Credit Unions: What You Need to Know
In the first blog of our new series about credit unions, we take a look at their key features and how they contribute to the financial services market.
Credit unions are financial cooperatives which offer banking services such as loans, credit cards, savings and checking accounts. There are two main differences between banks and credit unions – Firstly credit unions are not-for-profit, whereas banks are. Secondly, credit unions are owned by their account holders – called their members, whereas banks are owned by shareholders. Members buy a share in the credit union (by depositing), and are then entitled to vote on resolutions and in elections. Credit unions are similar to cooperatives in their elections in that they operate on a strict one member, one vote policy. It does not matter how many shares a member owns, everyone has an equal.
There are currently around 60,000 credit unions operating in 109 countries. They serve over 220 million customers. Financial cooperatives are an essential part of the financial services market and their market share is still growing.
As mentioned before, members are entitled to vote in elections. Since the customers usually cannot run a credit union themselves, they elect a board of directors. The board runs the credit union on behalf of the members and makes sure that their interests are the top priority. In this way credit unions are operated for the wider good, giving savings and better returns for their members than banks, which are often run to gain profit for their shareholders.
In general, the board is elected at the Annual General Meeting (AGM). Most directors tend to serve a three-year term on the board. If they are large and members spread across the country, delegate elections are a regular occurrence. Members elect their delegate locally or regionally who then represent members on a national level.
Smaller financial cooperatives can also appoint a board of directors solely made up of volunteers. These smaller financial cooperatives tend to have deep local roots and serve their communities faithfully.
Why credit unions?
The most important feature is the emphasis on being a cooperative institution. They do not aim for profit in the traditional sense, but profit that is gained through investments and returns on loans are reinvested into the credit union and into their localities, always with the best interests of their members. A strong tradition within credit unions is to be faithful to their local members. They are often strongly involved in their communities, which again benefits the members. The social aspect of these financial institutions is particularly what differentiates them to other banking institutions.
Read more about credit union’s way of voting
Up next: history of credit unions