Credit unions want to expand client base to SMEs

The story of the credit union movement started long before its governing act – the Corporate Societies Act – was adopted in 1971.

Credit unions can trace their history all the way back to the late 1840s.

In 1844, Robert Owen, an Englishman and Chartist, gathered weavers of Rochdale to save £28 out of their earnings to establish the first consumer co-operative. In Germany a co-operative mill, bakery and other corporate credit endeavours were organised by Hermann Schultz Delitzsch in 1848.

A hundred years later, in 1942, the first credit union was established in TT.

By December 1945 the Credit Union Society Ordinance had been passed. The first credit union was the Health Services Credit Union Society Ltd, where employees of the Colonial Hospital of Port of Spain were members.

Today, there are 129 active credit unions, with 120,000 members. Credit unions have a $3 billion asset base and contribute 5.6 per cent of the GDP.

Credit unions have also evolved to the point where their members enjoy the same benefits as banks, with loan products and facilities, technological frameworks to streamline members’ access to funds, and education and advisory modules to enhance members’ financial education.

With their multiple benefits, funding mechanisms and returns, Joseph Remy, president of the Co-operative Credit Union League of TT (CCULTT) is calling for legislation supporting credit unions to change to bring that same service and quality given to its members to the business community.

Section 10 (2) of the Co-operative Societies Act provides that an individual may be eligible to join a credit union. According to the Interpretation Act, the word “individual” does not refer to a legal entity. Therefore, legally, a legal entity such as a small business would not be able to become a member of any co-operative society

“That is one of the sore points with us in the credit union movement,” said Remy, speaking to Business Day last week.

“Young members start their small businesses by taking a loan from the credit union. When the business grows to the point that it is registered, our argument is that we should be able to retain that business, and the business itself can become a member, so as a corporate entity, these businesses would be able to borrow money.”

But Jerome Chambers Co-operative development co-ordinator, in the office for the division for co-operative development said there is still much to consider if there were to be any legislative changes to include businesses, the first of which is, how members are selected for credit unions, as opposed to banks.

For banks, which have a profit-based business module, there is a list of requirements for entry, including measures under the Counter-Financing of Terrorism (CFT) and Anti-Money Laundering (AML) acts, but they are open to all entities, which pay interest for the management of funds.

For a credit union, which is community-based, the rules are different. They still have to adhere to CFT and AML requirements but their membership is made up of individuals who are
able to meet the specific bond agreement – a specific set of requirements needed for entry, such as being employed with the company of which the credit union is a part.

Chambers used the Eastern Credit Union as an example. The ECU, in its inception, was a credit union based at the Bermudez Biscuit Company – at that time it was called the Bermudez Biscuit Employees Credit Union.

“The bond for membership back then was that you had to be an employee of Bermudez Biscuits,” he said.

The credit union began to grow, and other companies in the Frederick Settlement Industrial Estate, in Caroni, where Bermudez was located wanted to be part of the group. So they changed their names to the Eastern Industrial Credit Union. They eventually grew outside the estate, and began to provide services to the general public. At that point they named themselves the Eastern Credit Union.

In each incarnation, the bond agreement had to change to serve the needs of the membership, from being part of the company or entity in which the credit union operated to much wider requirements.

In contrast, in the Angostura Group Employees Credit Union, the bond agreement requires that to be a member, a candidate would have to be an employee of Angostura or an employee's immediate family member.

“It has been operating for years,” said Chambers. “It has no desire to become very large. Its total membership is about 800 members. But it is designed to keep serving that certain area.”

Chambers said there would be a lot to consider before legislation to allow credit unions to accept businesses as members could be drafted.

“Banks were set up with a profit motive. They sought out businesses and high-net-worth individuals, while credit unions were set up specifically for low-net-worth individuals. When you have your money in the bank, you are just a deposit holder. You don’t have the right to attend the annual general meeting of the bank to be elected to serve on the board.”

He said for a change to be made to the legislation, members of the credit unions would need to advocate. There have been previous changes to the legislation he said. As recently as two years ago, the death-benefit policies of the credit union increased from $5,000 to $50,000.

There are also a number of concessions, including an exemption from corporate tax, that credit unions enjoy which the banks do not.

"It is important that we make an assessment to determine what are our core functions, who are our core cliente. It is understandable that a credit union would want to retain a memeber who started a business. As to how we overcome the gaps to make that possible, that is a conversation that has to be had.

Despite the hindrances, Remy believes that opening the doors to SME's is the next step. He said that credit unions are currently undergoing a legislative review.

A policy proposal is currently being prepared for the new legislative framework, and a report on the review is expected next year.