The evidence coming out of the Commission of Enquiry, which has been focusing on the HCU for the last seven days, suggests shocking and alarming breaches of corporate governance, fiduciary care and supervisory oversight of the credit union, into which thousands of mostly poor people had entrusted their life's savings.
The Commissioner for Co-operative Development, the government official in charge of supervising credit unions, testified on Thursday that loans were approved by the HCU to directors of the credit union that far exceeded the shares and deposits of those directors.
The commissioner also revealed instances of loans being granted to non-members; loans being received by directors of the institution who were delinquent in servicing previous loans; and credit being extended at zero per cent interest or less than one per cent.
The basis of the operation of credit unions in this country is that loans are made available to shareholders of the financial institution in relation to the value of their investments-generally shares, deposits and accumulated dividends. Depending on the credit rating of the borrower, credit unions lend sums equal to twice or three times the size of the borrower's investment.
That the HCU would lend a sum of money to a director of the credit union that was 40 times the size of the borrower's investment demonstrates a shocking lack of corporate governance and an alarming lack of monitoring and/or enforcement of credit union laws and regulations.
It is, quite simply, a betrayal of everything that a credit union is supposed to stand for. The question that must be asked-and answered-is whether the practices that have been uncovered by the testimony at the Commission of Enquiry are extraordinary breaches or par for the course among a minority of loosely managed credit unions.
The Commissioner of Co-operative Development needs to explain how such odious practices took place at the HCU, what was done by the Office of the Commissioner, over time, to prevent such practices from occurring and whether the practitioners were ever called to account.
If it was possible for one credit union to breach the regulations in the way that the HCU appears to have done, it may be possible for other credit unions to engage in equally shady loans. Again, part of the responsibility for the weak regulation and supervision of financial institutions must be placed at the doorstep of the Government-both current and previous.
Nearly seven years ago, in July 2005, Cabinet agreed that the supervision of the financial activities of all credit unions should be integrated under the aegis of the Central Bank. Accordingly, seven years ago, Cabinet also agreed that the Co-operative Societies Act should be amended to remove the supervision of the financial activities of credit unions from the mandate of the Commissioner for Co-operative Development, and for the Central Bank to assume those responsibilities with the passage of a Credit Union Act.
On November 30 last year, the Inspector of Financial Institutions, Carl Hiralal, wrote to all credit unions, the credit union league and the Commissioner of Co-operative Development, among others, advising them that the new credit union legislation was available for download from the Web site of the Central Bank.
Mr Hiralal also advised the credit unions to provide their comments by March 31, as part of the process of consulting with the industry to ensure that both the new regulator and the credit union movement would be singing from the same hymn book when the legislation is debated in Parliament.
Seven years after Cabinet gave its green light for the Central Bank to take over the regulation of credit unions, we call on the Government to ensure that the law is placed on the front burner of the legislative agenda. The Government and the Central Bank must ensure that breaches such as those outlined at the Commission of Enquiry this week never happen again-or else the confidence that the population places in deposit-taking institutions will be eroded even further.