The arrival of Bank of Scotland and Northern Rock in the Irish market has led to much soul-searching about the impact on banks and building societies in the Republic.

But little attention has focused on the challenges faced by another set of deposit-taking and lending institutions, ones arguably more dependent on this type of business than anyone else - the credit unions.

Many hold their annual general meetings next month to determine how to distribute their profits for the year among members. They will be grappling with a range of issues, not least the increased competition in the marketplace.

However, it is the lending side of its business in a highly competitive, low-interest rate environment that most preoccupies the credit-union movement at present rather than concerns about attracting savers.

Northern Rock's arrival offering savers a rate of 4 per cent on demand deposit accounts, may have sent shivers through the banking industry. But it is not expected to impact significantly on the credit unions which are already offering depositors interest rates that are well above those available elsewhere.

In addition, the credit unions do not see themselves as being directly in competition with such lenders.

"What we want in the credit union are people who are committed to a co-operative," says Mr Tony Smyth, general secretary of the Irish League of Credit Unions (ILCU). "We are not a High Street funds chaser."

Many credit unions have enjoyed a substantial inflow of funds in recent years as depositors, seeking a better rate of return than that on offer from other financial institutions, turned to the credit unions.

But the movement is not particularly keen on attracting what the ILCU describes as "speculative money", savings that are there simply because the rate is the best on offer because such money departs as soon as a better rate becomes available elsewhere.

Instead, they want those who buy into the whole mutual ethos.

"Credit unions are community based. They deal with members not clients," says Ms Catriona Curtis, manager of the Castleblayney Credit Union which has 8,700 members in Co Monaghan. "Each credit union has its own common bond so there is a loyalty there."

But the movement is not naive enough to rely on just loyalty to retain its members in a cutthroat marketplace. Credit unions are quick to point out the many financial advantages in saving with and borrowing from the mutual co-operative rather than from your local bank or building society.

Credit union rates vary depending on the reserve position and profitability of the individual union but the ILCU says the average dividend being paid to savers remains at around 4 to 5 per cent although a number of credit unions have been reducing this of late. But, in a stark reversal of the situation that pertained 20 years ago when there was big demand for money and little in savings to satisfy it, it is ensuring that lending keeps pace with savings that is now the challenge.

The movement was keen to nip in the bud an emerging tendency to save with the credit unions, where rates of return were higher, while availing of the lower rates of interest on offer from the bank and building societies for borrowings.

"The credit union doesn't survive without borrowers," Mr Smyth says, noting that 90 per cent of the income that contributes to credit unions' surplus comes from loan interest.

However, he says that more than half of the State's 432 credit unions have by now cut their lending rates from the traditional rate of 1 per cent per month, or an APR of 12.68 per cent, while a considerable number have also been testing the market by offering rebates on interest payments of up to 20 per cent.

Ms Curtis, for example, says the Castleblayney credit union cut interest rates by 20 per cent from 1 per cent per month to 0.80 per cent in January or from a headline figure of 12 per cent to 9.6 per cent. In addition, the credit union is offering borrowers a 10 per cent rebate on their interest payments for the year to September.

In Dublin, the Drumcondra credit union will consider a similar rebate system for borrowers at its annual meeting next month.

At present, the average credit union lending rate is 0.9 per cent per month although in some cases, it has been cut to as low as 0.6 per cent.

But even a like-for-like comparison with the personal lending rates on offer from the banks - typically around 10 per cent - is not fair, the ILCU says. It points out that unlike other institutions, credit unions calculate interest payments on a reducing balance.

And the rates are not the only draw for borrowers.

Credit unions point out the many extras that go with such loans. Free life assurance, so that if you die the loan dies too, and death benefits such as £1,000 toward funeral expenses, are added attractions.

In addition, the possibility of rebates when the union's surplus is distributed among members at the end of the year is another encouragement for borrowers while there are no early repayment penalties or arrangement charges involved in such loans.

The lower rates and rebates have been successful in bolstering the union's lending, which is growing at a rate of around 16 per cent per annum. But loans continue to be outstripped by savings which are increasing at a rate of 20 per cent.

The ILCU believes that now that it has largely addressed the loan issue, it needs to step up its marketing effort so members are fully aware of the value on offer.

"We do have to start marketing, getting our message across to young people," Mr Smyth says. "The real challenge is to sell the co-operative principle in an environment that's cutthroat and competitive."