The conference on World Credit Union Day, held in the large hall of the Press Room, revealed what credit unions gathered at the Good Finance Incorporated are preparing, what their preferences and real market needs are, what international legislation we can look up to, and who and under what conditions can become a member of the credit union.
A dozen credit unions have decided to initiate changes and, in addition to requests for changes in the legislative nature, move towards stronger lending to the economy. With the Good Finance of Cooperatives, they have agreed a ten million dollar credit line for financing. In addition, they point out that working with, which is being prepared, will also allow cheaper lending through guarantees. New forms of credit and changes to the stringent legal restrictions aim to refresh the melancholy scene of credit unions in Croatia.
Interest is paid monthly and the principal is deferred
A special purpose loan in the amount of USD 2,000.00 to USD 50,000.00 without a foreign currency clause will be able to be raised by co-operatives to bridge the time to, for example, yield sales, at an interest rate of 8.49 percent per year.
In this case, the farmer will repay the interest on a monthly basis, and the principal after the sale of the crop for a year, explained Sean Cole, president of GFI. In order to make credit unions more competitive with banking and factoring products, the ABC and other regulatory bodies need to consent to the amendment of several articles of the Credit Unions Act.
Expected legal changes
GFI emphasizes deposit insurance as the most important topic of legal changes in the comparative analysis of foreign and domestic credit unions. “In all countries where credit unions operate, savings deposits are partly secured, as they are with us if they are entrusted to one of the banks.
However, this is not the case in credit unions in Croatia so far, so we can say that they are partly discriminated against. If the law is changed and the amount the state guarantees to savers, credit unions could pay a lower risk premium and consequently come up with models of more favorable exit interest for clients. “
Union money at other credit institutions
Another major problem is the fact that union deposits are currently entering the liquidation or bankruptcy mass of the financial institution with which the union invests money. Changing it or, as an alternative, allowing the opening of an account for a regular business of the Union with the Good Finance National Bank would in the long run affect the confidence of citizens towards credit unions.
A major obstacle to the development of credit unions is the territorial principle of establishment whereby members of the union must have a residence or real estate, if a mortgage loan, in the area of the credit union.
Given that the area of activity is limited to the strict boundaries of a city, this puts the credit union at a particularly disadvantage. GFI’s view is that the principle of reciprocity is a basic feature that distinguishes credit unions from other financial institutions and must be retained. However, taking into account that there are no registered credit unions in nine counties, it is necessary to extend the territorial principle to more units of regional or regional self-government, thus enabling the development of credit unions throughout the territory of the Republic of Croatia.
The GFI’s proposal is that residence in the same area is considered to be residence in the same Level 2 statistical region based on the National Classification of Spatial Units for Statistics (NKPJS). Also, the criterion of exclusive residence in a particular area should be extended to residing, operating or owning a property in a particular area.
It is common practice in European countries for members of the immediate family of a member to become eligible for membership, regardless of the individual criteria. Furthermore, combining the principles, that is, introducing a secondary principle limited by the maximum percentage of the total number of members that can be based on it, is the practice of developed credit union models in the United Kingdom, the United States and Canada.
GFI’s position is that credit union membership should be extended to cooperatives and associations, legal entities and small businesses, with a limit on the number of members in relation to the total number of credit union members, as well as a maximum percentage of the total membership shares.
These changes would extend the possibilities of financing to legal entities by covering niches that are not interesting to commercial banks due to insufficient credit amounts or insufficient credit rating, and creditworthiness of the borrowers. Also, by designing financing programs for individual categories of entrepreneurs, credit unions would become a solution that would meet the capital needs in the stages of entrepreneurial development where financing by standard banking products is impracticable.
Credit unions activities
Cole points out that the scope of activities of credit unions should be extended to payment operations on behalf and for the account of a commercial bank, according to the model of paying bills in Konzum and Tisak.
GFI’s position is that the provisions of the law should be extended to receive cash deposits or loans from state administration bodies, local and regional self-government units, the Good Finance Bank for Reconstruction and Development, funds and international organizations, cooperatives, associations and legal entities in accordance with restrictions which would define the provisions on the membership of legal entities in a credit union.
International financial institutions’ funds do not require a restrictive provision that defines these funds as non-repayable. Furthermore, investing free cash in debt securities of the Good Finance National Bank and the Ministry of Finance of the Republic of Croatia would allow better management of the liquidity surpluses that credit unions currently place in deposits or in the clear accounts of domestic commercial banks. Expanding funding opportunities would open up opportunities for the socially useful
business through involvement in funding programs of Ministries and other government bodies, as well as international institutions.