Development Best Practices in Credit Union Supervision: Problem Resolution by Credit Union Management

This paper discusses the most common and potentially serious five operational problems in credit unions. It suggests the:

• Key questions to identify causes of each problem;
• Practical steps for problem resolution.

High or uncontrolled loan delinquency - The suggested solutions:

• Accurate identification and disclosure of delinquency;
• Design of report formats that capture key information for decision making;
• Adopt measures such as rescheduling or rewriting of loans;
• Revision of credit policies, loan review and collection practices.

Inadequate or falling net income - The suggested solutions:

• Revise loan and savings interest rates and dividends;
• Monthly comparison of credit union loan rates with competitor rates;
• Periodic review of operating expenses;
• Cash flow analysis for effective cash utilization.

Accounting records being out of balance and/or seriously in errors - The suggested solutions:

• Monthly accuracy review of accounts;
• Support general ledger account balances by subsidiary ledgers;
• Timely accounts closure and financial statement finalization.

Excessive dependency on external credit - The suggested solutions:

• Focus on mobilizing member savings;
• Design client-oriented products with fair rates of return;
• Ensure institutional capital to absorb losses and protect member savings;
• Proper liquidity management.

Use of share multiple lending - The suggested solutions:

• Revision of credit policies and procedures;
• Design credit granting systems with multiple tiers of loan approval;
• Build credit history of clients with the union.