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What is a Credit Union?

What is a Credit Union?A credit union is:

  • A not-for-profit financial institution.

  • Mutually owned and democratically controlled

  • Pools members’savings (also known as 'shares') to make low-cost loans to other members

  • Each have a "common bond" which determines who can join the credit union.

How do credit unions work?

The members of a credit union pool their savings together. These savings then provide a pool of funds from which loans can be made. A credit union borrows money from its savers and may pay them a return on their money (dividend). The money borrowed from members is lent out to other members, who pay interest on the money loaned to them. The credit union must be successful in attracting a large enough number of savers to provide a sufficient liquidity level to meet members' demands for loans, savings withdrawals and to pay operating expenses. It should therefore aim to give its savers a good return on their savings. The dividend payments to savers as well as the credit union's other operating costs should be budgeted for throughout the year. It is therefore very important for credit unions to actively market the benefits of saving with the credit union, as well as the availability of loans. The main source of income for a credit union comes from the interest charged on members' loans.

Who runs the credit union?

The operation of the credit union is managed and controlled by an elected Board of Directors. All officers of the credit union are members of the credit union, who are elected by the membership at the Annual General Meeting. All members of the credit union have one vote, regardless of the amount of their savings. Credit unions are registered as Industrial & Provident Societies and are governed according to a set of registered rules that outlines the legal identity of the credit union, how it is to be governed and what the rights of members are. Whilst credit unions may employ staff to manage the credit union on a day to day basis, control lays firmly within the hands of the members, through their elected representatives, the Board of Directors.

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