Credit Unions 101PRESENTED BY VICTOR CARLO M. RESANO, MBA MAJOR IN ORGANIZATIONAL DEVELOPMENT, ST. PAUL UNIVERSITY MANILA, MA IN THEOLOGY, ADAMSON UNIVERSITY - ST. VINCENT SCHOOL OF THEOLOGY

What is a credit union?

A credit union is a not-for-profit financial institution that exists to serve its members.

A credit union is a not-for-profit financial institution that exists to serve its members. Credit unions provide products and services to people who share something in common, such as where they work or live, or even their nationality.

The democratic nature of credit unions allows all members to have an equal voice in the operation of the organization regardless of the amount of money each person has on deposit.

When a person joins a credit union, they are considered a member because they are one of the owners and shareholders of the institution.

History of Credit Union

Credit unions are not-for-profit financial cooperatives. In the early stages of development of a nation's financial system, unserved and underserved populations must rely on risky and expensive informal financial services from sources like money lenders.

Credit unions proved they could meet demand for financial services that banks could not: from professional, middle class and poorer people. Those that served poorer urban and rural communities became an important source of microfinance.

The first working credit union models sprang up in Germany in the 1850s and 1860s, and by the end of the 19th Century had taken root in much of Europe. They drew inspiration from cooperative successes in other sectors, such as retail and agricultural marketing.

cont.

Credit unions are not-for-profit financial institutions that exist to provide exemplary service to consumers – which they call members – because a credit union’s customers actually OWN the institution where they bank.

Credit unions exist to serve members, not profit from them. All of a credit union’s profits are returned to members in the form of fewer fees, lower rates on loans and higher rates on savings. Credit union membership offers numerous benefits, including access to a variety of services like simple savings, home equity loans, IRAs and more.

Credit Union, Thrift Savings and Loan Association in the Philippines

Credit Unions (CUs) are internationally understood as Thrift,Savings, and Loans Associations.

CUs have somewhat developed a second name asCredit Co-operatives.

Uniquely and unusually in the Philippines, there areno more CUs but only Credit Co-ops. Also, in the Philippiness,credit is synonymously if not misunderstood as loan, debt or"utang" rather than trust.

In the Philippines in the early 1970s especially after thedeclaration of Martial Law that was understood to be runningafter the many communists movements and their consideredvarious fronts including various Labor Unions, credit unions then"sounded" or "misunderstood" like the labor unions; and soCUs were somewhat considered communist fronts if notcommunists organizations as many CU or co-operative leaderswere arrested and placed in jails if not concentration camps; andmany could still be missing until today.er than "trust".

Credit Union, Thrift Savings and Loan Association cont.

To somewhat further degenerate credit co-operatives orCUs into ordinary Lending services or institutions, co-operativesare now employing "collectors" with titles like "account officers",etc. that only promote practices of usual and ordinary "lendinginstitutions" (rather than the values of "thrif andsavings" of CUs) and may not be increasing co-op membership and much less of "quality" co-op membership.

While the Philippine Laws recognizes and encouragemulti-purpose co-operatives and many other types ofco-ops (consumers, producers, marketing, etc. and nowsubsidiaries) as proposed by pioneering co-op leaders in the early 1980s, co-op leaders appear to be contented andpromoting only the CU type.

Cont.

Rather than expanding (membership involvements andbenefits) on the internationally accepted practices of CUs withcredit committees, almost all co-ops in the Philippines haveabolished credit committees (by supporting a contrary lawprovision under R.A. No. 9520 rather than on 6938 and 6939);and worse, employing corporate style of internal auditors); etc.

What is the difference between credit unions and banks?

Credit Unions are Not-for-profit cooperatives

Credit unions return earnings to members in the form of lower loan rates, higher savings rates, and free or low-cost services.

Each person who deposits money into the credit union is a member with a share of ownership.

Credit unions are controlled by Board of Directors elected by members.

Most credit union board members are volunteers.

Credit unions are only allowed to serve a select group of individuals that have a common bond such as where they work, live or even their religion.

Banks

Banks are For-profit Organization.

Banks returns profits to shareholders.

Customers have no ownership in the corporation

Banks are controlled by stockholders who elect the Board of Directors.

Bank board members are generally paid for their service.

Banks can serve anyone in the general public. 

How does everyone benefit from credit unions?

Credit unions benefit consumers Credit unions create competition in the financial services industry. When financial institutions are forced to compete with one another, they must work hard to provide quality services at competitive rates.

It is the top priority for credit unions to improve services for members, not to increase profits for stockholders. When credit unions provide exceptional service to members, they raise the bar for other financial institutions. Ultimately all consumers benefit.

