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CHALLENGES FOR CREDIT UNIONS NETWORK IN LITHUANIA

CHALLENGES FOR CREDIT UNIONS NETWORK IN LITHUANIA. PRESENTATION BY: ASSOCIATION LIETUVOS KREDITO UNIJOS GENERAL DIRECTOR R.STANKEVICIUS. LITHUANIA. CU MOVEMENT IN LITHUANIA IS NOT YOUNG:. FIRST CU IN LITHUANIA - IN YEAR 1871; IN 1939 310 CUs WERE IN OPERATION;

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CHALLENGES FOR CREDIT UNIONS NETWORK IN LITHUANIA

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  1. CHALLENGES FOR CREDIT UNIONS NETWORK IN LITHUANIA PRESENTATION BY: ASSOCIATION LIETUVOS KREDITO UNIJOS GENERAL DIRECTOR R.STANKEVICIUS

  2. LITHUANIA

  3. CU MOVEMENT IN LITHUANIA IS NOT YOUNG: • FIRST CU IN LITHUANIA - IN YEAR 1871; • IN 1939 310 CUs WERE IN OPERATION; • TOTAL MEMBERSHIP WAS 119,000 PEOPLE ; • IN 1939 CUs OCCUPIED 37% DEPOSITS & 37.5% LOANS MARKET CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  4. CU MOVEMENT IN LITHUANIA IS NOT YOUNG: • AFTER SOVIET UNION OCCUPIED LITHUANIA IN 1940, ALL ASSETS OF CU WERE NATIONALIZED, NO CU WERE IN OPERATION; • 1950 - 1991 NOT LEGAL MUTUAL CASES IN STATE ENTERPRISES WERE POPULAR; CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  5. BANKING CRISIS • 1990 LITHUANIA REGAINED INDEPENDENCE • 1994 - 1996 BANKING CRISIS (MORE THAN 20 BANKS & MORE THAN 100 PSEUDO FINANCIAL INSTITUTIONS WENT BANKRUPT) • IN 1994 Developpement International Desjardins (DID) STARTED ACTIVITIES IN LITHUANIA; CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  6. DID STRATEGY WAS - TO START UNIFIED CREDIT UNIONS NETWORK & TO IMPLEMENT INTO IT MODERN, GENERALLY RECOGNIZED MANAGEMENT TOOLS DID ACTIVITIES IN LITHUANIA

  7. MAIN FACTORS WHICH LED THE SUPPORT BY DID TO CREDIT UNIONS IN LITHUANIA SUCCESSFUL: • MARKET SITUATION; • GOOD STRATEGY: • FIRST CU LAW THEN CUs; • NO MONEY WAS DISTRIBUTED TO CUs; • EFFORTS TO MOBILISE SAVINGS; • STRIVING FOR SUPPORT FROM STATE AUTHORITIES • QUALIFIED MANAGEMENT OF THE CU PROJECT BY DID DID ACTIVITIES IN LITHUANIA

