Credit co-ops have been around for decades and are hardly the flavour of the month among investment-savvy types but this low-profile option offers returns of up to 10%
IT DOESN'T take an investment guru to know that putting your money in a plain vanilla savings account will hardly produce a pot of gold at the end of the rainbow. What with interest rates languishing near rock-bottom levels and a gamut of administrative charges to boot, you may well be better off stuffing your hoard of cash under the mattress.
But what are the options? Fixed deposits give better returns, but only marginally. Its more fancy cousin, structured deposits, along with unit trusts, are both better bets but require a certain appetite for risk. No wonder real estate investment trusts (Reits) have been all the rage since their introduction three years ago.
Reits - listed entities which generate income from rent collected from the tenants of leased properties and distribute gains to investors - promised tax-free yields of at least 5 per cent a year. So all the Reits here, from the maiden Reit, CapitaMall Trust, to Ascendas Reit, Fortune Reit, CapitaCommercial Trust and Suntec Reit, have sparked major interest from droves of investors. The Macquarie International Infrastructure Fund (MIIF), which forecast an annualised dividend yield of 7.1 to 9 per cent, is of course, the latest market darling.
But long before there were Reits and global funds, a low-profile investment instrument of sorts, was quietly dishing out equally attractive payouts. In some cases, yields have been as high as 10 per cent.
How it all started
CREDIT cooperatives, or what began as Thrift and Loan societies, were introduced in the 1920s as an alternative source of funds to loan sharks and money-lenders for the man-in-the-street. At a time when financial institutions in Singapore were few and far between, co-op societies were founded in order to offer self-help and mutual assistance to their members. They operated largely as primitive banks - a place for individuals to place their savings and obtain loans.
But these days, many of them have evolved to function much like collective funds - so members take an equity stake, which is then channelled into income-generating investments and distributed as dividends.
The first co-op to be registered here, the Singapore Government Staff Credit Cooperative Society, is a classic case in point. Set up in 1925, the then-Singapore Government Servants' Cooperative Thrift and Loan Society was just that - a thrift and loan body for workers in government-linked companies.Today, the bulk of its income still comes from loans to its 6,500 members charged at 6 per cent interest but it has also put money in structured deposits for instance. Meanwhile, the number of co-ops in Singapore has ballooned to 88 now, figures from the Registry of Cooperative Societies show.
Industry regulation
THE registry, which falls under the jurisdiction of the Ministry of Community Development, Youth and Sports, regulates the various co-ops under the provisions of the Cooperative Societies Act. The Act sets the framework within which they can operate, including restrictions on loans and borrowings, criteria for membership and a cap on dividend payout at 10 per cent of share capital. It also defines the scope of investments that a society's funds can be channelled into - fixed deposits, trustee stocks, buildings and shares of
another co-operatives. Other investments or business ventures have to be approved by the registry. While many co-ops make their money from interest on loans, rent on property
and investment gains, some have come up with more imaginative ways to make money than the typical investment route.
For example, the Methodist Cooperative Society puts the bulk of its surplus funds in fixed deposits but also does outdoor catering and runs a casket company - supplying services for its members which generate income. The co-op, termed a 'hybrid of social purpose and business' by general manager Lawrence Ang, paid out 10 per cent in dividends and bonus shares to its more than 400 members over the last three years.
Keeping a low profile
BUT co-ops, despite their historic roots and generally higher returns, have stayed largely out of the public eye. That is because eligibility for membership was often confined to a certain group of people in the beginning, either by profession, religion or employee status.
Some maintain their exclusivity to this day. About 80 per cent of the Methodist Cooperative Society's members are Methodists, the rest are Christians of other denominations. The NTUC Thrift & Loan Cooperative, one of the 11 co-ops of the National Trades Union Congress, also accepts only members of NTUC. It has more than 50,000 members.
But for others, this has now changed.
The Telecoms Credit Cooperative, which started in 1928 and is one of the oldest co-ops around, has thrown its doors open to members of the public since 1996. Prior to that, it catered exclusively to staff of the present SingTel and SingPost. Paying out dividends of 3 to 5 per cent each year, it now has 28,000
members. New kid on the block - the Singapore Remisiers' Co-operative - has welcomed 'anybody and everybody' from the time it was set up in January last year. Said its chairman, Mr Yap Swee Hoo: 'We are open to remisiers and dealers, ex-remisiers and also the public. In fact, the umbrella for membership is nationwide, depending on how you craft your constitution.'
Indeed, figures from the Singapore National Cooperative Federation, the apex association of 73 co-ops here, reveal that they jointly had over 1.4 million individual members as at the start of last November.
Getting membership
TO BECOME a member of a co-op, people typically pay a nominal membership fee, as low as, say $10. Then, depending on the co-op, members buy shares or have a monthly amount deducted from their salaries if the co-op is linked to their employer. So are co-ops the way to go for small investors?
Financial advisers interviewed think so, but offer one caveat: Go for the older and more established ones, if you qualify for membership, that is. These tend to be safer, having built up a legacy of sound investments and a track record of good payouts. And newer co-ops need time to build up their surpluses before they can start handing out any dividends.
Mr Mervyn Goh, a principal partner at First Principal Financial, cited Singapore Press Holdings Cooperative Thrift and Loan Society {Correction: see CR mnemonic} as an example of a good choice. 'It has consistently given out 6 per cent or more in dividends. Given its level of risks, it's hard to outdo that, so it's actually an excellent return,' he said.
Promiseland Independent's associate director, Mr Patrick Lim, pointed out that there were good alternatives in the market with high returns such as government bonds. However, 'if a co-op is properly managed and people of integrity are managing the fund, I would say that they are good forms of investment', he added.