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USAID Mission to Poland
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Credit Union Monograph
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Credit Unions
In addition to the final report shown below, you may also wish to refer to a research monograph prepared by WOCCU in September 1999.
FINAL PROJECT REPORT
Strengthening the Polish Credit Union System
September 1992 – September 1999
USAID Project Number 180-023.06
Award Number EPE-G-00-95-00117-00
Submitted: December 31, 1999
By: World Council of Credit Unions, Inc. (WOCCU)
- Glossary
- Brief Project History
- Activities Completed During the Final Extension Period of March 30 – September
30, 1999- Project Goals vs. Achievements
- Conclusions and the Success Factors
ACH Automated Clearing House
CEE Central and Eastern Europe
CFF Central Finance Facility
CU Credit Union
FPCU Foundation for Polish Credit Unions
ISO International Organization for Standardization
NACSCU National Association of Cooperative Savings and Credit Unions
NBP National Bank of Poland
PEARLS WOCCU’s Financial Monitoring System (Protection, Effective Financial Structure, Asset Quality, Rates of Return and Costs, Liquidity, and Signs of Growth)
PLZ Polish Zloty (zl)
PKO State Savings Bank
SKOK Cooperative Savings and Credit Union
USAID U.S. Agency for International Development
USD U.S. Dollar ($)
WOCCU World Council of Credit Unions, Inc.
The history of the Polish Credit Union Movement is relatively short but remarkably successful. After the reestablishment of the Solidarity Trade Movement and Parliamentary elections in 1989, a group of Polish leaders visited the United States to observe credit unions operations in the financial marketplace. This visit encouraged them to pattern their system after the "free market@ credit union model, promoted by credit unions in capitalist economies. Subsequently, a group of credit union experts visited Poland in 1990 and evaluated the feasibility of creating a credit union system within Poland. After a very favorable review, a proposal was drafted and approved by the United States Agency for International Development (USAID); the first phase of the USAID-funded project started in September 1992. Several people were hired to promote the organization of credit unions within the business workplace in Poland. The overwhelming interest and support of the development of credit unions resulted in the design of a much larger second phase of the project entitled "Building the Polish Savings and Credit Union System" which started with the arrival of the WOCCU Project Advisor in May 1993.
In September 1995, the project was refocused and extended for two years. In October 1997 USAID extended the project for eighteen more months until March 31, 1999, because of the very impressive results that had been achieved in the Polish credit union system. During this extension period, the focus changed from building the credit union system to its strengthening. In March 1999, the project was extended for another six months until September 30, 1999, with the objective to further strengthen the system and to ensure high quality of services and adequate supervision of credit unions by (1) completing the certification process for the ISO quality system and (2) providing training for credit union management and volunteers. In total, USAID assistance spanned a seven year period from September 1992 to September 1999.
III. ACTIVITIES COMPLETED DURING THE FINAL EXTENSION PERIOD OF MARCH 30 – SEPTEMBER 30, 1999
Certification process for the ISO quality system.
The ISO certification process for the quality system compatible with ISO specifications was completed. It included:
ISO 9001 for the National Association;
ISO 9001 for TUW SKOK, the Cooperative Savings and Credit Union Mutual Insurance Society;
ISO 9002 for H&S Ltd., provider of standard operating software packages for credit unions;
ISO 9001 for the Stefczyk Credit Union.
Completion of the certification process will help ensure high quality of services and adequate supervision of credit unions.
Training sessions for credit union management and volunteers.
Ensuring the appropriate level of education of credit union volunteers and employees is crucial for the safety of deposits in credit unions and for further development of the system. Training sessions included various aspects of credit union operations including credit administration, pricing, asset-liability management, and management information systems.
IV. PROJECT GOALS VS. ACHIEVEMENTS
Considering that prior to 1992 there were no operating credit unions in Poland, it was very optimistic to assume that a Movement could start from nothing and build a large base of self-sufficient, primary level credit unions throughout Poland within seven years. It was bold to state that the project would also create many of the secondary level financial services, and to declare that they would all be self-sustaining by the end of the project. Unbelievable as it seems, that is exactly what has happened.
