Russia: Russia's Credit Unions Struggle To Get A Firm Foothold
The success of credit unions in countries that were formerly part of the Soivet bloc, particularly Poland, has been well documented and an inspiration to other parts of the world.
But in Russia itself, growth has not been as rapid. With a delegation of credit unions from Russia to be in attendance at CUNA's Governmental Affairs Conference, and with the World Council of Credit Unions hosting a reception at the Russian embassy in Washington this week, The Credit Union Journal spoke with Vadim Kalinchev, general director of the Russian Credit Union League, for this report. The questions were supplied in English to the World Council, which helped translate the questions and the responses in order to make this report possible.
CUJ: What is the current status of credit unions in Russia today? How many, number of members and, if possible, total assets?
Kalinichev: Credit cooperation started its revival in 1992-1993 in Russia. Today there is no definite data of credit unions because nobody carries out monitoring at the governmental level. According to the latest declarations of the Russian Finance Ministry, there are more than 1,500 credit cooperatives (credit unions) with have various legal forms: consumer's credit cooperative, rural credit cooperative, consumer's credit cooperative of citizens.
The credit union league works with consumer's credit cooperatives of citizens. According to our preliminary data there are more than 700 cooperatives uniting about 400,000 people. The assets make about four-billion rubles. Cooperatives operate in 55 subjects of the Russian Federation.
As of Jan. 1, 2006 there are 203 cooperatives-members of the league. Among them 36 cooperatives are direct members and 167 are associated members (they enter the league through 10 associations of credit unions). The number of members is more than 266,000 people
CUJ: Approximately 10 years ago, in a meeting with a representative of Russian's credit union community, she indicated a primary problem was the lack of credit union-enabling legislation in the country. Has legislation been passed making it easier to start and operate a credit union in Russia? Is other legislation needed?
Kalinichev: The following legal acts provide legal regulation of credit cooperative activity: Constitution of RF (Article 34); Civil Code of RF (Parts 1 and 2); Articles 50, 116; Federal Law of RF dated June 19, 1992, 3085-1 "On consumer cooperation" (consumer societies, their unions in Russian Federation)"; Federal Law of RF dated Dec. 8, 1995, 193-FL "On rural cooperation" (with amendments made 73-FL dated June 11, 2003), and Federal Law of RF dated August 7, 2001, 117-FL "Consumer's credit cooperative of citizens."
But there are still problems of legal provision for credit union activity.
Current level of credit cooperation development in Russia requires adopting so-called "framework law," which will include basic definitions concerning credit cooperation in the country and standards regulating fundamentals of activity of various types of credit cooperatives. In cooperation with representatives of appropriate ministries and departments and also representatives of other unions of credit cooperatives, we work at this law. This is the federal law "on consumer's cooperation." It was passed in first reading in the State Duma and is ready for the second reading. Also we developed the draft law to make amendments to FL "Consumer's credit cooperative of citizens."
The Russian Credit Union League is seeking legislation that would provide further development of this sector and credit cooperation development as a whole. We underline that the movement has to be built from below-meeting international operating principles of credit cooperation, voluntary, equality of members, self-government, publicity, legality.
The beginning of 2006 was very happy for us because the section of development of draft of Federal Law to make amendments to FL "Consumer's credit cooperative of citizens" dated Aug. 7, 2001 was included in the plan of the government of Russian Federation.
CUJ: Who regulates credit unions in Russia, and are you satisfied with the qualifications of the regulator?
Kalinichev: In FL "Consumer's credit cooperative of citizens" there is section that states that the authorized federal body of executive power carries out state regulation of credit cooperatives activity and their unions. But the government of the Russian Federation has not appointed this body yet.
The Finance Ministry of Russian Federation took functions of control and supervision of credit cooperatives. The functions are monitoring, control and supervision of consumer's credit cooperative of citizens, keeping of records of these organizations.
The credit union league and all credit cooperatives that work honestly are interested that the government will appoint state regulator as soon as possible.
The majority of people think that state regulation will contribute to build the credit cooperation system in Russia, so successful activity of each credit cooperative. The league is a self-regulated organization dealing with development of single standards activity of its members, exercises control, carries out monitoring of the members.
