Do you want to access the full text of articles?

Please see our digital edition archive for the full text of articles.

Alternatively:

If you are a Chartered Accountants Ireland member, please visit the RIS service where Accountancy Ireland is available free of charge via the EBSCO databases.

If you are an Accountancy Ireland subscriber (i.e. you pay each year to receive your copy of Accountancy Ireland) please contact our Subscriptions Department quoting your subscription number and include details of the article you want.

All other users should enquire from their local public or college library about accessing full text Accountancy Ireland articles.

Home / ... / Credit Unions - Do They Need Our Support?

The Credit Union movement in Ireland is facing a period of considerable change. At present there are over 500 credit unions in Ireland - it is generally accepted that this number will be at least halved over the next ten years.

Credit unions are having to move from the old style administrative boards to more policy driven models. More professionalism is required bringing with it a sense of loss of some of the old ethos of the movement which was very much centred on volunteers.

Credit Unions in the South are now under the remit of the Irish Financial Services Regulatory Authority (IFSRA). IFSRA have failed so far to reflect in its dealings with the Credit Union movement a commitment to understand and reflect the Operating Principles of the movement in its approach.

The traditional representative body of the movement, the Irish League of Credit Unions (ICLU), while held in great regard and affection by most of it constituents, is itself failing to deal adequately with the challenges and opportunities of change.

There are changes imminent in many other areas also, for example; market placement, information technology, communications and so on.

The contribution of Credit Unions My local Credit Union has over twenty three thousand members and over €70m in assets. It operates profitably in a situation where the average shares/deposits held is under €3000 and the average loan is around €6,500. I find this somewhat incredible.

It provides a huge service where the main stream banks are not prepared to go. People are not intimated or are not afraid to approach their Credit Union for help. It will lend to housewives who have no income in their own name, to people on unemployment assistance and is a major force in combating illegal money lending.

It sponsors a wide range of community activities, open days, quiz's, poster competitions and other gatherings. It provides scholarships and student loans towards third level education. Through the activities of its Board, it's Director and Supervisors who come from a wide range of backgrounds are educated in the financial climate in which the Irish economy operates. They are made aware of the principles of good governance, the responsibilities that employers face, the challenges of information technology and so on. The Directors do all this on a voluntary basis with no financial reward.

This knowledge, education process and sense of social responsibility is extended into the whole community - in local primary schools, secondary schools, the local sports club and so on.

Regulatory climate Long before the coming of IFSRA, the Credit Union movement in Ireland was aware from observing the movement worldwide that a climate of increasing regulation from outside was inevitable if not exactly welcomed. Traditionally boards of credit unions were administrative bodies made up of volunteers, half of whom typically would also be involved in actually delivering the credit union's services to members. Directors tend to be strongly representative of the communities from which they are formed and feel a great sense of accountability to these communities.

This indeed still applies to the smaller bodies but IFSRA, for instance, in its initial risk based assessment of Credit Unions concentrated to a great degree on the policies, procedures and controls in place.

At one end of the scale therefore the larger Credit Unions in general have full time staff with competent professional management. This professional management is in turn demanding performance from the board on relevant governance issues while resisting interference in what it sees are day to day management issues. They are also to a large degree driving a push for a development of Credit Union services.

At the other end of the scale we have the small credit unions who find it virtually impossible to meet regulatory requirements. Many are rurally based and provide very valuable services both as credit unions and as social networks. A member of such a credit union told me that they had lost their local post office and if the credit union closes they will have to travel 20 miles for financial services. Credit unions apply the same Operating Principles world wide, the movement has grown and prospered under these Principles. There is a feeling, however justified or unjustified that there is already sufficient regulation and that the sins of mainline financial institutions are being visited upon the credit union movement.

