For more than a year, the global financial system has been fevering. As card houses, pillars of the American banking system, insurance and mortgage companies are established. According to the chain, these shocks cover a large number of subjects and objects of the financial sector in different countries, the end of this is not visible.
On this gloomy background, the only island of stability in the chaos is the credit unions. The world reports indicate that in a long list of financial institutions, already devastated by the giant wave of financial tsunami, there is no organization of its kind. Some of them generally spared themselves, incurring only an indirect impact on their financial results. Others even were able to strengthen on the market.
Thus, despite the disappointing projections relating to the financial crisis, as of August 2008 the German organization of cooperative credit or credit unions could increase their total portfolio of loans to small businesses and citizens by 3.1 percent compared to last year. Every second Euro directed in agriculture of Germany in 2008 belonged to the credit cooperatives.
The dynamics of lending in the sector of credit cooperatives remained higher compared with the situation of other participants in the market. And this is due to the conservative policies of the organization, little borrowing in the world financial market, focusing on medium-and long-term operations rather than speculative.
Azerbaijan Credit Unions Association (AKIA) also does not see any adverse impact of global financial and economic crisis on the activities of credit unions. "The global crisis had not any negative impact on them, they are continuing their activities. Moreover, in the promotion of unions, we have already prepared the documents of several new credit unions for state registration," said AKIA President Elchin Bagirov.
According to the data provided by the Association, the assets of the organizations that are members to the Association reached 12.5 million manat. Currently, the loan portfolio of the credit unions that are members of the Association totals 43.5 million manat. Total reserves of AKIA reaches 401 million manat, with total authorized capital of member credit unions in amount of 3.78 million manat.
It's not secret that credit unions widely spread after the crisis in 1929-1932 and proved to be extremely effective and sustainable form of financial self-organization of population, especially the part that lives mainly on labor income. Credit unions became an integral part of the financial system, supplementing the banking system, they assumed the function of servicing the household finances, and thus complemented the banking system.
According to its socio-economic nature, credit union is a consumer cooperative, whose members pool their savings to the general fund, from which they provide a cheap and easy credit. Unlike banks, credit unions have not suffered severe damage and were able to resist because the savings are used by citizens for providing small and guaranteed loans to individuals - members of the credit union.
Currently 50 of approximately 80 credit unions in the country are members of Azerbaijan Credit Unions Association. But credit unions do not occupy and will not occupy a significant place in the financial sector unless they obtain certain powers stipulated in the law.
Considering this, AKIA prepared a series of legislative initiatives. First of all, they relate to the registration of credit unions in the form of cooperatives, but not limited liability companies, as they are registered now. The second question is to provide at least temporary tax privileges to the credit unions, including value added tax and profit tax, which is related to their status as non-profit organizations whose profits are directed towards recapitalization. Another problem delaying the development of credit unions in Azerbaijan is a ban on taking deposits from their members.
In early June, the Parliament of Azerbaijan adopted a draft law on non-bank credit organizations (NBCO). The bill, consisting of 26 articles, is aimed at eliminating voids in the legislative regulation of such organizations. The bill defines the procedure for establishing non-bank organizations, obtaining license from the Central Bank, opening branches.
According to the bill, NBCO can be established by local and foreign legal entities and individuals, and are divided into two types - with the right to take security deposits, and with not such right. The bill also allows NBCO to open branches and representative offices. The license for the operation of non-bank credit organizations is issued by the Central Bank.
Funding sources for NBCO can be the capital of organization and its revenues, attracted loans, non-repayable funds received from legal entities and individuals. In addition, the bill envisages a compulsory external audit of NBCO as a result of fiscal year. The external audit should be carried out within 5 months after completion of the fiscal year and the appropriate response with the audit report should be submitted to the Central Bank. Control over the NBCO activities is made by the Central Bank.
Against the background of global financial crisis, the situation of credit unions on the market improved due to the fact that they have an access to the savings of ordinary people, an effective model of management and a stable customer base. And the most important is that they operate in accordance with their direct purpose as an organization of mutual aid and do not seek windfall. Thus, the credit portfolio of one of the leading non-bank credit organizations in Azerbaijan, FINCA Azerbaijan, rose 8 percent in five months of 2009 compared to the same period of last year. Thus, according to the NBCO, as of 1 June 2009 the loan portfolio of the organization totaled more than $65 million.
Here are the statistics of another active player of the financial market - non-banking credit institution TBC Kredit. The credit portfolio of the organization in the first half amounted to $16.5 million and the number of active loans - 1,301, including 85 percent business and mortgage loans and 15 percent - consumer loans.
"Expansion of banking functions of NBCO will not have a negative impact on the country's banking system, the non-bank organizations has their own role in the economy and they will not involve funds of population and will assume the role of agents and fund the business at the expense of borrowed funds," said the Head of the Central of Azerbaijan Elman Rustamov. According to him, up to now, this function has been carried out by the banks, but there are some spheres where the services of non-bank organization are in need.
"Banks put more stringent conditions for lending, but NBCO offer more lenient terms. We believe that such organizations can be opened everywhere". For example, the development of the agricultural sector is very important for Azerbaijan, and for its financial support the micro-finance organizations have a broader network that covers even the remotest rural areas, rather than banks with 366 branches across the country.