Credit union
Member-owned cooperatives offering banking services with a community focus.
A credit union is a financial institution that is owned by its members and operates as a nonprofit cooperative. It can provide services similar to those of a commercial bank, including savings accounts, checking accounts, credit cards, loans, certificates of deposit, and online banking. Generally, only members can deposit money or take out loans. In many African nations, these organizations are called SACCOs, which stands for "savings and credit co-operative."
What sets credit unions apart from banks is that account holders are both members and owners. They elect the board of directors using a one-person-one-vote system, no matter how much money they have invested. Credit unions are not-for-profit, but this doesn't mean they are charities. Their goal is to serve their members rather than maximize profits, though they must generate a small surplus to stay solvent. In the U.S., both state and federal credit unions are tax-exempt under specific sections of the tax code.
Worldwide, credit unions vary greatly in size—from tiny volunteer-run groups with a few members to massive institutions with hundreds of thousands of members and billions of dollars in assets. By the end of 2018, there were 85,400 credit unions across 118 countries, serving 274.2 million members and managing $2.19 trillion in assets. The United States had the most members (101 million), followed by India (20 million) and Canada (10 million). In terms of membership as a share of the economically active population, Barbados led at 82%, with Ireland at 75% and several Caribbean nations also high on the list.
Credit unions have historically performed better than banks in certain areas. During the 2008 financial crisis, only 3.6% of credit union mortgages were subprime, compared to 23.6% from commercial banks, and banks were two and a half times more likely to fail. Between 2008 and 2016, U.S. credit unions more than doubled their small business lending—from $30 billion to $60 billion—while overall small business lending fell by about $100 billion. Public trust in U.S. credit unions stands at 60%, versus 30% for big banks, and small businesses are 80% more likely to be satisfied with a credit union than with a large bank.
Credit unions also differ from modern microfinance. In the cooperative model, members control financial resources, whereas in most microfinance institutions—whether for-profit or not-for-profit—control rests with a small number of providers. Surveys consistently show that customers rate credit unions higher for service quality. Credit unions claim to offer a wider range of loan and savings products at lower costs than many microfinance institutions, with a mission focused on community and "serving people, not profit."
There are two main types: "natural-person credit unions" (also called retail or consumer credit unions) that serve individuals, and "corporate credit unions" that serve other credit unions. The World Council of Credit Unions (WOCCU) tracks data on natural-person credit unions but does not include cooperative banks, so countries like Germany, France, the Netherlands, and Italy—pioneers in credit unionism—are often omitted. In Poland, credit unions launched in 1992 and had 2.2 million members by 2012. In Costa Rica, credit unions nearly tripled their market share from 1996 to 2016, growing from 3.7% to 9.9%.
- type
- Financial cooperative institution
- global_assets_2018
- US$2.19 trillion
- notable_feature
- One-person-one-vote member ownership
Lore & Background
A credit union is a member-owned nonprofit cooperative financial institution. Its defining characteristic is that those who hold accounts are both members and owners, electing a board of directors under a one-person-one-vote system, regardless of the amount invested. Unlike commercial banks, credit unions are community-oriented and operate with a mission to serve people rather than maximize profits. They offer services equivalent to banks, including share accounts (savings), share draft accounts (cheques), credit cards, loans, share term certificates (certificates of deposit), and online banking, though normally only members may deposit or borrow. Credit unions are not-for-profit in the sense that their purpose is member service, not profit maximization; however, they must generate a small surplus (revenues exceeding operating expenses and dividends) to maintain solvency. In the United States, both state and federal credit unions are tax-exempt under specific sections of the tax code. Customer satisfaction surveys consistently show higher rates for credit unions than for banks, and public trust in U.S. credit unions stands at 60%, compared to 30% for big banks. Small businesses are 80% more likely to be satisfied with a credit union than a big bank. Historically, during the financial crisis, only 3.6% of credit union mortgages were subprime, versus 23.6% at commercial banks, and banks were two and a half times more likely to fail. Between 2008 and 2016, U.S. credit unions more than doubled small business lending to $60 billion, while overall small business lending declined. Credit unions range from small volunteer operations to large institutions with billions in assets and hundreds of thousands of members. In several African countries, they are commonly called SACCOs (savings and credit co-operatives). Natural-person credit unions serve individuals, while corporate credit unions serve other credit unions.
Reader's Guide
Credit unions represent a distinct alternative to commercial banks, operating as member-owned cooperatives that prioritize service over profit. Their one-person-one-vote governance structure ensures democratic control by members, regardless of deposit size. Historically, credit unions have demonstrated greater stability during financial crises: in 2006, only 3.6% of credit union mortgages were subprime, compared to 23.6% at banks, and banks were two and a half times more likely to fail during the crisis. American credit unions more than doubled lending to small businesses between 2008 and 2016, from $30 billion to $60 billion, while overall small business lending declined by about $100 billion. Public trust in US credit unions stands at 60%, versus 30% for big banks, and small businesses are 80% more likely to be satisfied with a credit union. Their not-for-profit status, distinct from charities, requires them to generate a surplus to maintain solvency. Credit unions also differ from modern microfinance by placing control over financial resources in the hands of members rather than a small number of providers.
Did You Know?
- In several African countries, a credit union is commonly referred to as a SACCO ('savings and credit co-operative').
- In 2006, only 3.6% of credit union mortgages were subprime, compared to 23.6% at commercial banks.
- American credit unions more than doubled lending to small businesses between 2008 and 2016, from $30 billion to $60 billion.
Frequently Asked Questions
What is a credit union?
A credit union is a nonprofit financial cooperative owned collectively by its members rather than by outside shareholders. It operates on a community-focused model where account holders are simultaneously the owners of the institution.
How does a credit union differ from a commercial bank?
The core distinction lies in ownership: credit union members elect their board of directors using a one-person-one-vote system, whereas bank shareholders vote based on shares held. Additionally, credit unions are generally restricted to serving their own membership for deposits and lending.
What kinds of financial products do credit unions provide?
They offer a range of services comparable to traditional banks, including savings accounts, checking accounts, credit cards, personal loans, certificates of deposit, and digital banking platforms. The specific lineup varies from one credit union to another.
What does 'SACCO' mean in the credit-union context?
SACCO stands for 'savings and credit co-operative,' a term widely used across several African countries to describe what is essentially a credit union. It reflects the same cooperative, member-driven structure found in credit unions globally.
How large is the global credit-union sector?
As of 2018, credit unions worldwide held roughly US$2.19 trillion in assets. Their defining structural feature remains the one-person-one-vote democratic ownership model shared by all members.
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