BEYOND BANKING: THE POTENTIAL FOR CREDIT UNION PARTICIPATION IN COMMUNITY ECONOMIC DEVELOPMENT By Loralee Yanya Athena Deibrouck B.Sc., McGffl University, 1988 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in THE FACULTY OF GRADUATE STUDIES School of Community and Regional Planning We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA April 1994 © Loralee Yanya Athena Delbrouck ___________________________ In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. (Signature) eprtmen1 of wi/ R&,oiJ4L p-rnJ)iJ”1t The University of British Columbia Vancouver, Canada Date 2’? APRIL /9941 DE6 (2)88) ABSTRACT Many communities in Canada are experiencing high levels of unemployment, poverty, social breakdown and environmental degradation. In an effort to address these problems, individuals, community groups and all levels of government, are experimenting with an approach to development called community economic development (CED). CED is a grassroots, bottom-up process that focuses on the creation of stable, viable, and equitable local economies. In trying to implement CED strategies, communities and individuals face many obstacles, one of the most significant of which is a lack of capital. Credit unions are locally-owned and controlled co-operative financial institutions with access to significant pools of “local” capital and therefore logical places for communities to turn. This thesis explores ways these institutions can support community economic development in their communities. An examination of the literature and interviews with credit union leaders and CED practitioners, demonstrate that most credit unions are not involved in CED lending. Nor are they particularly committed to CED ideals. This being said, however, the research shows that there are a few credit unions, in both Canada and the United States, that do participate in CED. These credit unions--some with a holistic commitment to CED, others with a partial commitment--support CED in a variety of ways, only one of which is through financing. In addition to providing access to capital, these credit unions fulfil other support functions such as providing technical assistance, building “community” and supporting community infrastructure development. Credit unions that participate in CED are not typical of the credit union movement. Most credit unions do not play a role in supporting community economic development in 11 their communities. The study found that there are significant barriers to their participation in CED, barriers such as a lack of vision, the nature of CED lending, and competition from private financial institutions. In order for credit unions to participate in CED, these barriers must be removed. Ways to reduce some of the barriers are explored in the thesis. The research shows that in order to be able to participate in CED, credit unions require: a committed leadership, staff with community development expertise, new deposits of capital, a means of subsidizing the costs of CED lending, and institutional mechanisms that reduce risk as well as government support. Ways for credit unions to fulfil these needs are outlined. Lastly, research findings are summarized and conclusions are drawn about the role individual credit unions can play in CED. The kinds of initiatives credit union centrals, governments and planners can adopt to support credit unions in this work also explored. 111 TABLE OF CONTENTS Page Abstract IL Table of Contents iv Acknowledgements ix PURPOSE AND RATIONALE 1.1 Introduction 1 1.2 Purpose 2 1.3 Rationale 2 1.4 Methodology 9 1.5 Thesis Summary 9 II. COMMUNITY ECONOMIC DEVELOPMENT 2.1 Introduction 11 2.2 Some Distinguishing Characteristics 12 2.2.1 The Economy 12 2.2.2 The Meaning of Community 13 2.2.3 Goals 14 2.3 Restructuring the Local Economy 15 2.3.1 Diversifying the Economic Base 15 2.3.2 The Development of Locally-owned and -controlled Institutions 17 2.3.3 Community-based planning 23 2.4 Building a Strong CED Sector 23 2.5 Summary 29 iv ifi. CREDIT UNIONS 3.1 Introduction 27 3.2 Distinguishing characteristics of credit unions 27 3.3 The Credit Union System 32 3.3.1 Assets 37 3.3.2 Lending Patterns 33 3.3.3 The System 33 3.3.4 Regulatory Framework Governing Credit Unions in B.C. 35 3.4 Patterns and Trends in Development 