Credit cooperative development in Russia: public consultation outcomes

Credit cooperatives in the financial system should evolve based on increasingly advanced cooperative principles and consistent action against unscrupulous practices. Such are the outcomes of public consultation on the ‘Credit Cooperative Development’ report the Bank of Russia released to the public and market players in October 2017.

Based on feedback analysis and the summarisation of participants’ opinions, it was concluded that current developments in the credit cooperative segment are a cause for concern to the professional community. Low financial literacy, consumers unable to understand the workings of credit cooperatives, coupled with a lack of professionalism and competences of credit consumer cooperative employees are among the key external and internal constraints on credit cooperative growth in Russia.

The discussion participants largely supported the solutions to key problems of this market outlined in the consultation paper. The paper presented the full spectrum of evaluations and potential approaches to credit cooperative sector development.

A wide variety of opinions was seen in the understanding of some practical aspects of credit cooperative operations. Some participants called for a review of the current approach whereby all cooperative members must jointly meet their subsidiary liabilities: they proposed that liabilities would only cover borrowers of credit cooperatives, or their executives or customers with saving accounts, or exclusively credit cooperative shareholders incompliant with regulations and contractual obligations.

While discussing credit cooperative governance concepts set forth in the report, some attendees spoke out in support of management boards receiving broader authority, whereas others expressed the opposite view claiming that the powers the management board – the executive body of credit cooperatives – are superfluous. According to representatives of the broader credit cooperative market, executives should be legally liable (i.e. face administrative sanctions or criminal liability) for any case of abuse / inaction.

The idea of rebranding in credit cooperatives, floated for discussion, met mixed reaction. Some discussion participants believe that changing the name would boost the prestige of credit cooperatives as socially important institutes. Conversely, other say a rebranding campaign would involve unjustified costs.

There was consensus of opinion as regards the withdrawal of unit accumulation from a struggling credit cooperative. Most respondents spoke for limits on cooperative members’ rights (with some even favouring a total ban) to prevent withdrawal of their funds in such cases. Their view is, the right to claim a unit back could only arise following the approval of the financial reporting for the year and would come with the counter-obligation on an exiting unitholder to subsidiary liability on a joint basis, for one year following exit.

The Bank of Russia will take into account the opinions of the professional community as it develops the national legislation in the credit cooperative sphere and appropriate regulatory acts.