Credit unions are key to a fairer economy – but how are they faring under Covid-19?

The sector can help communities rebuild – but the pandemic has brought pressure on credit unions themselves

Moves to build a fairer society after Covid-19 have put financial issues in the spotlight for the co-op movement. These range from the quandary of how to get co-ops and social enterprises the finance they need to the movement’s role in tackling financial exclusion. Credit unions are a key player here – but the sector is itself dealing with the fallout from the pandemic.

Last month, the Centre for Community Finance Europe (CFCFE) released a report on how credit unions in Britain have served members during March and April, as the Covid-19 crisis took hold. Based on responses from 24 credit unions and support organisations, it found the sector had made rapid, flexible responses and developed services such as remote cash delivery and money vouchers, sent by text, email or post, which customers can redeem at a Post Office.

With branches closing under lockdown, the sector underwent rapid digitisation: for example, Central Liverpool Credit Union has introduced electronic signatures and upgraded its online home banking options for members. It has also introduced online chat assistance – managed by staff rather than bots.

Credit unions have also introduced new products to support key workers, such as interest-free loans for NHS staff at Bristol Credit Union. London Mutual Credit Union is offering NHS staff free overdrafts up to £2,000 on their current accounts for three months.

But if the crisis has shown the societal importance of credit unions, it has also put pressure on the sector, the study warns. Several credit unions have had to furlough staff as loan and other business volumes have reduced by up to 50%. In some cases furloughing has been done on a rota basis. A number of credit unions are also covering expenses related to working from home. 

CFCFE warns that many credit unions could see their financial stability and even long-term viability threatened by the pandemic.

Globally, this financial impact on credit unions presents an uneven picture. For instance, the 119 state chartered credit unions in Wisconsin, USA, have reported a 6% rise in first-quarter earnings to US$100m.

Kathy Blumenfeld, secretary of the Wisconsin Department of Financial Institutions, said: “Wisconsin credit unions have done an outstanding job serving their members and communities during these unprecedented times. The financial indicators through the first quarter for Wisconsin’s state-chartered credit unions are sound with asset and share growth strong, likely due to members trying to save more because of Covid-19.”

Across the whole US sector, the Credit Union National Association (Cuna) says that first mortgages are up, automobile loans are down and commercial loans have plummeted during the pandemic. Overall loan growth has risen by around 1% for the quarter. But there is uncertainty ahead, depending on the depth of the coming recession and the nature of any further stimulus packages.

And Credit Union Times has reported concerns of the impact of Covid-19 on the US industry’s net worth ratios, with experts concerned about a hit from lower earnings, deferred loan payments and an influx of deposits. As a result credit unions are looking at secondary capital as a way to increase net worth.

Cuna has just launched its Covid-19 Restart and Recovery Task Force, made up of 27 industry leaders. The group will discuss strategies, resources and best practices for credit unions as state and local governments begin to lift stay-at-home orders and ease safety restrictions. It will offer guidance to credit unions as they restart paused business lines and recover from the
impacts of the pandemic.

“We also see opportunity for long-term strategies that will help foster growth throughout the movement,” said Cuna’s chief engagement officer Greg Michlig.

Similar responses are being developed in other regions. The Caribbean Confederation of Credit Unions, has just held a webinar to discuss the sector’s role in rebuilding the regional economy and supporting members who have lost their jobs. 

The event, reported in Credit Union Times, saw Andre Vincent Henry, director of the Cipriani College of Labor and Cooperative Studies, call on credit unions to develop “a very dynamic role … not only in the Covid crisis but in the post-Covid new normal” – and to help build “a new entrepreneurial class of small and micro-enterprises”.

Confederation president Winston Fletcher said credit unions can drive social and economic transformation through financial inclusion.

This fits in with talk around the world of “building back better”. To help credit unions play a role in this – and to help credit unions cope with the huge disruption – regulators are being called on top take a flexible approach to allow credit unions to manage these issues. The World Council of Credit Unions, as reported in last month’s Co-op News, has published a global regulatory guide to different regimes around the world, as part of its lobbying efforts.

This lobbying is taking place at national and international level. Last week in Ireland, MEP Billy Kelleher wrote to the country’s central bank urging help for community credit unions through the crisis. He warned that credit union lending has fallen by as much as 75%, making business unsustainable.

“While the government has taken far-reaching measures to support banks, the same cannot be said for the credit unions, for whom only limited guidance has been provided,” he said in a statement to the press. “This has to stop, as the credit union movement is an integral part of the Irish financial services sector especially in marginalised communities. Already we have seen some credit unions forced to close their doors.

“The more than three million credit union members in this state deserve the same protections and the same supports as the customers of banks. We need to see action from the Central Bank. Families and communities are financially hurting, and the credit unions can make life a lot better for them if they are given the tools to support them at this difficult time.”