Over the past month I received a few calls from individuals, all with a very similar salutation “Mr. Blenman, this is (their name) do you remember me. Not all of them I recalled, but each of them went on to say words to the effect of “thank you, I was able to pay off my mortgage which you assisted me with and I appreciate it that you went beyond the call of duty to assist”. On checking I realized that it was approximately 25 years ago that I had the honor of setting up and managing the mortgage operations of the Barbados Public Workers Credit Union and yes several of those mortgages were now reaching or would have reached maturity.
Of course, we got to chatting for a bit; what was quite apparent in each of their experiences was that ownership of those homes was both an important milestone and pillar of wealth creation for them and their families. From our discussions it was also clear that the equity in those homes played a pivotal role in securing funding for educating their children, purchasing vehicles and in some instances starting a business.
The Psychology of Financing
We are at the crossroads of development in the Caribbean, where funding and funding options for advancing the domestic well-being and commercial development of the region will be critical to our overall short to medium term recovery efforts. One of the things I took keen note of over the years of my banking career was that what was a financial contract for financiers, in many respects was a psychological contract for both domestic and commercial borrowers.
Believe you me, access to finance to advance opportunities for development carries with it a huge psychological effect. It conveys a sense of progress and achievement, while engendering confidence and very meaningful lender-borrower and socio-economic development partnerships. In and of itself, access to finance is a very wide ranging psychological motivator.
Actually, in one of the studies undertaken during my tenure in Mortgage Banking, it was quite notable that when home-ownership increased, crime declined. Evident from the study was that “ownership of a piece of the rock” carried with it the psychological responsibility of “protecting the rock.”
We are in a period where the psychological resuscitation of the region is of vital importance to social and economic recovery efforts.
Development desperately depends upon Credit Unions accelerating to the next level
As institutions with a very potent opportunity to contribute to social development and enfranchisement of what would typically be referred to as "the unbankable" of the region, credit unions have functioned well in their role. They have in many respects been true to their mandate of “people helping people.” This should remain enshrined in their focus and mandate. It should never be changed.
Development however demands much and especially so in times of disaster and recovery. Under serious consideration consequently should be the expansion of these entities to realize the emergence of commercial credit unions, that is, financial institutions owned and managed by business owners and professionals within the region.
It is within this context that I share an extract from a paper commissioned by the CARICOM Secretariat which I prepared and presented under the theme Business Development Needs of Service Companies in CARICOM Single Market and Economy (CSME) (full paper) at the Secretariat’s 2009 Regional Symposium on Services which in part dealt with this important development concept. The extract from the paper follows…
The historical significance and success of credit unions as financial intermediaries primarily attending to consumer type financing is very evident. The extension of this success through the establishment of Commercial Credit Unions, focused on economic development, structuring and raising of capital and the provision of other capacity building services to its members is of significant importance at this juncture of economic development in the region. The following model is proposed:
Fundamental to this model and important to the establishment and strategic intent of Commercial Credit Unions in the Caribbean would be:
The sustainable development of small and medium Caribbean enterprises through the provision of competitively priced financing, deposit and investment alternatives.
Facilitation of growth and market widening opportunities through access to and insistence on institutional strengthening and best practice methodologies.
Fortification of sustainable revenue flows through the creation of global marketing, trade and services networking
Divestment of small and medium enterprises into the financial services sector by way of equity participation in the Commercial Credit Unions.
Why this type of structure?
Credit union development has traditionally and continues to be structured on distinguishing characteristics unlike those utilized to formulate banks and other financial entities. Among the key distinguishing characteristics are:
Credit unions are member-owned, member-directed cooperatives in which each member has and is entitled to one vote. In this regard they are not subjected to control by any one shareholder and are virtually invulnerable to hostile takeovers.
As public service institutions their main purpose and intent of origin is that of promoting thrift among members and creating a source of credit for provident or productive purposes
Boards of Directors elected by and drawn from the institution’s membership are typically unpaid volunteers; however, these are traditionally paid a monthly stipend which can vary from institution to institution. Such stipends are however typically well below market rates paid by other shareholder companies.
Credit unions do not operate for profit. Actually, enshrined in the credit union philosophy is the term “not for profit, for people”. As a result, a significant portion of credit union earnings are returned to members in the form of annual dividends. The not for profit concept is also clearly expressed in the beneficial pricing of services to members particularly as it relates to fees, interest rates on loans and higher than typical interest rates on deposits
Credit unions have certain limitations on their membership based on member affinity or what is generally referred to as the institutions “common bond.”
While there are alternative financial institutional models which have been used to address the financial challenges of small and medium entities, these distinguishing characteristics, particularly those which emphasize cost rationalization, enfranchisement and a sense of commonality are clearly key ingredients for the establishment of Commercial Credit Unions across the Caribbean.
The opportunity for expansion of the Credit Union sector to bolster MSMEs as an important socio-economic development strategy should not be overlooked during this time of regional restructuring and recovery, given the propensity of such to to drive elements of much needed but sometimes elusive growth.
Psychological resuscitation and recovery of the peoples of our region especially the skilled workforce who without this crisis have been unable to find employment or secure funding to start a business is vital. The instilling of confidence that we can all emerge from the ashes of this crisis and become productive citizens, may very well be among the most meaningful prescriptive remedies for building a stronger, better and more productive Caribbean.
Jerry DaC Blenman, Executive Director of the Caribbean Center for Organizational Excellence, is an experienced financial analyst, organizational development and change management specialist and former senior credit union executive