FINANCIAL CO-OPERATIVES/CREDIT UNIONS – THE FORGOTTEN SECTOR
By Nana Agyepong
Co-operative Governance
Posted on 28/05/2020
Introduction
Financial Co-operatives (Fincoops) and Credit Unions (CUs) are among the hardest hit institutions in the financial industry by the CODVID19 pandemic. Nevertheless, the sector has not received any support from the government. It looks like the Fincoops/ CUs have completely been forgotten.
In Ghana, registered and well organized financial co-operatives numbering over eight hundred (800) comprise Credit Unions affiliated to apexes like the Ghana Co-operative Credit Unions Association (CUA) Limited, Brong Ahafo Catholic Co-operative Societies for Development (BACCSOD), Assemblies of God Credit Unions, Pentecost Credit Unions (PENTACU) and Ghana Co-operative SUSU Collectors Association (GCSCA). These financial co-operatives serve a large portion of microfinance users and promotes financial inclusion to a large extent. They are spread throughout all types of communities including urban, peri-urban and rural areas in the country. All together, they have individual membership of about two million people.
These co-operative societies are duly registered by the Registrar of Co-operatives in accordance with the Co-operatives Societies Act NLCD 252 of 1968, administered by the Department of Co-operatives (DoC). It is a fact that the passage of Legislative Instrument LI 2225 of 2015 also mandates the Bank of Ghana to license registered Credit Unions for which preparations are underway by both parties.
The suffering of Fincoops/ CUs, the reason for which they must not be forgotten in consideration for stimulus packages emanates from two major sources. These are the effects of the financial sector clean by the Bank of Ghana BoG) and the economic implications of CODVID 19 pandemic.
Financial Sector Clean up
The woes of the sectors began when the Central Bank embarked on the financial sector clean up. The sector regulations require the players especially, credit unions to invest at least 20% of their Assets in liquid instruments. Many Fincoops/CUs therefore invested larger portions of their liquid instruments in the Financial Services Companies regulated by the Security and Exchange Commission (SEC).
Most Fincoops/CUs have not less than 40% of their assets invested in liquid instruments. Some Co-operative Apex bodies also operate Central Finance Facility (CFF) where societies experiencing liquidity challenges could borrow from. Fincoops therefore save not less than 10% of their assets in the CFF.
According to the Co-operatives Societies Act NLCD 252 of 1968, Co-operative societies must set aside 25% of yearly surplus as statutory reserves. Fincoops/CUs are advised to invest the statutory reserves outside its systems. Most of such investments are locked up with some service providers whose licenses were revoked and closed down. In addition all liquidity funds which were designed to cushion the financial co-operative system has also been locked up with the SEC regulated companies. Through no fault of the co-operative societies, the repercussion of the regulator’s action is adversely affecting the foundations of Fincoops/CUs in Ghana.
The Financial Sector cleanup has therefore harshly affected the Fincoops, because the institutions in which they invested for reasons of safety and returns, have failed in their reliability and have either had their license withdrawn by the regulator and a liquidator appointed or the action of the regulator have made these institutions redundant such that, they cannot pay back these investments.
Paramount among the effects of the banking clean up on Fincoops /CUs include serious liquidity challenge, with its attendant negative effect on loan delivery services for most of them. The ripple effect of this serious impact was that, deposits from members was not forth coming as it used to be. In turn, investments to apexes by their members also slowed drastically and in some cases completely dried up. Interest on these investments ceased. The industry was at its lower ebb when the pandemic erupted.
Fincoops /CUs need a hearing on these concerns. Adequate attention proportionate to what is offered Microfinance Companies and Savings and Loans Companies must be given to Fincoops/CUs.
CODVID 19 Impact
The COVID 19 brought a second wave of institutional stress on Fincoops following the first wave of the locked-up investments as a result of a combination of non-compliance by investment houses and to some extent a failure on the part of regulatory bodies. These stresses include Increased provision costs, increased write offs, decreased return on loan portfolio, decrease in liquidity as loans default, decrease in liquidity as savings withdrawal increased, impact as Banks limit withdrawals, reduced capital position and slower growth. If these challenges will not qualify Fincoops for government attention and bailout what else would.
