Raphael John-Lall

Se­nior part­ner at HAR­CON Con­sult­ing, Sher­ry Ann Joseph is hop­ing that leg­is­la­tion is up­dat­ed to en­sure that the con­tin­ued growth and rel­e­vance of the cred­it union sec­tor.

She spoke at a we­bi­nar host­ed by the Caribbean Cor­po­rate Gov­er­nance In­sti­tute (CC­GI) on May 21st en­ti­tled “Gov­er­nance and Risk Man­age­ment in Cred­it Unions.”

“From the per­spec­tive of gov­er­nance and risk, one of the ma­jor is­sues is the growth of the sec­tor in T&T in terms of as­set size, the prod­uct of­fer­ing, the type of loans that are is­sued for our mem­bers, the strate­gies that are adopt­ed to at­tract younger mem­ber­ship. That has out­paced the leg­is­la­tion that we are cur­rent­ly op­er­at­ing in and what the leg­is­la­tion caters for. So, gov­er­nance starts with leg­is­la­tion. That is where you start when you are think­ing of gov­er­nance, this is where it starts from. So, giv­en the rapid pace of de­vel­op­ment to en­sure that the sec­tor can con­tin­ue to be sus­tain­able, it is crit­i­cal to en­sure that the req­ui­site lev­el of gov­er­nance, risk man­age­ment and com­pli­ance is in place,” she said.

Joseph added that gov­er­nance is an ecosys­tem that em­bod­ies leg­is­la­tion, reg­u­la­tions, poli­cies, pro­ce­dures, process­es, and most im­por­tant­ly it leads to prop­er lead­er­ship po­si­tions with­in cred­it unions.

“A con­ver­sa­tion around gov­er­nance in cred­it unions re­al­ly starts with what are the im­prove­ments and sus­tain­abil­i­ty with­in the or­gan­i­sa­tions that are re­al­ly re­quired. The ques­tion is how can the ex­ist­ing gaps with­in the ex­ist­ing leg­is­la­tion, the poli­cies, the pro­ce­dures, process­es and the fit and prop­er req­ui­site com­po­nents with­in your or­gan­i­sa­tion be dealt with and those gaps be closed. These gaps cre­ate the risks for cred­it unions. In­her­ent with the growth of the sec­tor, comes with it as­so­ci­at­ed risks and as cred­it unions grow, the po­ten­tial for risks in­creas­es. “

She al­so showed how cred­it unions have evolved over the years.

“So, where­as once up­on a time, what we saw was that cred­it unions were small and man­aged ba­si­cal­ly by di­rec­tors or of­fi­cers or a man­ag­er and a small group of em­ploy­ees. With the prod­uct of­fer­ings that are in place now, the tech­no­log­i­cal chan­nels that are be­ing used to reach and en­gage the mem­ber­ship, the di­ver­si­ty of the mem­ber­ship comes with a cer­tain type of risk. That can­not be man­aged the same or as­sessed the same.”

Joseph ar­gued that the need for strate­gic lead­er­ship to dri­ve and to sus­tain the growth of the sec­tor is a “burn­ing is­sue” with­in the cred­it union sec­tor.

“Lead­er­ship must evolve in tan­dem with the changes that are evolv­ing with the ex­ter­nal en­vi­ron­ment, not just in­ter­nal­ly but ex­ter­nal­ly. So, lead­ers must move away from strate­gic guess­ing. The growth of the sec­tor de­mands a dif­fer­ent type of think­ing. Cred­it unions should not be seen as an in­sti­tu­tion that caters for mem­bers who can­not ac­cess fund­ing from banks but as a vi­able op­tion for all savers and bor­row­ers. There is a dire need to change the way things are done with­in the cred­it union sec­tor to meet in­dus­try stan­dards and best prac­tices.”

She al­so shared the view that while cred­it unions are not banks, they op­er­ate in the same sec­tor.

“We of­fer sim­i­lar prod­ucts, one with greater fi­nan­cial re­sources than the oth­er. That is the on­ly dif­fer­ence. So, to grow and sus­tain the sec­tor, re­quires an ad­just­ment to the way cred­it unions are run. There must be an align­ment of the gov­er­nance and risk man­age­ment of the cred­it union with in­dus­try stan­dards.”

She added that the cred­it union move­ment al­so has sit­u­a­tion­al and sec­toral risks, which re­quire cred­it unions to tai­lor their op­er­a­tions, op­er­at­ing ecosys­tems to match the cur­rent re­al­i­ties or else it would be stuck un­der 1970s leg­isla­tive guide­lines.

“So, in the ab­sence of a com­pli­ance regime, the sins of gov­er­nance, the sins of omis­sion, and your sins of sub­mis­sion will el­e­vate it­self. So, when you lack a com­pli­ance regime, you can com­mit to an act in the ab­sence of this regime in a con­trolled en­vi­ron­ment that is not in place. You have fi­nan­cial loss­es. Sins of omis­sion, this is where you omit or the pow­ers to be omits to do cer­tain things. For ex­am­ple, fail­ure to es­tab­lish a con­trol en­vi­ron­ment from an ex­ter­nal per­spec­tive that can de­tect or pre­vent the op­por­tu­ni­ty of risk with­in the cred­it union and then the sins of sub­mis­sion when in the face of things go­ing wrong, it eats away at the sus­tain­abil­i­ty of the cred­it union. So, these are some of the key ar­eas or the cur­ren­cy of is­sues that per­vade the sec­tor of gov­er­nance of risks.”

She urged cred­it unions to make gov­er­nance, risk man­age­ment and com­pli­ance a strate­gic as­set.

“Of­ten times when we ask what is the great­est as­set with­in your or­gan­i­sa­tion, your re­sponse would be a lot of dif­fer­ent an­swers. Maybe peo­ple, your re­sources, your mem­ber­ship, your as­set base. I would say at this point in time and where cred­it unions are head­ing, IT is one of the great­est strate­gic as­sets any cred­it union can hold. Cred­it unions have been in ex­is­tence since the ear­ly 1940s with­in the Caribbean re­gion and in T&T since 1941. Ap­prox­i­mate­ly 80 years af­ter, we are see­ing cred­it unions have grown sig­nif­i­cant­ly to be­come not just an op­por­tu­ni­ty for mem­bers to save and have ac­cess to fi­nan­cial ser­vices but al­so be­com­ing more so­phis­ti­cat­ed and pro­fes­sion­al­ly run or­ga­ni­za­tions.”

Ja­maican ex­pe­ri­ence

Risk as­sess­ment man­ag­er, Ja­maican Co­op­er­a­tive Cred­it Union league, Phueona Reynolds, who al­so con­tributed to the we­bi­nar, said risk man­age­ment is key in the fi­nan­cial sec­tor in Ja­maica.

“What we have found is the reg­u­la­tor re­quire­ments have moved to­wards look­ing at a risk-based ap­proach to mon­i­tor and for cred­it unions to man­age their own af­fairs. What we have sought to do since 2014 is to help our cred­it unions here to build a frame­work for com­pli­ance in terms of risk man­age­ment and we have tak­en that through dif­fer­ent tranch­es. When we start­ed in 2014, we had a dif­fer­ent en­gage­ment in 2015 be­cause we found that we were not get­ting the kind of trac­tion that we would have need­ed. We then did an­oth­er stint in 2021 and now we have seen that the en­gage­ment is a lit­tle more sol­id. We are see­ing from the gov­er­nance side that im­prove­ment in terms of recog­nis­ing that risk man­age­ment is one of the key prin­ci­ples that you need em­brace to en­sure that your cred­it union is op­er­at­ing safe­ly and sound­ly.”