Mr. Tim Molan:

I thank the Chairman and members for this opportunity to address the Joint Committee on Business, Enterprise and Innovation.

The good news, which is drawn from the Central Bank of Ireland’s report “Financial Conditions of Credit Unions 2012-2017” states: “New loans advances have increased by 43 per cent with €1.7 billion of loans advanced in 2012 and €2.4 billion of loans advanced in 2017.” Credit Unions are actively lending. Demand for our loans is growing. The same report of the Central Bank of Ireland shows that we have retained our 34% share of the personal lending market.

Commercial lending is a small part of our overall business, accounting for 1.3% of national credit union loans, that is approximately 0.4% of our assets. It is worthwhile bearing that figure in mind in terms of the capacity of the credit unions. Thus, there is significant capacity for expansion of this portfolio, given the right circumstances and conditions. A number of credit unions are currently engaged in micro-lending and small-business lending on a local basis. Some have engaged with local enterprise boards in the past in terms of advancing that objective.

In a credit union context, commercial lending is not as simplified as personal lending. Funds are usually advanced as a personal loan, not as a loan to a limited company. SI 1 of 2016 limits the overall total of commercial loans to 50% of a credit unions regulatory reserve. This would amount to approximately 5% to 6% of a credit union’s assets. Given that at present we have commercial loans to the extent of 0.4%, there is capacity for lending with the current constraints. The statutory instrument specifies that a credit union shall only grant a commercial loan ... where a comprehensive business plan and detailed financial projections (supported by evidence based assumptions), appropriate for the scale and complexity of the loan, are provided and in place before granting the relevant loan. This is a sensible perspective.

Commercial lending is possible, within a very clearly defined framework.

All credit unions acknowledge the complexity of lending to start-ups and SMEs. We acknowledge that a very specialist skills set is required for commercial lending. We, as ethical lenders, have a responsibility to lend responsibly, to ensure that our lending will deliver benefit rather than load an unsustainable burden on the borrower. Many credit unions acknowledge that expertise in this specialist field is expensive, scarce and needs to be developed within our sector. Whereas this expertise might be unaffordable individually, a combined approach to underwriting might be a solution, such as has been suggested by my colleagues. The evolution of the Credit Union Service Organisations, CUSOs in the Republic of Ireland give cause for optimism in this area. Co-operative collaborations between credit unions, where specialist skills are required, such as in mortgage underwriting, have evolved and are evolving.

Another example of a collective approach is provided by the Cultivate initiative that involves credit unions in Ballinasloe, Gort, Tuam and Loughrea. The initiative offers farming loans, as referenced by my colleagues.

Some credit unions have advanced the opinion that SME lenders want more than just credit and seek current account, overdraft and other facilities that are now beginning to emerge in credit unions. Aside from the considerations that have been outlined already, it should be noted that credit unions have been excluded from State and European initiatives such as the European Progress Microfinance Facility, which is called progress microfinance and was launched in 2010. Credit unions did engage but were denied access to the scheme.

In conclusion, credit unions are engaged in relatively small scale commercial lending at present. If the considerable funds of credit unions are to be made more readily available for commercial borrowing purposes, lending to limited companies would have to be addressed, credit unions would have to evolve more sophisticated underwriting systems, which I believe they are up for, and possibly on a collaborative basis, and incentive and facilitation schemes hitherto restricted to banks would have to be extended to credit unions.