The management of lending risk in Irish community credit unions

Traditional loan assessment carried out by credit unions has been centred on the members’ history of savings and loan repayment record with their credit union. This has been in keeping with the member-owned, voluntary, self-help co-operative principles of credit unions in providing financial services to their members. In more recent times, Irish credit unions have been challenged to adopt a more formal approach to managing lending risk management in the context of a changed economic and regulatory environment. This paper examines lending risk management and its associated governance in four community credit unions in Ireland during two points in time. The first is between 2008 and 2012, a period marked by economic recession and traditional loan assessment. It then examines the revised approach to lending risk management adopted by credit unions post 2012 following a series of legislative and regulatory change for credit unions where more formal risk management processes and enhanced governance were introduced. It was found that lending by credit unions which maintained prudent management of loan risk outperformed lending by credit unions which took a less prudent approach. In addition, the study demonstrates how the application of risk management principles to the lending process can bring a level of clarity and a structure to loan underwriting, thereby enhancing the quality of the process. Good governance principles can positively influence the lending process and should provide the basis for a sound lending environment

Cork MABS study: Clients' experiences, opinions and satisfaction levels

This study evaluates the Cork MABS service in terms of client satisfaction. The research found that there is an exceptionally high level of satisfaction with the MABS service among its clients. Cork MABS is seen by its clients as a highly professional and caring service. A large number of clients cited the peace of mind and the reassuring nature of the money advice process for them. It was found that there is a significant relationship between the perceived overall outcome in terms of clients’ ability to manage their financial affairs in a better way and their level of satisfaction with the service. Clients value the longer-term impacts as well as the more immediate money advice service. Some issues raised by clients were the need for more information on benefits and allowances and greater support in negotiating with creditors. For a small number of clients, particularly in the older age category, there were continuing uncertainties about the confidentiality of the service. There was some frustration about the length of time that clients had to wait for their first appointment with a money advisor. A significant relationship was found between waiting times and clients’ overall levels of satisfaction with the MABS service. The study makes a number of recommendations, most of which hinge on maintaining the current high level of support for MABS clients. Without this support, it is likely that satisfaction levels will begin to fall, and clients will suffer. The ethos of Cork MABS from the start has been about self-help and it continues to promote self-help over dependency among its clients. This in turn works to improve the financial capability of clients in the longer run which has wider societal benefits

An alternative approach to oversight: the case of the supervisory committee in Irish credit unions

The credit union supervisory committee, as a distinct model of organisational oversight, is very much invisible within corporate governance research. The focus is almost entirely on its corporate counterpart, the audit committee. This means that best practice is based almost entirely on audit committee experience, even though the audit committee model has not always prevented large-scale corporate losses. Audit committee and corporate and co-operative governance literature may benefit from the perspective of alternative models, such as that of the credit union supervisory committee. This paper explores the role of the supervisory committee in credit union governance and the structure of supervision, oversight and regulation within the Irish credit union movement. It reports the findings of a survey of credit union supervisory committees and qualitative interviews with key players in credit union supervision and development in Ireland, including the regulators of the credit union movement. A profile of the composition, activities and skills levels of supervisory committees is examined. The findings show that it is the high level of activity of the supervisory committee and its clear-cut independence that set it apart from other organisational oversight models

Meeting the credit needs of low income groups: Credit unions versus moneylenders

Although Ireland has a very well established credit union movement, moneylending continues to thrive. The purpose of this study is to estimate the extent of moneylending in a number of communities in Munster and to examine the extent to which credit unions contribute to financial inclusion. The study puts particular focus on comparing the service offered by the credit union with that of the moneylender. We estimated the extent of moneylending through a survey method and we examined the credit union service through interviews with credit union and MABS officers. We also compared the credit union service with that of the moneylenders. We interviewed a number of representatives from two of the main moneylending companies. We found that more than half (65 per cent) of those who are currently borrowing from moneylenders are also currently borrowing from other sources. Thus, it could be said that many of the people borrowing from moneylenders are not financially excluded. The financial exclusion literature tends to focus primarily on issues of ‘access’. However, as we found, more than half of the people currently borrowing from moneylenders do not have ‘access’ problems. So, why are they borrowing from moneylenders, if they have other options? We are of the view that for a significant number in Ireland, it is an issue of ‘use’ rather than ‘access’. Quinn and Ní Ghabhann’s (2004:26) study would support this, where 66 per cent of Travellers who were not credit union members cited ‘use’ factors such as ‘inability to save’ and ‘general lack of interest’ as reasons for not joining the credit union. Quinn and Ní Ghabhann indicated that many of the Travellers in their study were borrowing from legal and illegal moneylenders. While credit unions would appear to be very accessible, we highlight that they need to continue to offer small loans, promote small-scale saving and develop EFT (electronic funds transfer) services. We also highlight the need for credit unions to develop an emergency loan service, which members could access easily and quickly. In terms of ‘use’ of financial services, we highlight that credit unions must greatly improve on marketing and on the financial education of members, with particular focus on low-income groups. Financial advice and education in credit unions are of an ad-hoc nature and may only be available to those who have become indebted. One of the key principles of credit union philosophy is member education. Thus, in line with their philosophy and in their own interests and those of their members, credit unions should be more proactive in terms of providing financial education to their members and, in turn, building the members’ financial autonomy. In Ireland, we are very privileged to have a well-established and coherent money advice infrastructure in the form of MABS. MABS is currently developing a community education function, and thus will not only provide financial education to those who are indebted but will also be performing a preventative education role. From our research, we are led to believe that the increasing business of the moneylender is directly related to the decreasing financial autonomy of people. However, it would seem that for people on a low income, building financial autonomy can be very difficult. Additionally, our research would indicate that credit unions and MABS alone cannot build the financial autonomy of low-income groups and that this is a wider societal issue which requires a broad response

