Credit union experts in Ukraine are working to build a deposit insurance reserve for financial cooperatives, as access to capital remains a crucial challenge in the war-torn country.
Ukraine's credit union industry began shortly after the country became independent following the Soviet Union's collapse in 1991. But in all that time, the funds members kept in financial cooperatives have remained unsecured.
The Deposit Guarantee Fund (DGF) of Ukraine, which has been in operation since 1998 as a safeguard against loss for consumer accounts held at banks throughout the country, debuted its initial concept of a system that will protect funds held at credit unions.
Under the
"Establishing a deposit guarantee system for the credit unions, similar to the one of the banking sector, will increase their competitiveness and strengthen their ability to mobilize additional resources and reach underserved communities they work in," Olenchyk said.
The current proposal would insure member deposits up to 100,000 hryvnia ($2,708) as well as require cooperatives to pay a regular yearly fee equal to 0.5% of their deposit portfolio in quarterly disbursements.
As part of the drafting process with the National Bank of Ukraine (NBU), which regulates all financial institutions across the country, the DGF signed a memorandum of cooperation with the Madison, Wisconsin-based World Council of Credit Unions' Credit for Agriculture Producers (CAP) project to garner additional insight surrounding the potential effectiveness of a new deposit system.
Numerous credit union executives were originally opposed to the idea of an insurance fund roughly 10 to 15 years ago, as many felt that trust was more important than a state guarantee, but changed course after a Ukrainian banking crisis in 2014 highlighted the benefits of the DGF, said Ivan Vyshnevskiy, deputy chief of party for WOCCU's CAP project.
"We have a lot of strong credit unions but at the same time, when another credit union goes bankrupt, it has a direct impact on [the perception of] good credit unions because it's the same structure, the same regulators and the same license. … Right now, most credit unions support this idea and they understand the importance of it," Vyshnevskiy said.
As Russia's war in Ukraine continues, trade organizations are working to maintain or develop new ways to provide assistance.
WOCCU's official fundraising arm, the Worldwide Foundation for Credit Unions, has both supported and launched several aid campaigns for those displaced since the start of the war. These include
Separately, the
Measures for strengthening the financial services system, including deposit guarantees, can help Ukrainians endure the crisis in their country, according to Martha Ninichuk, director of the office of credit union resources and expansion for the National Credit Union Administration in the U.S.
"People rely on the ability to access cash in order to maintain the ability to buy food and transact minimal daily functions. … Without access to cash, the economic and social systems break down," Ninichuk said. "Having a financial services sector in place also assists an economy in recovery at a faster pace following a time of unrest."
For leaders of Ukrainian cooperatives still troubled by the liquidity crunch, supplying the new DGF would be a significant challenge.
"Regulatory pressure is the biggest factor for our members, and many of them are thinking about the possibility of continuing their own activities [against] fulfilling all these requirements," said Lyudmila Kravchenko, vice president of the Ukrainian National Association of Savings and Credit Unions, which represents roughly one-third of credit unions in the country.
"Our task is to find balance between the needs of our members and the power of credit unions to fulfill all requirements and to pay for participation into the guaranty fund," Kravchenko said.
The proposal must now receive the full support of the DGF and the NBU before it can be introduced in the next session of the Rada for a vote.
