SUSU Magazine

Lt Col Trevor Browne SCM

One of the quiet success stories in Barbados has been the growth of the Co-operative sector, and particularly the financial cooperative sector, led by the Credit Unions. From modest beginnings with passbooks and weekly business sessions in the early 1990’s, this Movement has grown to a multi-billion dollar collection of operations, that now control assets approaching $3 Billion and total membership representing some 75% of all adult citizens.

Obviously there has been significant pressure placed on the Movement to move some of its assets into productive enterprises. Unfortunately, several legislative restrictions which have traditionally prevented overt investments by Credit Unions directly into such ventures, remain in place long after concerns about the adequacy of management skills at the time, would have led to such restrictions in the interest of protecting members deposits.

Credit Unions for example, are not allowed to invest in productive businesses, and even investments in other cooperatives are highly regulated and restrictive in 2022.

In the early 1990’s, Credit Unions created their own general insurance company, Co-operators General Insurance Co Ltd. The outstanding performance of this company in the general insurance field over the past 30 years, is testimony to the great potential that exists for other similar co-operative enterprises.

Energy Initiative

In 2019, the Government of Barbados adopted the Barbados National Energy Policy 2019-2030 (BNEP). This policy outlines a brilliant vision of energy transformation for Barbados, and includes a full move from fossil fuels to sustainable energy sources such as wind, solar, bio fuels etc. It also mandates the deliberate inclusion of local participation at all levels of the new energy framework

The Cooperative Movement was invited to participate in a number of stakeholder consultations on the BNEP and have since fully endorsed the Government’s energy policy. The Movement has subsequently come together to create a special national energy co-operative, specifically to focus the Movement’s interest in the new energy structure for Barbados.

As a result, the Barbados Sustainable Energy Co-operative Society Limited (also registered as ‘CoopEnergy Barbados’) was registered on 6 June 2020.

The objectives of CoopEnergy are to:

1. Support the successful rollout of the BNEP
2. Invest in the new sustainable energy business on behalf of all citizens
3. Facilitate cooperatives involvement in the new energy structure
4. Promote local ownership in energy; particularly co-operative ownership

Membership in the new society is open to any person who is a citizen or resident of Barbados and who possess a valid passport or Identity (ID) Card. This includes Barbadians in the Diaspora. Membership is also open to other local institutions who qualify, and all Co-operative Societies in Barbados are eligible for full membership.

Since its inception, CoopEnergy has been familiarizing itself with the complex intricacies of the local energy market. We have been fortunate to have had persons with extensive experience in co-operatives, engineering, accounting and legal affairs on the Board of Directors, and on other Committees. These resources have accelerated our learning curve significantly.

CoopEnergy is committed to the successful outcome of government’s energy policy. Such an outcome presents the very best opportunity for sustainable, long-term investment benefits for co-operatives and for citizens, and of course, it offers safe, reliable, and affordable electricity service to citizens.

To this end, we have established relationships with the Ministry of Energy, The Fair Trading Commission (FSC), and many of the various local and international players in the market. The objective of the energy co-op is to fill that role of representing the local interest of citizens in all major energy undertakings under the BNEP initiative.

Therefore, CoopEnergy is actively pursuing investments in major renewable energy projects with major players in the market; we are partnering with local electric / hybrid vehicle importers, and we are also actively interested in opportunities to invest in key utility infrastructure up to and including with BL&P.

In October 2021, The Barbados Light & Power submitted an application to the Fair Trading Commission (FTC) for an increase in customer rates for electricity services. The last previous increase was granted in 2010.

Several members requested that the energy co-op assume a role as Intervenor in the process, as part of our mandate to represent citizens in the new energy transformation. CoopEnergy’s application for Intervenor status was accepted in December 2021.

Our subsequent review of the information provided by BL&P in their application has reinforced our commitment to become more involved in this sector for two key reasons:

• To benefit from the very attractive investment returns available
• To bring much needed balance, and to ensure that the interests of ordinary citizens are given due consideration, when decisions about energy are being taken at the highest levels

Energy is set to become an issue of major global concern as fuel prices seem about to skyrocket across the world following the Ukraine war in Europe. Also, there is the challenge of finding foreign exchange to facilitate ongoing operations. The local situation is no less complex.

In addition to:

• The radical change planned in Government’s BNEP 2019-2030 (national energy policy)
• The expectation of rising costs to customers
• The matter of licenses for energy providers

Local customers can expect to see challenging times ahead. This is even more reason why the Co-operative Movement must therefore position itself to provide maximum support to our members in this increasingly chaotic energy market.