  8. LITHUANIAN KREDITO UNIJOS LAW: • IN Feb 1995 LAW ON CREDIT UNIONS WAS PASSED IN LITHUANIAN PARLIAMENT (in 1995 autumn first CU was founded); • IN MAY 2000 2nd EDITION OF LITHUANIAN CU LAW WAS PASSED IN LITHUANIAN PARLIAMENT (together with CCU, Profit tax, Deposit inssurance laws). CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  9. CU DEFINITION ACCORDING LITHUANIAN KREDITO UNIJOS LAW: CREDIT UNION IS A COOPERATIVE COMMUNITY BANK, GIVING LOANS TO ITS MEMBERS FROM MEMBERS SAVINGS. CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  10. LITHUANIAN KREDITO UNIJOS LAW: • MIN NUMBER OF MEMBERS TO START CU IS 50; • MINIMUM SHARE PER MEMBER IS 25 US$ (used to be 75US$); • NATURAL AND LEGAL PERSONS CAN BE CU MEMBERS; CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  11. LITHUANIAN KREDITO UNIJOS LAW : • CU CAN ACCEPT DEPOSITS FROM : • MEMBERS / ASSOCIATIVE MEMBERS; • OTHER CU, CU ASSOCIATION, CCU; • PUBLIC & RELIGIOUS ORGANIZATIONS; • CHARITY & DEVELOPMENT FUNDS; • GOVERNMENT BODIES; CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  12. LITHUANIAN KREDITO UNIJOS LAW : • CU CAN LEND TO THE: • MEMBERS; • OTHER CU or CCU; • CU ASSOCIATION. CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  13. LITHUANIAN KREDITO UNIJOS LAW : • MAX LOAN - 10 X SHARE & 10% OF SAVINGS IN CU; • COMMON BOND CAN BE ONE OR COMBINATION OF MENTIONED BELOW: • PROFESSION; • WORK IN THE SAME ENTERPRISE; • LIVING IN THE SAME TERITORY; • BELONGING TO THE SAME ORGANIZATION. CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  14. CLASSICAL STRUCTURE OF CREDIT UNION MEMBERS ONE MEMBER = ONE VOTE CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  15. LITHUANIAN KREDITO UNIJOS LAW : • CENTRAL BANK OF LITHUANIA - CU SUPERVISING INSTITUTION (10 persons staff); • LIQUIDITY RATIO >30%, CAPITAL ADEQUACY RATIO >13%; • PROFIT TAX 0% OF NET INCOME; • PROFIT IS DISTRIBUTED TO THE MEMBERS ACCORDING COOPERATIVE PRINCIPLES; CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  16. DEPOSIT INSURANCE LAW : DEPOSITS IN CREDIT UNIONS ARE INSURED BY STATE DEPOSIT INSURANCE FUND (DIF): • DIF COVERS 100% OF DEPOSITS WHICH ARE UP TO 2,500 USD AND 90% OF DEPOSITS WHICH ARE FROM 2,500 USD TO 11,000 USD PER MEMBER; • CUs ARE PAYING ANNUAL FEE TO DIF - 0.2% FROM ALL DEPOSITS. CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  17. SOME ECONOMICAL DATA ABOUT LITHUANIA : • INFLATION - 1.4% • JOBLESS - 12.1% • 1US$ = 4 LITAS • AVERAGE SALARY PER MONTH - 290 US$ • MINIMUM SALARY PER MONTH - 110 US$ CURRENT ENVIRONMENT IN LITHUANIA FOR CU DEVELOPMENT

  18. The network of 32 CU’s with more than 7000 members & 4.5 million $US in assets. ALCU HQ in Kaunas CURRENT NETWORK PERFORMANCE

  19. NUMBER OF KREDITO UNIJOS

  20. NUMBER OF MEMBERS IN KREDITO UNIJOS CURRENT NETWORK PERFORMANCE

  21. TOTAL ASSETS IN KREDITO UNIJOS (IN US$) 4,700,000 3,444,960 2,117,187 729,627 182,114

  22. TOTAL CAPITAL IN KREDITO UNIJOS (IN US$)

  23. CAPITAL STRUCTURE

  24. DEPOSITS STRUCTURE CA- current account; SA- saving account TD- term deposit

  25. OTHER FINANCIAL DATA 1h Qtr of 2001 Average assets USD$ 148,000 Average loan USD$ 954 Average term deposit USD$ 1,504 Average interest rate on TD8.5% Average interest rate on loans 14% CURRENT NETWORK PERFORMANCE

  26. OTHER FINANCIAL DATA 1th Qtr of 2001 Allowances for risky loans 0.69% (decreasing) Bad loans 0.04% Loans which principal or interest is late more than 30 days 3.84% Profit USD$ 51.000 Adjusted annual ROA 2.34% Total number of loans 10,100 Total amount of loans >8,000,000 USD CURRENT NETWORK PERFORMANCE

