ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
IRISH LEAGUE OF CREDIT UNIONS
RATIONALISATION COMMITTEE REPORT
Strictly Confidential
This report contains information of a confidential nature to the credit union movement
and is not for distribution to third parties without the prior authorisation of the ILCU
Rationalisation Committee.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Irish League of Credit Unions
Report of the Rationalisation Committee
Written by Noreen Byrne (Centre for Co-operative Studies, UCC) in
conjunction with the Rationalisation Committee
March - 2006
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
FOREWORD
As President of the Irish League of Credit Unions, I acknowledge and recognise the
work of the Rationalisation Committee members, who have given their time,
commitment, experience and expertise to this project. For over a year the committee
has researched, discussed, sought expert advice and consulted with the movement to
bring forward this report.
At CGM the movement again has an opportunity to reflect on the recommendations
for change contained in the report.
Rationalisation is one of the key strategic issues that face the movement to-day. Every
credit union movement worldwide has been forced to rationalise. The Irish League of
Credit Unions wants to lead the strategy on rationalisation/co-operation rather than it
being lead by market forces or regulatory pressures.
This document is a lesson in co-operation and will be a litmus test to see how real cooperation is in the Irish credit union movement. If it is real – then the models
contained in the report will work. In order for credit unions to give access to financial
services to all in their communities and to continue to develop our business services
co-operation is the only way forward.
There is an imperative for credit unions to co-operate which will strengthen the credit
business model and the movement itself.
Many thanks is extended to all committee members who have co-operated in this
unique and important undertaking. This report is essential reading for all credit union
personnel.
Anne O’Byrne
President – Irish League of Credit Unions
March 2006
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
CHAIRMAN’S REPORT
As Chairman of the Rationalisation Committee, I am pleased to have reached the
point where the report of the committee can now be presented through the League for
consideration by the whole movement
The process has lasted almost eighteen months during which an enormous amount of
research, discussion and consultation and evaluation has taken place. This was
absolutely essential to fully inform the committee and to ensure that all aspects of
rationalisation were considered.
While the term can be a daunting one for the movement – if looked at from a purely
business viewpoint – the often perceived threat diminishes when the ethos and cooperative nature of the movement set the context of the deliberations. The result, as
set out in this report, gives sensible options for consideration.
Whilst all credit unions are independent legal entities we cannot escape the inevitable
conclusion that if we are to progress into the future we must collaborate in some way
or other to provide the best service to our members. As we face the challenge we can
draw huge strength from our co-operative ethos.
It is clear that the League must lead through the development of a clear vision for the
movement and through proactive encouragement and actions to achieve that vision.
I commend the report for your consideration and action and look forward to a high
level of innovation and collaboration in putting the recommendations in place.
A special word of thanks is extended to all who willingly gave of their time and
expertise on the committee, the Regulators for their opinions, and to all of the credit
unions that participated in the recent workshops.
Kathleen Prendergast
CHAIRMAN
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
EXECUTIVE SUMMARY
_________________________
This report is based on the work of the Rationalisation Committee, which was formed
by the ILCU in late 2004. The committee was set up as a result of an SGM 2002
motion, which instructed the ILCU to look at the issue of Rationalisation in the
movement. Significant credit union consultation took place before and during the
lifetime of the committee. Feedback from all the various consultative forums
highlighted to the committee that credit unions believe the movement has reached a
cross-roads in its development and that change is now required.
Credit unions
There is also clear recognition that one of the ways of
now at a crossimplementing that change and facing the challenges ahead is
roads – change
through greater inter-credit union co-operation. Feedback also
required
showed that credit unions did not want to be forced into ‘a one
size fits all’ type of plan and wanted the ILCU to develop rationalisation models,
which could inform credit unions in making a choice. To develop rationalisation
models for the Irish movement, the committee examined the experience of
International credit union movements.
The experience of Credit Union Movements within an International
context
The process of rationalisation has been taking place for many years in credit union
movements throughout the world. It can be clearly seen from the Table that credit
unions in Ireland have been on a
Country
Number of Credit Unions
course of expansion, in terms of
From at its peak
Today
number of credit unions, rather than
United States
23,866
9,274
Canada
6,000
635
a consolidation as is the case
Australia
780
163
elsewhere. In the international
New Zealand
300
41
Poland
340
80
movements, rationalisation has
The Gambia
80
67
mainly came about as a result of
UK
485
390
Albania
42
32
mergers and liquidations. The
Ireland
536 * (STILL AT ITS PEAK)
question for the committee was:
What is driving this rationalisation?
Table E1
Only focusing on affiliated ILCU credit unions
Driving Forces for Rationalisation
The committee’s review of the international credit union experience highlighted the
following main driving forces for rationalisation:




Intensifying competition
Declining growth
Increased regulatory burdens and restrictive legislation
Limited products and service offerings
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006





Increased need for technological capability
Scale
Governance issues
Failure
Strategic business decision
(For further discussion of the above, go to Section Two of this report.)
Are these forces present within the Irish Credit Union Movement1?
The committee examined the Irish credit union movement to see if these
rationalisation forces are present. From that analysis, it found that there are clear
challenges ahead for credit unions. Market share in lending is decreasing, margins
have become tighter, delinquency is increasing, some credit unions have potential
solvency and other problems leading to the possibility of credit union failures, the
product range and technology base is limited and there is possibly an increasing
democratic deficit in the movement. Credit unions will find it difficult to rectify these
issues and also develop the product and technology infrastructure, while operating as
single entities. There is a clear need for greater and more effective co-operation
between credit unions to create the necessary leverage to strengthen the business
model and develop the required products and the supporting technology. If this is
done it will help to put credit unions on a sound footing for the future.
So how should rationalisation take place within the Irish movement?
There are clear challenges for the credit union movement which signal the need for
rationalisation. Credit unions need to strengthen their business model and at the same
time build on their main competitive advantage - their distinctive co-operative nature.
To achieve these aims while limiting costs, they will need to collaborate with other
credit unions. We believe that credit unions have three potential paths of
development. These are presented in Diagram E5.
Diagram E5
Three potential paths of development for the credit union movement to
maximise member benefit
2
1
Large-scale
amalgamations
Reduced down to a tiny
number of large credit
unions
Not always desirable
Decline of the CU as a
Co-operative Movement
– leading to eventual
demutualisation
Strategic and Sustainable way
forward
A mix of amalgamations
and networks (reducing
costs, development of
products and technology
base)
3
Do Nothing
Large number of credit
unions all operating
independently of each
other and declining
business performance
Most desirable
Not Sustainable
Sustainable way
forward
Decline of the CU
movement
1
The analysis in this report is only based on ILCU credit unions. It must be recognized that there are
other Irish credit unions which are affiliated to other groups in the ROI and NI.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
The committee is of the view that Path 2 is the most desirable direction for the Irish
credit union movement, leading to a stronger movement in terms of credit unions as
businesses and as co-operatives. The committee feels that Path 3 would lead to
continuing worsening trends in the movement and Path 1 would lead to the eventual
demutualisation of the credit union movement.
The Rationalisation Committee Survey asked credit unions to indicate their preference
for three forms of rationalisation/co-operation (which where developed out of the
BDM 2005 feedback), namely informal co-operation, strategic alliances and
amalgamations. The responses showed that 55% of credit unions who responded
would favour the informal co-operation route, while 24% of credit unions prefer
strategic alliance as a form of rationalisation and 15% prefer amalgamations. It is
very positive that 94% of the surveyed credit unions (101) responded to this question.
It is also positive that there is a significant degree of co-operation already taking place
within the movement and that credit unions are open to further co-operation. The
literature indicates that informal co-operation or networks are necessary for the
development of formalized and sustainable networks. Therefore, the current level of
informal co-operation taking place in the movement is an excellent foundation for
more formalised networks such as Credit Union Service Organisations (CUSOs) and
Strategic Alliances.
(For further discussion, see Section Four.)
Appropriate Models of Rationalisation for Irish Credit Unions
There are a number of potential models of co-operation which will lead to
rationalisation in terms of costs and give leverage to develop products and services
and the technology base. As part of its strategic planning process, each credit union
should choose the most appropriate model for their own organisation. The models are
as follows:
 Networks
 Strategic Alliances
 Credit Union Service Organisations (CUSOs)
 Shared Branching
 Amalgamations
 Transfer of Engagements
 Wind-up
The committee presents these models to allow credit unions to decide for themselves
how they would like to collaborate with other credit unions. For example, for credit
unions that experience constant difficulty, the best option may be to consider a
transfer of engagements; or for those who have close relationships with neighbouring
credit unions, the development of networks may be the most appropriate option; and
so on. (For greater detail, see Section Five of this report.)
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Where do we go from here? – Recommendations
As well as strengthening the business model, credit unions will also need to maintain
and strengthen their co-operative ethos and identity. After all, this is the main
competitive advantage of credit unions within the financial services marketplace. This
has led us to make recommendations in two key themes:
1. Rationalisation through greater inter-credit union co-operation &
development of the business model
2. Strengthening and reinforcing credit union vision and ethos
Within these two main themes, we make detailed recommendations in four key areas:
Increased inter-credit union co-operation & strengthening the credit union
business model
1. Strengthen the business model of the credit union
 Develop products and services which meet real needs
 Develop performance categories for credit unions
 Reduce delinquency within the movement
 Lobby for enabling credit union legislation
 Investigate common bond effectiveness
2. Strengthen inter-credit union collaboration
 Ensure proper governance
 Re-enforce co-operative identity
 Monitor impact of changes on co-operative nature of credit union
 Develop social auditing guidelines
Vision and Ethos
3. Maintain and reinforce the co-operative nature of the credit union (member
control and ownership)
 Strategic Plan for the movement and individual credit unions
 Form senate to inform the strategic direction of movement
4. Formulate clear strategic direction for credit unions and the movement
 Develop National Common Bond of Service
 IT – increase compatibility between systems & establish national
IT platform
 Build on current co-operation already happening in movement
 Develop detailed practical guidelines of models of co-operation
 League must strengthen relationships with other representative
bodies and Regulators
 No new credit unions to be developed
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
 Credit unions examine their own situation and decide on the most
appropriate model (Networks, CUSOs, Amalgamations, Transfer of
Engagements, Strategic Alliances, Wind-up)
(For further detail on the recommendations, please see Section Six of this Report)
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
TABLE OF CONTENTS
________________________
Section 1:
Background to the Debate on Rationalisation in Ireland
Section 2:
Literature and Research on Rationalisation
Section 3:
Current Status of the Irish Credit Union Movement
Section 4:
View of Rationalisation from the Movement
Section 5:
A Way Forward – Potential Models
Section 6:
Conclusions & Recommendations
Bibliography
Appendices
ACKNOWLEDGEMENTS
The Rationalisation Committee would like to thank all the credit unions which
participated in the survey and attended the consultative forums.
ABBREVIATIONS
ILCU
CUDA
CUMA
ROI
NI
IFSRA
FSA
CUSO
ICCA
ABCUL
UFCU
Irish League of Credit Unions
Credit Union Development Association
Credit Union Managers Association
Republic of Ireland
Northern Ireland
Irish Financial Services Regulatory Authority
Financial Services Authority
Credit Union Service Organisation
Irish Credit Co-operative Administration
Association of British Credit Unions Limited
Ulster Federation of Credit Unions
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
SECTION ONE
BACKGROUND TO THE DEBATE ON
RATIONALISATION IN IRELAND
_____________________________________________
1.1
Introduction
This report is based on the work of the Rationalisation Committee of the Irish League
of Credit Unions. After one year of work involving research, group discussion, expert
advice and consultation with the wider movement, the committee now presents its
report. The report outlines the arguments for and against of various rationalisation
choices, offers a number of models for consideration and makes recommendations. To
introduce the report, we present the background to the formation of the
Rationalisation Committee.
1.2
From where did the concept of Rationalisation in the Irish
Movement originate?
Rationalisation was considered in the Review Commission Report (2002) as follows:
“Credit unions are co-operative financial institutions facing a rapidly
changing financial market place and regulatory environment. Some will,
undoubtedly, find the consequences and demands hard, if not impossible to
meet. For many credit unions, to meet the coming regulatory requirements and
to deliver the kind of service their members will expect in the future, they may
have to think seriously about rationalisation; about forms of close association
with neighbouring credit unions. This need not mean loss of identity or a
reduction in outlets, but it will require pre-planning and an openness to
change”.
Following the Review Commission recommendation, Resolution (No. 42) was passed
at the SGM of the ILCU in 2002. It read as follows:
“That the League Project on Credit Union Development due to commence this
year, consider the issue of credit union rationalisation, identify barriers and
make recommendations”.
Following regional consultative road shows held in early 2004 to receive feedback
from the movement on rationalisation, various presentations were made at the CGM
2004. The Rationalisation Committee was formed in late 2004 and consisted of credit
union directors, managers, both ICCA2 and CUMA3 representatives, academic
researchers and League personnel (Appendix 1 contains a list of the committee
members). All regions of the country were represented. The committee met
throughout 2005 and early 2006 and consulted widely with the movement, researched
the international and Irish experiences and discussed how rationalisation could take
2
3
ICCA: Institute of Credit Co-operative Administration
CUMA: Credit Union Managers Association
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
place in the Irish credit union context. Its remit was to identify barriers and make
recommendations to credit unions on how rationalisation might take place within the
movement. To frame the work of the committee, it was first necessary to develop and
adopt a definition of rationalisation.
1.3
Definition of Rationalisation Adopted by the Committee
After lengthy discussion and debate among the committee members, taking into
consideration the consultations from the wider movement, the following working
definition of rationalisation was adopted:
“Rationalisation enables credit unions to access the necessary support
mechanisms to address their service needs, business issues and compliance
requirements. This development and support process can be best achieved and
developed by co-operation, strategic alliances or amalgamations”.
The committee felt that this definition of rationalisation reflected the spirit of
Resolution No. 42 of SGM 2002, whilst being broad enough to incorporate the
various forms of rationalisation and allow credit unions freedom and choice. The
committee is of the view that embracing rationalisation in whatever format should
ensure the autonomous survival of the credit union concept within the communities
credit unions aim to serve.
1.4 Approach of the Committee
The Rationalisation Committee did not want to design a ‘grand plan’ for the
movement, but instead wished to present a number of options to credit unions
whereby they themselves would start to strategically examine the development of
their own organisations and consider how they can develop their credit unions into the
future, both in terms of financial strength and in the provision of maximum member
service and benefit. This could mean forming amalgamations or strategic alliances,
formal networks between credit unions or engaging in greater informal networking.
1.5 Layout of the Report
This Section has presented the background to the establishment of the Rationalisation
Committee. Section Two discusses how rationalisation has taken place in other credit
union movements across the world and explores what the literature has to say on the
various rationalisation choices. We consider the current status of the credit union
movement in Ireland in Section Three. This is followed by a Section on the views
from the movement on rationalisation. Section Five presents a possible way forward
and with a number of potential rationalisation models. Finally, the last Section sets out
the recommendations of the committee.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
SECTION TWO
LITERATURE AND RESEARCH ON
RATIONALISATION
_________________________________________
2.1
Introduction
In this section, we analyse and focus on the experience of rationalisation within other
credit union movements across the world and the Irish Agricultural Co-operative
Movement. This helps us to learn from their successes and avoid their mistakes,
thereby assisting us in the development of models that are appropriate to the Irish
credit union context.
2.2
Co-operative Movements and Rationalisation
2.2.1 Current situation with regard to consolidation in credit unions
throughout the world.
The story of credit union movements throughout the world has been one of
consolidation and rationalisation, as can be seen from the table below:
Table 2.1 International Credit Union Movement Rationalisation
Country
Number of Credit Unions
From at its peak
Today
United States
23,866
9,274
Canada
6,000
635
Australia
780
163
New Zealand
300
41
Poland
340
80
The Gambia
80
67
UK
485
390
Albania
42
32
Ireland
536* (STILL AT ITS
PEAK)
* This report focuses on ILCU affiliated credit unions only. However, it must be remembered that there
are a number of credit unions who are affiliated to representative bodies such as CUDA, UFCU and
ABCUL.
As can be seen from Table 2.1, the number of credit unions is decreasing in all
countries. This is true for both mature and the relatively new credit union movements
of The Gambia, Poland and Albania. In Ireland, however, until very recently, the
movement has been expanding with new credit unions been formed year on year.
Therefore, credit union numbers in Ireland have been on a course of expansion, rather
than consolidation, as is the experience elsewhere.
Before examining rationalisation in credit union movements in other countries, it may
be useful to examine rationalisation in another co-operative movement in Ireland – the
Irish Agricultural Co-operative Movement.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
2.2.2 Rationalisation in the Irish Agricultural Co-operative Movement:
possible lessons for credit unions4
Some may view the story of the development of the Irish Agricultural Co-operative
Movement as having little relevance to credit unions, but there are, in fact, a number
of interesting parallels. Firstly, credit unions are now at the same point of
development as agricultural co-operatives were in the 1960s and 1970s. During the
1960s, the State commissioned a number of reports and studies on the dairy sector,
mainly in preparation for EEC membership. Enright (1997:9) asserts that all these
studies stressed the need for rationalisation and amalgamations in the dairy industry to
achieve economies of scale and to allow diversification, and emphasised the need for
orderly marketing (Smith & Quinn, 1974, cited in Enright). Analysis showed that
80% of creameries in Munster were within six miles of each other, while
improvements in transport and roads had long made such proximity redundant. The
same could be said of credit unions in the cities, which are often just walking distance
apart from each other.
Secondly, credit unions display many of the weaknesses that were highlighted in the
agricultural co-operatives during this period. During the 1960s there was a major
evaluation of the agricultural co-operative movement. One of those reviews was the
Knapp Report (1964), which highlighted a number of weaknesses in the Agricultural
Co-operative Movement. Some of these are strikingly similar to the Irish credit union
movement. For example, Knapp (1964) cited lack of communication throughout the
entire agricultural co-operative movement as a weakness, where there was little
communication between the co-operative and the members to a point where the cooperative was looked upon as a ‘service centre’ rather than being of direct interest to
the member. Possibly the same could be said for some Irish credit unions, where the
member relationship does not often go beyond the transaction. He also cited the lack
of co-operation and communication between the co-operatives themselves, where
effectively co-operatives were all working alone. Irish credit unions also tend to work
alone.
Knapp also cited lack of direction, where some co-operatives appeared to be more
‘concerned in protecting of the status quo than in improving the services to members’.
Of course this would not apply to all credit unions, but could be applied to those with
limited opening hours and services. He also cited governance weaknesses in some of
the co-operatives, where the board was weak and direction and leadership were left to
the manager. There was limited input from members, with annual reports that were
not easily understood and AGMs which were usually ‘perfunctory and poorly
attended’ with little effort made to ‘stimulate discussion’. The ROI Regulator of
Credit Unions (2005) recently highlighted that this is also the case for a number of
credit unions and he has suggested that there is an increasing democratic deficit in the
movement. Goth (2005) and McCarthy (2005) support this view.
Knapp also highlighted a lack of systematic planning for future development. The
majority of credit unions do not involve themselves in strategic planning in a time of
increasing competition and decreasing market share.
The Rationalisation Committee would like to thank Ted O’Sullivan who highlighted the parallels
between the Agricultural Co-operative Movement and the Credit Union Movement.
4
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Interestingly, Knapp also cited the over-emphasis on price in the agricultural cooperatives as a weakness, where it was used as the only measure of performance and
member benefit. Credit unions often assume that once they provide a satisfactory
dividend and interest rebate, they are maximising member benefit. Knapp pointed out
that membership of a co-operative should be about more than just getting the right
price.
He also cited lack of member education on the co-operative ethos. He asserted that
Irish Agricultural co-operatives have:
“done better in building volume of business and financial strength
than they have in maintaining co-operative strength of their
organisations”.
Many subsequent writers (Ward et al, 1982, 2000, 2005; Bolger, 1983) believed that
the weaknesses cited by Knapp (1964) paved the way for the weakening of the cooperative nature of the agricultural co-operatives and for a number of the subsequent
conversions to PLC. It should be remembered that conversion to PLC is not an alien
concept to the credit union movement. There have been cases of conversion to PLC in
the Swedish and Belgian movements (Modell, 1993, Fisher, 2002). There have also
been cases of credit union demutualisation in the US, Canada and Australia (Goth
2005).
While Knapp made a number of recommendations with regard to member education
and maximisation of member benefit, his overall recommendation was the need for
greater rationalisation and consolidation within the movement. On the back of this
report, the agricultural co-operative movement went through a major period of
amalgamations, takeovers and joint ventures from 1970 to the 1990s, where the
number of such co-operatives decreased from 160 to 30 today (Ward, 2000, 2005).
Ward (2005) indicates that various forms of rationalisation took place in the
movement, from large-scale amalgamations to federated network models. While there
was consolidation within the movement, it is not clear whether rationalisation has
helped the co-operatives to address the weaknesses highlighted by Knapp. It could be
said that for those that privatised, some of these weaknesses were intensified. Ward
(1982, 2005) would advocate that the network models were better at dealing with the
weakness highlighted by Knapp.
However, Ward (1982, 2005) also stress that, in some circumstances, amalgamations
were the best option, particularly in cases where there was not a clear group of local
co-operatives which could network together or where a co-operative had a very close
relationship with a local co-operative and where it made strategic sense to
amalgamate. The question for us here is, how should successful rationalisation be
measured? Should the result be large international businesses or should it be the
maximisation of member benefit? If rationalisation is measured in terms of the
creation of large international businesses, then the rationalisation of the Irish
Agricultural Co-operative Movement was a success. However, if measured in terms of
member benefit, then that success is less clear. It should be noted that those cooperatives which decided to primarily focus on the farmer, rather than on the
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
development of an international business, have consistently offered a better milk price
to the farmer, e.g. The West Cork Agricultural Co-operatives.
What can credit unions learn from the experience of the Agricultural Cooperative Movement?
First of all, many of the issues raised above are also weaknesses of Irish credit unions.
These very weaknesses of the agricultural co-operatives were key factors which
contributed to the eventual privatisation of many of the co-operatives. Credit union
boards, managers and members do not wish to see privatisation or demutualisation of
credit unions. The credit unions must ensure that they reinforce the co-operative
nature of the credit union, with a strong volunteer board that is representative of the
membership and must ensure that they continually remind members of the distinctive
nature of the credit union. The Regulator, the ILCU and credit unions themselves
must always measure the impact of any changes (legislation, regulation, product
introduction and so on) in terms of their potential for the dilution of member control
and ownership.
Secondly, the Agricultural Co-operative Movement, through wide-scale
rationalisation, reduced itself down from 160 co-operatives to 30 today. The
Rationalisation Committee does not wish to see the credit union movement reduced
down to such numbers. However, at the same time, the credit union movement will
naturally go into decline if it does not strengthen its business model, and develop its
technology and product and service base. We believe credit unions will need to cooperate with other credit unions in order to do this. This could be through a number of
amalgamations and through the formation of networks.
Thirdly, there were two forms of rationalisation in the Agricultural Co-operative
Movement; one which was highly focused on the creation of international business
and the second, which was more focused on member benefits. The former led to
varying levels of dilution of member control and ownership. Credit unions must
ensure that all business decisions, including rationalisation, are based on member
benefits - where member control and ownership is strengthened and not diluted. This
leads us to make the following recommendation:

The League, Regulators and credit unions must ensure that any changes (legislation,
regulation, new products and so on) do not impact negatively on the members’ control and
ownership of the credit union. An impact assessment model must be developed
(Recommendation 3)
Credit unions must also ensure that they strengthen their co-operative and credit union
ethos. After all, this is their primary competitive advantage. Part of this will involve
educating and increasing awareness among members, staff and volunteers of the
credit union ethos and its relevance in the modern world.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
This leads us to make the following recommendation:

Greater need for credit union and member, volunteer and staff awareness of the credit
union ethos (refocusing on what it means to be a co-operative)
a. The League must develop educational programs/seminars which help boards, staff and
volunteers to ‘re-understand’ the meaning of the co-operative ethos of the credit union
b. The League, within their new national marketing campaign, must develop templates of
promotional material/programs which develop the brand of the credit union based on its
unique ethos
c. Individual credit unions must educate all new and existing staff and volunteers in the
meaning of the credit union as a co-operative
(Recommendation 2)
In the future, credit unions will come under increasing pressure to prove that they are
different from other financial institutions. This pressure will come from legislators,
members and from the general public. A useful way of providing such proof, while
also keeping credit unions focused on their social as well as economic objectives, is to
produce a social audit in addition to a financial audit. VanCity Credit Union in
Canada and the Co-operative Bank in the UK are two well-known examples of
organisations which produce an annual social audit report.
The League should develop social auditing guidelines for credit unions
(Recommendation 4)
2.3 Rationalisation in the credit union movements across the world
2.3 Rationalisation in credit union movements across the world
2.3.1 What form did it take?
The vast bulk of credit union rationalisation throughout the world has come about
through mergers and liquidations. US credit unions have rationalised primarily
through mergers, but over recent years, are increasingly using other rationalisation
models such as the development of shared services structures such as CUSOs, outsourcing non-core services and the development of strategic alliances. These models
will also be discussed later in this Section.
2.3.2 Primary driving forces of rationalisation for credit unions
In the United States, Wilcox (2005) notes that the primary driving force in the early
years of credit union rationalisation was credit union failure. During the 1970s and
1980s, rationalisation was brought about by the liquidation of failing credit unions and
the merging with healthy credit unions. This was a period of economic recession and
Wilcox (2005:2) notes that the “high and volatile unemployment, inflation and
interest rates adversely affected depositories of all kinds”. Rick (1985:5) indicates that
before 1982, credit union mergers were induced by regulatory authorities or the board
of directors for one or more of the following reasons:
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
 Poor asset quality
 Inadequate reserves or profitability
 Retirement of a CEO without a successor
Another factor driving mergers, according to Rick (1998:3), is credit union asset size.
He states that from 1980 to 1996 there was a 45% reduction in the number of credit
unions in the US. Most of these credit unions had assets of less than $10 (€8.3)
million with the greatest reductions in those with less than $5 (€4.6) million. Rick
(1998) points out that the credit unions within this smaller category either merged,
liquidated, grew to a larger asset class, or failed. He highlights that these credit unions
have had the most difficulty meeting members’ service needs, adjusting to increased
regulatory burdens, adopting new technology, and reaching the volume needed to
achieve greater economies of scale and efficiency.
Also small credit unions found it hard to cope with stringent regulatory requirements.
Goth (2005) highlights that increasing regulation was one of the factors driving
rationalisation in Canada. In Australia, Garden (1999) states that the motivations
behind mergers were the “drive for greater operational economies; legislative
incentives; the need to broaden bonds of association; demand for wider distribution
networks, and the desire for interstate links between related credit unions” (Crapp &
Skully, 1985:160). He further states that regulatory authorities tend towards enforcing
mergers to ensure greater efficiency and stability within the financial system. In
Australia and New Zealand, the main driving force for rationalisation (due to mergers
or liquidations) was pressure from the new regulatory regime which favoured such
rationalisation. Sibblad & McAlevey (1999:1) cite the Australian Regulator who
stated that:
“My main aims are the promotion of rationalisation and efficiency
within credit unions”.
Rick (1998:5) notes that today, credit unions are deciding to merge for strategic
business reasons rather than financial distress. He indicates that many small and
medium sized credit unions are now merging to reduce overhead costs, to afford new
technology, and to offer better products. He concludes that, “credit unions now view
mergers not as a strategy to survive, but to do better”.
An additional factor that is driving mergers in the UK is volunteer burnout and
governance issues (Goth, McKillop, Ferguson, 2005).
In summary, the primary forces driving rationalisation are as follows:
 Increasing competition
 Declining growth
 Scale
 Increased regulatory burdens and legislation concerns
 Increased need for technological capability
 Limited service offerings
 Governance issues
 Failure
 Strategic business decision
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Section Three of this report will examine Irish credit unions in terms of these forces.
2.3.3 Research Evaluation of Rationalisation Models Applied in Credit Unions
in Other Countries
As the majority of rationalisation across credit union movements has mainly consisted
of mergers and liquidations, the analysis of rationalisation around the world focuses
on mergers of credit unions, and primarily focuses on the impact on individual credit
unions rather than on the overall movement. We present some of this analysis here.
Mergers
Fried, Lovell and Yaisawarng (1999) studied 1,600 credit unions in the US, which
were involved in one or more mergers during the 1989-1994 period. They set out to
answer three research questions in relation to credit union mergers:
1. Do members of acquiring* credit unions benefit from mergers?
2. Do members of acquired* credit unions benefit from mergers?
3. What are the characteristics of relatively successful, and relatively
unsuccessful mergers?
The results indicate that, on average, service provision to members had improved in
acquired credit unions, and had remained unchanged in acquiring credit unions.
However, with more detailed analysis, they find that roughly half of acquiring credit
unions and roughly one fifth of acquired credit unions do experience a decline in
service provision following a merger.
An Australian study of thirty one credit union mergers found that mergers are not
associated with improvements in efficiency superior to those achieved by internal
growth (Ralston, Wright & Garden, 2001). These researchers believe that the twin
goals of economies of scale and improved member service:
“may be better gained through aligning with other small financial institutions
and centralised bodies to purchase aggregated services, and outsourcing
specialised technology support and product development expertise”.
They go on to say that to remain competitive, a credit union, like other firms, must
create a balance between the size of the organisation and the member service. They
conclude that mergers alone will not ensure the survival of credit unions in the third
millennium. Another Australian study (Garden, 1999) found that on “average there
were no gains for merged credit unions in either allocative efficiency5 or x-efficiency6
relative to other credit unions”. Of the sixteen mergers studied, three showed a gain in
efficiency, four resulted in no change and nine institutions declined in efficiency in
the three-year post-merger period. However, the impact of mergers may not be seen
for many years, therefore a three-year period may be too short (Rick, 1998).
*
These are the terms used in the literature and are not those of the Rationalisation Committee.
Allocative efficiency reflects the ability of the firm to use inputs in optimal proportions, given the
price of those inputs.
6
X-efficiency is directly linked to managerial ability to control costs or to maximize revenue.
5
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Rick (1998) points to the disruptive nature of mergers on credit unions, where they
can breed controversy over who will get to be the new Chair of the credit union,
which is going to be the surviving credit union and who will sit on the board. He also
highlights that mergers can be disruptive to credit union employees as their ‘functions
are consolidated and reorganised’. However, these are all areas that can be negotiated.
For example, in the case of mergers, the majority of staff maintain their jobs and for
those who do not, they should be adequately compensated. Rick further states that
mergers can diminish credit unions’ ‘collective voice with regulators and legislators’.
As credit unions merge, there are fewer volunteers and possibly fewer people who are
“willing to raise their voices in support of their credit union”.
In terms of the US study, Fried, Lovell and Yaisawarng (1999) also examine the
various characteristics of credit unions which benefit from mergers. They found that
acquired credit unions are likely to benefit from mergers if they have room to
improve, for example, weak loan portfolios and so on. Acquiring credit unions are
likely to benefit from mergers if they have previous experience with mergers. Finally,
they indicate that merger partners, both acquired and to a lesser extent acquiring, are
likely to benefit from mergers if they are both different, where each can benefit from
the unique competency of the other. Hoel (2004) states that acquired credit unions
benefit from a merger when the acquiring credit union is much larger, where the
acquired loan quality is poor, where there is a big difference in products per member
and where there is a small difference in loans to savings ratios.
However, several successful mergers have taken place in the US as well as elsewhere
(Hoel, 2004; Rick, 1998). Hoel (2004) maintains that mergers can be particularly
beneficial to the acquired credit union. This is usually the credit union which is in a
weaker position and which greatly benefits from the resources and competence of the
larger acquiring credit union. In such a situation the members of the acquired credit
union receive increased member benefit from the merger, through better products and
services. Hoel cites Forbes, a CEO of Westminster Savings Credit Union Canada,
who states that the goal of mergers should be when:
“a merged credit union adds value for members, creates opportunity for
managers and staff, becomes a stronger member of the credit union system
and is a bigger contributor to its community”.
Amalgamations
Within much of the literature reviewed in the last section, amalgamations are hardly
mentioned and where they are, the term is used interchangeably with mergers.
However, there is a difference between a merger and an amalgamation.
A merger is the acquisition of one company by another so that only one remains: for
example where one company acquires most or all of the shares in another so that the
latter becomes a subsidiary. Amalgamation, on the other hand, is the actual coming
together of two or more credit unions to create a new credit union as their successor.
It should be noted that the Credit Union Act, 1997, makes reference not to mergers
but instead, to amalgamations and transfers of engagements. In an amalgamation, both
co-operatives must agree joint policies and strategies going forward as a new entity.
In a sense, both arrive at the negotiating table as equals. In a merger context, Welsh
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
(2004:14) asserts that ‘a merger of equals’ approach is ‘doomed to failure’. He states
that one player must be dominant and both parties must understand from the
beginning that “one of the players must be empowered to make the tough calls”. In
the case of the agricultural co-operative amalgamations, equality of partners often
resulted in very large boards, where neither co-operative was willing to relinquish
board positions. Ward (1982, 2005) and Enright (1997) asserted that this sometimes
worked against rationalisation objectives.
Mergers and amalgamations are not the only forms of rationalisation. The remainder
of this section will examine some of the alternatives that could also be considered.
Alternative forms of rationalisation
In this sub-section, we discuss various forms of rationalisation open to credit unions:





Networks
Strategic Alliances
Credit Union Service Organisations (CUSOs)
Shared Branching
Out-sourcing
Networks
Networks are, in essence, associations of people, or organisations, who join together
for mutual benefit (Holmlund & Fulton, 1999:1). They are usually characterised by a
formal co-operative arrangement between a number of organisations who have come
together to achieve a common goal (Gubik (2005) citing Kocsis (2000)).
Within the business development literature (see Porter, 1998, 2000), there is
significant interest in the role of networks and clusters in the development of small
and medium sized businesses. Gubik (2005:28) refers to it as corporate co-operation,
which she defines as the “connection of independent companies or partners, whose
objective is to combine their resources and efforts in the value creation process”. She
asserts that this increased interest among small to medium sized businesses in
corporate cooperation is a result of a changed economic environment and increased
competition. Holmlund & Fulton (1999), talking in an agricultural context, discuss the
importance of networks in the new knowledge or ‘know-how’ economy. They state
that knowledge, almost by definition, is something that cannot be produced in
isolation. They state that:
“unlike the old ways of doing business, networks allow for specialisation and
diversification at the same time. Each member can specialise in their own
area, but still have access to the know-how of all the others. Networks are the
basis for communication and information sharing. They allow ideas, actions,
plans etc. to work together for a combined result that is greater than the sum
of their individual parts. In short, the network allows for both specialisation
and access to new ideas and new know-how (and therefore diversification)”.
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They conclude that, logically, it is not possible for one autonomous operation to both
diversify and specialise at the same time. But it is possible to ally with others to form
a large, profitable and energetic entity made up of many autonomous parts.
Writing within a credit union and co-operative bank context, Fischer (2002) subdivides governance models into federated-network and atomised-competitive or nonnetwork models. He defines the first as an integrated tightly organised (strategic)
network and the second as a looser arrangement with low levels of integration. He
shows the credit union movements which fit each model by country, as presented in
Table 2.2.
Table 2.2 Fischer’s (2002) Categorization
Federated-Network
Non-network
Austria
Australia
Belgium
English Canada
Finland
Italy
France
Spain
French Canada
Switzerland
Germany
United Kingdom
Luxembourg
United States
Korea (South)
(Ireland)
Netherlands
Although he did not include Ireland in his categorisation, it is clear that it falls under
the non-network classification. Based on his analysis of data from the credit union
movements of these sixteen countries, and using the Data Envelopment Analysis
(recently also used by Goth, Mckillop & Ferguson, 2005), he shows that financial cooperatives operating under the federated-network governance model have equal or
superior (but not inferior) performance to those operating under the non-network
governance model.
In a later study, Desrochers & Fischer (2003) compared the Quebec Desjardins
Movement with the United States Credit Union System - the first, coming under the
network model categorisation and the latter under the non-network model. In their
study they found that the Desjardins model had a higher overall efficiency than the
US credit union model. They assert that the strategic network provides a monitoring
system which helps to counter the problems associated with the dilution of internal
governance as a result of size. They also make the proposition that strategic networks
are a “superior form of governance mechanism over mergers as a strategy of
rationalisation and consolidation”. Goth (2005) also highlights the relevance of the
network model for the future development of Irish credit unions.
However, there are also challenges with regard to networks. Ward, Briscoe & Linehan
(1982) indicate that tension and conflict can arise between the members of a network
and the central hub, particularly in the case of ongoing financial commitment and
investment. If a member decides to leave the network, it can greatly increase its
vulnerability. However, Ward et al (1982) stress that most of this tension can usually
be avoided if the network is properly constituted in the first instance. Successful
networks are also highly dependent on the elimination of opportunism or the ‘freerider problem’. Therefore, the development of trust between the members is essential
(O’Reilly & Haines (2004); Ouden, Ziggers, Duysters (2005)). Hence, the creation of
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
a successful network will take time as it will first require the development of strong
relational capital between the members before the formal network is developed.
We will now discuss a number of network options.
Strategic Alliances
A strategic alliance is a type of network – a partnership that is strategic because it is
entered into by design, with serious thought given to benefits to be gained from the
partnership. Holmlund & Fulton (1999) indicate that strategic alliances represent the
balance between being entirely on your own in the market-place and being completely
swallowed up by bigger interests. They present this diagrammatically as follows:
Diagram 2.1 Strategic Alliances
Independence
Integration
Strategic Alliances
Taken from Holmlund & Fulton (1999)
Rick (1998) discusses two forms of strategic alliance that have relevance for credit
unions. These are


Credit Union Service Organisations (CUSOs)
Shared Branching networks.
Credit Union Service Organisations (CUSOs)
CUSOs are organisations set up by a group of credit unions to provide services to
their member credit unions. CUSOs seem to be mainly an American phenomenon.
However, Fischer (2004) believes that the CUSO model could easily be adapted for
other credit union movements. CUSOs were first formed in 1970. By 1995 there were
300 and by 2003 this had grown to 3,500 (NCUA, 2004). Under US law, a CUSO
must be structured as a corporation, limited liability company or limited partnership.
Rick (1998) states that the Federal7 Credit Union Act provides that loans to CUSOs
from credit unions should be approved by the board of directors and shall not exceed
1% of the available capital and surplus of the credit union. In terms of investments,
the federal credit union may invest funds in the CUSO of up to 1% of the available
capital and surplus of the credit union. Therefore, a federal credit union has a
maximum of 2% of its funds invested in a CUSO. Fischer (2004) indicates that the
majority of American CUSOs have taken the limited liability company structure, with
the credit union participating as a limited partner only. Credit unions are not
authorised to be a general partner. Fischer (2004) points out that this isolates the credit
7
Credit Unions in the United States are either legislated under the Federal Credit Union Act or under a
state charter.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
union from risks that may be assumed in the CUSO. The CUSO operational structure
is presented in Diagram 2.1.
Diagram 2.2 CUSO Operational Structure
SERVICE
PROVIDER
CU
CUSO
CU
CU
CU
Ownership
Service
Fischer (2004)
Rick (1998:22) states that the many products and services available through CUSOs
make it possible for smaller credit unions to compete. In the US, CUSOs operating
under National Credit Union Association (NCUA) regulations can offer the following
services:

Operational and Management Services: credit card and debit card, ATM,
accounting systems, data processing, management training and support,
payment item processing, record retention and storage, research, debt
collection, credit analysis and loan serving and coin and currency, internetbased services for securities, cash ordering, electronic fund transfer (EFT),
sale or lease of computer hardware and software and marketing.

Services to Members: financial counselling, retirement counselling,
investment counselling, discount brokerage, estate planning, income tax
preparation, developing and administering individual retirement accounts,
deferred compensation and other personal benefit plans, trust, acting as trustee,
guardian, conservator, estate administrator, or in any other fiduciary capacity,
real estate agency, agent for sale of insurance, personal property leasing, and
provision of vehicle warranty programs.

Consulting Services: Charter conversions, asset-liability management,
modelling, research, marketing and strategic planning

Property Management: personal property leasing and development of leasing
plans
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006

Other Services as determined by the directors and that are associated with the
routine operation of credit unions
While CUSOs can, under NCUA regulations, provide the services above, Fischer
(2004) states that CUSOs tend to offer the following services in order of popularity:
shared branching, followed by data processing, cheque clearing and financial and
retirement planning services for credit union members. Section 5 will discuss the
CUSO model in greater detail, in terms of its appropriateness for the Irish context.
(For a full detailed list of the services a CUSO is allowed to offer, see Appendix Two.)
Shared Branching Networks
Rick (1998:23) asserts that banks are ‘formidable competition’ for credit unions
primarily because of their scale. One way for credit unions to compete is to form cooperative shared branch facilities to counter banks’ advantages of scale. A shared
branch operation provides branch office services for more than one credit union. The
common bonds of some credit unions overlap with others, with members often
belonging to both credit unions. Rick asserts that a shared branch is a good way to
conserve resources, serve members, and plan for the future. Shared branching is not
new in the United States having been in existence since the 1970s (Johnston (2004).
By 1998, 6.8% of all credit unions were participating in some sort of shared branch
system with larger credit unions more heavily involved (Rick, 1998).
Shared branching means that members become a guest member at the participating
credit union, allowing them access to all the services they would have at their own
credit union, including savings and withdrawals, loan payments and advances, and so
on. The current network system depends on a chain of faxing confirmations to verify
balances and amounts. Although this method is based on a paper system, Johnston
(2004) states that “it is very efficient and provides members with the necessary safety
and flexibility”.
Rick (1998) highlights the benefits of shared branching. He maintains that it allows
those credit unions which have insufficient funds to build a branch themselves to
participate in a shared branch system, thereby allowing greater accessibility for their
members. This may also increase member convenience by having more evening and
weekend hours and can also help relieve some of the queuing in an overstretched onebranch system. He highlights other benefits as:






Reviving dormant member relations
Delivering new accounts
Cross-selling services and expanding account relationships
Retaining members who relocate
Serving members in various locations
Allowing for effective competition against regional and
national banks; and
 Reducing the need to build new branches and possibly allowing
some branches to close
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Rick (1998) points out that shared branch systems are owned and governed by the
participating credit unions. For example, in New Jersey, seventeen credit unions,
together with their service organisations, and the New Jersey Credit Union League
formed the Credit Union Service Network, a state-wide shared branching, 24-hour
lending, and ATM Co-operative. The network has 10 shared branch locations. The
network also connects with 256 other shared branch locations nationwide and offers
24-hour lending and a call centre.
Shared Branching is something that could work very well within the Irish credit union
context. Many credit unions are already performing a limited version of this role
informally by processing share withdrawals for members of other credit unions. This
could be further developed to create a national common bond of service, while still
maintaining the local membership common bond.
Outsourcing/sub-contracting
Kacheiski (2002) defines subcontracting as outsourcing work that is not the credit
union’s core competency. Kacheiski (2002) presents a number of areas of outsourcing
in credit unions as back office operations, such as accounts, payroll, technology and
marketing. In the US, there are a number of credit unions which only have a ‘front
office’ and all back office operations are outsourced to a larger credit union or other
organisation. By outsourcing, credit unions can concentrate on their core member
service.
He outlines the main advantages and disadvantages of outsourcing as follows:
Table 2.3 Advantages and Disadvantages of Outsourcing
Advantages
Disadvantages
1. Greater flexibility
1. The reliability of the outsource provider
2. Experts do a better job
2. Less quality control
3. Fewer overheads
3. Disassociation of the main organisation
4. Faster implementation of innovations
As can be seen from the list of advantages and disadvantages, the success of
outsourcing is very dependent on the level of trust between the credit union and the
outsourcing partner. Disadvantages 1 and 2 are directly related to trust. With regard to
the third disadvantage, the Filene Research Institute (2003), in a recent report,
highlighted the fact that outsourcing allows credit unions to remain viable and retain
their identity at the same time. The report discusses outsourcing and sharing of
management in credit unions. Some credit unions outsource their day-to-day
operational management but still retain a board for the strategic running of the credit
union.
Green Bay Credit Union Centre (in the US) is an example of such outsourcing. This
centre is run as a co-operative and is owned by five credit unions with combined
assets of $30 (€25) million. It was set up in 1973 with the objective of providing
greater professional management to a number of small credit unions. Radue (2003),
the CEO of the Centre, points out that if an individual credit union hired full-time
professional staff and moved into its own building, costs would be much higher than
if they were using co-operative facilities and management. He asserts that this allows
the credit unions to concentrate on offering a better and wider range of services. Some
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
of the services offered by the credit unions are ATM access cards, debit cards,
Individual Retirement Accounts, loans and savings, financial planning, first
mortgages and home equity loans. He goes on to say that because the Centre is cooperatively owned, the Centre works in the interests of the credit unions and does not
try to make a profit at their expense. Cost sharing is subdivided as follows: 45%
based on assets, 5% based on the number of members, 25% based on income and 25%
based on activity. Each participating credit union develops a commitment to the
Centre and if they wish to leave they must seek Regulator approval. Radue (2003:26)
concludes that:
“for those who don’t want to lose their identity and still reap the efficiencies of
scale, a shared management system is a reasonable option”.
The Filene report also presents a second model, which may have relevance for the
Irish context. This is the State Employees Credit Union (SECU), which provides
management services to three credit unions. It has provided complete management
and operational services since 1985 for one credit union, which currently has $3
(€2.5) million in assets and is now growing at 30% a year. For another, a
$373(€310.8) million credit union, the only employees of which are the CEO and nine
other high level managers, it has provided nearly-complete management since 1985.
For a third, it has provided extensive support for a new credit union serving a local
Latino community. The participating credit unions pay a percentage of their gross
income to SECU as a service fee. However, Mike Lord, the CEO, states that in 2002,
the revenue for SECU from these relationships was $6 (€5) million, but that there
were many ‘soft’ costs which would reduce this income.
Lord (2003) states that many of these relationships grew out of unique circumstances
and with a philosophical underpinning that may not be replicable in more general
cases. Possibly the most replicable is where SECU has an ATM-network, in which
forty five other credit unions participate. For this, they pay a once-off fee. Lord
indicates that this is a win-win situation for both SECU and for the participating credit
unions, as SECU earns income to cover some of its sunk capital costs and
participating credit unions do not have to make a large investment in expensive
technology. Perhaps in Ireland, this is a model worth considering.
2.4 The potential future paths for Irish credit union development
and rationalisation?
From our analysis of rationalisation in the Irish Agricultural Co-operative Movement
and in credit union movements across the world, we feel that the Irish credit union
movement has three potential paths of development. These are presented in Diagram
2.3.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Diagram 2.3
Three potential paths of development for the credit union movement to
maximise member benefit
1
2
Large-scale
amalgamations
Reduced down to a small
number of large credit
unions
3
Strategic and Sustainable way
forward
A mix of amalgamations
and networks (reducing
costs, development of
products and technology
base)
Do Nothing
Large number of credit
unions all operating
independently of each
other and declining
business performance
Not always desirable
Most desirable
Not Sustainable
Decline of the CU as a
Co-operative
Movement
Sustainable way
forward
Decline of the CU
movement
The committee is of the view that Path 2 is the most desirable direction for the Irish
credit union movement, leading to a stronger movement in terms of credit unions as
businesses and as co-operatives. The Committee feels that Path 3 would lead to
continuing worsening trends in the movement and Path 1 would lead to the eventual
demutualisation of the credit union movement.
2.5 Conclusion
Irish credit unions are now operating within a financial services system which consists
of very large and sometimes globalised financial institutions. Within such an
environment, being small (all Irish credit unions are small in these terms) can be a
competitive advantage. Goth (2005) indicates that, in the future, the market may
consist of very large global financial institutions and very small financial providers,
with the middle group coming under the most pressure – not having the strength of the
large or the flexibility of the small. Goth sees a clear niche role for credit unions
within the Irish market in the future. He highlights the importance of flexibility and
the need to be competitive. However, flexibility is decreasing in the credit union
where, under increasing compliance requirements, the flexibility of the loan product
and service is decreasing. And as its loan interest rates are perceived as higher than in
other financial institutions and as services are mainly delivered using manual
transactions - the competitive advantage of the credit union may be eroding,
particularly in terms of loans. The declining trends in credit union loan growth is,
perhaps, evidence of this eroding competitive advantage. To develop the technology,
products and services required, credit unions will need to link more closely with one
another credit unions to create the necessary leverage and resources required for such
development.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
In this Section, we have presented a variety of models of rationalisation, as well as the
literature on the pros and cons of the models that have been used in other credit
unions movements. We also presented a number of the key factors that have driven
rationalisation in these movements. In the next Section, we examine if these same
forces are present in the Irish Credit Union Movement.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
SECTION THREE
CURRENT STATUS OF THE IRISH CREDIT
UNION MOVEMENT8
______________________________________________
3.1
Introduction
This Section will examine the current status of the Irish credit union movement,
particularly in light of the main driving forces of rationalisation, as discussed in the
previous Section. These were:









Increasing competition
Declining growth
Scale
Increased regulatory burdens and legislative concerns
Increased need for technological capability
Limited service offerings
Governance issues
Failure
Strategic business decision
The material for this Section draws heavily on ILCU Call Report data, the recent
Environmental Scan produced by the ILCU, and on the results of the Rationalisation
Committee Survey9.
3.2
Current Structure of the Irish Credit Union Movement
The credit unions in the Republic of Ireland (ROI) are regulated by the Irish Financial
Services Regulatory Authority (IFSRA) and legislated for under the 1997 Credit
Union Act. The Credit Unions in Northern Ireland (NI) are regulated by the Registry
of Companies, Credit Unions and Industrial & Provident Societies and legislated for
under the Credit Unions (Northern Ireland) Order 1985. Credit Unions are memberowned organisations which are governed by a representative volunteer board. Being
democratic in nature, they are run on a one-member-one-vote principle. This is the
main factor distinguishing credit unions from other financial institutions. We will now
focus on the key issues for the Irish Credit Union Movement (both North and South).
This section of the report draws heavily on the ILCU’s report ‘Environmental Scan for Credit Unions’
written by Finbarr McCarthy (2003).
9
The Rationalisation Committee designed and administered a survey to the entire movement (both in
the ROI and NI). 101 surveys were returned.
8
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
3.3
Key issues for Irish Credit Unions
3.3.1 Competition
Competition in the Irish financial services market is increasing. This has lead the ROI
Credit Union Regulator (2005) to assert that:
“given the competitive nature of the retail financial services
sector, it will not be feasible for credit unions to service their
members’ needs into the longer term unless change takes place”.
Until the late 1990s, the Irish banking sector was primarily made up of two large
players – AIB and Bank of Ireland, and a number of other smaller financial
institutions. However, in recent years, other players have moved into the market such
as Rabobank which purchased the state-owned ACC, and Bank of Scotland which
purchased ICC. Within the Irish market there has been significant merger/acquisition
activity. The primary reasons for this activity are:



Economies of Scale
Economies of Scope
Access to new markets
Table 3.1 Rationale for Mergers/Acquisitions in the Irish Market
Institutions
Irish Life
Irish Permanent
TSB
(Life Assurance)
(Mortgages)
(Retail Banking)
First Active
(Mortgages)
Rationale
Economies of Scope and
Scale
Royal Bank of Scotland
Ulster Bank
(Retail Banking)
Economies of Scope and
Scale
Bank of Scotland
ICC Bank
Access to Market
Rabobank
ACC Bank
Access to Market
The Environmental Scan (2003:40) highlights the fact that this level of concentration
will increase competition in the Irish market and indicates that it may become difficult
for niche players in a market that is ‘increasingly being governed by globalisation and
extremely large players’. The Scan poses the following questions:
Credit Union Considerations (Market Structure)
1. Considering that the small/medium players in the market are merging or being acquired
by larger institutions, can credit unions maintain their current structure?
2. If credit unions opt to follow the developments in market structure could they derive the
same benefits that underlie the merger and acquisition of small and medium institutions
i.e.



Economies of Scale (Cost reduction & rationalisation)
Can significant economies of scale be derived at a local level?
Economies of Scope (new income streams and products
Can significant new income streams be built at a local level?
Access to new markets
Can significant access to new markets be made at a local level?
31
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
However, as we indicated earlier in this report, the movement does not have to
confine itself to amalgamations only, as there are other models of rationalisation
which may be more appropriate in certain cases. The ROI Credit Union Regulator
(2005) stresses that credit unions could, in the “various Chapter areas or regions,
establish structures to support each other, to gain the benefit of enhanced buying
power for the professional and other services they need”. These structures could
follow the CUSO model as discussed earlier and outlined in Section Five.
In terms of competition, it must also be remembered that the credit unions’
competitive advantage lies in its ‘people before profit’ ethos. This was clearly
indicated in the recent marketing research carried out by Millward Brown IMS, on
behalf of the ILCU. The image position of credit unions as compared with other
financial institutions is presented in Diagram 3.1.
Diagram 3.1 How do consumers see the positions of different financial institutions?
Professional
New banks
BOS
First-active
Halifax
PTSB
First Direct
Trad.
Banks
BOI
AIB
ULSTER
NIB
Building Societies
EBS, ICS, Irish
Nationwide
Warm
Insurance
Co
Irish Life
Hibernian
AXA
Eagle Star
Cold
Post Office
Credit Unions
TESCO
Amateur
Taken from Millward Brown IMS Research (on behalf of ILCU)
Millward Brown’s research indicates that credit unions are seen as ‘warm’
institutions, but are also seen as more amateur than the other financial institutions.
However, it must be remembered that it is far easier to acquire a professional image
than a ‘warm’ image. It is interesting to note the location of the EBS, which has
recently put significant resources into advertising a mutual and caring nature.
Millward Brown’s research highlights that a key differentiation between banks and
credit unions is that “banks are focused primarily on making profit, credit unions are
focused on the welfare of their customers”. They also found that people strongly
believe that the statement “Credit Unions Put People’s Needs First” best describes the
credit union.
32
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
3.3.1.1 Tightening Margins in the Credit Union
The Environmental Scan (2003) highlights that all financial institutions, including
credit unions, are ‘experiencing tightening interest margins as the level of competition
in the financial market place intensifies’. However, conventional financial institutions
are less dependent on interest income than credit unions as they have diversified
significantly. These financial institutions are also in the process of reducing their costs
through outsourcing non-essential operations and through the development of remote
electronic service delivery channels (Environmental Scan, 2003). It is interesting to
note that many credit unions now have a larger staff and occupy more expensive
premises than banks in many Irish towns and thereby have a more expensive
infrastructure. The following table (3.2) highlights the cost/income ratios of the two
largest banks with that of the average credit union:
Table 3.2 Comparison of the cost/income ratio of the credit union and the AIB/BOI
Cost/Income Ratio
AIB (2002)
BOI (2002)
Credit Union (2003)
Cost (including costs of funds)/Income
57.8%
55.9%
80%
The Environmental Scan (2003) highlights that the cost/income ratio for the credit
union movement is significantly higher than the cost/income ratio for conventional
financial institutions. It notes that while:
“these commercial entities are driving down their costs bases and
maximising the income derived from the costs expended there is
no similar united approach within the credit union movement.”
Rationalisation is one way of reducing the costs in the credit union.
3.3.1.2 Quality of the Loan Book of Irish Credit Unions
Irish credit unions have traditionally been very dependent on the interest generated
from lending as the primary source of income. However, within today’s low-interest
environment, credit unions are attracting large amounts of savings but are finding it
difficult to re-circulate it in the form of loans. This has led the ROI Credit Union
Regulator to state that “credit unions are massively under lent”. This section will
examine the quality of credit union lending in terms of loans to assets and
delinquency ratios.
Loans to Assets
The loans to assets ratio measures the percentage of assets out on loan to the
members. Under the PEARLS Ratios, this is known as Ratio E1. It is recommended
that this ratio should be greater than 70%. Based on 2003 call report data cited in the
Environmental Scan, the ratios are presented in below:
33
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Table 3.3 Loans/Assets Ratio (ROI & NI)
Loans/Assets (>70%)
ROI
NI
Ratio (E1) (2003 data)
Below 70 %
82%
79%
Above 70%
18%
21%
As can be seen from this Table 3.3, 82% of ROI credit unions and 79% of NI credit
unions do not meet the ‘greater than 70%’ PEARLS recommendation. Trends over the
last number of years are presented in Diagram 3.2.
Diagram 3.2 Loans/assets Ratio Trends (ROI & NI)
80%
60%
40%
20%
0%
2000
2001
2002
2003
2004
2005
June
ROI
66%
63%
57%
55%
49%
48%
NI
70%
67%
64%
61%
58%
57%
Diagram 3.2 shows that loans to assets ratios have been in decline since 2000, down
from 66% in 2000 to 48% in 2005 for ROI credit unions and, down from 70% in 2000
to 57% in 2005 for NI credit unions. The Environmental Scan notes that the declining
loans to assets ratios for credit unions in both ROI and NI are as a direct result of the
massive growth in savings coupled with a much slower growth in lending. However,
when a credit union lends money, it must also ensure that the loan is repaid.
Therefore, we will now examine delinquency.
Delinquency
The Environmental Scan highlights that of all PEARLS ratios, the “delinquency ratio
is one of the most important measurements of institutional weakness”. The Scan
indicates that if delinquency is high, then it usually impacts on all other key areas of
credit union operations. Under PEARLS, delinquency is measured under Ratio AI.
The purpose of this ratio is to measure the total percentage of delinquency in the loan
portfolio. The goal for this ratio is less than 5%. Based on Call Reports for 2003, the
A1 ratio for both ROI and NI is presented in Table 3.4.
34
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Table 3.4 Delinquency Ratio (A1) for both NI and ROI (2003)
Gross loans in arrears/Total Loans
ROI and NI
(2003 call report for 448 CUs)
(A1)
(PEARLS recommendation: <5%)
Below 5%
Above 5%
28%
72%
As can be seen from Table 3.4, 72% of credit unions are over 5%. This indicates that
a large number of Irish credit unions have delinquency issues. The Environmental
Scan highlights that, for those with an A1 Ratio less than 5%, 52% have attained a
result below 100% on the PEARLS Ratio P110, which means that they must improve
their provisioning to cover the delinquent loans as calculated by Resolution 49. The
Scan concludes that the current degree of delinquency in some individual credit
unions increases the risk to the overall movement in terms of:



reputation of all credit unions
potential impact on the Savings Protection Scheme (SPS)
potential regulatory consequences.
It is interesting to note that, in the Rationalisation Committee survey, 49% of those
surveyed who did not meet the requirements with regard to the A1 PEARLS
delinquency ratio, indicated that they had no or limited difficulty with regard to
controlling delinquency. This is worrying because these credit unions are either
ignoring their delinquency problems or are not aware of them. Diagram 3.3 presents
the AI trends from 1999 to 2005.
Diagram 3.3. Delinquency Ratio (A1) Trends for both NI and ROI
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2000
2001
2002
2003
2004
2005
ROI
5.20%
5.70%
5.20%
6.50%
7.28%
8.05%
NI
5.00%
4.60%
5.10%
6.90%
7%
6.50%
As can be seen from Diagram 3.3, delinquency in ROI credit unions is increasing,
from 5.2% in 2000 to 8.05% in 2005, with a slight decrease in 2002. The A1 average
for the NI movement is also increasing from its below 5% level in 1999 to 6.5% in
2005. It should be noted that these are average trend figures and some individual
credit unions have very significant adverse ratios.
10
The purpose of the P1 Ratio is to ensure that the credit union is complying with bad debt
provisioning requirements. The goal is a minimum of 100%.
35
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
3.3.2 Market Share and Growth
Market Share
Market share is an important measure of how well a particular industry or sector is
doing within an economy, whether that share is growing, stagnating or declining. The
ILCU Strategic Review (2005) stated that, while the Irish economy is experiencing
rapid growth in personal credit borrowing, credit unions are ‘not participating fully in
this growth and are thus losing share in their key market’. The Review goes on to say
that, according to the Call Reports for December 2004, 96% of credit unions
experienced loan growth that was less than the market average.
Growth
We also examine share and loan growth in credit unions for the last number of years.
This data is presented in Table 3.5.
Table 3.5
Growth
Shares/deposits
2000
2001
2002
2003
2004
2005
Lending
2000
2001
2002
2003
2004
2005
Share and loan growth trends in Credit Unions
Credit Unions
ROI
NI
23%
21%
23%
15%
17%
18% est
11%
13%
15%
12%
9%
9% est
22%
14%
11%
10%
7%
8% est
10%
9%
9%
6%
6%
6% est
As can be seen from Table 3.5, credit unions in both the ROI and NI are experiencing
a decreasing rate of growth in both their shares and particularly in their loans (in the
case of ROI where loan growth fell from 22% in 2000 to 7% in 2004. The
Environmental Scan highlighted that this
“divergence has implications on the investment strategy and portfolio of credit
unions and the need to derive additional income from the investment portfolio
while taking cognisance of the risk profile of the investment portfolio”.
However, credit unions need also to examine how they are perceived by the general
public. Millward Brown’s research (2005) shows that credit unions
“did not emerge with a particularly strong image in terms of either
cheap loans, nor attractive returns on savings”.
36
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
This may explain the decreasing level of loan growth in the credit union and may also
signal a future decline in savings growth.
The Rationalisation Committee survey also asked the credit unions to indicate their
growth potential for the next one to five years, in terms of membership, loans and
shares. Unfortunately, due to misunderstanding, many credit unions completed this
question incorrectly for the three and five year period. Therefore, the analysis will
only focus on one year’s estimate. The responses are presented in Table 3.6.
Table 3.6
Credit unions estimation of growth for the next year (survey responses)
Growth Potential
Percentage of Credit Unions Surveyed
Membership
Shares
Loans
Higher (>5%)
28 (28%)
27 (27%)
17 (17%)
Medium (3-5%)
44 (44%)
40 (40%)
31 (30%)
Low (1 to 2%)
16 (16%)
20 (20%)
33 (32%)
Zero/Neg4 (4%)
3 (3%)
11 (11%)
No Reply
9 (9%)
11 (11%)
9 (9%)
As can be seen from Table 3.6, the credit unions’ estimate the highest growth in
membership and savings with lower growth estimates for loans. As can be seen from
the Table, the vast bulk of credit unions have very conservative growth estimates
across the three areas of membership, shares and loans.
3.3.2.1 Common Bond and Market Penetration
The credit unions’ market is confined to its common bond11 area. Credit unions often
suggest that their common bonds are limiting their growth. The Rationalisation
Committee Survey asked credit unions the following question:
 Does your credit union’s common bond restrict the growth
potential of your credit union?
The responses are presented in the Diagram 3.4 below.
Diagram 3.4
Does your Credit Union’s common bond restrict the growth potential of your
Credit Union? (sample size = 101)
No reply
6%
Yes
45%
No
49%
11
Membership of a credit union is confined to a common bond, of residence or working in a particular
area, working for a common employer or membership of an association of persons, work or live
common bond
37
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
As can been seen from Diagram 3.4, 49% of the credit unions surveyed stated that the
common bond does not restrict their growth, while 45% feel it does limit their growth.
The question for these credit unions is how will they continue to grow in the future?
We can also ask, have they fully penetrated their common bond in terms of
membership and use of the credit union? However, we do not have this information
and it can be difficult to estimate the population of the common bond. So for
indicative purposes, we examine the population of county areas and examine the
market penetration in terms of credit union membership. We collated the tables from
data presented in the Environmental Scan (2003). As the data is presented differently
for NI, it was necessary to confine our analysis, in this instance, to the ROI.
Counties (incorporating cities and counties) : Republic of Ireland
The population figures for each county (including both urban and rural areas) are
presented. The counties are sub-divided into



