Mr. Ed Farrell:

I thank the Chairman and members for their invitation. I am joined by Mr. David Malone, financial controller at the Irish League of Credit Unions. The league is the largest credit union representative body on the island of Ireland, with a total of 289 credit unions out of 302 in the Republic of Ireland affiliated to it. We exist to provide leadership, co-operation, support and development for credit unions in the Republic of Ireland and in Northern Ireland where we have another 90 affiliated credit unions.

On social housing, there is clearly a social crisis. There was also a context and timeline relating to the committee's consideration today of how credit union funds can be used to deliver housing in this crisis. In November 2014, the Government published Social Housing Strategy 2020 predicated on "private sector finance which will be raised from a variety of sources which could include the EIB, ISIF, Pension Funds, Credit Unions and other financial institutions, both domestic and international". In response to that specific request, the league made its detailed proposal, Social Housing Funding, in October 2015. In June 2016 the Oireachtas Committee on Housing and Homelessness as a priority recommendation stated, "The Government should seek to mobilise as quickly as possible, all possible sources of funding, including funding from the Housing Finance Agency, Strategic Investment Fund, the Irish League of Credit Unions and Irish Pension Funds, to increase the supply of social and affordable housing." The Department of Housing, Community and Local Government policy document, Rebuilding Ireland, published in July 2016 states:

The Government is also committed to a range of other structural, funding and policy supports to increase delivery by AHBs. Among these measures will be the establishment of an Innovation Fund to support the development by AHBs of innovative financial models ...

Support will be provided from this Fund to an Irish Council for Social Housing (ICSH)/sector-led new special purpose vehicle, involving investors, including the Credit Union movement.

To date no fund has been established, despite our willingness to invest and insistent lobbying to be allowed to do so. The crying need for social housing has not been supported by credit union funds, which are available. There are two roadblocks. One is regulatory and requires the Central Bank to change the criteria for permitted credit union investments. The second is the establishment of a financial vehicle, as committed to by Government in Rebuilding Ireland.

The Central Bank issued its consultation paper, The Consultation on Potential Changes to the Investment Framework for Credit Unions, also called CP109, in May. The league's response has been sent to the committee. This consultation paper has some positive aspects which we welcome, but others we are very concerned about.

On social housing, the Central Bank is considering if it would be appropriate to facilitate the provision of credit union funding to approved housing bodies by way of investment. The initial potential levels of investment proposed by the Central Bank would be up to up to €900 million which, on the basis of 70% finance provided by credit unions at an average notional social house cost of €200,000, would fund close to 6,500 homes. If followed through, this would be a significant step forward. More broadly, but closely connected, the same set of proposals will contribute negatively to the downward pressure on investment income being earned by credit unions. Our affiliated credit unions currently have just under €2 billion invested in bank bonds which are an important source of investment yield. The restriction set out in the consultation paper will severely curtail the universe of bank bonds that credit unions can invest in.

The investment yield for our Republic of Ireland credit unions declined from 3.6% in 2012 to only 1.4% in the six-month period to March 2017. We estimate that the current 1.4% annualised yield from credit unions' investments would decline to as low as 0.3% per annum in the coming financial years. How can credit unions have a sustainable future business model in the context of these future projected investment yields? Given that CP109 would effectively eliminate investment returns, it is essential that investment rules are amended to allow for centralised lending of mortgages and loans to small and medium-sized enterprises in order that some of the €10 billion of surplus funds in credit unions can be lent out.

As the Rebuilding Ireland policy document is being reviewed, our request to the committee is to advocate strongly for the implementation of what has been committed to by Government and recommended previously by the special Committee on Housing and Homelessness. The Central Bank may, further to its consultation paper, at last allow credit union investment in social housing. The net issue then is for Government to deliver on its commitment to establish an appropriate vehicle to do so.

Then there is a wider housing agenda beyond social housing and how that links holistically to the overall viability of credit unions at the very moment our economy has returned to astonishing levels of concentration in mortgage lending especially, but other types of lending also . We need action immediately from the Department of Housing, Planning, Community and Local Government to enable investment in social housing. This should be accompanied and underpinned by real engagement, led by the Department of Finance, to develop a credit union model that can do the "much more" it is so ambitious to do across the board for communities and the economy.