The Credit Union – In Evolution

17 October 2016


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For more than 68 years, credit unions in Trinidad and Tobago have been serving the under-served elements of the population, who hitherto had no access to ownership of their own institution, no access to credit, no opportunity to serve on a Board of Directors and to chart their own path. What credit unions brought to this section of the population was the opportunity to be part of an organization which encouraged ideals of democracy, social consciousness and human relations.

 

sou-sou

If one were to trace the evolution of credit unions in Trinidad and Tobago, many would recall familiarity with the concept of “sou sou” which had its genesis in Rotating Credit Associations, which are incidentally also  known as the “Poor Man’s Bank”. Several parties assert that the birth of credit societies worldwide occurred in the 1800s with the first being established in Germany, spreading to the west and other parts of the world in the 1900s.

There are other pieces of evidence in the literary sphere which point to the embryonic form of credit societies in many parts of the world. Known as Rotating Credit Associations (RCAs), several authors have provided definitions for these RCAs.

Shirley Ardener in her piece titled “The Comparative Study of Rotating Credit Unions” found in the Journal of the Royal Anthropological Institute of Great Britain and Ireland defines RCAs as ‘an Association formed upon a core of participants who agree to make regular contributions to a fund, which is given in whole or in part, to each contributor in rotation”

Other authors have articulated their own definitions of Rotating Credit Associations, but there is commonality in the definitions in that they all refer to pooling of funds, on a rotational basis.

Rotating Credit Associations which are the forerunners to co-operative financial institutions (CFIs) are called by different names in different parts of the world.

According to author Ian Macpherson, “people have used mutual aid and wealth sharing Rotating Credit Associations for centuries to help each other through difficult times”. The literature suggests that there have been ancient institutions long before the 1800s, where rotating credit was used, even before money as we know it existed.

Rotating Credit Associations ( RCAs) have been found all over the world, and known by different names depending on the region. They are known as- esusu and sou sou in West Africa, lin-hui in China, chitty or nidhis in India, in Japan moojin and ko, in Singapore tontine or kootu, and so forth. These RCAs operated on the essential principle of rotating access to a continually reconstituted capital fund.

Given our acquaintance with ‘esusu or sou sou’, let us examine its structure and components. One literary writer explains that “it is a fund to which a group of individuals make fixed contributions of money at fixed intervals; the total amount contributed by the entire group is assigned to each of the members in rotation”. By extension, “it is an association in which all its members are creditors and debtors in turn”

Some of the features of this type of Organization included-

THE COMMON BOND

There were two types of esusus or sou sou, those with unrestricted common bonds and those with restricted common bonds.

MEMBERSHIP

Contributions were usually made monthly, fortnightly, every eight days or every four days, or conversely any convenient interval could have been selected. Each member was paid back in a lump sum, exactly what was paid in contributions during the course of the cycle. There was neither gain nor loss but the advantage to members was that a large sum of money was available to them to make expensive purchases or to meet debt of a considerable size.

REFUSAL OF MEMBERSHIP

Membership in an esusu could have been refused for reasons of perception that a person could default on payment, for the purpose of keeping the value of the fund at a convenient round number and to facilitate tracking of payments by members, which could pose a difficulty if the fund was too large.

BOARD OF DIRECTORS

The founder of the esusu became the defacto head and was responsible for the fund and its payments to members. In addition, selected friends of the founder became heads of subgroups within the fund, as they grew and were made responsible for collecting contributions and making disbursements within sub-groups

 THE LOAN FUND

The first round (hand) was not was not usually paid out at the time it was collected, since it was customary to wait until the second interval to see if other persons would apply for membership and then two funds would be paid out at the same time. The member who received the fund had to contribute to it and to all subsequent funds until the cycle was completed.

In addition, the fund could be assigned on the basis of need as distinct from rotation. The order could also be determined by mutual consent, bidding or rotation.

VOLUNTEERISM

The heads of restricted esusu groups made no profit and only had the privilege as being recognised as the head of the group and the satisfaction of asserting their authority over who was granted or denied their request for funds.

MEMBER DEFAULT

A member who defaults during a cycle is asked to repay the excess over what was paid and their contributions. A defaulter could also be sued in court for what was owed.

Over time these age old institutions evolved into what is known as Co-operative Financial Institutions (CFIs). Such institutions are identified by differing names such as “Financial Co-operatives” (FC), “Savings and Credit Co-operatives” (SAFCO) “credit unions”, co-operative banks and other terms that differ across the world. Whilst there is evidence to suggest that their institutional structure, governance, legal and regulatory status, scale and services portfolio vary widely across the globe, there is definite similarity. The common variable in all the examples is that they collect deposits and do business often solely with members.

These Financial Co-operatives all operate under the guidance of seven common principles

  • voluntary and open membership
  • democratic member control
  • member-economic participation
  • member- autonomy and independence
  • member- education, training and information
  • co-operation among co-operatives
  • concern for the community

There can be no argument that credit unions/co-operatives as we know them today, evolved from the Rotating Credit Associations established in various parts of the world, among the poor and dis-possessed. In Trinidad and Tobago, credit unions traditionally attracted members from the same bond, mainly via sponsor companies or communities aligned by geography or some other form of commonality. Today we have seen significant growth in credit unions, facilitated by extension of bonds to include other selected employee groups and community groupings. In some instances the bond is far reaching over the entirety of Trinidad and Tobago.

October 20th, 2016, the third Thursday in October is deemed International Credit Union Day, a day of observance and celebration for credit unions worldwide. Here in Trinidad and Tobago, “Credit Union Week” commences on October 17th for some credit unions, whilst others dedicate the entire month of October as “Credit Union Month”. Celebrations are manifested in different ways, via health fairs, open houses, essay and story-telling competitions, lectures, all in the effort to publicly recognize and celebrate the achievements of the credit union movement and to share freely amongst members.

In this month of October, there is much to celebrate about the achievements of the credit union body and the contribution they have made to the enrichment of the lives of the citizenry of Trinidad and Tobago. The contributions they have made to the empowerment of their members, the display of democracy and transparency in their dealings and the contribution made to the national economy are all worthy of praise and commendation.

To the four hundred thousand plus credit union members, who have grown the asset base of the movement to $12B and counting, Firstline extends congratulations for having contributed to another year of success, dedicated service and discipline in saving and frugality.

CLOSING THOUGHTS – TIME TO CONSIDER YOUR INVESTING STRATEGIES

Firstline offers a number of unique opportunities to put surplus cash to work either as your asset manager or investment advisor. Please contact us for more details at info@nullfirstlinesecurities.com or at 868.628.1175, we can discuss your investment needs in detail and craft a portfolio that makes sense for you. We look forward to hearing from you.

 

 

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