A credit union, a type of
financial institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial inst ...
similar to a
commercial bank
A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.
It can also refer to a bank, or a division of a large bank, which deals with co ...
, is a member-owned
nonprofit financial
cooperative
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-contro ...
. Credit unions generally provide services to members similar to retail banks, including
deposit accounts, provision of
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
, and other financial services.
In several African countries, credit unions are commonly referred to as SACCOs (Savings and Credit Co-Operative Societies).
Worldwide, credit union systems vary significantly in their total assets and average institution asset size, ranging from volunteer operations with a handful of members to institutions with hundreds of thousands of members and assets worth billions of US dollars.
In 2018, the number of members in credit unions worldwide was 274 million, with nearly 40 million members having been added since 2016.
Leading up to the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
, commercial banks engaged in approximately five times more
subprime lending relative to credit unions and were two and a half times more likely to fail during the crisis.
American credit unions more than doubled lending to small businesses between 2008 and 2016, from $30 billion to $60 billion, while lending to small businesses overall during the same period declined by around $100 billion. In the US, public trust in credit unions stands at 60%, compared to 30% for big banks. Furthermore, small businesses are 80% less likely to be dissatisfied with a credit union than with a big bank.
"Natural-person credit unions" (also called "retail credit unions" or "consumer credit unions") serve individuals, as distinguished from "
corporate credit unions", which serve other credit unions.
Differences from other financial institutions
Credit unions differ from
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s and other financial institutions in that those who have accounts in the credit union are its members and owners,
and they elect their board of directors in a
one-person-one-vote system regardless of their amount invested.
Credit unions see themselves as different from mainstream banks, with a mission to be community-oriented and to "serve people, not profit".
Credit unions offer many of the same financial services as banks but often use different terminology. Typical services include share accounts (
savings account
A savings account is a bank account at a retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditionally, transa ...
s), share draft accounts (
cheque accounts),
credit card
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...
s, share term certificates (
certificates of deposit
A certificate of deposit (CD) is a time deposit, a financial product commonly sold by banks, thrift institutions, and credit unions in the United States. CDs differ from savings accounts in that the CD has a specific, fixed term (often one, t ...
), and
online banking
Online banking, also known as internet banking, web banking or home banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial ins ...
. Normally, only a member of a credit union may
deposit or
borrow
Borrow or borrowing can mean: to receive (something) from somebody temporarily, expecting to return it.
*In finance, monetary debt
*In language, the use of loanwords
* In arithmetic, when a digit becomes less than zero and the deficiency is taken f ...
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
.
Surveys of customers at banks and credit unions have consistently shown significantly higher customer satisfaction rates with the quality of service at credit unions.
Credit unions have historically claimed to provide superior member service and to be committed to helping members improve their financial situation. In the context of
financial inclusion
Financial inclusion is defined as the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and service ...
, credit unions claim to provide a broader range of loan and savings products at a much cheaper cost to their members than do most
microfinance institutions.
Credit unions differ from modern microfinance. Particularly, members' control over financial resources is the distinguishing feature between the cooperative model and modern microfinance. The current dominant model of microfinance, whether it is provided by not-for-profit or for-profit institutions, places the control over financial resources and their allocation in the hands of a small number of microfinance providers that benefit from the highly profitable sector.
Not-for-profit status
In the credit union context, "
not-for-profit" must be distinguished from a charity.
Credit unions are "not-for-profit" because their purpose is to serve their members rather than to maximize profits,
so unlike charities, credit unions do not rely on donations and are financial institutions that must make what is, in economic terms, a small
profit (i.e., in non-profit accounting terms, a "surplus") to remain in existence.
According to the
World Council of Credit Unions
The World Council of Credit Unions (WOCCU) is an international trade association and development agency for credit unions headquartered in Madison, Wisconsin. WOCCU aims to improve lives through credit unions and other financial cooperatives thr ...
(WOCCU), a credit union's
revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...
s (from loans and investments) must exceed its operating expenses and
dividend
A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-i ...
s (interest paid on deposits) in order to maintain capital and solvency.
In the United States, credit unions incorporated and operating under a state credit union law are tax-exempt under
Section 501(c)(14)(A).