  27. SERVICES IN CREDIT UNIONS: • LOAN PRODUCTS: • FAST LOANS; • ORDINARY LOANS (4 KINDS); • OVERDRAFTS. • DEPOSIT PRODUCTS: • CURRENT ACCOUNTS; • SAVING ACCOUNTS (4 KINDS); • TERM DEPOSITS. • OTHER SERVICES: • TRANSFERS, INTERNATIONAL TRANSFERS; • INSURANCE SERVICES; • PAYMENTS FOR SERVICES; • MOBILE PHONES (CHEEP TARIFFS); • PHOTOCOPYING. CURRENT NETWORK PERFORMANCE

  28. CURRENT ACCOUNT: • BANK CU • Interest rate 0.5% from 1250$ ~1.5% from 1 LT • Withdrawal fee 0.5% from the amount 0% • Transfer fee up to 0.4% 0% • Account open-close fees YES NO • Compulsory write offs YES NO • Other fees PLENTY NO • Debit/credit cards YES NO CURRENT NETWORK PERFORMANCE

  29. SOME FACTS ON LKU HISTORY: • IN 1994 DEVELOPMENT INTERNATIONAL DESJARDINS (DID) STARTED ACTIVITIES IN LITHUANIA; • ON NOV 1997 ASSOCIATION LIETUVOS KREDITO UNIJOS WAS FOUNDED BY 11 CU; • ALKU MAIN PARTNERS - DID, CIDA, OSF-LITHUANIA, SEDF-NY, Rabobank, LFU, LACH, NATIONAL ORGANISATIONS IN USA, CANADA; • ON FEB 1999 DID STAFF IN LITHUANIA BECAME STAFF OF ALKU; • ON JUNE 2001 ALKU UNITES 32 CU.

  30. ALKU MAIN ACTIVITIES: • 1. LEADING CU DEVELOPMENT IN LITHUANIA: • SETTING COMMON STRATEGY; • REPRESENTATION & AWARENESS RAISING; • CREATING CU NETWORK, FOUNDING CENTRAL CREDIT UNION ASSOCIATION LIETUVOS KREDITO UNIJOS ACTIVITIES

  31. ALKU MAIN ACTIVITIES: 2. ASSISTANCE TO START CREDIT UNION; 3. TRAINING PROGRAM; 4. CU SUPERVISION AND MICROBANKER TECHNICAL ASSISTANCE; 5.MARKETING PROGRAM; ASSOCIATION LIETUVOS KREDITO UNIJOS ACTIVITIES

  32. ALKU MAIN ACTIVITIES: 6. ASSISTANCE FOR CU WHICH HAS LIQUIDITY PROBLEMS. MANAGEMENT OF MUTUAL LIQUIDITY FUND (1% FROM THE ASSETS) IN ALKU: “A PROBLEM OF ONE CU IS A PROBLEM OF ALL THE NETWORK”. 7. MANAGING “CREDIT LINE” FROM SEDF TO SUPPORT SMALL BUSINESS AND OTHER CREDIT LINES. ASSOCIATION LIETUVOS KREDITO UNIJOS ACTIVITIES

  33. “CREDIT LINES” FROM SEDF AND OTHERS: - SEDF “SMALL LOANS PROGRAM” - 150,000 $ (+1,000,000 EURO) - NATIONAL FUND, NY - 35,000 $ - NATIONAL UNION, BOSTON - 65,000 $ - DEVELOPMENT FUND (ALKU OWNED) - 50,000 $ _______________________________________________ TOTAL: - 300,000 $ (~1,200,000 $)

  34. SOME FACTS ON SEDF “SMALL LOANS PROGRAM” - SMALL LOANS PROGRAM IS ACTIVE FROM 1997; - TOTAL LOANS - 525 IN AMOUNT OF 560,000 $ (~4 TIMES TURNED OVER); - AVERAGE: LOAN SIZE IS 1,050 $, LOAN TERM IS 1 YEAR; - 245 LOANS ARE FOR SMALL BUSINESS IN URBAN AREA, 280 ARE IN RURAL AREA; - ALKU INCOME PER YEAR FROM THIS PROGRAM IS UP TO 15,000$ (HALF OF IT HAS TO INCREASE THE LOANS FUND).

