Successful Credit Unions:
Insights from our
Research
Anne Marie Ward (Ulster University)
(since 2009) John Forker (University of Sussex)
Studies
 Most of our studies are empirical (data based) – there are no
opinions or views and we aim to remain totally objective when
undertaking our research.
 History of studies on the Credit Union sector that may be of
interest to you.
 Before the FSA (now the Financial Conduct Authority and the
Prudential Regulatory Authority) we focused our attention on UK
data but the FSA would not allow access to data on individual
credit unions and hence our studies have focused on Northern
Ireland Credit Unions.
Studies – Full UK Data
 2005: Examination of industry growth patterns using Gibrat’s
law to determine if growth was random
 found that growth was not random –in particular past growth
(performance) was a predictor to future growth and other factors
were considered influential.
Studies – Full UK Data
 2005: Investigation of the link between credit union success (in term of
generating surpluses on assets invested and separately providing
payback to members) and credit union characteristics and location –
where the characteristics included size, age, common bond type, trade
association type and location deprivation
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KEY FINDINGS (Year 2000 ONLY)
Size is important – larger credit unions perform better
Age is important – older, more established credit unions perform better
Trade association is important – ILCU affiliated credit unions perform best,
ABCUL affiliated credit unions perform the poorest.
 Common bond is important – Credit unions with an occupational common
bond perform best, those with a residential common bond perform worst.
 Location is important – credit unions in more affluent areas perform better than
those in more deprived.
Studies – Full UK Data
 2006: Investigation to determine if there are economies to
scale (UK wide study)
 FINDINGS
 Yes – larger credit unions, in general, perform more efficiently.
Studies – NI study
 2006: An examination of the levels of subsidisation received by credit unions (data
sourced from questionnaires).
 Findings – No credit union in Northern Ireland receives grants towards running costs –
grant income was received in only 4 occasions by 4 credit unions when they received
capital funding to either buy their building or to refurbish the front of it (in the previous 5
years).
 All small credit unions are volunteer run and operated. Volunteers and the local
community supply many of the required running costs. Orange lodges and community
centres provide premises and subsidise the running costs and volunteers use their mobile
phone if required.
 Many of the medium sized credit unions are 100% volunteer run and one large credit
union (Clonard – total assets of over £2million) was totally volunteer run (this is no longer
the case – it has 4 employees now).
 In general most of the credit unions use volunteers alongside paid staff to support social
activities (school work for example, competitions, etc)
 It would seem that credit unions only hire staff when they can afford to and that all small
and many medium sized credit unions are totally reliant on their community to operate.
 No credit union reported losses in the period under investigation (2005) nor in the 5 years
prior to it (this has changed)
Studies – NI study
 2006: An examination volunteer motivation (Northern Ireland study –
questionnaire – Why Volunteer?)
 Findings
 Altruism – they get a kick of doing good in the community, they are community
spirited.
 Social interaction – the credit union is part of the community and volunteers see it
as a cohesive social capital organisation – they get to meet people and consider
that what they do is important and that their reputation is improved by their
actions.
 Opportunity – work experience, learning on the job, possibility of obtaining work
afterwards.
 Analysis of the statistics would suggest that people who volunteer for anything
other than altruistic, community, or social interaction reasons – usually move
on.
 Altruism is the key motivator – volunteers are used on the social side as much
as possible and staff on mundane operational activities.
Studies – NI study
 2006: Who volunteers (Northern Ireland study –
questionnaire – Aim – help credit unions target potential
volunteers – segmented approach)
 Findings
 Tested for ‘dominant status theory’ – this theory suggests that relative
to the population high status people are more likely to volunteer.
 Volunteers were mostly – middle aged people, employed, selfemployed or retired people, married people with 2-4 kids, all white,
volunteering elsewhere and there was a predominance of males to
board positions and females in operating activities.
 If credit unions want to hire volunteers – approach busy people who are
volunteering elsewhere also – they have a taste for it and a
commitment to the community.