The following table shows the initial project goals and the status in U.S. Dollars (1 USD = 4 PLZ) as of September 30, 1999:
GOAL AREA INITIAL GOAL STATUS 9/30/99 % OF GOAL Number of Credit Unions Registered 300 180* 60%** Total Membership 300,000 300,000 100% Total Savings Deposits Mobilized $32,000,000 $138,895,066 334.05% Total SCU Equity Capital $657,000 $14,660,634 2131.45% Establish National Association (NACSCU) Project Yr. #1 Est. 1992 100.00% Create a Central Finance Facility (CFF) Project Yr. #1 Est. 1992 100.00% Create a Stabilization Fund Project Yr. #1 Est. 1992 100.00% Create an Insurance Company Project Yr. #1 Est. 1992 100.00% *366 offices/branches
** 122% if measured by number of offices and branchesThe following consolidated financial information on the Polish Credit Union Movement as of December 31, 1998, in U.S. Dollars (1 USD = 3.5 PLZ) is also of interest:
ITEM AMOUNT Total Assets: $158,073,027
Total Loans: $112,949,678
Total CFF-CU Loans: $8,677,785
Total Gross Income: $33,168,378
Total Financial Costs: $20,829,690
Total Operating Costs: $7,978,117
Total Net Income: $4,360,571
Total Loans/Number of Members: $437
Average Savings Deposit: $537
Loan Delinquency: 0.74%
In addition to the consolidated financial information for the credit unions, the National Association has made significant progress on its road to financial self-sufficiency. NACSCU received financial assistance from USAID until September 1997, when it finally arrived at full operational self-sufficiency. Since that time, NACSCU has continued to increase its revenues. The following table illustrates NACSCU=s self-sustaining capacity for 1997 and 1998:
NACSCU Profit and Loss Statements
(in U.S. Dollars, 1 USD = 3.5 PLZ)
Line Items As of 12/31/97 As of 12/31/98 Total Gross Income $1,927,249 $3,284,961 Total Financial Costs $1,247,442 $2,278,758 Total Administrative Costs $651,950 $955,628 Net Income $27,857 $50,575 The original project targets have been surpassed, thus enabling WOCCU, NACSCU and USAID personnel to declare this project a success. By October 1999, total SKOK system assets were 205 million USD. The total cost of the entire seven years of USAID project assistance to Poland was 3.9 million USD. Thus, for every US Dollar that was spent on this project, over 50 USD of new assets was generated. Assets of 205 million USD render the Polish credit union system the fourth largest financial network in Poland. USAID can be proud of the "return@ on their investment.
V. CONCLUSIONS AND THE SUCCESS FACTORS
How did the Polish credit union system grow so fast, and accomplish so much in such a relatively short period of time? As is the case in most successful projects, there are a variety of factors which, when combined together, produce a synergy which yields an output greater than the sum of the individual pieces. In the case of Poland, this synergy is readily apparent:
A. Successful Macro-Economic Reforms
Before 1989, over 80% of all Polish exports were sent to the Communist Bloc countries. After the fall of Communism, the Polish government started to re-orient its exports to Western European countries. This strategy was highly successful and as of 1998, only 7% of all Polish exports were sent to the old Communist Bloc countries. Sound fiscal policy also dramatically reduced inflation from over 800% in 1990 to a mere 8.9% in 1998. In conjunction with these events, the average monthly salary of Polish workers rose from 50 USD in 1990 to 350 USD in 1999. These successful macro-economic reforms created an ideal financial environment in which the credit unions could flourish.
B. Unwavering Political Support
From the very beginning, the Solidarity Trade Union, which gave birth to the Solidarity Political Party, was highly supportive of credit union development. The Solidarity Trade Union openly encouraged its members to either create new credit unions or join existing ones. This free "advertising@ created a very favorable image of credit unions amongst the rank and file members of Solidarity, and provided a great boost to the development efforts. Many people were "pre-disposed@ to join a credit union because of the unwavering support of Solidarity. More recently Solidarity played a key role in securing the five-year income tax exemption that credit unions currently enjoy.
C. Strong Credit Union Leaders and Competent Employees
The two key architects of the Polish CU Movement are the current Chairman of the Board, Adam Jedli˝ski and the President/CEO, Grzegorz Bierecki. Mr. Jedli˝ski is a very successful businessman, lawyer, and professor. As is the case in many credit union movements, he has donated his time as a volunteer financial/legal advisor, without charging for his professional services. An example of his significant volunteer service was his commentary on the Credit Union Act, which he drafted free of charge, for all credit union personnel to understand and correctly interpret. Mr. Jedli˝ski has been on the Board since NACSCU=s inception in 1992 and will continue in his current role as Chairman till 2002. The long-term, ten year continuity of his high-quality, volunteer service continues to play an integral part in development and implementation of a coherent, national credit union development strategy.
