Oran Hall Credit unions: Of the people, for the people
We are fortunate in Jamaica to have a wide range of financial institutions – commercial banks, insurance companies, stockbroking companies, investment management companies, building societies, and credit unions – that provide various services to people who differ in many ways to meet their short-term and long-term financial needs.
We will look at credit unions today. A credit union is a financial cooperative in that it is owned and operated by the people who place their funds in it and use its financial products and services. It is non-profit in that it reinvests its profits in itself and its community and distributes them to its members in the form of an annual dividend.
There are two types of credit unions, which are widely distributed across the parishes of Jamaica: open bond and closed bond credit unions.
Open bond credit unions have non-exclusive membership in that membership is open, being applicable to most people. An example of this type of credit union is Community and Workers of Jamaica Cooperative Credit Union. Eligibility for membership includes relatives of members, people living or working in a defined area, and individuals recommended for membership by other members based on certain criteria.
Closed bond credit unions are exclusive to a specific group of people having a common interest, such as where they live or where they work, for example, the Grace Cooperative Credit Union, whose members are current employees, pensioners, and employees of the GraceKennedy Group and their immediate families.
Because a credit union is a cooperative, all members must have a common bond – something in common – to be eligible for membership.
Beyond that, the members play a key role in the administration of the credit union serving as members of its board and of critically important committees such as the credit committee and the supervisory committee. Members also participate in decision-making by voting at general meetings of the credit union. Each member has one vote regardless of the number of shares held in the credit union.
To join the credit union, an individual must invest a sum of money in the entity. This is broken down into units called shares. This effectively makes the members the owners of the credit union.
Credit unions are overseen by the Department of Cooperatives and Friendly Societies on behalf of the Government of Jamaica, but a legislative process is under way that will ultimately cause them to be regulated by the Bank of Jamaica.
The Jamaica Cooperative Credit Union League (JCCUL), the national association for credit unions, has a self-regulatory mechanism in place for credit unions, and will continue to serve them in a role mandated by its members.
Credit unions exist to offer facilities to its members to save and to make loans available to them at a rate lower than financial institutions such as commercial banks.
They operate in a framework that makes their members’ money safe. For example, the supervisory committee must do a monthly audit and submit a report to the board of directors; there is an annual external audit by a professional auditor who is not a member of the credit union and who is appointed by the Registrar of Co-operative Societies; the credit union must put aside 20 per cent of its annual surplus to a reserve fund; and the JCCUL has authority to place a credit union under supervision if its members’ funds are impaired.
Credit unions offer a wide range of short-term and long-term savings products and loan products to their members. Importantly, credit unions provide automatic insurance coverage of up to double the savings of their members in the event of death or dismemberment.
Among the types of loans credit unions give to their members are the following: mortgage, home equity, debt consolidation, education, motor vehicle, agriculture, medical, motor vehicle insurance, and vacation. Some credit unions also offer lines of credit to their members. Borrowers may secure their loans with cash, shares, fixed deposits,, and the assets that the funds are to be used to purchase.
Credit unions offer,, to a great extent the services that commercial banks and other financial institutions offer such as online banking and cambio services.
Credit unions do not require a large sum for individuals to become members and encourage the accumulation of savings by including a portion for savings in the sum that members pay when honouring their loan commitments.
Credit unions have helped many to realise their financial and personal goals by the means they have provided for their members, large and small, to save and borrow as well as by the role they have played in educating their members on important financial matters.
Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: finviser.jm@gmail.com