All about credit unions
Kenny MacLeod, chief executive officer for Scotwest Credit Union Limited, explains their structure, operation and beneficial purpose
T hough most people in the UK have never heard of a credit union, never mind have thought of joining one, politicians from all political parties have been trying since 2008 to promote them as a ‘solution’ to the financial exclusion specifically and our general disillusionment with banks. However, as the biggest and most successful credit unions in Britain are built around payroll savings schemes with employers, there is a drive for people to have a statutory right to save with a credit union via their payroll. Regardless of whether that comes to pass, payroll professionals should understand what credit unions are, what they are not and why voluntarily signing up for payroll deduction services can help staff remain financially stable and hence fit and available for work. What is a credit union? A credit union is a member owned, financial co-operative which provides financial services only to its members (who are also
the owners of the business). Basically, a credit union takes deposits (savings) from its members and then lends that money out to other members. The interest charged on those loans then provides for a return on the savings. This return is usually in the form of a retrospective dividend – as owners of the business, the depositors share in the risk and rewards of ownership and therefore the amount of the dividend depends on the performance of the credit union. Credit unions are ‘not for profit’ businesses in the sense that they use the income generated not to make profit but to build capital, provide services and provide a return to depositors. Credit unions are not ‘open to the public’ in that you must be a member before you can save or borrow with them. Each credit union has a ‘common bond’ which determines who can join it. Common bonds can be occupational (e.g. all teachers); employment based (e.g. everyone who works for the Scottish government); geographical (e.g.
everyone who lives or works in Inverness); membership based (e.g. everyone who is a member of the National Trust); or any combination of the four categories. The ethical principles of credit unions mean that they are non-discriminatory and therefore membership is open to everyone who qualifies under the common bond criteria. Credit unions exist for the economic empowerment of their members. They encourage savings, provide financial education and provide affordable loans, all the while circulating the money within its membership community – i.e. the money and profits stay within the membership and don’t go to external shareholders. Each member of the credit union is an equal owner of the business and controls it in a ‘one member one vote’ democratic structure. A credit union will have a board of governors/directors elected by the membership to oversee performance and guide the strategic direction of the credit union. What kind of services are offered? All credit unions take deposits and make loans; however, as they are independent businesses, the exact nature of their
...encourage savings, provide financial education and provide affordable loans...
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| Professional in Payroll, Pensions and Reward | July/August 2017 | Issue 32
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