UNITED NA170NS
ECONOMIC AND
SOCIAL COUNCIL
Distr.
LIMITED
E/CN*14/H0U/23
6 November 1968 Original: ENGLISH
ECONOMIC COMMISSION FOR AFRICA
AHD GERMAN FOUNDATION FOR DEVELOPING COUNTRIES Meeting on Technical and Social Problems
of Urbanization
(with Emphasis on Financing of Housing) Addis Ababa, 8-23 January 1969
CREDIT UNIONS: A BASIS FOR OBTAINING FUNDS FOR HOUSING
M68-1592
CREDIT UNIONS: A BASIS FOR OBTAINING FUNDS FOR HOUSING
TABLE OF CONTENTS
Paragraphs
The need for mobilizing local capital 1 Mobilizing local capital through credit unions ... 6*
Credit unions in Africa and Latin America... 10 Africa Savings and Credit Association - 5-year
plan for development 14
Credit unions and the mortgage market. 16
Basis uf credit unions 19
Details of mortgage loans from credit unions*••••• 23 Why do credit unions make mortgage loans-. 24
Mortgage loans at national, regional and
ice hi level,«...:...!,;:.... 29
Credit un.,vne in rural areas • ••♦•• 30 Small loans and small down payments. • 32 Liquidity of funds and stability of credit
unions in making mortgage loans... 34
■E/CN*14/H0U/23
CREDIT UNIONS? A BASIS FOR OBTAINING FUNDS FOR
The need for mobilizing local capital
1. There is an urgent need in Africa for the mobilization of internal capital, which will help solve some of the difficulties and problems attending the new nations. There is also an absence of a well conceived, widespread, soundly directed, and effective system of thrift and credit.
2. The situation with regard to the countries of Africa affected is largely conditioned by the assumption of full responsibility for the management of their own affairs, and the necessity for providing and managing their capital assets to increase production
for development and improvement of their, standard of living and
way of life.
3» The internal mobilization of capital has to b© accomplished
by first using small sums on a broad base, and one good way in whichthis is economically feasible is through credit unions, wher© the
self-help aspect takes care of the administrative post of the operation. Such administrative cost is otherwise prohibitive or economically impractical.4« The African people, as well as their governments, recognize
the need for increasing productive potential through capital invest ment, but in no case has anticipated external investment on suitable
terms reached expectations, with the result that the people have to rely on their own local saving and investment efforts.5* Very often there exists among these people individual 3avingss
usually relatively small sums, which have never been mobilised, Larger sums are converted into oaxtle or jewelry, or if not, are buried or stored in some hiding places. These savings remainisolated and cannot in their immobilized state do anything to assist
production or development. These people have not been., able toorganize to meet the problem of usury through co-operatives, although the existence of co-operatives could be the effective means for
mobilizing the existing savings of the small sums they are able to aooumulat6.
y Prepared by Mr, Walter Polner, Director of Research and
on- behalf of CUNA International, Incorporated, Madison,Wisconsin. The views expressed are not necessarily those of the secretariat of the Commission.
E/CK,14/HCU/23
Page 2
Mobilizing local oapital through credit unions
6. The great need therefore ie to teach these people how to mobi
lize their savings, and "build the, pool of funds from which oredit oan be made available. Wherever credit unions have been introduced, they have prbven to be highly effective in providing:1. The means.to combat usury.
' 2« A'simple yet effective method for accumulating savings.
3. Extending loans at reasonable rates of interest.
4- Developing among the masses of the people the ability to oontrol their own financial' resources,
5- Developing an appreciation of the principles of self-help and the manner in which it oan be applied to the solution of sooial and economic problams.
7* . Credit unions unite not only the funds but the efforts and
the knowledge of the group who share this common need for accumulat
ing savings and fcr providing a .source of. credit. It also fosters among them oo—operative action - the means by which people get together and work together towards the solution of one ,of the ohief problems affecting developing communities, the satisfaction of basic human needs through self-help,8# In uniting.efforts towards the solution of their problems
through credit.unions, each individual,in the group participates in the total activity, financial and educational, which causes the group to improve and develop.