The lockdown of Greater Accra, Kasoa and Greater Kumasi impacted heavily on Fincoops/CU. The Fincoops/CUs complied with the order for essential services to operate during the Lockdown period. In an effort to serve their members as providers of essential services, their offices were truly opened to members to give access to their money, make deposits and assess or repay loans. Fincoops/CUs complied with all the caution of safety for staff and members by operating limited hours, staff rotation as well as observing all preventive protocols of the disease i.e. hand washing, use of sanitizers and the wearing of nose masks.
The initial restriction of a lockdown of Greater Accra, Kasoa and Greater Kumasi did not affect only those operating in these areas, but other Fincoops/CUs operating throughout the country were affected. The restriction of movements to and from the lockdown areas stopped short many inter-co-operative activities especially, linkages to the head offices and regional offices of apex bodies for support services, because they are located in the lockdown area.
The period was one of the difficult moments for Fincoops/CUs members in Ghana as they encountered downturns in their businesses. These members are petty traders, farmers, artisans, market women, and small business owners whose activities have been seriously affected by the restrictions resulting from prevention of spread of the disease. They could not make deposits out of which their loans could be repaid especially, through the Susu schemes. They resorted to rampant savings withdrawals and redemption of investments at the little opportunity thereby, depleting their own deposits and the accumulated capital of the Fincoops/CUs.
In other jurisdictions special channels were opened and new products in terms of financial support packages and services were set up to equip the Fincoops/CUs to in turn help members alleviate the difficulties they may find themselves. This had not been the case in Ghana, not because Fincoops in Ghana operate differently but because the special role and needs of Fincoops/CUs have not been duly recognized by the appropriate governmental bodies managing these national crises.
The Time to help Fincoops/CUs
This is the time Fincoops/CUs need to be supported by agencies managing support schemes for vulnerable groups and businesses seriously affected by the pandemic. Fincoops/CUs need to be offered some stimulus package to support their loan delivery services. Such support will enable them reach out to the distressed members whose businesses have been affected by the pandemic. Most members have withdrawn their savings and have not got much to guarantee any meaningful loan from the Fincoops/CUs. However, if a stimulus package is given such members who are vulnerable can be helped to bring their businesses back to sustain their lives and that of their families.
One reason for which the government and for that matter concerned agencies must consider Fincoops /CUs for a stimulus package is that, they have proven to stand tall in the management of funds at the grass roots level in a sustainable manner. They have proven to operate revolving funds successfully and there is a huge evidence of managing loans with the barest minimum risk of delinquency. The member-owner principle of co-operatives is a huge security for members to repay loans if they are given any such support.
Lack of Additional Delivery Channels.
The Corona virus pandemic (COVID-19), is beginning to drive a lot of sense for the call for cash-lite economy, e-banking platforms, and all that one can relate to e-transactions. Although no business is being spared the brunt of impact, businesses that have always been heavy on cash are particularly overly disturbed, even at the initial phase of a situation that no one has an idea when it will be over.
One of the core sources of transmission of the virus, according to the World Health Organization (WHO), is through bodily contact with surfaces that the virus clings to and subsequent touching of the face. For businesses that deals primarily with cash exchange, cash becomes a key transmission mechanism; very scary because especially in Africa, and Ghana for that matter, such daily transactional engagements are in the majority.
The important question to ask is whether this will force and accelerate a change that has been slow in realizing so far: digitalization of payment and transactions across businesses in general. The Fincoops/CUs do over 95% cash transactions which increase the risk to staff and members of the societies especially the Fincoops/CUs that offer SUSU/ Daily deposit services. Supporting Fincoops/CUs to embrace digitalization of payment and transactions in their businesses is required now than ever.
The Forgotten Sector
The sector players have made necessary efforts to draw the attention of the authorities to the plight of over two million Ghanaians, most of them vulnerable in the society. Unfortunately, it looks like the financial co-operative sector has lost in the books of concerned agencies and the government. Recently the Bank of Ghana came up with liquidity support arrangement for the Microfinance sector and the financial co-operative sector was conspicuously missing. The policy mentioned, Rural and Community Banks, Savings and Loans Companies and Microfinance Companies. No mention was made for Fincoops/Credit Unions. Earlier the Central Bank has extended its liquidity support to the Universal Banks.
