With the demise and learnt unsustainability of many microfinance institutions, Credit Union Associations have every reason to be optimistic about growth opportunities on the market. This optimism can however be converted into concrete achievement if Credit Unions are able to carve a workable customer acquisition strategy and execute flawlessly. Whilst trust among customers, especially those mercilessly affected by recent microfinance failures has waned, Credit Union Associations boost of strong track-record as reliable financial intermediaries and hence sells as a strong alternative.
There is sufficient evidence to show that the Credit Union sector has endured its fair share of industry turbulence in the not-so-long past. The proven financial grounding to withstand the ensued shocks has however earned Credit Unions reputation as well managed financial institutions, an invaluable feat in the financial services industry. Whilst not discounting the fact that what has largely accounted for such shocks in the past has been the peddling of false information by a few diabolic actors for their own selfish interests, the demonstrable financial strength to emerging from such challenging condition is what is reassuring of truly strong institutions.
For many Credit Union Associations, recent barrage of regulation tightening unleashed by Bank of Ghana and geared at ridding the microfinance sector of unscrupulous and incompetent operators has presented a basket of opportunities. The reduced number of microfinance businesses on the market as a result translates into a significant number of floating customers that are in-search of credible and similar financial institutions to engage with. Resultantly, there lies a pool of microfinance customers with unmet needs waiting to be captured and Credit Unions present a suitable alternative. The question is whether Credit Union Associations are well positioned to capitalize on this brewing opportunity.
Within the context of customer confidence in financial institutions, trust is everything and Credit Unions have earned a good dose of it on the market –for customers whose hard-earned deposits have disappeared overnight as a result of collapsed microfinance businesses, TRUST is the most important variable to analyze when considering another financial institution to transact with. And with Credit Unions having little known history of failures, the opportunity to move in and market to the aforementioned floating customers at the back of the earned trust and integrity is a major trump card. Whilst many Credit Union Associations have in the past operated a conservative business model, thus restricting their activities and operations to the town and communities of origin and not pursuing aggressive balance sheet and profitability growth, the emerging opportunities in the industry is driving a shift in the norm. In addition to the above mentioned space created by the demise of many microfinance institutions, Credit Unions are beginning to understand that increasing competition, emerging opportunities and tightening of regulation has rendered growth a necessary pursuit.
INCREASING COMPETITIVE ENVIRONMENT
The growing competition in the financial services industry is being felt in the Credit Union sector as high-level players seeks new territories and markets for growth. With the primary target being the informal and SME sector of the economy, Credit Union Associations have long been contented with the superiority in that terrain. The key contributing factors are two-fold. First, formal and high-level financial institutions have in the past completely ignored the informal and SME sector as a profitable and bankable segment to serve. This was largely due to the perceived high risk of the sector thus posing as a major hindrance to playing on that terrain. This meant that, Credit Union Associations, whose very set-up was geared for the informal sector enjoyed limited competition making it a comfortable and undisturbed space to operate in. Unfortunately, the increasing competition in the formal financial services sector and the resultant squeeze in margin are driving high-level finance houses to explore other growth opportunities hence the venture into the informal and SME sector of the market.
With increasing research concluding on the substantial level of contribution of the informal and SME sector to GDP (over 75%), the opportunity has been assessed to be worth exploring and this has drawn many banks and other finance houses to the space. With these new territorial players employing sophisticated risk management tools and reconfiguring their set-up to also get in and extract profit on the informal sector, Credit Unions are realizing the imperative for growth via aggressive competition. Second, Credit Union Associations were in the past restricted in their operations to the location of origin, thus unable to expand territories for growth purposes. This in essence prevented competition among Credit Unions in their own terrain. This was a form of protection for indigenous Credit Unions perhaps aimed at fostering and sustaining community-based Credit Unions for the guarded benefit of the community. Unfortunately again, that protective cover have long been lifted by the regulator and that has opened the floodgate of competition. Resultantly, many Credit Unions have ventured to other locations to compete-away profit. This has also been a reasonable impetus for Credit Unions to grow in the bid to establish competitive relevance and dominance.
EMERGING OPPORTUNITIES
Emerging profit opportunities has also presented an imperative for Credit Union Associations to grow and take advantage for greater gain and greater good. In addition to the growing informal and SME sector, Credit Unions continue to appeal to much wider audience including the formal sector hence the opportunity to grow clientele base.
