WOCCU's Model Rules and Regulations Balance Consistency with Flexibility
MADISON, Wis. -- It's not easy to create a model of consistency that embraces 97 different cultures, but the World Council of Credit Unions' model pieces are considered an international standard.
WOCCU's Model Regulations for Credit Unions, released last month, is a companion piece to its Model Law for Credit Unions, which was written in 2005. Both documents assist foreign governments as they pen regulations for credit union systems.
In many countries, credit union oversight begins under the umbrella of agencies that regulate cooperatives, not financial institutions, said Brian Branch, WOCCU executive vice president and chief operating officer. However, as credit union systems grow in size and sophistication, governments soon realize they require more financially oriented supervision.
"Oftentimes, foreign governments tap into international consultants from the banking industry, who tend toward advice that places too many restrictions on credit unions and limits their ability to compete," Branch said.
WOCCU's international models, which are based on existing best practices, provide governments with a consistent standard that can be applied to all credit union systems, regardless of their purpose, products or services.
The model laws and regulations are more than just translated NCUA manuals. Though WOCCU does include advice from the NCUA, it also uses rules and regs from countries all over the world with successful credit union systems, such as Poland, Peru, Great Britain and Ireland.
"No matter where you are in the world, the basics of sound credit union management are the same," Branch said. "Things like capital reserves, loan loss provisions and liquidity management are very basic principles and common across borders."
Branch said sound regulations are a key component of thriving credit union systems because they not only safeguard institutions, they also build public confidence. Where credit unions differ worldwide, he said, is in their product and service mix, loan underwriting practices and technological abilities. "For example, you don't have credit bureaus in most countries, so there's no access to information about peoples' creditworthiness. Plus, there's a lack of direct deposit or payroll deduction in most places."
Because fewer infrastructures create a riskier lending environment, delinquency standards used here won't work in many countries. Making matters worse, only a handful of countries provide a deposit guarantee system like NCUSIF insurance.
"So to compensate, we advocate for higher capital in other countries, where there's no deposit guarantee, and managers tend to have less sophisticated training," Branch said.
WOCCU must also accommodate a wide variety of needs. Branch estimated that approximately one-third of credit unions worldwide exist to provide small-business loans to market vendors or cottage industries. However, others serve widespread agricultural lending needs, while some only make consumer loans.
Dave Grace, vice president of association services, said the models aren't meant to be applied in full. They are intended as a starting point for governments to expand upon, creating a unique set of rules and regulations specific to each country's needs.
"It's always easier to cut or add to something than to create it from scratch, and as we work with policymakers, we've found it's very useful for them to have something to work from," he said.
Each model regulation includes the reasoning behind it, and provides commentary for context.
"The goal is for them to understand the purpose and issues regarding each regulation, so even if they use just part of the text, they have rationale as to why it should at least be considered," Grace said.
Credit unions have strong histories in Western Europe and the Americas, but the financial cooperatives are a relatively new concept in former Soviet bloc countries, Africa and Asia.
Grace conducted his interview from India, where he met with central banking representatives from that country and Nepal, Afghanistan, Pakistan, Bhutan, Cambodia, Vietnam, Sri Lanka and Bangladesh.
WOCCU was the only credit union entity invited to the conference, which was called to discuss the need for financial cooperative supervision, specifically off-site supervision methodology.
Interestingly, Grace said the central bankers in attendance weren't as concerned about the regulations themselves, but how they can effectively regulate rural institutions despite limited travel and technological resources. So, rather than focus on the regulations, WOCCU helped brainstorm innovative ways to meet regulatory and reporting needs.
How does the organization keep up with nearly 100 credit union systems and new ones that emerge across the globe? Branch said his organization relies on a number of volunteers from CUNA, state leagues and individual credit unions that form partnerships with international credit union groups.
American volunteers frequently travel to their sister country to assist developing credit union systems in setting up appointments with busy foreign officials. Oftentimes, Branch said, the prestige of American guests opens doors the cooperatives couldn't get past on their own.
Though U.S. banking system has received bad press worldwide thanks to subprime lending practices, Branch said it hasn't affected the demand or respect for WOCCU, its model publications or credit union movements in other countries.
Though a number of countries have asked WOCCU about credit union involvement in subprime lending, the issue isn't a hot topic because large government-run housing banks, not credit unions, typically originate foreign home loans.
Increased accessibility to mainstream financial services isn't just a trend in the U.S. Grace said many countries are discussing ways access to financial services can spur economic growth and boost equality among citizens.
"Many policymakers see that credit unions and financial cooperatives can, or do already, play a key role in providing that access," Grace said.
Branch added that mergers were also a hot topic among credit unions overseas.
"The trend of moving toward consolidation is very similar to how things are here. Five years ago, you could see it coming and you could also see the resistance, but now they are merging to gain economies of scale and competitive advantage," Branch said, "like we've found with the Model Regulations, basic logic applies everywhere."