CONTENTS
- How a Credit Union is run
- How it works - a members perspective
Credit Unions
Access to Credit.
A Credit Union provides members with access to credit which is:
- human scale - it is not only cheap in large amounts, it is just as cheap
in small amounts.
- not geared to consumerism but to need - it is relatively easy to get credit
for a music system or microwave, only credit unions make it easy to get money
to pay the electricity bill or buy food.
- always affordable - no interest rate hikes.
- not dependent upon previous credit rating (or house or post code) - members
can establish their own credit rating through regular saving.
Release from debt.
It is very difficult to get into debt trouble with a Credit Union because before
you can borrow you have to save and to prove through regular saving that you
can afford to make repayments.
Credit Unions are an alternative to high cost borrowing - people with low credit
ratings often pay extortionate rates for very short term loans.
Credit Unions can buy out debts for members.
Building Savings.
Credit Unions are built upon small regular savings, either by cash deposit
or payroll deduction. There are no shareholders to pay so any profits from lending
are dividends for savers.
Members are encouraged to leave their savings in when taking out loans and
to repay at a rate which enables them to keep saving at least a small amount
so that their savings constantly accumulate.
Personal growth
Release from the poverty trap removes an enormous confidence barrier.
Voluntary jobs in the Credit Union provide work experience in administration,
book keeping, decision making, running meetings - all the things required to
run anything.
When people realise that they are running a successful banking system they
realise that they can run anything.
Community Building
Credit Unions provide an opportunity for people with some money to spare to
help other members of their community by making deposits in a Credit Union.
Far from giving it away they are making a shrewd and secure investment and widening
their credit options.
Credit Unions provide an opportunity for people to demonstrate the practical
benefits of co-operative self organisation and self help - principles which
can be applied to anything from clubbing together to reduce food buying costs
to creating or rescuing businesses and jobs.
Community Economic Development
People who can save can invest. People who can invest in training and equipping
themselves can enable themselves to become productive and independent. Several
such people can create businesses with growth potential.
People who run Credit Unions rapidly learn that it is a business. It provides
services to the public and must organise them well and accessibly to succeed.
It must market to new members to get to an economic size and market its services
to members to grow. People who can run Credit Unions can run businesses.
A community that has reduced its indebtedness to the outside world reduces
the amount that is lost to the outside world in interest charges and repayments.
It can spend more locally and sustain more local businesses. It can keep itself
in better repair and better spirits.
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How a Credit Union is Run
Self Management and Democratic Control.
The Members.
- A Credit Union is a membership organisation. It is owned and controlled
by its members. It is not a charity. It is not even a not-for-profit organisation.
If it works well it will generate profits and pay them out to its members
in the form of dividends on shares - the equivalent of interest on savings.
- It is therefore owned and controlled by its members. Each member has one
vote (irrespective of the number of shares). Members decide the policies of
the Credit Union through debate and voting at General Meetings.
- They elect the Board of Directors who run the organisation on their behalf.
- They can attend directors meetings if they wish to do so.
The Board of Directors
- Appoint and receive reports from the officers and committees. Make sure
that everything is run by the book.
The Supervisory Board
- Smaller team elected by the membership. Have the right to double check everything
and investigate anything. Make sure that everybody is properly trained and
informed to do their job.
The Lending Committee
- Small team to evaluate and decide on applications for loans.
- Keeping Member Accounts.
- Collectors at collection points take deposits and enter them into collection
sheets, duplicating entries in the member’s share book.
- Checks the sheets and takes them and the money to the...
Treasurer.
- The Treasury enters them into the ledgers and stores the collection sheets.
- Periodically the ledgers are reconciled with share books.
- Meeting Accounting and Reporting Standards.
- Quarterly accounts detailing deposits, withdrawals, loans, repayments, arrears
and balances have to be reported to the Registrar and to Insurers.
Insurance and Security.
- All Credit Unions have to insurance against members money going missing.
This is a major advance on unofficial savings and loans clubs.
- Free life insurance means that debts are repaid on death while savings are
doubled.