  35. STRENGTHS OF THE NETWORK • GOOD BACKGROUND FOR CU DEVELOPMENT; • DEPOSIT INSURANCE; • EXEMPTION FROM EU REQUIREMENTS; • GOOD RELATIONS WITH STATE OFFICIALS; • STATE SUPERVISION (CENTRAL BANK INSPECTOR). CURRENT STRENGTHS OF THE NETWORK

  36. STRENGTHS OF THE NETWORK • UNIQUE, INTERESTING CREDIT UNION SERVICES AT FAIR PRICES • CREDIT UNIONS HAVE THEIR CENTER - ASSOCIATION LIETUVOS KREDITO UNIJOS; • HIGH QUALIFICATION OF ALKU STAFF • STANDARDIZATION: • ONE CREDIT UNION LAW - THE SAME BY-LAWS; CURRENT STRENGTHS OF THE NETWORK

  37. STANDARDIZATION (continued): • INTERNAL FORMS AND DOCUMENTATION; • THE SAME ACCOUNTING SYSTEM “MICROBANKER” & CHART OF ACCOUNTS; • MANAGEMENT PROCEDURES; • SERVICES AND MARKETING STRATEGY; • MODEM NETWORK IN ORDER TO MAKE THE BALANCE CONSOLIDATION AND DISTANT MONITORING. CURRENT STRENGTHS OF THE NETWORK

  38. WEAKNESSES: • LOW COMPATIBILITY OF CU SERVICES • UNCLEAR FINANCIAL FUTURE OF ALKU • LOW ACTIVITY OF ELECTED OFFICERS IN THE KREDITO UNIJOS; • LACK OF KNOWLEDGE AND TRAINING FOR ELECTED OFFICERS IN THE KREDITO UNIJOS; • SMALL CUs WITH SMALL GROWTH; • CUs ARE TOO MUCH DEPENDS FROM ALKU. CURRENT WEAKNESSES OF THE NETWORK

  39. KEY ISSUES FOR SURVIVAL IN PRIORITY ORDER • TO ACHIEVE: • FOUNDATION OF CENTRAL CREDIT UNION • SELF SUSTAINABILITY OF THE NETWORK

  40. MEMBERS CU CU CU CU CU CU CU CU CU 0.2% CREDIT LINES AND OTHER SERVICES CKU ALKU 0,2% STABILIZATION FUND LIQUIDITY FUND LITHUANIAN BANKING CLEARING SYSTEM LITHUANIAN BANKS FOREIGN BANKS STATE DEPOSIT INSURANCE FUND * CU TILL 2003 DO NOT PAY PROFIT TAX * AFTER 2003CU PAY 6%

  41. KEY ISSUES FOR SURVIVAL IN PRIORITY ORDER • EDUCATION OF THE MEMBERS • TRAINING OF ELECTED OFFICERS OF EXISTING CREDIT UNIONS • MARKETING STRATEGY • INTEGRATION INTO THE INTERNATIONAL COOPERATIVE FINANCIAL INSTITUTIONS COMMUNITY

  42. MAIN PRIORITY: • IN 5 YEARS TO ACHIEVE: • SELF SUSTAINABILITY OF THE NETWORK

  43. ALKU SELF SUSTAINABILITY PROGRESS SHEET IN LT

  44. LESSONS LEARNED: • SUPPORT FROM STATE AUTHORITIES (PARLIAMENT, GOVERNMENT, CENTRAL BANK); • FIRST CU LAW THEN CREDIT UNIONS; • STATE SUPERVISION; • BETTER 10 CUs WITH 100 MEMBERS/CU THAN 100 CUs WITH 10 MEMBERS/CU (minimum 100);

  45. LESSONS LEARNED: • OVERALL STANDARTIZATION; • MEMBER SAVINGS, EXTERNAL FUNDS ARE MINIMAL; • STRONG CU MOVEMENT CENTER - ASSOCIATION OR CENTRAL CREDIT UNION OR ETC.

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