Federal credit unions organized and operated in accordance with the
Federal Credit Union Act
The Federal Credit Union Act is an Act of Congress enacted in 1934. The purpose of the law was to make credit available and promote thrift through a national system of nonprofit, cooperative credit unions. This Act established the federal credit ...
are tax-exempt under
Section 501(c)(1).
Global presence
According to the
World Council of Credit Unions
The World Council of Credit Unions (WOCCU) is an international trade association and development agency for credit unions headquartered in Madison, Wisconsin. WOCCU aims to improve lives through credit unions and other financial cooperatives thr ...
(WOCCU), at the end of 2018 there were 85,400 credit unions in 118 countries. Collectively they served 274.2 million members and oversaw
US$2.19 trillion in assets.
WOCCU does not include data from
cooperative banks, so, for example, some countries generally seen as the pioneers of credit unionism, such as Germany, France, the Netherlands and Italy, are not always included in their data. The
European Association of Co-operative Banks reported 38 million members in those four countries at the end of 2010.
The countries with the most credit union activity are highly diverse. According to WOCCU, the countries with the greatest number of credit union members were the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
(101 million), India (20 million),
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
(10 million), Brazil (6.0 million), South Korea (5.7 million), Philippines (5.4 million), Kenya and Mexico (5.1 million each), Ecuador (4.8 million), Australia (4.5 million), Thailand (4.1 million), Colombia (3.6 million), and
Ireland
Ireland ( ; ga, Éire ; Ulster Scots dialect, Ulster-Scots: ) is an island in the Atlantic Ocean, North Atlantic Ocean, in Northwestern Europe, north-western Europe. It is separated from Great Britain to its east by the North Channel (Grea ...
(3.3 million).
The countries with the highest percentage of credit union members in the economically active population were Barbados (82%),
Ireland (75%), Grenada (72%), Trinidad & Tobago (68%), Belize and St. Lucia (67% each), St. Kitts & Nevis (58%), Jamaica (53% each), Antigua and Barbuda (49%), the United States (48%), Ecuador (47%), and Canada (43%). Several African and Latin American countries also had high credit union membership rates, as did Australia and South Korea. The average percentage for all countries considered in the report was 8.2%.
Credit unions were launched in Poland in 1992; there were 2,000 credit union branches there with 2.2 million members.
From 1996 to 2016, credit unions in Costa Rica almost tripled their share of the financial market (they grew from 3.7% of the market share to 9.9%), and grew faster than private-sector banks or state-owned banks in Costa Rica, after financial reforms in that country.
History
"Spolok Gazdovský" (''The Association of Administrators'' or ''The Association of Farmers'') founded in 1845 by Samuel Jurkovič, was the first cooperative in Europe (Credit union). The cooperative provided a cheap loan from funds generated by regular savings for members of the cooperative. Members of cooperative had to commit to a moral life and had to plant two trees in a public place every year. Despite the short duration of its existence, until 1851, it thus formed the basis of the cooperative movement in Slovakia. Slovak national thinker
Ľudovít Štúr
Ľudovít Velislav Štúr (; hu, Stur Lajos; 28 October 1815 – 12 January 1856), known in his era as Ludevít Štúr, (pen names : B. Dunajský, Bedlivý Ludorob, Boleslav Záhorský, Brat Slovenska, Ein Slave, Ein ungarischer Slave, Karl Wi ...
said about the association: "We would very much like such excellent constitutions to be established throughout our region. They would help to rescue people from evil and misery. A beautiful, great idea, a beautiful excellent constitution!"
Modern credit union history dates from 1852, when
Franz Hermann Schulze-Delitzsch
Franz Hermann Schulze-Delitzsch, also Hermann Schulze, (29 August 1808 – 29 April 1883) was a German politician and economist. He was responsible for the organizing of the world's first credit unions. He was also co-founder of the German Progre ...
consolidated the learning from two pilot projects, one in
Eilenburg
Eilenburg (; hsb, Jiłow) is a town in Germany. It lies in the district of Nordsachsen in Saxony, approximately 20 km northeast of the city of Leipzig.