Highest Market Penetration (membership >70%),
Medium Market Penetration (membership in the 60% range)
Lowest Market Penetration (membership <60%)
The results are presented in the following three tables.
Table 3.7
Counties
Cavan
Highest Market Penetration (in terms of credit union membership)
Pop.
No
Pot.
Membership
CU
% of
(2001
of
Mem. per
penetraBorrowers
Total
Average
CSO
CUs CU
tion
data)
46,014
7
1:6573
40,040
5,720
87%
10,884
(27%)
56,546
9
1:6282
44,867
4,985
79%
11,573 (26%)
Cork
447,829
42
1:10,662
355,785
8,471
79%
Kilkenny
Limerick
Louth
Monaghan
Tipperary
Waterford
80,339
175,304
101,821
52,593
140,131
101,546
10
25
21
6
15
9
1:8,033
1:7,612
1:4,848
1:8765
1:9,342
1:11,282
59,759
126,126
75,701
50,266
111,963
80,986
5,975
5,045
5,823
8,377
7,464
8,998
74%
72%
74%
96%
80%
80%
Carlow
109,297
(31%)
16,985 (28%)
34,014 (27%)
23,737 (31%)
15,120 (30%)
34,383 (31%)
28,273 (35%)
As can be seen from Table 3.7, Monaghan County has the highest market penetration
in terms of credit union membership and Waterford has the highest percentage of
credit union borrowers.
Table 3.8
Counties
Kerry
Leitrim
Meath
Wexford
Westmeath
Medium Market Penetration (in terms of credit union membership)
Pop.
No
Pot. Mem
Membership
CU
% of
(2001
of
per CU
Borrowers
Total
Average penetraCSO
CUs
tion
data)
132,527
12
1:11,043
82,453 6,871
62%
19,051 (23%)
25,799
8
1:3,224
15,975 3,029
62%
3,029 (19%)
134,005
17
1:7,882
84,959 4,998
63%
26,397 (31%)
116,596
8
1:14,574
78,526 9,816
67%
25,389 (32%)
71,858
6
1:11,976
43,241 7,206
60%
11,753 (27%)
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Table 3.8 presents those counties which fall in the middle range, with on average 63%
of the population as credit union members in the five counties of Kerry, Leitrim,
Meath, Wexford and Westmeath. The Lowest Market Penetration counties are
presented in Table 3.9.
Table 3.9
Counties
Clare
Donegal
Galway
Longford
Mayo
Roscommon
Sligo
Dublin
Wicklow
Offaly
Kildare
Laois
Lowest Market Penetration (in terms of credit union membership)
Pop.
No
Pot.
Membership
CU
(2001
of
Mem.
penetration
Total
Average
CSO
CUs Per CU
data)
103,277
9
1:11,475 54,121
6,013
52%
137,575
14
1:9,826
65,942
4,710
48%
209,077
20
1:10453
111,257 5,562
53%
31,068
3
1:10,356 13,357
4,452
43%
117,446
11
1:10,676 65,274
5,934
56%
53,774
5
1:10,754 15,278
3,055
28%
58,200
5
1:11,640 11,920
2,384
20%
1,122,821 116
1:9679
517,428 4,460
46%
114,676
7
1:16,382 34,585
4,905
30%
63,663
6
1:10,610 29,763
4,960
47%
163,944
14
1:11,710 72,671
5,191
44%
58,774
9
1:6,530
30,285
3,365
51%
% of
Borrowers
13,675 (25%)
16,732 (25%)
24,445 (22%)
2,965 (22%)
13,183 (20%)
3,403 (22%)
3,415 (29%)
207,600 (40%)
9,443 (27%)
8,831 (30%)
20,502 (28%)
8,768 (29%)
As can be seen from Table 3.9, Co. Sligo has the lowest market penetration in terms
of credit union membership. It is interesting to note that many of the counties of the
West and North West feature in the lowest market penetration category. Perhaps there
is a need here for credit unions to develop a marketing group as has happened in other
regions to promote credit unions. Also, a significant number of eastern counties
feature in the lowest market penetration category too. Perhaps a similar combined
marketing drive would be beneficial here also. It should be noted that the population
in all these counties has increased dramatically in the last number of years. All
counties in the three categories of highest, medium and lowest have room for growth.
Therefore, credit unions should consider giving full support to the new national ILCU
marketing effort.
A number of credit unions are lobbying for a relaxation of the common bond
requirement, as they believe that this is the only issue which is limiting their growth.
However, we are of the view that many credit unions have low penetration of their
common bond, particularly in terms of lending, and that there is scope for
improvement within their current common bonds. We feel that there are many issues
other than the common bond which are limiting credit union growth, such as
inadequate marketing, lack of electronic delivery of products and limited product
range. It could well be the case that with larger common bonds and fewer credit
unions, membership in the overall movement could be lower. Emmons & Schmid’s
(1999:41) research would seem to support this view where they found that credit
union participation rates generally decline as the group of potential members becomes
larger - that is, the larger the pool from which a credit union can draw, the less
effective it is in attracting members. Before expansion of the common bond is
considered, we would advocate that credit unions should first focus on developing
their product range, move towards electronic delivery of their services, greatly
improve their marketing and develop co-operative partnerships with other credit
unions. And where a credit union is restricted by its common bond, it should
39
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
investigate the possibility of amalgamating with a local credit union. However, there
is a need for the movement to formally investigate the impact of the common bond on
the growth and efficiency of credit unions and make recommendations arising from
that investigation.
We make the following recommendation:
The Common Bond
a. The ILCU Strategic Review must formally consider and investigate
b.
the impact of the common bond on the growth and efficiency of credit
unions and make recommendations arising from that investigation.
A central database of all credit union common bonds should be created
to identify the existence of any service gaps (Recommendation 9).
New credit unions
a. The credit union movement must now focus on consolidation of its
position – no new credit unions should be developed, except in very
exceptional circumstances (Recommendation 17)
3.3.3 Scale
Scale or size is another force which drives rationalisation in credit union movements.
As discussed in Section 2, there was a significant reduction in the number of credit
unions in the US in the ‘less than $10 (€8.3) million’ and ‘less than $5 (€4.6) million’
asset size. Because of this, we were interested in examining how many Irish credit
unions are in the less than €10 million asset size category. Therefore, the asset
breakdown of the Irish credit union movement is presented in Table 3.10.
Table 3.10
Asset Categories of Irish Credit Unions as at 30/09/2004 (ILCU)
Asset Categories (€)
ROI
NI
<1 Million
7 (2%)
11 (10%)
1 to 3 Million
41(11%)
29 (28%)
3 to 5 Million
37 (9%)
28 (27%)
5 to 10 Million
83(20%)
18 (17%)
10 to 15 Million
52(13%)
9 (9%)
15 to 20 Million
23 (6%)
3 (3%)
20 to 25 Million
33 (8%)
2 (2%)
25 to 30 Million
28(7%)
1 (1%)
30 to 40 Million
31 (7%)
0%
40 to 60 Million
30 (7%)
2 (2%)
42 (10%)
1 (1%)
> 60 Million
As can be seen from Table 3.10, 22% of ROI credit unions fall within the ‘less than or
equal to $5 (€4.6) million’ category, whereas 65% of NI credit unions fall into this
40
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
category. In growth terms, there is clearly a large difference between the ROI and the
NI credit unions. In terms of credit unions of ‘less than or equal to €10 (€8.3) Million
in asset size’, we can see that 42% of ROI credit unions and 82% of NI credit unions
fall into this category. Credit unions in the ROI are quite large and Goth (2005)
indicates that many credit unions in Ireland are much larger than their counterparts in
Canada. There would also appear to be many small credit unions operating in the US.
Sometimes, there is a false perception that the American movement only consists of
very large credit unions of bank size proportions. In 2004, 47% of US credit unions
had an asset size below or equal to $10 (€8.3) million (CUNA, 2005). The main
difference between the US and Irish movements is that even very small credit unions
of less than $5 (€4.6) million in asset size in the US are offering a wide range of
services, similar to those of a bank in some cases.
However, Rick (1998), discussing credit union rationalisation within a US context,
indicated that credit unions that are less than $10 (€8.3) million in asset size will find
it difficult to meet the regulatory and service requirements in the future and suggested
that credit unions within this category need to collaborate with other credit unions
either through amalgamations or strategic alliances. Therefore, as 42% of the credit
unions in ROI and 82% of credit unions in the NI are either less than or equal to €10
million in asset size, it is necessary for these to consider collaborating with other
credit unions, to enable them to increase their service offerings, develop their
technology and strengthen their position going forward.
3.3.4 Regulatory Burden and Restrictive Legislation
3.3.4.1 Regulatory Burden, Compliance, Risk Management
Compliance requirements within all financial institutions are increasing, including
credit unions. Credit unions are now in a situation where they will have to constantly
lobby to protect their position in terms of regulations, which are designed for the large
for-profit financial institutions. This is particularly the case with regard to EU
Directives. The regulatory burden in other credit union movements was one of the key
driving forces behind rationalisation.
As discussed in Section 2, compliance in the credit union is measured using the
Prudential Return which all credit unions make to the Regulator (IFSRA) in the ROI
and FSA in NI and to the ILCU. The data in the Prudential Return is used to compile
the PEARLS ratios. We confine our examination here to the ratios for Solvency,
Delinquency and Liquidity. We also present some of the performance levels within
each ratio, or ‘codes’, being developed by the ILCU.
P4 Solvency
The purpose of this ratio is to measure the degree of protection that the credit union
has for members’ savings in the event of liquidation of the credit union’s assets and
liabilities. The goal set out by the PEARLS ratio is 100%. The codes are set out in
Table 3.11.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Table 3.11 Codes for Solvency
Code 1 Code 2
Code 3
>112% 109% - 111.9%
106%-108.99%
Code 4
103%-105.99%
Code 5
<103%
A1 Delinquency
The purpose of this measure is to measure the total percentage of delinquency in the
loan portfolio. The PEARL goal for this ratio is less than 5%. The codes being
developed by the ILCU are as follows in Table 3.12:
Table 3.12 Codes for Delinquency
Code 1
Code 2
Code 3
<1.5%
1.5% -3.49%
3.5%-5.49%
Code 4
5.5%-7.49%
Code 5
>7.5%
L2 Liquidity
The purpose of this ratio is to identify the level of uncommitted savings and cash
available to meet unforeseen or day to day requirements. The goal for this ratio is a
minimum of 20%. The codes developed by the ILCU are as follows in Table 3.13:
Table 3.13 Codes for Liquidity
Code 1
Code 2
Code 3
>20%
15%-19.99%
10%-14.99%
Code 4
5%-9.99%
Code 5
<5%
Provisional results for the movement on these three ratios from the June 2005
Prudential Returns
Table 3.14 Ratios and Codes Results for the Movement
Codes
Number of credit unions (NI & ROI) that fall into each code
Solvency (P4)
Delinquency (AI)
Liquidity (L2)
1 Highest
328 (74%)
20 (5%)
240 (54%)
2
100 (22%)
26 (6%)
57 (13%)
3
3 (<3%)
76 (17%)
74 (17%)
4
2 (<2%)
127 (28%)
52 (12%)
5 Lowest
1 (<1%)
197 (44%)
23 (5%)
As can be seen from Table 3.14, a high percentage (44%) of Irish credit unions fall
into the 5 (lowest) category for delinquency. It should be noted that 72% of credit
unions fall into the 4 and 5 category. This may indicate serious near future problems
for some credit unions requiring an increase in bad debt write off and provision,
which in turn will be the source of further pressure on margins. The analysis of
delinquency needs to be extended to a review of credit granting processes,
underwriting standards and adequacy of credit control procedures.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
In terms of delinquency in the movement, we make the following recommendation:
Delinquency
Greater attention should be given to the whole area of loan approvals, credit underwriting, credit
control, treatment of loan delinquency and bad debt write off. To this end, the League should
establish and disseminate best business practice standards, issue procedures manuals and undertake
training
so as to
and uplift
standards
of operations
in This
credit is
unions
in these
Inextensive
terms of
solvency,
3 maintain
credit unions
falltheinto
category
4 and 5.
serious
for
matters
(Recommendation
7)
these credit unions and if they fail it has consequences for the rest of the movement.
In terms of liquidity 85 or 17% of credit unions fall into the 4 and 5 code category. In
In the interests of their members and the wider movement, these credit unions need to
critically evaluate their situation.
However, it must be remembered that codes are under review and are only at a
development stage and are therefore only indicative in nature.
We make the following recommendation:
Develop performance categories for credit unions
a. The League in conjunction with the Regulators needs to develop performance
systems, which categorise credit unions into strong down to weak credit unions
(in terms of PEARLS).
b. For credit unions which consistently fall into the weakest category, the League
must be mandated, in the interests of the members and the wider movement, to
intervene in that credit union and recommend various options to resolve the
matter. If the credit union fails or refuses to co-operate, the League must be
given the authority to apply various sanctions, up to and including
recommendation for wind-up.
c. It should be a requirement that each credit union must issue performance
reports from the Regulator and the League to all board members and
supervisors of the credit union.
(Recommendation 6)
3.3.4.2 Restrictive Legislation
Credit unions in both the ROI and NI are governed by different legislation. In the
ROI, the relevant credit union legislation is the Credit Union Act, 1997, and in NI, it
is the Credit Unions (Northern Ireland) Order 1985 as amended by the 1996
Deregulation Order12. Credit union legislation tends to be very detailed and
prescriptive in nature, while the modern trend in legislation design tends to be
enabling in nature, with the detail expressed in the forms of rules and regulation. In
particular in the case of the ROI, both written and oral feedback at the consultative
forums indicated the high level of dissatisfaction among credit unions, in particular in
relation to credit union lending. Section 35 of the 1997 Credit Union Act severely
limits the ability of credit unions to offer long-term loans to their members. This may
restrict the growth of the ROI credit unions. This is clearly seen from the credit
12
Northern Ireland is currently under review.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
unions’ decreasing market share in lending. Therefore, we make the following
recommendation:
Credit Union Legislation
a. The League and Credit Unions must lobby for enabling legislation which allows
the credit union movement to grow and prosper.
b. Future legislation changes must be reflect the developing needs of credit unions
c. The Minster for Finance must revise the current 1997 Credit Union Act so as to
allow immediate short-term changes which are currently damaging the growth of
credit unions.
(Recommendation 8)
3.3.5 Technology
Limited technology resources within a credit union movement is often a primary
driving force for co-operating with other credit unions in order to develop more
unified systems. Technology in the Irish system is highly fragmented, with many noncompatible systems in operation. This piecemeal development has produced some
good systems, there is little or no compatibility13 between them. There are more than
11 systems operating throughout the movement. The largest credit union computer
companies are Progress, ICE Group, Octagon, Pallas, Fern and Wellington, with 99
credit unions using Progress and 38 using the Wellington system. Other smaller
operators are CUSD, Oakwood, Percom, Everest and Custom.
It is very difficult, if not impossible, to integrate these systems once they have
developed separately. This will cause for the future development of individual credit
unions and for the overall movement as it makes it difficult to develop uniform
products and services across the movement and means that the development of
products is costly and inefficient.
The National Technology Committee of the ILCU needs to develop guidelines to
which all further technology development in the movement must adhere. We would
be of the view that the IT companies themselves need to consider greater
collaboration and amalgamation with each other. Credit unions should encourage such
collaboration.
Collaboration is already happening between Octagon and Wellington where they are
both involved in an EFT pilot project with four credit unions. This project is two
pronged:
1. EFT element
a. To bring in monies (e.g. Social Welfare etc)
b. To send out monies (e.g. Direct Debits)
13
This is similar to what happened in Ontario where the Central did not orchestrate the implementation
of technology by the various credit unions. And when the time came to develop a province wide system
there were 23 individual systems that were incompatible with each other and thus could not ‘talk to
each other, resulting in the inability for network ATMs or the development of inter-credit union deposit
and withdrawal services.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
2. ATM element: The four credit unions involved are
currently piloting an ATM service from any Bank of Ireland
ATM machine for their members.
The Rationalisation Committee survey asked credit unions if they consider that a
central IT system should be developed for the Credit Union Movement. The responses
are presented in Diagram 3.5.
Diagram 3.5
Does your credit union consider that a central IT system should be developed
for the Credit Union Movement
No
28%
No Reply
7%
Yes
65%
Sample Size = 101
As can be seen from Diagram 3.5, 65% of credit unions surveyed showed support for
the development of a central IT system. The main reason given was that a central
system would create consistency and efficiency within the movement. However,
many of those who supported the idea stressed that key requirements would include
correct project-management, as well as cost efficiency and value for money. 28% of
the credit unions surveyed did not support the idea of a central system. The primary
reason given was that they did not have any trust in a central system after the failure
of the ISIS project. An interesting suggestion made by a credit union at one of the
March 2006 ILCU Rationalisation Roadshows was that the League should be allowed
to borrow from the movement for the development of a central IT system.
Use of the Internet in Credit Unions
The Environmental Scan (2003) cites survey results by the National Technology
Committee (NTC) which found that while 68% of credit unions stated that they had
email addresses, fewer than one in five credit unions (17.4%) transact member
business via email and fewer than one in ten (9.5%) have individual email addresses
for staff. Only 38% of credit unions in the NTC survey use online banking facilities
for their own business. The Environmental Scan highlights the need for credit unions
to become more familiar with transacting their business online, as government,
regulatory agencies and the League are streamlining their electronic operations.
In relation to technology we make the following recommendation:
Increase the compatibility of the current IT systems in the movement.
a. The League must agree an approach to develop a standard common IT Platform
and a timeframe within which this must be achieved.
b. The National Technology Committee of the League must develop a set of
guidelines (computer language etc) for the development of future IT in the
movement.
c. Credit unions should then issue these guidelines to their IT companies for any
45
future developments to their systems.
(Recommendation 13)
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
3.3.6 Products & Services offered in Irish Credit Unions
It is useful to compare the product and service range of Irish credit unions with those
offered in credit unions in other countries. US, Canadian and Australian credit unions
offer a wide range of services from full electronic service to mortgages to member
investment services. Irish credit unions’ core products and services are limited to
basic savings and personal credit. However these products have met two clear needs:
1. credit at a fair and reasonable rate of interest
2. a safe place to save.
The ILCU Strategic Review (2005) indicates that historically these were pressing
needs and that credit unions developed a very successful movement by meeting these
needs. However, the Review stresses that, for the majority of members who now have
easy access to financial services, their needs are changing. In order to remain relevant,
credit unions must now meet today’s pressing needs. The Strategic Review highlights
the importance of wealth management products and also the increasing expectation of
convenience. Credit unions will not be able to increase their product range and the
investment in the technology required by working as individual units. They should
consider greater collaboration with other credit unions to create the necessary
leverage.
Develop products and services which must meet key financial needs of people
in Ireland today
Credit unions should fund a central R & D function which:
a. Determines the main financial concerns and issues of members and nonmembers
b. Determines the key gaps in the credit union services and those offered by
other financial institutions.
c. Makes consultations with key opinion leaders and practitioners in key
social, economic and political arenas to determine the main needs and
concerns within Irish society
d. Forms a project team to develop templates for products and services
which credit unions could consider implementing. Acceptability of the
products and services must be well determined before introduction into
credit unions.
(Recommendation 5)
3.3.7 Governance of Credit Unions
The importance of good governance is highlighted to us on a daily basis. A number of
recent crises in some of our largest institutions (Church, Garda Siochána, Banks,
Political Parties) are a direct result of poor governance. Within the wider corporate
world, the failure of the likes of Enron and Barings highlights the central importance
of good governance. While there have been no major crises within the credit union
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
movement, there have been governance failures at a local level in individual credit
unions.
3.3.7.1 Volunteerism in the Credit Union Movement
There are currently more than 10,000 volunteers in the credit union movement. This is
a large number of people and must mean that the credit union movement has one of
the highest levels of volunteer involvement in the country. However, it is often
stressed within credit unions that it is getting more difficult to source and retain
volunteers. The ROI Credit Union Regulator has pointed out that the volunteer base in
the credit union movement is aging and that this will eventually cause governance
problems. However, he states that credit unions tend to focus on:
“causes external to credit unions and very little on internal obstacles
to volunteering to be found in the way credit unions operate”.
Byrne, McCarthy & O’Shaughnessy’s (2004) research would support this, where they
found that while credit unions stressed that it was difficult to attract volunteers, they
had, at the same time, limited volunteer policies14 or supports in place to source or
retain voluntary input. Therefore, while credit unions cite lack of time and interest as
the main reasons why people have less interest in volunteering, lack of support by the
credit union may be a bigger issue. The Rationalisation Committee survey asked
credit unions if they had a succession plan in place for securing volunteers for the
board.
Diagram 3.6
Does the Board have specific arrangements for the possible succession of
officers to ensure ongoing presence of their requisite skill sets on the Board?
No re ply
6%
Ye s
42%
No
52%
Sample Size = 101
As can be seen from Diagram 3.6, 42% of credit unions surveyed state that they do
have specific arrangements, while 52% do not.
In terms of the long-term governance of the credit union, the ROI Credit Union
Regulator has highlighted the importance of ‘getting new blood’ into credit unions.
He suggests that “it seems to be the case that in some credit unions certain directors of
long standing are reluctant to make way for new blood”. He concludes that in some
credit unions:
14
For templates of Volunteer Policies, please see the League website: www.creditunion.ie
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
“the idea of attracting volunteers is fine in principle in some
boards so long as they don’t rock the established power structures”.
He also cited the need for a proper election process where positions are actually
contested. He concludes that credit unions need to consider three issues with regard to
the development of the volunteer base and in turn, the governance of the credit union.
These are presented in Box 1.
Box 1: Excerpt from a speech made by the ROI Credit Union Regulator at the Diploma
in Credit Union Studies Summer School, Centre for Co-operative Studies, UCC
 Elect: new directors and supervisors to their credit union by
opening the electoral process to as wide a membership base as
possible and by fixing defined terms for their own service in
office
 Direct: their credit unions by placing a greater emphasis on
strategic planning, policy development and proper oversight
rather than by engaging mainly in ‘hands on’ activity.
 Connect: with their fellow credit unions locally by forming
structures for mutual support in specialist areas.
The Regulator has also highlighted the need for credit union boards to have the
required skill sets. However, he does indicate that credit unions will not have all the
necessary skills on an elected board, and therefore it is necessary to provide training
to fill the skill gaps.
Goth’s (2005) research examines how much emphasis credit unions put on skills
when sourcing volunteers for their boards. His results are presented in the Table 3.16.
Table 3.16 Director selection criteria and needs in the credit union
To what extent does the Directors selection criteria reflect the Board or
Credit Union’s required skills
Great
Significant
Some
Little
None
ROI
1 (0.8%)
5 (4.2%)
26 (21.8%)
38 (31.9%)
49 (41.2%)
NI
2 (4.2%)
7 (16.6%)
16 (38.1%)
17 (40.5%)
Membership
Size
Less than 2000
2001-5000
5001 and above
2 (2.6%)
7 (9.1%)
3 (4.2%)
4 (6.2%)
12 (15.6%)
15(21.1%)
23 (35.4%)
30 (39%)
22 (31%)
16 (24.6%)
26 (33.7%)
31 (43.7%)
22 (33.8%)
Table 3.16 shows that the majority of credit unions in Goth’s survey do not select
directors on the basis of the board’s or the credit union’s required skills. Goth (2005)
also found that, on average, only 40% of credit unions provide formal orientation and
training programmes for new directors. This compares with 85% of Canadian credit
unions. Therefore, it would seem that many Irish credit unions do not take skills
needed into consideration at the time of nomination or do not provide the training to
meet skill shortages. Leighton and Thain (1997, cited in Goth, 2005) highlight the
importance of “introducing new directors to the job” and argue that without
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
appropriate orientation and training, the contribution made by the directors to the
board and organisation is delayed.
In relation to volunteerism and governance we make the following recommendation:
Ensure proper governance in credit unions
a. Credit unions must develop a plan for the succession of new volunteers
on to the board of directors and the supervisory committee
b. Credit unions must provide training and supports to new volunteers and
c.
d.
e.
f.
in particular new board directors. Within two years of being on a board,
volunteers should have taken part in the necessary training and then
become certified as being a trained board member.
All credit unions boards must regularly carry out a training needs
analysis of their board.
The League must develop a database of director training indicating the
level of training undertaken by all boards members in each credit union.
This database will be updated on an annual basis.
Credit union volunteers and staff must continue to be offered a wide
range of accredited training and educational programs, which build
skills and knowledge and recognize prior learning and experience.
Nominating Committees must be proactive in encouraging a full
election process for vacant board positions, in terms of encouraging
competition for each post.
(Recommendation 1)
An important part of the role of the board is to design policy and strategy. We now
examine these two areas.
Direction: Policy and Strategy and Strategic Orientation
Policy
The Rationalisation Committee survey asked credit unions if they had developed
policies in the following areas: savings, lending, credit control, investments, money
laundering, information technology, security, membership, complaints, health &
safety, human resource, governance, training, and youth. For ease of presentation, the
results are grouped and presented in Diagram 3.7.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Diagram 3.7
Number of policies and percentage of credit unions
43%
45%
40%
% of Credit Unions
35%
29%
30%
25%
15%
20%
15%
10%
5%
5%
4%
3%
1%
0%
All
policies
More
8 to 11
4 to 7
1 to 3
than 11 policies policies policies
Policies
None
No reply
As can be seen from Diagram 3.7, 61% of the respondent credit unions have eight or
more policies developed, while 34% have developed fewer than eight policies. The
ROI Credit Union Regulator has highlighted on numerous occasions the importance
of clear policies as part of good governance. This is the responsibility of the board.
One issue, which has caused significant problems in some credit unions, relates to
human resources. It is interesting to note that only 50% of the credit unions surveyed
have a human resource policy.
Strategy
Setting the strategic direction for the credit union is a key role of the board of
directors. The Rationalisation Committee survey asked credit unions if they had a
strategic plan. The responses are presented in Diagram 3.8.
Diagram 3.8 Does your credit union have a strategic plan?
No reply
7%
Yes
28%
No
65%
Sample Size = 101
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
As can be seen from Diagram 3.8, 65% of credit unions indicated that they do not
have a strategic plan. This is worrying, as it is often only during the strategic planning
process that credit union boards will systematically discuss the long-term direction of
the credit union. This process forces the board to ask itself what the credit union is
and what does it want to be.
Goth (2005) highlights the importance of knowing the difference between an ‘end’
and ‘a means to an end’. He indicates that one of the most critical mistakes a board
can make is to believe that, if it completes the list of activities it sets out in the
strategic plan, then it has achieved its objectives. Instead, the board should be asking
itself – by doing these ‘things’ are we achieving the intended result? Goth (2005)
stresses that slipping into a focus on products and services creates a significant
governance risk to the credit union. He says that he has come across credit union
strategic plans which set out a ‘merger as an objective’. However, a merger is not an
end, it is only a means to some intended end. Goth (2005) asserts that in the case of a
merger or a collaboration of any form, or the development of products and services, a
board needs to ask itself:



What is our objective here?
Why do we want to merge, collaborate or develop a certain product or
service?
What do we want to achieve?
If a board merely focuses on the activity, then it will not know if it accomplished what
it set out to achieve. (See Appendix Four for strategic planning guidelines. )
Strategic Orientation
In terms of strategic orientation, Goth (2005) presents some interesting data
comparing the Irish and Canadian credit union movements. In his research, he
presents four possible ‘strategic orientations’ to the studied credit unions. These are
presented in Table 3.17.
Table 3.17 Strategic Orientations
Pattern 1
Pattern 2
Pattern 3
Pattern 4
The board of directors views the credit union’s primary function as that of a
financial institution providing its members with a full range of financial services in
direct competition with other financial institutions and must generate sufficient
profits to remain competitive.
The board of directors views the credit union’s primary function as that of a
financial cooperative providing its members with financial services for the
maximum benefit of its members regardless of the level of profit generated.
The board of directors views the credit union’s primary function as providing for
the financial needs of its borrowing members while meeting operating expenses
and maximizing the return to saving members.
The board of directors views the credit union’s primary function as providing
credit services for financially excluded individuals who would otherwise be unable
to access credit.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
The responses from the credit unions in Canada and Ireland are presented below.
Table 3.18 Comparison of Canadian and Irish movements in terms of strategic orientation
Credit Unions
Pattern 1
Pattern 2
Pattern 3
Pattern 4
Ireland (NI & ROI)
10 (6%)
55 (35%)
86 (54%)
8 (5%)
Canada
25 (66%)
7 (18%)
6 (16%)
0 (0%)
Canada: N = 38 Ireland: N = 159
As can be seen, the bulk of Irish credit unions fall into patterns 2 and 3. The bulk
(66%) of the Canadian credit unions fall into the Pattern 1 category, where they see
themselves as competing directly with the banking sector, while only 6% of Irish
credit unions see themselves in this light. Only 5% of Irish credit unions see
themselves existing solely to meet the needs of the financially excluded (all of these
credit unions came from NI).
3.3.8 Possibility of credit union failures
It is interesting to note that much of the early rationalisation within the US and
Canadian credit union movements was the result of failures in credit unions. As we
will see later, with decreasing trends in loan growth, increasing delinquency and
increasing direct competition, it is not unreasonable to think that there will probably
be Irish credit union failures in the coming years. It is the responsibility of all credit
union boards of directors to ensure that this does not happen. The credit union is run
for the benefit of the members, and not for the benefit, convenience or nostalgia of
directors or staff. All credit union boards need to critically evaluate their credit
union in terms of:
 how member benefit is maximised in the credit union
 how strong the credit union is and how its position can be
further strengthened
 how the board is positioning the credit union for long term
sustainability (so that it will be around not just for the next
generation but for many generations to follow)
Byrne (2000) found in her research that some credit union directors, when asked to
indicate how they would see the credit union developing in ten to twenty years time,
responded that they had not thought that far ahead and probably would not be
involved in the credit union by then. This is surely a poor reflection on our credit
union directors. Directors of any board do not just lead for today but are constantly
designing the organisation for its long-term sustainability. If directors are not
designing the credit union for the future – then who is?
3.4 Summary
In this section we have examined if the main rationalisation forces (increasing
competition, declining membership base, increased regulatory burdens, technology,
limited products and services, increased need for technological capability, governance
issues and credit union failure) are present within the Irish credit union movement. In
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
our analysis, we found that all these forces are present and are intensifying. Some of
the key issues are that costs are increasing and income growth is decreasing, the credit
unions’ market share in lending is slipping, competition has intensified, regulatory
and compliance requirements have greatly increased. At the same time, credit unions
have only made limited advances in the development of their technological capability
or in their product and services range, and their governance structure is becoming
weaker rather than stronger. Therefore, credit unions need to seriously consider how
they will successfully deal with these issues. Part of the solution will come from the
credit unions strategically evaluating how they can rectify some of these issues
internally and then how they can collaborate with other credit unions to further
strengthen their position.
3.5 Are credit unions thinking strategically about consolidation and
rationalisation?
Feedback from the various consultation forums showed that the majority of credit
unions are not planning strategically for the future. Possibly, in some of the forums,
the focus was confined to the problems in the credit union rather than searching for
possible solutions. This is only natural as credit unions have come out of a period of
good growth and some of the negative downward trends are becoming apparent only
in recent years. However, it is now time to shift the focus to planning and
implementation of change which would help to alleviate and rectify some of the key
issues within credit unions. Part of the solution will come from internal
implementation of change but part will also come from greater collaboration with
neighbouring credit unions, whether that be through networks, strategic alliances,
amalgamations or informal co-operation.
3.6 What is the potential strategic direction of the Irish Credit Union
Movement?
The recent Strategic Review Discussion paper (2005) sets out a direction for the
development of the Irish credit union movement. While we recognise that it is only a
discussion paper and not a strategic plan, we have a number of concerns with this
document:
The Strategic Review Discussion Paper does not contain any broad strategic and
inspiring vision, as would be expected for a co-operative movement such as the credit
union movement. It mainly focuses on products and services. We are reminded of
Goth’s (2005) research, which warned us that a strategic process which “slips into a
focus on products and services creates a significant governance risk”. He was
referring to an individual credit union. This statement is so much more relevant to a
strategic planning exercise which focuses on an entire movement.
Our second concern is that the actual discussion of products and services also seems
to be limited. While it rightly indicates that credit unions will need to remain relevant
by meeting the current needs of members, it seems to focus only on products and
services which are widely available throughout the financial services industry. The
fact to remember throughout any development of products and services, is that credit
unions should not develop standardised products that are widely available elsewhere.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
This would only drive the credit union into competing only on price where credit
unions are unlikely to succeed. However, the point of opportunity could be to identify
the gaps in an increasingly standardised financial products and services market. In
terms of new products and services, which are widely available elsewhere, flexibility
could be the main point of difference. The Strategic Review Paper indicates that credit
unions have been poor at innovation and in the development of new products and
services. And perhaps when thinking about developing new products and services,
there is a tendency to look primarily at what other financial institutions are doing.
O’Connor, McCarthy & Ward (2002) highlight this point as follows:
“Rather than look at what banks and other financial institutions are
doing, would credit unions’ interests be better served if they took time
to identify what these financial institutions are not doing and whom
they are excluding?”
This not only means meeting the needs of the financially excluded, but also those
whose needs are not met by the standardised financial services sector. This will
require research back-up from the ILCU, as credit unions will need to investigate
thoroughly what these unmet needs are. Rather than just concentrating on what
products and services members would like, this research should also focus on their
main concerns. From this research, innovative products and services could be
developed. It is only from a broader context that something new can be developed.
We should note that Nora Herlihy and Sean McEoin were both involved in Social
Science studies in UCD and the credit union idea was set within that broader context.
Credit unions will also need to be innovative in how they look at the marketplace.
They need to stop thinking from the perspective of banking institutions. This is how
innovative companies operate – they look at things in different ways to the rest of
their competition.
Another factor which will be of increasing importance in the coming years, is the
level of personal debt in Ireland, which the Central Bank indicates is the 4th highest in
the Eurozone. For the first time in the history of the country, Irish people now owe
more than they earn. At the end of 2004, personal debt represented 113% of
disposable income, compared to 48% in 1995. This can hardly be ignored. What will
the needs of this group be in a few years time?
Another factor, which seems at odds with the issue of increasing personal debt, is that
people are becoming more interested in investment portfolios which help to increase
and manage their personal wealth. Credit unions from the start, through the provision
of cheaper loans and through the encouragement of thrift, have been involved in
wealth management for their members. How can credit unions now do this at a more
sophisticated level?
There seems to be a perception in some quarters of the credit union movement that
EFT services are not for the ordinary credit union member and are only for the welloff. However, this could not be further from the truth. In the future, all social welfare
payments will be paid electronically. Therefore, EFT services may be even more
important for the less well-off in our society, as the better-off have plenty of choices
within the financial services sector.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Therefore, it is our view that credit unions need to develop an EFT service and the
required supporting technology. They also need to develop products and services
which will build on their ability to be flexible in service provision. However, both
flexibility in terms of the development of non-standard products and services and
technology are expensive. The only way credit unions can achieve these
developments is through collaboration with other credit unions, by creating networks
of know-how and economies of scale.
Our third concern with the Strategic Review Discussion Paper is that is seems to be
more of a Strategic Plan for the ILCU rather than for the credit union movement. The
vast bulk of the document focuses on the ILCU. If this was immediately transparent to
us, it will also be transparent to credit unions and will thus breed cynicism. Any
discussion on the strategic direction of the movement should be centrally focused on
the movement and, within that context, the role of the ILCU, not the other way
around.
We feel that if the forthcoming Strategic Plan is to have any long term and sustainable
impact on the development of the credit union movement as a co-operative
movement, then the concerns raised above would need to be considered. A strong
unifying Strategic Plan is essential for the strategic rationalisation of the credit union
movement.
We make the following recommendations:

Development of an integrated strategic planning process within the credit union
movement.
a. A Strategic Plan for the movement must be developed which is based on a new
and inspiring vision for credit unions.
b. Based on the Movement’s Strategic Plan, each credit union must develop its own
c.
strategic Plan. This should ‘fit’ with the Movement’s Strategic Plan. The credit
union plan should also address the key issues facing credit unions and should
evaluate where collaboration with other credit unions would be of strategic
benefit to their own credit union.
Each credit union must develop an operation plan which indicates how its
Strategic Plan will be implemented.
(Recommendation 10)

Form a Senate within the credit union movement consisting of individuals with
vision to inform the future direction of the Irish credit union movement.
(Recommendation 11)

The League and relationships with other representative bodies and the Regulators
a. The League, the other relevant representative bodies and the Regulators (NI &
ROI) must ensure that they develop a good working relationship.
(Recommendation 16)
55
ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
3.7
Conclusion
In this section we examined the various forces which drive rationalisation and showed
how these are present and intensifying in Irish credit unions. We have highlighted that
the development of greater collaboration between credit unions will be a significant
part of the solution. In the next section, we will discuss feedback from the Irish credit
union movement with regard to rationalisation.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
SECTION FOUR
VIEWS FROM THE CREDIT UNION MOVEMENT
ON RATIONALISATION
______________________________________________
4.1
Introduction
The League was adamant from the start, that the debate on rationalisation would be
informed through consultation with credit unions. With this in mind:






discussion on rationalisation was encouraged at Chapter meetings
consultative road shows were held during December 2004
presentations were made at SGM 2004 and BDM 2005
a survey to determine views on rationalisation was issued to all credit unions both
North and South
rationalisation was discussed at the Strategic Review Consultative road-shows in
November, 2005
consultative road shows were held in March 2006
This Section of the report will focus on the responses from these various forums.
4.2
Need for Rationalisation
There would appear to be a broad consensus within the credit union movement both in
the ROI and NI that there is a need for rationalisation within the Irish movement.
Feedback from credit unions clearly shows that credit unions are keenly aware that the
movement is at a cross-roads in its development and that change is required. There is
also broad consensus that one of the ways of meeting future challenges is to
encourage greater co-operation between credit unions. However, it was pointed out
that credit unions have a tendency to ‘put their heads in the sand’ and to hope the
problems of the movement will ‘go away’. At the same time, proactive leadership
from the League was seen as being a requirement of any attempts to rationalise. A
number of barriers were identified at the various forums. These are discussed in the
next section.
4.3
Barriers to Rationalisation
Feedback at the various forums indicate that there is a fear of rationalisation which
was expressed in the following ways:







people associate it with downsizing/mergers/take-over/closure
promotion of the idea that ‘Big is Better’
a take over by professionals
a sidelining of elected boards
the elimination of volunteers
an aggressive expansion course
a weakening of local identity and ownership.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Many of the rationalisation models suggested in this report do not weaken local
identity, do not mean the elimination of the voluntary board and even help to ensure
the long term sustainability of the small credit union. Therefore, these fears are
unwarranted. While the Rationalisation Committee was not interested in the
promotion of ‘big is better’, it was interested in the development of sustainable credit
unions, be they big or small.
4.4 What form should rationalisation take? – Views of the
Movement
The various consultative forums all discussed, to varying degrees, how rationalisation
should take place in the Irish movement. While the primary focus was on informal cooperation between credit unions, other forms of rationalisation suggested were
Strategic Alliances and Amalgamations. In order to determine the views of the wider
movement, the Rationalisation Committee issued a survey to the entire movement,
both in the ROI and NI. Credit unions were asked to indicate their preference for these
three rationalisation options as presented below:
 Co-operation: Informal arrangements among credit unions
 Strategic Alliances: More formal (possible legal arrangements among credit
unions)
 Amalgamations: amalgamations/transfers of engagements
The responses are presented in Diagram 4.1.
Diagram 4.1
Which rationalisation approach would your credit union most favour?
Co-operation - informal
arrangements)
55%
Stategic Alliances (More formal
arrangements)
24%
Amalgamations/mergers/transfer
of engagements
No reply
0%
15%
6%
10%
20%
30%
40%
50%
60%
% of Credit Unions
As can be seen from Diagram 4.1, 55% of credit unions chose informal co-operation,
24% chose strategic alliances, and 15% chose amalgamations as their most preferred
options. Only 6% of the credit unions surveyed chose not to reply to this question
while 94% responded, which seems very positive and indicates that credit unions are
open to developing greater co-operation within the movement. The credit unions also
indicated their primary reasons for choosing each option. These are presented in Table
4.1 below.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Table 4.1
Reasons given for rationalisation choice
Informal Co-operation
Strategic Alliance
Identity/autonomy
Identity/autonomy
 Flexibility
 Allows for formal
co-operation but
 Allows credit union to maintain
the credit union
identity
can still maintain
 Any legal arrangement could
its identity and
endanger the identity – which is
independence
the credit union’s greatest
Support
strength.
the credit
 Allows the credit union to  Helps
union to deal with
maintain its independence and
the regulatory
autonomy
burden
 Safeguards the philosophy and  A formal
ethos of the credit union
arrangement like
 ‘Bigger is better’ not always the
this is needed to
best
avoid confusion
 Local knowledge is still retained Movement not ready
 We must not rationalise our for amalgamations
movement in the same manner  Best option is
strategic alliance as
as they did in the US and
the movement is
Australia
not ready for
 We must look at the possibilities
amalgamations –
for a ‘niche’ role as opposed to a
credit unions
‘big bank’ one before making
fiercely
major long term decisions
independent and
 Would not like to be swallowed
prefer to compete
up by a large credit union
rather than coPast experience
operate
 Has worked for our credit union
– we have had great benefits
 Is in line with the operating
principles of the credit union
Economies of scale/scope
 Economies of scale can be
gained
 Creates opportunities to share
costs
 Creates opportunities to share
expertise
 Growth
 Strengthen movement
Issues with mergers/amalgamations
 We see problems with mergers –
who will be the manager, who
will sit on the board, how to
reconcile different policy
orientations
Amalgamations
For credit unions in trouble
 Only as a last resort if the credit union is
in difficulty – for a limited number of
credit unions
Support
 Would increase knowledge and support
in the credit unions
Growth
 Would solve the common bond issue
 Would be a good option in a case where
a local credit union is not meeting the
needs of the common bond
 Creates potential for growth
 Would allow the credit unions to
compete directly with the banks
Economies of Scale/Economies of Scope
 Would allow credit unions to offer
wider and better services
 Would allow for greater centralisation
of services – more efficient
 Some credit unions are too small to be
viable into the future
 Allow for Economies of Scale
 Decrease costs
Long term solution to issues in movement
 Best option as strategic alliances and
informal co-operation are not binding –
Amalgamations are a long term solution
 Best option as strategic alliances and
informal co-operation are too slow for
the current environment
 Volunteerism is decreasing in the credit
union
 Would create a strong cohesive
movement
 Competition increasing, and within 10
years credit unions will become a
smaller player in the financial services
sector
 In the future, the credit union will only
be attractive to an aging membership
who do not wish to use EFT.
 Would allow for the development of
one system – current situation of many
IT systems not viable
 We have always welcomed more cooperation with neighbouring credit
unions – has not worked out.
Amalgamations are a must if the
movement wishes to progress
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
4.5
What forms of co-operation and rationalisation are already
taking place within the movement?
4.5.1 Co-operation (Informal and Formal Co-operation Networks)
A recent survey carried out by the students of the Diploma in Credit Union Studies at
UCC for their final year project asked credit unions about the types of formal and
informal co-operation they participated in with other credit unions. A collation of the
results of their research15 would indicate that most of the co-operation is of an
informal nature. However, some of the networks were based on semi-formal
agreements, although it is difficult to tell if these agreements would have any binding
legal authority. There were thirty two usable questionnaires. The results are presented
in Diagram 4.2.
% of credit unions surveyed
(32)
Diagram 4.2 Level of informal co-operation in credit union movement
100%
80%
No
60%
40%
Yes
20%
0%
Marketing
Technology
Training
Credit Control
Service
Provision
Community
Development
As can be seen from Diagram 4.2, there is significant informal co-operation
happening in the movement, with the highest levels in marketing and credit control.
The credit unions indicated that they derived a very significant benefit from cooperating with each other in terms of credit control as a method to reduce
delinquency. As regards marketing, a number of very successful marketing networks
between credit unions have been formed in recent years. Examples include ‘West
Cork Credit Unions’, ‘North Dublin Marketing Group’, ‘Chapter 11 Marketing
Committee’ and ‘Waterford Credit Unions Marketing Group’. These groups actively
market themselves as a brand, through joint radio and newspaper advertising and
through the production of calendars and other promotional material. In some cases,
they have also agreed a common interest rate for particular loan types, such as car
loans.
Diagram 4.2 also indicates that there is quite a high level of co-operation in
Technology. Numerous credit unions are part of formal IT user groups. However,
there is little co-operation between the different user groups or more importantly little
compatibility between their IT systems. This was discussed earlier in Section Three.
15
On-going at the Centre for Co-operative Studies, UCC
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
There is also a high degree of co-operation in terms of service provision. This mainly
arises in the case of transfer of accounts and providing a facility where members can
make share withdrawals from credit unions other than their own. Many credit unions
would appear to operate this system. This creates the basis for the development of a
shared branching system or a national common bond of service, while maintaining the
membership common bond.
In order to present an overall picture of the level of co-operation within the Irish credit
union movement at present, the number of co-operative arrangements for each credit
union is grouped in the following categories:




