Article by Bill Summers, CEO of the Permaculture Credit Union
Barclays, Peregrine Financial Group, Madoff Investment Securities and Galleon Group are instantly recognizable organizations whose actions, over the last several years, have significantly affected the confidence the public has in our financial markets and institutions. With Barclay’s it was manipulation of LIBOR rates, Peregrine was a case of embezzlement, Madoff Investment was a long-running ponzi scheme and Galleon Group was a case of insider trading. Every one of those organizations was a for profit, publicly traded company that was supposed to have the best interest of the stockholders at heart. That doesn’t appear to have been the case.
By contrast, credit unions in general, and Permaculture Credit Union (PCU) in particular, operate as non-profit entities with a cooperative ownership structure a democratic decision making process and are designed to serve the needs of their members rather than simply to financially benefit stockholders and investors. Given the performance of the for profit, stockholder owned model, it’s no wonder that in the last couple of years, the profiles of credit unions have increasingly grown in recognition and support as community based, trusted financial institutions.
Permaculture Credit Union Overview
Established in 2000, the Permaculture Credit Union is chartered by the State of New Mexico and members accounts are insured up to $250,000 by the National Credit Union Administration (NCUA). The mission of the organization is to pool the financial resources of people who believe in the ethics of permaculture – care of the earth, care of people and reinvestment of the surplus for the betterment of both – and apply those resources to earth-friendly and socially responsible loans and investments. In addition, the credit union is to promote thrift among its members, to create a source of credit for them at fair and reasonable rates of interest.
While the membership of most credit unions is based on an organizational or geographic relationship, the Permaculture Credit Union is open to any person that is affiliated with a permaculture institute, has completed a permaculture design course or agrees with the previously listed ethics of permaculture. We are, in fact, the first and only permaculture financial institution in the country and because of the way our “field of membership” is defined, any person in the United States, regardless of where they live or work, can become a member of the credit union.
In the original Credit Union development plan submitted to the NCUA in the late 1990’s it states, “The Permaculture Credit Union will provide a meaningful alternative to traditional banks that are not responsive to the consequences of their investment and lending activities upon the Earth and its inhabitants. Our goal is to provide our members the opportunity to use and control their money to improve their personal economic and social conditions as they contribute to a revitalization of local economic well-being.” It’s stunning to think that the founders of the Permaculture Credit Union, over a decade ago, were mindful of the shortcomings of the financial system to the point that they felt it necessary to conceive and develop an alternative to more effectively serve the community.
Community Counts
Since the first credit union models sprang up in Germany in the late 1800’s – to serve poorer urban and rural communities – they have been organized according to cooperative principles and the members had a social connection, or what is referred to as a bond of association. This enhanced relationship among the members was fundamental to the success of the organizations and remains a core principle of credit unions and other community based financial institutions today. Numerous examples exist where loan funds and other types of programs have made considerable impacts in communities that had not been served preciously or had been served by predatory organizations. The organizational connection to the community and a true interest in delivering impactful programs inevitably lead to on-going program success.
One of the programs offered by the Permaculture Credit Union today involves organic farmers throughout the State of New Mexico. The program has been designed to be financially self-sustaining while maximizing the impact it delivers to the participants/borrowers. Every facet of the program has been crafted with the recipients in mind – from the loan application process, to the approval process to the flexibility allowed in the design of the repayment schedules in order to meet the unique needs of the borrowers. Recipients that would have little chance to receive financing through more traditional channels, receive it through our program and the repayment success of the program – less than 1% default rate – far outstrips the performance of other small business loan programs. In addition to program design, it demonstrates that the participants appreciation of their involvement in a community-based program, and that their performance will have a direct impact on the community, positively influences their performance to both their benefit and the benefit to the overall community.
The most exciting aspect of a program like this is that it can be replicated with other types of communities, in other parts of the country, with the same impact and an equal level of financial success. It’s not inconceivable that beneficial partnerships could be established with dozens or possibly hundreds of time nationally.
Changing Revenues & Interests
The Permaculture Credit Union today, acts as a trusted provider of financial services to our members. Members belong to the credit union for a variety of reasons – they simply want to support an organization with our purpose and underlying sustainable philosophy, or they do not want to be affiliated with “big box” financial institutions or because of our menu of sustainably-oriented products and services are attractive.
Over the last 20 years financial institutions have begun to rely more and more on fee income and consumers are becoming more sensitive to that development. In 1991, 7% of organizational income was fee-based and by 2011 that had grown to 24%. At the end of the last month, less than 1% of the income of the PCU was attributable to fees. It’s unlikely we will always be able to maintain that level of fees indefinitely, but our members know we will make every effort to do so.
