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A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.^[1][2][3]

Many credit unions also provide services intended to support community development^[4] or sustainable international development on a local level,^[5] and could be considered community development financial institutions.

Worldwide, credit union systems vary significantly in terms of total system assets and average institution asset size,^[6] ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members.^[7]

[edit] Differences from other financial institutions

Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union^[8] and they elect their board of directors in a democratic one-person-one-vote system regardless of the amount of money invested in the credit union.^[9]

Generally speaking, credit unions see themselves as of "higher moral ground" than banks; they feel that they are "community-oriented", and "serve people, not profit".^{[10][11][12][13][14]}

Surveys of customers at banks and credit unions have consistently shown a significantly higher customer satisfaction rate with the quality of service at credit unions.^[15][16]

A credit union's policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself.^[17] Credit unions offer many of the same financial services as banks, often using a different terminology; common services include: share accounts (savings accounts), share draft accounts (checking accounts), credit cards, share term certificates (certificates of deposit), and online banking.^[2]

Normally, only a member of a credit union may deposit money with the credit union, or borrow money from it.^[2] As such, credit unions have historically marketed themselves as providing superior member service and being committed to helping members improve their financial health. In the microfinance context, "[c]redit unions provide a broader range of loan and savings products at a much cheaper cost [to their members] than do most microfinance institutions".^[18]

[edit] Field of membership

Legally, and for tax purposes, credit unions are considered to be non-profits. Banks assert that since this status exempts credit unions from many federal and state taxes, credit unions can provide more competitive products.^[19] This has led to a variety of laws which limit how credit unions may accept members. Historically, this meant credit unions were left with the individuals which banks found to be less desirable or those in a limited geographic area. More recently, credit unions have been able to broaden their eligibility requirements to accept more members.^{[citation needed]}

[edit] Not-for-profit status

In the credit union context, "not-for-profit" should not be confused with "non-profit" charities or similar organizations.^[20] Credit unions are "not-for-profit" because they operate to serve their members rather than to maximize profits.^[21][22][23] But unlike non-profit organizations, credit unions do not rely on donations, and are financial institutions that must turn what is, in economic terms, a small profit (i.e. "surplus") to be able to continue to serve their members.^[24][25] According to the World Council of Credit Unions (WOCCU), a credit union's revenues (from loans and investments) need to exceed its operating expenses and dividends (interest paid on deposits) in order to maintain capital and solvency^[26] and "credit unions use excess earnings to offer members more affordable loans, a higher return on savings, lower fees or new products and services".^{[citation needed]}

WOCCU's position is deeply rooted in global credit union history. F.W. Raiffeisen, the founder of the global movement, wrote in 1870 that credit unions "are, according to paragraph eleven of the German law of cooperatives, "merchants" as defined by the common code of commerce. They accordingly form a sort of commercial business enterprise of which the owners are the [Credit] Unions' members".^[27]

[edit] Global dispersion

The directors of the Mulukanoor Women's Thrift Cooperative stand at the entrance to their credit union in Karimnagar district, Andhra Pradesh, India

Based on data from the World Council of Credit Unions, at the end of 2010 there were 52,945 credit unions in 100 countries around the world. Collectively they served 188 million members and oversaw US $1.5 trillion in assets.^[28] The World Council does not include data from co-operative banks, so, for example, some countries generally seen as the pioneers of credit unionism, such as Germany, France, the Netherlands and Italy, are not included in their data. The European Association of Co-operative Banks reported 38 million members in those four countries at the end of 2010.^[29]

The countries with the most credit union activity are highly diverse. According to the World Council, the countries with the greatest number of credit union members were the United States (92 million), India (20 million), Canada (11 million), South Korea (5.6 million), Kenya and Brazil (3.9 million each), Thailand (3.6 million), Australia 3.4 million, Ireland (3.0 million), and Mexico (2.6 million).^[28]

The countries with the highest percentage of credit union members in the economically active population were Ireland (75%),^[30] Barbados (72%), St. Lucia (67%), Belize (65%), Grenada (59%), Trinidad & Tobago and Jamaica (54% each), Canada (46%), Antigua & Barbuda (45%), and the United States (44%). Several African and Latin American countries also have high credit union membership rates, as does Australia. The average percentage for all countries considered in the report is 7.5%^[28]

[edit] Corporate credit unions

Most credit unions provide service only to individual consumers. By contrast, 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. The largest corporate credit union in the United States is U.S. Central Credit Union of Lenexa, Kansas, which serves as a central clearing house for other corporate credit unions and holds approximately $45.3 billion in assets.^[31]

[edit] 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, the largest credit union owned interbank network in the US, provides an ATM network and shared branching services to credit unions. Other examples of cooperatives among credit unions include credit counseling services as well as insurance and investment services.^{[citation needed]}

The World Council of Credit Unions is both a trade association for credit unions worldwide and a development agency. 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".^[32]

Credit unions in the United States have traditionally used a state/national trade association relationship that aligns credit unions with state "Credit Union Leagues" followed by national affiliation with the Credit Union National Association (CUNA) of Madison, Wisconsin. Federal credit unions may also be members of the National Association of Federal Credit Unions (NAFCU).^{[citation needed]}

Credit unions with a specific focus on serving low- and moderate income people and communities, most of which are typically low-income designated by the National Credit Union Administration (NCUA), often join the New York, New York-based National Federation of Community Development Credit Unions (Federation), a national trade association providing investments, technical assistance, education and training and advocacy for community development credit unions (CDCUs) nationwide.^{[citation needed]}

[edit] History

Friedrich Wilhelm Raiffeisen started credit unions in rural Germany.