CUJ: Describe for Americans what the retail financial landscape in Russia is like today. Are banking services available and widespread? What services are lacking? What would the average Russian citizen like more of (other than some sunshine this time of year). What about the availability of consumer credit, such as credit cards? Other consumer loans?
Kalinichev: Currently commercial banks are the main participants in the finance market in Russia. As of July 1, 2005, 1,232 commercial banks and 49 non-banking credit institutions were operating. Only 1,165 banks are entitled to take deposits from the population. It is necessary to note that in accordance with federal legislation that only commercial banks having the appropriate license can present the whole spectrum of banking services. In accordance with federal legislation credit cooperatives (credit unions) are entitled to carry out only two services in the interests of their members: savings and loans
In Russia total assets of the whole banking system make about $80 billion Euro, but it is necessary to note that half of all banks are placed in Moscow and their portion of combined capital is 84%. In cities Russian banks offer all kinds of financial tools to meet demands of clients.
The common tendency in the development of the banking system has been to concentrate in the capital of Moscow. As a result, in some cities access to typical financial services for the population is limited and in some cases inaccessible. In this regard there is a tendency to increase the number of credit cooperatives in those regions where activity of banks is not profitable.
It must be noted that there is one more peculiarity of Russia's financial market and that is the high portion of money turnover in cash, including dollars. The introduction of written orders, including use of payment systems is made not so fast.
As for consumer credit, it is growing at a high rate in comparison to the growth of income of the people. First of all it is connected with the situation that up to this moment commercial banks have not desired to work in this field. The high rate of growth is also related to the fact this segment of the market grew from nothing.
According to the rating of some experts market of consumer credit will exceed $1.5 billion this year.
CUJ: What is the typical Russian credit union like, if there is such a thing? What does it offer to members? What would Russia's credit unions like to offer that they currently do not?
Kalinichev: The typical credit union is created to help individuals to save and to provide loans from these funds. The main direction of credit union activity is aimed to meet demands of citizens and provide social support. Members can get loans for education, to start a business, and for housing and other things.
There are various saving programs taking into account interests of members.
CUJ: In your visits to the United States, what are you seeking or hoping to gain from American credit unions? Who and what will you be visiting during your time in the U.S.? How often are you in contact with credit union communities in other parts of the world, and what is the nature of most of these discussions?
Kalinichev: As our organization is growing we are interested in any positive experience. We cooperate with organizations of Asian and Pacific region. The league studies positive experiences of our colleagues from neighbouring countries (Lithuania, Poland, Ukraine) in which the revival of credit cooperation coincides with the revival in Russia.
We are also interested in the following: experience of building credit cooperation; issues of training, insurance, information support; and programs and products of credit unions.
The league cooperates closely with Project of European Commission "Credit Cooperatives-Russian Federation." Within the framework of the project our specialists have had the opportunity to learn about credit cooperation development in France.
During the visit to the U.S., the members of the Russian delegation plan to meet with chairman of the board of NCUA, with the chief operating officer of World Council of Credit Unions, and plans to visit several credit unions and participate in the reception of the Russian Embassy.
Within the meetings our representatives intend to discuss issues (related to) building of the credit cooperation system, and to use the experience of WOCCU and U.S. organizations in the area of training, and then to spread that through the training at Russian specialists of credit cooperation.
Our participants are also interested in discussing issues of possible mutual cooperation with U.S. credit unions and our Foundation for the Support of Mutual Financial Organizations.
CUJ: Do you have a strategic plan or goals for Russia's credit unions for the next five to 10 years? If so, what does that plan consist of?
Kalinichev: In 2003 credit union league approved and implemented the program "Assistance to credit cooperation development in Russia (2003-2007)." Within the implementation of the program, the league works on the following directions: legal, scientific and methodical, training, information maintenance of activities of credit cooperatives; development of credit cooperation on the principles of self-regulation; creation of system for finance and economic mechanisms of credit cooperation development; to create image and social support of credit union movement; creation of mutual cooperation with unions and similar organizations in abroad, federal and regional authorities and also with other organizations.
In 2007 the analysis of the results of the program implementation will be prepared and developed a new long-term program of credit union development in Russia.