Credit Unions have existed in Panama for the past 70 years and like in the U.S. are cooperatives of savings and credit for employees of various industries and government agencies. In other words, a “Cooperativa” is a Panamanian credit union, which is a licensed, governmentally registered, cooperative financial institution, regulated by law (Law 17 of May 1997) which gives them tax free status, among various other benefits.
Every Panama credit union is regulated by the “Instituto Panameno Autonomo Cooperativo” (IPACOOP) whose website is www.ipacoop.gob.pa
There are over 150 credit unions in Panama, some of them over 50 years old. The larger credit unions have as many as 100,000 members, and each member pays a monthly minimum deposit towards the credit union capital, which is generally from $5 to $10.
Since credit unions are tax free, non-profit organizations allowing all profits to be paid back in the form of interest to depositors, they are able to pay higher interest rates to their depositors than banks can.
According to some professionals in the industry, credit unions are considered to be more secure and less risky than banks for several reasons. One reason is that credit unions are limited to borrowing up to a maximum of four times the amount of their capital while banks can borrow up to 10 times their capital. This means credit unions have less exposure to lower economic cycles or high debt obligations. A second reason is that credit unions are regulated in the type of loans they can offer, so they are limited to loans within the parameters of their intended purposes, with the majority of loans under $10,000, and they usually require direct debit payments from the member borrowers’ salary, with collateral guarantees and multiple loan co-signers. Banks are generally more exposed to economic cycles due to large high risk commercial loans, international currency movements & global interest rate changes (LIBOR, etc.), many variables of which have bankrupted many banks around the globe in the recent global economic crisis. There has never been a credit union which failed in Panama while few Panamanian banks have failed, although not in recent years.
Currently, many credit unions are paying as much as 4% interest on basic savings accounts, up to 6% interest on educational savings accounts, up to 8% interest on 5 year time deposits (CD’s) of at least $100,000, and as much as 9% interest on retirement savings accounts. They can afford to pay higher interest rates to their depositors because they earn higher interest on their loans, and most credit unions have a very low loan default rate since they make small loans, require co-signers, and require direct debits from borrowers’ salaries for payments.
Although most Panama credit unions restrict membership to Panamanian residents that work in specific industries, such as educational professionals, medical professionals, or shipping professionals, there are some credit unions that do accept outsiders, and foreigners are often permitted to open accounts with those credit unions. The due diligence requirements are generally a valid passport, a second ID (like a drivers license), proof of address (utility bill), personal or professional references, financial references, documented proof of origin of funds, and a minimum deposit. Unlike banks that usually takes weeks to process new accounts, credit union accounts are usually opened the same day all documents are received and reviewed by the credit union compliance officer.
Many credit unions will also open accounts for Panama corporations or Private Interest Foundations. The corporate documentation requirements are generally a copy of the articles of incorporation (or foundation charter), certificate of incorporation, resolution of the board of directors authorizing the opening of the account and naming the authorized signatory(s), and photocopy of the directors and officers ID’s.
Similar to Panama banks, credit unions abide by the strict banking secrecy laws of Panama. The earned interest in credit union accounts and CD’s are tax free in Panama, with no necessity of reporting of interest income to the Panamanian government.
The only disadvantages of credit unions as compared to services provided by Panama banks are that most credit unions generally do not offer checking accounts, merchant accounts, credit cards, or online banking, so they are not setup for commercial business activity. Credit unions are generally intended and designed for personal savings and making personal loans to members, so they are generally limited to various types of savings accounts, time deposits (CD’s), and personal loans.
Panamanian credit unions are an appealing alternative for foreigners experiencing extensive and exhaustive documentation requirements and long delays attempting to open accounts in Panama banks. Credit unions are especially attractive to retirees who are seeking a safe, fixed income investment, since credit unions offer more competitive interest rates for savings, CD’s, and retirement accounts.
