The Financial Accountability of Irish Credit Unions: an initial empirical study

Credit unions are member-owned, voluntary, self-help, democratic, not-for-profit institutions that provide financial services to their members. They have both economic and social goals. Over this last decade they have achieved remarkable growth levels and currently there are 600 such organisations in Ireland, with approximately 50 per cent of the adult population of Ireland belonging to a credit union. Accounting for credit unions is a much-neglected area and relatively little is known about the sector's accountability. This paper presents the results of an initial empirical study of the financial accountability of Irish credit unions. A series of interviews and a basic content analysis of 178 recent financial statements were used to identify the views of key stakeholders with respect to the discharge of financial accountability by credit unions and the current quality of financial reporting. Overall, the research points to a sector where financial accountability through the medium of the annual report is weak and possible adverse consequences of this are explored. On the basis of the interviews it is suggested that if changes in financial accountability are to be achieved then some more proactive engagement of parties external to the management of individual credit unions is needed.

Investigating the cost Performance of UK Credit Unions using Radial and Non-Radial Efficiency Measures

This paper examines the relative efficiency of UK credit unions. Radial and non-radial measures of input cost efficiency plus associated scale efficiency measures are computed for a selection of input output specifications. Both measures highlighted that UK credit unions have considerable scope for efficiency gains. It was mooted that the documented high levels of inefficiency may be indicative of the fact that credit unions, based on clearly defined and non-overlapping common bonds, are not in competition with each other for market share. Credit unions were also highlighted as suffering from a considerable degree of scale inefficiency with the majority of scale inefficient credit unions subject to decreasing returns to scale. The latter aspect highlights that the UK Government's goal of larger credit unions must be accompanied by greater regulatory freedom if inefficiency is to be avoided. One of the advantages of computing non-radial measures is that an insight into potential over- or under-expenditure on specific inputs can be obtained through a comparison of the non-radial measure of efficiency with the associated radial measure. Two interesting findings emerged, the first that UK credit unions over-spend on dividend payments and the second that they under-spend on labour costs.

The Growth of US Credit Unions

The growth of US credit unions during the 1990s is investigated empirically, using univariate and multivariate cross sectional and panel estimation techniques. Univariate tests of the law of proportionate effect suggest that in general large credit unions grew faster than their smaller counterparts. On average credit unions with above-average growth in one period tended to experience below-average growth in the next. Smaller credit unions tended to have more variable growth than large ones. While credit unions share a common co-operative philosophy, they differ in terms of age profile, scope for membership growth, charter type and financial structure and performance. In estimations of a multivariate growth model, most of these characteristics are found to have a significant influence on the size-growth relationship. While large state chartered credit unions grew faster than their smaller counterparts, the reverse was true for federally chartered credit unions. In general, if larger credit unions grew faster than smaller ones, they tended to do so for specific reasons: because their charters were less restrictive, because they were more efficient, or because they had a financial structure that was more conducive to growth. Therefore credit union growth was not `random', but highly systematic.

The Development of Credit Unions and their Role in Tackling Financial Exclusion

The government has been actively encouraging the development of credit unions to help the financially excluded. However, rather than stimulating credit union development, government grants can erode the community self-help ethos on which credit unions are founded. Policies should be formulated which encourage credit union development based on a membership drawn from a cross-section of the population.

The diversification and financial performance of US credit unions

For US credit unions, revenue from non-interest sources has increased significantly in recent years. We investigate the impact of revenue diversification on financial performance for the period 1993–2004. The impact of a change in strategy that alters the share of non-interest income is decomposed into a direct exposure effect, reflecting the difference between interest and non-interest bearing activities, and an indirect exposure effect which reflects the effect of the institution’s own degree of diversification. On both risk-adjusted and unadjusted returns measures, a positive direct exposure effect is outweighed by a negative indirect exposure effect for all but the largest credit unions. This may imply that similar diversification strategies are not appropriate for large and small credit unions. Small credit unions should eschew diversification and continue to operate as simple savings and loan institutions, while large credit unions should be encouraged to exploit new product opportunities around their core expertise.