The potential impact of credit unions on members' financial capability: An exploratory study

This study evaluates the role of credit unions in building financial capability among members. The research found that most credit unions are engaged in some form of financial education in the community, although some are restricted to what could be described as low-commitment activities. A few individual credit unions and, to a lesser extent, networks of credit unions, have pioneered innovative schemes targeted at members of the community who are financially vulnerable due to low levels of financial capability. In a two-phase survey of new members, most individuals did not report that the credit union had a significant impact on their financial behaviour; however, they did highlight some key features of credit union business practice which help them to manage their finances. Finally, we argue that credit unions need to remain cognisant of their original goal of ensuring financial inclusion for all, particularly in the context of economic recession, which is likely to stimulate demand for financial capability-enhancing measures. However, it must be remembered that credit unions are only one element in any financial capability strategy for society and other players such as MABS, Government, regulators, banks and the educational system must also play their roles. It should also be remembered that financial capability is only one strategy, albeit an important one, to tackle the broader problem of financial exclusion. Other approaches must include regulation of the banking sector, the whole issue of income adequacy, and the removal of barriers to access for true participation in financial services starting with the development of basic bank accounts. Hence, any discussion of financial capability should sit within this broader context

Credit union restructuring: don't forget the member!

It is recognised in the marketing literature that services consist of core and relational dimensions, and in a long term customer relationship, the relational dimension can give competitive advantage to a business. One of the gaps in the credit union literature is a discussion on the impact of credit unions mergers on this key competitive advantage. And when member value is discussed, it tends to be confined to the core product aspect such as increased range of services and better rates rather than relational aspects. The focus of this paper is on the interplay between core product and relational dimensions in the member preferences around the future restructuring of the movement. It was found that credit union members clearly value their relationship with the credit union and are not willing to trade the local nature of the credit union as they know it, for increased services

Value proposition preferences of credit union members and patronage activity

Purpose – The purpose of this paper is to examine the technical and relational value proposition preferences of credit union members and to examine the relationship between their preference and patronage activity. Design/methodology/approach – A total of 800 members of credit unions were surveyed. Exploratory factor analysis was used and four factors were extracted incorporating technical and relational dimensions of the credit union service. Member value proposition preferences are examined and the relationship to patronage activity of the credit union was explored. Findings – The majority of members express a higher or equal preference for a relational rather than a technical value proposition. Those that express a greater or equal preference for relational value are more likely to have a higher level of patronage activity. Research limitations/implications – Credit unions are member-owned financial institutions and hence the study is context dependent. Credit unions are member-owned financial institutions and hence relational value may be more significant than in the case of non-member owned entities. Practical implications – The research highlights the importance of consideration of relational value in financial services entities whose competitive advantage lies in the relational. In terms of the credit union, the impact on the relational value proposition of the credit union must be considered in the design and implementation of industry restructuring. Originality/value – This paper extends the emotional value and interactive quality construct to incorporate a greater relational focus which the paper suggests is of greater relevance to high-contact financial services. The research in this paper also extends beyond the criticised static focus of consumer perceived scales (consumer perceived value) and the episode focused service quality scales. Hence, it has a more longitudinal and holistic focus. The paper also incorporates a preference between benefits approach rather than an evaluative or trade-off between benefits and costs framework

Do consumer warnings on financial products work?

Opinion: a range of protections are given to consumers accessing credit and financial products online, but how effective are they

Moneylending in Ireland: '€70m in interest payments annually'

Analysis: there are many reasons why people continue to use moneylenders despite exorbitant interest rate