The known flexibility of Credit Union operations matched against the increasing rigidity and complexities in dealings of the formal banking sector presents Credit Unions with the opportunity to contest for share of the formal retail banking purse. This new found opportunity is driving meaningful collaborations between Credit Union Associations and top-level finance houses. Such beneficial collaborations are seen in areas such as Cheque clearing, ATMs, Money Transfer services, and other in-the-pipeline partnerships. In this regard, Credit Unions have been strategic in leveraging collaborations to push for growth by riding on the back of relatively highly resourced Commercial Banks, especially in the area of technology.
Another front on which Credit Unions are pushing for growth is in the growing trade finance opportunities driven by the increasing shift to an import-driven economy. Expectedly this is facilitated through partner Commercial Banks on behalf of clients. The growing funding base of Credit Unions via cheap clients’ deposits is driving management decision to seek more aggressive deployment and innovative products in this regard for greater gain. In what would perhaps be considered an unthinkable move a decade ago, Credit Union Associations are venturing onto the bigger stage to pursue corporate businesses. This is in the quest for bigger ticket transactions even as they stand competitive to offer much more flexible terms to woe value-seeking customers. Increasingly, Credit Unions seem to be reinforcing their relevance and have been relentless in that pursuit.
TIGHTER REGULATION
The sweeping wave of regulation tightening in the entire financial services industry is a cause for Credit Unions to seek growth as a preparatory tool to withstand possible future regulatory burden. Increasingly as the Bank of Ghana grows weary of the resilience and solidness of the different sectors in the financial services industry, regulatory powers are invoked to impose new rules and requirements. Whilst this mostly seek to demand more capital buffer to boost the lost absorbing capacity of financial services players, the ultimate goal drives at ridding the system of weaker participants.
With the recent passing of the Credit Union Legislative Instrument (L.I. 2225), it is not premature to conclude that the Credit Union sector is attracting the regulator’s attention. In order to avoid another string of perhaps regulatory failures that occurred in the microfinance sector, Bank of Ghana is known to be flexing its regulatory muscle in the industry. What also holds true is that, smaller players in the industry are often mostly hit with such regulatory burdens to force their retreat and inevitable exit via various options such as merge with others, or be taken over.
The above analysis points to an outturn that is driving growth pursuits among Credit Unions to establish systemic relevance to withstand any future onerous regulatory demands. Whilst a number of Credit Union players are already expanding across home territories, even high growth ambitions are on the trump cards. Engaging some of these Credit Union executives reveals the common theme that these Associations indeed see the decade ahead as the right time to venture out in search of growth opportunities. And mostly not by choice as this argument is driving at.
Mr. Ahmed Mohammed is the Chief Executive Officer of Techiman Area Teachers Co-operative Credit Union in the Brong Ahafo commercial town of Techiman. With over five thousand (5,000) active customer base, the Credit Union has two (2) other Agencies within the Techiman area through which customers are served with various banking products. According to Mr. Mohammed, the Credit Union in its over seventeen (17) years of existence has never looked beyond its current market for growth since the objective has always been to cater strictly for the financial services need of Teachers in the Techiman area. He however intimated that, the increasing competition on the market has forced the management team to start thinking beyond the immediate market for growth opportunities. According to the forward thinking Chief Executive Officer, who took over the management role about seven (7) years ago, he is set to begin the growth phase of the Credit Union and will soon engage relevant experts to chart and present his growth plan to the Board for their approval. He admitted that, seeking growth is increasingly becoming a sustainability issue with the simple understanding that Credit Unions that fail to grow will be forced out of business either by the competition or by major regulatory move (s) geared at driving out weak finance houses with unsustainable balance sheet. Mr. Owusu Ansah is a member of the management team and the board of the here mentioned Credit Union (Techiman Area Teachers Co-operative Credit Union). As the former CEO who handed over the leadership mantle, Mr. Owusu Ansah succeeded in stabilizing the Credit Union and growing its clientele base from the nineteen nineties (90s). According to him, the Credit Union has come a long way to achieve the current sound financial footing and he is confident of the capability to venture out and explore growth opportunities since it is the sure way to stay relevant on the market.