9« Credit unions therefore develop skills, understanding, and attitudes through a programme of education of adults in savings, to provide, oapital to help solve the problems of production, and also develop these same qualities with respect to the creation of small business enterprises leading to an increase in en.trepreneursb.ip in their communities and eventually to greater economic achieve
ment in .their countries,
Credit unions: in Africa and Latin America
10. As of 31"Dtjr32ibrr 1968, it is estimated that there were 40 oredit unions in Ghana, 70 in Kanya, 40 in Lesotho, 2 in Malawi, 2 in Mauritius,- 27000 in Nigeria; 30 in Rhodesia, 31 in Uganda, 2 in Liberia, 2 in Ethiopia and 4 in Zambia, 6 iu Botswana. However, in Tanzania where CUHA has beerr able to provide credit union
specialists, 200 credit unionc with a total membership of 25,000 and savings of $450,000 wars developed within a four year period.
11. As an example of what can "be achieved, we cite the example of Latin America where CUNA World Extension activities began in
E/CN.14/H0U/23
Page 3
and since 1962 CUNA, in oo-operation with AID, has promoted teonioal assistance to credit union development in twelve Latin American oountries.
12. Under the leadership of CUNA technicians, credit unions have increased in these twelve countries of Latin America from 432 in September 1962 to over 2,500 by December 1967, with over 600
additional groups awaiting charters; members increased from 124,000 to 650,OOOj savings of members from $4.2 million to $51,000,000;
and loans outstanding to members from $4,0 million to $52,000,000.
Cumulative loans totaled $135>0OO,0O0. Loans are made for some 25 different purposes covering personal or consumer loans, farm production loans, self-help housing loans, and loans to start small business enterprises.
13* We are oonvinced that what has been achieved in Latin America oan also be achieved in Africa provided the credit union technicians are made available to the African countries as was the case in Latin America. Our conviction is based on these facts, from African
o«untries. For example, as at 31'EecembST I967 the 2,000 credit unions number 70,000 members with a share capital of £356,000 and
deposits of £.700,000, and the 170 credit unions of Tanzania number more than 23j000 members with an approximate share capital of about
£130,000.
Africa Savings and Credit Association - 5-year plan for development 14* Following upon six years of participation with governments and leaders of the co-operative savings and credit movement in Afrioa, at the Sixth Conference on Mobilization of Local Savings held in Lesotho in January, (UNA International was asked together with the Tanzania League of Credit Unions to convene a meeting in order to organize an Africa Co-operative Savings and Credit Associa tion. This Conference took place in Nairobi from 13 to 16 September 1968. Fifteen African countries and twelve international agencies were represented- The delegates approved a constitution and by-laws launching the African Co-operative Savings and Credit Association
(ACOSCA) and planned a 5 year Development Programme. Details are
available and will be published in collaboration with the United Nations Economic Commission for Afrioa.
15« The Association should provide a means whereby the available knowledge, experience and financial resouroea oan be pooled and
Page 4
thereby^accelerate the development of credit unions in African
countries on a sound basis. The movement is in different stages of development in the various countries of Africa and this
Association will provide an institutional framework, to interchange views, experiences and knowledge, and to make the best available use
of the leadership potential which is available. This should-resuli)
in, the sound and stable development of credit unions throughoutall Africa- - :■ . . :
.Credit unions and the mortgage market
16. Credit unions have played a significant role in the real estate market in Canada over the past few decades, (Tafele i) but have not played a significant role in the real estate market in the United
States (Table.Il)\ At the present time it is estimated that credit
unions do, not hold more ,than. iJ9QO million in one-to-four-family mortgage loans. However, the credit union movement is one of the finest vehicles, for .obtaining funds for, housing loans. This is
particularly true, bas^ed^qn thp experience In Canada. #17f. * The ..credit, union movement may have a large pool of equity avail able for loans to'their members in-the United States and Canada.
If the mombers desire to obtain mortgage loans, the credit union movement is uniquely establinhed for this purpose.
t8'. Credit unions provide service-3 neodsd by their members. 1+ is up t,o . the member.. . .At-tho present, time in Africa we face a situation .where..'the credit unions are just starting Their'ability to provide ..funds for housing- at present .ar^ limited. However, these .funds
may be obtained,in .th* future, The experience ..that we have had in the .United States, Canada'and in Latin America ..provides us with ''some ..indication of what can be done, if the .members .so desire. If ,the 'members do..""'not want mortga^s .loans, the credit -unions will
'provide - them 'with 'other types of loanfi. If. the members want housing Sloans",, the credit unions, will^ seek to satisfy their members1 needs.
, The ■ experience that, we' have had in or,her .countries will .allow the credit unions...in-Africa,+.q.view and decide .on the approaches that
oan be taken* ■-. - ...-....■
Basis of..
