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The Business Support. Credit Unions as an Alternative to Banks for Financing Micro, Small, and Medium Enterprises in Ukraine

6 хв читання

Ольга Білай, Джулі Конен, Елісса МакКартер ЛаБорд та Сергій Савчук. /Артем Галкин

Артем Галкин

Credit unions are an essential part of Ukraineʼs financial system, they offer access to financing for entrepreneurs and individuals seeking bank alternatives. However, as the credit union sector in Ukraine evolves, this industry requires substantial support. At the governmental level, a significant step was the adoption by the Verkhovna Rada of a new version of the Law of Ukraineʼ On Credit Unions,ʼ effective January 1st of this year. This legislation replaces the outdated 20-year-old legislation and expands the range of credit union services.

Credit unions in Ukraine also receive support from international organizations. From 2016 to 2024, the United States Agency for International Development (USAID) and the World Council of Credit Unions implemented the ‘Credit for Agricultural Producers (CAP)’ project in Ukraine. One of its objectives was to improve the financial services provided to farmers and agricultural producers. The successful implementation of the CAP project laid the foundation for the launch of a new four-year initiative in Ukraine called ʼGROW,ʼ aimed at helping credit unions expand lending to micro-, small, and medium-sized enterprises. With USAIDʼs support, the project will be implemented by the World Council of Credit Unions.

Ahead of the launch of GROW, USAID Mission Director to Ukraine, Julie Koenen, along with World Council of Credit Unions President and CEO, Elissa McCarter LaBorde, Managing Director of the Deposit Guarantee Fund, Olha Bilai, and Director of the Department of Methodology for Non Bank Financial Institutions at the National Bank of Ukraine, Serhii Savchuk, held a roundtable discussion. They discussed the role of credit unions in Ukraine’s recovery, their potential, and key focus areas for the new project.

Julie Koenen

USAID Mission Director to Ukraine

We are proud to introduce GROW, a 10 million dollar 4-year program developed in partnership with the World Council of Credit Unions (WOCCU). The GROW program aims to empower credit unions in Ukraine to extend more loans to people who are starting businesses and to support underserved micro, small, and medium-sized enterprises. By doing so we will together foster job creation, boost exports, and contribute to Ukraine’s broader economic recovery and growth. To enhance the capacity of credit unions to meet community needs, USAID is focusing on three key areas – increasing the amount of finance available through credit unions, expanding the range of services they offer, and aligning credit union regulation with EU standards and practices to support rural communities and facilitate Ukraine’s EU accession. We stand firmly with Ukraine and its fight for freedom and we are proud to support its journey toward a brighter more resilient future.

Julie Koenen, USAID Mission Director to Ukraine

Julie Koenen, USAID Mission Director to Ukraine

Credit as a Driver of the Economy

What is the primary value of credit unions? Where do they need the most?

Elissa McCarter LaBorde: To begin with, I would say that the World Council of Credit Unions today unites 82,000 credit unions that are present in both developed and developing countries, serving over 400 million people worldwide. 

The more than century-long history of credit unions demonstrates that they are established to address deficiencies in the financial sector and provide equitable access to finance for all the population segments. Traditional financial institutions often do not serve residents of small towns or rural areas, farmers, and small business owners with lower or middle-income levels. In areas where banks close and credit unions reduce their activities, people suffer the most because they lack access to any financial services. In the United States, more than 30% of residents are members of credit unions, and in Ireland, it is over 60%. Thus, even in countries with high banking competition, some people find advantages in credit unions.

How exactly do credit unions help entrepreneurs in Ukraine? What challenges do you help them to solve? 

Elissa McCarter LaBorde: We have a client who started growing a special variety of strawberries. With the help of a loan, he purchased seeds and seedlings, cultivated a berry harvest, and successfully sold it. The owners of a dairy farm took out a loan to buy a refrigerator, and today they produce cheese that they sell all over Ukraine. Another example is the owner of an optician store who, thanks to a loan, was able to purchase equipment for eye examinations. Now her employees not only sell glasses but also conduct eye tests.

Credit unions do more than just provide money. A professional financial advisor thoroughly analyzes the applicant’s business plan, explains the loan conditions, and prepares a loan repayment schedule. We believe that this kind of «human» approach helps entrepreneurs succeed. After all, our priority is always people, not profit.