High Level (participating in 5 to 6 co-operative arrangements)
Medium Level (participating in 3 to 4 co-operative arrangements)
Low Level (participating in 1 to 2 co-operative arrangements)
None (not participating in any co-operative arrangement)
The results are presented in Diagram 4.3.
Diagram 4.3
Level of informal co-operation in the Irish Credit Union Movement
44%
45%
% of Credit Unions
40%
35%
31%
30%
25%
20%
13%
12%
15%
10%
5%
0%
High
Medium
Low
None
Level of co-operation
Sample Size = 32
As can be seen from Diagram 4.3, there is a high level of co-operation taking place in
31% of the credit union sample, with 44% operating at a medium level of cooperation and 13% at a low level of co-operation. 12% of the sample are not part of
any co-operative arrangements with other credit unions.
It is also interesting to cross-tabulate level of co-operation and asset size for the
sample of thirty two credit unions to determine if there is any relationship between the
size of a credit union and the extent to which it co-operates with other credit unions.
This is presented in Table 4.2
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Table 4.2 Level of co-operation and asset size
Level of CoAsset Size
operation
1 to 10
11 to 20 Million
21 to 50
Million
Million
High
0 (0%)
2 (40%)
3 (25%)
Medium
2 (50%)
3 (60%)
6 (50%)
Low
2 (50%)
0 (0%)
1 (8%)
None
0 (0%)
0 (0%)
2 (17%)
51 to 100 Million
4 (44%)
2 (22%)
1 (11%)
2 (22%)
Table 4.2 indicates that credit unions in the €11 million to €20 million asset category
are the most likely to co-operate with other credit unions at either a high or medium
level. Almost half of credit unions under with €10 million in assets co-operate at a
low level. However, those in the €21 million to €100 million asset range have a
greater tendency not to take part in co-operation with other credit unions16.
The Chapter structure is an important platform for increased co-operation between
credit unions. However, it is widely recognised that more effective use could be made
of this valuable structure. The League is currently reviewing the role of Chapter, with
the intention of increasing it effectiveness within the credit union movement.
4.5.2 Knowledge or Know-How Networks
Knowledge is seen as one of the key assets of a company. Kim (1993:38) compares
operational learning with strategic learning. He refers to the first as know-why and the
latter as know-how. In what way can a credit union increase its level of know-how?
Holmlund & Fulton (1999:8) indicate that the development of knowledge is a
collective practice and that networks are a good way of developing know-how.
The Rationalisation Committee was interested in estimating the number of credit
unions that would be interested in forming such networks. In the survey, credit unions
were asked to indicate if they would be interested in offering and accepting mentoring
advisory support from other credit unions. The responses are presented in Diagram
4.4 and 4.5.
Diagram 4.4 Willingness to give mentoring and advisory support to other credit unions
No Reply
10%
No
29%
Yes
61%
As can be seen from Diagram 4.4,
61% of credit unions are willing to
give mentoring and advisory support
to other credit unions. This is very
positive and shows that there is a
definite base upon which to build
advice and support networks
between credit unions.
16
Please note that the sample is small and that the results are not statistically significant and therefore
the table only indicates tendencies.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Diagram 4.5 Willingness to accept mentoring and advisory support from other credit unions
The credit unions were also asked
to state if they were willing to
accept mentoring and advisory
No
support from other credit unions.
17%
As can be seen from Diagram 4.5,
Yes
73% of credit unions were in
73%
favour of the idea. This is also
very positive in that credit unions
are willing to accept help from
one another.
The credit unions were also asked to indicate the areas in which they felt proficient
enough to offer advice and support to another credit union and the areas where they
felt that they needed help. The responses are presented in Table 4.3
No Reply
10%
Table 4.3 Areas within which credit unions are willing to give and accept mentoring advice and
support (sample size = 101)
Areas
Willing to Give - feel proficient in
Willing to accept – feel they
need help in
Investments
√
√
Strategic planning
√
√
Credit control
√√
√√
Credit committee work
√
√
Management
√
Governance
Internal auditing/control
√
√
√
Marketing
√
√√√
New Services
√
√
Accounting
√√√
Community Development
√
√
Strategic Planning
√
√
IT
√
√
Day-to-day operations
√
√
Training
√
Policies
√
Youth
√
√
√√√ Almost all credit unions express an interest
√√ Many credit unions express an interest but not all
√ A small number of credit unions express an interest
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
As can be seen from Table 4.3, the areas of credit control, marketing and accounting
were most cited as areas where credit unions were willing to offer support and advice.
However, as can be seen from the table, accounting is one area where no credit union
surveyed was willing to accept advice or support. This area of mentoring advice and
support could be greatly facilitated by the development of an on-line discussion
forum, where credit unions could log their queries and other credit unions could offer
advice. It would also facilitate the sharing of best practice and networking within the
movement.
Other possible areas of co-operation
The following suggestions were made by members of the Rationalisation Committee
at a special focus group which considered possible areas of co-operation between
credit unions:
 commonality within the Chapter i.e. interest rates.
 possibility of the viability of having a secretariat service –







looking after all the returns to the Regulators, AGM
notifications, etc.
common Credit Controller dealing with, say, three/four
credit unions.
facility to pay in/withdraw from another credit union – not
necessarily having the IT in place.
mechanism to facilitate smaller credit unions which may
not be working particular days, etc.
bulk purchasing
computer services.
credit unions pooling monies to give deposits for first time
borrowers.
treasury management – cluster of credit unions coming
together within Chapter with the possibility of obtaining a
better return.
The above are some areas in which the credit unions can become involved. This may
be possible outside of the legal framework.
4.5.3 Federated Networks
‘West Cork Credit Unions’ is a group of credit unions which have been co-operating
in the area of marketing for a number of years. This group now wishes to advance this
co-operation to other areas. They are considering developing co-operation in areas
such as credit control, IT, training, internal audit and compliance, external auditing,
investment assessment, insurance purchase, community projects, Irish Credit Bureau
(ICB), HR and product research & development, among other areas. The group have
now formed a steering committee made up of representatives from each credit union
to design proposals on how the group can achieve such co-operation through more
formal structures. The purpose of such co-operation is to reduce costs and duplication
and to provide each credit union with the necessary leverage and resources to develop
products and services for their members and potential members.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
As far as the Rationalisation Committee are aware, this is the first federated network
type structure that is developing among credit unions on the island of Ireland.
Therefore, this is a very exciting development. It is interesting to note that the West
Cork Credit Unions are following a similar path to the innovative and much admired
West Cork Agricultural Co-operatives, which operate under a federated network
structure. The Rationalisation Committee very much welcomes this initiative.
4.5.4 Strategic Alliances
The Rationalisation Committee are not aware of any formal Strategic Alliances
between credit unions in Ireland at the present time. However, there are a number of
examples of Strategic Alliances between credit unions and third parties, such as
insurance companies and mortgage brokers. One particular credit union in the South
West has developed a number of formal Strategic Alliances with third parties. This is
only at an early stage of operation and it is difficult to determine its success at the
present time.
4.5.5 Amalgamations
There is one relatively recent example of an Amalgamation which has taken place in
the Irish credit union movement. This happened in an inner city community credit
union, where the membership base had seriously declined and it approached a local
credit union and amalgamated with it. After a period of negotiation this amalgamation
has successfully come about.
There are currently a number of queries being addressed to the ILCU by credit unions
wishing to amalgamate.
4.5.6 Transfer of engagements
There are a number of examples of Transfers of Engagements. We present one such
case researched by the committee in the Box below:
In 2003, there was a transfer of engagements between a very small credit
union and a larger credit union in the South-East of the country. The small
credit union ‘put out feelers’, indicating that it was interested in
transferring its engagements to a neighbouring credit union. Due to the age
composition of the board, it was concerned for the future of the credit
union. It was felt that it was in the best interests of their members to follow
this path. A neighbouring credit union was decided upon and the transfer
happened smoothly. The only issue of concern expressed by both credit
unions was that it took two years to finalise the process. The Regulator has
now indicated that future transfers of engagement will only take six
months and that the ILCU will do the background work prior to the
transfer.
4.5.7 Wind-up
There are a number of examples of wind-up within the Irish credit union movement.
This may arise, for example, in the case of an Industrial credit union, where the
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
industry is in decline or has closed. In this case, the credit union is no longer viable
and decides to wind-up its assets. It may also arise where the board, based on poor
performance of the credit union, decides that the credit union is no longer viable and
makes a decision, with the consent of the membership, to liquidate the credit union,
distribute the assets among the membership, and transfer memberships to local credit
unions.
In all cases, the ILCU assists the credit unions in the transfer of member accounts to
other local credit unions and also ensures the continuity of the member’s records.
4.6 Conclusion
From the discussion in this Section, we can see that credit unions are open to the
development of greater co-operation with other credit unions and that, in fact, there is
quite a significant degree of informal co-operation already taking place. This is a good
foundation upon which to build further co-operation in the movement. We make the
following recommendation:
Build on current co-operation models already taking place in the credit union
movement
a. The League must develop a database of best practice of current cooperation that is already taking place in the movement
b. An on-line discussion forum should be developed which would act as a
The next
support and advice network for credit unions. For example, where a credit
union has a query it could log-on to a discussion forum and other credit
unions can offer advice.
c. An independent body should be approached for the management of the
The Centre
for Co-operative
Studies, for
UCC
would be an
Sectionforum.
will present
a number
of potential models
consideration.
appropriate body to run such a discussion forum.
(Recommendation 14)
The next section, Section Five, will present a number of potential models for
consideration.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
SECTION FIVE
A WAY FORWARD - POTENTIAL MODELS
______________________________
5.1
Introduction
At the consultative road shows, participants requested that the ILCU should develop a
set of models for types and degrees of rationalisation to enable a credit union to make
an informed choice. In this Section of the report, the Rationalisation Committee will
present a number of models that may be appropriate to the Irish credit union
movement. The section will cover: networks, strategic alliances, CUSOs, Shared
Branching, amalgamations, transfer of engagements and voluntary liquidation.
However it must be remembered that whatever option is chosen, it must be clearly
based on member needs and benefits.
5.2
Potential Models of Collaboration and Rationalisation
In this report, it is only possible to set out very general models of collaboration, cooperation that may be appropriate when considering rationalisatoin. We set out
general models for the following:







Networks
Strategic Alliances
CUSOs
Shared Branching
Amalgamations
Transfer of Engagements
Merger
5.2.1 Development of a Network
We will start this Section by discussing a model developed by Ward, Briscoe &
Linehan (1982) and adapted for a credit union here. The model is based on the
premise that any collaborative efforts must be strongly developed out of clearly
identified members’ needs. The model is also a very much a ‘bottom-up approach’
where the collaborative effort is initiated by the credit unions themselves. This model
is presented in Diagram 5.1.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Diagram 5.1 Developing Co-operation between Co-operatives (adapted from Ward, Briscoe &
Linehan, 1982)
1.
Within the strategic planning
process, individual credit union
involves members, management
and staff in identification of their
priority needs and problems
No
17. Review situation – are
additional joint tasks ready
for implementation?
Yes
16. Monitor performance
2.
Communicate results
of member needs
identification to
neighbouring credit
unions.
3.
Postpone further
collaboration
attempts but continue
with member
development
15. Implement co-operation
proposal
Set up inter credit
union study groups
to perform following
tasks
Acceptance
Rejection
4.
Identify ways in which
credit unions can work
together to meet members’
needs more effectively
14. Debate and vote by members
of each credit union
involved
If none
If any
5.
Select priority task areas for initial study
6.
Conduct or commission feasibility studies to
assess potential benefits/problems
favourable
13. Boards initiate
implementation plan
unfavourable
favourable
unfavourable
7.
Select one priority joint task area
for initial implementation
8.
Appoint inter-credit union steering
committee
9.
Set specific goals in joint task area
12. Study groups prepare and
present co-operation
proposal to boards
11. Report back to study groups
10. Design organisation structure to ensure
efficient task performance and select
appropriate control structure to ensure
effect member control of joint tasks
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
We will now discuss some of the steps in the diagram in greater detail. This section
draws heavily on Ward, Briscoe & Linehan (1982)
Step 1: Identify Members’ Priority Needs and Problems
Before credit union board decides to create any co-operative structures with other
credit unions, they must first identify their members’ priority needs and problems and
examine the relevance of the credit union’s current activities. This should be carried
out within the context of a strategic planning process involving members. The credit
union was set up and designed to meet members’ needs and any further re-design
must also be based on members’ needs. Ward, Briscoe & Linehan (1982:53) indicate
that this process cannot be successfully carried out unless the members fully
understand and appreciate the nature of a credit union as a co-operative. Therefore,
they state that member education is a necessary preliminary step to such discussions.
Step 2: Communicate to neighbouring credit unions
To encourage other credit unions to involve members in needs identification, each
credit union board of directors should communicate the results of its own
deliberations to neighbouring credit unions. Initially, neighbouring credit unions
should try to understand and appreciate each other’s positions and strive to eradicate
any prejudices or misunderstandings which may have developed over the years.
Otherwise, meaningful talks to explore solutions to common problems might be
difficult to initiate and in the long term prove fruitless because of mutual suspicion.
The credit union must also communicate the results of the member identification
process to its own staff.
Step 3: Set up inter credit union study groups
After the individual credit unions have spent some time identifying members’ needs
and possible approaches to meeting them, the next logical step is to set up inter credit
union study groups composed of representatives from neighbouring credit unions who
have been involved in similar exercises.
Step 4: Identify how the co-operatives can work together to meet members’ needs
The inter credit union study groups should proceed to identify ways in which
neighbouring credit unions can work together to meet members’ needs more
effectively. The emphasis here is on identification of tangible benefits which would
accrue to members from collaboration between their credit unions. This should be
done before discussing any joint organisation structures. Ward, Briscoe & Linehan
(1982) indicate that obviously there is no point going through the “trauma of
reorganisation for its own sake”. The aim, they point out, throughout the process
should be to achieve the maximum benefit for members with the minimum,
organisational change.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Step 5: Select priority task areas for initial study
Study groups should then select a number of priority task areas for further study. Task
areas should be chosen according to their likelihood of meeting priority member
needs.
Step 6: Conduct or commission feasibility studies
Having selected a few priority task areas, the next step is to conduct or commission
feasibility studies to assess the potential benefits and problems of each of the priority
task areas. Benefits and costs of future collaboration structures should be analysed.
Sometimes there is a tendency to only look at the benefits. Costs such as loss of staff
morale or declining member loyalty might well out-weigh the financial benefits which
might follow from any consolidation. Also benefits such as the development of
member involvement or the resultant knowledge or learning that may accrue in the
credit union will be more difficult to evaluate than financial savings.
Section 7: Select ONE priority joint task area.
Following the feasibility studies, pick a single joint task for initial implementation.
Pick one which promises substantial benefits, poses minimal problems and is
expected to be relatively easy to implement. Pick an area in which the activities of the
various credit unions are complementary or at least do not compete with one another.
Alternatively, if this is not possible, try to pick an area in which the necessary internal
adjustments within the credit unions are not too frightening. Initial success will be
important to further collaborative efforts.
Step 8: Appoint inter-credit union steering committee
Step 9: Set specific goals in the joint task area
It is important to set goals which are measurable and have a timeframe. Joint goals
should not be incompatible with the goals which the individual credit unions set for
themselves.
Step 10: Design appropriate organisational structures
An organisation structure is required to ensure not only efficient task/operation
performance but also effective control by the credit unions involved.
Steps 11- 17 are self-explanatory (see Diagram 5.1)
We will now go on to discuss a number of particular network structures, namely
strategic alliances, credit union service organisation (CUSO) and shared branching.
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5.2.2 Strategic Alliances
Formal networks and strategic alliances can come about from an on-going
relationship, by a deliberate search for a partner or in response to opportunity’s knock.
In all cases, there are four basic steps to forming a strategic alliance:
Diagram 5.2
Strategic Alliance/Networking Model
Step 1: Strategic Planning
Step 2: Choosing a Partner(s)
Step 3: Negotiation
Step 4: Implementation
Working through these steps, it must be remembered that a strategic alliance/network
is more than just an arrangement – it is a relationship. Holmlund & Fulton (1999)
indicate that the first step (strategic planning) is by far the most important – as it
forms the foundation of the alliance. They say that if an alliance is going to be
meaningful and strategic, it must involve careful thinking and planning. As
highlighted in the previous model, strategic planning must be based within a context
of identification of members’ needs.
In selecting a partner, first search, then choose the best fit. Holmlund & Fulton point
out that this is a ‘drawn-out process that requires patience’. They indicate that
organisations should start early and not wait until their backs are to the wall as this
will mean that rash decisions are made and a poor alliance is the result. They state that
potential partners should have:
 A history of successful relationships
 Personal chemistry with your credit union
 A willingness and ability to contribute
Research has shown that, for an alliance to be successful, three factors have to be
different but complementary:
 Resources
 Technology
 Employees
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In this way, each partner needs the other to fill their resource gap.
Partners also need to be similar in the following ways:
 Perceived need for the venture
 Ownership of it – risks and benefits should be shared
 Commitment to it – top-level people often move on or
retire; commitment should permeate the organisation
 Conflict management techniques
 Communication styles – communication is vital; you must
agree on how best to do it
 Values – openness, respect and trust of outsiders
Finally, there needs to be understanding. Partners may not necessarily see things in
exactly the same light, but they need to agree on certain issues:
 A definition of ‘success’ – so you both know when the





alliance is working
Goals – again, they need not be the same but they cannot be
contradictory, If you are committed to mutual benefit, you
must understand your partner’s goals as well as your own
so you do not inadvertently undermine them
Decision–making style - you may have different internal
styles but you must agree on how the alliance will operate
How to manage and staff the alliance
Power – you must recognise the relative power of each
partner
Rewards – you must understand the partner’s internal
reward system
In summary, you and your partner must be different in some ways, similar in others,
and have a mutual understanding.
The next stage is negotiation. Here the partners begin a series of discussions to talk
about organisation, control, resource contributions, and of course to build trust
between the partners. At this stage you will need to figure out what the ‘deal breakers’
are for you and your partner.
The final stage is implementation: At this stage the partners will decide what type of
alliance they will develop. It could be:
 Formal (a contract) or informal (a handshake)
 Equity or non-equity
In terms of equity or non-equity, these can be structured as follows:
Equity
 Joint venture, in which you form a third company
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
 A swap, in which each takes 10% of the other’s organisation
and you are bound in a relationship of mutual ownership
 A straight minority or majority ownership
Non-Equity
(no money changes hands, you simply share commodities or
strengths)
 Contracts/Licensing agreements
5.2.3 Credit Union Service Organisations (CUSOs)
As discussed on Section 2, CUSOs are formed when a group of credit unions decide
to come together and set up a separate business entity which is jointly owned by them.
However, as indicated in the previous models, a participating credit union should only
decide to set up a CUSO or become part of one after a strategic planning process,
which includes the identification of members’ needs. Only on this basis can they
determine if the CUSO will meet their objectives. Many of the previous models will
also apply to the development of a CUSO – so here we will just highlight the steps
that are particular to the development of the CUSO.
Diagram 5.3 Outline model for the development of a CUSO
Strategic Planning, identification
of member needs, choosing
partners, negotiation
Develop a clear business plan
outlining the purpose, structure,
operation and funding of the
CUSO
Approach the Regulator to seek
approval for the setting up of the
CUSO
If approval is gained:
 Register
 Elect board
 Appoint staff (if required)
 Decide on policies, fees, etc.
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5.2.4 Shared Branching
Shared branching can mean that credit unions jointly set up a shared credit union
office, possibly in areas where there is significant membership overlap or possibly in
new shopping centres, where the members of a number of credit unions carry out their
shopping. Shared branching can also mean that members of one credit union become
guest members at the other participating credit unions. This is already occurring to
some extent within Irish credit unions, where members can, on occasions, withdraw
money from a credit union other than their own. This form of shared branching could
be further developed to create a national common bond of service while still
maintaining the membership common bond. While technology would make this
process of shared branching much simpler, it is still possible through manual faxing or
telephoning for the confirmation of balances and amounts. Therefore, credit unions
should not wait until the ideal technology is in place but should start to develop such
collaborative efforts now.
We make the following recommendation:
Development of a National Common Bond of Service
a. The League needs to develop and maintain a database of credit unions that are already
b.
c.
offering a shared common bond of service.
The League should issue procedures on how to make this service operate effectively and
efficiently
The League should encourage credit unions to offer this service.
(Recommendation 12)
5.2.5 Amalgamation17
An amalgamation is the coming together of two or more credit unions to create a new
credit union as their successor. This can be diagrammatically presented as follows:
Diagram 5.4
Amalgamation
Credit
Union A
+
Credit
Union B
=
Credit
Union C
Effectively credit union A and credit union B close and decide to set up a new credit union –
credit union C.
The procedure for the development of an amalgamation follows a similar
development path to the strategic alliance model outlined earlier. However, it is
initially more complex in that both credit union A and credit union B need to agree
17
This section draws heavily on the material developed by Ciaran Bishop and the Legal and Secretariat
Department of the Irish League of Credit Unions (ILCU)
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
mutual policies and operational procedures. They also need to consider board and
staffing arrangements. Staff need to be reassured that they will either have
employment in the new entity, or if not, that they will be adequately compensated.
Informing staff of amalgamation developments should happen as soon as possible and
should be transparent. In terms of the board, both credit unions need to agree who will
sit on the board, this will usually involve an equal number of representatives from
both credit unions. There will be significant negotiation around all of these issues and
reaching agreement will be time-consuming and sometimes difficult. Of course,
before either credit union decides to amalgamate, they must be clear on why they are
doing so. How will this amalgamation help the credit union to meet its strategic
objectives? How does the amalgamation meet the members’ needs and maximise their
benefits? The credit union must be able to clearly answer these questions. We present
a general model in Diagram 5.5
Diagram 5.5
General Amalgamation model
Step 1: Strategic Planning within the context of members’ needs
identification
Step 2: Choosing a Partner(s). As the credit union will be following a
complete integration strategy with another credit union (s). A positive
relationship between the two is essential
Step 3: Negotiation: Both credit unions will need to jointly agree the future
board composition, staffing, policies and operations. For the success of the
amalgamation, both credit unions will have to be in full agreement. In addition
the credit unions will need to:
 agree on the rules for the regulation of the new credit union
 approve the terms of amalgamation by a special resolution
 jointly make an application to the Registrar for the confirmation of the
amalgamation sending copies of the Rules
 on confirmation of amalgamation of the Registry a certificate will be
issued and all the property, rights and liabilities of each credit union
will be transferred to the new credit union and each of the credit
unions will be dissolved, but would have been deemed effective
immediately before the dissolution.
Step 4: Implementation: Setting up of the new entity – Credit Union C.
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5.2.6 Transfer of engagements18
This is where one credit union is transferring its engagements to another credit union.
This can be diagrammatically presented as follows:
Diagram 5.6
Transfer of engagements
Credit Union A
Credit Union B
(activities of A are
transferred to B)
In this situation, Credit Union A will decide that it no longer wishes to continue as a
credit union. It approaches a local credit union to determine their interest in acquiring
the business of Credit Union A. After this Step, there are two approaches open to the
credit union:
1. By a special resolution
2. By the consent of the Regulator if he considers it expedient to do so, followed by a
resolution of the board of directors.
Special resolution procedure
Action required:
 The transfer must be recorded in an instrument of transfer of engagements.
 The transfer has to be confirmed by the Regulator.
 A certificate of confirmation of the transfer will be issued.
 Where the Regulator confirms a transfer of engagements he will register a
copy of the instrument of transfer of engagements and issue to the credit union
taking the transfer a certificate of confirmation.
 A statement must be sent to every member entitled to notice of a general
meeting of the credit union and to the auditor of the credit union, as suggested
by the Regulator, showing the proposals with a copy of the annual accounts.
Resolution of the Board of Directors
If the Regulator consents to the credit union proceeding by a resolution of its
board of directors, the secretary will send, within seven days, to every member
and to the auditor:




Notice of the resolution passed by the board of directors
A statement, in such form as the Regulator may direct, showing the proposal
and the actions required.
No statement will be issued unless approved by the Regulator.
An application for confirmation of an amalgamation or a transfer will, within
seven days after the date of the application, have to be published in at least
18
This section draws heavily on the material developed by Ciaran Bishop and the Legal and Secretariat
Department of the Irish League of Credit Unions (ILCU)
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
two daily newspapers and any representations relating to it can be made in
writing to the Regulator within not less than 21 days.
5.2.7 Wind-up19
If a credit union has been in difficulty on all the key issues discussed in Section Three
and cannot see any viable way of resolving all of these issues, it should consider
winding-up the credit union. This may well prevent a very public failure at a later date
and it also means that the credit union (with the assistance of the League) can make
arrangements for the transfer of their members to neighbouring credit unions. In this
case, the League ensures that the member’s record continues unbroken. Many credit
unions throughout the history of the movement have opted, in the interests of their
members, for this option. This is diagrammatically presented as follows:
Diagram 5.7 Wind-up
Credit Union A
Assets are distributed among the
membership
ILCU identifies local credit unions for the
transfer of the membership accounts
(maintaining record of members)
There are three options available for a credit union in the wind-up process:



A Special Resolution of the Board, that would be wound up by an instrument
of dissolution which sets out the assets and liabilities of the credit union and
all relevant information. Alterations can be made by not less than three
quarters of the members present and voting at a special general meeting. The
instrument of dissolution is then sent to the Regulator for approval. The
Regulator shall place a notice of dissolution to be advertised at the expense of
the credit union.
The Regulator may petition the High Court.
The Regulator may order the wind up of a credit union if it appears that the
credit union is unable to pay sums due to members, etc. or if there is a failure
to comply with any provision made under the Act and it is continued after
notice from the Regulator.
Wound up in accordance with the Companies Act and any modifications apply
as if a credit union were a company limited by shares
19
This section draws heavily on the material developed by Ciaran Bishop and the Legal and Secretariat
Department of the Irish League of Credit Unions (ILCU)
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5.5
Conclusion
As can be seen there are many rationalisation options open to credit unions. Different
models will be appropriate to different credit unions or at different stages of
development. For example, for credit unions which are in constant difficulty (with
persistently poor performance on the PEARLS Ratios), the most appropriate model
may be to wind-up the credit union or to amalgamate with a local credit union. For
those who wish to co-operate with other credit unions and who have the skills
required, networking may be an appropriate model. For a credit union which does not
wish to enter into a networking structure, amalgamating with a local credit union
could be the best option. Credit unions need to strategically decide for themselves
what the best options for their members and credit unions are. We make the following
recommendations:

Develop detailed practical guides for the implementation of the various models presented in
this report
a. The League must develop detailed guidelines (including legal and operational
requirements and procedures) on all the models outlined in this report:







b.
c.

