KIEV, Ukraine — World Council of Credit Unions CEO Brian Branch returned Wednesday from a last-minute, three-day visit to Ukraine, where credit unions are struggling to react effectively to the turmoil taking place in the country.
While there, Branch met with credit union representatives who are operating near the barricades in Kiev set up by protesters who have overthrown the government and who now worry about potential attacks by government or Russian troops.
In addition, Branch said he was in contact with credit unions located in the Crimea region uncertain and worried over what to do should the area effectively become a part of Russia.
In an exclusive interview with Credit Union Journal, Branch describes the trip, the challenges in the Ukraine, what credit unions are doing in the region and more.
Diekmann: Although it may seem obvious, why were you in Ukraine, how would you describe the state of affairs, and did you encounter any issues with travel into or around the country?
Branch: The Ukrainian Association of Credit Unions asked for help. The trip was a last-minute add-on to my participation the previous week at the Association of British Credit Unions meeting in Manchester. We felt that it was important to provide an early response and show them that outside their country the credit union system was paying attention and supportive.
Flights into and out of Kiev were mostly empty but smooth. The flight attendant asked me to move to the exit row so there would be someone to open the emergency door in case of an emergency. Travel in and around the Kiev area was calm. I was always in the company of credit union colleagues who know what is happening on the ground, can vouch for me and know where is safe and where is not. I did not travel into the Crimea.
There are 31 credit unions in the Crimea. Some have loans out from the national association. Phones were constantly ringing from people in the credit unions in the Crimea asking for outside information, "What is happening? How can we recover loans in occupied or seceded territory? Will they be paid in rubles? How will we be able to enforce collateral contracts?"
As you know, the fighting in Kiev had ended and the city is now in the hands of the transition government. Credit union people had participated in the protests in Maydan square, many working until 1 p.m. and then going to the square to volunteer or take food and blankets and medical supplies for the wounded. Of the 102 protesters killed by snipers and security forces, a handful were credit union volunteers.
One young credit union legal advisor, Oleg, took me to the barricades to show me proudly the barricade that he helped to build and where they had received the brunt of armored vehicles. Various cities sent volunteers to the square where they set up large tents with the name of their city on the side of the tent. Each tent and its volunteers sit at a key intersection or corner of the square and maintain order. Many have large barrel cookstoves in the open air where they make tea and cook meat, giving it to passerby who stop to talk. City residents carry their shopping bags and pull their children in tow through the barricades and beneath the burned out buildings on their way to home or market.
Diekmann: Most Americans will have little familiarity with the Ukrainian credit union community. What can you share about credit unions in Ukraine? What were the challenges Ukrainian CUs were facing (and WOCCU was attempting to provide assistance) prior to the most recent crisis, and how has that changed as the result of the current crisis?
Branch: There are 600 credit unions in Ukraine serving a bit more than a million members. Credit unions restarted in Ukraine in the early 1990s with the support of the World Council, the World Council of Ukrainian Credit Unions, the Montana Credit Union League and credit unions such as Self Reliance Credit Union in Illinois.
Credit unions in Ukraine are prevalent in the provincial cities and rural areas. They are still small by U.S. standards. They respond to much of the common person-on-the-street's demand for consumer finance, appliances, education. They finance members' self-employment and small businesses. They are often the only institutions financing small farmers in the rural villages.
The last four years have been very difficult for credit unions or any form of business in Ukraine. Credit Unions were required to acquire licenses to carry out what we would normally consider usual financial intermediation transactions. Such licenses required payment of multiple fees and personal facilitation payments. Still licenses and approvals were rarely forthcoming and credit union services and growth were obstructed.
Some credit unions just gave up. Others showed off the massive amount of paperwork and multiple tries it took for them to open a branch or add a new product. People still continued to save and to take loans in small amounts. World Council worked with the Ukrainian Association to try to achieve legislative and regulatory reform through this period with little success in adoption of best practices. Credit union folks are optimistic that a new reformist government will provide a more secure and safe environment for conducting business. We will work with them in engaging the new authorities for an empowering regulatory framework.
