Welcome to Ukrainian FCU!
Today: Thursday, Sep 02, 2010
Today: Thursday, Sep 02, 2010
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The Credit Union will be closed on:
September 4-6 - Labor Day Weekend
2010 Calendar
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- Income Tax Incentives in 2009
- Medicaid Alert
- Power of Attorney
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- Official Checks. What are they?
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- How Your Accounts Are Federally Insured.
- NCUA Share Insurance
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- How to Avoid Home Foreclosure
- How to Improve Your FICO Score
- Start IRA Savings Account
- What is Check 21?
- Beware of Phishing Scams
- Beware of Financial Exploitation
- Facts About Credit Unions
Ukrainian Credit Unions Fight Devaluation, Liquidity Crisis, Criminals
As credit union members in New York state struggle with mortgage payments, job losses and pay cuts, so do credit union members in the Ukraine. Three issues threaten their entire movement: a 50 percent currency devaluation, a run on savings and a creeping influence of criminal elements.
Situation
Ukraine’s economy has been especially hard hit by the Global Financial Crisis. Credit union members struggle to repay loans; those who wish to withdraw their savings are unable to do so, and at least two-thirds of the credit unions are fighting to maintain their solvency. Ukraine has the largest credit union membership in all of Eastern Europe with total membership has shrunk from 2.6 million members to 2.3 million, and just 40 of the country’s 800 credit unions hold 50 percent of total assets. It’s these largest credit unions that seem hardest hit by all three issues.
Notwithstanding this challenge, some members in selected credit unions still trust their credit union and hope that things will get better. They have not withdrawn their savings deposits, have elected to receive no interest on their savings, and are working closely with management to get their credit unions back on their feet.
“This is a pretty phenomenal show of support by members for their credit union,” says WOCCU SVP Barry Lennon, who led a small World Council of Credit Unions (WOCCU) delegation to the Ukraine this past December. WOCCU is the global trade association and development agency for credit unions. Lennon’s group met with about a dozen credit unions, government officials, NGOs and three national trade associations over their eight day visit, researching how WOCCU might help the Ukrainian system.
Lennon says credit union leaders are asking the Ministry of Finance for a 1 billion hryvnia loan (US$125,000,000) to inject liquidity into the system to help credit unions start lending again. The response from the Ministry of Finance is sympathetic but negative to date. This is despite a similar program offered to banks, because the Government is already borrowing from the IMF. There is also concern that those criminal elements could benefit from any Government-sponsored financial assistance program.
According to the leaders visited by the WOCCU delegation, the system needs immediate liquidity to restart lending, governance training for directors and staff, training on new lending areas such as agricultural lending, a deposit guarantee facility and training in governmental advocacy.
History
Early Ukrainian credit unions were much smaller than those of today; the government found it easy to monitor the industry. However, in 2001 a new credit union law was adopted that is now considered “too liberal” which permitted the creation of national credit unions with some having more than 100 branches.
The Ministry thought the credit unions were more social than profit-oriented, but that opinion changed as they watched problems develop. The credit unions began offering very high rates on deposits and charging high rates on loans, but they did not have the risk management systems to control operations. The people who were taking loans at high rates (i.e., 40% or more) were the same people who were not eligible for bank loans because they had neither the collateral nor a clear source of income to ensure repayment.
Lax licensing requirements for new credit unions and insufficient regulation and supervision have also contributed to problems. Together, these elements allowed for the creation of pyramid schemes using the credit union structure. The Ministry began regular inspections in early 2008, and the result has been an increasingly long list of criminal cases being prosecuted.
Success story
Several credit unions have been successful helping their members improve their lives. The Gromada credit union is experienced dealing with people losing their jobs, one of the reasons they now focus on members such as farmers and other self-employed people.
Gromada Credit Union Board Chair Larisa Polozova says this self-employment focus is why they have avoided some of the liquidity and other problems now faced by other Ukrainian credit unions. The credit union has a main office in Kherson. It used to have 21 branches, but now maintains only 11 branches in the villages where they actively work.
“The key to our success is constant communication with the members,” Polozova says. She says in lending, the credit union focuses on three factors:
1) character, which is verified by the village “credit inspectors”
2) capacity to repay – i.e., the proposed investment to be made by the borrower (i.e., what they plan to do with the money)
3) collateral, which usually consists of solidarity groups of 3 to 5 individuals, each responsible for the other’s debt and any assets that can be pledged
The credit union has a 4-H Club program for youth in villages where they operate branches. The clubs teach farming skills to the youth on topics such as drip irrigation, new crop seed genetics, animal nutrition, food preservation and sanitation. The clubs’ goal is to empower the youth and to show them they can do just about anything.
Ms. Polozova indicated that everything they do is designed to reduce the risks to the borrowers as much as possible. Most of the credit union’s “credit agents” provide advice to the clients. They also organize events, help farmers purchase improved seed, and at times, give the seeds to selected farmers under the condition they give the same amount of seed to other farmers upon harvest.
The 5,000 farmers who are members of the Gromada credit union each own their land, but the right to sell that land is restricted. The credit union does require all borrowers to pledge property as a guarantee against default, but it also recognizes that it would be very difficult to foreclose on that collateral should the borrowers not repay a loan. In the case of non-payment, the credit union prefers to negotiate an arrangement for payment. It has had success using this procedure.
WOCCU’s Plans to Assist
The Ukrainian National Association of Savings and Credit Unions (UNASCU) is a member of the World Council of Credit Unions (WOCCU). Another association, the All-Ukrainian Association of Credit Unions, is also active, as is the Military Credit Union Association.
Following the December survey trip, WOCCU is seeking support for a large scale program to achieve four goals:
1) Strengthen weak Ukrainian credit unions with a financial stabilization fund.
2) Help credit union managers make better financial decisions by providing them with financial management such as the PEARLS, business planning and asset/liability management software.
3) Promote agricultural and rural finance opportunities by creating new loan and savings products that members in rural areas can use to improve their productivity and incomes.
4) Provide technical assistance support to the national credit union regulator to help them supervise credit unions more effectively.
Editor’s Note: Ukrainian FCU is a WOCCU Supporter. For more information on WOCCU’s work alleviating poverty through credit unions, see www.woccu.org
UNCUA is an association currently uniting and serving 16 Ukrainian-American credit unions with their over 50 branch locations, serving over 106,000 members coast-to-coast. Total credit union assets as of December 2008 exceeded $2.4 Billion. Last year, even during difficult economic conditions, the Ukrainian credit unions provided over $3.3 million in marketing, public relations, educational, community and common bond financial support. 
