CAN COOPERATIVES SURVIVE UNDER A NEW REGULATORY REGIME?

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A BP OP-ed article from an anonymous writer…

If the Government is really serious about cutting cost in the public service, it should do away with the Department of Cooperatives and transfer its affairs to another government agency. Here is a department that is not revenue generating and is outrageously dependent on foreign consultants to complete simple tasks. I am surprised that this department is being allowed to continue as it is. The current administration is unable to find Parliament Square unless foreign consultants are engaged to advised it where Parliament Square is. This is absurd.

The Securities Commission of The Bahamas held its fourth annual industry briefing at the British Colonial Hilton on Thursday February 11, 2010 reporting on its achievements and its short term projections. Similarly, The Central Bank of The Bahamas provides a quarterly report on the financial services industry, giving statistical information on important sectors of the country’s economy. The report suggested that a single Financial Services Regulator is imminent and the Speech from The Throne, spoke of the government’s intent to bring legislation to Parliament to create The Bahamas Financial Services Authority. I imagine that once established this entity will coordinate under one umbrella, The Central Bank of The Bahamas, The Registrar of Insurance, The Securities Commission, The Compliance Commission and possibly the Department of Cooperatives Development.

The legislative charge of the Department of Cooperative assumes that it is a proper fit within the financial services industry but that is an illusion. Comparatively, the Department of Cooperatives does not now or at any other time possessed the tools inherent in a regulator to be so brazenly identified. Its leadership, content and delivery as a regulator, together with its inability to provide adequate supervision and monitoring of cooperative societies have been so substandard that its stewardship is tantamount to it being derelict of its duties.  For the record, a cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs. Universally, cooperatives operate using seven principles as guidelines by which they put their values into practice, one of those seven principles states that cooperatives are autonomous and independent. Yet the department has no autonomy. This lack of autonomy appears to be married to its degree of strength and character as a competent regulator. Others see it as a misnomer to have it grouped with regulators of the financial services industry.

The Cooperatives Societies Act directs the department to develop and regulate cooperative societies but under the current administration, the department has undoubtedly ruined many a chance to bring appropriate credibility to its functional and corporate image. Cooperatives include financial and non-financial societies. Credit Unions are financial cooperatives and appears to be self-regulated; given internationally accepted fiduciary standards, many would be near the brink of insolvency and require or required mergers; on the other hand, non-financial cooperatives are insolvent and barely exist or exist only to the point of insignificance, as the Department’s leadership and monitoring has been not only a miscarriage but calamitous

With roughly 30,000 members and assets over $200 million, the success of credit unions today has very little if anything, to do with the capacity of the Regulator. As a member of a credit union, I pray that the sector never experience a CLICO. Despite assurances of the allege safety and soundness of the sector from the Director of Cooperatives, I am afraid that his ability to speak professionally on these issues provides very little comfort especially since deposits are not covered by depositors insurance except for a stabilization fund.

The public must be made aware of other societies (non-credit unions), if they do exist and function and of, the goods and services that they offer, their profitability and worthiness as cooperatives. The public deserves more than just a press statement; we need to see irrefutable reports that cooperatives are safe and secured investment alternatives, as done by The Central Bank’s Quarterly Report or the Annual Brief by the Securities Commission.

From all accounts the department is administratively and structurally weak not only in content and presentation but also in enforcement. For years, it has been complicit, allowing breaches of the Cooperative Societies Act, to go unabated. However, when it finally found the fortitude to enforce the Act against a leading credit union, a former Minister intervened and caused the action to be discontinued. I am informed that this action was most humiliating as the credit union not only breached the law but it chastised the department and reinforced the disregard that many have toward it.

Interestingly, today the government is a tenant of that credit union in a building that helped to give rise to the department’s action. The department should take a page from the Securities Commission, who in April 16, 2010, Business Section of the Nassau Guardian reached a settlement with Bahamas Supermarkets Limited over the company’s alleged failure to file certified annual reports. Regrettably the department has been so historically impotent and so compromised that it cannot apply statutory enforcement to violating societies as done in the above case. This is what regulators do; they enforce laws of compliance.

The Department’s canned and unreliable financial inspection reports have been the subject of comical discussions and visiting consultants have on numerous occasions questioned its reliability. I have heard that recently, one consultant insisted on the recall of several already issued reports as they were loaded with errors. It is said that assessments from these consultants have spoken directly to severe deficiencies in management and the inner turmoil that saturates the department. I understand that  consultants and industry leaders alike are surprised that the software, (PEARLS), used internationally to analyze the performance of credit unions is beyond the comprehension of management and the inspection unit, who despite the benefit of  training, locally and abroad are still incapable of producing irrefutable financial reports on individual societies. I stand to be corrected but I am told that there is not one accountant on its staff.

