SAFE MONEY
At the same time, under the proposed restrictions, these small community credit unions would be very strongly capitalized. With deposits prohibited and borrowing unlikely, the ratio of capital to assets would likely be one to one, reducing risk (but also greatly circumscribing intermediation). In addition, these small credit unions would have the option of merging with each other or with a larger credit union in order to meet the mandated minimum capital requirements for deposit-taking, such as Bolivia's SDR 150,000. The resulting credit unions would be potentially more viable financial institutions in view of economies of scale, greater diversification, and other benefits of greater size and geographical spread. But is it possible for many of the original, smaller credit unions, some of which are so small that manual information systems are still the most appropriate technology for handling their operations, to overcome the management diseconomies imposed by the distance between them and form a single credit union? Are there trusted and respected managers and directors available locally who are up to the task of running such a multi-branch credit union? Or are there larger credit unions that would find it worthwhile to absorb these small credit unions and keep service going in the local community? Are the leaders of small credit unions willing to give up local control and merge with or be absorbed by other credit unions? The answers to these questions depend on the local circumstances in the country. Countries contemplating these sorts of restrictive regulations should gather information on their likely impact before putting such regulations into effect. If the answers to these questions in many small communities is "no," then the proposed restrictions may eliminate financial services in many areas, rather than make them more efficient. Thus, the answer to the larger question of whether to impose Bolivian-type restrictions on small credit unions is still an issue of intense debate.8 8
We understand that precisely because of the sorts of problems cited here, Bolivia may allow small, unsupervised credit unions to make their share accounts withdrawable. This means that share accounts would be much more like savings accounts, in which a member could withdraw share funds at any time so long as the amount in his or her account did not go below an absolute minimum balance specified by the credit union. These withdrawable share accounts would differ from savings accounts in two important regards, however. First, these shares would still be considered part of the capital of the credit union, and so no shares could be withdrawn under any of the three circumstances cited earlier (if the credit union had current or cumulative losses, deficient capital, or a large member outflow). Second, interest would not be paid on share accounts; rather, they would be remunerated by whatever end-of-the-year dividend the credit union declared. Hence, while withdrawable share accounts would go part of the way toward satisfying member needs for a liquid savings facility that protects the real value of the principal against erosion by inflation, their possible illiquidity and the uncertainty surrounding the remuneration rate of these accounts makes them only a partial substitute. Another partial substitute for a liquid savings account, though not as good a substitute even as withdrawable share accounts, is share accounts with the right to automatic loans. An automatic loan
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