I would like to thank your President, Charles Murphy, and the rest of your board for the invitation to speak here this morning and to have an opportunity to address your Annual General Meeting.
I was delighted to host Charles along with a number of other credit union stakeholders at an event in my Department in early February, which was a very useful forum for discussing the challenges and opportunities currently facing the movement.
Charles, you said in your address this morning that credit unions are a values based movement and offer a platform for a generation who are articulate, and who have so much to contribute.
You rightly said that more services from credit unions translates passive members into active members, and enhances the volunteer base.
I agree.
Credit unions are financial cooperatives, driven by a social purpose.
Bringing in new members and enabling active participation from a new generation that has more than ever at stake in credit unions, is not simply good for credit unions, it is good for the community and good for the country.
Your volunteer membership base is more essential than ever in an age where people seek active participation in decision making, as well as the provision of services.
So in my remarks, I would like to talk about your credit unions and members, the important role they play in our economy, and the even greater role I see them playing, provided you harness your co-operative ethos and capitalise on the appetite for ethical financial services that is evident in this country.
Strong support for the credit unions
I would like to start off by saying that this Government and I are strong supporters of the credit union movement, and we recognise the important role played in society by the credit union sector as volunteer co-operative financial institutions, helping to sustain the consumer economy with over €2 billion of new lending every year.
The Government is determined to continue to support a strengthened and growing credit union movement.
We want more competition in banking and more focus on local community banking, both of which can be supported by the credit union movement.
Origins & continued relevance
The history and origins of the credit union movement remain some of the most inspiring examples of the power of entrepreneurship, optimism and social service.
The movement was founded by genuine entrepreneurs, with philanthropic motives and a goal to serve and help their communities in a profound way.
They pooled their limited resources in order to ensure that essential financial services were available to their common bonds.
The concept of members of a community or common bond financing one another for their mutual benefit, with local money invested locally, is an inspirational one and this was evidenced by the rapid growth the movement underwent.
Credit Unions in a modern economy
The credit union movement has enjoyed many successes over the years. It has changed many lives and been a positive force in our society and our economy.
Such positive impacts were very well documented in the RTE series – The Borrowers. While these are only a small example of the work being done all across the country, including my own inner-city community, I think it encapsulates the personal relationships, community lending, and meaningful work which makes credit unions so important for our country.
Another example is found in the fact that while I spent a lot of time last year talking about poor culture in banking and a lack of trust in our banks, the same issues don’t apply to credit unions, having been recognised as the most trusted organisation for four consecutive years in the CX Survey.
This is a remarkable achievement in the post-crisis world and something which you should be immensely proud of.
Credit unions play such an important role in the economy, with over a third of the unsecured lending market in Ireland. You have over €17.5bn in assets, a branch footprint of over 500 offices across the country, millions of members, an unrivalled reputation and over €2 billion of new lending every year.
However, credit unions are facing challenges which includes increased competition from both incumbent financial services providers and new entrants to the financial services landscape. You know this better than anyone.
And while savings have increased substantially over the last number of years, loan books have not grown as much as is needed and the recovery in our economy has not been matched by lending growth.
While your share of the unsecured lending market is commendable, personal loans make up over 90% of your loan books.
In this regard, there is clearly a need for credit unions to adapt and evolve, and certainly to diversify your lending away from personal loans.
I would hope that the new lending regulations currently being reviewed by the Central Bank will help you to do this providing more scope for mortgages, which will be supported by collaborative initiatives and platforms such as the home loan platform developed by the League, and for greater involvement in SME lending over a longer time-frame.
A Vision for the future
The entrepreneurial spirit, the ethical purpose and the community-centric focus, are for me the essence of the movement.
It is these first principles that provide the movement’s uniqueness, and it is these that will ensure it continued success – once tailored to the 21st century needs of your communities.
This means becoming modern financial services providers, with digital offerings, and requires investing in IT, adapting to your changing common bonds and demographics, and partnering with each other, as well as third parties.
This could include partnering with Fintechs and potentially leap-frogging other incumbents, who are conversely burdened by legacy systems in terms of technology.
To fully grasp the opportunities available, there is a need at this point in the sector’s development to return to the entrepreneurial spirit the movement was built on, but without losing sight of the founding purpose; that is, providing ethical financial services for your common bonds.
As I said, I believe that there is a real demand for ethical financial services in the modern age; a demand that I hope the credit union movement can and will capitalize on.
This will involve reacting to an adapting common bond – which is no doubt evolving as the whole country is – and looking to both your members’ needs and beyond – to the needs of your whole communities.
I will not mention individual projects, but I will firmly say that I believe that collaboration and cooperation is key for credit unions to maximize their future potential.
