The concept of financial co-operatives originated in 1850 in Delitzsch, Germany (Crapp and Skully 1985: 11). A liberal Prussian parliamentarian, Hermann Schulze-Delitzsch, responded to the hardship experienced by urban labourers and tradespeople during a severe winter of 1846 by establishing a number of co-operatives, including a credit co-operative society. Founded on notions of self-help and open membership, Schulze-Delitzch’s co-operatives were the precursor to the European people’s banks (Lewis, 1996: xxi).28 Friedrick Raiffeisen, a German burgomaster, adapted Schulze-Delitzch’s ideas to the needs of his rural constituents and in 1854 established an independent farmer-based credit association, called the Heddesdorf Society (Lewis 1996: xx). Raiffeisen developed the notion of “limitless liability, achievable through a bond of association, whereby a person’s trusted standing in the community and the knowledge co-operators had of each other acted as security in seeking loans from a community pool of funds” (Lewis 1996: xxi). By the end of the 1880s societies founded on Schulze-Delitzsch and Raiffeisen principles had spread throughout Europe.
In Canada, Alphonse Desjardins, a parliamentary reporter inspired by the Papal Encyclical Rerum Novarum (1891), developed his own philosophy for credit unions (Lewis 1996: xxi). The first Canadian financial co-operative was opened in 1901 at Levis, near Quebec, and by 1914 there were 150 co-operative banks in Canada.
Credit unions developed on Desjardins’ model were founded in Massachusetts in the United States around the same time. By 1921 there were 1,999 credit unions in various parts of the United States (Lewis 1996: xxii).
Crapp and Skully (1985: 13) assert that the legacy of this rich history of development is “an emphasis on co-operation around a set of unifying principles and common identity”. Today these are reflected in the principles set down by the World Council of Credit Unions (WOCCU) under which all credit unions operate.29 These
28 Lewis (1996: xx) argues that “no burning notion of social transformation underlay the Schulze-Delitzch formula”. Indeed, Schulze-Schulze-Delitzch’s motto was “the first duty of a non-capitalist is to convert himself into a capitalist”.
29 WOCCU has approximately 112 million members organised in 37,000 credit unions in 100 countries (www.woccu.org, 25 May, 2003).
principles include open and voluntary membership to all within the group accepted by the credit union, democratic control, non-discrimination, service to members, equitable distribution of surpluses, financial stability, on-going education to promote thrift and wise use of credit, co-operation among co-operatives, and social responsibility (www.woccu.org, accessed 25 May 2003.).
In Australia, the credit union movement was a product of the immediate post-war period. The first registered credit union in Australia, the Home Owner’s Co-operative Credit Society Ltd, was established in May 1945 and was sponsored by an existing building society to provide personal loans to its members (Crapp and Skully 1985: 20). In 1946, Kevin Yates formed the Catholic Thrift and Loan Co-operative Limited (Universal Credit Union) in the Sydney Archdiocese and, as Lewis (1996:
15) explains “many commentators consider this to be the first ‘true’ credit union (because) it drew funds wholly from members, functioned autonomously, and was launched specifically to develop credit unions as part of the broader co-operative movement”. By 1975 there were 748 credit unions in Australia with 910,000 members; two-thirds of these were in New South Wales (Lewis 1996: xxiii).
The restrictions to membership caused by the common bond of association and state regulation meant that credit unions did not normally compete with one another (Crapp and Skully 1985: 4). The bond of association that a credit union had with its members extended to links such as; having the same employer, involvement in a social group or residing in a particular geographical area. These bonds of association and lack of competition between credit unions led to the establishment of peak associations which provided a wide range of financial, managerial and administrative services which the credit unions would have found expensive to provide on their own (ibid: 29). These associations also enabled the smaller credit unions to provide a full range of services to their members.
