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Credit Unions as Cooperatives

Posted on January 31, 2024

Some people think of credit unions as “just another financial institution”, but there are many key differences that make credit unions unique.

How are Credit Unions different to your normal bank?

They are owned by the people who bank there, not outside investors. Credit unions are nonprofit banks – all profit is funnelled back into the credit union to lower interest rates and provide dividends for the people who bank there. A conventional bank is for-profit and operates to return money to its outside investors.

Credit unions offer financial services the same as commercial banks, such as share accounts (savings accounts), loans, and some even offer credit cards or mortgages, but they elect their board of directors in a one-person-one-vote system regardless of the amount in their Credit Union account. Everyone who has a Credit Union account can vote at the AGM, for directors, but also on recommendations by the board on things like how much of the profit is shared between everyone with accounts.

Credit unions are also different from mainstream banks, with a mission to be community-oriented and to “serve people, not profit”. A lot of this difference is driven by the business model of credit unions which adheres to the Cooperative Principles.

The origin of the Cooperative Principles can be traced back to the first modern cooperative founded in Rochdale in England in 1844. Over time, they have changed and been used to fuel the creation of member-owned cooperative businesses around the world. Some examples include consumer co-ops (credit unions, housing and utility), worker co-ops, purchasing co-ops and many other types.

The traditional seven Cooperative Principles were adopted by the International Cooperative Alliance in 1995 and continue to be the standardized set of principles used by all co-ops.

Worldwide, credit union systems vary significantly in their assets and size, ranging from volunteer operations with a handful of members, to institutions with hundreds of thousands of members and assets worth billions.

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 aim to provide superior member service and to be committed to helping members improve their financial situation. In the context of financial inclusion, credit unions also provide a broader range of loan and savings products at a much cheaper cost to their members than most microfinance institutions.