Acredit union is a member-ownednonprofitcooperativefinancial institution. They may offer financial services equivalent to those ofcommercial banks, such as share accounts (savings accounts), share draft accounts (cheque accounts),credit cards,credit, share term certificates (certificates of deposit), andonline banking. Normally, only a member of a credit union maydeposit orborrowmoney.[1][2] In several African countries, credit unions are commonly referred to asSACCOs (savings and credit co-operatives).[3]
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.[4] In 2018, the number of members in credit unions worldwide was 375 million, with over 100 million members having been added since 2016.[5]
In 2006, 23.6% of mortgages from commercial banks weresubprime lending, compared to only 3.6% of those from credit unions, and banks were two and a half times more likely to fail during the crisis.[6] 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.[7] In the US, public trust in credit unions stands at 60%, compared to 30% for big banks.[8] Furthermore, small businesses are 80% more likely to be satisfied by a credit union than with a big bank.[9]
"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.[10][11][12]
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Credit unions differ frombanks and other financial institutions in that those who have accounts in the credit union are its members and owners,[1] and they elect their board of directors in aone-person-one-vote system, regardless of the amount they might have invested.[1] Credit unions generally see themselves as different from mainstream banks, with a mission to be community-oriented and to "serve people, not profit".[13][14][15]
Surveys of customers at banks and credit unions have consistently shown significantly higher customer satisfaction rates with the quality of service at credit unions.[16][17] Credit unions have historically claimed to provide superior member service and to be committed to helping members improve their financial situation. In the context offinancial inclusion, credit unions claim to provide a broader range of loan and savings products at a much cheaper cost to their members than mostmicrofinance institutions.[18]
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.[19]
In the credit union context, "not-for-profit" must be distinguished from a charity.[20] Credit unions are "not-for-profit" because their purpose is to serve their members rather than to maximize profits,[18][20] so unlike charities, credit unions do not rely on donations and are financial institutions that must make what is, in economic terms, a smallprofit (i.e., in non-profit accounting terms, a "surplus") to remain in existence.[18][21] According to theWorld Council of Credit Unions (WOCCU), a credit union'srevenues (from loans and investments) must exceed its operating expenses anddividends (interest paid on deposits) in order to maintain capital and solvency.[21]
In the United States, credit unions incorporated and operating under a state credit union law are tax-exempt underSection 501(c)(14)(A).[22] Federal credit unions organized and operated in accordance with theFederal Credit Union Act are tax-exempt underSection 501(c)(1).[23]
According to theWorld Council of Credit Unions (WOCCU), at the end of 2018 there were 85,400 credit unions in 118 countries. Collectively they served 274.2 million members and oversawUS$2.19 trillion in assets.[24] WOCCU does not include data fromcooperative 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. TheEuropean Association of Co-operative Banks reported 38 million members in those four countries at the end of 2010.[25]
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 theUnited States (101 million), India (20 million),Canada (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), andIreland (3.3 million).[24]
The countries with the highest percentage of credit union members in the economically active population were Barbados (82%),[26] 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%.[24] Credit unions were launched in Poland in 1992; as of 2012[update] there were 2,000 credit union branches there with 2.2 million members.[27] 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.[28]: 70
"Spolok Gazdovský" (The Association of Administrators orThe Association of Farmers), founded in 1845 by Samuel Jurkovič, was the first cooperative financial institution in Europe. The cooperative provided a cheap loan from funds generated by regular savings for members of the cooperative. Members of the 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.[29][30] Slovak national thinkerĽudovít Štúr 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!"[31]
Modern credit union history dates from 1852, whenFranz Hermann Schulze-Delitzsch consolidated the learning from two pilot projects, one inEilenburg and the other inDelitzsch in theKingdom of Saxony 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.[32] In 1864,Friedrich Wilhelm Raiffeisen founded the first rural credit union in Heddesdorf (now part ofNeuwied) in Germany.[32] By the time of Raiffeisen's death in 1888, credit unions had spread to Italy, France, the Netherlands, England, Austria, and other nations.[33]
The first credit union in North America, the Caisse Populaire deLévis inQuebec, Canada, began operations on 23 January 1901 with a 10-cent deposit. FounderAlphonse 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 nearlyCan$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: thecaisse populaire.[citation needed]
In the United States,St. Mary's Bank Credit Union ofManchester, New Hampshire, was the first credit union. Assisted by a personal visit from Desjardins, St. Mary's was founded byFrench-speakingimmigrants to Manchester from Quebec on 24 November 1908. SeveralLittle Canadas throughoutNew England formed similar credit unions, often out of necessity, asAnglo-American banks frequently rejectedFranco-American loans.[34]America's Credit Union Museum now occupies the location of the home from which St. Mary's Bank Credit Union first operated.[citation needed] 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.[35] The St. Mary's Bank Credit Union serves any resident of theCommonwealth of Massachusetts.[36]
After being promoted by theCatholic Church in the 1940s to assist the poor inLatin America, 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 theInter-American Development Bank credit unions in the regions grew rapidly throughout the 1970s and into the early 1980s. By 1988 COLAC credit unions represented four 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 asUSAID 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, theLatin American debt crisis causedbank runs on credit unions. Significant withdrawals and high default rates caused liquidity problems for many credit unions in the region.[37]
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, many jurisdictions havedeposit insurance that promises to reimburse members for funds lost up to a certain threshold, such as theNational Credit Union Administration’sShare Insurance Fund or theCanada Deposit Insurance Corporation.
Credit unions as such provide service only to individual consumers.Corporate credit unions (also known ascentral credit unions in Canada) provide service to credit unions, with operational support, funds clearing tasks, and product and service delivery.
Credit unions often form cooperatives among themselves to provide services to members. Acredit 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, the largest credit-union-ownedinterbank 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.[citation needed]
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.[38]
TheCredit Union National Association (CUNA) is a national trade association for both state- and federally chartered credit unions located in the United States. TheNational Credit Union Foundation is the primary charitable arm of the United States' credit union movement and an affiliate of CUNA.
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.
TheWorld Council of Credit Unions (WOCCU) is both atrade association for credit unions worldwide and adevelopment 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".[39]
In the United States, federal credit unions are chartered and overseen by theNational Credit Union Administration (NCUA), which also provides deposit insurance similar to the manner in which theFederal Deposit Insurance Corporation (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 (ASI), a private insurer based in Ohio.
In Canada, the majority of credit unions andcaisses populaires are provincially incorporated and deposit insurance is provided by a provincialCrown corporation. For example, in Ontario up toCA$250,000 of eligible deposits in credit unions are insured by theFinancial Services Regulatory Authority of Ontario.[40] Federal credit unions, such as theUNI Financial Cooperationcaisse in New Brunswick,[41] are incorporated under federal charters and are members of theCanada Deposit Insurance Corporation.[42]
In the United Kingdom, credit unions are covered by theFinancial Services Compensation Scheme in the same manner as banks and building societies (co-operative banks) are, and deposits are protected up to an amount of £85,000 per consumer and institution.[43]
Once continued federally, FCUs become members of CDIC. As such, eligible deposits placed with an FCU enjoy CDIC deposit protection.