Berekum Area Teachers Co-operative Credit Union is one of the performing Credit Unions in the Brong Ahafo region with equally growth ambitions. With Four (4) branches in the region including the Head Office at Berekum, the Chief Executive Officer, Mr. James Yebedo reiterated the Credit Union’s growth plans aimed at leveraging its position among the top three in the region to grow its clientele base. With current asset size and active clientele of over Twelve Million (GHS12M) Ghana Cedis and Eleven Thousand (11,000) respectively, the Credit Union has indeed come a long way. When he took over as the CEO in 2001, Berekum Area Teachers Credit Union had a customer base of about seven hundred (700) and asset size of about Forty Nine Thousand (GHS49,000) Ghana Cedis. Mr. Yebedo mentioned that despite the feat, there are still unexploited opportunities on its current markets of operation as much as new territories present growth options for the Credit Union. He emphasized that, growth plans are thus to be crafted on two fronts: growing share on existing markets and pursuing new market opportunities. According to the Chief Executive Officer, these growth ambitions will be pursued in a strategic and prudent manner so as not to disturb the sound financial footing it already boosts of. He did also acknowledged that although the recent economic headwinds has slowed growth, the Credit Union is positioning itself as a strategy to capture growth opportunities once the country recovers from the economic shocks it is currently enduring.
Mr. Prosper Aforbu is the Chief Executive Officer of Abosomankotere Credit Union, a leading Credit Union house with asset base of over Nineteen Million (GHS19M) Ghana Cedis as at the end of the 2014/2015 financial year. According to Mr. Aforbu, Abosomankotere Credit Union has been recording unprecedented growth in profitability over the years with the 2014/2015 banking year producing a particularly pleasing growth rate of over 85%. According to the Chief Executive Officer, the growth possibilities are enormous which is largely being enhanced by the strong Abosomankotere brand in the region.
Abosomankotere aims to be a pace-setter in the Credit Union sector. According to Mr. Aforbu, the Credit Union is charting ambitious growth plan to establish a strong and growing Credit Union with national dominance. He indicated that the Credit Union is optimistic about its growth capabilities in the future which he admitted can only be realized with clear strategy in place. Mr. Aforbu further mentioned that Abosomankotere’s current growth goals include deepening footprint on present markets as well as seizing new market opportunities all in the bid to becoming a strong and sound financial hub for members and potential members. He hinted on the Credit Union’s plans to introduced value-adding products that will seek to target identified niche segment of the market as a growth driver. When asked if Abosomankotere will consider acquisition or takeover as a growth strategy should that be permitted by the regulator in the future, Mr. Aforbu indicated that although that is not something that the management and board are currently thinking about, nothing is off the table in its continuous search for more strategic and practicable growth options.
For many Credit Union CEOs, short to medium term growth opportunities lie in consumer, small business and trade finance. Households are increasingly seeking lifestyle financing especially the growing middle class and with the right positioning, Credit Unions can tap into that market. However, it is important to acknowledge that the growing sophistication of customers equally drives product and services features that best meets identified need. Ability to seize these market opportunities also depends on understanding evolving customer need to inform appropriate and innovative offering.
The increasing surge in small businesses and SMEs is proving to be a promising area where Credit Unions can focus for impact. With this sector contributing over 75% to GDP, the funding opportunities are enormous. What makes this potential worthwhile to consolidate especially in non-urban locations is that, the very set-up of Credit Unions which is geared for the informal sector with the accompanying operational flexibility particularly appeals to SMEs. Arguably, Credit Unions are better placed to understand SME businesses and are able to manage the associated risk.
The declining agriculture and manufacturing sectors of the economy is driving the increase in imports as a convenient substitute. At the back of strategic partnerships with Commercial Banks, Credit Unions are able to tap into and provide Trade Finance services to its clientele who are up-scaling to take advantage of the increasing import-dependent economy of Ghana. Whilst this presents a win-win situation for the Credit Unions and Commercial Banks, the opportunity to build competence and capability in Trade Finance is what should be the medium to long term strategic objective.
Growth has indeed become an issue of necessity. For Credit Unions, failure to seize opportunities over the decade can no more persist. Even as industry and sector consolidation lingers somewhere in the regulator’s thinking, proactive Credit Union Associations can visualize the distant implications and are strategizing accordingly.
Author: Ellah Makuba
Banking Professional with Over 5 years banking experience with particular interest in strategy work.
EMAIL: emakuba@yahoo.com
CONTACT : 0277324258