Modern credit union history dates to 1852, when Franz Hermann Schulze-Delitzsch consolidated the learning from two pilot projects, one in Eilenburg and the other in Delitzsch in Germany 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.^[33]

In 1864, Friedrich Wilhelm Raiffeisen founded the first rural credit union in Heddesdorf (now part of Neuwied) in Germany.^[34] Although Schulze-Delitzsch can claim chronological precedence, Raiffeisen is often viewed as more important today. Rural communities in Germany faced a far more severe shortage of financial institutions than the cities. They were viewed as unbankable because of very small, seasonal flows of cash and very limited human resources. The organizational methods Raiffeisen refined there, which levered what is today called social capital, have become a hallmark of the global credit union identity.^{[citation needed]}

By the time of Raiffeisen's death in 1888, credit unions had spread to Italy, France, the Netherlands, England and Austria, among other nations. The Raiffeisen name is still used by Raiffeisenbank, the largest banking group in Austria (with subsidiaries throughout Central and Eastern Europe), Rabobank (Netherlands) and similarly named agricultural credit unions in Germany (Cf. Volksbanken und Raiffeisenbanken).

The first credit union in North America, the Caisse Populaire de Lévis in Quebec, Canada, began operations on January 23, 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 $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.^{[citation needed]}

In the United States, St. Mary's Bank Credit Union of Manchester, New Hampshire holds the distinction as the first credit union. Assisted by a personal visit from Desjardins, St. Mary's was founded by French-speaking immigrants to Manchester from Quebec on November 24, 1908. America's Credit Union Museum now occupies the location of the home from which St. Mary's Bank Credit Union first operated.^{[citation needed]}

Pierre Jay, then-Massachusetts Commissioner of Banks, and Edward Filene, a Bostonian merchant, were central in establishing enabling legislation in Massachusetts in 1909. The Woman's Educational and Industrial Union, credited with many social service initiatives, heard of this cooperative financial model and wrote to DesJardins. He provided them with the data they needed, and on November 23, 1910, they created Industrial Credit Union, the first non-faith-based or community credit union, established for all people in the greater Boston community. St. Mary's Credit Union (not to be confused with St. Mary's Bank Credit Union) was established in Marlborough in 1913. Serving any resident of the Commonwealth of Massachusetts, St. Mary's Credit Union is the oldest state-wide Credit Union nationally.^[35]

Filene also created the Credit Union National Extension Bureau, the forerunner of the Credit Union National Association, which was formed as a confederation of state leagues at a meeting in Estes Park, Colorado, in 1934. Attendees at the meeting included Dora Maxwell who would go on to help establish hundreds of credit unions and programs for the poor and Louise McCarren Herring, whose work to form credit unions and ensure their safe operation earned the title of "Mother of Credit Unions" in the United States.^{[citation needed]}

In the same year, Congress passed the Federal Credit Union Act, which permitted credit unions to be organized anywhere in the United States. The legislation allowed credit unions to incorporate under either state or federal law, a system of dual chartering that persists today.^{[citation needed]}

[edit] See also

• Bond of association
• Cooperative
• Consumers' cooperative
• Democratic member control (cooperatives)
• History of credit unions
• Labour Bank

[edit] Credit union associations

• Association of British Credit Unions Limited
• US Credit Union National Association
• Credit Union Central of Canada
• CO-OP Financial Services
• World Council of Credit Unions

[edit] By geographic region

• Credit unions in the United States
• Credit unions in the United Kingdom
• Credit unions in Canada

[edit] References

[edit] 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. ISBN 978-1-4259-7006-2

[edit] External links

• Media related to Credit unions at Wikimedia Commons
• Credit Union Database - all credit unions in USA
• World Council of Credit Unions trade association for credit unions
• Association of Asian Confederations of Credit Unions regional federation representing 21 national federations in Asia with 35 million retail members
• Association of British Credit Unions Limited - the largest trade body representing credit unions in the UK
• National Association of Credit Union Workers - a staff association for all UK credit union workers regardless of trade body affiliation
• National Federation of Community Development Credit Unions - a trade body representing more than 240 community development credit unions (CDCUs) across the United States.
• Scottish League of Credit Unions - a trade body representing credit unions in Scotland
• Virginia Credit Union - all credit unions listed in VA directory.
• ACE Credit Union Services - a trade body representing many smaller credit unions in the UK
• UK Credit Unions - a trade body representing many smaller credit unions in the UK
• Credit Unions - all credit unions in the UK