W E LO O K AT TH I N G S D I F F E R E NTLY
W E LO O K AT TH I N G S D I F F E R E NTLY
Presentation to the Joint Committee on
Jobs, Enterprise & Innovation
5th June 2014
David Matthews
Irish League of Credit Unions
Irish League of Credit Unions, 2012
W E LO O K AT TH I N G S D I F F E R E NTLY
Contents
• About us
– The Irish League of Credit Unions
– Services to SMEs
• Roadblocks
– Internal & external
– Impact of lending restrictions on credit unions & SME
lending
• Possible solutions
– County Enterprise Boards & Credit Unions
– Investment Fund for lending to SMEs
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
About us
• The Irish League of Credit Unions
– Largest credit union trade & representative body
• 376 affiliated credit unions in the Republic of Ireland
– Regulated by the Central Bank of Ireland
• 3 million members, total assets €12.6bn
• Total Savings €10.6bn
• Total Loans €3.8bn, average loan €6,300
– Funds to lend – approximately €5bn
• Credit unions want to lend & need to lend
– Viability will depend on our ability to lend
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
Credit Unions & SMEs
• Under credit union legislation:– SMEs can be members of credit unions
• Either as individuals or firms
– SMEs can borrow from credit unions
• Either as individuals or firms
• About 5% of loans are to SMEs or for business purposes
• Credit union loans
– Maximum interest rate 12% per annum (12.68% APR)
• Average rate is 10.25%
– Flexible repayments, no charges or interest penalties
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
Roadblocks
• Internal Roadblocks
– Independence of credit unions means that service
offerings are variable
– Not all may have the skills to assess business loans
– Not all would want to offer them
• External Roadblocks
– Loans to SMEs are higher risk than personal loans
• Credit union’s “Risk Appetite” is low
– Central Bank oversight
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
Lending Restrictions
• 60% of credit unions are subject to some form of
lending restriction
• Most restrictions include a prohibition on
“commercial” lending
– Can include personal loans to self-employed members
• Most restrictions include a monetary limit
– Too low to provide meaningful funding to SMEs
• Average limit is €25,000
– Limit would include personal loan(s) to the member
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
Possible solutions - #1
• Credit unions & County Enterprise Boards (CEBs)
– Credit union receives a business lending proposal, does an
initial assessment & refers it to the CEB if it looks positive
– CEB can:
• Provide support through a financial adviser,
• Assist in preparing a business plan / projections, &
• Can provide mentoring services to SMEs (if required)
– Application is discussed & approved by a joint committee
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
Possible solutions # 1
– St Canices (Kilkenny) Credit Union & Kilkenny CEB
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Credit Union set aside a fund of €2m
Loans between €10,000 & €40,000 can be considered
55 loans totalling €1,170,500 approved to date
Current amount outstanding €439,000
Average loan is €21,000
Most perform well
– Could be extended to other credit unions, especially
if some form of guarantee was available
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
Possible solutions # 2
• Credit unions could invest in a “fund” to lend to
SME borrowers
– Would require Central Bank approval
– Up to (say) 10% of Reserves (€200m)
– Invest in a centrally-managed fund (with
appropriate skills) for small businesses
– Could get over variability of skills, services, etc.
– Perhaps with some level of state guarantee?
Irish League of Credit Unions, 2014
W E LO O K AT TH I N G S D I F F E R E NTLY
In conclusion
• Credit unions were established to provide members
with access to affordable credit
• Credit unions have funds and are keen to lend
• SMEs have a key role to play in the future success of
the Irish economy
• SMEs need credit to survive and thrive
• Credit unions can be part of a solution
• We would welcome continued engagement with the
Department of Jobs Enterprise and Innovation on this
matter
Irish League of Credit Unions, 2014