The Overlooked factor in Social Disclosure Studies: Credit Union Social Accountability

Social Accountability: the overlooked factor in Credit Union Disclosure

With the quality of Accounting Disclosure having gained importance over decades now, there has been a paradigm shift towards Social Disclosure. Many researchers have examined Social Disclosure for various organizations, majority of who are large, or listed firms in developed, developing and less developed economies.

Apparently, one group of organizations has consistently been overlooked: CREDIT UNIONS. Credit unions exhibit that “social face” in the society which cannot be overlooked. Their very own creation, objectives and activities have a social bearing. Credit unions mobilize savings from their membership, provide loans to their members, contribute to the societal welfare by promoting the general economic well-being of their membership and the societies in which they operate, and many other contributions to the social good. All these demonstrate how important credit unions are in furthering social accountability. And this cannot be OVERLOOKED!

In this article, I highlight 5 key areas where credit union social disclosure should be focused towards as demonstrated below:

                                     Credit Union Social Pillars

With reference to the social pillars, it may seem that for Credit Unions, promoting member welfare should be placed number one in terms of priority. However, this may not always be the case in a sector which has experienced growth in operations, products and the human capital. With the recent conversions by Credit Unions into "bank-like" activities, the focus on that traditional common bond within a Credit Union's membership is likely to degenerate (and thus, the Degeneration Thesis by Cornforth [http://eid.sagepub.com/content/16/4/487.refs] will prevail). 

The implications of the changed landscape is that Credit unions should strive to uphold Social Accountability, along with Financial Accountability as both are equally important. Credit Unions should be seen as what is traditionally referred to as : Social Citizens"!

Author: David Mathuva

Did you Know?

A peek into Kenya's cooperative sub-sector: statistics

DID YOU KNOW?

Below are some facts about the cooperative sub-sector which I though you should know about:

• There are over 13,800 cooperatives in Kenya alone?
• That the first cooperative to be formally registered in Kenya was in Kenya Co-operative Creameries Limited (the famous KCC) on 8 February 1932?
• In 2015, KCC marked 84 years since registration?
• 1,029 cooperatives were registered between 1932 and 1963, just before Kenya’s independence?
• In 1963 alone, over 100 cooperatives were registered?
• To date (2015), there are over 6,878 savings and credit cooperatives?
• Out of this number, only 1,995 are active, meaning they take deposits and issue loans?
• As of December 2013, 215 savings and credit cooperatives were operating front office services?
• As of 2014, only 184 out of the 215 savings and credit cooperatives had been licensed by SASRA to operate front office services?
• The fate of the 31 unlicensed front-office operating savings and credit cooperatives is yet to be established.
• Over 60 savings and credit cooperatives have changed their names between 2010 and 2014 to reflect a national outlook and be more competitive in the changing financial services landscape?
• Savings and credit cooperatives, especially the front-office operators, have been participating in the Financial Reporting Excellence (FiRe) Award?
• The number of savings and credit cooperatives which participated in the FiRe award is as follows: 2010 participants [10 SACCOs]; 2011 participants [9 SACCOs]; 2012 participants [17 SACCOs]; 2013 participants [27 SACCOs]; & 2014 participants [17 SACCOs]?
• Interestingly, the licensed savings and credit cooperatives who participated and won in the FiRe awards have been the licensed type?

Key research questions arise from the simple statistics listed above. Below are some five examples:

(1) Why is the proportion of dormant savings and credit cooperatives so high (i.e., over 71%) in Kenya?

(2) Despite there being a regulator to oversee the front office savings and credit cooperatives, why is the conversion rate (3%) so low?

(3) What challenges have been faced by the 31 savings and credit cooperatives that never managed to obtain licenses from the SASRA as of 2014?

(4) What can be done to improve the number of savings and credit cooperatives participating in the FiRe awards?

(5) What are the characteristics of the cooperatives with over 50 years of experience? What has kept them going?

...and so forth....

Credit union accountability: to disclose or not?

Article by: David Mathuva

I have been studying credit union disclosure by credit unions in Kenya and other developing economies for a while now and I believe that I can make a few comments based on some quick observations:

• Credit union accountability pervades disclosure. Whereas disclosure can be used for impression management purposes, being accountable is just more that mere disclosure of financial (and or social) information;
• Better performing credit unions are those that a
  re more transparent and accountable to their members. Transparency in this case pervades accountability. To be transparent, credit union management and those charged with governance should avoid carrying out the so called "monkey business" and focus on serving their membership in the best way possible
  
  . It is only when the transparency level is surpassed can we talk of accountability. In other words, accountability without transparency may not yield much.
• Credit unions in a developing country setting are faced by numerous challenges: be it fraud, mismanagement, resources, capacity, professionalism and a myriad of other challenges. This makes it challenging to achieve higher order aspirations such as improved quality of disclosure. 
• Disclosure is a necessary [if not sufficient]  condition for any financial market, whether developed, developing or [un] developed. The implication of this is that, in economies where credit unions are opaque in their disclosures, then the sector is likely to be doomed.
• I am impressed by the efforts taken by a developing country like Kenya, Tanzania and Rwanda as far as improving the quality of disclosure is concerned. The regulators has taken the wisdom of engaging professionals in developing disclosure guidelines to assist credit unions in their disclosure processes. In Kenya, for instance, SASRA worked together with the ICPAK to develop the SACCO guidelines in 2010; in Tanzania, the regulator, with the assistance of professionals developed financial accountability guidelines in 2010. These are small but swift steps towards promoting the vibrancy of our credit unions sector. It is also an indirect step towards improving the quality of reporting in the sector and is also in line with the aims of the EAC integration.
  
• I believe  that with time, the credit union sector in developing economies, with sustained efforts  of all stakeholders, will attain the levels achieved by credit unions in Canada, the US and Australia. Kenya is already in the front-line!

In summary, these ideas illustrate that despite the numerous challenges any developing country has to grapple with, we can make simple, small steps towards improving what we cherish most. And credit unions are our core drivers of our financial and social well-being!

Authored by David Mathuva