FREETOWN, July 14 (232news.com) – In continuation of empowering Credit Unions for effective service delivery, the Irish League of Credit Union Foundation (ILCUF) Limited on Wednesday 22ndJune 2022 commenced a two-day Risk Management Trainingfor Board and staff of Credit Unionsat the Zion Bi-Centenary Hall of the Methodist Church on Wesley Street in Freetown.
The lead facilitator, Mr. Emmanuel Darko, ACCOSCA Ambassador from Ghana enlightened participants on risk management and citedthat loan delinquency is a major risk to Credit Unions (CUs), that the court system does not work for CUs to recover their loans from delinquent members, and that manyCredit Unions (CUs) entered the financial business for social reasons, that there are now thousands of new CUs around the world, that many are small but that many more have grown to reach thousands of people citing Ghana with 1.5million members.
He said the Department of Cooperatives in the Ministry of Trade and Industry, the Bank of Sierra Leone and the National Cooperative Credit Unions Association in Sierra Leone (NaCCUA-SL) are the three institutions responsible for supervising CUs in the country.
According to Mr. Emmanuel Darko, a loan is delinquent when an installment is not paid on the date the loan is scheduled to be paid reiterating, “to be precise, whenever an installment is missed, the loan is termed delinquent. Also, some of the terms used such as late payments, arrears, past due payments, default, overdue, missed payments etc. all means the same – the loan is delinquent.”
He continued that delinquency determines the extent at which a CU loan portfolio is exposed to risk, that a CU would be less competitive due to its low profitability, low institutional capital (reserves), that it may suffer from liquidity problems, that members may lose confidence, increase in expenditure due to the low collection and increase on legal costs and warned that a CU would soon get out of business if the delinquency is not properly checked.
He went on to disclose that financial management to a CU is another risk, it is like a maintenance to a vehicle, that if you don’t put in good quality fuel and oil and give it a regular service, the functioning of the vehicle suffers and would not run efficiently reiterating that if financial management is neglected, the CU would eventually fail and that financial management is about taking action to look after the financial health of the CU and not leaving things to chance.
Mr. Emmanuel Darko highlighted the objectives of financial analysis asanalyzing the trend of changes, ascertaining the current financial position as well as the progress achieved, supporting the decision-making process, determining the soundness of the assets and affecting the classified assets in a CU’s financial condition.
He articulated that General Risk Management (GRM) is the process of protecting the CU assets, liabilities and resources from loss and damage, that it may also be defined as a conscious attempt on behalf of Savings and Credit Co-operative Management to identify, measure, monitor and control all exposures to loss which are created by the activities in which the society engages.
Mr. Emmanuel Darko went on to state that the Board of Directors (BOD) shall ensure that the CU has an effective and implemented Grievance Redress Mechanism (GRM) policy, stressed that the management shall be responsible for the implementation of the GRM policy, that the Supervisory Committee as Internal Auditor shall be responsible to analyse the weaknesses and make recommendations for improvements of the GRM policy and underscored that the NACCUA and DOC as External Auditors are responsible for the main supervision of the GRM policy.
Identifying and assessing the risks, the lead facilitator highlighted that it involves recognizing the various current and potential risk exposures confronting the society by determining what can happen to cause a loss, that hereby the BOD and the Management shall use the Guidelines (Part II of this Policy) to identify the risks that their own CUs are facing and cautioned that risks that are not involved in the original Guidelines shall be introduced.
Dilating on developing strategies to measure and prioritise the risks, he catalogued measuring the risks based on the loss frequency and loss severity, noted that frequency is the number of times that events are expected to occur and affirmed that severity is the degree to which a loss could have impact on the operations and position of the CU.
He went on to mention policies and procedures to mitigate the risks including the BOD that shall elaborate an Annual Action Plan for the implementation of the GRM policy underlining that the plan shall specify which policies and procedures have to be developed and implemented for identified risks, the time frame when it has to be realised, who has to realise them and described internal audit as a systematic and independent review of the operations and controls within an organisationconducted by the Supervisory Committee and a part-time or full-time Internal Auditor.
Mr. Emmanuel Darko also talked on risk of operational and accounting errors described as errors that create unreliable information and reports, or the loss of assets that can be caused by for example accounting errors stressing that the latest occurs in the treatment and establishment of accounts that have an impact on financial issues like the balance sheet and the income and expenditure account.
Enlightening on frauds and embezzlements risk, he asserted that the BOD shall ensure that preventive, detective and corrective measures are developed and implemented in the CU, that the Management and the BOD are responsible to carry out the corrective measures, that the Board has to ensure that internal controls are effective disclosing that frauds and embezzlements are criminal offenses and should be treated as such.
According to the lead facilitator, cash management is to plan, organise, ensure the security and smooth processing of cash transactions for a variety of purposes in CUs, making deposits or withdrawals, making loans, cashing cheques, paying for expenses and transit of money pointing out that a poor cash management is the possibility of negative effects of handling cash resulting in cash losses, operational errors and frauds/embezzlement.
He further defined internal securityas seeking to protect the CU’s property like cash, documents, register, furniture, working devices (PC, notebooks etc.) and premises from damage or loss and the persons in the CUs (employees, members, visitors) from injury, defined interest rate risk (IRR) to the risk of loss resulting from changes in interest rates intimating that the interest rates on both savings and loans are fixed in the interest rate policy.
He said an inappropriateinterest rates policy on savings and loans has direct impact on the competitiveness of the CU on the financial market and on the margin between interest income on loans and interest expenditure on members’ savings.
He also proffered that a CU’s main asset is the loan to members, that loan delinquency is the gravest danger CUs face, the reason determining the strength or quality of assets is a critical financial measurement, and that asset quality also determines the extent at which a CU is exposed to risks, seasonal demands for loans and savings withdrawals, that delay from the employer in releasing CU cheques for monthly savings and loan repayments contributions.
He urged people to invest for their old age, cautioned that if your mind says you are poor you are poor, that generally people are greedy, appealed to all to think big as CUs should be kept alive, that poverty is a choice and that one cannot get out of it overnight but gradually.
Participants also discussed internal controls, stringent policies, internal audit, that CU funds locked up in stock of goods, loans or investments, funds locked up in non-income producing assets and sometimes lack of effective loan policies and concluded by appealing to Sierra Leoneans to be prepared now to take over CUs.
Other topics discussed were liquidity and investments risks, research, external and internal environment, development of goals, development of a working budget and final budget while describing financial analysis as consisting of breaking down the information in the financial statements in order to render judgment on the institution’s situation and past financial results.
Some of the participant interviewed including Mr. Lamin Kamara of Bayconfields Cooperative Credit Union, Mr. Kengo Abdul of the Kailahun Cooperative Union, Mr. Alpha Amadu Koroma of the Goderich Credit Union, Mr. Ibrahim Bangura of Tawopeneh Credit Union and Mrs. Victoria Pratt of the Passionate Progressive Credit Union underscored that the training would empowerthem to better deliver in their various responsibilities to maintain high standards in their CUs as well as increase membership and savings.
The credit union development in Sierra Leone is supported by credit unions in Ireland and Irish Aid.
The question and answer session climaxed the highly-interactive session.
