Speaking Notes for the House of Commons
Special Committee on Cooperatives
Presented by
Mr. Nigel Mohammed,
Director, Community Financial Centre
Assiniboine Credit Union (ACU)
July 27, 2012
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Introduction
Thank you, Mr. Chair and Committee Members. I would like to thank the Special
Committee on Cooperatives for inviting Assiniboine Credit Union to participate in
this very important study into the status of cooperatives in Canada and what the
Canadian government can do to strengthen the cooperative sector.
My name is Nigel Mohammed and I am the Director, Community Financial Centre
at Assiniboine Credit Union in Winnipeg, MB. With me today is Dale Ward,
Corporate Secretary of Credit Union Central of Manitoba. I will be speaking from
Assiniboine’s perspective as a financial cooperative, while Dale will be able to
answer questions from a broader Manitoba perspective.
About Assiniboine Credit Union
Let me start by telling you about Assiniboine Credit Union. Like most credit
unions, we were started by a small group of people who wanted to help
themselves. In 1943, 15 Winnipeg Electric Company employees formed a credit
union where they could save their money and most importantly get access to
loans when they needed them. In those days there was no safety net when it
came to unemployment insurance, social assistance, or medical care. At the first
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credit union meeting, members invested $100 in the new cooperative. The first
loan underlined the credit union’s social mission: a member borrowed $50 to pay
an outstanding medical bill. Over the years, Assiniboine attracted more members
and grew through both sound financial performance and a series of
amalgamations with other credit unions. But we never lost sight of our
commitment to our members and their communities.
Today we are one of the largest credit unions in Manitoba and the 8th largest
credit union outside of Quebec by asset size. Assiniboine holds over $3.2 billion
in assets and employs over 570 people to provide financial services for over
108,000 members through 23 branches in Winnipeg and 2 in Northern Manitoba.
As a financial co-operative, we are owned by those who use our products and
services. Our member-owners elect from among themselves representatives to
the board of directors. Each member has one vote when it comes to board
elections and voting on important matters put before the membership. As a
cooperative, profits may be reinvested into the credit union, distributed to
members in the form of patronage dividends, and/or shared with the community.
While it’s important for us to be profitable to be sustainable over the long term,
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as a socially responsible cooperative our core purpose is to provide financial
services for the betterment of our members, employees and communities.
In March of this year we joined the Global Alliance for Banking on Values, a
membership organization of nineteen (19) financial institutions from around the
world who share a genuine commitment to build a more sustainable future for
underserved people, communities and the environment. We have in common a
business model that measures success by the triple bottom line of People, Profits
and Planet. We are proud to be one of three Canadian credit unions to be
accepted for membership in GABV – the other two Canadian members being
Vancity (Vancouver) and Affinity Credit Union (Saskatoon).
Like other Global Alliance for Banking on Values members – and like many credit
unions - we stretch to provide access to financial services for people and
communities not well served by the mainstream. That includes financing for
community projects and business start ups delivering social, environmental and
economic value to our communities. We know that financing can be the bridge
between people who want to do “something” and having the resources to
actually make that “something” happen.
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Here are a few examples of how we at Assiniboine use our skills and resources as
a financial cooperative to make ‘good things happen’ in our community.
Bringing Financial Services to an Underserved Neighbourhood
In January we opened a new branch in the North End of Winnipeg – a lower
income neighbourhood that has seen the closure of 10 bank branches and the rise
of 16 fringe financial outlets (payday lenders, cheque-cashers) since 1996. We
are working with community partners in the North End to open accounts for
unbanked and under-banked residents through our new McGregor Branch.
Asset Building Programs
We are one of the founders of the growing network of Asset Building Programs in
Winnipeg and Thompson. People living on low income receive money
management training from non-profit partners and are supported to save using
our specially designed Matched Savings Account. Savings are matched 3-to-1 by
the United Way and other funders. Since 2000, participants have purchased over
$2.4 million in assets to improve their lives.
Islamic Financing
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Several years ago we were approached by leaders from the local Muslim
community and asked if we would consider developing products for their
community as there was a lack of acceptable financial services. We worked
closely with the community and an advisory board to design a home financing
arrangement that would be acceptable to members of the Islamic faith. Our
Islamic Mortgage is the first of its kind in Canada.
Community Financing
Through our Community Financial Centre, we provide financing to non-profits,
social enterprises and cooperatives so they have the resources they need to carry
out their social or environmental mission. We also provide micro-credit for
business start-ups that would otherwise not qualify for credit. We offer loans,
mortgages, bridge financing (against grants, pledges, receivables), letters of credit
and construction financing. We often work with community and government
partners to reduce barriers and make financing available.
How Assiniboine Supports the Success of Cooperatives
Now I’d like to focus specifically on how our credit union supports the
development and success of non-financial cooperatives. Like credit unions, they
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were formed by people who came together to address a shared concern. Owned
and democratically controlled by their members, cooperatives play an important
role in Manitoba’s economy. Beyond creating jobs, they collectively address
important social and environmental issues and ensure affordable access to
essential goods and services in many sectors. Many serve the needs of specific
economically marginalized groups such as Aboriginal People, immigrants, youth.
In 2007, there were over 260 non-financial cooperatives in Manitoba. Of these,
70% were providing housing, daycare and other important services.
