CUs are supposed to make a profit. It’s what they do with the money that makes the difference.
That’s the overly-simplified takeaway I had from listening to William Azaroff speak at CUWCS last week. Azaroff is the Director of Business & Community Development for Vancity Credit Union, which happens to be a rather big CU in Vancouver, British Columbia.
What is truly unique about Vancity, is that they “make Good Money by putting money to good.” In other words, their goal is to make money and do good simultaneously. Mission is intimately intertwined with margin (think of the yin/yang symbol) and they believe that if you do the right thing, business will follow. But while they are also unabashedly pro-profit, their values-based philosophy would work for any credit union of any size in the US.
After all, they started a lot like every other credit union, by 14 people chipping in $5 each. From these simple beginnings Vancity has become the largest CU in Canada, with over $16B assets, 58 branches and almost a half-million members. They are based in Vancouver, the most expensive city in the world to live in, where the average home is over $600K (and it isn’t even a standalone house.) Plus they have accomplished all this in a country where credit unions are taxed like banks (but more on that later.)
So how have they done it? By connecting money to opportunity, and their growth to the impact they can make on the lives of their members and on the community.
No, that doesn’t mean they simply donate to charities. Sure, in the past, they were like most FIs – they used to make money, then give it back to the community. Now they earn money through how they give it out; they invest money in the community (first $$ in, not last $$ out) in order to obtain maximum results. They don’t see it as “do-good” work, but as smart business, and while they still look for an ROI on their money, they also look at how it affects the community.
“If you don’t have a strategy, everything will go to kids, cancer and dogs.”
Vancity uses various means as levers to enact mission: Granting (helps decide best places to invest), Lending (financing the investment), Procurement (how what they spend for the CU helps the community/members, i.e., put their money where their mouth is), People (teaching all staff how to be coaches/help other organizations), and building a Cooperative Network (connecting members to each other.)
They are also particular about which groups they support. One example is Sole Food Street Farms, a cooperative urban farm that grows local food, located on an undeveloped parking lot, using platforms that can be moved in 24 hours if needed. Vancity not only helped finance the project, they also lobbied the city for things like permits and a tax exemption for the business.
If credit unions are all about community, why don’t most have community strategies?
Azaroff believes every credit union can and should do something similar to what Vancity is doing. It’s part of how he sees the evolution of CUs.
When credit unions started out, they were SEG-focused with a common bond. Call that version 1.0. Today, CUs are on version 2.0: open to everyone, undifferentiated, and watered-down. That’s why it’s time for credit unions to move to version 3.0, and become focused on both member and community needs. After all, aren’t CUs the financial equivalent of Buy Local?
Vancity also belongs to a group called the Global Alliance for Banking Values, promoting values-based banking by 25 banks and CU’s from around the world (but none from the US in the group.) In a study comparing 25 values based banks with 29 “too big to fail” banks between ’03 and ’12, they found that sustainable banks lend 2x as much of their assets (75.9% to 40.1%), rely more on customer deposits to fund balance sheets instead of moving money around (73.1% to 42.9%), and consistently deliver higher returns on assets.
Stop telling yourself you can’t do this.
Azaroff is tired of hearing comments like “Vancity can do this because they’re big” or ”We can’t because our board and exec team would never go for this.” He believes Vancity became big because they listened and responded to members. Your approach should be “We can’t afford not to.”
Stop focusing on taxes.
While CUs in the US are fighting for a tax exemption, Canadian CUs are sitting back wondering why. After all, Canadian CUs pay taxes and they have had strong growth for decades. That is partly because a major part of Vancity’s growth and their mission is business lending.
As Azaroff suggests: “If the thing that says we can’t do biz lending is paying taxes, then pay taxes. Business lending is too important. If tax status is what we are engaging our members about, then we don’t have much to talk about. Use that energy toward something more productive.”