Kieran O'Donnell (Fine Gael) | Oireachtas source

I welcome the Minister of State, Deputy D'Arcy, to the House. He is a good friend to the Seanad and he is doing a good job as a Minister of State. Credit unions are hugely important at rural, urban and city levels. As an accountant, I had my own practice for many years. I had a range of clients, many of whom, having been refused credit facilities by the local banks were able to get a loan from their local credit union, the drafts for which were lodged in the mainstream banks. Many of those businesses are thriving today. We owe a huge debt of gratitude to the credit union movement and those who volunteer in this sector for the service they have provided. During difficult times in the 1990s credit unions kept alive a lot of what I would regard to be viable businesses.

While some of the credit unions got into difficulty, many did not. Many were run in a very prudent manner. We currently have a mainstream banking system, which is necessary, but many of the big banks have left the market. We now have two very large banks and a third bank, Permanent TSB, which is not really a business bank. Previously we had a multitude of banks providing competition in the market, many of which took reckless risks, but nevertheless there was competition in the market. There is a role for the credit union movement in filling this gap, including by way of investment in social housing but we need to find a structure to allow that to happen. The credit union movement accepts deposits from local people and it uses those deposits to lend to other local people. It is a very simple and straightforward model but it also has to make a return. For many years the credit union movement would have put its money on deposit but because the return on deposits was so low some credit unions began investing in perpetual bonds at high rates of interest and this caused problems. We have to find a sustainable model for the credit union sector. It needs to evolve and become a lending mechanism for the small business sector. Also, credit unions must be locally based. In my experience, people will always repay their credit union because they invariably know who is managing it and often their families will have been involved in creating it and this builds loyalty. This loyalty was evident right across the country in respect of the credit unions that got into trouble. The people who had money on deposit with them were extraordinarily loyal to them. We cannot lose that but we have to balance it with prudent management and prudent regulation, but regulation which does not strangle the sector.

There has been an amalgamation of some credit unions and there may be further amalgamations. Many of these amalgamations have been sensible. Ultimately, the purpose of the credit union is to provide a service to the people living in its area. We cannot lose this ethos. When a gap emerged between the banks and the credit union sector, the credit unions sought to fill that gap and they began providing loans which kept businesses and local economies going. We may need to consider putting this service on a more formal footing and to set limits in this regard. We cannot allow credit unions to become banks. That is not the purpose for which they were set up. They were set up to serve local need but consideration should be given to their providing funding towards investment in housing projects. There is room for this investment. It would be a secure investment for the people who deposits in the credit union movement.

Another issue we need to examine, which comes up regularly, is the limits around the amount of money people can borrow and the limits which individual credit unions can borrow. The current limits on short-term and long-term lending need to be reviewed. The credit unions that got into difficulty had invested in property, which was outside of their normal area. They got involved in development and in certain cases this got out of control and that is what caused the problem. Their core business was not at issue. I have dealt with credit unions for many years and I am a huge advocate for them. The credit union is now the only financial institution outside of the post office that has a network nationally. Every parish in Ireland has a credit union. Some of them may have amalgamated but they are still providing a service. We cannot lose sight of this. The question is whether we can build on this sector in terms of allowing it to make large scale investments and thus contribute in a social way to Ireland while at the same time making a return for its members. We need to find a way of expanding its remit into the SME sector. I am nervous about it getting involved in the mortgage market but the idea should be looked at. For me, it is not the core purpose of the credit union sector.

I am glad this review took place. The committee's work in regard to this sector is a work in progress. I know that the Minister of State has a personal interest in this area. I salute the credit union movement. I had a client who even though she had a viable business could not get money from a main bank. Every week she would go to the credit union, get a draft for £1,000 and then lodge it to her account in the local bank. We cannot lose this ethos.Prudence is hugely important. The credit union movement and its members have come through pain, and what we have to do is ensure we retain the ethos and network, expand the range of services in a prudent way and allow credit unions to make a contribution towards housing while not putting their members' deposits at risk in any way.