The credit union difference is not a single defining difference, but is comprised of 3 main operating principles of credit unions:
A co-operative, not-for-profit, democratic structure
The quality of service to members
1. A co-operative, not-for-profit, democratic structure
Because Credit Unions are democratic member-owned and governed co-operatives, members have the power to direct credit union policy and participate in decisions affecting the Credit Union. Elections for management committees and any matters put to a vote, are based on a one-member, one-vote structure.
Only members (those who use the financial services) can be on the board of directors and other management committees (Supervisory & Compliance and Credit Committee). There is an Annual General Meeting where members receive reports and get to ask questions about the affairs of the credit union.
The Credit Union operates within the framework of the law and regulations which recognise the credit union as a co-operative enterprise serving and controlled by its members. These are the Co-operative Societies Act 2010, the Co-operative Societies Regulations and the credit union's By-Laws.
For-profit entities in contrast have board members and stockholders who are not required to be members and voting rights depend on the number of shares they own. They are not required to use the institution's products or services. They have customers, who have no say in respect of operations or earnings. Profits go to the limited number of share holders.
Members of Credit Unions are treated equally. That is the Credit union difference!
Not for profit
For-profit entities, like banks, are in business to make a profit - credit unions are in business to maximise service. This is another credit union difference. A distinctive feature of the credit union is that unlike other financial institutions, credit unions do not issue stock or pay dividends to outside stockholders. Instead, surplus is returned to members in the form of lower or competitive rates on loans and deposits and fees in addition to receiving dividends.
Membership-based - open and voluntary
Open and voluntary membership is the most distinctive feature of Credit Unions. As a member you have special privileges. At for-profit entities, you are a customer with no enforceable claims on that business.
Credit Unions are non-discriminatory on all grounds, including but not limited to race, nationality, sex, religion and politics.
2. The quality of service to members
As a co-operative financial institution the Credit Union provides a range of services to include savings and chequing accounts, a variety of loans, insurance, investments and other financial services.
Distribution to members
The credit union encourages thrift through regular savings and, thereby, the provision of loans and other services. A fair rate of interest is paid on savings and deposits according to the capability of the credit union.
Surplus arising from operations of the credit union (after covering loan losses, ensuring appropriate capital reserve levels) belongs to, and benefits members. This surplus may be distributed as dividends on shares or directed to improve or provide additional services as determined by members.
Building financial stability
A prime concern of the credit union is to build the society's financial strength to include adequate reserves and internal controls that will ensure continuity of service to membership and safety of members' funds.
Service to members
Credit union services are directed at improving the economic and social well being of all members. Since the founding of the first credit unions, the hallmark of these institutions has been a strong commitment to member service which can be attributed largely to their member-focused structure. Unlike other financial service providers, credit unions' members are also their owners. This structure and accompanying governance mechanism helps ensure that the credit unions resources are directed to providing superior level of member service and a higher receptiveness to the needs of members, resulting in increased member satisfaction and a higher rate of retention.
3. Social goals
Financial services are not all there is to the Credit Union Difference. Credit Unions are a social movement and a self-help movement, hence the frequently used tag line ‘people helping people’. Because the Credit Union exists to help people, its actions are not based on financial incentive alone as with entities that are focused primarily on making a profit.
Credit unions actively promote the education of members, officers and employees and the general public in the economic, social, democratic and other principles of credit unionism. The promotion of thrift and wise use of credit as well as the rights and responsibilities of members, are essential to the dual social and economic character of credit unions in serving member needs.
Co-operation among co-operatives
In keeping with our philosophy and practice of pooling resources, credit unions within their capability actively co-operate with other credit unions, non-financial co-operatives, and associations at local, regional and international levels, in order to best serve the needs and interests of their members and communities.
A regular feature is the sharing of resources among cooperatives such as through intra system lending, joint promotional campaigns, branding and sharing of back office resources.
Continuing the ideals and beliefs of co-operative pioneers, credit unions seek to bring about human and social development. Their vision of social justice extends to both individual members and to the larger community in which they operate. Every person is either a member or a potential member and therefore part of our sphere of interest and concern.
Credit unions intend that their provision of financial services serves as a means of economic upliftment for those who would otherwise not have access, such as those not born into wealth, the disenfranchised and disadvantaged, individuals living in rural areas, lower income workers, minorities, the poor, etc.
Credit unions demonstrate corporate social responsibility through the sharing of the philosophy and self-help principles of credit unions as well as providing necessary tools to improve individuals' financial decisions.
Customer satisfaction, the ultimate measurement of success for credit unions, is increased when the institution takes actions that benefit society as a whole.