This section was omitted due to time
Recognizing the important contributions that these cooperatives make to the
local economy and to our communities, Assiniboine looks for opportunities to
support their success. Let me share a couple of examples:
Peg City Car Co-op
A few individuals came together around their concerns about the negative
environmental impacts and the high cost of owning a vehicle. They searched for
viable solutions and found that car-sharing addressed both of these issues and
that the cooperative model was the preferred organizational structure. In 2011
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they announced Winnipeg’s first car sharing program – Peg City Car Co-op.
Assiniboine has been involved with Peg City Car Co-op since the initial planning
stages - first through grants to start up and market the co-op and then by
providing financing to purchase three low-emission vehicles. Today they have
over 80 members and continue to grow as a sustainable co-operative enterprise
River Avenue Cooperative Daycare
ACU was approached by River Avenue Cooperative Daycare, an inner city co-op
daycare, to finance the construction of a new facility as their lease was about to
expire and they wanted to ensure continued services to families in the
neighbourhood. The daycare is unique not only because there are few daycare
centres in the inner city but because it caters to parents working shift work and
requiring child care until midnight. In partnership with The Jubilee Fund, a
Winnipeg-based community loan fund, we were able to provide the necessary
construction and long term financing to make this new facility a reality. Whereas
conventional financing rules would have required certain debt/equity and security
requirements, with a loan guarantee from The Jubilee Fund we were able to
support this project with more flexible and favourable financing terms.
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Barriers to Financing Cooperative Development
While Assiniboine supports cooperatives in a variety of ways, I would like to share
our experiences when it comes to financing and suggest ways the Government of
Canada can help to strengthen the sector and help facilitate access to credit.
Recognizing that there is a wide range of cooperatives, including those that are
well-established such as Red River Coop here in Manitoba, I will focus on
financing smaller cooperatives, including those in the start-up or early stage.
The role of any lender is to assess the risk associated with a financing request,
taking into account the strength of the cooperative’s management and
governance, the capacity to repay, and the adequacy of collateral security. In our
experience, there are two significant barriers to financing small and early stage
cooperatives: (1) Internal capacity and (2) Lack of assets for security.
(1) Internal Capacity
Like any organization, strong management is vital to the overall success of
cooperatives. Having the right skills and systems in place (financial, marketing,
human resources, inventory management etc.) is essential to the cooperative’s
long-term viability. And it gives us confidence in the cooperative’s ability to
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manage and repay debt financing. However, we find that many smaller and startup cooperatives lack these technical skills.
The Government of Canada could address this barrier by providing Capacity
Building Grants or other support for cooperatives to acquire the technical skills or
to establish the management systems necessary to be successful in achieving
their social, economic and/or environmental mission.
(2) Lack of Assets for Security
It is difficult for Assiniboine to provide financing when there are no assets to
pledge as security. For example, many non-profit co-ops – such as daycare
centres- are limited in their ability to secure financing because they do not have
adequate assets on their balance sheet that would be deemed acceptable for
security purposes. In the absence of tangible assets such as real estate, and with
break even budgets often necessary to satisfy funding agreements, these nonprofit co-ops will remain limited in their ability to access the financing they need
to respond to the growing need for their services in the community.
The Government of Canada could address this barrier by providing Loan
Guarantees or Loan Loss Reserves for cooperatives that are providing a valued
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service to the community but do not have the collateral necessary to satisfy
conventional financing requirements.
In addition to these two barriers, we would like to highlight an important role that
the Government of Canada can play in supporting the cooperative housing sector.
(c) CMHC Penalties
Co-op homes developed between 1979 and 1985 were created under a program
known as Section 95 (the section number refers to the National Housing Act).
These co-ops administer a subsidy from Canada Mortgage and Housing
Corporation (CMHC) to provide access to affordable housing. Many of these
housing coops still maintain mortgage financing contracts with CMHC on initial
terms to maturity for as much as 30 or 35 years.
According to the Co-operative Housing Federation of Canada, social housing
stands to be impacted greatly by expiring government funding agreements.
Given the age of the buildings, one of the challenges these Sec 95 co-ops face is
the need to make capital improvements. With appreciated real estate values, a
viable option for these co-ops is to refinance their existing mortgages. But
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because many are still obligated under a 1st mortgage with CMHC, any refinance
will incur a penalty thereby increasing overall debt levels. Due to conventional
debt service criteria and loan to value levels established to protect depositors’
savings, adding penalties to refinance increases the risk for lenders and limits
these co-ops from pursuing options to refinance their existing CMHC mortgages.
The Government of Canada could address this barrier by eliminating the penalties
associated with refinancing Section 95 Housing Cooperatives.
As a local financial cooperative, Assiniboine Credit Union would be pleased to
explore options for providing financing to support the capital needs of these
Housing Coops to ensure their ongoing sustainability and service to members.
Conclusion
In closing, on behalf of the Assiniboine Credit Union, I would like to thank the
Committee for the opportunity to share our experiences and observations in
serving the Cooperative sector in Manitoba. We are encouraged by the mandate
of the Special Committee on Cooperatives and look forward to hearing your
recommendations for strengthening the cooperative sector in Canada.
Thank you.
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