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Refining Performance of Credit Unions for the Eastern Caribbean

Better accounting and financial reporting and enhanced consumer protection mechanisms

April 8, 2014

Regulators and industry practitioners in OECS countries received trainings focused on financial and prudential reporting requirements.

The Organization of Eastern Caribbean States (OECS) Governments and the Eastern Caribbean Central Bank (ECCB), with World Bank support, launched a comprehensive reform of the local non-banking financial sector. The reform’s scope includes overhaul of the legal framework, improvement of prudential oversight, training of regional regulators and practitioners, and strengthening of customer protection mechanisms and of the financial stability of local institutions.

Challenge

Credit unions are key players in the financial sector of OECS countries, holding deposits for over half of the working population. Although these institutions are the main vehicle of financial inclusion, most local jurisdictions provide no effective regulation, prudential oversight, or customer protection mechanisms. Thus, savings of economically vulnerable populations are at risk. Many credit unions lack investors who bring financial and governance discipline to operations. While credit unions serve populations that may otherwise be excluded from financial services, this is no excuse for weak financial oversight.

Solution

Recognizing their limited institutional and regulatory capacity as a risk for vulnerable populations, the OECS Governments, working with the ECCB, initiated regulatory reform of the non-banking financial sector, which included a review of regulatory arrangements, drafting of harmonized legislation, preparation of prudential and financial reporting requirements, development of standards and supervision manuals, and training of regulators and industry professionals.

In 2008, the OECS governments conducted Reports on the Observance of Standards and Codes (ROSC) Accounting and Auditing. Recommendations from these diagnostic exercises provided a basis for a sub-regional grant-financed technical assistance project focused on non-banking financial institutions in six OECS countries, implemented through the ECCB. Outreach to regulators and practitioners, including a sub-regional consultations process, various workshops, and hands-on direct assistance were provided.

The Project helped develop and implement medium-term strategic plans for oversight and regulation of non-banking financial institution. To that end, the Project supported the development of comprehensive financial regulations and supervision manuals, and delivered a sub-regional training program focused on financial and prudential reporting requirements for regulators and industry practitioners. On-site inspections were conducted in four OECS countries, targeting credit unions holding significant shares of population deposits. These provided key insights into sectoral practices, and enabled supervisors to collaborate, based on the process’ cross-jurisdictional nature. It also helped regional authorities assess the systemic risk and tailor mitigating measures, thus providing much-needed protection and assurance.

Results

Upon project completion, in 2013, the savings of economically vulnerable populations are in institutions with higher standards of accounting and financial reporting and enhanced consumer protection mechanisms, and are overseen by strengthened regulatory entities, which collectively provide an enhanced early-warning of systemic risk. This was effected through the development of comprehensive financial regulations and supervision manuals, a sub-regional training program focused on financial and prudential reporting requirements for regulators and industry practitioners delivered jointly with the International Financial Reporting Standards (IFRS) Foundation, and the development and implementation of medium-term strategic plans guiding further development of oversight and regulatory practices in the non-banking financial sector.

Bank Group Contribution

This effort was financed by a grant from the Institutional Development Fund (IDF) in the amount of US$455,000.

Partners

The project was led by the Latin America and the Caribbean Financial Management (FM) team in close collaboration with the Eastern Caribbean Central Bank and, for trainings, the IFRS Foundation. The Latin America and the Caribbean Finance and Private Sector Development (FPD) team was involved in a broader financial sector oversight and regulation agenda in the Caribbean countries.

Moving Forward

The Project was completed in September 2013. While it has achieved most of its objectives, the sub-regional reform agenda is ongoing. The new installment of technical assistance in this area is currently being prepared by the FPD team, which will help to fully operationalize the delivered activities and continue capacity building activities for regulators and practitioners.

Beneficiaries

The beneficiaries of the project are the credit unions of the OECS countries.