Savings and loan associations hit by crisis

The savings and loan associations of Moldova feel the effects of the economic crisis. “We are at the start of a crisis. We encounter repayment-related problems. The people repay the loans harder and harder,” Oleg Gheorghies, the executive director of the savings and loan association in Rosietici village of Floresti district, has told Info-Prim Neo. According to Oleg Gheorghies, the savings and loan associations are exposed to a higher risk in case of inflation as they cannot purchase foreign currency. “The only method of protection against inflation is to raise the rate of interest, but we cannot do this constantly. If the people do not have money to pay, they will not pay the loan,” Oleg Gheorghies said. Other directors also said that the associations are not protected from the crisis and a simple rumor can cause serious problems. “If all the depositors come to withdraw their money, we will not be able to cope. The people already started to take their savings out. All the depositors are alerted,” said Alexei Burlacu, the executive director of the savings and loan association in Viisoara village of Edinet district. Another impediment is the expensive loans offered by the microfinance companies to the associations. Under the law, the savings and loan associations are not allowed to borrow money from abroad. The money that comes from foreign financial institutions gets to the accounts of the Moldovan microfinance institutions. This money is borrowed for a period of 30 years at an interest rate of 0.75% year, but the microfinance institutions lend it to the associations at a rate of over 20%. “It is true that the loans are taken out in foreign currency, but they should reduce the interest given that the loans are guaranteed by the Government,” Alexei Burlacu said. Directors of associations consider that the savings and loan associations will survive the crises only if they decrease the sums designed for lending and offer loans for a short period, investing only in stable businesses. The savings and loan associations appeared after the World Bank and the Government of Moldova implemented the Rural Finance Project initiated at the end of 1996. There are over 500 associations in Moldova at present. 10% of these finance themselves from their own resources.