Hard Work On Regulation Will Strengthen Ukrainian Credit Union System
July 15, 2005
Following his visit to Belarus, World Council of Credit Unions, Inc. (WOCCU) board chair L.R. "Bobby" McVeigh traveled to another former Soviet republic, Ukraine, from June 29-July 1, to discuss the topic of credit union regulation. While there, he met with "all of the key personnel involved in current project work with the Ukraine credit union system." This included government and credit union leaders such as Mykola H.R. Zhulynsky, deputy of the Supreme Council of Credit Unions; Andriy Olenchyk, head of the commission responsible for credit union licensing, regulating and supervising; the director of finance for World Bank Projects in Ukraine; and representatives of the Ukrainian National Association of Savings and Credit Unions and of the TACIS Project.
Representatives from the US and Canada, which is currently providing regulatory guidance and support, were also present: members of the Canadian Program on Ukrainian Credit Union Strengthening—presently a 4-year, $4.3 million project; the Canadian ambassador to Ukraine; Canadian International Development Agency (CIDA) officials; and B. Chomyak of the USAID Office of Economic Growth. Together, the reports of this cross-section of experts constructed a picture of a system full of challenges, but with reason to expect success.
There are 700 credit unions registered in Ukraine, with a little less than 300 currently affiliated with one of the three national associations in existence. Of these roughly 300, 144 are connected to the Ukrainian National Association of Savings and Credit Unions, which has applied for membership in WOCCU. Though the majority of all Ukrainian credit unions remain unaffiliated, they are certainly active, with credit unions having granted over 270,000 consumer loans in 2004. To unite the credit union sector in this country of 48 million, a new initiative has begun creating regional federations. Currently, 16 of 24 regions possess federations. If the remaining regions get on board, it is conceivable that 27 regional and national credit union associations could exist in Ukraine in the future.
Regulation is a key issue right now. It is recognized by the Ukrainian government that credit unions, as deposit-taking institutions, require close supervision and monitoring. Most agree that the ultimate responsibility for registration, licensing and ongoing assessments of credit unions rests with the regulator, through which all credit unions were required to re-register in 2003. State financial service regulation is still new in Ukraine, and credit union legislation was only enacted in 2002. More than ten non-bank financial institutions are monitored by the same regulator, though 90% of efforts are directed toward credit unions. And these efforts have been sorely needed.
Although the first credit unions in the nation were established in 1992, they were without a legislative framework for ten years. Perhaps as a result, 130-140 credit unions are in dire need of rehabilitation, failing which they will be merged or liquidated. Up to 150 credit unions are in violation of management standards. Approximately 350 credit unions—about half— operate in a reasonable manner. Regarding the latter group, the regulatory agency hopes to provide guidance in terms of further development of payment systems and expansion into mortgage product delivery.
A crucial step towards raising the standards of Ukrainian credit unions is to fine-tune the regulatory system. At present, the regulator classifies credit union performance using a 7- grade system, but the agency is investigating a restructuring based on models developed either by Canada, Poland, Lithuania or Hungary. Regulator Andriy Olenchyk estimates that it would take 18- 36 months to structure such a system. In the meantime, efforts will be made to continue knowledge and best practices sharing between Ukraine and the unofficial coalition of Canada, Poland and WOCCU. As McVeigh noted, "The continued growth of the Ukraine credit union system will require cooperation from developed credit union movements through continued project work focused on clear objectives, measurable outcomes and sustainability, meeting international financial standards for accountable operations."
Along these lines, the Polish credit union system, in conjunction with the Polish government, has approved a grant of $230,000US to provide training for 160 Ukrainian credit union officials in Poland, a decision about which Andriy Olenchyk expressed his gratitude. Regarding Olenchyk, McVeigh said, "it is evident that [he] has made tremendous progress in a short period of time and is well-positioned to ensure the future success of the Ukraine credit union movement." Ukraine's national credit union allies and foreign friends are committed to helping hasten that success and have agreed to continue keeping each other updated on their common development efforts.
World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented more than 290 technical assistance programs in 71 countries. Worldwide, 60,500 credit unions in 109 countries serve 223 million people. Learn more about World Council's impact around the world at www.woccu.org.