Many credit unions in Ireland and the UK have considered lending to micro-, small and medium sized businesses (SMEs), in order to serve their communities more broadly and to make more economic use of high levels of liquidity. and credit unions often lend to small businesses in the form of personal loans to the business owner for actual or quasi-business purposes.

But few credit unions offer a specific business loan product. Despite low loan-to-asset ratios, lending by credit unions in Ireland is operating below the capacity allowed for in the revised lending maturity limits that were defined by the Central Bank of Ireland in 2016.

Last year, a team from the Financial Services Innovation Centre at Cork University Business School, Ireland, won the CFCFE Credit Union Research Prize 2020* with a proposal to look at how credit unions in Ireland can lend more effectively to SMEs. The research focuses on the twin challenges of SME lending by credit unions, exploring what levers might build confidence in lending to SME’s, such that loan books begin to grow again. It looks at examples from other countries, and examines the role of collaboration and technology in supporting the design of new services. Initial findings for the limited presence in this market suggest the reasons are a lack of underwriting expertise, the low risk appetite of CEOs, a cultural perception of micro-enterprise lending as personal, and a mis-match between CU business models and evolving member requirements. The project has been extended to take into account early lessons from the participation of CFCFE corporate member Metamo credit unions in the Irish Government’s €2bn COVID-19 Credit Guarantee Scheme, and publication is expected in April or May.

*Submissions are invited for 2021’s Credit Union Prize – entry deadline 26th March.

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