Support of Ministry of Employment and Labour Relations
The government’s six hundred million Ghana Cedis stimulus package for business in Ghana which is being administered by the National Board for Small Scale industries (NBSSI) excluded the financial co-operatives even in the mode of disbursement to serve their members directly. The Co-operative sector in general seemed to be forgotten. It is evidently clear that, certain Ministries like the Ministry of Food and Agriculture and Ministry of Trade and Industries have sort the inclusion of businesses directly under their responsibility to obtain support to revitalize the businesses to come out of the repercussions of the CODVID pandemic.
This is the right time for the Ministry of Employment and Labour Relations which is responsible for co-operatives to play the big role in this direction, to push an agenda for Fincoops/CUs to be considered for a stimulus package in any meaningful scheme.
The Concern of World Council of Credit Unions (WOOCU)
The World Council of Credit Unions (WOCCU) recently added its voice calling on national-level authorities and regulators to ensure that Fincoops are properly designated as “essential” during the COVID-19 crisis. Even though in the wake of the Lockdown, Fincoops/CUs operated as essential services they are not considered for liquidity support programs designed to suit their operations by the Bank of Ghana or any other governmental agency within this COVID 19 era.
The immense contribution of the co-operative sector which employs about five thousand workers and hold accounts of over two million people, about half of them the unbanked cannot be forgotten in times of need when sharing the national cake.
Lender Assistance Program.
The government must look at the Fincoops just like any other financial institution or sector that is being given financial assistance and come up with a suitable Lender Assistance Program to help them support their members who have also been seriously affected by the pandemic. The following relieve will go a long way to help the sector stabilize.
- The first priority for the Fincoops/CUs is for the government to release the locked-up investments in the Security and Exchange Regulated Companies that hold funds of Fincoops/CUs. Once the co-operatives lay hands on these funds, they would be in a position to regularise the challenge without necessary depending on the government. Keeping those funds, coupled with the challenges of COVID 19 without the government providing assistance, but looking on for the co-operatives to fold up will be a very unfair treatment.
- The second option it to grant them temporary liquidity based on the size of their locked-up funds will go a long way to bring a major relief to over two million Ghanaians whose funds have been locked up with various Fincoops/CUs. Temporary liquidity support will enable the sector halt heavy losses the societies are accruing and the attendant implications. It will not be in the interest of the societies and the members if no positive action is taken and individuals who have genuinely invested their funds legally are made to suffer by the inaction of the responsible authorities.
- The third relief is for the government to provide more stimulus packages in the form of grants for the hard-hit societies to access. This will to enable them meet staff and other cost during the post CODVID 19 recovery period.
Leave a Comment:
Samuel Mwiniyorbu
On point. Fincoops/CUs will not benefit from CAP limited funds as most people of are talking about Millions of cedis member savings. Government grant should be ideal as the locked up investments under the liquidator's control will be very slow and unreliable and even when released, will not stimulate much this sector.
Nicholas Asante
Well said
Emmanuel K. Amankwah (GCC vice chm)
Indeed the Government and his agencies has forgotten the cooperative financial sector. Most of the Fincoops/CU's also supported the other cooperative societies like ccoperative market women's, cooperative cocoa farmers in which Government/COCOBOD through cooperative Registrar registering them at the five cocoa growing regions in Ghana in terms of financial( loans & advances) to cater for their children education and other social needs when their produce are not yielded. You are on point, ministry of employment and labour relations should sit up to talk to the CAP stimulus prayers to support the cooperative sector.
Ernest
I agree with what ever is said. Gov shld help the credit union
Sam Essilfie Acquah
Well reached, the credit unions particularly in Ghana need financial insulation or support from the central government in this covid-19 global pandemic. The credit unions need therefore to adopt to the New Normal and to prepare for the challenges ahead.
Matthew Alignoi
Well said Nana, the government should critically look at these sectors by supporting them in times like this, because the Fincoop/CU being part of the financial intermediation process as well as serving the unbanked population at rural areas.
KWAKU F DARKWAH
A well written article with all the relevant information on the relevance of the cooperative sector and the need for the government of Ghana to include them in the COVID-19 Stimulus Package. Financial Cooperative Societies (FINCOOPs) play a vital role in the growth and development of developing countries such as Ghana and in times of crisis such as the COVID-19 pandemic, support from the Central Government is vital for the sustainability of the FINCOOPs. "A stitch in time saves nine"and the earlier the Central Government quickly take action by lending a helping hand will be vital for the survival of the FINCOOPs and CUs in Ghana.
