June 16, 2002
By Raffique Shah
FOR the sake of the country and more so for members of the Hindu Credit Union, I trust that Prime Minister Patrick Manning and his bungling Junior Finance Minister and Labour Minister were not politiking when they made an about-turn and gave the HCU a clean bill of financial health. Ministers Conrad Enill and Lawrence Achong had earlier alleged that certain aspects of the operations of the HCU were under investigation. Their alarming statements followed a frontal assault on the institution by Maha Sabha secretary Sat Maharaj. For three prominent persons in the society to slam into any finance house at the same time is to expose the business to loss of confidence by depositors, which could have dire consequences not only for the institution named, but for others in this most sensitive sector of the economy.
Both ministers should therefore have offered their resignations for the gaffes they made. How on earth could a minister in the all-important Ministry of Finance "just ups and say" that a multi-million-dollar enterprise that relies on public confidence for its success was under investigation without first checking his facts? That is an unpardonable sin, given his portfolio. Achong, too, ought to have first checked the facts before opening his mouth. Based on their about-face within 48 hours, the public can conclude only that both ministers suffer with acute foot-in-mouth infections, that they have no regard for the stability of the financial sector. Worse, their unsubstantiated pronouncements caused the Prime Minister to be subjected to a rowdy demonstration, and to charges of being anti-Hindu.
Interestingly, even as the ministers backed off, Maharaj has not wavered in his denunciation of the institution. It had strayed from its Hindu moorings, he argued, and until such time as he and his executive were satisfied that the credit union proved that it was worthy of the name it bears, he would not relent. The controversial Maharaj has been accused of being upset that the HCU expanded rapidly after it allowed non-Hindus to join. He has not rebutted that allegation. But he has referred to the institution venturing into areas that are unconventional (as far as credit unions go), and its management and leaders enjoying lifestyles that are inconsistent with the goals of credit unions.
Speaking with Trevor Alleyne, president of the Cooperative Credit Union League about these matters last Wednesday night (on my programme on I92.5 FM), he said that there was nothing wrong with credit unions entering into investments and business-so long as members' funds were secure. He also defended the lifestyles adopted by the leaders and management of successful credit unions, saying that they had to hire professionals and look professional if they were to be greater successes.
So far, so good. All hail to the HCU for expanding its miniscule membership base from almost zilch when it was formed back in 1985 to a stunning 100,000-plus today, which is close to 25 per cent of membership of all credit unions in the country. Its asset base has reportedly crossed $500 million and it's virtually on a "loans spree" if I am to believe many people I know who have joined it. In fact, in instances it has offered certain customers to take over the loans they currently hold with banks if they would put all their business into the HCU. With the banks remaining with their heads stuck in the clouds as far as deposit and lending rates are concerned, that notwithstanding their high liquidity, again, all praise to the HCU.
But at the back of my mind lie memories of the financial fiasco of the 1980s. Not surprisingly, most people, even those who were victims of the collapse of a number of non-banking financial institutions during those troubled years, have forgotten their losses. Thousands of people lost millions of dollars, some of them their life savings, running after inordinately high interest rates as against the banks' frugal single-digit rates. Once more people are running blindly to any institution that offers deposit interest rates higher than the banks'. And while the latter may be quietly fuming and hoping that the inevitable will come to pass, leaving them atop the rubble of fallen finance houses, what about the greater good of the country?
The main weakness of the International Trusts and Commercial Finances of the 1980s was that they took short term deposits from people eager to cash in on the high interest rates they offered, but they, in turn, invested the money in long term projects. Except for aberrations in the financial sector, that's a recipe for disaster. Because if depositors were to claim their money-with interest-and the firm has it tied up in sluggish real estate or shaky shares on the Stock Market, then crapaud smoke the depositors' pipes. And this is why I cannot help but feel that neither the government nor the bosses at the HCU are being honest with the public.
Harnarine must level with his members and the public, although, technically, the latter have no right to know the inside affairs of any credit union. Is it true that most of its funds are tied up with one investment bank? Is that bank solid as the proverbial rock? Does the HCU know where and how that bank is investing its funds? Are their provisions for the protection of members, a safety net of sorts, should the investment bank stagger, or worse, collapse?
Lest Harnarine and his colleagues believe I'm writing nonsense, I suggest they read an article in last Sunday's New York Times, written by Riva Atlas, headlined "How Banks Chased A Mirage". The article states (in part): "Lured by dreams of quantum leaps from mergers, underwritings and strategic advice to corporate clients during the bull market of the 1990s, big banks spent more than (US) $40 billion acquiring investment banks, with relatively little to show in return except a lot of high-level turmoil in the ranks. The most prominent example of that occurred last week when Geoffrey Boisi was forced out as co-head of investment banking at J.P. Morgan Chase after two years. The performance of the investment banking business had been weak..."
If, therefore, the HCU is inextricably tied to an investment bank, its principals may need to re-examine their options before it's too late. They should remember that the higher you climb, the harder you fall. If in doubt, they should sit and talk with Gilman Thomas-Hussen, the IT boss and trailblazer of the 1980s who ended up a near-vagrant when his company collapsed like a house of cards. A word to the wise....
Copyright © Raffique Shah