Collectively, credit union results are improving and that's apositive sign. However, there are far too many of us who are notgrowing and are frankly just trying to survive.

To survive in a more and more unpredictable environment and tothrive in economically difficult times, credit unions must reinventthemselves. Internally, credit unions have to wisely leverageinternal and external resources and encourage creativity andcollaboration. Externally, they must learn how to serve changingconsumer demographics in a hyper-competitive financialenvironment.

Scaling Up Microfinance

I recently attended a conference (in my capacity as seniorconsultant for the National Federation of Community DevelopmentCredit Unions CU Breakthrough Team) that exemplified the spirit ofcollaboration and innovation. The Scaling Up Microfinanceconference is one of the Capacity Building Initiatives funded bythe U.S. Department of the Treasury's CDFI Fund and organized bythe Opportunity Finance Network and the National Federation ofCommunity Development Credit Unions.

The advanced training workshops are for certified CommunityDevelopment Financial Institutions — including loan funds andcommunity development credit unions—involved in microfinance orsmall dollar lending that seek to increase capacity and serve morepeople. The workshop exposed microfinance CDFIs to best practicesin the field and provide them with tools to determine appropriatestrategies to scale. The workshop focused on:

• Business model innovation
• New products and services
• Technology to improve performance
• Talent management

Perhaps the greatest takeaway from the conference was thesuccess stories shared by credit unions and loan funds. Amazingexamples of collaboration, innovation and yes… growth andprofitability.

Opportunities for Credit Unions

Today, nearly 2,000 credit unions have received their Low IncomeDesignation from the NCUA. To qualify for this designation morethan half of a credit union's members must live in census tractsthat have a median family income below 80% of the Area MedianFamily Income or individual income less than 80% of Area MedianIncome for a single individual.

The fact the NCUA recently approved nearly a thousand new creditunions for LICU status underscores the impact the Great Recessionhas had on consumers, and also the realization that this is theprimary market segment of a big chunk of our industry. Many ofthese newly designated credit unions are pursuing the CDFIcertification through the Federation so they can tap into resourcesto expand access to affordable financial services in LMIcommunities, as well as to increase opportunities to collaboratewith other CDFI's, such as Loan Funds.

Who are these consumers? They tend to be less educated,lower-income and have larger families. They use Small Dollar Creditproducts such as payday loans, title loans and pawn loans to payutility bills, rent and general living expenses (i.e. food, fuel,etc.) During the past 12 months, nearly 13 million Americans withincome less than $75,000 used a SDC product at least once. Many ofthese people are our members and employees and they need our help –and we need their business.

Adapting to serve this group – with the products and servicesthey seek – presents new opportunities for credit unions:

• Products and services that serve a growing demand
• Target market in which smaller credit unions can compete andwin
• Higher loan yield and fee income
• Increased membership growth
• Increased opportunities to collaborate and partner (i.e.community partners, CDFIs, SEGs)

For some, microfinance products, small balance consumer loan andtransaction services may be just what the doctor ordered forsmaller credit unions struggling with membership, loan and revenuegrowth. What's in it for the larger credit unions?

A lot! From the potential to scale these products, using theopportunity to connect with consumers and teach them a better way;connect with an entire new market that perhaps has developed belowtheir radar screen; partner with local non-profits and localgoverments involved in economic revitalization projects; setthemselves apart in the market place as financial institutionscommitted to their communities, etc.

Perhaps it may also be an opportunity to communicate andleverage brand? After all, aren't we all looking for ways todifferentiate how we are clearly different and better?

Loan funds are specialized lenders with high loan demand and areoften looking to partner with financial institutions as they havelimited lending capital. Credit unions have a lot of liquiditythese days and with return on investments at a historic low, whatbetter time than now is there to do loan participations with thesespecialized lenders that understand these markets? There are agrowing number of partnerships between loan funds and credit unionsthat demonstrates how effective these collaborations can be.

Is This Right for You?

Four things to consider about serving this market:

1. Is my credit union a LICU? If yes, you are alreadyserving a group that is using SDC products and services from otherproviders.
2. Is my credit union consistently growing membership? Ifno, serving this group may be your best bet to tap into a growingsegment, compete and win (for smaller credit unions, it beatscompeting with the larger credit unions for 1.75% new carloans).
3. Is my credit union consistently growing loans? If no,serving this group may create opportunities for used auto loan andsmall balance loan growth. Most people who work are dependent onhaving a reliable used vehicle to get to work.
4. Is my credit union consistently profitable? If no,serving this group typically generates much higher average loanyield and non-interest income. There are hundreds of smaller creditunion best practices out there, who usually fly under the radar,but have successful business models for serving this group. True,they typically have higher operating and loan loss expenses.However, these expenses are more than offset by significantlyhigher average loan yield and fee income.

Learn More

If you're struggling for consistent growth and profitability, Ihope you will consider learning more about the growth and revenueopportunities for serving this market. The work can be veryrewarding and presents significant opportunities for collaboratingand innovation.

Here are some resources:

The NationalFederation of Community Development Credit Unions

OpportunityFinancial Network

NCUAOffice of Small Credit Union Initiatives

CDFIFund

Scott Butterfield, CUDE, CUCE, CCUE is principal ofYour Credit UnionPartner in Sumner, Wash.