By Chris Franks, Australian National Credit Union (ANCU)

Credit unions are financial co-operatives operating under a mutual structure where members are both customers and owners. By not needing to service separate shareholders, all profits are reinvested into the credit union, providing more personal service, priority to member interests, fairer fees and constant improvement in products and technology. As a result the appeal of credit unions is high with over twenty-five percent of Australians having a credit union account.

What sets the credit union movement apart from other financial organisations is that central to credit union principles is the concept of human development and brotherhood of man expressed through people working together to achieve a better life for themselves and their communities. This is fundamentally different to the aims of profit making financial institutions, such as banks, which simply generate profit for the benefit of shareholders. Credit unions do not have external shareholders they have members and it is the member relationship that is the essence of the credit union difference.

How effective are credit unions in the current economic climate

Today’s financial services environment is characterised by constant and accelerating change – there is no longer a ‘status quo’. In recent years change to coverage by corporation’s law, technology advances, increased competition from new entrants into the market and changes in income generation have all impacted day to day operations of credit unions and increased operating costs.

New technology is requiring significant investment to provide websites and Internet banking options for members who demand higher levels of service. In addition product offerings are changing with a move to e-accounts (internet based high interest paying accounts) credit and debit cards which impact operational costs.

Consumers are also enjoying the lowest interest rates in thirty years and low inflation. No longer is the margin between interest paid on savings and the income generated by charges on borrowings sufficient to fund the operational costs of running a credit union. New fees and charges have become a vital part of the income equation although these are still lower than charged by the banks. In addition the costs of complying with financial services legislation is daunting.

While larger credit unions are efficient, profitable and growing institutions today’s challenges place smaller credit unions under a great deal of pressure and is driving the reduction in credit union numbers; mergers have reduced the number from over 800 to less than 200 today.

How secure are Credit Unions?

Since the recommendations of the Wallis enquiry were implemented Australian credit unions are subject to the same prudential standards and supervision as Australian banks. The Australian Prudential Regulation Authority (APRA), is the regulator for all Australian deposit-taking institutions. In addition, credit unions carry capital relative to their risk-weighted assets that is well above the current levels of banks.

Credit unions also provide an extra degree of protection for their members through contributions they make to the Credit Union Financial Support System (CUFFS). CUFFS is an industry support scheme that provides liquidity and solvency protection specifically for credit unions, adding another layer of security to the deposits of credit union members.

The community benefits of credit unions

Credit Unions are fundamentally committed to bringing about social and human development through socially responsible activity in the community – local, national and international. Commitment is expressed in various ways depending upon member interests and geographical coverage of the credit union. This may include support for various charitable causes, donations to community appeals, sponsorship of youth or employment initiatives and many more.

A perfect example is that of my own Credit Union, Australian National which established First Nations Australian Credit Union in 1999, an initiative to create an independent credit union owned and operated by Aboriginal people. First Nations has over 300 members in some of the most remote regions in Australia and has had much success in addressing the specific financial needs of Indigenous Australians and has the support of various government agencies and Indigenous sporting personalities.

In Conclusion

Credit Unions are a significantly different form of financial institution providing access to financial services, and while under pressure from many quarters in today’s environment they remain a force in delivering a self-help approach to human and financial development. They will serve community minded people interested in democracy and equality and they will continue to invest in their local communities to achieve a better life for their staff and their members.

Chris Franks is a Director of Australian National Credit Union (ANCU), one of Australia’s country's largest credit unions with assets in excess of $1.8 billion, almost 200,000 members and over 400 staff.