Give credit unions an expanded role!

Two commercial banks have announced that they are no longer lending funds for the purpose of new building construction. One wonders if they are looking for work for their real estate agent friends in a depressed market, or getting ready to lay off people and shut up shop, but those are just the jaded musings of a cynic.

What’s even more depressing is that this announcement is compounded by increasing their already exorbitant fees for everything (possibly including breathing air if you go into the bank) and Barbadians still can’t be roused to withdraw every cent and take it somewhere else. Clearly one of the polio vaccines that we received as children was really inoculation against even the thought of protest.

Perhaps it is time for the law to change and allow credit unions to operate like a bank without actually having to create one. Credit unions have to invest with financial institutions, in government securities, companies listed on the stock exchange here or in the Caribbean and real property.

Section 196 requires the maintenance of sufficient liquid assets by the credit union, the rationale being that should a member call for his/her funds the institution should be in a position to honour the withdrawal as well as all its other debts and obligations.

Liquid assets or cash obviously have to be held by a commercial financial institution, so that even if you do withdraw all your money, there’s effectively nowhere to take it that the banks won’t benefit and there is certainly no locally owned bank in existence in this 166 square miles of limestone.

The operation of credit unions in Barbados is governed by the Cooperative Societies Act, Chapter 378A and the regulatory or supervisory role rests with the Financial Services Commission. Section 4 of the Act sets out the principles which determine whether an institution may qualify as a cooperative society.

Some of these principles are that no member has more than one vote; proxy voting is not allowed; business is conducted primarily for the benefit of its members; profit is used to develop business, provide services to members, pay dividends and for education or charitable purposes.

The profit of the society from the immediately preceding financial year is divided up in accordance with section 34 between debt servicing, the reserve fund into which 25 per cent of the profit should be paid and dividends. The reserve fund must be invested as outlined above and dividends cannot be paid where the society is or may become insolvent.

In the event that the Board of the credit union decides to lose its collective mind, then“the lesser of 25 members and 10 per cent of the members” may apply under section 164 of the Act to the Registrar to “appoint a person as examiner who shall make an examination of the books of the society and examine the affairs of the society and shall make his report available to the Registrar”.

Just in case any of the employees, officers, directors, etcetera of the society try to withhold information or refuse to supply books, materials or answer questions, they would be faced with a fine of $25,000.00 and/or five years imprisonment if convicted in the High Court or $5000.00 and/or two years imprisonment if convicted in the Magistrate’s Court.

If the Registrar declines the request,then the same application may be made to the court pursuant to section 165 without notice to the society. The court may grant the application on the grounds outlined in the section including but not limited to fraud in general, the fact that “the business of the society or any of its member societies is or has been carried on with intent to defraud any person;” the society is not being operated on cooperative principles or not fulfilling the purpose stated in its corporate documentation; or those in charge have acted in a manner that is “oppressive or unfairly prejudicial to or unfairly disregards the interest of a member or security holder”.

Any problems with the opening up of the credit union mandate would not be with the facility for exercising oversight, but the will to exercise it (as it was with CLICO). The spiders under the bed are soon going to be paying more interest than the commercial banks. They’re using our money for free to make themselves rich and telling us crap that they’re not lending for this, that or the other.

We really need to do something. And well, you probably already know how this writer feels about the Central Bank’s “moral suasion”, the FTC and these other regulators.

Source: (Alicia Archer is an attorney-at-law in private practice)

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