Credit Unions Resist Globalisation with Mergers

By Alejandro Campos, IPS, 1 March 1999

LA PAZ, Mar 1 (IPS) - Suffocated by emerging competition from the private banks, Latin America's credit unions are making mergers as the only way to survive in competitive conditions.

This was the conclusion reached by sector members from various regional countries at the international forum Credit unions facing the challenges of globalisation, held last week in the Bolivian city of Santa Cruz, 900 kilometres east of La Paz.

Merger by absorption represents the fastest and most suitable way to promote the growth of the credit unions, which must also compete with the megaprocesses of fusion in the banks, said Hermes Moreno, president of Bolivia's Jesus Nazareno credit union, which organised the meeting.

This type of company is at a serious disadvantage compared with banking entities.

But the figures provided in Bolivia are also representative, on a different scale, of what is happening in the rest of the Latin American countries, concluded those present at the meeting.

In Bolivia, the banks command assets worth more than 413 million dollars, while the credit unions only get to 39 million.

Merger by absorption therefore becomes inevitable, and the best possible market strategy is to go back to the roots of the credit union and grant micro credits directed to the most unprotected social sectors, concluded various participants.

The urban markets are probably saturated. Therefore we must aim at the provinces and smaller towns to place our loans, said Moreno.

Other speakers said the credit union is the system by far best suited to the small economic players overlooked by globalisation.

That was the conclusion reached by Juan Carlos Amar, representing an Argentinian credit union, who explained that the leading national bank there is a cooperative.

Amar cited the example of the cooperative institution he represents, with 200 branch offices and a system of credit cards covering the four Southern Cone Common Market (Mercosur) countries - Argentina, Brazil, Paraguay and Uruguay.

Clemencia Dupont, of Colombia, said the cooperative movement in her country has started making mergers in order to survive.

The Colombian cooperative movement is submitted to a new system of monitoring and control, because the government had been pretty careless, said Dupont.

Bolivia's superintendent of Banks and Financial Entities, Jacques Trigo, who attended the international forum, advised cooperative members to plan and execute a commercial strategy that would allow them to address the new financial scenarios of the region.

The credit unions must discover the market niches offering greatest comparative advantages in order to offer new financial services, he said.

If we want stronger cooperatives, member participation must be promoted in decision making and administration, added Trigo.

In Bolivia, the government came up with 37 million-dollar fund to support this economic reinforcement and the creation of new financial services in the cooperatives.

The funds were provided by the Interamerican Development Bank, with 25 million dollars, and Spain, the remaining 12 million.

Bolivia will approve new laws allowing credit unions to accept goods other than real estate as security for a loan.

A house or land will not be necessary in order to get a loan. The presentation of machinery, equipment or work tools will be sufficient for the interested party to get economic resources, announced labour minister, Leopoldo Lopez.

There are 202 savings and credit unions in Bolivia, but only 17 of these report to the Superintendency of Banks and Financial entities, accounting for 256 million dollars - four percent of total assets in the system.