A cooperative is a voluntary and autonomous association people who decide to come together for the purpose of gaining mutual benefits that may be economic, social, or cultural in nature. The operation of any cooperative is based on at least seven cooperative principles including voluntary and open membership, democratic member control, economic participation by members, autonomy and independence, education/training and information, cooperation among cooperatives, and concern for the community. The Rochdale Society of Equitable Pioneers which was founded in 1844 is considered as the first successful enterprise fashioned under the cooperative principles.
There are various kind of cooperatives existing today including housing cooperatives, utility cooperatives, agricultural cooperatives, and credit unions, among others. Credit unions are the precursors of what is now known as cooperative banking. Cooperative banking is credited by many people for their new-found financial freedom, allowing them to possess an entirely rejuvenated financial life.
What is a Credit Cooperative?
Credit cooperatives or credit unions are financial institutions which are owned and controlled by the members themselves. They offer services similar to a bank but are categorized as not-for-profit organizations. It has to be noted that not-for-profit organizations put emphasis on serving members instead of maximizing profits. However, it is not to be confused with non-profit organizations which rely on donations to exist. The operation of credit cooperatives is supported by the funds coming from the members themselves in the form of deposits and share capitals.
Since funding emanates from members themselves, they are also the primary beneficiaries of the cooperative’s operation. Among the services offered by cooperatives that include savings and time deposits, loan products are probably the most popular. Financial wellness in cooperative standards is sought to be provided by higher interest rates in deposits and lower interest rates in loans. At the end of each fiscal year, members are entitled to their share of whatever profit that results from the cooperative’s operation in the form of dividends. However, the cooperative must have profitable operations first for this to happen.
What Differentiates Credit Cooperatives from Banks?
The operation of Credit Cooperatives and Banks are both guided by decisions of a Board of Directors. In the cooperative scenario, directors should be members themselves and are elected based on a “one member-one vote” policy regardless of the amount of investment. They usually function on a voluntary basis which means that they work without pay although members can decide to provide them with some means of support in the performance of their official duties. Credit Cooperatives are able to provide superior financial products to their members since products and services are only provided to members.
Credit Cooperatives have defined territories within which they are allowed to operate. Unlike banks which can accept clients from any geographical location, Credit Cooperatives are limited by their specific purpose in relation to accepting members. Some define the limitation through geographical areas while others define it through association with an established entity such as the regular employees of a certain company.
What do Credit Cooperatives Offer?
Credit Cooperatives offer members the option to have access to savings products with higher interest yields. It also offers members more affordable loan products that are designed to help them achieve financial health rather them burying them in debts. The expanded operation of many Credit Cooperatives has made it possible for members to gain access to related products at the best cost such as insurance and medical services. This is because cooperatives can use the big number of their members to negotiate for better pricing. This is something which members usually cannot accomplish individually.
If there is one thing that banks can never offer to its customers is the sense of camaraderie that cooperatives provide their members. This camaraderie comes from knowing that success is only possible when members work together for the common good. Cooperatives which have already attained solid financial standing go beyond the expected services by extending assistance to their members in times of unexpected financial distress brought upon by natural calamities, sickness, or death.
Cooperative banking offers people a viable option to save and have access to business capitalization by being co-owners of the Cooperative. When its services are used in the right way, members stand the chance to take better control of their lives financially. There is also great satisfaction derived from being part of a productive and progressive organization.