Through CoopEnergy, the Barbados Co-op Movement is well on the way to meeting this requirement. All Co-op members should see the need to support this cooperative energy initiative.

The credit union sector plays an increasingly important role in the Barbadian landscape as a provider of financial services. Concomitant with the growing prominence of the sector is the need to ensure that corporate governance practices are appropriate to ensure its safety and soundness. The Financial Services Commission (“the Commission”), as regulator, will shortly introduce enhanced corporate governance guidelines for all regulated sectors, inclusive of credit unions. This is especially crucial given the growing size, complexity and integration of credit unions into the financial system and their fiduciary obligation to over two hundred thousand members.

The Commission subscribes to best practices in financial cooperative supervision. As a founding member of the International Credit Union Regulators Network (ICRUN), an independent and not-for-profit association of global financial cooperative supervisors, the Commission endorses ICURN’s guidance on corporate governance. The below extract on the responsibilities of Boards and their qualifications is especially relevant to our domestic sector.

RESPONSIBILITIES OF THE BOARD

The board has overall responsibility for the cooperative financial institution^[1] (“CFI”), including approving and overseeing implementation of strategic objectives, risk strategies, adopting best corporate governance practices and values, and oversight of management. The board should approve and monitor the overall business strategy, taking into account long-term financial interests, and exposure to and ability to manage risk effectively. In discharging these responsibilities, the board should take into account the interests of members, other relevant stakeholders and, where permitted, non-member depositors and borrowers, and ensure an effective relationship is maintained with its supervisor.

Corporate Values and Code of Conduct. The board should lead in establishing the ‘tone at the top’ and in setting professional and ethical standards and corporate values that promote integrity for itself, senior management and other employees. The officers and board committee members owe a duty to the CFI to operate the institution with reasonable prudence and in the best interests of the CFI and its members. The directors owe the members a duty of fair dealing with respect to issues of membership, ownership and corporate governance. In addition, the board should ensure transactions with related parties are subject to appropriate restrictions. In discharging these duties, directors may rely on reports, advice, and other information provided by the CFI’s employees, lawyers, consultants and committees of the board of which the director is not a member, unless the director has knowledge which would make such reliance unreasonable or in bad faith. These corporate values are communicated through a code of conduct that articulates acceptable and unacceptable behaviors.

Oversight of Senior Management The board should select and, when necessary, replace senior management and have in place an appropriate succession plan. In carrying out its role of oversight, the board should:

• Meet regularly with senior management,
• Monitor actions to ensure they are consistent with the strategy and policies approved by the board, including the risk tolerance/appetite;
• Question and review critically explanations and information provided;
• Set performance standards consistent with long term objectives, strategy and financial soundness of the CFI and monitor performance against the standards; and
• Ensure management’s knowledge and expertise remains appropriate for the nature of the business and the CFI’s risk profile.

The board should ensure the organisational structure facilitates effective decision making and good governance. This includes regularly reviewing policies and internal controls to determine areas needing improvement, as well as identifying and addressing significant risks and issues.

BOARD QUALIFICATIONS

The CFI should set out expectations desired regarding qualifications, for example, work experience, education, business-oriented degrees and professional designation and training requirements for directors. Where appropriate, each director should conduct an annual self-assessment to confirm competency and identify potential areas for growth and development. Board members should be and remain qualified, when appropriate for their positions, including through training. They should have a clear understanding of their role in corporate governance and be able to exercise sound and objective judgment about the affairs of the CFI.

Qualifications The board should possess, individually and collectively, appropriate experience, competencies, and personal qualities, including professionalism and personal integrity.

Training The board should ensure board members have access to programs of tailored initial and ongoing education on relevant issues. The board should dedicate sufficient time, budget, and other resources.

Composition The CFI should have an appropriate composition of board members, for example, taking into consideration demographics, geography, and professional qualifications. This is achieved by identifying and nominating candidates to ensure appropriate succession planning and strengthening itself to meet the CFI’s long-term oversight needs. Recruiting members from a broad population of candidates helps to enhance board perspective and ability to exercise objective judgment independent of senior management and personal interests. In identifying potential board members, the board should ensure candidates are qualified to serve as board members and are able to commit the necessary time and effort to fulfil their responsibilities and to undertake any required training requirements within the timeframes established by the CFI.