1Q. Credit unions are associations of people, united by some common
bond, who have organized under ?aw so that they oan colleotively
CANADA
Table I / Tableau I
MORTGAGE LOANS OUTSTANDING IH CAHADA BT TYPE OF LENDER 1945 - 1965/
: PRETS HYPOTEECAIRES HON REMBOURSES, PAR CATEGORIE DE PRETEUR 1945 -
. 14/HOU/2:
4,000
3,000
2,000
1,000
.XX
4^"X " ~ X
^X-2 - Trust Co'b
£ ._ ,3 - Mortgage L ... Z 6 - Credit Uni
1
f T
— —i
— ~ —P-m-t1—-p-f
L945 1
I I I ' I ''| 1 N | |'| I 1 | I ' 1 1—i 1 1 : 1 1 1 i|
__X X .._
_ 4. 4. ^ _""::::::
. .
x_ „ -. _.
i r x _„
Banks / Banquea a oharte / Trusts Cies.
aan Co'b. / St^s prSte hypothe'caireB snce Co's./ CieB d'assuranoes sur la i LngB Bank / Bantpie d'^pargne de Qu^Tae ma / Unions de credits
27
X X
._, j , __s_*i
^ .=_i-:___^_.
i-T-^?i?--, ,*
'50 195f
1—j-
ri
' '
y f
- t
(
-
- 1
--
-
1
pjlifli! I 1 HI Hi
::::: . _y— -
'(- 7
f
^
2
IE
^
7 7
?__i 1—1_ „
= "--:^f:^ J
[ r€. - - -4 =-_„-___
-w. _ -^i__
X_._._„.. — -= = j:^__
960 SOURCE : Bank of Canada Statistical Summary 1962 - 1965 & CUBA
SOURCE : Bank of Canada Statistical Summary 1962 - 1965 & CUNA
066-633
/MOD
»
096T £961 woq
moh t«i«p«i j
maiHooaiVo wra
ssoooihotkoh
ssdwsii- KUTdHOHIIDP S3M0H -
3H1
E/CN.14/H0U/23
Page T
and by co-operative endeavour achieve the following purposes:
1) To teaoh and encourage the habit of thrift: To provide a safe and convenient medium that will persuade members to save towards satisfaction of their needs and receive a fair return on their savings.
2) To help members better manage their own finances, and
constantly encourage them to live within their means.
3) To establish credit for and lend money to members for provident and productive purposes at a reasonable rate of
interest.
20. What are "provident and productive" loans? In the United States and Canada credit unions have concentrated primarily in the area
of consumer credit. In the Province of Quebec, however, the concentration has been primarily, and until quite recently, in mortgage
loans. The history in Canada shows that the credit unions mayadapt themselves to any type of productive and provident loan that the members desire. In Quebec, due to a lack of mortgage facilities available to the French Canadians, the oaisses populaires started
to provide mortgage loans. As other lending institutions arosein Quebec, there was a shift in recentyears to more and more of consumer type loans. It was the members who made the decision.
21. Loans are made to members for provident and productive purposes
at an interest rate established by law. In the United States and Canada this rate has been a maximum of 1 per cent on the unpaid
balance per month.
22. Borrowing from a credit union is made as simple as possible.
The member usually fills out a brief application stating how much he wants, what the money is to be used forand how the wishes to rrrepay. The application is then aoted on by the credit committee
and if acceptable, is forwarded to the treasurer. The treasurerthen draws up a promissary note. The member signs the note and
is issued a cheok.
