A credit union is a financial cooperative that is member owned, democratically regulated by its members and its existence is for the purpose of providing credit facilities at competitive rates. In addition, savings and other financial services are provided by credit unions world over. While credit unions may be known by different names around the world, the dominant factor in determining membership generally is a common link such as profession, society or a particular faith.
Credit unions exist in two distinct categories whereas consumer credit unions serve individuals at what can be considered to be retail level. On the other hand corporate credit unions are meant to serve other credit unions. Loan portfolio of members of a credit union is served by collective pooling of resources from members as opposed to external financing. This enables members to get high interest rates on savings as well as low interest rates on borrowing.
Moreover, statutory deductions and fees on transactions and account maintenance are significantly few and low on pricing. Even though credit unions can be visualized along the lines of cooperative banking, they are termed as not-for-profit financial institutions. This is due to the fact that the sole reason for their formation is not to maximize generation of profits but rather finance the income generating endeavors of its members.
Members are also eligible to be financed on financial undertakings such as their children’s education, insurance or building a home. Any credit union should consistently generate surplus that surpass its operational costs and interest paid on deposits in order to forestall insolvency. A volunteer Board of Directors is elected by members whereas one member is entitled to a single vote. The number of shares or deposits does not grant a member the controlling rights in the credit union.
Credit unions can unite to form a cooperative which is a for- profit subsidiary that provides shared services to its credit union members. Such subsidiaries have a capacity to undertake partnerships with other organizations and carry out business ventures on behalf of its member credit unions. Rated against mainstream banking and other existing financial institutions, credit unions have emerged as an effective tool for socioeconomic development of its members.
The quality of service provided by Credit Unions like https://www.fhfcu.org/ has consistently shown higher customer satisfaction rate. Their wide range of financial products is committed to improving the financial situation of their members through low pricing as compared to conventional financial institutions. This is largely because credit unions are designed to serve people as opposed to milk profit from its members.
Due to stringent tenets on responsible lending, credit unions are highly regulated in their lending. In as much as they may have credit worthy individuals that can service their loans with ease and in good time; money may not be lent to all who qualify. As at the end of 2014, the World Council of Credit Unions recorded an estimated 57, 480 credit unions present in 105 countries around the world serving approximately 217 members. Credit unions are popular in countries such as United States of America, India, Canada, Kenya and Australia.