A significant source of income in the financial services market is overdraft fees. Over $35 Billion in insufficient fund and overdraft fees are paid by consumers every year with roughly half of those fees being charged for debit card and ATM overdraft fees. Beyond that, 10% of banking customers – mostly low income – pay around 90% or overdraft fees.
With a stated goal of promoting thrift among our members, creating a source of credit for them at fair and reasonable rates of interest, and providing them with the opportunity to use and control their money to improve their economic and social condition the approach of the credit union is to assess fees only when it is appropriate and necessary to recover costs.
We will be making our first foray into electronic banking with a Permaculture Credit Union VISA card in the 4th quarter of 2012 with plans to add a debit card in the future and our current and future product design will reflect that 75% of consumers would prefer to have a transaction declined rather than pay a $35 fee and you can be assured that standard “Overdraft Protection” offered by other companies, with an “Overdraft Penalty” – in keeping with our interest of promoting thrift among our members.
Financial Services as a Utility
Much has been said about the existence of single (economic), double (social & economic) and triple (social, economic & environmental) bottom line approaches to business. As evidenced by past behavior, the financial services industry has focused heavily on the single bottom line of economic profitability and return on investment – to the exclusion of everything else and the detriment to many consumers.
Due to our community-oriented roots and philosophical underpinnings, the Permaculture Credit Union has always viewed our operations as well as our member relationships from a triple bottom line perspective and believes it’s important for organizations to build the positive impact on members into the value proposition surrounding every product and service delivered.
In this day and age, given the uncertainty that consumers feel in the financial marketplace, fundamental services should be viewed and delivered much like basic utilities – easy to understand, simple to acquire, reasonably priced and offering no surprises or shocks. The comfort and security provided through this approach would go a long way in restoring the consumer confidence that’s in short supply today.
A Sustainable Future
“If you have a dysfunctional institution, don’t try to change it, that’s like wrestling with a “tar baby”. Rather, determine what that institution was supposed to deliver and design a better system to actually deliver that purpose or service. If you have done the thing correctly, then people will come to you for that. The old institution will eventually whither and die.”
– Bill Mollison
The next 20 years of sustainable businesses and investing will be more evolutionary than the revolutionary period of expansion and contraction we’ve seen recently. The PCU in particular will continue on as our founders originally intended, to be a steward of our members’ assets, a trusted provider of financial advice and services, and an organization that continues to listen to and interact with the community we serve.
Recognizing that a significant portion of the financial services market is, from the consumers perspective currently viewed as dysfunctional, we will continue to grow into a truly viable alternative while focusing on the development and delivery of impactful products and services with a strong orientation towards reinvesting in communities. Reflecting the sentiments of Bill Mollison, a founder of permaculture, we’re going to move down the path set by our founders, continue to lead by what we firmly believe is good example and wait for nature to takes it course.
Article by Bill Sommers, CEO of the Permaculture Credit Union (www.pcuonline.com )
Born and raised in the Midwest, Bill worked with several different financial service companies early in his career, gaining experience in branch operations, mortgage lending, direct and indirect consumer lending and loan servicing. Success in those areas led to a move to the East coast, where he joined a small but growing secondary market and worked in marketing and strategic planning before switching into systems development. On the systems side he managed a group that provided operational support services to commercial banks and credit unions throughout the country.
Those times were enjoyable and offered great challenges, after realizing that they were no longer living in the same city most of the time, Bill and his wife made the decision to leave the corporate life and bought a small business in Virginia. Over the next several years, they returned it to profitability and expanded it to the point that it was attractive to an outside buyer.
Following their arrival in New Mexico, Bill learned of an opportunity where he could put his banking and finance experience to use and address an interest in the non-profit world by joining a Tribal housing organization. While serving as Executive Director, he started a consumer-oriented loan fund – to support the personal and financial sustainability of individuals and families in an underserved area and stimulate economic development through housing development and homeownership – that was ultimately spun off into a free-standing Community Development Financial Institution (CDFI).
The opportunity to join Permaculture Credit Union is extremely attractive to Bill because it offers opportunities on a number of fronts: pursuing his interest in fostering sustainability, bringing community-oriented services to an underserved nationwide market and demonstrating that triple bottom line benefits can be successfully delivered by a mission-driven financial institution.
During a recent conversation Bill said, “The care and effort put into crafting the Credit Union’s mission, as well as the development effort that has occurred over the organization’s first decade in operation, had created a solid foundation for truly exciting and impactful growth over the next 10 years and beyond.”
