CREDIT UNIONS... “Why are they so successful?”

Dated: 3 May 2003

Dennis Hickey Marketing & Public Relations Management, City of Kingston Credit Union.

With savings of over J$14 billion and another J$18 billion in assets, one of the frequently asked questions of the 59 credit unions currently in Jamaica is, “Why are credit unions so phenomenally successful, especially given recent and present day challenges that have negatively impacted the financial sector in general?”

“The reasons for the credit union’s success are many,” says Dennis Hickey, Marketing & PR Manager of City of Kingston Cooperative Credit Union. He was making a presentation at the recent Today’s Money Expo 2003 at the Jamaica Pegasus Hotel.

Among the many reasons are:

“In terms of access, credit unions serve groups that share a common bond, such as where you work, your profession or where you live. With 59 credit unions in Jamaica, access is easy,” he said.

As an economic democracy, each member of a credit union has equal ownership and one vote - regardless of how much money a member has in shares. At a credit union, every customer is both a member and an owner and they operate on the basis of mutual self-help. “We exist to serve our members, not to make money for stockholders,” says Mr. Hickey.

The movement is steadily growing, as according to Mr. Hickey, overall membership stood at 680,338 in December 2002, a 6.4 per cent increase over the corresponding period in 2001. Similarly assets grew to J$20-billion, a 14.5 per cent increase in 2002 over 2001.

Despite the uproar in the financial sector and the jitters created by high interest regimes, Mr. Hickey also noted that Jamaican credit unions have never lost their deposits in the history of the movement. “Your money is doubly safe, thanks to legislation, regulation and a deposit guarantee system,” he said.

Jamaican credit unions are regulated by the Department of Cooperatives and Friendly Societies in accordance with the Cooperative Societies Act. Credit unions are by law required to place a minimum of 20 per cent of their surplus in a reserve account to meet bad debts and future losses. The Act also prescribes other operational procedures such as annual general meetings, external audits and insurance coverage to cover fraud, forgery and embezzlement of funds.

The Jamaica Cooperative Credit Union League (JCCUL) - the umbrella organization for the island’s credit unions - monitors operations to ensure adherence to a framework of standards of soundness and safety based on the Pearls Monitoring System of the World Council of Credit Unions (WOCCU).

“Sharing opportunities, enabling people to grow, transparency and accountability form the pillars of trust and are all cooperative principles that credit union people value highly,” says Mr. Hickey. “We believe that access to capital and affordable financial services is a basic human right and we set out to provide that opportunity for all our members.”

In keeping with the credit union philosophy and the pooling practices of cooperatives, Mr. Hickey noted that credit unions actively cooperate with each other at regional, national and international levels in order to best serve the interests of their members and their communities.

“Credit unions” he said, “seek to bring about human and social development for their membership and the communities in which they live and work and extend service to all who need and can use it and in the process, bring them into the fold of the cooperative.”

How does the credit union works?

There are those that are completely captivated by the fact that credit unions are really financial cooperatives owned by their members. For example, credit unions provide many of the same financial services that banks do - savings and chequing accounts, youth and senior accounts, remittance services, ATMs - you name it.

The question is, How does the credit unions differ from other financial institutions?

Once you join a credit union, you become an owner. Together, you and your fellow members pool your deposits in order to offer loans and other financial services to each other.

The profit the credit unions make each year is returned to members in the form of better rates, lower fees and better, more innovative services.

Each credit union member has a say in how the credit union is operated and managed. Credit union board of directors is elected by their membership from within the membership. They serve in a volunteer capacity because they want to contribute to the success of the credit union my making decisions that are in the best interest of their members.

“Credit unions provide a safe, convenient place for members to save their money and to get loans and other financial services at reasonable rates. People helping people, is the philosophy by which credit unions operate and this is evident in every aspect of our operations,” explains Mr. Hickey.

But, while for profit institutions are focused on making profits for their shareholders, in a credit union any earnings in excess of operational costs are returned to the members, the owners, in the form of dividends - increased interest on savings, decreased rates on loans or other new and improved services.