Are Irish credit unions fit for the future?

A telling study of Irish and Canadian credit unions identified four strategic orientations found in credit union movements. These were

1: A financial institution providing a full range of financial services in direct competition with other financial institutions and must generate sufficient profits to remain competitive.

2: That of a financial cooperative providing financial services for the maximum benefit of its members regardless of the level of profit generated.

3: Providing for the financial needs of its borrowing members while meeting operating expenses and maximizing the return to saving members.

4: Providing credit services for financially excluded individuals who would otherwise be unable to access credit.

Two out of three Canadian credit unions said they adopted the first orientation – but only 6% of Irish credit unions said they did. Over a third of Irish credit unions said they operated the second and over half the third. Only 5% said they operated the fourth.

Other studies have highlighted a short term planning horizon with less than 25% having a business plan and 70% making little or no provision for an intergenerational hand over of governance and management.

These findings are disturbing as they mean that most Irish credit unions have neither have any view of the future nor any plans to invest in long term sustainability. Nor are they planning to hand over the reigns to the next generation.

At EU level the importance of co-operative banking (including credit unions) is provided for under a laws that prevent current membership/owners raiding the co-operatives reserves for their own benefit. The view is co-operative capital represents an intergenerational endowment and current boards and managers are its trustees.

So what have Irish credit unions being doing to ensure economic viability and long term sustainability – the protection and enhancement of the intergenerational endowment?

Very little – the entire effort has been focused on competing with each other to pay the highest dividend which is a feature found when aging boards become captive of a savers mandate – they act to maximise dividends at year end.

With a strategic orientation focussed on the doctrine of dividend maxmisation and short term "year end" planning horizon, Irish credit unions will be sorely challenged to safely manage through the worst recession in Ireland's recent history.