Details of mortgage loans from credit unions
23. In the United States, certain trends are apparent. We have data
in the United States on real estate loans (Table III). While the act which allows federal credit unions to operate is silent on the point of mortgage loans, data has been provided by the Bureau of Federal Credit Unions concerning the amount of real estate loans presently being made by a sample of federal credit unions. This
shows that less than 1 per cent of the total loans were for real
estate. These data substantiate the point that federal credit
TableIII/TableauIII DISTRIBUTIONOPAMOUNTOFREALESTATELOANSHELDBTCREDITUNIONS*ASOFDECEMBER31,1965/ REPARTITIONDUKONTANTDEPRETSIMMOBILIERSDETENUSPARLESUNIONSDECREDIT*AU31DECEMBRE1965 $10,000 Or Ou Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware D.C. Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada NewHampshire NewJersey NewMexico NewYork NorthCarolina NorthDakota
less/ moins 40.63% 31.25 38.46 51.73 37.08 - 57.14 - - 43.75 39.54 48.00 68.89 - 37.31 9.21 35.44 23.07 33.33 48.78 69.24 12.25 29.70 22.23 40.74 24.79 46.88 51.28 29.17 38.46 55.00 41.38 47.19 46.30 44.74
$10,001- 20,000 - 12.50% 11.54 31.04 10.89 10.00 12.25 100.00 - 14.06 9.30 16.00 13.33 - 10.45 18.42 12.66 7.69 11.77 17.07 7.69 6.80 10.90 8.08 14.82 4.96 15.63 10.26 8.33 23.08 17.50 13.79 22.47 11.11 15.79
$20,001- 30,000 - 6.25% 7.69 3.45 8.50 10.00 6.12 — - 7.81 4.65 10.67 6.68 100.00 7.46 7.90 10.13 7.69 13.73 7.32 - 6.80 9.09 9.09 3.70 9.09 18.73 7.69 4.17 - 7.50 20.68 7.87 12.96 10.53
$30,001- 40,000 6.25% - 3.85 6.88 7.48 10.00 — — 3.13 4.65 5.33 2.22 -. 5.97 6.58 3.80 15.39 3.92 9.75 7.69 3.40 6.06 7.07 - 6.61 3.13 - 12.50 - - 6.90 5.62 3.70 5.26
$40,001- 50,000 3.13% 12.50 7.69 — 2.72 — 6.12 — — 4.69 6.98 4.00 2.22 - 1.49 6.58 6.33 7.69 5.88 2.44 - 4.76 7.27 3.03 7.41 9.92 6.25 _ — 7.69 5.00 - 2.24 3.70 5.26
$50,001- 75,000 18.75% 6.25 7..69 3.45 6.46 _ 2.04 - 100.00 6.25 6.98 4.00 2.22 _ 11.94 10.53 8.86 .3.85 5.88 2.44 - 4.76 9.70 3.03 7.41 8.27 6.25 2.57 8.33 - 7.50 3.45 6.74 11.11 5.26
$75,001- 100,000 3.13% 6.25 3.85 — 6.46 5.00 4.08 — - - 4.65 5.33 - _ 4.48 6.58 - 7.69 5.88 2.44 - 7.48 4.85 4.04 7.41 5.79 3.13 2.57 4.17 - - 3.45 1.12 1,85
$100,001- 250,000 3.13% 25.00 3.85 - 9.86 20.00 10.21 _ - 7.81 4.65 6.67 2.22 - 10.45 22.37 13.93 15.39 13.73 7.32 7.69 12.25 12.73 20.20 7.41 13.22 - 10.26 8.33 15.39 5.00 - 2.24 5.57 2.64
$250 500, 15. 7. 3. 5. 10. 2. 7. 9. 8. 9. 7. 3. 7. 12. 3. 10. 7. 10, 20. 7. 2. 6. 3, 1, 5-
,001- 000& 63% 69 45 10 00 04 81 30 96 21 58 85 69 25 ,03 ,10 ,43 ,26 .83 .69 .50 .90 .39 .85 .26
$500,001 Over 9.35% _ 7.69 _ 5.45 35.00 - - 4.69 9.30 - 2.22 - 1.49 2.62 1.27 7.69 5.88 2.44 - 29.25 6.67 13.13 11.10 9.92 - 5.11 4.17 7.69 - 3.45 1.12 1.85 5.26
Total 100.00% 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
1 o 1 o * <,' \ ro
TableIIIa/TableauIIIa DISTRIBUTIONOFAMOUNTOFREALESTATELOANSHELDBYCREDITUNIONS*ASOFDECEMBER31,1965/ REPARTITIONDUMONTANTDEPRETSIMMOBILIERSDETENUSPARLESUNIONSDECREDIT*AU31DECEMBRE1965 $10,000 Orless/ Oumoins Ohio Oklahoma Oregon Pennsylvania PuertoRico RhodeIsland SouthCarolina SouthDakota Tennessee Texas Utah Vermont Vriginia Washington WestVirginia Wisconsin Wyoming TOTAL
34.58% 56.25 42.11 71.09 45.24 13.51 44.00 61.91 26.47 42.78 36.67 47.62 54.55 30.77 40.75 12.16 70.00 37.43%
$10,001- 20,000 12.15% 9.35 15.79 10.90 14.29 5.41 16.00 14.29 12.75 14.44 11.67 19.05 18.18 9.23 14.82 3.87 10.00 11.75%
$20,001- 30,000 5.61% 18.75 7.89 3.32 4.76 5.41 8.00 19.05 12.75 7.49 11.67 9.52 - 9.23 7.41 4.42 — 7.93% *Basedoncreditunionsreportingfor1$66 isavailable *D'apresles lenombrede
fromCUNAResearch. rapports ceuxquidesunions ontfait
$30,001- 40,000 10.28% 3.13 2.63 2.84 9.52 — — - 3.92 4.28 5.00 9.52 3.03 6.15 14.82 2.21 10.00 5.05%
$40,001- 50,000 - 3.13% 5.26 1.42 4.76 - 8.00 4.75 8.82 1.61 3.33 - 9.09 7.69 7.41 1.66 — 4.04% CUNAYearbook.On Dept.MadisonWisconsin decredit
