Financial medicine for credit unions
The aftershocks of CL Financial’s dramatic financial woes have impacted on the grassroots credit union movement which has invested some of its TT$6 billion (approximately US$1 billion) in cash strapped Clico.
But the movement which has been plagued by its own financial scandals the most recent being the Hindu Credit Union (HCU) debacle last year, is not unduly worried.
The President of the Credit Union League Brian Moore is happy with the intervention by and guarantees of the Government and the Central Bank and advised members not to panic and pull out their investments in Clico.
In fact, one of their advisers saw the golden opportunity to actually invest in CL Financials assets held by the Government.
The movement which has a membership of over 575,000 in 121 functioning credit unions – will soon be subject to tighter regulations and scrutiny.
Legislation is being drafted to remove credit unions from the supervision of the Commissioner of Cooperatives. The Central Bank which supervises banks, finance houses and insurance companies will take over the role of the Supervisor of Cooperatives.
This was something that has been in the works for some five years. Nothing was done and last year came the HCU debacle with the Supervisor stepping in much too late.
A small credit union also collapsed and another, based in Point Fortin, is in its death throes.
However, from all accounts, the rest of the movement appears to be in good shape with membership and assets growing steadily-from an estimated TT$3 billion in 2000 to the current figure.
However, the Government believes that the now is the time to change the rules and bring the movement into the 21st Century.
The new legislation proposes to limit a credit union’s financial exposure in the market and to a single member and there will also be strict guidelines regarding investment in land.
They will also be prohibited from providing non-financial services like investments in travel agencies, real estate and housing development and so on. These simple financial organisations which can be started by 12 individuals will need a license from the Central Bank to operate.
The proposed legislation has not been exactly welcomed by the movement with many people believing that it would stultify rather than develop co-operative growth .
A study on the proposed legislation by Kairi Consultants found that, ”there is nothing to suggest that the Central Bank, in the role of regulator would display any enthusiasm for the development role, nor is it equipped with the personnel with the appropriate preparation in co-operative studies and the like beyond professional degrees in law, economics and accounting.”
One credit unionist made the point that credit unions are simply not banks.
“Banks’ objectives are to make profits while the objectives of credit unions are to improve the lives of our members. There is no profit motive.”