Networks and Strategic Alliances
Credit Union Service Organisations (CUSOs)
Shared Services
Amalgamations
Transfer of engagements
Wind-ups
Outsourcing
The League must establish a procedure where credit unions can be supported
The League should establish a small team of trained/experienced facilitators, managed
by a rationalisation manager, to work on a regional/chapter basis with credit unions to
advise them on the development of the most appropriate rationalisation model and to
support them in the implementation of an agreed model.
(Recommendation 15)
Credit unions must consider the most appropriate models for the future development of
their credit union and the movement
We make suggestions for credit unions in the following categories (see main recommendations
for greater detail):
i) Credit unions with on-going problems
ii) Credit unions with governance issues
iii) Credit unions which do not have the resources to develop products or services but
do have the skills to develop collaborate networks with other credit unions
iv) Credit unions that do not have the resources to develop products or services and do
not have the skills required to develop collaborate networks with other credit
unions but does have a close relationship with one local credit union
v) Credit unions who are progressive and recognize the opportunities for development
vi) Credit unions are not experiencing any difficulties (in terms of: delinquency, have a
thriving loan book, have good technological capability, are developing their
products and services, have good governance in place, and are not experiencing any
difficulty with regard to regulatory pressures).
(Recommendation 18)
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SECTION SIX
CONCLUSIONS & RECOMMENDATIONS
________________________________________
This report discusses the need for rationalisation within the Irish credit union
movement. It highlights that all the major forces which drove rationalisation in other
credit union movements are also present within the Irish Movement. Therefore the
report concludes that rationalisation is required in Irish credit unions. However, we
point out that rationalisation can be achieved through amalgamations, transfer of
engagements to network structures such as strategic alliances, CUSOs, shared
branching to outsourcing non-core activities. However, as we pointed out, no matter
how rationalisation is achieved, it must be based on member needs so as to maximize
member benefit. The consultation with the movement indicates that there is
significant informal co-operation already taking place between credit unions and that
credit unions are open to the further development of this inter credit union cooperation. We now set out a number of key recommendations.
Where do we go from here? –Recommendations
Our recommendations are based on four main areas as follows:




Maintain and reinforce the co-operative nature of the
credit union (member control and ownership)
Strengthen the business model of the credit union
Formulate clear strategic direction for credit unions and
the movement
Strengthen inter-credit union collaboration
These recommendations can be grouped into two main strands
1. Vision & Ethos
2. Rationalisation
This is diagrammatically presented in Diagram 6.1
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Diagram 6.1 Securing the future – two strands
1. VISION & ETHOS
Clear Strategic
Direction
Strengthen CoOp Nature
•Proper
Governance
•Integrate
•Ethos
d Strategic
Planning
for
Movement
Preservation
•Member
Awareness
•Common
•Develop
Bond of Service
products to
meet members
needs
Strengthen Inter
CU Collaboration
•Compatibility
of IT Systems
•Build on
Current Cooperation
•Establish
and
implement
Performance
Categories
Strengthen
the Business
Model
2.RATIONALISATION
The recommendations are listed below:
Maintain and reinforce the co-operative nature of the credit union (member
control and ownership
1. Ensure proper governance in credit unions
a. Credit unions must develop a plan for the succession of new volunteers
on to the board of directors and the supervisory committee.
b. Credit unions must provide training and supports to new volunteers
and, in particular, new board directors. Within two years of taking a
position on a board, volunteers should have taken part in the necessary
training and then become certified as being a trained board member.
c. All credit unions boards must regularly carry out a training needs
analysis of their board.
b. The League must develop a database of director training indicating the
level of training undertaken by all boards members in each credit
union. This database will be updated on an annual basis.
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c. Credit union volunteers and staff must continue to be offered a wide
range of accredited training and educational programs, which build
skills and knowledge and recognize prior learning and experience.
d. Nomination Committee must be proactive in encouraging a full
election process for vacant board positions, in terms of encouraging
competition for each post.
2.
Greater need for credit union and member, volunteer and staff awareness
on the credit union ethos (refocusing on what it means to be a co-operative)
a. The League must develop educational programs/seminars which
help boards, staff and volunteers to re-understand the meaning of the
co-operative ethos of the credit union
b. The League within their new national marketing campaign must
develop templates of promotional material/programs which develop
the brand of the credit union based on its unique ethos
c. Individual credit unions must educate all new and existing staff and
volunteers in the meaning of the credit union as a co-operative
3.
The League, Regulators and credit unions must ensure that any changes
(legislation, regulation, new products and so on) do not impact negatively
on the members control and ownership of the credit union. An impact
assessment model must be developed.
4.
The League should develop social auditing guidelines for credit unions
Strengthen the business model of the credit union
5. Develop products and services which must meet key financial needs of
people in Ireland today
Credit unions should fund a central R & D function which:
a. Determines the main financial concerns and issues of members and
non-members
b. Determines the key gaps in the credit union services and those offered
by other financial institutions.
c. Makes consultations with key opinion leaders and practitioners in key
social, economic and political arenas to determine the main needs and
concerns within Irish society
d. Forms a project team to develop templates for products and services
which credit unions could consider implementing. Acceptability of the
products and services must be well determined before introduction into
credit unions.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
6.
Develop performance categories for credit unions
a. The League in conjunction with the Regulators needs to develop
performance systems, which categorises credit unions into strong down
to weak credit unions (in terms of PEARLS).
b. For credit unions which consistently fall into the weakest category, the
League must be mandated, in the interests of the members and the
wider movement, to intervene in that credit union and recommend
various options to resolve the matter. If the credit union fails or refuses
to co-operate, the League must be given the authority to apply various
sanctions, up to and including recommendation for wind-up.
c. It should be a requirement that each credit union must issue
performance reports from the Regulator and the League to all board
members and supervisors of the credit union.
d. The SPS Review Group should consider strengthening the ability of
the SPS to impose sanctions.
7.
Delinquency in the Movement
Greater attention should be given to the whole area of loan approvals, credit
underwriting, credit control, treatment of loan delinquency and bad debt write
off. To this end the League should establish and disseminate best business
practice standards, issue procedures manuals and undertake extensive training so
as to maintain and uplift the standards of operations in credit unions in these
matters.
8.
Credit Union Legislation
a.
The League and credit unions must lobby for enabling
legislation which allows the credit union movement to grow and
prosper.
b.
Future legislation changes must be reflect the developing needs
of credit unions
c.
The Minster for Finance must revise the current 1997 Credit
Union Act so as to allow immediate short-term changes which
are currently damaging the growth of credit unions.
9.
The Common Bond
a. The ILCU Strategic Review must formally consider and investigate the
impact of the common bond on the growth and efficiency of credit
unions and make recommendations arising from that investigation.
b. A central data base of all credit union common bonds should be
created to identify the existence of any service gaps.
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Formulate clear strategic direction for credit unions and the
movement
10.
Development of an integrated strategic planning process within the credit
union movement.
a. A Strategic Plan for the movement must be developed which is based
on a new and inspiring vision for credit unions.
b. Based on the Movement’s Strategic Plan, each credit union must
develop its own strategic Plan. This should ‘fit’ with the Movement’s
Strategic Plan. The credit union plan should also address the key issues
facing credit unions and should evaluate where collaboration with
other credit unions would be of strategic benefit to their own credit
union.
c. Each credit union must develop an operation plan which indicates how
its Strategic Plan will be implemented.
This could be diagrammatically presented as follows:
Strategic Plan of the Movement
Individual Credit
Union Strategic
Plans
Strategic plan
for Network
of Credit
Unions
Operational
Plans
Operational
Plans
11. Form a Senate within the credit union movement consisting of
individuals with vision to inform the future direction of the Irish credit
union movement.
Strengthen inter-credit union collaboration
12.
Development of a National Common Bond of Service
a. The League needs to develop and maintain a database of
credit unions that are already offering a shared common bond
of service.
b. The League should issue procedures on how to make this
service operate effectively and efficiently
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c. The League should encourage credit unions to offer this
service.
13.
Increase the compatibility of the current IT systems in the movement.
a. The League must agree an approach to develop a standard
common IT Platform and a timeframe within which this must
be achieved.
b. The National Technology Committee of the League must
develop a set of guidelines (computer language etc) for the
development of future IT in the movement.
c. Credit unions should then issue these guidelines to their IT
companies for any future developments to their systems.
14.
Build on current co-operation models already happening in the credit
union movement
a. The League must develop a database of best practice of
current co-operation that is already happening in the
movement
b. An on-line discussion forum should be developed which
would act as a support and advice network for credit unions,
where a credit union has a query it could log-on to a
discussion forum and other credit unions can offer advice.
c. An independent body should be approached for the
management of the forum. The Centre for Co-operative
Studies, UCC would be an appropriate body to run such a
discussion forum.
15. Develop detailed practical guides for the implementation of the various
models presented in this report
a. The League must develop detailed guidelines (including legal and
operational requirements and procedures) on all the models
outlined in this report:







Networks and Strategic Alliances
Credit Union Service Organisations (CUSOs)
Shared Services
Amalgamations
Transfer of engagements
Wind-ups
Outsourcing
b. The League must establish a procedure where credit unions can be
supported
c. The League should establish a small team of trained/experienced
facilitators, managed by a rationalisation manager, to work on a
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
regional/chapter basis with credit unions to advise them on the
development of the most appropriate rationalisation model and to
support them in the implementation of an agreed model.
16.
The League and relationships with other representative bodies and the
Regulators
a. The League, the other relevant representative bodies and the
Regulators (NI & ROI) must ensure that they develop a good working
relationship.
17.
New credit unions
a. The credit union movement must now focus on consolidation of its
position – no new credit unions should be developed, except in very
exceptional circumstances.
18. Credit unions must consider the most appropriate models for the future
development of their credit union and the movement
Credit unions need to consider which rationalisation model is the most appropriate
for them. Credit unions will fall into different groupings as follows:
i. Credit unions with on-going problems
Within the Irish credit union movement, there are a number of credit
unions which are experiencing persistent difficulty. The options open to
these credit unions could be as follows:
 Rectify the situation: the board should call a special board
meeting and critically evaluate their situation. If they feel that
the situation can be internally rectified, they should
immediately, without delay, set about developing a business
plan, which will rectify matters. This will prove to the board
and to the regulator that the situation is internally rectifiable.
 Transfer of engagements: if the credit union is in serious
difficulty it may be difficult to find a local credit union willing
to take on that credit unions problems. In this situation, if the
credit union has a good relationship with a local credit union
they could approach them and start negotiations. The credit
union should also approach the League to assist them in their
identification of a willing local credit union.
 Amalgamate with a local credit union: The credit union will
need to find a willing credit union to amalgamate with. In the
case of an amalgamation, a good relationship with the potential
partner is essential.
 Wind-up: This can often be the best option for the members, as
the credit union’s residue assets are distributed back to them
and they are also assigned to another credit union of their
choice, with their member record in tact.
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For these credit unions that are in trouble and cannot seem to rectify
the situation, they must seriously consider whether they are working in
the interest of the member. It will become harder for such credit
unions to operate in the future and if they continue to struggle on and
do not take proactive steps, a point will come when the credit union
will publicly fail. This is certainly not in interests of the member, the
board, the staff, local credit unions and to the wider movement. It
should be remembered that not all of these credit unions are small –
some are large.
ii. Credit Unions with governance issues20
This could be where a credit union is in effect run by limited number of people. In
this situation there is no proper governance structure and the credit union could
consider the following options:
 Wind-up
 Transfer of engagements
 Amalgamate with a local credit union
In this situation, the credit union may not have the co-operation or
willingness of the entire board to internally rectify the situation. They
will also not have the skills or resources from which to develop
strategic alliances or networks with other credit unions
iii. Credit unions which do not have the resources to develop products or
services, but do have the skills to develop collaborate networks with
other credit unions
In this situation, the credit unions could consider the following options:
 Develop a separate entity like a CUSO with other credit unions so as to
develop their products and services.
 Could also consider outsourcing certain non-core activities
iv. Credit unions that do not have the resources to develop products or
services and do not have the skills required to develop collaborate
networks with other credit unions but does have a close relationship
with one local credit union
(1) Could amalgamate with another credit union
v. Credit unions who are progressive and recognize the opportunities for
development
 CUSOs
20
This could result from changing demographics in the common bond, ageing volunteer base, burden
of running the credit union left to one or two, one or two dominant people in the credit union)
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
 Developing Networks with other credit unions
 Amalgamate with a another credit union
vi. Credit unions that are not experiencing any difficulties (in terms of:
delinquency, have a thriving loan book, have good technological
capability, are developing their products and services, have good
governance in place, and are not experiencing any difficulty with regard to
regulatory pressures).
These credit unions might have scope to continue to grow internally.