$50,001- 75,000 5.61% — 2.63 2.84 2.38 — 12.00 _ 6.86 4.81 5.00 4.77 3.03 9.23 _ 10.50 10.00 6.16%
$75,001- 100,000 5.61% 3.13 2.63 1.91 4.76 2.70 — _ 7.84 6.42 8.33 9.52 3.03 4.62 3.70 4.97 — 4.39% requestthenumber pour1'AnnuaireCUNAde1966 rapportdanschaquecate"gorie,Onpeut
$100,001- 250,000 14.94% - 10.54 5.21 7.15 27.04 8.00 — 4.90 8.54 10.00 - 3.03 9.23 7.41 27.63 - 10.48% reportingj
$250,001-$500,001 500,000 5.61% 3.13 2.63 - 4.76 16.22 — — 9.80 5.35 3.33 — 3.03 1.54 3.70 9.95 — 5.56%
&Over 5.61% 3.13 7.89 .47 2.38 29.71 4.00 - 5.89 4.28 5.00 — 3.03 12.31 - 22.63 — 7.21% Lneachcategory seprocurersurdemande aupresduCUNAResearchDpt.,,Madison,Wisconsin.
Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
.00% .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00 .00%
11 [_ 1 * ■fc. 0 G r\j
E/CN.H/hOJ/23
Pago 10
unions have found a method of providing real estate loans not withstanding the lack of a specific provision in the law for such loans. The normal estiuate mad© by moat studies in the United States is that roughly 5 P©r cent of the loans outstanding of federal credit unions already are for the purchase or lease of real estate. Since there has been a large increase in the amount of loans outstanding by federal credit unions, this means that approximately $200, to $300 million worth of federal credit union loans are for real estate. While the bulk of the federal credit union loans are for such items as consolidation of debts, autos
and personal uses, estimates made by CUNA show that the credit
unions have approximately i/30 of 1 per cent of the one-to-four-
family home mortgage market.
Why do credit unions make mortgage loans?
24* The type of procedures for real estate loans in the U.S. may be of interest to African governments anderedit unions- Even though the law allows certain state chartered oredit unions to provide real estate loans, why should this be done in face of the intense competition from other institutions such as insurance companies, savings and loan associations, mutual savings banks and oommerioal banks?
25. The answer involves the explanation of the credit union data on real estate loans and is a combination of the following factors'
1) Credit unions wish to serve their members* In some local
situations the members' demand for consumer credit is
limited. Therefore, in order to lend the money, these oredit unions make certain types of real estate loans. This is particularly true for credit unions which have a high peroentate of older members who are not interested in consumer loans. For instance, a large state chartered - teaohers credit union in Michigan has provided substantial mortgage loans to their members. Teaohers and other groups may oharaoteristioally show special interest in mortgage loans, as compared to other provident and productive purposes.
2) At the same time, credit unions recognize that the return on
mortgage loans is not as high as the return on other types of loans. A credit union that wishes to maximize its returns would rather lend for an automobile or for conso lidation of debt. If the demand for suoh loans is not existent, it is better to place the funds out in mortgage loans than to invest in government securities or shares of other financial institutions. The marginal return to the credit union is higher. The credit union was established to
Page"11
"v- '-. serve members, not to be a conduit through which funds will
„ . flow from the member to some other financial institution.
Therefore, the credit union oan make mortgage loans if the alternative is more costly. Realistically, credit unions in Africa have a situation that must be.faced.
Financial institutions attempt to maximize returns, African credit unions, as well as United States credit unions, oan maximize returns by giving personal or consumer loans.