Today two national associations provide these services to credit unions in Australia.30 The Credit Union Services Corporation (Australia) Limited (CUSCAL)
30 The Australian Federation of Credit Union Leagues (later, Australian Federation of Credit Unions Limited) (AFCUL) was formed in 1966, embracing all state and territory leagues and associations by 1970 (Lewis 1996: xxiii). During the 1980s under the impact of increased competition and the influence of technological innovation, the Australian movement restructured and a new peak body CUSCAL emerged, absorbing the engagements of various State leagues and associations (Lewis 1996:
xxiv). The Queensland leagues and associations were not absorbed into CUSCAL but formed their own association, CreditLink.
represents 81 per cent of credit unions; while the remaining credit unions are represented by the Queensland-based Credit Link. These two bodies both operate as industry associations and commercial service providers for credit unions. As commercial service providers, they furnish member bodies with the services of treasury and cheque facilities, business and marketing supplies, funds management, insurance, information technology, and access to retail banking services such as Redicard, Visa and Rediteller (ATMs) (Local Government Banking and Financial Services Taskforce 1999: 23).
Central to the ‘credit union difference’ is the concept of the service recipient being a ‘member’ rather than a ‘customer’. Credit unions call their customers,
‘members’ because they are the ‘owners’ of the credit unions. Rob Nicholls, Deputy Chair of CUSCAL and Chief Executive Officer of Australia National Credit Union (ANCU), noted that “your member is your customer and owner; they are the same person” (Interview, 6 August 2003). On joining the credit union, each member is asked to purchase a share for a nominal amount, usually between $2 and $10, and this entitles them to an equal say in the running of the credit union. The member has the right to vote at AGMs and when electing the Board of Directors. Members can also stand for positions on the Board. Each member has one vote, regardless of the volume of business he or she has with the credit union. In 2001, Steve Laue, the then Chief Executive of CUSCAL observed that “credit unions are owned by their members, for their members and are therefore accountable only to their members.
There is no external pressure for profit growth” (Laue, 2001). This principle is encapsulated in the credit union motto: ‘Not for Profit, Not for Charity, But for Service’. While credit unions are ‘not for profit’ institutions, they must nonetheless generate surpluses to cover operating expenses, additional benefits when membership expands, prudential requirements, and the return of surpluses to members through better interest rates, products and services (Local Government Banking and Financial Services Taskforce 1999: 22).
In April 2002 the Membership Council of CUSCAL produced a booklet that outlined the six core values of the Credit Union Movement. These were; co-operation, moral integrity, trust, financial prudence, caring for members and social responsibility (CUSCAL 2002a: 5). The Membership Council claimed that “it is the
practical application of the Core Values, expressed as ‘the way we do things around here’ that makes (credit unions) different from our competitors” (ibid: 8).
The pioneers of the Australian credit union movement envisaged a “harmonious society characterised by decentralised, autonomous co-operatives collaborating with other democratic institutions in an equitable “Co-operative Commonwealth” (Lewis 1996: 338). The two values of ‘co-operation amongst co-operatives’ and ‘social responsibility’ are important to the role of CUSCAL and, most especially, to the work of its development arm, the Credit Union Foundation of Australia (CUFA). CUFA supports people in the Asia Pacific region to develop viable credit unions and works with rural and indigenous communities in Australia to extend financial services to people who currently lack access to such services (CUFA Annual Report 2001).
However, it seems that not all credit unions retain this vision. In 2001, of the 200 credit unions in Australia, only 86 gave donations towards CUFA’s projects, and, of these 49 gave donations of less than $1,000.31 Further, most credit unions have been reluctant to take up the challenge of re-establishing financial services in rural towns that have been left without a bank branch. Of the approximately 200 credit unions Australia-wide, only 19 participated in the CreditCare program.
(www.cu.net.au, accessed on 10 September 2001). The CreditCare program was a joint initiative of the Commonwealth Government and CUSCAL (under CUFA) that operated from 1 July 1995 to June 2000 and aimed to re-establish banking services in towns left without such a facility because of the large number of bank branch closures. Lewis (2001: 10) notes that “the program provided resources to assist communities themselves discover the means of re-establishing financial services utilising existing resources, and link these with a host institution”. As we shall see, the reluctance of credit unions to support the program has created market space for another type of financial services provider – the community banks.
31 Only three credit unions, Australian National Credit Union, NSW Teachers Credit Union and WAW Credit Union Co-operative Limited donated over $10,000 (CUFA 2001: 5).