The Future of Cooperative Credit Unions: Lessons from Lithuania and Implications for Latvia
The Role of Cooperative Credit Unions in Small Business Funding
Lithuania’s experience with cooperative credit unions (KKS) offers valuable insights for Latvia, where small and micro-enterprises often struggle to access funding. According to Klāvs Zutis, an economist at the Bank of Latvia, expanding the mandate of cooperative credit unions could significantly improve access to funding for new and small businesses.
Growth and Impact of KKS in Lithuania
Since 2017, the assets of Lithuanian cooperative credit unions have more than doubled, from EUR 600 million to EUR 1.58 billion. However, their overall importance in the financial sector remains relatively low. Despite this, KKS are active in nearly half of Lithuanian households and almost one-third of companies. This indicates a strong potential for cooperative credit unions to play a more significant role in the financial landscape.
Regional and Sectoral Concentration
One of the potential benefits of expanding KKS activities is funding in regions and sectors where banking activity is low. However, data from Lithuania shows that both banks and KKS tend to concentrate their activities in historically economically active regions like Kaunas and Vilnius districts. This suggests that expanding KKS might not necessarily fill the funding gap in less active regions.
Sectoral Focus and Real Estate
In Lithuania, about half of all company loans from KKS are related to the real estate industry, which is twice as much as banks. This high concentration in real estate could be seen as a disadvantage, but it could also be an advantage for Latvia. Latvia’s development of commercial premises and living areas is significantly behind neighboring countries, and additional funding through KKS could help bridge this gap.
Interest Rates and Risk Appetite
One consideration is that KKS typically have higher interest rates than banks. In 2024, about two-thirds of all KKS loans in Lithuania had interest rates between 8-10%, compared to banks which rarely exceed 8%. This is due to higher capital-raising costs and a riskier customer base for KKS.
Client Base and Age Structure
KKS primarily serve small and medium-sized enterprises (SMEs), while large companies typically turn to banks. The age structure of credited companies also differs: banks favor companies with more than 15 years of experience, while KKS lend to newer companies. This indicates that new companies have a better chance of securing loans from KKS than from banks.
Realistic Restrictions and Future Solutions
The role of KKS in the Lithuanian financial system is limited, and Latvia must consider realistic restrictions on expanding KKS to solve corporate funding issues. Other solutions may also be needed to fully address the funding challenges faced by small and new businesses.
Table: Comparison of KKS and Banks in Lithuania
| Metric | KKS | Banks |
|---|---|---|
| Interest Rates | 8-10% | Typically below 8% |
| Sector Focus | High concentration in real estate | Diverse sectors |
| Client Base | Small and medium-sized enterprises | Large companies |
| Company Age | Newer companies (22% under 15 years) | Older companies (50% over 15 years) |
Did You Know?
Cooperative credit unions have a long history of supporting local communities and small businesses. In many countries, they have played a crucial role in economic development by providing accessible and flexible financing options.
Pro Tips for Small Businesses
- Explore KKS Options: If you are a small business owner, consider exploring cooperative credit unions for funding.
- Prepare a Strong Business Plan: Having a solid business plan can increase your chances of securing a loan from either banks or KKS.
- Understand Interest Rates: Be aware of the higher interest rates associated with KKS and plan your finances accordingly.
FAQ Section
Q: What are cooperative credit unions (KKS)?
A: Cooperative credit unions are financial institutions owned and controlled by their members. They provide various financial services, including loans and savings accounts, primarily to small and medium-sized enterprises.
Q: Why are KKS important for small businesses?
A: KKS offer accessible and flexible financing options, making them an essential resource for small businesses that may struggle to secure loans from traditional banks.
Q: What is the future of KKS in Latvia?
A: Expanding the mandate of KKS in Latvia could improve access to funding for small and new businesses, but it is not a complete solution. Other measures may also be needed to fully address funding challenges.
Q: How do interest rates compare between KKS and banks?
A: KKS typically have higher interest rates than banks due to higher capital-raising costs and a riskier customer base. In 2024, about two-thirds of all KKS loans in Lithuania had interest rates between 8-10%, compared to banks which rarely exceed 8%.
Call to Action
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