Thursday, July 17, 2008

Credit Union

A credit union is a cooperative financial institution that is privately owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members. Many credit unions exist to further community development or sustainable international development on a local level.
The World Council of Credit Unions (WOCCU) defines credit unions as "not-for-profit cooperative institutions," but some credit union systems, such as Canada's, view themselves as for-profit cooperative institutions that turn a profit for their members.[citation needed] This difference in viewpoints reflects credit unions' unusual organizational structure, which attempts to solve the principal-agent problem by ensuring that the owners and the users of the institution are the same people. In any case, credit unions generally cannot accept donations and must be able to prosper in a competitive market economy.

Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union and they elect their board of directors in a democratic one person-one vote system regardless of the amount of money invested in the credit union. Credit union policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself. Only a member of a credit union may deposit money with the credit union, or borrow money from it.As such, credit unions have historically marketed themselves as providing superior member service and being committed to helping members improve their financial health.

In the microfinance context, "Credit unions provide a broader range of loan and savings products at a much cheaper cost [to their members] than do most microfinance institutions."

Credit unions are sometimes called by other names depending upon where the credit union is located; for example, credit unions are called "Savings and Credit Cooperative Organizations" ("SACCOs") in many African countries "to emphasize savings before credit." Credit unions are often called "cooperativas de ahorro y crédito" in Spanish-speaking countries. In Mexico, however, a credit union is typically called a "caja popular."
Credit unions offer many of the same financial services as banks, often using a different terminology. Common services include: share accounts (savings accounts), share draft (checking) accounts, credit cards, share term certificates (certificates of deposit), and online banking.

Credit unions exist in a wide range of sizes, ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members. Credit unions are typically smaller than banks, however, with -- as of 2007 -- the average U.S. credit union having $93 million in assets versus $1.53 billion in assets for the average U.S. bank.

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