The Irish League of Credit Unions is calling on the Government to make changes that would allow the sector to finance social housing and a National Retrofitting Plan for up to half a million older homes.
It is among a number of proposals being put forward by the league, which represents 226 member credit unions across the country.
The ILCU accuses successive governments of having failed to work with credit unions to better utilise their assets and 'unlock their potential to give back to communities'.
"Policymakers continue to view credit unions' strong and growing asset base as a problem which needs ever more regulation," ILCU President Gerry Thompson said.
"They are failing to grasp the opportunity to leverage these significant funds to support the development of communities across the country."
The league believes its asset base of €18 billion could be used to fund social and community development as the country seeks to recover economically from Covid-19.
In order to achieve this, the ILCU said it is necessary to immediately reduce the capital reserve requirements from the current 10% to 8%, bringing them into line with international norms.
It said the current reserve requirements are contributing to a situation whereby credit unions are restricting deposits from members, in some cases as low as €15,000 per saver.
Increased savings from some members during the pandemic shutdown - in parallel with reduced lending volumes - has created what the ILCU refers to as a 'perfect storm.'
"We now have a scenario where a member cannot save, in full, with us for important but relatively modest purchases such as a new small car, their wedding or a deposit for a first home. The ability of credit unions to meet the needs of members and be the 'peoples' bank' is being undermined," Mr Thompson said.
The ILCU is also seeking policy reforms to allow credit unions to expand their mortgage and business lending services.
Speaking on RTÉ's Morning Ireland, Mr Thompson: "The report is clear. Ultimately nothing short of structural change is really going to allow us reach our potential."
He said the Covid-19 pandemic has brought numerous challenges and "amplified the limitations" of the credit union.
He said they are hindered by regulations that have prevented the expansion of mortgage and business lending and want to be allowed more, adding, that "dipping our toe" into it is not enough.