Grzegorz Bierecki has likewise played a decisive political and operational role in the establishment of Polish credit unions. At the tender age of 15, Mr. Bierecki became a political activist, and aligned himself with the Solidarity Movement. There was a period of time when Lech Walesa was his boss. Consequently, Mr. Bierecki has many political friends within the Solidarity Movement and at present, enjoys an intimate friendship with two cabinet ministers in the current government. These political connections have been utilized to establish some very favorable legislation for credit unions in Poland. Aside from being politically astute, Mr. Bierecki has surrounded himself with competent, professional employees who have helped implement the operational aspects of the grand vision. The strategy to hire young professionals, anxious to "make their mark@ has paid rich dividends.
D. Favorable Credit Union Legislation
With the able leadership of Mr. Bierecki, in the short span of seven years, the Polish Credit Union Movement has achieved what many other credit union movements have been unable to accomplish over a much longer period time. The number of "watershed@ legislative rulings for credit unions is truly amazing. Consider the following legislative victories:
1. Credit Union Act of December, 1995
A separate, stand-alone Credit Union Act was passed in December 1995. The Act established a legal framework for the operation and expansion of credit unions in Poland and, at the same time, empowered NACSCU with the sole responsibility of supervision and regulation of the credit union sector. The Act also established some operational standards and allowed NACSCU to set other standards, as it deemed necessary.
2. Tax Exemption
All credit unions, as of 1999, are tax exempt from income taxes for at least a five-year period. This favorable law will allow the credit unions to build some much needed institutional capital reserves from their net earnings.
3. ATM and Credit Cards
In 1997, the banking law was changed to allow credit unions to offer ATM and credit cards to their membership. This significant piece of legislation will allow the credit unions to continue to provide their membership with high quality financial products and services.
4. Interest-Bearing Liquidity Reserves
Instead of depositing their liquidity reserves in the National Bank of Poland at 0% return, credit unions are legally required to deposit their liquidity reserves with the Central Finance Facility of NACSCU where they receive a competitive yield (currently 12%) on their liquidity reserves.
5. Exemption from Minimum Capital Requirements
Credit unions are non-profit organizations whose owners are not wealthy. Normally, it takes time to build capital reserves. Given this fact, credit unions have been exempt from the new minimum capital requirements imposed on banks. This legislation is so significant that approximately two hundred small cooperative banks (up to 10,000,000 PLZ) have indicated their desire to convert to credit unions to allow them to continue to operate.
6. Business Loans to Credit Union Members
On November 19, 1999 the Polish Legislature voted in favor of allowing credit unions to offer primary business loans to member entrepreneurs. Credit unions will begin to offer such services in the first quarter of 2000. Polish newspapers predict that this legislative development will double the size of the Polish credit union system. To protect credit unions’ safety and soundness, business lending will be limited to a percentage of a credit union’s capital rather than a percentage of its total assets.
In addition to the aforementioned items that have already been approved, there are two more items of significance that are pending final approval:
7. Current Account in the National Bank of Poland (NBP)
Previously, credit unions had to use the banking sector to process checks, deposits, wires, etc. The CFF of NACSCU was able to open a direct account with NBP and therefore it acts as a direct clearing-house for monies transferred within the credit union system. This was a major step forward in making credit unions, completely independent of banks in Poland.
Finally, it is important to note that Article 6 of the Credit Union Act specifies that persons desiring to become members of a credit union must have a "common bond@ between them. This bonding requirement conceivably limits community-based credit unions from opening their doors to the public in general. Thus, it might be difficult to establish community credit unions in Poland in the future. However, there appears to be a "way around@ this regulation. There are two ways in which community credit unions can continue to grow:
- Since more than 90% of the Polish population is Catholic, any local residents may join a community credit union if they first belong to the "Catholic Family Association@. This Association is the common bond through which a community credit union may organize itself and attract new members. The St. Anthony Credit Union is the first credit union in Poland that was organized outside of company sponsorship. This community credit union has done remarkably well and appears to substantiate Mr. Bierecki=s views. It was organized in 1996 and, at the end of 1998, it had over 5,000 members and 2.9 million USD in total assets.
