One of the components of the financial system in Azerbaijan is the credit unions (CU), which together with the commercial banks, provide access to credit resources to individuals, owners of private farms, small and private entrepreneurs.
The number of non-banking credit organizations operating in the country is 97, including 78 credit unions, 18 organizations financed by humanitarian organizations, and one - other non-banking credit organization. And if since 2005 the number of credit unions increased annually by more than 20 percent, the increase in the number of credit unions this year was only one union, and this testifies the impact of negative trends in the global financial markets since last year.
The attractiveness of credit unions is that while the banks restrict credits, here not only entrepreneurs get credit for the purchase of equipment or the farmer to purchase seeds, but also the students can obtain credits for education. CU provides access for the general population, including poor people, to financial services, contributing to the revitalization of business activity in the regions.
The main distinguishing feature of the credit unions from the commercial banks is that the members of credit unions are also owners of the same credit unions. The main purpose is to provide financial services that meet their needs. Therefore, the policies and procedures for providing financial services in the credit unions are more flexible than banks. Credit unions have a structure aimed mainly at providing services.
Another feature of credit unions is that they return the profits to its members by improving the quality of services, raising interest rates to attract deposits or reducing the cost of credit resources. They direct their margins towards increasing reserve capital, which is to protect from unforeseen losses. In this way, their financial security, as well as the quality and range of services increase.
Bank's interest rates for financial products are mainly regulated by State. Credit unions are independent in establishing their interest rates, often with credit unions they reach 50-60 percent per annum.
There may be various reasons for the increase of rates on attracted deposits from members - if the credit union's lack of liquidity is due to high demand for credit, it must be funded in order to meet the credit needs of its members. Sometimes, the credit union in a short term raises interest rates in the absence of liquidity to cover it. In this case, the credit union minimizes its margins by minimizing the difference between rates on loans and deposits. But it is especially risky when the same is funded by the outflow of deposits and this is not a short-term liquidity problems and the current policy of the credit union.
CU customers should pay attention not only to the interest rates, but also must be interested in how the credit union lives, must get familiarized with its charter, policies, annual financial reports. Because the credit union, as well as other financial institutions exist due to the difference between rates on loans and deposits. This difference has to cover not only the office and all other costs, but must be sufficient for the growth of the reserve capital, so-called "protection" of depositors from losses. If the difference is minimal or absent, it should inspire fear. This may mean that the credit union takes a very big risk, and results of such interest policy may cause significant harm to its financial security.
Security of any credit union is evaluated by its participation in the Association of Credit Unions (AKİA), which is an official partner of the World Council of Credit Unions (WOCCU). AKİA promotes expanding credit unions both in the regional and international levels, contributes in establishing new credit unions, holding training for member of credit unions to improve the work, establishing contacts between the credit unions and donor organizations, defense of rights of credits unions, lobbying legislation related to their activities.
Presently, AKİA unites 48 of 78 credit unions functioning in Azerbaijan. AKİA members serve 9,800 or 90 percent of credits unions of the country. Credit unions do much to improve their activities. However, taking into account the international experience and activities of credit unions in many countries, one can see how many opportunities these organizations could have in Azerbaijan.
Credit unions functions almost in 100 world countries, uniting over 300 million people. Credits unions are more expanded in Canada, Ireland, Australia, South Korea, the U.S., Taiwan, and Poland. In the post-Soviet area it is more developed in Ukraine.
Roughly, 90 percent of people use services of credit cooperatives in France. Furthermore, 30 percent of older people are members of credit unions in the United States, 70 percent in Ireland, 4.5 percent in Poland and 1.2 percent in Lithuania.
Following these countries, next step to foгm positive image of credit unions would be their participation in a fond of deposit guaranteeing, like banks. Presently, on the backdrop of global financial crisis, people in Azerbaijan, like foreign citizens, no longer believe either banks, or different investment funds. So, the credit unions could save this field by their potential opportunities and improve confidence on them.
Credit unions will become reliable by participating in such fund, ensuring considerable money flow in the form of deposits from physical entities in credit unions. However, such participation envisages stable transfers to the Fund to obtain guaranteed membership terms from the fund. Thus, major obstacle in obtaining membership at the Azerbaijani Deposit Insurance Fund (DIF) for Azerbaijani non-bank credit organizations is restricted financial opportunities. Initial capital in registering credit unions is 4,000 manat, whereas ADIF members in Azerbaijan pay entrance membership fee at 10,000 manat. To support credit unions in Azerbaijan and to strengthen citizens' confidence on them on the government level it would be more appropriate to establish a Deposit Insurance Fund for embers of credits unions.
Developing and expanding the system of guaranteeing savings in this way will undoubtedly lead to consolidating the reliability, security, stability of credit unions, making it more interesting among people. In accordance with the international experience, the credits units assist many people to develop their business, acquire advanced technologies and open new jobs.