Elissa McCarter LaBorde

Elissa McCarter LaBorde, World Council of Credit Unions President and CEO

About Credit Unions in Ukraine

What does the credit union market in Ukraine look like now?

Serhii Savchuk: Today [as of September 2024], 111 credit unions are operating in Ukraine. The total value of loans issued amounts to 1.2 billion UAH, and the total amount of deposits attracted by credit unions is 600 million UAH. The Ukrainian credit union market has significant potential. For comparison, there are currently 18 credit unions registered in Poland, with a total value of 100 billion UAH. Meanwhile, the total value of all assets of all credit unions in Ukraine is only 1.4 billion UAH.

What is the difference between credit unions and other financial institutions?

Serhii Savchuk: The fundamental difference between credit unions and banks is that, in credit unions, members contribute their own money and collectively own the organization. In contrast, in banks, the money formally belongs to the shareholders. A key characteristic of a credit union is that it finances only its members. To become a member, you typically need to pay a membership fee, but thereʼs no standard rate for all credit unions. This January, the Law of Ukraine «On Credit Unions» came into effect, which will significantly expand the capabilities of credit unions in Ukraine. As of the beginning of this year, not only individuals but also joint ventures, homeowners associations, cooperatives, and others can become members.

Elissa McCarter LaBorde: Unlike other microfinance organizations, credit unions do not aim to profit from quick loans. Instead, they create new opportunities for people. The money is used to support their businesses and invigorate the country’s economy.

Why havenʼt credit unions become widely adopted in Ukraine yet? What are the key limitations?

Serhii Savchuk: The issue lies in the business structure of credit unions rather than in regulatory restrictions from the state. For example, credit unions have had and still can offer payment cards to their clients, but they havenʼt utilized this opportunity. In my view, they need to invest more in IT security, technological equipment, and other tools that would allow them to effectively compete with financial organizations, including banks.

Serhii Savchuk

Serhii Savchuk, Director of the Department of Methodology for Non Bank Financial Institutions at the National Bank of Ukraine

What are the requirements set by the National Bank of Ukraine (NBU) for market participants?

Serhii Savchuk: The requirements the National Bank of Ukraine (NBU), as a regulator, imposes on credit unions are as follows: they must be solvent, respect and uphold consumer rights, fully disclose all credit information to clients without misleading them and adhere to high standards in corporate governance, internal control, and risk management systems. 

How can the Deposit Guarantee Fund protect credit union members in case of bankruptcy?

Olha Bilai: The mission of the fund, and one of its main functions, is to protect depositors. Currently, the Fund protects bank depositors, but we are moving toward the international community, so we will also protect those who have deposits in credit unions. To achieve this, changes need to be made to the legislation, particularly to the Law of Ukraine «On the Deposit Guarantee System for Individuals,» and the National Bank of Ukraine (NBU), as the regulator, needs to develop the rules. In my opinion, this will take one to two years, but it will likely happen after the full-scale war and martial law have ended.

Credit union depositors will have the same opportunities as bank depositors. This practice will strengthen Ukraineʼs non-banking financial market, allowing credit unions to provide more loans to small farmers and businesses. Experts predict that deposits in credit unions will double within the first four years of implementing the guarantee system. 

Olha Bilai

Olha Bilai, Managing Director of the Deposit Guarantee Fund

International experience in the development of the credit union sector

What international experience should we apply to Ukraine?

Olha Bilai: In preparing to implement a guarantee system for credit unions, we studied American, Canadian, and European experiences, and we were impressed by Lithuaniaʼs approach. After the 2018 reform, their credit unions maintained market status as well as continued to grow in small towns and villages, providing loans to communities and enhancing financial literacy.

Elissa McCarter LaBorde: We have the European Network of Credit Unions through which we exchange experiences with countries like Poland, Croatia, Romania, and others. One of the key directions of the GROW project is adapting Ukrainian legislation to meet European Union requirements. We aim to set up all mechanisms in Ukraine to be prepared for EU membership. However, there are also things that Europeans can learn from Ukrainians. Ukraine is one of the European leaders in service’s digitalization, so there is significant potential for developing this area within credit unions, making many processes more convenient. Our role as a global organization is to share this experience, implement innovations, invest in digital, and develop supportive legislation.

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