However, it has been found that ored.it unions which are . able to attract large funds are willing to lend at rates
lower than would be received for oon&u'mer .loans. The marginal return for the credit union would be greater than . _ _■ to have invested in government securities. This,,'type of
economic reality should be faced by any iristitution^that ... is attempting to enter the housing market., whan th^r-e are ,t . .- . ^higher returns available. 'However, since the credit union
is based on servioe to it3 members, this must he . . . determined by the members. In many oases, this is. a .. determination made on the basis of the greatest need*
. . Many o-redit union members may be willing to aoce.pt .lower
;. ■■ dividends in- order to own their houses.' .
„- ^3) The local market may reveal that other financial, institu-
. tions are. not making loans in certain areas. As. an example, , . credit unions in the Unitsd States are frequently found in
- ... industry. In Canada, the caisse populaires are 'based, in the community,, The banking system in Canada ia one 'with a small number of large banks, having a great number of branches. The determination "of how mortgage funds may, flow is not made at. the local level} but at the banks' :. , central headquarters. In Canada, the banks, have not' been , ., - . willing to make these loans in certain areas of the. Province ,. .i;. ■■ of Quebec. Into thi:s vaouum has come the credit union.
. ... movement. The same thing is true in the United States.
. . Many of the small industries are not in large urbah areas.
. _ ,The bank or sayings and loan association in these 'small towns may not be as liberal in lending as are credit unions.
Credit unions may be willing to provide, mortgag-e lo-ansto
members while local institutions suf-h as "banks may not lie
willing, or will only provide a very limited amount of funds .o.ver a,short term for this purpose* ■ ' :<i": "■26* In the United States and Canada commercial banks have not been
quick to enter the mortgage marketc In Canada the prime lender has been the life insurance companies* In the United States it has been the savings and loan associations. Credit unions also provide a vehicle in Canada. There is something the African creditE/CN.14/HOJ/23
Page 12
unions should study carefully The credit unions have teen able to attract a good deal of the small savings of individuals, and mould them into funds that are large enough to make mortgage loans.
27* The credit union is based on a local group: the community in Quebec; industry in the U.S. For this reason there have been different types of lending patterns. In the United States there were institutions willing to provide mortgage loans. In Canada, this was not the case. In the United States, there was federal legislation that allowed various financial institutions to enter the mortgage market uith federal government guarantees beginning in the 1930*a. In spite-of this, the credit union, by drawing together the funds of the local community, provide housing needs for the local community if members desire. There are local areas where there are small banks in the United States that are more interested in financing commerce, industry and agriculture than they are in providing mortgage loans. The savings and loan associations in the United Sanies may be concentrated in large urban areas and may not be willing to do business in small towns, This seems to be true for financial institutions in the developing oountries in Africa. The hasis for the growth of credit unions in Africa, will be the local community. They will be able to attract funds and maintain them, If the local community desires to have mortgage loans, these funds will be used for that purpose.
The credit union in the United States and Canada has discovered that by mobilizing savings they have been able to build up avails able liquid funds for either mortgage loans or consumer loans.
28. In Latin America one of the problems facing many oredit union
members has been the needfor mortgage loans. A recent study in Honduras has shown that residential mortgage loans can be provided
after a period of time, It "would be erroneous to state that this
can be done immediately. It will take time for the credit unions to attract funds large enough from the local community to satisfy the needs either in mortgage loans or consumer loans. No voluntary
institution can tell the members how they should use these funds*.Mortgage loans at national) regional and .local level.
29* The credit union can be so organized that if the members want
mortgage loans, it can make these Ioan3 at a local level, a regional
level and perhaps even a national level, viz:-l) Convenience is always the factor. To repeat, the credit
union aims to be of service to the members* It is not the credit union executive that determines what the services should be; it is the members that direct the credit union as to what they desire, provided it is within the law.
If members desire real estate loans, then the credit union will provide such loans.
E/CN.14/H0U/23
':■ 2) Mortgage loan costs at the Credit union may be less than
.-.. : .; charged by other lenders. It is generally known that .. . ■ -credit; unions do. not add-any extra.:charges for making real
■ estate loans,, although, other financial institutions may-—
do so. Rates of interest are me of the reasons why the credit unions are asked inoreasingly to provide this type . ■: of services to members. If the local interest rates and t"-1 . the various extra charges, are excessive, the credit union
' may feel obligated to provide this type of mortgage service.