Source: International Credit Union Regulators’ Network: https://nebula.wsimg.com/08b67b19f7030ca74e8fca1fe6b122ab?AccessKeyId=EB21D0068BD759C2C465&disposition=0&alloworigin=1

The Financial Services Commission places increasing reliance on the effectiveness and appropriateness of corporate governance practices in determining a credit union’s risk ratings. Where a credit union exhibits unacceptable corporate governance practices it will invariably be determined to be more high-risk than an institution with a stronger governance framework.

ICURN’s guidelines support that Board Directors must be mindful of the importance of the tone they set at the top, as it should reflect the professional and ethical standards and corporate values that promote integrity for the Board, senior management, and other employees.

In conclusion, the Commission expects that as credit unions continue to grow and evolve, greater emphasis will be placed on a number of areas, namely; establishing and demonstrating appropriate corporate values and codes of conduct; maintaining oversight of senior management via an appropriate Board approved framework; placing greater emphasis on the recruitment of qualified voluntary persons for office; providing relevant training and using ongoing self-assessments; and quite importantly, ensuring that the composition of the Board consists of the required skill sets needed to contribute to effective oversight of the credit union’s operations. Stakeholders can soon expect the Commission to issue updated Corporate Governance guidelines, underpinning its efforts to enhance the standard of corporate governance practices in its regulated sectors.

1. A CFI is the umbrella term used to include credit unions, savings and credit cooperatives, financial services cooperatives, and financial cooperatives. ↑

If you’ve ever been confused by the term “Printing Money” then you’re not alone. Almost every day we heard the phrase being used in many different circumstances and with a rapidly changing meaning. If you’re unlucky, the meaning might be changed across sentences in the same conversation. 

In this article, I’ll look to go over the most common economic phenomena that the term relates to, why they are done and what effects they can have on the economy. First off, we very rarely mean creating new paper notes when we talk of printing money. Most times, when we talk about printing money we mean debt monetization.

You can think of “printing money” to refer to any way of artificially increasing the money supply. i.e. adding more money to the economy without actually increasing economic input.

With that in mind, here’s what we’ll cover: 

1. Why would a government want to “print money?”
2. How do governments “print money”?
3. What are the possible consequences?

Why would a government want “new money”?

It’s an emergency measure to continue functioning while in debt.

Governments operate similar to businesses in that they make money (revenue) and they spend money (expenditures). Unlike most companies however, governments are almost expected to always run a deficit. This is where expenditure outpaces revenue. 

Even though a government might be running a deficit, it will still need to carry out its functions.  To do so it will need to get more money (the fancy name is called financing). 

Here’s how governments raise money:

• Earn money through tourism and other capital ventures
• Increase taxes
• Borrow from local or international institutions
• Get “newly created money” from the central bank

What would the government need to get “newly created money”?

A government itself cannot put new money into circulation. Only the central bank can create new money by buying government debt i.e. bonds. 

Firstly, the money is new because the central bank can essentially hop on a computer and create new credit with the click of a button. 

Secondly, the process is artificial because debt instruments such as bonds are only promises of pay. They aren’t real money, and they do not have any inherent value.

Explain that one more time please?

It’s a two step process:

• Governments issue bonds.
• The Central bank buys these bonds – sometimes with money that didn’t previously exist.

As the government bounces back from whatever emergency occurred it will need to repay the central bank.

Why can it possibly be bad?

Inflation is the theoretical answer.

The problem with artificially increasing the money supply is inflation. With more money being available, the theory is that producers will charge more for their products – resulting in an overall increase in the cost of living. Since no new economic output is being realized, individuals may not be making enough money to keep pace with the runaway inflation.

Furthermore, the government could issue more bonds to be bought by the central bank in order to pay off old bonds – a potentially endless cycle where the government never actually pays back its debt to the central bank.

Overall, it’s important to remember that it is the central bank’s reason for being to manage the money supply and stop a country from spiraling into inflationary purgatory. Other ways central banks can influence the supply of money include: adjusting interest rates and modifying reserve requirements.

Conclusion

“Printing Money” in this sense is still a relatively new concept – having mostly examples with the 2008, 2009 crisis and now here again with the COVID pandemic. Economists themselves are split on the process with some expressing concerns of the long term effects with others being convinced of it being the only solution in extreme times such as these.

For now though, I hope this article was able to clear up some of the confusion surrounding this rather taboo topic.

Every working-class citizen is excited about the prospect of retirement. For many who are fortunate enough to reach this milestone, it represents a period of bliss and relaxation after years of dedicated service to the economy. However, our individual experiences in retirement will differ depending on the pension decisions we make while we are employed. It is imperative that we understand what our expected “payout” will be to ensure we have the best retirement experience. To capture this we must understand the types of pensions available and what we can do to maximize our benefits.