- There is no insurance against being a badly run business. If large amounts
are lent to people who do not repay then the members money is reduced. However,
defaults on loans from Credit Unions are very rare. This is because it is
a long and complicated business to get significant amounts of money out of
a Credit Union. Most people looking for a way to commit fraud will find easier
ways. It is also stealing from friends and neighbours rather than a faceless
institution. People usually just admit to being in trouble and renegotiate
the terms of the loan.
Lending
- The policy (interest rates, maximum amounts, gearing to savings, minimum
membership period etc. is decided by members). There has to be a balance between
the need to lend as much as possible, helping those who need it most, being
fair to everyone, and keeping a good spread of risk.
- The applications are considered by a Committee. This process usually takes
three or four weeks. They can take into account the purpose of the loan, the
savings and previous borrowing record of the member, security offered, ability
to repay.
- Often Credit Unions ask members to get other members to guarantee the loan.
This reduces the risk to the Credit Union further. If the loan is in serious
trouble then the Credit Union can transfer a members’ share holding into their
loan account to cover the shortfall in repayments. As a last resort they can
ask the guarantor to pay the balance.
- These safeguards mean that a Credit Union can offer very cheap loans. Some
give interest free loans. The maximum they can charge is 1% per month.
Growth of Membership and Services
- A Credit Union needs to bring in new members, partly to keep the pot growing
and partly to bring new blood into the management.
- It therefore has to promote and market itself and to find out what its members
and potential members might require. Some offer debt counselling and make
arrangements with members’ creditors, some offer bill paying services, automatically
advancing loans to meet utility bills while members continue to save regular
amounts, some operate revolving credit arrangements so that members with established
records and savings over a certain level can access loans automatically.
What is involved in setting up.
Establishing the membership criteria or Common Bond.
The very important first question is who are we. Credit Unions are set up to
serve existing communities and draw their strength from the inherent strength
of mutual support. This Common Bond can be employment based (many Local Authorities
and big companies have Credit Unions for their workers), associational (many
are based upon churches or on membership of associations) or community, those
who live and work in a definable geographical community.
Forming the Working Group.
The work of setting up a Credit Union is long and detailed. It takes months.
There needs to be a team of people doing the work. A mixture of people is good,
some with a head for figures helps, and some with plenty of contacts in the
community. It pays to start with the core of the team who will take on the key
roles in the early days of operation already identified.
Getting Trained.
Before you can open for business the Registrar will need to be satisfied that
there is a team that can operate the Credit Union properly. This requires many
people to do many hours of training. Only after this training will people be
clear enough about what a Credit Union is and how it works to talk intelligently
to prospective members, supporters, sponsors. Start early.
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How it works - a members perspective.
To join:
- A member may have to pay a small fee, usually between £2 and £5.
- They will need to be proposed and seconded by people who are already members.
This ensures that only bona fide members of the community can be selected.
- There will be some sort of checking to ensure that the applicant qualifies
for membership and is acceptable to the membership.
- There will be some sort of new member induction or training offered to ensure
that all the rights and responsibilities of membership are understood.
To Save
- A member will usually pay money into a local collection point in cash. Sometimes
employers will pay over from wages. The wise member will pay in regularly
what they can afford.
- Their deposits are marked in their share account book which they retain
and is marked by the collector to provide a record which the member can produce
at any time as evidence of the standing of their account.
- A member has to apply for shares to be turned back into cash. Most Credit
Unions have a procedure which takes a few days over this. This tends to reduce
impulse spending of hard won savings.
To borrow.
- A member must apply for a loan. It is not an automatic right.
- The credit union will try to lend as much of its deposits as it can - this
is good business.
- The loans committee can only lend what the Treasury can make available and
so not all members get all the loans they apply for, at least not straight
away and emergency cases may have to come first.
- Most Credit Unions have rules which limit borrowing in line with the deposit
that a member has. For example first time 1.5 x share balance, second time
2 x share balance etc.
- All credit unions take into account ability to repay as demonstrated by
saving record.
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Help available
CAN supplies services at all levels
of Credit Union development, from feasibility and identification of common bond,
through business planning and registration through to developing and delivering
a training programme.