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BEHIND THE HEADLINES: Case for and against credit union bank


BEHIND THE HEADLINES: Case for and against credit union bank

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Justice Sylvia Ash, an experienced judge of the New York State Supreme Court in Brooklyn, wasn’t handing down a ruling in a complex civil case when she used that word. Instead, she was explaining why credit unions shouldn’t own commercial banks.

“Combining credit union operations and commercial banking isn’t something I agree with.

“The two are incompatible,” was the way the elegant jurist put it the other day to BARBADOS BUSINESS AUTHORITY.

“They have different agendas and their purposes are different. The bank is for profit while the credit union is for its members and the working class,” helping the latter to be financially stable.

The judge, who traces the roots of her family tree to the Eastern Caribbean, is well placed to offer a judgement on the direction of credit unions.

The West Indian legal luminary, who was born in Trinidad and Tobago of a Grenada mother and a Vincentian father, and has lived at different times in all three countries, is a highly respected member of the Caribbean immigrant community in New York City and she has just been elected chairman of the board of directors of the Municipal Credit Union (MCU), the oldest and largest credit union in New York.

“I believe strongly in the philosophy and the purpose of credit unions and I don’t believe it’s a good idea for a credit union to be involved in commercial banking,” added the jurist, who was the first vice chairman of the MCU’s board of directors before her recent elevation.

Ash has made history. She is the first woman elected to head the board of the 99-year-old MCU, which has assets of US$2.1 billion and about 375 000 members. It offers a range of financial services – mortgages, personal loans, credit cards, and savings and chequing accounts – to its members who turn to its 12 offices scattered across the city.

“Credit unions in the Caribbean, because of the economic situation there, are necessary to help the average Caribbean person become financially self-sufficient,” she argued.

“They offer loans at reasonable rates of interest so they can buy homes, cars, send their children off to colleges and universities and to purchase books.

“They are a necessity. Their members stand a better chance of getting financial services from them than they would from a bank.”

That’s not all, she said, insisting that “a credit union owning a bank would defeat the whole purpose and the principle of what the credit union is about”.

“Banks are profit-making organisations that provide services to their customers based on a profit basis.

Their interest rates on loans tend to be higher and their terms are more stringent because for every dollar they give out, they must get back a dollar plus.”

Not so with MCU and like-minded financial institutions. “Credit unions help the working class and give them a chance to be financially on par with the middle class,” she said.

Sir Courtney Blackman, the first Governor of the Central Bank of Barbados, who later became a director of commercial banks in the Caribbean before and after he ended his diplomatic tour of duty as Barbados’ ambassador in Washington, thinks differently.

Asked in 2012 by the Barbados Co-operative Credit Union League Limited to advise the organisation on the feasibility of launching a bank designed to “fill the gaps in the financial services” to members, Sir Courtney recommended the creation of a bank as a stand alone unit that would operate at arm’s length from the credit unions.

“The rationale for establishing the bank,” Sir Court wrote in his consultancy report to the League, was to enhance the financial services available to the membership of the credit union, so as to retain their patronage, while at the same time preserving the ethos and culture which members of the movement hold dearly.”

But he was quick to insist that the operations of the League and the proposed bank should “remain separate and distinct”.

To bolster the case for a credit union-owned bank, Sir Courtney cited the successes reaped by Kenya’s credit union movement after nearly 4 000 cooperative societies and unions in the African nation pooled their resources and created the Co-operative Bank of Kenya Limited.

Next was the case of the Grenada Co-operative Bank Limited whose history stretched back to 1932 when a group of local businessmen launched it to serve poor “working class families” who were unable back then to open accounts at the other banks, all of which were foreign owned.

“Like the Kenya bank, it provides services for credit unions and has demonstrated over many years that a well-managed indigenous bank, by exploiting home advantage, can compete successfully with foreign banks,” stated Sir Courtney.

He believes Barbados and the credit union movement have the skill, experience and competence to establish and run a successful “full service banking unit”.

Despite those arguments, Ash remains firm in her insistence that it would be unwise for credit unions to launch a bank

“The two cannot co-exist because they have different principles,” she reiterated.

Interestingly, about three years after receiving Sir Courtney’s report and its recommendations, the League hasn’t created the indigenous bank.