First, there are three types of pensions available, they are: state pension, defined-benefit pension and defined-contribution pension. Our National Insurance Scheme (NIS) is the state pension in Barbados. It is a government-run insurance benefit which works by collecting premiums from the current working class to make payments for a variety of claims including pensions to retirees. The maximum received depends on the amount of contributions made to the fund during the individual’s work tenure. Meanwhile, Investopedia describes the other pensions as, “…a defined-benefit plan—also commonly known as a traditional pension plan—provides a specified payment amount in retirement. A defined-contribution plan allows employees and employers (if they choose) to contribute and invest in funds over time to save for retirement.”

To dive further into the National Insurance Scheme, there has been increased scrutiny over the ability of the Scheme to continue paying premiums well into the future. Low birth rates, less self-employed contributors, rising unemployment and economic contractions are among the factors attributed to the current state of the Scheme. Persons can retire at any age, between 60 to 70 years old, with persons retiring before 67 being subject to adjustment rate decrease of 0.5% per month for each year early. While persons opting to retire after 67 have an increase of 0.5% per month for each year late. To estimate the expected pension received, the NIS has provided the below examples on their website:

For persons aged 56 or over – on 31st December 2002, their pension would be calculated using the old basis.

Contribution Weeks 1,100 weeks (22 years)

Annual Average (of the best 5 years) $35,500

Aggregate Earnings (after first 500 contributory weeks) $426,000

Calculations:

Basic annual pension = $35,500 x 40% = $14,200

Supplementary pension= $426,000 x 1% = $4,260

Total Annual Pension= $14,200+ $4,260 = $18,460.

Weekly Pension = $355

For persons under 47 years – at 31st December 2002, their pension would be calculated using the new basis.

Contribution Weeks 1,100 weeks (22 years)

Annual Average (of the best 5 years) $35,500 Calculations: 2% for each year for the first 20 years and 1 ¼% for all subsequent years

(For this example, the subsequent years will be 22 years – 20 years =2 years)

Calculations:

Basic annual pension = 20 x 2% x $35,500 = $14,200

Supplementary pension = 2 x 1 ¼% x $35,500 = $887.50

Total Annual Pension = $14,200.00 + $887.50 = $15,087.50

Weekly Pension = $290.14

For persons aged 47 and over but less than 56 years on 31st December 2002, their pension would be calculated using 50% new and 50% of the old basis.

Weekly Pension calculated using Old-Basis (from Part 1 above) = $355.00

Weekly Pension calculated using New-Basis (from Part 2 above) = $290.14

Calculations: ½% of the “Old-Basis” total + ½% of the “New-Basis” total = ½ of $355.00 + ½ of $290.14 = $177.50 + $145.07

Weekly Pension = $322.57

Despite the obvious perks of the National Insurance Scheme, this should be used as a foundation or the first building block towards an effective retirement portfolio. An additional plan whether it be defined-contribution or defined-benefit would provide an additional level of security with more reliability. To expand on this point, consider again the type of retirement experience you would like, we all want to have the best experience and that will not be accomplished by accepting the bare minimum needed. Furthermore, none of us possess the ability to see into the future and with the current economic conditions, high costs of living and low purchasing power, we must be better equipped to handle life’s eventualities.

In Barbados, most private sector businesses offer pension plans to employees where investment options are decided on by each employee. The progress on the individual’s plan is provided in an annual pension statement and over the life of the plan each person determines how to alter their investment strategy to maximize the benefit received. However, the NIS and the pension program provided by the private business does not represent our final hope. We also have the ability to enter into a Registered Retirement Savings Plan offered by several financial institutions across our island. This plan allows us to choose an investment strategy, determine the tenure of the plan, track the progress and indicate the contribution to be made. At maturity, if an individual decides to take all their cash, three quarters of the cash is subject to a 25% tax while the remaining quarter is tax free. Alternatively, some or all of the proceeds can be transferred into a single premium annuity to defer the taxation levied. With the single premium annuity, there is a single initial lump sum paid in (the pension proceeds) then the individual immediately receives monthly repayments of the purchase price, along with interest during their retirement. This additional income would provide some much needed support during retirement and can relieve the stress and burden associated with simply having one plan.

In closing, let us remember the old adage “proper planning prevents poor performance” and liberate ourselves from the heavy reliance on other institutions to determine what is best for our future. We must make conscious and consistent decisions regarding our retirement plans by proactively exploring our options. We hold the keys to our future; it is about time that we use them to unlock our fullest potential.