Credit unions are private commercial companies whose purpose is to meet the financial needs of their members. They exercise the functions of a banking entity, but they differ from banks in their form of administration and government.
Credit unions try to meet the credit and savings needs of the members that make them up. They are usually local and rural entities, but not necessarily.
Its purpose is to save savings and offer loans . In this sense, it is exactly the same as a bank. The difference is that while the former do not necessarily have to be linked to a social function or a locality, credit unions do. The idea of a cooperative is to offer loans whose destination is local interest. For example, loans to farmers in the area.
Characteristics of credit unions
These are the main characteristics of credit unions:
- They are made up of people who associate freely.
- Membership and withdrawal of a credit union is voluntary.
- They have a democratic structure and functioning.
- They seek to carry out business activities to satisfy the interests and economic aspirations of their partners and of the geographical area in which they operate.
- They are obliged to return all public funds they receive in the form of a deposit.
- They have the corporate form of cooperatives and are subject to the supervision of the monetary authorities.
- The bodies responsible for management and control are: the General Assembly, the Governing Board and the Social Council.
- The benefits are distributed among the members of the cooperative, a mandatory reserve fund, a voluntary reserve fund and an education and promotion fund that is used to attract new members.
In any case, each credit union can have a specific operation. It will depend on the country in which it is constituted and the final objective of it.
Types of credit unions
We can highlight two types of credit cooperatives:
- Rural Savings Banks or Agricultural Credit Cooperatives:They are characterized by their rural nature, they operate at a regional level. They were motivated by farm cooperatives as well as agrarian societies. Its main objective is to finance agriculture, livestock, forestry and all those activities that improve rural living conditions in the rural world.
- Non-agricultural Credit Cooperatives:They are characterized by their industrial and urban nature. They have their origin in associations and cooperatives of unions and professions. A clear example is the engineering boxes .