverage, capacity and sustainability of the coverage, capacity and sustainability of the sector.sector.


Performance AssessmentPerformance Assessment

GB [NI]GB [NI] Group 1Group 1 Group 2Group 2 Group 3Group 3 Group 4Group 4

MembersMembers 1356 1356 [3589][3589]

449449

[1924][1924]

246246

[1092][1092]

156156

[746][746]

Exp/Inc Exp/Inc (%)(%)

39.739.7

[23.20][23.20]

82.582.5

[28.24][28.24]

150.1150.1

[33.07][33.07]

180.9180.9

[36.56][36.56]Del/LoansDel/Loans

(%)(%)2.32.3

[1.7][1.7]

9.19.1

[2.5][2.5]

18.918.9

[3.5][3.5]

19.219.2

[5.1][5.1]

Cap/AssCap/Ass

(%)(%)

10.010.0

[11.5][11.5]

7.07.0

[10.7][10.7]

5.35.3

[10.2][10.2]

2.62.6

[8.0][8.0]


Performance AssessmentPerformance Assessment

Data suggests that in excess of 50% of credit Data suggests that in excess of 50% of credit unions in GB will face difficulty in surviving long unions in GB will face difficulty in surviving long term.term.

A reduced number of credit unions may be beneficial because– those that remain will be better, bigger and safer – trade bodies can concentrate on the development needs

of fewer credit unions and so enhance performance– the trend towards professional management will be

reinforced


Recently Established ‘Fast Growth’ Recently Established ‘Fast Growth’ Credit UnionsCredit Unions

Financially supported by local authoritiesFinancially supported by local authorities High quality premises and high grade staffHigh quality premises and high grade staff Focused on service provision to the Focused on service provision to the

financially excludedfinancially excluded High membership growth but some key High membership growth but some key

ratios problematicratios problematic Success long term requires attracting a Success long term requires attracting a

mixed income membershipmixed income membership


A Ranking of Merger Drivers A Ranking of Merger Drivers

1. To create a financially viable credit union1. To create a financially viable credit union 2. To safeguard members savings2. To safeguard members savings 3. Due to difficulties caused by the FSA’s 3. Due to difficulties caused by the FSA’s

stricter regulatory regimestricter regulatory regime 4. To widen and diversify the common bond4. To widen and diversify the common bond 5. (joint) To offer a wider range of services; 5. (joint) To offer a wider range of services;

volunteer burnout; avail of scale economiesvolunteer burnout; avail of scale economies


Mergers the RealityMergers the Reality

The primary driver for mergers has been weak The primary driver for mergers has been weak credit unionscredit unions

Most mergers to date have been reactiveMost mergers to date have been reactive A mopping up exercise involving small problem A mopping up exercise involving small problem

community credit unionscommunity credit unions Few examples of strategy based mergersFew examples of strategy based mergers Short term difficulties although problems ease in Short term difficulties although problems ease in

the longer termthe longer term


Strong Performing Credit UnionsStrong Performing Credit Unions

The new model versus ethical/traditional The new model versus ethical/traditional debate is more about theoretical mindsets debate is more about theoretical mindsets than hard realitiesthan hard realities

Irrespective of the ‘label’ strong credit Irrespective of the ‘label’ strong credit unions are those that satisfy the following:-unions are those that satisfy the following:-

1. Serve a varied membership base1. Serve a varied membership base 2. Are of sufficient size to reap scale and 2. Are of sufficient size to reap scale and

scope economiesscope economies


Strong Performing Credit UnionsStrong Performing Credit Unions

3. Demonstrate financial discipline3. Demonstrate financial discipline 4. Are self-sufficient4. Are self-sufficient 5. Have appropriate governance structures5. Have appropriate governance structures 6. Have skilled and motivated directors6. Have skilled and motivated directors 7. Have skilled and motivated manager7. Have skilled and motivated manager


Policy RecommendationsPolicy Recommendations

Credit union development that concentrates solely Credit union development that concentrates solely upon serving the needs of the financially excluded, upon serving the needs of the financially excluded, is a weak model of credit union development. is a weak model of credit union development.

Credit union development based upon a cross Credit union development based upon a cross section of the population offers a more viable long section of the population offers a more viable long term model of development term model of development

Greater emphasis should be given to this latter Greater emphasis should be given to this latter model by credit unions, trade associations and the model by credit unions, trade associations and the Government. Government. [C,G,T][C,G,T]



The current trend towards widening of The current trend towards widening of common bonds should be encouraged as common bonds should be encouraged as this may facilitate a diversification of this may facilitate a diversification of membership mix. membership mix. [C,G,T][C,G,T]

This should be accompanied by greater use This should be accompanied by greater use of credit scoring to prevent an increase in of credit scoring to prevent an increase in bad debt write-offs. bad debt write-offs. [C,T][C,T]



It is not in the interests of the Movement to It is not in the interests of the Movement to expect strong credit unions to merge with expect strong credit unions to merge with weaker credit unions if this weakens the weaker credit unions if this weakens the position of the former. position of the former. [C,G,T][C,G,T]

Effective Boards can only emerge through Effective Boards can only emerge through investing in the training and development of investing in the training and development of volunteers. volunteers. [C,G,T][C,G,T]



Relying upon grants to fund the core Relying upon grants to fund the core business of credit unions leads to a business of credit unions leads to a dependency culturedependency culture

Grants may be appropriate at a particular Grants may be appropriate at a particular point in the credit union’s development but point in the credit union’s development but should be limited and targeted and not used should be limited and targeted and not used as a substitute for self reliance. as a substitute for self reliance. [C,G][C,G]



The potential for ‘shared service provision’, The potential for ‘shared service provision’, particularly in the area of IT should be particularly in the area of IT should be investigated. [G,T]investigated. [G,T]

Performance benchmarking should be Performance benchmarking should be implemented for all credit unions [G,T]implemented for all credit unions [G,T]

Good research requires detailed data at the Good research requires detailed data at the level of the individual credit union. This level of the individual credit union. This should be made available by the FSA should be made available by the FSA [C,G,T][C,G,T]

joseph rowntree foundation 1 building better credit unions charles ferguson donal mckillop peter...

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