Geography
Eilenburg lies at the banks of the river Mulde at the southwestern edge ...
and the other in
Delitzsch in the
Kingdom of Saxony
The Kingdom of Saxony (german: Königreich Sachsen), lasting from 1806 to 1918, was an independent member of a number of historical confederacies in Napoleonic through post-Napoleonic Germany. The kingdom was formed from the Electorate of Saxo ...
into what are generally recognized as the first credit unions in the world. He went on to develop a highly successful urban credit union system.
In 1864,
Friedrich Wilhelm Raiffeisen
Friedrich Wilhelm Raiffeisen (30 March 1818 – 11 March 1888) was a German mayor and cooperative pioneer. Several credit union systems and cooperative banks have been named after Raiffeisen, who pioneered rural credit unions.
Life
Friedrich Wilhe ...
founded the first rural credit union in Heddesdorf (now part of
Neuwied
Neuwied () is a town in the north of the German state of Rhineland-Palatinate, capital of the District of Neuwied. Neuwied lies on the east bank of the Rhine, 12 km northwest of Koblenz, on the railway from Frankfurt am Main to Cologne. Th ...
) in Germany.
By the time of Raiffeisen's death in 1888, credit unions had spread to Italy, France, the Netherlands, England, Austria, and other nations.
The first credit union in North America, the Caisse Populaire de
Lévis in
Quebec
Quebec ( ; )According to the Canadian government, ''Québec'' (with the acute accent) is the official name in Canadian French and ''Quebec'' (without the accent) is the province's official name in Canadian English is one of the thirtee ...
, Canada, began operations on 23 January 1901 with a 10-cent deposit. Founder
Alphonse Desjardins, a reporter in the Canadian parliament, was moved to take up his mission in 1897 when he learned of a Montrealer who had been ordered by the court to pay nearly
Can$
The Canadian dollar (symbol: $; code: CAD; french: dollar canadien) is the currency of Canada. It is abbreviated with the dollar sign $, there is no standard disambiguating form, but the abbreviation Can$ is often suggested by notable style ...
5,000 in interest on a loan of $150 from a moneylender. Drawing extensively on European precedents, Desjardins developed a unique parish-based model for Quebec: the
''caisse populaire''.
In the United States,
St. Mary's Bank Credit Union of
Manchester, New Hampshire
Manchester is a city in Hillsborough County, New Hampshire, United States. It is the most populous city in New Hampshire. At the 2020 census, the city had a population of 115,644.
Manchester is, along with Nashua, one of two seats of New Ha ...
, was the first credit union. Assisted by a personal visit from Desjardins, St. Mary's was founded by
French-speaking immigrants
Immigration is the international movement of people to a destination country of which they are not natives or where they do not possess citizenship in order to settle as permanent residents or naturalized citizens. Commuters, tourists, a ...
to Manchester from Quebec on 24 November 1908. Several
Little Canadas throughout
New England
New England is a region comprising six states in the Northeastern United States: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. It is bordered by the state of New York (state), New York to the west and by the Can ...
formed similar credit unions, often out of necessity, as
Anglo-American banks frequently rejected
Franco-American loans.
America's Credit Union Museum
America's Credit Union Museum is located in Manchester, New Hampshire, on the site of the first credit union founded in the United States. The museum is housed at the original location for St. Mary's Cooperative Credit Association, renamed in 192 ...
now occupies the location of the home from which St. Mary's Bank Credit Union first operated. In November 1910 the Woman's Educational and Industrial Union set up the Industrial Credit Union, modeled on the Desjardins credit unions it was the first non-faith-based community credit union serving all people in the greater Boston area. The oldest statewide credit union in the United States was established in 1913. The St. Mary's Bank Credit Union serves any resident of the
Commonwealth of Massachusetts
Massachusetts (Massachusett: ''Muhsachuweesut Massachusett_writing_systems.html" ;"title="nowiki/> məhswatʃəwiːsət.html" ;"title="Massachusett writing systems">məhswatʃəwiːsət">Massachusett writing systems">məhswatʃəwiːsət'' En ...
.
After being promoted by the
Catholic Church
The Catholic Church, also known as the Roman Catholic Church, is the largest Christian church, with 1.3 billion baptized Catholics worldwide . It is among the world's oldest and largest international institutions, and has played a ...
in the 1940s to assist the poor in
Latin America
Latin America or
* french: Amérique Latine, link=no
* ht, Amerik Latin, link=no
* pt, América Latina, link=no, name=a, sometimes referred to as LatAm is a large cultural region in the Americas where Romance languages — languages derived f ...
