Farm Ireland

Monday 10 December 2018

Darragh McCullough: Why don't farmers use credit unions?

'Credit where credit is due in this age of cash-free banks and faceless vulture funds'

Darragh McCullough eats, sleeps and lives farming. Photo: David Conachy
Darragh McCullough eats, sleeps and lives farming. Photo: David Conachy
Workman Ken Glennon removes Anglo Irish Bank signage outside its former headquarters on St Stephen’s Green, Dublin in 2011. Photo: Gareth Chaney / Collins
Darragh McCullough

Darragh McCullough

Why don't farmers use credit unions? Certainly if you were to go by the headlines in recent years, you could be forgiven for thinking credit unions were yet another example of some of the boom's worst excesses.

The aftermath has seen the number of credit unions nationwide shrink by about 100 to 274 branches and many are still dealing with legacy issues such as limits on the amount they can loan to any individual.

I must admit that until last week, I only had some vague notion that if you needed a dig-out with the holiday in Spain, the local credit union was a good bet. Indeed, many farmers have the impression that credit unions can only offer 'Mickey Mouse' loans, often at exorbitant rates.

But following the economic turmoil of the last 10 years, maybe we should be looking at financial services with a different perspective. We've seen the so-called pillar banks crumble and survive only by virtue of the largesse of the public purse. I try not to think about the €29bn that we, the taxpayer, pumped into the dying Anglo Irish Bank because the knowledge that my generation will be paying this off for the rest of our working lives will just eat me up inside.

Meanwhile, the vulture funds are slicing and dicing the tail-end of those of us with non-performing loans, and the contraction of bank branches and services at local level continues.

Is there anything more depressing than a bank without a counter where you can talk to a human? 'Cash-free' branches where little or no cash can be either lodged or withdrawn, along with teller-less offices where any interaction with an actual staff member can only be done by appointment is the way our biggest banks are trying to shore up profits.

They'll point to the fact that only three per cent of banking transactions are actually carried out over the counter as more and more business migrates online.

That may well be the case, but I wonder how much of the 97pc is accounted for by the masses of transactions that banks facilitate for fund managers and corporate types that inhabit and thrive in the digital sphere.

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For the farmer or rural dweller looking to get a cheque cashed on a Friday morning before they head away for the weekend, a hole in a wall with a promise of an electronic transfer within five working days is no use.

So it was refreshing to spend a day with credit union staff in Clare last week as they launched their new Cultivate Loan package which they are aiming very squarely at farmers. The whole ethos seemed like the antithesis of what we think of about modern banking.

Small branches in small towns like Killaloe and Scariff, with actual real-life staff at counters dealing with punters as they came in the door. It was only when I then realised that credit unions are governed by local volunteers, selected from the loan base of each branch, that it struck me that credit unions are a concept that should be very close to farmers' hearts.

Yes, the volunteer element is a double-edged sword in that you are relying on people, who often have little or no background in finance, to police the highly technical and procedural business of a financial institution. But in the same way that farmers can be trained up to sit on boards of multibillion euro co-op businesses like Kerry and Glanbia, credit union board members are trained in governance policy. Crucially, they bring a local ownership and less profit-driven perspective to an often ruthless business.

Locals own all of the share capital of the business through their deposits in the branch, and dividends are paid out to them on the strength of its performance.

It can sound very quaint, but this type of local co-op is exactly what is keeping many rural regions going while other transient business gravitates to the big urban centres nationally or internationally. Each credit union is locally managed and run, so no diktat from head office is going to decide what direction the local branch takes.

And in an era when bank managers appear to have lost the power to make real decisions, it was heartening to hear local branch managers in Clare tell me the person the customer meets at the branch is more than likely the one that will be the decision maker.

With 3.1 million members in the Republic alone, Ireland has one of the highest levels of credit union membership anywhere in the world, which makes that opening question as to why farmers don't use credit unions all the more perplexing.

The irony deepens when you juxtapose farmers' constant requirement for finance with the credit unions' biggest current challenge: finding a good use for all the money they have on account.

Credit union members are sitting on an eye-watering €16bn of savings, with not much more than 25pc of this being used for lending purposes. Recent studies on the sustainability of credit unions point to the urgent need for these local savings to be used for lending purposes. At the moment, credit unions are being charged by the lovely pillar banks for the privilege of putting members' cash on deposit.

If these local savings co-ops can't reverse the situation and get money back out earning its way in loans, more are going to have to close their doors or merge with their nearest neighbour.

This is why the Cultivate package of farm loans spear-headed by ex-Teagasc Galway CAO Brendan Heneghan is so important. It has resulted in over €3.5m being loaned out to 350 farmers in Galway alone during the first nine months of its existence. The project is now being rolled out in east Clare with plans for Cork and elsewhere.

With an APR of 6.75pc and a limit of up to €50,000, the loans are very competitive compared to the other main banks.

No security is required and decisions on loans are available within three days, which is in stark contrast to the hoops and delays many farmers have experienced when looking for money elsewhere.

But possibly the biggest benefit is the least tangible. By doing business with a credit union, farmers are also investing in the fabric and economic vitality of their locality. It's a grassroots co-op ethos and it's this more than any government plan or subsidy that will keep rural regions strong and thriving into the future.

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