Recently we have been looking at some of the courageous groups that started credit unions in the 1990s – a time when conventional wisdom said it was a bad idea. While they each were only short-lived, there were no financial disasters among them, they simply merged or were reabsorbed into the entities from which they came. One of these cases was Korean Community Credit Union (KCCU) which was started under the ‘incubator model’ in 1993.
Australian Credit Unions Magazine ran a substantial story in their June 1995 issue on the foundations of KCCU. It covered the reasons why the Korean community in Sydney were looking to start a credit union as well as the difficulties of starting credit unions in the 1990s – a difficulty that remains. At the time, Community First Credit Union thought they’d found a solution to the problem in the ‘incubator model’.
The ‘incubator model’ saw the new credit union set up almost as a brand of an existing credit union. The incubator (in this case Community First Credit Union) would provide the necessary start-up capital, administration services and expertise. The idea was that eventually the start-up credit union would be strong enough to stand on its own two feet. Unfortunately, this never happened with KCCU seemingly merging in 2001. The records are unclear on this.
The Australian Credit Unions Magazine story provided more details on the administration of KCCU:
The incubator system is not designed to carry the fledgling credit union. A separate balance sheet for KCCU is maintained and Community First recoup some of their overheads by charging KCCU a management fee.
Joseph Kim, a prominent member of the Sydney Korean community was the impetus behind the founding of KCCU. Australian Credit Unions Magazine noted:
Since Joseph Kim arrived in Australia from Seoul in November of 1987, he’s become well acquainted with the financial plight of immigrants. Initially working as a consultant to the Korean Community in a real estate office in Baulkham Hills, Kim was soon entrenched in the problems members of his community had in getting housing finance or for that matter, any financial products via the customary channels of retail banking.
As new immigrants, Korean customers had no credit rating and their applications for both housing and personal loans were typically refused. Of course, there were other avenues available. The Korean Exchange Bank is a specific financial service provider to the Korean Community but presently does not offer a full range of banking products and services. While a full range should be offered by the year 2000, customers currently do not have access to ATM facilities, cheque accounts or the availability of personal and car loans.
This dilemma led the local Korean community to establish personal loan clubs. Perhaps inevitably, one of these loan clubs went bust and it was this that ultimately led Kim to the credit union idea,
“Korea is very successful with credit unions in small business and since there are only 30,000 Koreans in Sydney, I thought it might be suitable for us to have a credit union”, Kim said.
The final question asked by the magazine was what’s in it for the incubating credit union? All that trouble and expense and for what? Community First General Manager Keith Delaney’s response was:
We were trying to find a successful model that would help start new credit unions. The main point was to see if it could be done. Of course it also gives us experience developing into other areas and marketing Community First to different groups. Essentially, however, it’s for the good of the movement.