IFSRA have been reluctant to give any significant acknowledgement of the voluntary nature of the movement. It is already becoming increasingly difficult to attract suitable cross-community based candidates to act as directors of credit unions - it is a burden now not lightly taken on and will become more onerous in the future. Continuity will become a major issue and boards will be in danger of no longer representing the members they serve. Is it the old story - you cannot legislate for morality?

ICLU versus CUDA The credit union movement itself must carry a share of the responsibility for not recognising the challenge of change and adapting to it.

The main representative of the movement in Ireland is the Irish League of Credit Unions (ICLU). It operates on a thirty two county basis and was generally held in great respect by its constituent members. However its image has been considerably tarnished in recent years.

The recent case taken by the Competition Authority against the ICLU is an example. Many members consider that the case should not have been fought and it was a case of ICLU trying to maintain its monopoly without considering the wishes of its members and ethos of the movement.

After a seemingly ill-conceived and ill-planned computer initiative some years ago, the ICLU itself commissioned from a review body a report which was delivered in April 2002. This was an excellent report but the ICLU have failed to implement many of its key findings. In particular, for instance, it has failed to incorporate and subject itself to the same kind of regulation demanded from its members.

It is a basically undemocratic organisation and the larger credit unions in particular have strong feelings of being disenfranchised.

Largely as a reaction to this situation, the Credit Union Development Association (CUDA) has been formed as a co-operative society. It is well structured and thought out but at present has only a small number of members - mainly of larger credit unions. It concentrates purely on being a representative body for its members whereas ICLU embraces a wider agenda.

There is a lot to be said for both organisations. Undoubtedly nevertheless the best solution would be for ICLU to adopt a comprehensive root and branch reform and implement the changes it knows fundamentally are necessary. It must face the future as a modern organisation with a relevant structure. It is imperative that it be seen to be going down this road. CUDA needs more members - if it gets them it will be from the ranks of the larger credit unions. There is accordingly a very great danger of a split in the movement which will not be in the interest on credit union members in general and particularly those members in smaller credit unions who the type of backup a representative body gives.

This should be a matter of considerable concern for all the stakeholders in the movement if we are to foster the movement with its unique and valuable Irish identity.

Not for Profit, not for Charity, but for Service Where do we as Chartered Accountants come in to all this? As I have said at the beginning of this article Chartered Accountants are involved in the movement as auditors, board members, supervisors and members.

As Auditors I get a sense that because credit unions are community based organisations there is a reluctance to 'go heavy on the pen' in the matter of fees. While this may be very laudable in many respects, it would seem to me that many firms are reluctant to 'up-sell' additional services. A case in point is the development of appropriate policies, procedures and controls which every credit union needs. The Credit Union movement is centred on 'people helping people'. At board and supervisory level there simply are not enough of us involved. This was possibly not a bad thing in the past as your typical CA was not a member of a credit union and was traditionally well looked after by their high street bank. Now however boards of credit unions will need to bring a certain level of professionalism on side to help cope with increasing complexity and regulation. This cannot be simply done on a fee-paying basis - to understand truly what is required requires a commitment to getting involved in the credit union itself. I am a newcomer to the Board of our local Credit Union and I need help! Up and down the country Chartered Accountants are involved with credit unions as Auditors, Directors, Supervisors and members but, I guess, the rest of us remain fairly oblivious to the enormous contribution that the Credit Union movement makes to the healthy functioning of our society.

My purpose in writing this article is of course to provoke a response. I would hope that it might encourage colleagues to be open to an approach from their local credit union. I would most welcome hearing from anybody on the subject but particularly from colleagues already involved to learn their views on the issues I have touched on.

Peter Pierse is an FCA living in Kerry. He is MD of Pierse Technology Ltd. He is a former member of the Council of the Institute and former chairman of its IT Committee. Email: peter@piersetec.com.

The future development of credit unions, depends mainly on the services each credit union will provide to its members and the range of financial services they can offer their members. Credit Unions are constrained by a lack of "union" with regard to their IT solutions, products and services. Tmck