, credit unions expanded rapidly during the 1950s and 1960s, especially in Bolivia, Costa Rica, the Dominican Republic, Honduras, and Peru. The Regional Confederation of Latin American Credit Unions (COLAC) was formed and with funding by the
Inter-American Development Bank credit unions in the regions grew rapidly throughout the 1970s and into the early 1980s. By 1988 COLAC credit unions represented 4 million members across 17 countries with a loan portfolio of circa US$0.5 billion. However, from the late 1970s onwards many Latin American credit unions struggled with inflation, stagnating membership, and serious loan recovery problems. In the 1980s donor agencies such as
USAID
The United States Agency for International Development (USAID) is an independent agency of the U.S. federal government that is primarily responsible for administering civilian foreign aid and development assistance. With a budget of over $27 bi ...
attempted to rehabilitate Latin American credit unions by providing technical assistance and focusing credit unions' efforts on mobilising deposits from the local population. In 1987, the
regional financial crisis caused a run on credit unions. Significant withdrawals and high default rates caused liquidity problems for many credit unions in the region.
Stability and risks
Credit unions and banks in most jurisdictions are legally required to maintain a reserve requirement of assets to liabilities. If a credit union or traditional bank is unable to maintain positive cash flow and/or is forced to declare insolvency, its assets are distributed to creditors (including depositors) in order of seniority according to bankruptcy law. If the total deposits exceed the assets remaining after more senior creditors are paid, all depositors will lose some or all of their initial deposits. However, most jurisdictions have deposit insurance that promises to make depositors whole up to a maximum insurable account level.
Corporate
Credit unions as such provide service only to individual consumers. ''Corporate credit unions'' (also known as ''central credit unions'' in Canada) provide service to credit unions, with operational support, funds clearing tasks, and product and service delivery.
Leagues and associations
Credit unions often form cooperatives among themselves to provide services to members. A
credit union service organization (CUSO) is generally a for-profit subsidiary of one or more credit unions formed for this purpose. For example,
CO-OP Financial Services
CU Cooperative Systems, Inc. doing business as Co-op Solutions (formerly d.b.a. CO-OP Financial Services), is a company that operates an interbank network connecting the ATMs of credit unions in the United States, with locations also in Canada ...
, the largest credit-union-owned
interbank network in the United States, provides an ATM network and shared branching services to credit unions. Other examples of cooperatives among credit unions include credit counselling services as well as insurance and investment services.
State credit union leagues can partner with outside organizations to promote initiatives for credit unions or customers. For example, the Indiana Credit Union League sponsors an initiative called "Ignite", which is used to encourage innovation in the credit union industry, with the Filene Research Institute.
The National Association of Federally-Insured Credit Unions (NAFCU) is a national trade association for all state and federally-chartered credit unions. Based outside of Washington, D.C., NAFCU's mission is to provide all credit unions with federal advocacy, compliance assistance, and education.
The
World Council of Credit Unions
The World Council of Credit Unions (WOCCU) is an international trade association and development agency for credit unions headquartered in Madison, Wisconsin. WOCCU aims to improve lives through credit unions and other financial cooperatives thr ...
(WOCCU) is both a
trade association
A trade association, also known as an industry trade group, business association, sector association or industry body, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association partic ...
for credit unions worldwide and a
development agency. The WOCCU's mission is to "assist its members and potential members to organize, expand, improve and integrate credit unions and related institutions as effective instruments for the economic and social development of all people".
The
Credit Union National Association
The Credit Union National Association, commonly known as CUNA (pronounced "Cue-Nuh"), is a national trade association for both state- and federally chartered credit unions located in the United States. CUNA provides member credit unions with tr ...
(CUNA) is a national trade association for both state- and federally chartered credit unions located in the United States. The
National Credit Union Foundation is the primary charitable arm of the United States' credit union movement and an affiliate of CUNA.
EverythingCU.com is an online community of credit union professionals.
Deposit insurance
In the United States, federal credit unions are chartered and overseen by the
National Credit Union Administration
The National Credit Union Administration (NCUA) is a government-backed insurer of credit unions in the United States, one of two agencies that provide deposit insurance to depositors in U.S. depository institutions, the other being the Federa ...
