Mars, no—the moon, maybe.
I was
As the former CEO of the National Federation of Community Development Credit Unions, now Inclusiv, I worked with many groups organizing credit unions. With Linda Levy, former manager of Lower East Side People’s FCU, I wrote Organizing Credit Unions: A Manual.
In the years since, I consulted with one well-established, highly respected urban organization that attempted to start a credit union—an effort which I believe they abandoned after several years—and one organization that spent approximately three years
That this latter group was able to obtain a charter, so rare these days, was a testimony to the organizers’ extraordinary persistence, business acumen and ultimately, ability to raise start-up capital. The combination is rare—over the last decade or two, new charters have generally numbered fewer than 10 a year, and sometimes, none at all.
It was not always this way. As I recount in my book, Democratizing Finance: Origins of the Community Development Financial Institutions Movement, during the first half of the twentieth century, a dozen or so people could get together, each pledging a share deposit of $5 or more, and in fairly short order obtain a charter.
Even in the 1980s, when I helped charter the Lower East Side People’s FCU, the seemingly endless, excruciating chartering process took only about 18 months—a relative walk in the park compared to the three- to five-year incubation process that is typical today.
There have been various “streamlining” changes in the chartering process over the last 15 or so years, some in response to our advocacy at the National Federation of CDCUs. None seem to have substantially reduced the pain involved in chartering, which typically involves round after round of rewriting or tweaking a business plan through repeated negotiations with NCUA. The months go by; organizing drives lose momentum; prospective managers find jobs elsewhere, putting the process of assembling a management team back to square one.
So, I am encouraged both by NCUA’s changes, such as offering standard business plans to prospective organizing groups. And I agree with McWatters that, in the end, capital is king. Without sufficient capital, whether from donations, philanthropic support or a sponsor’s funding, the numbers won’t work, and an aspiring credit union will crash and burn before achieving take-off velocity and achieving a virtuous cycle of growth through increased retained earnings.
The problem is that obtaining the needed monetary support is no easier than it has ever been. I have routinely advised groups that unless they can raise at least $500,000 in equity—through donations, outright grants, or firm in-kind commitments to carry them through at least three years—they would be better off considering starting a non-regulated, nonprofit community development revolving loan fund, a much easier lift.
At the National Federation during the late 1980s and early 1990s, I fought for the establishment of the federal Community Development Financial Institutions Fund. My hope was that the fund would become a source of start-up capital for aspiring credit unions in low-income communities. It hasn’t happened that way.
The guidelines for the CDFI Fund have essentially created a chicken-and-egg situation: Until a group demonstrates that it actually has a charter, it cannot win a commitment from the CDFI Fund—but without firm commitments during an organizing campaign, the group is hard-pressed to obtain enough capital to convince NCUA to grant a charter.
It’s hard for me to be optimistic about the possibility of a new generation of credit unions springing up (though I am very encouraged by the efforts of the
Organizing a credit union, especially in a low-income or minority community, is still a “moon shot.” But my hat’s off to NCUA both for recognizing the problem and attempting to address it.