- For those who are not Catholic, or who do not wish to join a Catholic-based group, there exists another option. It is possible to join a community-based association entitled "The Association for the Dissemination of Financial Knowledge.@ The Staszic Credit Union is a community credit union, organized under this type of common bond with 23 branch offices in different regions of the country. They have 13,000 members and 8 million USD in total assets. This credit union is in the process of merging with the Stefczyk Credit Union, and soon, will become the largest credit union in Poland and will have a community-based charter.
E. Starting in the Workplace
According to Mr. Bierecki, there was a considerable debate at the beginning of the project as to whether to start organizing credit unions with existing businesses, or to start in rural areas in a community setting. One of the most important correct decisions ever made was to start organizing credit unions in the workplace. There were a variety of immediate economic benefits provided by the employer:
- free office space;
- free utilities;
- free telephone;
- free legal assistance;
- payroll deductions;
- easy access for new and existing members to use services; and
- abundance of competent volunteers.
While some of these benefits have gradually disappeared as the credit unions have grown and have become able to assume the full burden of their operating expenses, many credit unions, even today, still enjoy subsidized rent and utilities as a continuing contribution of their employer=s commitment. Had the rural-based credit union development strategy been employed, the results would not have been anywhere near as dramatic, nor as sustainable.
In light of the limited funding available for this type of project, the employer-based development strategy, likewise, paid rich dividends.
F. Economic/Social Aspects
One of the most important success factors to be considered were the strong economic and social underpinnings that made this project a success. In a very tangible way, credit unions appealed to the Polish people for a variety of reasons:
- There is a strong cultural basis towards people helping people. More than 90% of the population are Catholic and approximately 70% go to church. People have strong family and traditional values, which equates to a high level of honesty and trust in each other.
- There is a general distrust of banks - many people have been either rejected by banks or hurt financially by banks.
- There is a feeling of safety in a credit union because it is member-owned and controlled. Under Communism, everything was guaranteed so people like feeling "safe@.
- Credit unions offer more attractive financial services than the banks. For example, most credit unions pay 3-4% more on savings deposits and charge 1-2% less on loans. Credit unions can now offer ATM and credit cards, as well.
- Credit unions filled a huge void in the consumer lending market. Prior to credit unions, banks typically neglected this large market and focused on commercial lending. As credit unions offered consumer-based loans, people were attracted to them in large numbers, not only because of the favorable rates and terms, but also because of the types of loans offered.
G. Successful Technical Assistance and Partnership Agreements
With USAID support, WOCCU was able to link NACSCU with the huge international credit union network, contract competent consultants, and arrange volunteer liaisons between the Polish credit unions and the U.S., Canadian, and Irish Credit Union Movements. This vast network provided the Polish Credit Union leadership with valuable contacts and expertise in a variety of different technical areas. As a result of these contacts, there exists a permanent twinning agreement between Poland and the Georgia Credit Union League of the United States. The voluntary, not-for-profit nature of these liaisons provided some valuable assistance to NACSCU, which was only made possible by the WOCCU/NACSCU/USAID project.
ANNEX C
Y2K PREPAREDNESS SURVEY – Response Received on December 27, 1999
1. What is the status of critical systems?
The critical systems are operational and accounting systems (programs). Their providers assure NACSCU that they are Y2K-safe. On December 31, an extra back-up on additional media will be made to provide additional safety to NACSCU systems data. The systems are updated with the so-called patches.
2. What is the status of contingency planning? Is there cooperation among credit unions?
There is a contingency plan for NACSCU. A Task Force was established which will be operational on December 31 and on stand-by January 1-3. Credit unions do maintain direct co-operation re Y2K.
3. Are there any liquidity concerns related to Y2K
No.
4. Have communications been sent to members/ do you plan to send communications to members?
Yes. Monitoring and Financial Control Department of NACSCU communicated with all the credit unions regarding Y2K, bringing the problem to their attention and recommendations.
5. Will credit unions be open on December 31, January 1, 2, or 3?
NACSCU will be closed December 31 - January 2. NACSCU recommended that the credit unions remain closed as well but they are under no obligation to do so.
6. Are there plans at the National Association to communicate with credit unions during change-over weekend?
No. Each credit union has its own services responsible for the security of their software systems. In addition, the primary software system operator and provider to credit unions - H&S Company, will provide emergency service on December 31.
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Last Updated on: March 13, 2002 |