.;-;•"■ 3) There is a theory on the part of credit union management
■!-. that if a credit union makes larger loans, it costs less to make. Many believe that mortgage loans create fewer problems in collection, and also less cost in obtaining information on the borrower. This provides an incentive for credit union managers to make real estate loans since it will cut overhead.costs. In the United States the credit union has members with verystable employment, such as
. .. government employees. If this is the case, the making of . .. mortgage loana to African government servants by credit
unions is quite praoticol. Stable employment produces
a high degree of liquidity within the' credit union movement.
If the African countries are interested in credit unions funds for mortgages, they should recognize that they can assist a continuing stable basis for the credit union - movement in the region or in the country- Normally this
stable basis would be the government service, either at the national cr regional level. Savings attracted from
' employees of government and other institutions that will not go out of business due to economic conditions will provide ,a reservoir of funds for mortgages*/ While the employees of government in the emerging countries in Africa may not obtain very high wages, there are enough of these savings so that a pool of funds can be collected through . the credit unions. This is the one advantage that the
credit unions have. The are at the local- Level and have contact wi\,h local conditions and people.
4) Credit unions can be interested in specific: types of real
estaxe loans. In the United States, in one-rto-four-family ' homes, and it has-been that growing affluence now calls
for second homes in resort areas. With the growth of our new highway system, it was very convenient for urban - families to commute. In Wisconsin and Minnesota, for
example, it has been extremely difficult to obtain first mortgages on resoxii-^ir~vuo«rfclon, homes. -Savings and loan
Page 14
associations have been reluotant in the past to go outside
of the urban areas- Credit unions may fill this vacuum.In Africa, credit unions could provide mortgage loans for those wanting to build in their home towns, and there
are many wishing to do this.In-Latin America, the basic need is just plain good housing.
In the Honduras economy, for instance, a housing unit costs
approximately $6OO(U.S.). This meant that the type of housing was good by the standards of the local area. The credit unions were able to obtain good architectural structures. They could also promote mass purchases of certain types of materials. This low-cost programme has not been attempted by other institutions. By knowing the local standards, the credit union has been able to attract local funds and place these funds in mortgage loans. This is the rationale for the caisse populaires in the Province of Quebec. This can be the rationale for African institu
tions attracting funds for low-cost housing. It can be
taokled energetically and systematically.Credit unions in rural areas
30. Credit unions in seme rural areas often wish to make loans available in order to aid the young farmer. These loans would be
to purchase land or leasa additional land which is often necessaryif the farmer is to keep pace with changes in the agricultural economy. The young farmer may be able to pay off the loan in ten or fifteen years. Local banks may be reluctant to enter this type of transaction.• The insurance companies are also reluctant to make loans for such short periods of time. The Federal Lan Banks in
the United States may require a sizeable down payment.31. Things are changing in agriculture. As an example, in certain rural areas of the middle west states of the U.S.A., some credit unions are making crop term loans (nine monthe duration). In 1966
the Kansas credit unions reported over $6 million outstanding in real estate loans. The bulk of these loans were in farm areas.
Therefore, we must be quite careful to differentiate between the urban situation and the rural situation. In the rural situation, housing is a part of the productive unit which is the farm. The
same thing is true in the emerging countries in Africa. As far
as housing is concerned, the rural problems may be entirely
different from the urban.land problems. Both of these problems
may be met by the financial institution of the credit union. The
ke^r remains the local situation. This is where the basis of the
type of credit union movement must be found.Small loans and small down payment a
■■"■l 32-' Another reason making credit union'loans attractive is .£he low down payment. The credit union hab direct .contact with .the'local situation,knows the people and their circumstance^.;,. . The down
payment can "be determined through knowledge of the individual*Part of the pro Diem of dealing with other lending institutions is the necessity of furnishing a large down: payiuent? so the member
■ -turnff to the' credit'union. The credit union has a^ greater ■
'" :itoowledge of its members, and this has made the down payment's, al-
■^ th»ugh-low, yeV realistio and sound, '. ' "' " . t., 33* Some real estate loans by credit unions are for relatively small amounts of money? In such instances, oredit_unions probably
"" :■■':t:Sxe'mo-re effective than other financial institutions... IJhe'dredit
•■'union Handles small real estate loans as it. would handle .qt^er
■■'■-'loans based on collateral. Many credit-uni6ns are in real estate -1,-loans simply because other financial institutions' in the pasi
have not been interested in making real estate loans for sums of
! ' mone^"as'l6w as :>300, #400,. 500, or ,600, ^nd^ this applies'.in
Afi ' Tri H 6
■ ■»*■
^ , ,. 5, , ^^ i applies.in
Africa. ' Tri Honduras, a :.?6OC mortgage loan can be, repaid over a
^period of a decade. This would not place too much' burden on .the
;f "fiotiseholder and still provide good housing,. ,'. ,. ,^ ." ,1
""l? -IH-qiuldity of funds and stability of credit unions in making '.