Shared service structures and cooperation between credit unions can reduce cost, provide scale and help deliver new services to members, which may not be possible or realistic for individual credit unions to provide on their own.
As such, I welcome and support the many collaborative initiatives underway at present.
Should these projects be realised, the sector will materially expand the services being provided to credit union members, and offer more competition to the banks as everyday providers of financial services.
And by realising these projects and delivering these services to your members and communities, you will deliver much of what proponents of this idea of local public banking are calling for.
Prospects for 2019
I am very pleased to say that 2019 will be a busy and, I hope, successful year for the sector.
This year could see many of you deliver current accounts for your members, as well as introducing other new offerings.
It could see many of you grow your loan books, including to local businesses and engaging in some more home loans for your members.
2019 will also be a busy one for my Department and the Credit Union Advisory Committee, and I would like to touch on some of the work being undertaken this year.
Firstly, I will shortly be bringing to Government Heads of Bill to amend the Credit Union Act to change the interest rate cap for credit union loans from 1% to 2%.
Credit Unions are the only part of the financial services landscape in Ireland that is subject to a cap on the interest they can charge.
While I understand that, despite this change, it will be business as usual for many credit unions, the increased cap will deliver more flexibility to the sector and will treat you more like the rest of the Irish financial system. It will also open up avenues for new products, including overdrafts and credit cards.
To be clear, the change is not about credit unions increasing the rates on their normal loans to high levels – indeed given the ethos of the movement this would never happen.
The change is about allowing Boards to appropriately price the risk to their members’ money, which credit card and overdraft facilities entail, as well as potentially allowing credit unions to lessen the losses they are currently making for some short-term, low value loans to low-income borrowers.
I will continue to engage with Government on the matter.
Providing affordable credit to those who are most vulnerable in society is the sort of assistance, the sort of community lending and public good that inspired the founders of the credit union movement.
While there have been discussions around restricting the interest rates that moneylenders can charge, I am concerned that this may lead to these people losing access to credit or being forced to turn to illegal moneylenders.
For this reason, the Personal Microcredit (PMC) Taskforce has commissioned research into the unlicensed moneylending sector, which may provide findings of benefit for future policy formation in this area.
I know many credit unions are involved in the Personal Microcredit Scheme, which is commendable, but I believe much more can be done in this regard. I would therefore encourage more credit unions to participate so that the movement can further provide an alternative to high cost moneylenders.
Secondly, as you may be aware the Credit Union Advisory Committee (CUAC) is currently engaged in a very important piece of work regarding credit union Directors.
On appointing four new members to the Committee in September of last year, I asked the CUAC to focus on three specific areas:
- Barriers and Supports to Collaboration;
- People Issues in the Sector; and
- SME finance linking with the outcomes of the Local Public Banking report.
In its work plan for 2019, the CUAC decided to prioritise research with Directors. I am very pleased with this as I understand that the role has undergone fundamental change in the last number of years and that Directors are facing a number of challenges in trying to fulfil their new role.
I also recognise the extraordinary commitment and service these volunteer directors, and indeed all volunteers in the movement, provide to their credit unions and communities.
The CUAC has already begun this work and in March held four focus groups with almost 40 Directors from credit unions of varying size, type and location.
These focus groups have helped inform a survey which will be going out to all credit union Directors in May.
I would ask all of you who are Directors to complete this survey and to encourage other Directors to do so. As I said, this is an important piece of work and the Committee and I want to better understand the issues and challenges being faced by credit union Directors today.
Finally, I would like to say that am aware that with the evolution of the financial services landscape there may be level playing field issues whereby some new entrants are not subject to the same degree of regulation as existing financial services providers.
I know that this is the case with PCP providers who are competing with credit unions. In this regard, I would like to say that I have agreed to bring forward legislation to regulate PCP providers to ensure as much of a level playing field in regulation and consumer protection as possible.
Conclusion
To conclude, while there are challenges facing the credit union sector, the strengths of the movement cannot be underestimated.
Credit unions have the capacity to help communities all over the country confront the challenges that are facing them.
You can deliver for your communities in a very real way. You can and should do more in the way of community lending – becoming what is envisaged as a local community bank – and can do more for the less well off in our society.
While the movement is an undoubted success, I believe that there is the potential to do so much more.
This Government, I and my Department dedicate significant resources to managing the sector and are greatly supported by the Credit Union Advisory Committee, some of whom are here today, and the Central Bank.
We support the valuable role of credit unions in Ireland, and believe the sector can play an even greater role in our communities.
With such strong foundations, coupled with the enterprise and ethos characteristic of the early pioneers of the movement, I believe credit unions can have a bright future and continue the successes of the last 60 years.
Thank you very much, and I hope you enjoy the rest of the weekend.
ENDS