Questions are mounting over the operations of a cooperative financial institution, established in March, soliciting deposits from the public but not falling under the supervision of the Bank of Guyana to ensure the safety of members’ deposits.
The National Cooperative Credit Union and Trust Limited (NCCUTL), the first national cooperative society with scope over the entire country, is registered under the Cooperative Societies Act, administered by the Ministry of Labour, Human Services and Social Security.
Minister within that ministry, Bibi Shadick, on Friday assured Stabroek Business that her ministry was capable of inspecting, auditing and regulating such an institution. However, the ministry does not investigate persons on the management committee to determine whether they are fit to be entrusted with public monies.
The Central Bank conducts such tests for financial institutions but the Financial Institutions (FIA) Act of 1995 exempts cooperative societies from its definition of a financial institution. It defines a financial institution as a bank or company other than a bank engaged in financial business but not including a cooperative society or the now defunct GAIBANK. Accepting deposits and granting loans is financial business and would normally require a banking licence and Central Bank approval.
The Cooperative Societies Act allows societies to define their areas of operations, which the NCCUTL has defined as the Republic of Guyana. The Ministry has to approve the rules of such societies’ engagement. There are over 900 such societies, many of which are now defunct.
Minister Shadick said her ministry hires qualified auditors to check on the accounts of these societies to ensure all is well in their operations and adds that her ministry is capable of regulating the operation of these societies.
The area of main concern is the issue of safeguards to protect members’ monies and members of the banking sector have reportedly also expressed concern about the society’s national thrust and its solicitation of deposits openly, offering tax-free interest rates and low-cost loans. Stabroek Business was reliably informed that persons have withdrawn their entire savings from the banking sector and have deposited these with NCCUTL.
In the case of commercial banks and other financial institutions, the Central Bank acts as the regulator to ensure their safekeeping of depositors’ monies by issuing prudential guidelines and backing this up with on-site inspection of the banks operations.
Chairman Dr Fred Sukhdeo was not willing to tell Stabroek News who the members of its committee of management are but denied that this credit union is a backdoor entry into the banking sector, using the loophole in the FIA.
Treasurer of the NCCUTL, Joshua Shafeek, had applied for a banking license through the Federal Investment Merchant Bank Limited (FIMB) but had been turned down by the Central Bank. Then the insurance business Shafeek is involved in, the Guyana Fire, Life and General Insurance Company Incorporated (GuyFlag), recently sought to attract deposits using the term certificate of deposits in newspapers’ advertisements.
However, the company was advised against this and to change the name of the product to annuity certificate of deposits, which it has done.
Then in March, NCCUTL was established with its office in the same building housing GuyFlag Insurance and FIMB and began advertising itself as a cheaper source of credit and providing a higher return on various forms of deposits. The cooperative has since received a letter from the Central Bank advising that it would need to comply with the rules of a Trust to be able to use the word Trust in its name. Sukhdeo yesterday indicated that until the society can so comply, the Trust would not be associated with the society’s public image.
However, on Saturday, Sukhdeo sought to disassociate the society from GuyFlag Insurance or FIMB and declined to say whether Safeek was a member of the management committee. He changed this position on Monday when he contacted Stabroek Business and it was put to him that Safeek was the treasurer and the society had received over $1 billion from GuyFlag through the Guyana Mutual Fund Inc, which arrears to be a related company. Sukhdeo said the society is still in its formative stages and he could not disclose the type of information requested. But he was then asked whether a society in its formative stages should solicit deposits from the public and offer itself as a source of cheaper financing. Sukhdeo says if members from the public ask for the information Stabroek Business sought it would be provided. He could not explain why it could not be given to this publication.
While he would not say who the other members of the management team were, the ministry has revealed these to be Alvin Yassin (also a director of GuyFlag Insurance), Chubilall Ramlochan, Rosalin Semple, Alex Haywood and Tina Jodhan (Secretary).
Put to him that this reluctance in providing information could affect confidence in the society, Sukhdeo on Saturday said he did not care but on Monday said the attractive rate of interests offered, the tax-free status of these services and confidence reposed in the society by the public are seeing millions being poured into the society’s coffers. He boasted that all of the deposits are insured but pressed on whom they are insured with, given that deposit insurance is not available in Guyana, Sukhdeo said he had to clear such information with his board of management.
Sukhdeo is insisting that the operations of the society are in keeping with the laws and said he would not be opposed if the government should change the legislation to allow cooperatives to fall under the purview of the Central Bank.
While Sukhdeo denies that the society is a backdoor entry into the banking arena, the rules of the association say it intends to promote the establishment of a National Cooperative Bank with the participation of other credit unions and other institutions. Sukhdeo confirms this intent and says the society is aiming to invigorate the cooperative movement, which can be an influential sector in society.
He adds that NCCUTL is aiming to pattern itself after the Hindu Credit Union in Trinidad and Tobago, the leading credit union in the region. It intends to offer similar services such as flexible deposits, soft loans and other services including international visa cards. It is seeking, according to Sukhdeo, to promote businesses. Its rules allow for the taking of deposits from members and non-members including corporate houses.
However, the society has not yet fixed the maximum liability it may incur in loans or deposits, which has to be approved by the chief cooperative officer, but it has already accepted $1B in deposits from the Guyana Mutual Fund Inc.
And Sukhdeo, who had denied that the society was in any way afliated with GuyFlag Insurance or FIMB, explained the society’s operation out of the said office at Ruimzeight Gardens, as being a sharing of office space but being an independent operation with no links. Safeek and Yassin, members of the management, are also on the GuyFlag board while Shafeek is on the FIMB board.
Anyone who wants to be a member of NCCUTL is free to join but Sukhdeo would not say how many persons are currently members or how much in deposits has so far been taken in.
The shares are worth $100 each and no one can own more than 20% of the capital base of the society. But Sukhdeo would not say what is the capital base.
Sukhdeo expressed the view that the credit unions in Guyana today operate at a box hand level with members only able to borrow against their savings but the NCCUTL intends to be “dynamic” and go beyond this. He said no loans have been granted to date but Stabroek Business has seen a report on the operations, which says that loans were issued in Regions 1,2,3,4,5,6 and 10 by NCCULT at 12% per annum.
He also said the union intends to have branches in several parts of the country but would not say where it is targeting to have such offices. On Monday he said Kwakwani is one such location because the banking services there have been shut down.
The Hindu Credit Union of Trinidad defines a credit union as a cooperative financial institution, owned and controlled by the people who use its services. These people are members and credit unions serve groups that share something in common, such as where they work, live, or go to churches, or temples. It added that credit unions are not-for-profit institutions, which exist to provide a safe, convenient place for members to save money, invest together, and to get loans at reasonable rates. Credit unions, like other financial institutions, are closely regulated and operate in a very prudent manner. The only difference between a credit union and a bank is that the latter is in business for profit.
Credit union deposits and loans are tax-free and NCCUTL has been offering interest rates on regular savings between 4-6% and on certificate of deposits between 6.8 and 8%. The advertisements claim 100% insurance of all deposits, non-taxable interest on deposits, and discount on vehicle purchase among a host of other services, including housing finance.
NCCUTL rules permit the acceptance of deposits from members and non-members but the issue of loans only to members. No loans can be in excess of one percent of the society’s unimpaired capital and surplus.
Source: Land of Six Peoples