A locally owned and managed credit union, “run by the people that it serves” that would provide savings, credit and other financial services to its members, is the subject of a newly released suitability study by the Falkland Islands Development Corporation (FIDC) and was discussed at public consultation meetings at the Chamber of Commerce and the Goose Green Social Club this week.
Dwayne Naylor of the World Council of Credit Unions, who produced the report and is currently in the Falkland Islands, last visited in April when he discussed the concept with both Government and the private sector.
-“The timing of an alternative source of finance could not be better in front of the economic expansion. This is not supposed to replace the local bank, which has had huge historical value to the Falkland Islands it is just an alternative form of finance and deposit”, pointed out the visitor.
FIDC Business Relations Manager Michael Betts told Penguin News that in this next step they were looking to “both Stanley and Camp” for feedback, “because both of them have similar perceived issues with access to finance and financial services.”
At this week’s meetings apart from obtaining input regarding whether there was an “appetite” for such an institution, the intention was to, “paint a picture,” of what a credit union looked like, said Mr Naylor.
He explained that in the Falklands most Islanders had not seen a credit union working.
He described the institution saying: “One of the main differences is that in a normal organization you have stock holders at the top who invest money and want a return on their money, and you have the Board of Directors and you have management.”
In a credit union the triangle is inverted: “At the top you have the members who elect a voluntary Board of Directors that manages at the bottom of the pyramid, so all earnings that are created through that entity are returned to the members who are the owners of the organization.”
The volunteer Board of Directors is required to respond to the members in a fiscal responsible manner to provide the services that they want, he explained: “So in the Falkland Islands if the members say I want an ATM the management has to work towards that to provide that ATM.”
He said he had put ATMs in places that had lost money, “but the Board said that is what we have to do to respond to our membership.”
Mr Betts expanded explaining this was why a credit union seemed appropriate because, “the members choose the Board and the Board sets the policy and the rates and what services were provided,” and as such it was, “more in touch with what the community needs in terms of financial services.”
Speaking of research into the suitability of a credit union in the Falklands, Mr Naylor said: “One of the things we had to look at was whether the Falklands market was large enough to support two financial institutions.”
It was concluded that it was, and Mr Naylor said: “There are 2,100 credit unions in the US that have less than 1,500 members; they average about 700 members and most of those are in very small communities. Most want to stay small on purpose, offer a service but not expand beyond their primary membership.”
Also vital to the success of the credit union is, “adoption,” by the community: “If Islanders accept and support the institution it will be successful,” he said.
Initial capital and a deposit insurance to mitigate not just risk but strengthen the community perception of a credit union is also important. Source of that initial funding is likely to be a, “political decision,” however, said Mr Betts.
According to the report it could be funded by FIDC or government as one of the options.
The success of the credit union also requires effective legislation and regulation. “A transparent credit union requires a very strong regulator” said Mr. Naylor.
Local ownership fits well with the Islanders’ strong sense of national pride said Mr Naylor. He has seen this in communities before “and is actually why I have stayed in credit unions for thirty years.”
He added that the, “timing of an alternative source of finance could not be better in front of the economic expansion. This is not supposed to replace the local bank, which has had huge historical value to the Falkland Islands it is just an alternative form of finance and deposit. And in the credit union model, if you do not have to pay the stock holders, then the beauty is that there should be a higher rate paid on deposits and a lower rate paid on loans since all of that revenue is being returned to members in forms of services and products.”
Mr Naylor said when examining the model for the Falklands credit union Michael had made sure they had been, “very conservative,” in their assumptions.
A survey will be circulated in the Islands and the feedback received will impact very much on the next stages of the project said Mr Betts, adding, “but if they don’t think credit unions are the way forward we will have to look at other ways.”
The next step for the concept is to examine, “will it be viable,” said Mr. Betts, “because we don’t want another organization that is subsidized or receives a subvention, it wants to be funding itself otherwise there is no real point to having it.” (PN)