A report from the Swoboda Research Centre sheds new light on the interplay between the social and economic objectives of credit unions in the provision of small loans (under €2,000) in Ireland.
The paper presents the findings and conclusions of research by Dr Paul A. Jones and Nick Money of Swoboda and Lorraine Corcoran, director of Afanite, a Dublin-based organisation that helps non-profits become more commercially oriented and supports for-profit companies in achieving their social goals.
In addition to examining the tensions between the need for economic sustainability and the desire to meet the real needs of members, the report offers international comparisons, evaluates commercial viability, assesses the views of credit unions and stakeholders and offers recommendations.
The research found that credit unions and high-cost credit providers (HCCP) are the dominant providers of small loans in Ireland, with credit unions accounting for 48% of loans by volume and 10% by value.
The report also suggests that many small loans are cross-subsidised, but CEOs see this as an important part of serving members.
In terms of potential barriers to reaching more borrowers, the report highlights several challenges, such as a lack of visibility and of a uniform product. Another challenge identified is digitisation, which, argues the paper, is required to compete with alternatives such as BNPL, while still including members for whom digital is a barrier.
Loans that target the more unserved or underserved borrower carry a higher risk profile and a bigger administrative burden, the report warns. Drawing from international examples, it suggests options such as pricing for risk and in some cases the use of external subsidy for capacity-building.
Based on these findings, the report makes several recommendations, including: formulating a movement position on the importance of this market; exploring public and credit union data and developing sector wide tools to measure the nature and economics of these small loans; exploring opportunities to collaborate at movement level to address costs and increase digitalisation; developing a competitive, convenient, digital process to serve existing and new borrowers; and working together and with stakeholders to fill in information gaps about the underserved and yet-to-be served borrowers.
David Malone, CEO of the Irish League of Credit Unions (ILCU), which funded the study, said: “In the last year Irish credit unions have issued 200,000 loans less than €2,000. This is so much more than a statistic as credit unions have supported thousands of people to navigate the cost of living crisis by providing sustainable finance.
“The research findings have identified important recommendations regarding costs, pricing and enhanced member service opportunities using increased digitisation and automation. We fully support increased data being made available on the small loans market.
“Loans under €500 are currently not reported on the Central Credit Register (CCR). The ILCU has advocated to the Department of Finance that this threshold be reduced to €200 so that the CCR captures more data on lower value credit in the market. The ILCU will engage and actively support credit unions in evaluating the research findings and applying the relevant recommendations.”
ILCU will be facilitating a webinar on 28 September to enable credit unions to hear from the authors and discuss the findings. The full report is available on Swoboda’s website.