Studies – NI study
 2012: Regulation – do credit unions comply
 Findings
 YES predominately
 In a study covering 9 years of data, credit unions complied with the
legislation in respect of capital reserve transfers and balances in about
92% of the observations noted. 15% of UFCU affiliated credit unions
did not comply, 12% of those not registered with a trade body, 4% of
ILCU credit unions did not comply. Non-compliance was not an issued
and was typically resolved within a year or two.
 Most credit unions also provided for the minimum recommended loan
loss provision.
 ILCU credit unions, larger credit unions, older credit unions and those
experiencing less growth were most likely to comply.
Studies – NI study
 2014: Management model
 Two schools of thought
 ‘Old model’ – focus on social aspects, financial performance is important but
secondary (REST).
 ‘New model’ – focus on running as a business, financial performance first,
social secondary (ILCU).
 Our interest – which model works best in terms of financial and
social performance
 Findings
 Support for new model: higher surplus funds
 Registrar’s provisions for loan losses are lower
 Social activities are not crowded out – in fact spend more ‘£’ in the
community on social activities and pay back a higher percentage to
members in term of loan rebates and dividends.
 In addition, they typically provide more services, are open longer hours,
employ more people, use volunteers, contribute more taxation.
Studies – NI study
 2015: Gender diversity
 Does diversity matter to the performance of credit unions
 There is a social case for female involvement on boards, is
there a business case? We investigate the relationship
between the % of women on the board and financial
performance. In NI boards range from 100% men to 100%
women so this can be tested. Data tested 2002-2010.
 Findings
 Support for diversity
 We find gains from increasing the % of women on the board up to
about 51% after-which performance starts to fall.
 Female diversified boards performed better in the period of austerity.
Studies – NI study
 2016: Current study
 Follows on from our last three studies. In 2012 we reported that
ILCU credit unions comply with legislation and perform best –
quarterly monitoring using PEARLS (WOCCU)
 In 2015 we report gains from having females on the board –
confirms prior research that they act as independent monitors
 Our current study investigates whether governance choices of
independent financial monitoring by trade association and gender
leadership impacts on the relationship between financial
management and community deprivation. Theory identifies
incremental benefits from females is greater in more deprived
communities (better networked and gender economics)
Credit Unions in Northern
Ireland
Independent financial monitoring
ILCU mandates quarterly monitoring of
WOCCU financial ratios (PEARLS)
UFCU Public annual regulation by FSA only
Gender leadership
Weighted average of female (male) board influence
A continuous measure calculated using data on six key influential positions
or indicators within governing boards. The underpinning indicators are
president (coded 1 if female, 0 if male and a weighting of 2/14), the vice
president (coded 1 if female, 0 if male and a weighting of 1/14), the
secretary (coded 1 if female, 0 if male and a weighting of 1/14), the
treasurer (coded 1 if female, 0 if male and a weighting of 1/14), the
percentage of female signatories (weighting of 2/14) and the percentage of
females on the board (weighting of 7/14).
This continuous measure is split into two bands, wherein female leadership
is assumed at 60.92% and above (mean 38.62% plus one standard
deviation), otherwise the sample is classified as male dominated.
Restricting the sample to the extreme top (bottom) quantile values is also
investigated.
Financial management
Dependent variable measured by three
PEARL ratios
Loan Book Quality: Registrar’s
recommended loan loss provision
Return on assets
Capital reserve ratio
Deprivation
Community deprivation is captured by the
multiple deprivation measure assigned to the
credit unions postcode by the Northern Ireland
Statistics and Research Agency (NISRA).
Comprises a low income factor, a low
employment factor, an education factor, a
housing factor, an access to services factor, a
social environment factor and a health factor
Model specification
v j,it  (v j,it 1, mi * gi * di , cit , sit , ait , ft )
Provisional Findings
Loan book quality
 Female monitored > Female unmonitored
 Male monitored > Male unmonitored
 Interaction with deprivation; LBQ is positively related to
deprivation
 Female unmonitored > Male unmonitored
 Female unmonitored > Male monitored
 Female unmonitored > Female monitored