GLASGOW, Scotland–Credit unions globally have the means to address financial inclusion around the world, improving the lives of countless people, according to one NCUA board member who shared his message with an international audience here.
NCUA Board Member Rodney Hood told the World Council’s World Credit Union Conference that credit unions’ “shared commitment to financial inclusion is particularly important today, given the current state of the global economic climate, which, I believe we can all agree, is perhaps best described at the moment as precarious.”
In addition to the effects of the pandemic, Hood said other issues credit unions and the globe are facing include supply chain disruptions and resulting scarcity and unpredictability, inflation, rising levels of income and wealth inequality (both within and between nations), and serious global political and economic challenges. And, of course, “the very real threat of a recession.”
“The hard reality is that your industry, your members, and probably your own households are confronting those challenges every day,” Hood said. “And should the economic picture darken, those challenges will grow only more acute, and many vulnerable, under-served communities will fall further behind. So if there were ever a time to redouble our efforts at financial inclusion, it’s now.”
Instead of dwelling on what he called the “negative,” Hood said he instead wanted to focus on what CUs should be doing to “boost and fortify financial inclusion in response to this potentially foreboding economic environment,” saying the role of the regulator was to support credit unions as they seek to build inclusion.
Progress in Financial Inclusion
Hood defined financial inclusion as increasing financial access for vulnerable and underserved communities. In practical terms, he said that means at a minimum:
- Reducing the number of the unbanked
- Encouraging greater financial literacy and capability to empower people to face financial challenges by making better decisions
On the former, he said FDIC data indicate just 5.4% of American households lacked access to a checking or savings account at a bank or credit union as of 2019, the lowest rate since the ata began to be collected in 2009.
“While the trend-line is, in many respects, reassuring, it’s not lost on me that there are also areas where we are losing ground, with far too many people falling behind and far too many under-served communities,” Hood said. “Even in the United States, with one of the world’s largest and most advanced economies, we struggle with those challenges. And of course, those challenges are even more acute in many other nations around the globe. For those of us who work in financial services, this is a challenge we should all be intensely focused on addressing.”
The Cooperative Finance Model
Hood said he believes the cooperative finance model has a distinct advantage over many other service models, and that is they have community-based orientation and are better suited to meeting the needs of the underserved.
“Speaking as someone who has worked in and around the financial services industry—mostly in the private sector banking arena, with a few stints in government service with U.S. regulatory agencies—I find myself increasingly concerned with the question of scale,” Hood said. “That is, as many large financial players have grown larger and achieved impressive levels or market dominance in today’s interconnected, globalized world, I’m concerned that the financial industry runs the risk of losing its grounding in service to the community.”
While saying he does not oppose big banks, Hood said the problem is one of trust—that many large financial services providers simply do not enjoy the trust that they need to reach under-served populations.
The Trust Barometer
Hood cited the “Trust Barometer,” the annual survey by Edelman and Associates, that indicates the world has entered a “cycle of distrust” in the aftermath of the pandemic, with many people lacking confidence in our society’s leaders, particularly in the government and media.
“The question is, how do we break that cycle and rebuild public trust? I would say that’s one of the more compelling challenges of our time, and something I spend a great deal of time thinking about,” Hood told the WCUC.
To rebuild trust and also address global issues, Hood called on credit unions to “rediscover: what can be done at the “local level, through grassroots, bottom-up solutions that respond to the needs of people and the communities in which they live.”
And that includes financial inclusion, he said.
“Because when it comes to meeting the needs of the underserved, providing quality financial services to people of modest means at a reasonable cost, and serving as a financial anchor for local communities, the cooperative finance model is difficult to beat,” Hood said, reminding that overall there is an estimated 375 million households and $2.7 trillion in savings in cooperatives globally. In addition, CU members indicate a greater faith in their credit unions.
“My advice to you is straightforward: Cherish that trust because it is an invaluable asset -- and do everything you can to protect and nurture that trust through a superior member experience, service to the community, and integrity,” Hood said.
Looking Forward
Looking forward, Hood said there is “some work to do to ensure that the cooperative finance model is poised to survive in the long-term – because the survival of any financial services model in a competitive system is not guaranteed.”
In the wake of the pandemic, Hood shared, “I don’t want what happened to smaller banks to happen to credit unions. So, we need to make the right moves today to ensure that credit unions remain strong and vital within that ecosystem.”
In the U.S., Hood said that has meant regulatory reform that both encourages the chartering of more credit unions and that allows credit unions to compete on a more equal footing in the marketplace.
He further encouraged credit unions to work with fintechs to improve operations and member services, saying the upstarts can either be a “threat or an opportunity for the cooperative finance movement.”
Credit Unions as Careers
“Finally, I always advise U.S. credit unions, if they truly want to fortify the industry for the future, that they need to be developing a future leadership class committed to the industry’s mission,” Hood said. “We have before us a large contingent of young workers who are diverse, extensively educated, technologically savvy, and looking to make a difference in the world. They need to be looking at cooperative finance as a career option.”