(NCUA), which also provides deposit insurance similar to the manner in which the
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cr ...
(FDIC) provides deposit insurance to banks. State-chartered credit unions are overseen by the state's financial regulatory agency and may, but are not required to, obtain deposit insurance. Because of problems with bank failures in the past, no state provides deposit insurance and as such there are two primary sources for depository insurance – the NCUA and
American Share Insurance
American Share Insurance (ASI) is a private corporation which insures shares (deposits) in some state chartered credit unions in the United States. ASI was established in 1974 as the Ohio Credit Union Shareholders Guaranty Association, changing ...
(ASI), a private insurer based in Ohio.
In Canada, the majority of credit unions and ''caisses populaires'' are provincially incorporated and deposit insurance is provided by a provincial
Crown corporation. For example, in Ontario up to 250,000 of eligible deposits in credit unions are insured by the
Financial Services Regulatory Authority of Ontario
The Financial Services Regulatory Authority of Ontario (FSRA; french: Autorité ontarienne de réglementation des services financiers) is a self-funding Crown agency which acts as the financial regulator for the province of Ontario, Canada. Est ...
. Federal credit unions, such as the
UNI Financial Cooperation
Caisse populaire acadienne ltée, operating as UNI Financial Cooperation (french: UNI Coopération financière), is a Francophone credit union (french: caisse populaire) based in New Brunswick, Canada whose members are primarily Acadians. UNI's ad ...
''caisse'' in New Brunswick, are incorporated under federal charters and are members of the
Canada Deposit Insurance Corporation
The Canada Deposit Insurance Corporation (CDIC; french: Société d'assurance-dépôts du Canada) is a Canadian federal Crown Corporation created by Parliament in 1967 to provide deposit insurance to depositors in Canadian commercial banks and ...
.
See also
*
Bond of association
*
Consumers' cooperative
A consumers' co-operative is an enterprise owned by consumers and managed democratically and that aims at fulfilling the needs and aspirations of its members. Such co-operatives operate within the market system, independently of the state, as a f ...
*
Cooperative banking
Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking car ...
*
Capital market
*
Community federal credit union
*
Deposit account
*
Democratic member control (cooperatives)
The Rochdale Principles are a set of ideals for the operation of cooperatives. They were first set out in 1844 by the Rochdale Pioneers, Rochdale Society of Equitable Pioneers in Rochdale, England and have formed the basis for the principles o ...
*
History of credit unions
Credit unions are not-for-profit financial cooperatives. In the early stages of development of a nation's financial system, unserved and underserved populations must rely on risky and expensive informal financial services from sources like money l ...
*
Humanomics
*
Labour Bank
*
Credit unions in Canada
*
Credit unions in the United Kingdom
Credit unions in the United Kingdom were first established in the 1960s. Credit unions are member-owned financial cooperatives operated for the purpose of promoting thrift, providing credit and other financial services to their members.
Credit un ...
*
Credit unions in the United States
Credit unions in the United States served 100 million members, comprising 43.7% of the economically active population, in 2014. U.S. credit unions are not-for-profit, cooperative, tax-exempt organizations. The clients of the credit unions become ...
References
Further reading
*
Ian MacPherson. ''Hands Around the Globe: A History of the International Credit Union Movement and the Role and Development of the World Council of Credit Unions, Inc.'' Horsdal & Schubart Publishers Ltd, 1999.
*
F.W. Raiffeisen. ''The Credit Unions''. Trans. by Konrad Engelmann. The Raiffeisen Printing and Publishing Company, Neuwid on the Rhine, Germany, 1970.
* Fountain, Wendell. ''The Credit Union World''. AuthorHouse, Bloomington, Indiana, 2007.
External links
Credit Union National Associationnational trade association for credit unions
World Council of Credit Unionsglobal trade association for credit unions
Association of Asian Confederations of Credit Unionsregional federation representing 21 national federations in Asia with 35 million retail members
National Credit Union Service Organizationdirectory of all credit unions in the U.S.
National Credit Union Foundationcharitable arm of credit union industry
{{Authority control
Cooperative banking
Social economy
Community building
Financial services