The introduction of cooperatives to The Bahamas, anticipated more than fishing and farming, as credit unions took a life of its own. Cooperatives can be an important pillar in the economic development of The Bahamas and provide major investment opportunities for its members but only if managed properly. However, the vehicle (the department) entrusted to achieve this goal could very easily be likened to a 1985 model automobile whose driver is visually impaired yet he continues to drive with flattened tires, burnt  spark plugs and a broken odometer.

The Department and the Central Bank of The Bahamas were both established in 1974 with T. B. Donaldson as Governor. In 1985, the current Director of the Department was appointed (25yrs ago to date and has served more than 40 yrs in the public service), while William Allen succeeded T.B Donaldson as Governor of the Central Bank 1980-1987 (7yrs).  Since 1974, the Central Bank has had five distinguished Governors, three of whom served since 1985 and have all placed their distinctive imprint on the financial services industry. Other regulators have had administrative changes that brought new life, new vigor and progress to their functions.  It is important to draw this comparison as the department has not grown alongside its counterparts and has not change leadership in more than 25 years, one quarter of a century; which from all indicators seem to have been very harsh for the industry.

In 1985 Sir Gerald Cash was the Governor General of The Bahamas and has been succeeded by six other Governors General, Sir Lynden Pindling was Prime Minister and hosted the Commonwealth Heads of Government Meeting at the newly opened Cable Beach Resort Hotel; he has been succeeded by two other Prime Ministers, there have been five general elections and at least eight or more Cabinet Ministers with responsibility for cooperatives. One credit union employee mentioned that she has a niece who was born in 1985 and have since completed kindergarten, primary, junior and senior high schools; graduated from college with a BA and MA degrees and is now a CPA; her life-span runs parallel (in-time) to the department’s current leadership.

A director of one credit union said that the department is vacuous, visionless and lacks the wherewithal to be progressive and enjoys very little public or sector confidence. Another calls the department a faux pas and thought it to be deleterious to the industry. He gave as an example, the department’s unusually heavy dependence on consultants from other Caribbean countries who are generously engaged at public expense, several times a year, to assist with elementary matters, financial. and otherwise because of the department’s severe structural and functional deficiencies. As a Bahamian this is very embarrassing to say the least, for after thirty-six years as a department together with the Director’s quarter of century tenure, the Department should be exporting cooperative knowledge not importing it.

Again, I stand to be corrected but I am told that the Department is accommodated in an allegedly condemned, mold and rodent infested building, in conditions that are most inferior not only to those of its counterparts but also to those that it regulates. I am told that bathroom facilities doubles as a file storage rooms, yes, bathrooms that are used daily. This is unacceptable and unsanitary. Several former and current staff complained that there is very little equity in the treatment of staff and this is made obvious in many ways and contributes to the constant high levels of discontent and mediocrity; it is no wonder that staff retention is extraordinarily low and morale even lower. Many have observed that issues in the department revolve not around staff capability but poor leadership and mismanagement over the years.

The department’s limited institutional and regulatory capacity has caused many to question the integrity of information it produces and issues. Not long ago, I was informed about a department’s report issued to the Central Bank on the financial affairs of credit unions; I understood that this report was so deficient that the Governor of the Central Bank volunteered her staff to assist the department in completing its own report. Consequently, a staff of the department was attached to the Central Bank for several weeks for this to be achieved.
The question is, “how can one regulate financial institutions in the absence of staff, purposefully trained, in the field of accounting, financial analysis and other essential areas?”

It is unfortunate, that the Department of Cooperative has been unable to move cooperatives beyond theory in any sustainable way. Despite many registered societies, it is important to point out that most of them were/are only registered paper societies and have failed or are failing. If and when this unified regulator becomes a reality, the Central Bank should be welcomed to take responsibility for credit unions; otherwise their growth will continue to be hindered.

Cooperatives will struggle to survive under a new regulatory regime. The adequacy and performance of the regulator over the years remains questionable and at best, less than mediocre; the quality of supervision and inspection of cooperative societies has not conditioned them for stringent monitoring and supervision. The regulator has been demonstrably and historically impotent in achieving or maintaining basic regulatory and industry standards. The question is “why have successive governments allowed this department to continue as it has and why has it remained under the same languid leadership for so very long?  While adjustments will be painfully frustrating, the government must move with haste to consider transferring the supervision of Credit Unions to the administration of the Central Bank of The Bahamas to ensure its safety and soundness. On the other hand; and for more consistent, profound and tangible results, the government should immediately supplant the department’s current administration or merge its remaining portfolio to promote and develop non-financial cooperatives with that of The Bahamas Agricultural and Industrial Corporation.

Evidently this department’s record of performance has been less than stellar and it would be prudent for it be completely overhauled and restructured as a matter of urgency and in the public’s interest.