Movement of the people

As liquidity in the financial system became restricted in the 1980s with the onset of the recession, following the collapse of oil prices, there was great difficulty in getting loans from commercial banking sector. Individuals looked for financing from other formal and informal financial intermediaries. In addition to this, growth of the movement was also helped by a tax deduction for individuals.

Admittedly there was a range of difficulties with credit unions including weaknesses in the existing legislation that saw a high degree of non-compliance with statutory reporting requirements which some estimated in 1989 was over 40 percent of Credit Unions registered with the Cooperative Department. In addition, there were accusations of weak management information systems and the prevalence of underqualified and unqualified personnel within the movement. This expressed itself in a high rate of dormancy and mortality of Credit Unions in the late 1980s. In fact, just about half of all registered Credit Unions in the movement was recorded as inactive by 1990. There were significant changes to the domestic financial sector by the 1990s. Following the recession and structural adjustment, came the introduction of financial liberalisation. This included both the removal of guidelines which impacted the allocation and cost of credit and the abolition of constraints on the operations of financial markets. The Financial Institutions Act (FIA) which was passed provided for enhanced regulation of banks and other deposit-taking financial institutions. However, the Credit Union Industry was omitted from that regulatory and legal reform initiative. Why did this occur?

The Credit Union movement was large both in terms of assets, approximately TT$ 1.3 billion, and over 300,000 members at the end of 1992.

A Credit Union Task Force Committee was established in 1992 to assess the operations of the movement and produce appropriate proposals to address concerns such as prudential criteria, accounting standards, governance, delinquency and the enforcement of the power of the Cooperative Department. The report stated that the Department’s regulatory function had been fundamentally compromised.

Later in 1992 the responsibility for supervision of the credit union sector was transferred from the Commissioner for Cooperative Development to the Ministry of Finance, which was considered to possess the resources needed to properly supervise credit unions at that time. At this time credit unions were considered as having a sizeable asset base and an evolving supervisory and regulatory framework.

The Credit Union movement in response to these decisions established the Trinidad and Tobago Credit Union Stabilisation Fund (TTCUSF) in 1994. This fund was established to toughen self-regulation and also to guarantee the security and strength of the movement by the facility of deposit protection. However, membership with the fund was voluntary, since there was no provision in the Credit Union act at that time. Set against the backdrop of the sustained liberalisation and modernisation observed in the financial sector and the long term development objective of achieving a developed nation status by the year 2020, the Cabinet made the decision to appoint a committee to review the financial sector of Trinidad and Tobago in 2002.

The review recognised the operations of a number of supervisory and umbrella organisations including the Department for Cooperative Development, the Credit Union Supervisory Unit, The Credit Union Stabilisation Fund (TTCUDIF), The Credit Union League (CCULTT), CUNA Caribbean and the Central Finance Facility (CFF). The report underscored, however, that because of insufficient funding and voluntary membership the CCULTT, TTCUDIF and the CFF were not able to effectively carry out their developmental and promotional agenda.

In considering the existing regulatory framework, the review highlighted that the existing legislation required widespread reform. The committee emphasised that the existing legislation delayed the progress of the sector and that additional provisions should be made for delinquency, financial reporting, the election of officers and the registration of societies. The committee stated that insufficient record keeping and data management, meagre asset quality, feeble management and operating systems and sluggish growth in membership and share capital were the significant flaws experienced by the sector. Next week we would look at the developments post the White Paper on Financial Development.