Caribbean countries need to establish regulatory frameworks to ensure that in the future credit unions are protected from the spillover from international financial crises. This is the view of Dr Yu Ching Wong, a representative from the International Monetary Fund (IMF). "Credit unions should be regulated to minimise any spill over. The financial crisis in 2009 has exposed the region's regulatory framework for the non-bank financial institutions and that raises the extent to how credit unions are exposed from the losses of the whole Clico failure." She was speaking two Wednesdays ago at the Fourth Biennial International Conference on Business, Banking and Finance at the Hilton Trinidad hotel, St Ann's.
Ching Wong said the Eastern Caribbean Central Bank (ECCB) has taken a close interest in the progress made by offshore financial centres within the Eastern Caribbean Currency Union (ECCU) member states in strengthening their regulatory, supervisory, co-operation and information exchange arrangements. As a result, member states have agreed to establish single regulatory units (SRU) for the supervision of the financial sector comprising of the international sector and domestic non-bank entities including credit unions. The proposal for a single regulatory unit was endorsed by the Monetary Council of the Eastern Caribbean Central Bank. Steps for a common regulatory framework for the Eastern Caribbean economies have already been taken, she said. "There is progress in the EC Currency Union countries in terms of enacting laws for the setting up of the SRU, which is responsible for the setting up and regulation of a single regulatory system. It also raises the question of recapitalisation of the credit unions and assistance to the sector."
International standards
Ching Wong said there is also the need to implement international best standards and practise in the region to protect the sector. She gave the example of PEARLS-protection, effective financial structures, asset quality, rates of return, liquidity and signs of growth-standards that credit unions use in setting standards. The World Council of Credit Union World Council's PEARLS monitoring system is software that combines a relational database with an internationally proven methodology for improving operational efficiency. It provides credit union managers with concise, easy-to-read reports that reveal institutional weaknesses and trends. It also offers a strategic business planning tool to help managers implement change.
The PEARLS monitoring system includes:
• Monitoring tool with PEARLS financial ratios
• Ranking tool for comparing credit unions
• Business planning tool to create strategic plans that help improve performance
• Customisable labels that can be adapted to suit local language requirements
• User guides and manuals
Membership decline
Ching Wong said that membership of credit unions has increased globally, but declined in the Eastern Caribbean Currency Union (ECCU). She pointed to the three biggest credit unions in the ECCU, Roseau Credit Union in Dominica, General Employees Co-operative Credit Union in St Vincent and the Grenadines and Choiseul in St Lucia, which comprise about one-third of the credit union sector in the region. These credit unions have struggled to keep their membership, she said. "This has happened over the past five years, which relates to the global financial and economic decline. The membership has continued to decrease." She said Dominica has the largest amount of credit unions in the ECCU with 10, which comprise about one-quarter of the credit unions in the ECCU.
Credit unions and banks
Ching Wong said that credit unions have been competing for a share of the market with banks. "There has been the traditional view that credit unions are different from banks because they owned by lenders, they have restrictive management and share dividends among member shareholders. A lot of time, they are in direct competition with commercial banks offering similar services, like chequing accounts, credit cards and lending." In the ECCU, there are 40 commercial banks. "In countries such as Dominica, Grenada and St Vincent and the Grenadines, the credit unions are an important player and are in strong competition provided by the indigenous banks." Raphael John Lall