Home' Trinidad and Tobago Guardian : April 6th 2014 Contents T&T's credit union movement has raised con-
cerns at a proposal by the Central Bank to
replace their voluntary protection fund with
a mandatory fund that will be managed by the
Deposit Insurance Corporation (DIC), which
currently provides coverage of local banks and
non-bank financial institutions.
The proposal to set up a new protection fund for credit
unions---which control nearly $10 billion in assets---is part of
the Central Bank's nearly decade-long attempt to bring credit
unions under the regulatory umbrella of the institution.
The fund will provide insurance for the billions of dollars
of credit union deposits and withdrawable shares held by
thousands of members of the co-operative entities across the
The Central Bank argues that the proposed fund is intended
to strengthen the protection given to credit union members
while adding to the stability of the financial sector by offering
insurance on deposits and withdrawable shares. Withdrawable
shares are those shares offered to credit union members in
exchange for ownership interest and can be withdrawn without
declining in value. They are described by the Central Bank as
shares not held as permanent shares.
Having insurance on withdrawable shares and deposits
would mean that, in the event of a credit union going out of
business, members can reclaim at least a portion, if not all,
of their lost savings.
Lead stakeholders in the credit union movement agree that
a new protection fund will provide much-needed support for
the people who save in credit unions in the event of an insti-
tution failing. However, they pointed out some issues with
the fund proposed by the Central Bank.
Several senior credit union representatives said the main
issue was the proposed management of the fund by the DIC.
This was established in 1986 to insure depositors in all insti-
tutions licensed to operate under the Financial Institutions
Act 2008. Credit unions do not operate under this act but are
licensed to operate under the Co-operative Societies Act.
Credit union input
President of the Co-operative Credit Union League, Joseph
Remy---which represents 55 local credit unions---is not against
the idea of a protection fund and stated that it is vital to have
one, but the fund must be consistent with the views of the
He does not see having the fund managed by an entity that
was initially set up for banks and managed by people with
banking expertise as being consistent with the movement.
His view is that credit unions already have locals who are
competent in the management of credit union affairs and
these individuals are the ones who should be governing the
affairs of credit unions.
Manager of Trinidad Cement Workers Credit Union, Darren
Singh, also believes that the DIC does not understand credit
unions and that it would be better to keep deposit insurance
for credit unions under the deposit insurance fund that already
Formerly known as the Stabilisation Fund, the T&T Credit
Union Deposit Insurance Fund Co-operative Society (TTCUDIF)
was established in 1999 to provide protection for credit union
members in the event of a failure of a institution.
While membership in this society is voluntary, the Central
Bank proposes that all credit unions will mandatorily join the
protection fund, a move supported by Eastern Credit Union
(ECU) President, Gloria Rolingston.
She, too, was in agreement with the protection fund and
said: "the notion of insurance protection and risk management
is very important."
Rolingston said she had concerns about having an institution
with banking experience manage an insurance fund for credit
President of Teachers' Credit Union, Rawle Richardson, said
he did not think it sensible to establish another insurance fund
for credit unions that will be run by bankers when one already
exists. He posed this question: why not make the existing
Questioned on the issue of replacing an existing fund, the
Central Bank said: "The existing fund is offered by a co-
operative society which is governed by co-operative principles,
including voluntarism. Membership in the fund (protection)
will be granted automatically with the issuance of an operating
certificate by the Central Bank, thereby not giving credit unions
an option for membership. As such, the administering organ-
isation cannot be a co-operative society."
Another issue raised by credit unions was the maximum
coverage limits proposed by the Central Bank. The proposal
for the new protection fund offers lower coverage for shares
than for deposits. The Central Bank acknowledges that with-
drawable shares represent most of the sector's savings and
therefore pose a greater loss of risk than deposits for credit
union members in the event of a credit union's failure.
The coverage limits put forward sit at a maximum of $75,000
for deposits and $50,000 for shares, meaning that those with
deposit accounts will receive at most $75,000 and those with
share accounts would receive a maximum of $50,000 even if
their savings are more than the those amounts. Conversely,
the TTCUDIF currently offers a coverage limit of $75,000 for
shares and $50,000 for deposits.
Darren Singh, of the Cement Workers' Credit Union, believes
that the proposed coverage limits are a backward step since
shares are protected at a lower value. Local credit unions have
a culture where share savings are significantly higher than
deposits, a situation that is unique to T&T.
Eastern's Rolingston said she wants to see more protection
for shares than for deposits because, as the proposed coverage
stands, it undermines the philosophy of share savings. The
Central Bank's position is that shares are considered investment
instruments and are not usually protected by insurance, only
a few jurisdictions offer protection on shares in light of credit
union members preference for shares.
In order to accumulate enough funds to support insurance
claims on the protection fund, the Central Bank has proposed
that member credit unions contribute an initial sum equivalent
to 0.4 per cent and an annual sum equivalent to 0.1 per cent
of shares and deposits. These rates, according to CBTT, were
revealed by research to be consistent with rates used for sta-
bilisation funds in countries such as Jamaica, Brazil and Canada
where similar rates are being used.
The TTCUDIF currently uses premiums based on the annual
incremental increase in a member credit union's deposits and
shares. Richardson said that these sums make the proposed
protection fund "too expensive." He said that his credit union
would be "paying more for less."
President of UWI Credit Union, Kennis Thomas, found the
figures a bit too high and said "it would be further expenditure
on members and their returns would be less."
Credit unions use their net surplus to determine the returns
its members receive. The lower the net surplus and the higher
the membership, the lower the returns to members. Because
the protection fund would levy a fixed amount on the total
sum of deposits and withdrawable shares on an annual basis,
it influences the sum paid out to members, especially in credit
unions with low surpluses relative to their membership.
According to Rolingston, this can indirectly affect a credit
union's membership base since many people seek higher div-
idend payments on shares and better deposit rates. She said
that there are people who use Eastern Credit Union solely for
savings and use deposit rates to determine where to save. She
said they even compare credit union deposit rates and bank
Remy believes that the CBTT, "are pushing the false belief
that the credit unions are financial institutions and people
might believe it's the same as a banking institution. This was
a false perception."
With reporting by Kwame Joseph and Brandon Ragoo-
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt APRIL 2014 • WEEK ONE
Credit unions question
new protection fund
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