Credit UnionsPrioritising Social Gain

(an approach to Micro Credit)

Presentation to Open Days 2007on Micro Credit

10th October 2007

Liam O’Dwyer, CEO

Irish League of Credit Unions

Credit Unions are:-– Democratically controlled credit

institutions

– Owned and controlled by their members and governed by a volunteer board of directors

– Providing financial services to their members on a not-for-profit basis at reasonable rates of interest consistent across all members

Credit Unions are:-

– Membership based on shared common bond via employment, residence etc

– Key providers of Social Finance rooted in social and financial objectives

– Empowering their members by giving them greater control over their financial services and better consumer protection.

Credit Unions - Worldwide

• 46,000 credit unions worldwide in 97 countries

• 172 million members

• $900 billion in assets

Credit Unions in Europe

Number of credit unions Number of members

Ireland (RofI & NI) 595 3.1 millionPoland 1600 2 millionUkraine 760 1.8 millionGreat Britain 550 502,000Moldova 485 206,000Russia 238 366,000Lithuania 56 56,000Latvia 30 22,000Albania 26 8,000Romania 11 49,000Estonia 11 3,000Macedonia 1 6,000

Credit Unions in Ireland• Irish League of Credit Unions (ILCU) is

leading trade and representative body – Northern Ireland and Republic of Ireland– 525 credit unions

• Membership = 3.1 million – (50% of population)

• Savings = €15 billion

• Loans = €8 billion

• Average Loan size– Northern Ireland = £3,000– Republic of Ireland = €8,000

Credit union offering in Ireland

• Volunteer Board – 9,500 • Professional Staff – 5,000 • Savings & Loans / budget accounts /

Insurance / Pension and protection products / bill pay / money transfer

• Basic banking services – EFT / ATM (Developing)

• Financial Education• Differentiated regulation via the Irish

Financial Services Regulatory Authority (RofI) and the Department of Enterprise, Trade and Investment (NI)

Key credit union objectives

• To enable development of individuals and communities

– i.e. reach potential

• To provide social finance

– i.e. Savings & loan products that generate a financial and a social return

• To encourage prudent use of monies

– i.e. Save and borrow at the same time

What is Social Finance?

• The provision of finance by organisations which seek a social return or social dividend as well as a financial return

• Social finance is distinguished from mainstream finance in that it prioritises social gain

• Micro-credit is one aspect of Social Finance which is focused on extending credit to enable business development

• Micro credit can be offered as Social Finance or as business lending

Social Finance

• Social Finance enables people to move themselves out of poverty

• Poverty is about income inadequacy– lack of access to health, housing,

education and crucially self development• The remit of government is to ensure

that society has the appropriate structures to eliminate poverty

• Credit unions are not about charity or profit but service

Key providers of Social Finance in Ireland

• Credit unions – (€750 million, 12% of loan book)

• Government agencies – (Partnership companies)– (Local Authorities)– (Enterprise NI)

• Social investment funds– (Clan Credo, Triods Bank)

• Mainstream banks• New social finance wholesale provider

setup by Government with €25 million from banks.

Credit Union Social Finance Initiatives

• Lending to those already indebted or on low incomes (40%)– (encouraging saving; offer small loans; repay

at same interest rate as all other members)

• Lending to those moving from welfare to work, encouraging members to start their own businesses (35%)– (encouraging savings; offer loans €1,000 -

€50,000; offer analysis via a third party, offer cash flow and other services)

• Lending method– (direct member loans)

Credit Union Social Finance Initiatives

• Lending to community development groups for set up costs (15%)

– Community development facilities – Sports facilities – Social economy projects which are employment

and development related e.g. Community Crèche, Community cafe

– Highest investment to date - €5 million

• Lending method

– Loans to limited companies– Invest in a co-operative

Credit Union Social Finance Initiatives

• Lending to community enterprise groups for set up costs (10%)– Enterprise parks– Business incubation costs– Affordable housing – Community services

• Health centres• Libraries• Training Centres

– Highest investment to date €9 million• Lending method

– Invest in co-operative– Loan to a limited company

Support required by credit unions

• Assessing business plans

• Assessing social need

• Assurance of Government funding for community development or enterprise projects

• Legal issues regarding the transfer of security, lending to groups / societies in Northern Ireland

EU Action Plan on Micro Credit

• Co-ordination of support to Social Finance and Micro Credit Agencies

• Reliable funding for community development enterprise projects

• Commitment from EU Governments to sustainable funding for voluntary / not for profit groups providing development / enterprise project leadership

The Credit Union Difference

• Social Finance and Micro-Credit offered as an integral part of the service, no additional legislation required (NI an exception)

• Social Finance and Micro-Credit not necessarily a separate offering

• Focus is always on development of the member and the community

• It is never charity; it must have a financial return for the credit union