Benefits of Credit Union Cont.

Credit unions benefit communities Credit unions have a history of giving back to the communities they serve. Credit unions have repeatedly proved that their philosophy of “people helping people” is an everyday way of doing business.

All around the state credit unions are working to provide communities the services and resources they need.

Credit unions are also actively involved in reaching out to underserved areas and providing services to those who are not traditionally served by financial institutions.

By teaching citizens how to properly build, maintain and use credit wisely, credit unions are giving them the tools they need to achieve financial success and further contribute to the local economy.

Cont.

Credit unions are best identified by their adherence to cooperative principles, especially related to membership and control.

Many organizations of credit unions were started by and/or controlled by governments in the developing world, and were described as ‘credit unions’ or ‘cooperatives’ by their promoters. However, government control, whether in a capitalist or communist political context, represents a fundamental repudiation of cooperative principles.

Advantages of Credit Unions

Customers are owners.

With credit unions, the set of owners and the set of customers are one and the same. All decisions should benefit everyone.

Credit unions are non-profit.

Non-profit status means that more of the profits are shared with the owners/customers. That doesn't mean that the institutions can't earn a profit; any business needs to earn money to survive. The difference is that there isn't a pressure to find ways to make money off the customers. Additionally, credit unions benefit from exemption from federal tax, and that saved expense help more of the unions' revenue to be put to work.

There are fewer fees and higher savings rates.

Disadvantages of Credit Union

Access to new technology is limited.

There certainly are drawbacks to being a non-profit. Credit unions often do not have the funds to invest in technology. As a result, some credit unions' websites appear as if they belong in a bygone era. I've come across a few credit unions that still do not have a website that allows online account access. The level of technology varies greatly from one credit union to another, and some credit unions do have full-featured web-based technology, but it's worth auditioning a website before committing to a new credit union if accessibility is important to you.

They have fewer ATMs.

With a national bank, I know that I could travel anywhere in the country, and perhaps internationally, and find ATMs from my bank to avoid unnecessary fees. Credit unions are often community-based groups with no capital to install ATMs in convenient locations. Credit unions often get around this limitation by allowing you to use an existing network of ATMs, and if that ATM's owner charges you a fee for its use, the union will refund that fee on your statement. Be sure to read the fine print of your agreement to determine whether you will be able to find free ATMs near you.

Membership is restricted.

Credit unions are often focused on a certain community — most often either a geographic location or a profession. This has created the impression that it can be difficult to find a union for which you qualify. You might find that you're not eligible for the credit union that looks most appealing to you, but just about everyone can find a credit union to join. For example, Pentagon Federal Credit Union is generally only available to those who are U.S. government employees and a few other select groups, but anyone else can also qualify with a $15 donation to an organization.

Additional Info on Credit Unions

Deposits at credit unions are insured, just like your deposits at banks. The PDIC is the government organization that ensures that your bank balances are safe, even if the institution fails, up to a certain amount. Credit union balances are protected by the National Credit Union Association (NCUA).

Like banks, credit unions often offer a full suite of financial products, such as credit cards, mortgages, debit cards, business loans, and checking accounts. Their non-profit status means that most do not have the funds available for major marketing and advertising campaigns, so it's difficult for the public to get the information needed to make an informed choice between banks and credit unions. It may require some research, but it is worth the potential savings and service.

Strengths of Credit Unions

People helping people

Partnership, not just a credit union

The right products, pricing, programs, people, policies, procedures, and processes

Differentiation

Promote what you “don’t do” that other financial institutions are doing that is not consumer friendly (rather than promote what you “do”

Use the 3 C’s of branding to communicate your message: Clear, Concise, and Compelling

Weaknesses of Credit Union

The mindset of credit unions doing business as they always have

Lack of established goals aligned with credit union goals and action plans for staff as well as business development department

No “real” added value in today’s market (everyone offers FREE checking, FREE bill pay, FREE statements, etc. – so they think)

Lack of creative marketing/branding/programs in the Philippines to appeal to existing and potential community business partners

Lack of full-time business development personnel to focus 100 percent community business partners in order to build relationships and increase penetration of the community.

Lack of credit union philosophy that all employees are responsible for growing the credit union

Mindset that credit union is too small to have a full-time business development person or staff

Products, pricing, programs, people, policies, procedures, and processes

Recommendation

Any imposition of minimum competency requirements should be cognisant of the need to maintain the level of volunteerism in the movement.

Legislation should be passed in the Philippines to prioritize unsecured credit union debt over other types of unsecured debt in recognition of the work that credit unions continue to do to end financial exclusion among vulnerable sections of society