THE RECENT praise by the International Monetary Fund (IMF) and the World Bank of the operations of Jamaica's credit unions should provide a fillip to these institutions and place them in a favourable position as the Government contemplates new regulatory arrangements for the sector.
Indeed, the fund and the World Bank argued that credit unions should be preserved as a valuable part of Jamaica's financial system. This, of course, makes sense. For not only have credit unions been sources of social and community good, they have played a significant role in the mobilisation of savings and the allocation of credit to sectors of the society which might otherwise be locked out of the financial system.
Indeed, from their early beginnings as cooperatives in which like-minded people saved and made loans to each other, credit unions have emerged as major mobilisers of capital, accounting in 2005 for $25 million or approximately eight per cent of all deposits, compared with $11.3 billion or seven per cent of all deposits six years earlier.
At the same time, loans by credit unions at the end of the last decade amounted to $7.9 billion or 16 per cent of all loans by financial institutions. The loan portfolio of credit unions had grown by the end of 2005 to $20.9 billion, but had declined four percentage points as a proportion of overall loans. About 90 per cent of the credit of these institutions would be in the form of consumer credit.
Of course, a country's capacity to save is a good index of its potential for economic growth. Savings represent deferred consumption and an accumulation of capital which can be borrowed for investment, job creation and economic expansion. In that context, this growth in the accumulation of capital is of significant potential to an economy such as Jamaica's that has enjoyed chronically little growth.
We would not be surprised, therefore, if there is some concern that such a high proportion of loans by credit unions go to consumption. It is difficult, though, to blame these institutions for fulfilling the mandate for which they were created. The issue, now, is how to coax them into change.
As has been recognised by the multilateral institutions, credit unions remain important assets to the Jamaican economy, with the capacity to improve upon the contributions they have made over many decades. Dr Davies has, for instance, suggested that these institutions should consider moving into new areas of business, such as pension fund management, when new legislation for the management of pensions come on stream.
This is a suggestion with which we have no quarrel. In the meantime, though, we would encourage credit unions to begin, as much as possible, to encourage an expansion of credit to areas of production without losing the essential basis for their creation and existence.
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