37 3.5 Summary 43 IV. CREDIT UNION PARTICIPATION IN CED 4.1 Introduction 44 4.2 Level of credit union participation in CED 44 4.3 Holistic Commitment to CED 47 4.3.1 CCEC Credit Union 47 4.3.2 Bread and Roses Credit Union 50 4.3.3 Ottawa Women’s Credit Union 52 4.3.4 Community Development Credit Unions 56 4.3.5 Self-Help Credit Union 61 4.4 Partial Commitment to CED 62 4.4.1 VanCity Credit Union 63 4.4.2 Caisse Populaire Evangeline 65 4.4.3 Saskatchewan Credit Unions 67 4.5 Organizational Development and Capacity-Building 68 4.5.1 New Institutional Arrangements 68 4.5.2 Staff Training and Development 77 4.5.3 Planning and Program Development 78 4.6 Summary 82 V V. CREDIT UNIONS AND CED: ACCESS TO CAPITAL AND OTHER SUPPORT FUNCTIONS 5.1 Introduction 84 5.2 Access to capital 85 5.2.1 Lending Programs 85 5.2.2 Partnership Lending 92 5.3 Other Support Functions 96 5.3.1 Technical Assistance 96 5.3.2 Building “Community” 98 5.3.2 Community Infrastructure Development 99 5.4 Summary 110 VI. THE POTENTIAL FOR CREDIT UNION PARTICIPATION IN CED 6.1 Introduction 111 6.2 Barriers to Credit Union Participation in CED 111 6.2.1 The Nature of CED Lending 111 6.2.2 The Success of Consumer and Mortgage Lending 113 6.2.3 Restrictions on Commercial Lending 114 6.2.4 The Erosion of Traditional Credit Union Values 115 6.2.5 Lack of Member Commitment 115 6.2.6 Tension Between Social and Economic Goals 117 6.2.7 Conservatism of Credit Union Staff 118 6.2.8 Lack ofVision 118 6.2.9 Size 119 6.2.10 Centralization Versus Autonomy 121 6.2.11 Lack of Practical Examples 122 6.2.12 The Elizabethan Act 123 6.3 Rationale for Credit Union Participation in CED 124 6.3.1 New markets 124 6.3.2 Survival--Healthy Economy = Healthy Credit Union 127 6.3.3 In the Service of Members 127 6.3.4 Revitalizing the Spirit of the Movement 128 6.3.5 The Credit Union “Difference” 128 6.3.6 Growing Importance of “Social Investment” 130 vi 6.4 Overcoming the Barriers: What is Needed? 130 6.4.1 Broader Vision 131 6.4.2 New Sources of Capital 132 6.4.3 Reducing Risk 134 6.5 Organizational Development and Capacity-Building 135 6.5.1 New Institutional Arrangements 136 6.5.2 Staff Training and Development 140 6.5.3 Planning and Program Development 144 6.6 Summary 146 VII. SUMMARY AND CONCLUSIONS 7.1 Summary 147 7.1.1 Level of Credit Union Participation in CED 147 7.1.2 What Credit Unions Are Doing to Support CED 149 7.1.3 The Potential for Credit Union Participation in CED 154 7.2 Conclusions 156 7.2.1 Individual Credit Unions 157 7.2.2 Credit Union Centrals 160 7.2.3 Governments 161 7.3 Implications for Planning 163 7.4 Areas for Further Research 164 7.5 Summary 166 BIBLIOGRAPHY 167 APPENDICES 175 Appendix I - Interviews 175 Appendix II - CED Institutions 178 Appendix Ill - Supporting CED Initiatives 184 vii Appendix IV - The History of Credit Unions 193 Appendix V - The Ottawa Women’s Credit Union 200 Appendix VI - Criteria for CED Lending 205 Appendix VII - Addresses of Credit Unions Discussed in the Text 209 viii ACKNOWLEDGEMENTS Completing this thesis would not have been possible without the support of my first reader Craig Davis whose belief in my abilities has been unwavering and incredibly solid. I am very grateful to him for his humour, his integrity and his commitment (not to mention his punctuality). I would also like to thank Mark Roseland, my second reader for devoting time to my project when he already had a very full schedule. Working with him has been a real joy and I look forward to continuing the collaboration in the future. My parents, Anne and Lucien, have provided me with the financial and emotional support and security to see this project to the end. I am extremely grateful to them for all the love and patience they have shown me over the years. I would also like to give my sisters, Fran and Nicole, a special thanks for all the love and laughter we have shared over the years. Auntie Marion, Norm and Auntie Yanya have also provided me with a great deal of support. Lastly, I would like to acknowledge all the love and support I have received from my friends over the three years it has taken me to complete this project. Without such community, I am not sure that I would ever have completed this work. Thank you, D, R, D, S, A, T, E, Z, M, D, 0, C, L, L, M, P.