SAVINGS AND CREDIT UNION STRENGTHENING PROJECT (2004-2007)

Project impact on the financial sector through SCU strengthening

In the early stages of Mongolian SCUs development in 1996 the lack of proper legal regulations for SCUs was the main cause for major soar in the SCU number which neared 800. At the time, SCUs were vaguely regulated under the Union Law. Moreover, it has become a leading cause for developing a malpractice for the SCUs such as offering high savings rate to attract more savings, creating great vulnerability throughout the market. In this circumstance it was necessary to educate the public about the international practice that “SCU is part of the financial sector that offers financial services closest to people and it is owned and operated by the people.” In order to propagate this international best practice and prevent from the previously mentioned vulnerability, Achid Consulting proposed a project to Canadian Cooperatives Association (CCA), and co-implemented this complex project extending over 3 years of time. The project consists of 4 major phases where mixed team of 20 Mongolian and foreign technical experts successfully cooperated on the project. In the initial 2 phases, we selected 9 SCUs to provide with technical assistance to strengthen their operation in 4 key management areas – Risk Management; Governance, Strategy and Business Planning; Human Resource Management; and Management Information System. Firstly a complex risk assessment on the 9 SCUs was conducted to detect all the risks and its causes. With the risk assessment report and financial calculations that the experts provided, SCUs discussed and decided on the necessary further changes and plans. SCUs were trained on properly dealing with members and provided with HR policy based on each SCU’s governance, human resource management style. In order to prevent from operation risk, our advisers in cooperation with the SCUs developed a reporting and information transferring mechanism to update the executive team in timely manner, also reported on the SCUs’ need for automating financial operation which then enabled them to introduce proper financial software program into their operation. With the complex technical assistance on key management areas, the SCUs were able to strengthen their financial as well as operational foundation to further strive.

Project impact on the creation of macro environment and macro infrastructure for SCUs

The third phase of our project focused on developing the necessary second tiers such as SCU Union and centralized financial organization to support the SCUs through unitary policy and protection from risk. Also, recommendations were made for developing good governance standard, risk assessment for licensing SCUs, introduced and developed the prudential ratios to the Financial Regulatory Committee, and provided with necessary assistance in operationalizing the proposed procedures. The last – 4th phase focused on forming a National Advisory Committee from all sides with single interest in refining and sophisticating the legal framework for SCUs. In this process, we provided with professional assistance and acted as a midground moderator for all sides’ effective communication. As a result of this process, we were able to define a concept forlong-term sustainable development of SCU sector as well as made a recommendation to the Financial Regulatory Committee. Additionally, we provided training, information sessions and advisory service for SCUs and other participating sides to refine the regulatory framework whilst taking systematic steps to standardize and professionalize the SCUs’ operation.

Protecting SCUs and the members’ asset through professionalizing and strengthening SCUs

Protecting SCUs and the members’ asset through professionalizing and strengthening SCUs Following the 2nd phase of our project in 2005, the project overcame its biggest obstacle and proved its positive impact. At the time, the financial market was in great turbulence as significant number of SCUs continuously announced their default and shut-down their operation. However, the 9 participating SCUs of the project have continued on with their normal operation and soundly overcame this market test; this protected approximately 10 billion tugrugs worth of savings. This event has clearly demonstrated the impact of the project as well as encouraged us to further proceed on to the next levels of the project. Hence, signaling us to take the latter part of the project focus to the macro level such as developing the necessary infrastructure as well as systematically improving the legal framework for SCUs. Consequently, the project shifted its gear onto creating a favorable macro environment. Within this scope, prudential ratio, financial accounting, MIS, and software programs were developed and introduced to Financial Regulatory Committee and to the SCUs. The application and use of these guidelines and tools enabled the SCUs to demonstrate international best practice with highly professional management as well as setting highly standardized trend for the rest of the market. The project advisors developed a recommendation and plan to effectively overcome SCUs’ recession. Specifically, a recommendation to create Stabilization Fund was delivered to the Financial Regulatory Committee then the bill was sent to the parliamentary floor for discussion. In the recommendation it was specified that collaterals from failed SCUs and government’s reimbursement fund for lost savings were to be pooled together; and transfer the management to SCUs under the government’s supervision. This way the government as well as the lost savings would be paid back. This recommendation provides principle, policy, and related financial model to enable long-term sustainable operation. Also, the recommendation includes complex policy that states: once the stabilization fund achieves its goal of overcoming market recession, it would eventually develop into intermediating Protection Fund/Stabilization Fund providing financial and professional assistance to SCUs in difficulty. The importance of this recommendation can be seen from the ratification of SCU Law in 2011 which specified the role of Stabilization Fund.

Encouraging SCUs to operate under one roof with unitary policy

Two separate SCU Unions at the time diverged on differing paths of International SCU Movement refusing to unite under the national development policy; and this situation was reconciled through the establishment of National Advisory Committee which encouraged the unions to reconcile their differences and merge under singular union called MOCCU. It was all possible due to the union leaders’ hard work and development-minded vision. This roof organization was structured as the platform for cooperation and protection of the SCUs’ common interest as well as to have structure to offer centralized financial services for the SCUs. The centralized financial services structure was reflected in the SCU bill designed as to assist SCUs in making payments faster, to pool surplus source and to lend it to SCUs in short of financial sourcing as well as to concentrate minimum reserve and to manage it efficiently with low-risk. Unfortunately, due to the government’s lack of confidence and knowledge about the concept resulted in exclusion of the specific article which to this date remains as an issue of concern.

Significance in building professional human resource for SCUs

The roof organization of SCU – MOCCU – has built a professional executive team, consequently Achid Consulting LLC officially transferred further project initiatives and financing to the organization as well as its advisors to MOCCU in order to enable consistency and continuity of the project to support MOCCU’s operation. As over 10 professionals were trained in strategic management, governance, finance, risk management, and IT which this human resource significantly influenced sector wide development such as shaping of the current policy, supporting structures and legal framework. In 2012, MOCCU was entitled as “national” organization from Financial Regulatory Committee which refers to its privilege to represent the SCUs at national level. SCUs have developed as a partnership of the citizens and SCUs that offer flexible financial services unique to their needs. Moreover, this society-oriented non-profit financial organization was accepted as a form of financial institution in 2011 with the ratification of the Savings and Credit Union Law. Moreover, it is important to note the role of Achid Consulting and Canadian Cooperative Association’s professional team in the historical development of SCU sector.

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