Mr. Kevin Johnson:

We are grateful to the committee for inviting us to discuss our perspective on the scope of credit unions to take an enhanced role on lending to SMEs. We will discuss our views on the extension of their role in the area and give proposals on how credit unions can engage to a greater degree with small businesses.

The Credit Union Development Association, CUDA, was incorporated in 2002 and currently has 48 of the most professional progressive credit unions in its membership, which in turn manage approximately a third of the total Irish credit union assets of €16.8 billion. It is clear Ireland's credit unions are putting the recession behind them and continue to grow. Our sector has undergone a period of massive consolidation, with more than 80 mergers completed during the lifetime of ReBo, addressing some of the larger scale issues that have been hindering progress. That said, most credit unions are still too small in scale to develop their own unique products and marketing campaigns. Hence, there is a need to collaborate to remain viable.

The years 2016 and 2017 saw a rapid increase in the level of co-operation between credit unions. Co-operation initially focused on shared management service arrangements, such as regulatory compliance and risk management, but this has since expanded to the undertaking of significant projects supported by a full risk analysis that are enabling a more expedient regulatory approval process.

The establishment of the Solution Centre has come on the back of this work. The Solution Centre is a not-for-profit hot house unit tasked with developing specialist products, supports and solutions for credit unions. With 48 credit unions coming together under the Solution Centre umbrella, we now have a structure to enable credit unions to achieve their goal of continuing as consumer-owned co-operatives while delivering much-needed new products and services to members.

CUDA has two core ambitions for 2018. The first is to increase collaboration between credit unions and the second is to help bring about some much-needed regulatory and legislative modernisation and enhancement. The Solution Centre's first offering was its Facebook digital loan service, which saw participating credit unions experience a ten-fold increase in their interaction with younger adult members. Loan applications through social media now account for up to 20% of all loan inquiries for some credit unions. Since the Solution Centre launched its mortgage solution in the middle of 2017, almost €20 million in mortgage lending has already been processed, with €9 million drawn down and a further €11 million in the pipeline. Volumes are expected to grow significantly in 2018 as an increasing number of credit unions sign up to the service. Recent research indicates that over 59% of credit union members and 38% of non-credit union members would consider switching their mortgage to a credit union if a better deal was offered. Another example of what can be achieved through collaboration is the excellent Cultivate initiative, which was commenced by four Galway credit unions and provides short to medium-term loan opportunities built specifically around the growing needs of their farming members. The Solution Centre was delighted to be able to contribute to its development.

A report compiled by the Commission on Credit Unions in March 2012 recommended that credit unions with the correct business model could deliver lending to the business sector. The introduction of proportionate regulations in 2018 as set out by the commission allows for credit unions to develop and offer a greater range of services to include SME loans and mortgages, with only those credit unions with the necessary expertise to manage the additional inherent risks being permitted to engage. Many credit unions have a significant appetite for alternative lending and investment products and under the right conditions they would welcome the opportunity to lend to small and medium enterprises. Credit unions are financially strong and have excessive liquidity holdings. They also have an in-depth knowledge of their communities and local businesses, as well as a strong understanding of the risk profile of members. In tandem with the accompanying management and advisory support structures that the Solution Centre has to offer, there are numerous credit unions throughout the country that could provide viable business loans to SMEs in the region of €10,000 to €50,000.

Support such as underwriters with specialist training in SME lending, staff with detailed knowledge of business planning and financial risk analysis, as well as a variety of other dedicated resources and expertise, could serve to protect credit union loan risk. A small number of credit unions already have this expertise in-house and the Solution Centre is positioned to provide support to those that do not. We firmly believe the provision of direct SME loans should only be considered by credit unions that have access to appropriately skilled resources and risk assessment procedures.

There are several factors that prevent SME lending by the wider credit union sector in this country. Some credit unions have had negative experiences in business lending, especially with start-up enterprises, which are regarded as highly specialised and a high-risk area. The Solution Centre is planning to develop an SME framework of policies, borrower documentation and various other requirements to ensure credit unions conduct this business in a compliant manner. This will be complimented with a range of training supports to enable credit unions with the financial and operational abilities to do so more SME business for themselves.

We were pleased to gain some amendments for credit unions during the consultation on the Central Bank (Supervision and Enforcement) Act 2013, with section 48 relating to lending to small and medium enterprises, as we work our way through developing the SME lending framework we are encountering potential legislative and regulatory challenges. For example, section 17 of the Credit Union Act imposes certain membership eligibility requirements. The 2016 regulations impose concentration limits and section 6 of the Credit Union Act renders it impossible for credit unions to introduce business to each other.

Availability of locally based funding to SME and agri sectors is essential and credit unions are ideally placed to extend these lending facilities.

The Credit Union Development Association, CUDA, is very open to collaborating with any organisations that can assist with the upskilling and delivery of an extension of the role of credit unions in the area of providing credit to SMEs.

Once again, I thank the Chairman for the opportunity to put forward our perspective and we look forward to answering any questions members may have.