Getting Bullish In China
CUNA Mutual Group, which established itself and grew to prominence as a middle class and consumer credit emerged in the United States, now sees a similar opportunity emerging in another country-China.
The company is expanding its presence in China with the signing of agreements with three large Chinese credit cooperatives. China's booming economy has brought new prosperity to tens, if not hundreds, of millions of people who are eager to borrow to finance purchases and interested in credit life insurance to protect their families. CUNA Mutual got its start in the U.S. in the mid-1930s, but really blossomed following World War II as the economy grew.
While there are more than 35,000 credit cooperatives in the world's most populous country, CUNA Mutual is focusing its efforts on the three well-established co-ops located in large cities along the country's coast and which are in strong financial condition. It has also reached an agreement in principle with a fourth co-op.
CUNA Mutual plans to begin offering credit life and disability products to borrowers at the co-ops. More than 200-million Chinese have deposits of approximately $205 billion in the co-ops, many of which were founded shortly after the end of World War II and which are similar to the cooperative banks found in Europe in which a group of founders jointly own the institution, but with which any consumer can do business.
"This is the end-result of several years' work," said Ralph Swoboda, the former president of CUNA who is senior VP in CUNA Mutual's International Division. The company has had a presence in China for the past 15 years, and Swoboda has been a frequent visitor to China as CUNA Mutual explored establishing operations there.
CUNA Mutual noted that consumer lending in China has grown dramatically in recent years, primarily driven by home mortgages, which account for 75% of total personal borrowing. But vehicle ownership is also growing.
One big issue in doing business in China, where regulation can be spotty, is getting a firm and accurate handle on a credit cooperative's balance sheet. "Relatively speaking, these credit cooperatives are in good shape," said Swoboda, who added a newly created regulator has replaced China's Central Bank in overseeing the operations. "By Chinese standards, they are well capitalized."
Among the co-ops with which CUNA Mutual is working is one based in Guangzhou, a city of about 10 million in China's Guangdong Province. It has more than four-million customers and 700 retail outlets, which is more than any other financial institution in the city. Other citywide cooperative systems to be served by CUNA Mutual during the venture's first stage include, Beijing, Shanghai and Shenzhen. With more than 15 million customers, those four credit cooperative systems alone will be the largest credit union-type market CUNA Mutual serves outside the U.S.
"Our goal, long-term, is to develop as a full-service insurance provider," Swoboda said. "We will start with credit life and disability, which are more popular in developing markets than they are in mature markets, where people may have other types of insurance."
In such developing markets Swoboda said it is not uncommon to see between 70% and 90% penetration. "We've done some consumer surveys that showed people are very interested."
CUNA Mutual also plans to offer a basic homeowner's policy that provides collateral protection for the co-op lenders. CUNA Mutual will provide these products on a reinsurance basis through a local Chinese insurer to select credit co-ops in the more developed coastal regions of China. CUNA Mutual's equity partner in the venture is the International Finance Corp., the private-sector development arm of the World Bank Group.
The second stage of business development would involve CUNA Mutual and the IFC establishing a joint venture insurance company in China with the credit cooperatives.
In February, Jim Greaney, formerly chief officer of CUNA Mutual's Credit Union Enterprise, will move from Madison to Guangzhou and lead the company's business operations there.