"'*'r ' Mortgage loans ' ■. " [ ■ _ - 34!« Mortgage loans in the United States and Canada is ^he, result of a high degree of liquidity. However, this liquidity does not yet exist in other countries* This .is particularly true in ,.
^'developingcountries. Half of all of the assets oame into "the credit union movement in the last decade. Caisse populair^a. in
Canada struggled to place these fund* in mortgage loans so that■'their members oould have decent housing, and this is a, decision that "each institution nmst faoa. How much eaprifice should be obhsidfcred necessary in order to have housing over a period of t'in»? In Quetieo, the cai.sse populaire members were wiping .to make''the effort continuously for thr.ae or four decades. It is h&dessary to attract; these funds on a systsmatio basis, hut. the erid result may be a fairly large mortgage portfolio. Whether,
present and future oredit unions in countries in Africa are willing to do so is a challenge they must face and make their decision.
351.'In the United States; and'Canada the problem of real estate loans now relates only to a minority. Many years' ago it was quite difficult for some immigrant groups to obtain mortgages from looal finanoial1 institutions^ This is one of the reasons why they
organized credit unions, which would provide them with these
Page 16
services. Therefore, a large body of mortgage loans was built up simply because there were actually no alternatives to the credit unions. In developing countries, this may also be the reason
why the credit unions with their local roots may be able to attract funds and make mortgage loans.
36. The reasons why an individual credit union goes into mortgage
loans will be a combination of many factors. Each credit union is based on the concept that it should provide the services needed by the members. Generally, the funds are available only if the members are willing to save. I+ does not take a great deal of savings, but the systematic saving of small amounts.37* One problem is the demand quality of the credit union's capital.
All shares are provided by the membership* They may be withdrawn on notice. Therefore, a question may arise as to whether or not the credit union can commit long term funds with short term capital.
38« This is a problem that faces any financial institution. It is
true that the shares of credit unions may be withdrawn during a crisis, so may the shares of a savings and loan association, a thrift and credit association, or a bank. The demand deposits of a commercial bank are no less volatile than the shares of a credit union. To suggest that a credit union would be in a more vulner
able position with respect to withdrawal of funds begs the question as to whether any financial institution that has demand deposits may provide long term loans. A sufficient reserve must be built
up to cope with any sudden withdrawal of deposits.
39* The main institution in the United States providing long term capital has been the commercial bank. Banks have been providing ..long term investment credits to industry and agriculture since the
beginning of the industrial era in the United States^ No "bank with demand deposits would commit itself to long term investments without understanding the flow of their funds- Similarly, no credit union would commit its funds heavily on a long *erm basis without first obtaining knowledge about the inflow of its savings* A credit union having a stable employment bond such as government employment may feel that it can provide these funds to members up
to a certain amount. . ■
40. We should always remember the words of the great leader of India, Mahatma Gandhi: "There go my,people, I must hurry and oatoh up with them, for I am their leader." The credit union movement, like all other financial institutions; must be contemporary if it
■ wishes to grow. The credit union movement for the past deoade has
been a growth industry in the United States and Canada and in'
Latin America. It will continue to be a growth industry aa long as it meets the demands of its changing membership, and the same can apply in African countries*
E/CN.14/aOU/£3
Page 17
41. Based on their history, credit unions oan be institutions to be utilized to gather together the small savings at tiie local
, level and provide mortgage loans at the local, regional and national
! level. This oan not be done quickly or without a good deal of
work* The credit union is an institution rooted at the local level;
« as such they will meet the needs of individuals at the local level.
The question arises as to whether or not the individual members wish to have better housing. The credit union is a vehicle proven over time that it oan take the savings from many individuals and oollect these funds to provide needed mortgage loans on a mutual basis*
42. Credit unions believe that the local institutions oan provide a better service than other financial institutions. There is no valid reason why credit unions should not be allowed to oollect the savings from individuals and place them in mortgage loans.
If other financial institutions oan show to the credit unions that their type of mortgage lending is better, then credit unions cer tainly will not be able to win over the savings of members. But credit union members have shown that mortgage funds oan be raised, provided that there is a willingness on the part of the individuals to work for the betterment of themselves and their fellow men
through the mutual benefits provided by a credit union.
