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The History of Credit Unions
The modern Credit Union movement traces its origins to Germany and to Friedrich Willhelm Raiffeisen, the Mayor of a small town in southern Germany, who in 1849 formed societies, which later evolved in to Credit Unions. The purpose of these Credit Unions was to enable people to help themselves in relieving debt and poverty.
A Credit Union is a democratic, financial co-operative owned and controlled by its own members. Each Credit Union is run only to benefit its members, all of whom have something in common - the common bond.
Credit Unions in the UK were in existence for some time before the movement gained momentum in 1979, when the Credit Unions Act was passed.
Since then, the Credit Union philosophy of mutual self-help has proved very popular, and there are now over 330 Credit Unions affiliated to the Association of British of Credit Unions (ABCUL) throughout England, Scotland and Wales.
In the UK over 500,000 members have recognized the value of credit unions, and have savings approaching £400 million with their credit unions. There are thousands employed in the sector and many more thousands are volunteers involved in the movement.
Promoting responsible lending
Credit unions promote responsible lending. The services they provide should give all members access to:
- Banking services – offering members a current account so they have access to their savings at any time
- Savings accounts –members are encouraged to build up their assets and accumulate savings
- Affordable loans – taking into account the member’s personal circumstances, payment history and ability to repay the loan
- Financial education and access to money advice - empowering members to make informed choices about financial products.
- Insurance products – enabling members to build on and protect their assets.
- The rules
Credit unions have a number of clear objectives enshrined in their constitution. These rules are:
- Promoting thrift – members must be encouraged to save as well as borrow
- Providing credit and loan products with fair and reasonable interest rates
- The efficient use and control of members’ savings for mutual benefit in order to earn a rate of return (the dividend)
- Training members to use money wisely, devise a budget and manage their financial affairs
- Members own and control their credit unions
Because credit unions are co-operatives, members have a say in how the credit union is run and the directors are elected from the members, by the members, to represent their interests.
Distribution of profits
Credit unions distribute their profits to members in dividends which means the money stays in the community rather than going to faceless shareholders. They are also committed to improving the economic and social well-being of members.