Could informally network with other credit unions.
Must ensure Strategic Planning Processes are in place.
Diagram 6.2 Pulling it all together
Recommendations of report
Greater inter-credit
union
Co-operation
Strengthen the
Business
Model of the CU
AND
Re-assert
Co-operative identity
Set a future vision
for the Credit Union
Movement
Outcomes Outcomes
Achieve Rationalisation
In terms of:
Decreasing costs
Developing Tech
Develop product range
Increasing scale
SECURE
THE
FUTURE
OF
CREDIT
UNION
MOVEMENT
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Goals and Core Responsibility
(commencing delivery from CGM 2006)
Action/Recommendation
Timescale
for goals
Core Responsibility
Succession plans for directors
Director Training - Certification
Regular training needs analysis
Database of director training
Accredited training
2006
2008
2006
2007
2008
Activation of nomination committees
Education programs/seminars on ethos
Promotional materials – developing clear brand based on
distinctive nature of the CU
Education of new volunteers/staff on ethos of CU
Investigate the impact of changes on the co-operative nature
of the credit union
Develop social auditing guidelines/templates
Provide funding for the development of an R & D function
If funding agreed, formation of R & D function
Development of Performance Indicators for CUs
Give mandate for League to intervene in weak credit unions
Issue CU Prudential Reports/Performance reports to all
directors on CU boards and ensure all understand
Delinquency
Lobby for enabling legislation
Lobby for immediate changes to Legislation
Investigate impact of common bond on CU effectiveness
Database of common bonds/identify service gaps
Movement Strategic Plan
Individual CU Strategic Plans
Form Senate of individuals to inform the future direction of
the credit union movement from time to time
Database of names of CUs who are participating in a shared
common bond of service
Encourage CUs to join
Issue procedures in relation to best practice – shared common
bond of service
Develop Common IT Platform
Develop standardised guidelines for IT companies
CUs issue standardized guidelines to their IT companies
Database of best practice of current co-operation models
already happening in Movement
Development of on-line support/advice network
Develop detailed practical guides for the models outlined in
main Rationalisation Committee Report
Establish rationalization support structure (appoint a
Rationalisation Manager and train a team of facilitators)
Develop good working relationship between League and
other representative bodies and Regulators
Develop policy in relation to the formation of new credit
unions
CUs start to evaluate their own credit union in terms of
strengthening the business model and investigate how this
can be done both internally and through co-operation with
other credit unions. Choose most appropriate model.
2006
2007
2007
CUs
CUs
CUs
League
League and training/education institutions eg
UCC
CUs
League
League
2007
Ongoing
CUs
League/Regulators
2007
AGM 2007
2007
2006
AGM 2007
ongoing
League
CUs
League
League & Regulators (NI & ROI)
CUs
CUs
2006
2007
2006
2007
2007
2006
2007
2007
League
League/CUs
League/CUs
League
League
Movement/League
CUs
CU movement
2006
League
2006
2007
League
League
2006
2006
2007
2006
Movement
NTC
CUs
League
2007
2006
Centre for Co-op Studies, UCC
League
2006
League
Ongoing
2006
Initiated by the League/open response to the
initiation of other groups
League
2006
CUs
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
BIBLIOGRAPHY
_________________
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within a Credit Union Context. Unpublished MSc Thesis, UCC.
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CUNA Statistics (2005). www.cuna.org
Desrochers, M. & K.P. Fischer (2003). Theory and Test on Corporate Governance of
Financial Co-operative Systems: Merger vs. Networks. Cahier de Recherche,
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Emmons Wm & Schmid’s F. A. (1999). Credit Unions and the Common Bond. CFS
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Enright, P. (1997). National Regulation and the Changing Geography of the Irish
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Filene Research Institute (2003. Outsourcing and Sharing Credit Union Management:
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Fisher K. P. (2002). Governance, regulation and mutual financial intermediaries
performance. CREFA Working Paper No. 01-11, Laval University.
Fried H., O, Lovell K and S. Yaisawarng (1999). The Impact of Mergers On Credit
Union Service Provision. Journal of Banking & Finance, No. 23, pp. 367-386
Garden, K. (1999). Credit Union Mergers: Efficiency Gains? Centre for Australian
Financial Institutions Newsletter, Vol. 3, No. 1.
Goth, P (2005). Issues in Credit Union Corporate Governance: A comparative
analysis of Canadian and Irish credit unions. Unpublished PhD Thesis, Queens
University Belfast.
Gubik, A. (2005). New Opportunities for SMEs Founded by Cooperation. European
Integration Studies, Miskolc, Vol. 4 No. 1, pp 25-36.
Hoel, B. (2004). Credit Union Mergers: Who’s Best Interest are we Serving” Filene
Research Institute. Presentation to WOCCU Conference, 2004.
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Holmlund, M & Fulton M. (1999). Networking for Success: Strategic Alliances in the
New Agriculture. Centre for the Study of Co-operatives, University of Saskatchewan.
ILCU (2003). Environmental Scan for Credit Unions, ILCU, Dublin
Johnson, K (2004) Shared Branching: Taking it Global. World Credit Union
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Kacheiski, B. (2002). Outsourcing through Strategic Partnerships. Presentation to the
World Council of Credit Unions (WOCCU), 2002.
Kim D.H (1993). The Link between Individual and Organizational Learning. Sloan
Management Review, Fall.
Knapp J (1964). Knapp Report. Published by the Stationery Office, Government
publications, Dublin.
Lord, M. (2003). State Employees Credit Union. In Outsourcing and Sharing Credit
Union Management. Centre for Credit Union Research and the Filene Research
Institute, pp 41-54
McCarthy O. (2005). The Irish Credit Union Movement: Member Participation and
Organisational Effectiveness. Unpublished PhD Thesis, UCC, Cork.
McCarthy, O., Briscoe, R. & M. Ward (1998). Irish Agricultural Co-operatives: An
Overview. Department of Food Business & Development, UCC, Cork. Discussion
Paper.
Modell, S. (1993). Foreningsbanken: Credit Union Movement going PLC. Paper
prepared for the Postgraduate Diploma in Co-operative Organisation, Rural
Development and Food Marketing, UCC, Cork
O’Connor, R., McCarthy, O. & M. Ward (2002). Innovation and Change in Irish
Credit Unions. Centre for Co-operative Studies, UCC, Cork.
O’Reilly, S & M. Haines (2004). Marketing Quality Food Products: comparison of
tow SME Networks . Acta Agriculture Scandinavicia: Food Economics, Vol. 1, No. 3,
pp 137-150
Ouden, B, Ziggers, G. W. and G. Duysters (2005). Capabilities, Management,
Relational Capital and the Impact on Alliance Performance: An Empirical Study with
Non-equity Alliances. In Eds Theurl, T. & Meyer, E. C, Strategies for Cooperation,
Münstersche Schriften zur Kooperation, Band 63, Shaker Verlag, Aachen.
Radue, C. (2003). Green Bay Credit Union Centre. In Outsourcing and Sharing
Credit Union Management. Centre for Credit Union Research and the Filene Research
Institute, pp. 1528
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Ralston, D. Wright, A. & K. Garden (2001) Can Mergers Ensure the Survival of
Credit Unions in the Third Millennium? Journal of Banking & Finance, No 25 pp
2277-2304.
Rick, S.W. (1998). Credit Union Restructuring: A response to the developments in the
international finance industry. World Council of Credit Unions, Research Monograph
Series, No. 11.
Sibbald A. and L. McAlevey (1999). Examination of Economic of Scale in Credit
unions: A new Zealand Study.
Regulator of Credit Unions (2005). Talk given at the Diploma in Credit Unions
Studies Summer School
Ward, M., Briscoe, R. and M. Linehan (1982). Co-operation between Co-operatives:
A case study of agricultural co-operatives in the north east of the Republic of Ireland.
Centre for Co-operative Studies, UCC, Ireland
Ward, M. (2005). Feeding Ourselves 11: Farmers’ Co-operatives and Food. In Eds.
Briscoe. R. & Ward, M. Helping Ourselves: Success Stories in Co-operative Business
and Social Enterprise. Oaktree Press, Cork, Ireland.
Ward, M. (2000). Ireland’s Multipurpose Dairy Co-operatives. In Eds. Briscoe, R. &
M. Ward, The Co-operatives of Ireland. Centre for Co-operative Studies, NUI, Cork.
Welch M. (2004). Credit Union merger ends up in Divorce before Marriage. Credit
Union Times, June 16 pg. 14.
Wilcox J. A. (2005). Credit Union Failures and Insurance Fund Losses: 1971 – 2004.
FRBSF Economic Letter, No. 20, August.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
APPENDIX ONE - COMMITTEE MEMBERS
________________________________________
Chairperson:
Kathleen Prendergast, Tipperary Credit Union
Nineteen years of voluntary service to Tipperary Credit Union and current
President. She has served in many credit union areas including Planning &
Development, I.T. and Marketing. She has also served Chapter Ten as
Secretary and Treasurer. Kathleen has completed the BSc in Mutual and
Credit Union Business in UCC and is currently studying for the MBS in Cooperative and Social Enterprise.
Secretary:
Margaret Byrne, ILCU
Over thirty years experience as staff of the ILCU. She is assigned to the
Monitoring Department and has serviced various committees and working
groups. She also holds the position of Secretary of the ILCU International
Development Foundation Limited.
Members:
Eilis Brennan, Belfast Teachers Credit Union
Involved as a volunteer and director of Belfast Teachers’ Credit Union for
over twenty five years. She has served as Credit Control Chairperson and
Secretary and is currently Chairperson of the credit union. She is also
currently Chairperson of Chapter No. 3 having served previously as
Secretary. She is Secretary to the Northern Ireland Chapter Group.
Billy Carroll, Ballinrobe Credit Union
Founder member of Ballinrobe Credit Union in 1981. He has served on
various Committees and also held the position of Treasurer. He is Manager
since 2002 and also member of CUMA. Chapter and Inter Chapter Delegate
and Secretary of Inter Chapter.
Jim Kearney, Baltinglass Credit Union
Member of Baltinglass Credit Union Limited since 1990 and has held
Honorary Office of Secretary, Chairman and Treasurer, member of Credit
Committee, Credit Control Committee and Nomination Committee.
Tony Cullinan, St. Francis Credit Union, Ennis
Board Director in St. Francis (Ennis) Credit Union, Co. Clare. Member – 40
years - Volunteer – 36 years – Director 35 years
Served on League Board for nine years and is a Past President of the ILCU
Brendan Cotter, CUMA
Representing CUMA on the Committee. He is a founding member of
CUMA and has served on its national executive for the past two years. He
holds a diploma in Credit Union Studies from University College, Cork and
a BSc in Mutual and Credit Union Business also from UCC. Brendan is a
Qualified Financial Adviser and holds the QFA designation through the
LIA. Brendan is Manager of Fermoy Credit Union since 1990.
Olive McCarthy, Centre for Co-operative Studies, UCC
Lecturer in co-operative and credit union studies at the Centre for Cooperative Studies and the Department of Food Business and Development,
University College Cork. She has conducted numerous credit union research
studies and recently completed her PhD, examining member participation
and organisational effectiveness in the Irish Credit Union Movement. Olive
is also Secretary of St. Gabriel's Credit Union Ltd. in Cork and is a current
member of CUAC.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Kevin Helferty, League Board
Volunteer and director of Lisburn Credit Union and in Chapter 3 for over 35
years. He is currently a director of the League Board—on his second term—
and serves on the Insurance, P&D and SPS Committees.
Pat Coughlan, ICCA
Manager of The Lough Credit Union, in Cork since 1982.
Chapter delegate, Treasurer of ICCA, presented ILCU seminars, previous
member of CUAC and a member of CUMA. Served on previous ILCU
Committees in establishing UCC Diploma and Financial Correspondence
Courses
Carmel Dowling, League Board
League Board Director from 1998 to-date, serving three years as Treasurer.
She is a member of the Board of Mitchelstown Credit Union Limited since
1986 and currently holds the position of Secretary. She has served as
Chairman and Secretary of Chapter 12 and holds the Diploma in Credit
Union Studies
Pat Fay, League Executive Manager, ILCU
During his 37 years with the Irish League of Credit Unions, Pat served as
field-officer and was involved in the formation of many credit unions. The
author of management positions with the Irish League of Credit Unions. He
also supports the work of the ILCU International Credit Union Development
Foundation and served as Secretary. His international credit union
development experience includes technical assistance missions to Asia,
Eastern Europe, Africa and the Caribbean. He currently serves as Executive
Manager of the Irish League of Credit Unions.
Ciaran Bishop, Business Unit Manager, ILCU
Involved in the credit union movement since the early seventies when he
became a director of Bray Credit Union. He joined the Irish League of
Credit Unions in 1988 as a field officer and in that role was instrumental in
developing study groups throughout the country which are now vibrant
credit unions. His current role as a Business Unit Manager is to support and
review credit unions.
David Florida James.
Involved with Limavady Credit Union since the late 1960’s. He was
originally a Teller, then Director and is currently the Secretary. He has been
involved in Chapter No. 1 and the Inter Chapter Group. He was elected to
the League Supervisory Committee in 2002.
Anne O’Byrne (was on committee initially before her appointment as
President of ILCU. Carmel Dowling was co-opted in her place).
First elected to the Board of Blessington & District Credit Union twenty
eight years ago and was subsequently Assistant Treasurer, Secretary and
Chairperson. She became a League Board Director eight years ago and held
the position of Chairperson of the Administration Committee and member
of the Legislation Committee. She was also Vice-President of the ILCU for
two years and last year was elected first woman President in the 47th year
history of the Credit Union Movement.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
Arthur Briscoe, Clonsilla Credit Union (resigned from
Committee due to pressure of work). Currently Manager of Clonsilla Credit
Limited.
Peter Goth, Queens University (on committee for a short while, but
during year had to return to Canada). Recently has completed a PHD in
Credit Union Governance at Queens University, Belfast and works as a
Consultant within the Irish and Canadian Credit Union Movements.
____________________________________________________________________
Report Writer (not a member of the Committee)
Noreen Byrne (Centre for Co-operative Studies, UCC.
Lecturer at the Centre for Co-operative Studies and the Department of Food
Business and Development, University College Cork. She has conducted
numerous credit union research studies and is currently reading for a PhD in
Co-operative Identity. Noreen has previously worked in a consultancy
capacity with a number of credit unions, primarily focusing on strategic
planning.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
APPENDIX TWO – CUSO SERVICES
__________________________________
Cheque and Currency Services
(Cheque cashing; coin and currency services and; money order, savings bonds, travellers cheques and
purchase)
Clerical, professional and management services
(Accounting services; courier services; credit analysis; fax transmissions and copying services; internal
audits for credit unions; locator services; management and personnel training and support; marketing
services; research services and supervisory committee audits)
Mortgage loan origination
Electronic transaction services
(ATM services; credit card and debit card services; data processing; EFT services,
Electronic income tax filing; payment item processing; wire transfer services and
internet financial services)
Financial counselling services
(developing and administering Individual Retirement Accounts, deferred compensation, and other
personal benefit plans; Estate planning; financial planning and counselling; income tax preparation;
investment counselling and retirement counselling)
Fixed asset services
(management, development, sale or lease of fixed assets and sale, lease or servicing of
computer hardware or software)
Insurance brokerage or agency
(Agency for sale of insurance; provision of vehicle warranty programs and provision of group
purchasing programs)
Leasing
(real estate leasing)
Loan support services
(debt collection services; loan processing, servicing and sales; sale of repossessed collateral)
Record retention, security and disaster recovery services
(alarm-monitoring and other security services; disaster recovery services; microfilm, microfiche,
optical and electronic imaging, CD-rom data storage and retrieval services; provision of forms and
supplies and record retention and storage)
Securities brokerage services
Shared credit union branch (service centre) operations
Student loan origination
Travel agency services
Trust and trust-related services
(acting as administrator for prepaid legal service plans; acting as trustee, guardian, conservator, estate
administrator or in any other fiduciary capacity; trust services
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
APPENDIX THREE –PEARLS RATIOS FOR THE
MOVEMENT
_______________________________________________
Ratio
Sep 05
Goal
P1 BAD DEBT PROVISION REQUIREMENTS
P2 LOANS WRITTEN-OFF/TOTAL LOAN
148.05
0.79
100%
112.40
48.71
47.48
87.50
109%
70%+
<30%
80 -
0.12
10.82
10.10
6.10
5.21
9.30
3.30
6.40
2.80
43.21
12.52
22.29
31.73
77.44
8.20
18.80
11.50
18.10
16.90
3.10
13.30
0%
>15%
>10%
<5%
<5%
minimise
P3 SOLVENCY
E1 LOANS / TOTAL ASSETS
E2 TOTAL INVESTMENTS/TOTAL ASSETS
E3 MEM RESOURCES / TOTAL ASSETS
90%
E4 BORROWED FUNDS / TOTAL ASSETS
E5 TOTAL RESERVES / TOTAL ASSETS
E6 STAT RES/PRIOR YR SAVINGS
A1 GR.LOANS ARREARS/TOTAL LOANS O/S
A2 NON-EARN ASSETS/TOTAL ASSETS
R1 LOAN INCOME/AVE GROSS LOAN PORTFOLIO
R2 TOT INV INCOME/AVG TOTAL INVEST
R3 TOTAL INCOME/AVE TOTAL ASSETS
R4 EXPENSES/AVE TOTAL ASSETS
R5 EXPENSES/INCOME
R6 WAGES/INCOME
L1 LIQ INVEST/UNCOMMITTED SAVINGS
L2 PERCENT OF MEMBERS WHO BORROW
L3 TOTAL INVEST / UNCOMM. SAVINGS
S1 GROWTH IN LOANS
S2 GROWTH IN TOTAL INVESTMENTS
S3 GROWTH IN TOTAL MEMS RESOURCES
S4 GROWTH IN TOTAL RESERVES
S5 GROWTH IN STATUTORY RESERVES
S6 GROWTH IN MEMBERSHIP
S7 GROWTH IN TOTAL ASSETS
<5%
<43%
<15%
minimum 20%
high as possible
minimum 10%
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
APPENDIX FOUR –STRATEGIC PLANNING
GUIDELINES
_______________________________________________
Strategic Planning in Credit Unions:
The financial marketplace that credit unions in both jurisdictions operate within is
currently undergoing and will continue to undergo, rapid change. To assist credit
unions in planning for these changes the ILCU initiated a strategic business planning
project and is piloting this process with a credit union.
This section of the Quarterly Bulletin is to share with other credit unions the process
undertaken and outline the steps that may be taken by credit unions that wish to
develop their own strategic business plan.
Overview:
Before going through the strategic planning process it is essential to set out some of
the rationale for strategic planning in a credit union.
Similar to most organisations, credit unions operate in a day to day environment and
react to changing circumstances after these factors have impacted on the credit unions.
The effort and resources available to the credit union are directed on the necessary
duties of dealing with the membership and current issues impacting on the credit
union, rather than preparing for things that will shape the future of the organisation.
Strategic planning is a method that may be used by the credit union to anticipate
events and prepare accordingly. Essentially strategic planning is:






Deciding what you want your credit union to be in the future
Determining what changes you need to make in your credit union to become
what you want your credit union to be
Examining your credit union, your competitors and the environment that you
operate within both now and in the future
Identifying and understanding how changes in either the competition or in the
environment can directly impact on your operations and your members;
Preparing your credit union for these changes through a logical step by step
plan to address the issues brought up by these changes
Implementing these changes so that you can make effective use of your
resources
It is important to remember that for a credit union to change from what it currently is
to what it wants to be takes time, thus the strategic plan will run for a specified
number of years typically 3/5 years.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
It should be borne in mind at all times that your analysis will not be totally correct at
all times but it will enable you to react quickly in an ever changing business
environment.
Step1 (Future Focus):
What should the credit union aim to be?
To determine how a credit union should plan strategically the first step must be to
decide on a clear unambiguous view of what the credit union will be in the future. To
assist in determining what you wish the credit union to be in the future there are two
fundamental questions that must be asked.
1. Why does the credit union exist?
2. What do you want the credit union be in 5/10 years time?
Taking these two questions into account, it is essential that all participants in the
credit union have an opportunity to influence its development. This is best done by
way of a facilitated discussion that includes the volunteers and staff of the credit
union. Care must be taken so that the process does not become too unwieldy and will
require an independent facilitator.
In addressing the questions it is best to take them one at a time and look at what they
mean and how they enable the development of a strategic plan.
1. Why does the credit union exist?
Questioning the reason for the existence of the credit union is a very important step in
the planning process as it enables the board to get a clear view as to why the credit
union has been successful and what will underpin its success in the future.
This questioning will enable the development of a clear statement about the credit
union’s reason for being, the basic purpose towards which its activities are directed
and the values that guide its transactions with its members.
This statement is generally referred to as the “Mission” of the credit union. The credit
union’s operating principles provide the framework for the values that underpin the
Mission. The Mission of the credit union can take many forms, but should clearly link
the reason for the existence to the needs of the membership and common bond that it
serves.
Finbarr McCarthy, ILCU.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
APPENDIX FIVE –SOCIAL AUDITING
___________________________________________________
Excerpt from Briscoe & Ward, FE 2702 Mutual & Credit Union Business, 2002
There are at least three main approaches that co-operatives are using to select the goals and
objectives to be used with the social audit. They are:
1. Identify specific benefits and services that the co-op will attempt to provide
for its members
2. Set objectives for each of the seven co-operative principles
3. Set objectives for meeting the needs of each of the major stakeholder groups
affected by the co-operative’s operations.
Sometimes one of these methods will be used on its own; sometimes in combination with one
of the others. Let’s look at each of these approaches in turn:
1. Identify specific benefits and services that the co-op will attempt to provide for
its members
The aim here would be to identify a list of distinctive benefits and services, which
are in some way unique to the co-operative or credit union.
These benefits should be key elements in the credit union’s competitive advantage,
being largely unavailable to competitors. Therefore, excellent performance in these
areas would tend to enhance the credit union’s competitiveness. If we do a good job
of compiling a list of the benefits and services we are trying to provide for our
members, we are close to having a list of the primary objectives we are trying to
achieve through the co-operative. The success of these services will to some extent be
measurable by reference to traditional financial indicators: e.g., usages rates such as
sales volume, market share, and we are set indicative target objectives in the
appropriate indicator. The services and benefits identified through the above process
provide the goals areas in which we can set targets and deadlines which enable us to
measure our success at achieving our social objectives. Note that these social
objectives also help to ensure business success.
2. Setting objectives for each of the seven co-operative principles
Another way of setting social objectives (for a business that is trying to operate
according to co-operative principles) is to identify objectives for each of the seven cooperative principles. A recent report on social auditing21 attempted to draw up a list of
co-operative indicators to help consumer retail co-operatives measure their
effectiveness at implementing the principles.
A sample of their indicators for each of the co-operative principles are summarised
and paraphrased below:
21
Measuring the Co-operative Difference. A report adopted by the EURO COOP General Assembly,
1999.
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
1st Principle: Open and Voluntary Membership
 How high are membership fees? Can all who are eligible for membership afford
to join?
 How do member demographics compare with the population as a whole?
 Is the co-operative open to all who can use its services?
 Is it easy for members to withdraw their capital?
2nd Principle: Democratic Member Control
 Does each member have one vote?
 What percentage of members attend meetings, vote, participate in committees?
 Are there other channels for participation in democratic decision-making in
addition to the AGM?
3rd Principle: Member Economic Participation
 Is capital rewarded by a fixed rate of interest?
 What % of surplus is distributed to members?
 What % of surplus is allocated to reserves?
4th Principle: Autonomy and Independence
 How does the co-operative maintain its autonomy and independence?
 Does the co-operative have a Code of Business Conduct?
5th Principle: Education, Training and Information
 How big is the education/training budget?
 How many members, elected representatives, staff members participate in
educational/training activities?
 How big is the budget for raising awareness of co-operative issues?
 How big is the budget for member education & training?
6th Principle: Co-operative between co-operatives
 What are the linkages with other co-operatives?
 Does the co-operative support the development of new co-operative ventures?
 To what extent does the co-operative invest in other co-operatives?
 What efforts are made to support co-operatives in developing countries?
7th Principle: Concern for community
 What attention is given to environmental management and reporting on this
issue?
 Does the co-operative engage in consumer campaigns?
 What initiatives does it take to support the interests of consumers and members?
 Does it represent consumer interests and lobby on their behalf?
 Is it a good employer?
 Does it invest in the local community?
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ILCU RATIONALISATION COMMITTEE REPORT - MARCH 2006
3. Set objectives for meeting the needs of each of the major stakeholder groups.
This third approach to setting objectives for a social audit is probably the most widely
used approach in co-operative and conventional business alike.
The approach is summarised in the following quotation from the Chief Executive’s
introduction to the first Social Accountability Report published in 2000 by Britain’s Cooperative Wholesale Society (the CWS, better known now as the Co-operative Group
since its recent merger with Co-operative Retail Services).
This report brings greater accountability to the things not measurable in the balance
sheet. We are attempting to measure our performance in relation to the people who
are involved in and affected by our business, our stakeholders – people like you. It is
also an attempt to assess whether we are doing what we say we do, practising what
we preach , and acting in line with our co-operative ethical values.22
The key stakeholders identified in the report were as follows:
 Individual members
 Corporate members
 Employees
 The wider community
 Customers
 Suppliers
 The co-operative sector
These were the key groups of people who were involved in and affected by the business. The
Social accountability Report attempted to measure the performance of the CWS in relation to
these stakeholders
This means that each stakeholder grouping was a goal area for the social audit and for each of
these stakeholder groups, a ‘code of conduct’ was set out, indicating the specific ways in
which the various stakeholders should be treated. Samples of stakeholders were then polled,
using questionnaires and/or focus groups, inviting them to express their approval or
disapproval of the items in the Code of Conduct and to make suggestions for change. The
Code was then revised in response to these suggestions. The resulting code was then used as a
framework of objectives for assessing the extent to which the CWS has lived up to its
commitments. One year after the adoption of the code of conduct, the CWS produced its own
report on how it had performed in terms of Social Accountability. An independent social
auditor was then used to assess the accuracy of the Report, to comment on the effectiveness of
the programme and to make suggestions for improving its effectiveness. The CWS published
the Social Auditor’s Report, along with its own Social Report, so that members and their
stakeholders could assess the performance of the co-operative. Much the same approach was
used by UK’s Co-operative Bank when developing its own Ethical Policy Statement.
Graham Melmoth’s “Chief Executive’s Introduction” to Working Together: CWS Social
Accountability Report, year Ended January 8, 2000. Manchester: CWS. Page3. See www. Co-op.co.uk
for the current Social Accountability Report and for more information on the Co-op Group’s approach
to social auditing.
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4.
A Simpler Approach to Social Auditing: a combination of the last three approaches
Simpler, scaled down versions of the three methods used above (particularly methods 1 and 2)
can be helpful to small co-operatives as a means of keeping them focussed on what they really
should be doing. This approach involves the three components of the co-operative process:
1. Activation of members
2. Mutual aid
3. Design for use
The social audit process will assess the extent to which these three aspects are being adopted
and the new competitive advantages and tangible member benefits arising.
Possible criteria relevant to each of these components might include some of the following:
Activation of Members






The number of members active in committees and work groups
Attendance rates at AGMs, other meetings, educational events, etc
The extent to which members are given timely information about the
activities of the co-operative
The number and significance of opportunities available for members to
participate in active decision-making
The extent to which members are trained in the skills needed to participate
effectively in the co-operative
The extent to which members are representative of the community as a whole
(in terms of socio-economic grouping, age, gender etc)
Mutual Aid
 The number of opportunities available for members to work together on
mutual needs and problems
 The number of collective solutions to mutual problems identified and
implemented
Design for Use
 The number of ways in which the activities, services and structures of the cooperative are redesigned to meet the particular needs of the prime users
 The extent to which members engage in the redesign and improvement of
existing activities
 The extent to which the organisation responds creatively to changing needs of
members
 The extent to which the co-operative expands its activities or facilitates the
development of new co-operatives to meet a wider range of community
needs.
A framework such as the above, can be used to analyse the current effectiveness of the
organisation and provides a structure for setting new targets in each of the criteria that are
seen as important by members.
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VanCity Credit Union and Social Auditing
VanCity uses formal social accountability standards in its social auditing process. We have
taken an excerpt form most recent social auditing report (2003).
Excerpt from VanCity’s Social Accountability 2003 Report
(https://www.vancity.com/MyCommunity/AboutUs/OurValues/CorporateSocialResponsibilit
y/SocialAudit/)
Overview of VanCity’s Social Audit Process
We use the following standards to guide our process and report content:
AA1000 Framework and Assurance Standard,
Institute of Social and Ethical AccountAbility
www.accountability.org.uk
AA1000 is an internationally accepted voluntary standard for the process of social
accounting, auditing, and reporting. The assurance standard is a demanding process standard
for assessing, attesting to, and strengthening the credibility and quality of an organization’s
sustainability reporting. It requires us to assess how well our Accountability Report meets the
three key principles of materiality, completeness, and responsiveness.
Global Reporting Initiative (GRI) Sustainability
Reporting Guidelines
www.globalreporting.org
These guidelines are an international voluntary standard for reporting on a company’s
economic, social, and environmental performance. They include a sector-specific supplement
on social performance for the financial services sector (SPI-Finance).This report has been
prepared in accordance with the GRI Guidelines.
Canadian Public Accountability Statements
fcac-acfc.gc.ca
Regulated Canadian financial institutions with equity in excess of $1 (€0.83) billion are
required to publish annual statements describing their contributions to the Canadian economy
and society. This report voluntarily includes the Public Accountability Statement reporting
requirements.
SOCIAL AUDIT PROCESS OVERVIEW
CERES Principles and Reporting Requirements
ceres.org
VanCity is an endorser of the CERES Principles relating to environmental awareness and
accountability, and that commit us to an ongoing process of continuous improvement,
dialogue, and comprehensive public reporting. This report satisfies the CERES reporting
requirements.
VALUE OF REPORTING
As a member-owned financial institution it is important to understand the value that members
place on reporting. In 2003,we asked members to tell us how importantit is for them to
receive information about how VanCity lives up to its Statement of Values and Commitments.
We learned that 71% of members consider this to be important; and 43% say that it is
extremely important. While we have yet to measure the impact our commitment to corporate
accountability and transparency has on our financial performance, we know anecdotally that
members and employees are attracted to VanCity, and remain at VanCity, because of our
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values and contributions to our employees, local communities, and the environment. We also
know that communicating our performance in a credible and meaningful way is essential.
Engaging our members, employees, and community leaders in measuring our performance
has immense value to VanCity. It helps us understand and keep on top of what matters most
to those who influence our longterm success, and provides a more ‘holistic’ picture of our
performance in order to improve. And over the long term, reporting our performance in a
meaningful and credible way – warts and all – and demonstrating a commitment to
continuously improve performance, builds loyalty and trust.
We also believe that conducting a social audit to rigorous international standards and
publishing an externally verified report on performance has many business benefits, including
enhanced reputation, a way to differentiate ourselves from other financial institutions,
improved economic, social, and environmental performance, improved risk management,
strengthened internal management systems, and reduced costs due to operational efficiencies.
The value in reporting is in being transparent and accountable to our members, employees,
and our communities for the results of our business decisions and actions. Acting on the
findings in our Accountability Report is testimony to the importance
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