Diekmann: What were you seeking to do with this trip? Did you traveling alone? With whom did you meet? What are representatives of Ukraine's CU movement saying, and what assistance — if any — are they seeking?
Branch: I traveled in alone and worked with the Ukrainian National Association of Credit Unions. We visited with credit unions in the Kiev area.
With the conflict, credit unions are focused on managing their liquidity. The system as a whole is already 92% lent out. In a time of uncertainty people withdraw their savings and want to hold cash. If there is a savings run on credit unions, credit unions will be unable to meet all demands for savings.
There have been some savings withdrawal trends in Eastern Ukraine near the border. Delinquency may increase if borrowers begin to leave Ukraine. We have not seen savings withdrawals in western Ukraine as of yet and remittance flows from Ukrainian workers sending money home from Western Europe have not dipped. Spring is coming and farmers need to begin to sow their crops. So the demand for loans is picking up in the credit unions at the same time that savings is slowing down because of the political uncertainty.
Local banks are cutting back on their lending and international banks have been making noise about withdrawing so people ask if credit unions can fill in the gap. While the credit unions are asking for borrowings for meeting the credit demands, prospects for that are limited and we are formulating a plan to update credit union savings offerings to attract more local savings. This is of course a longer-term answer. We are working on updated business lending methodologies for the credit unions, which have traditionally done largely consumer finance and now are looking to respond to the increased demands for business lending.
Diekmann: Again, most Americans' familiarity with Ukraine right now is going to be the street scenes appearing in the media, primarily in Kiev and in Crimea. Could you describe what you saw there??
Branch: We walked downtown past a two story barricade of overturned cars, plastic bags of sand, paving stones, wooden pallets and tires. Large canvas tents stood on the sides of the roadway and in the square. Standing beside barrel stoves, volunteers handed out hot mugs of tea or barbecued meat provided from the city populace who brought food and blankets and medical supplies to the Maydan square protesters.
There are rusted coils of fine wire heaped in rows where tires had been burned. Blackened buildings burned during the conflict remain empty. Where protesters have fallen slain by snipers, a picture of the victim was tacked to a makeshift frame or wrapped around a tree with piles of roses laid beneath the picture.
The revolution was led by the middle class. At the barricades were young men and women in business suits next to the students in jeans and the volunteers in military fatigues. Self-employed and small business owners were under pressure from the previous government. Many of their parents learned democracy during the 1990s and participated in the credit union democratic process. Now having sacrificed for the revolution they are waiting for the elections promised for May and concerned about the economic future.
They are turning to the credit unions to finance their small businesses and to create jobs for the young people who stood at the barricades.
Diekmann: Is there anything American CUs can do at this point to provide assistance or help??
Branch: American credit unions have always been generous with their time and resources. The World Council and our ability to support credit union systems like Ukraine would not exist without this generosity. The Ukrainian system was started through the support of the U.S. and Canadian credit unions and the Ukrainians remember this. We will be putting together a lending fund to help the Ukrainian credit unions meet the increased loan demands.
Resolution and stability in Ukraine will require political steadiness, compromise and resolution. But it will also require economic stability and that means avoiding a banking collapse, financing business, getting crops in the ground, reducing corruption and giving people a better future for their families. The credit unions can help with this.
As I mentioned the Ukrainians remembered that the U.S. credit unions helped them start. When they left me at the airport, our Ukrainian colleagues asked me to pass on their thanks.
Diekmann: How long were you there and are there any other countries' CU movements providing assistance??
Branch: It was a short visit over three days. The Polish credit unions have provided training and technical support to the Ukrainian credit unions for many years. Being next door they have followed closely events in Ukraine and kept us informed. My trip into Ukraine was the first step, now to be followed by some short-term technical support visits by our Polish colleagues.