Written by Paul Perez.
The Community Development Credit Union may be the best replicable model for providing affordable capital and financial services in low-income and very low-income areas.
Why can’t there be more of them?
Help may be on the way. Credit Unions, with a hundred year history, and Community Development Credit Unions (CDCUs), with a 30–40 year history of serving the under-served, have only recently begun to be recognized by the media and the progressive community as “safe havens” and fair lenders. There is little independent academic research, however, that investigates and evaluates the ways that credit unions are community rooted and responsive to local needs, and/or their achievements in this area.
There are at least three local civic groups working on the possibilities to gain designation from the federal government to open and operate a Community Development Credit Union here in Trenton. We will be talking to them, tracking their progress to report back.
What is a credit union?
Credit unions are non-profit, financial cooperatives owned by members, that exist solely to serve their members. Each credit union member has equal ownership regardless of how much money a member has on deposit. At a credit union, every customer is both a member and an owner.
Credit unions vs. banks.
Unlike banks and most other financial institutions, credit unions do not issue stock or pay dividends to outside stockholders. Instead, earnings are returned to members in the form of lower loan rates, higher interest on deposits, lower fees, enhanced service, and financial stability. Unlike banks, credit unions are governed by a volunteer board of directors, elected by the credit union’s membership. Board members serve voluntarily with no remuneration for their service.
Benefits of credit unions.
As stated earlier, credit unions return earnings to members in the form of lower loan rates, higher interest on deposits, lower fees, and enhanced services. The credit union purpose and philosophy provides benefits in many other ways. Credit unions exist to help people, not to maximize profits. The goal is to serve all members well, including those of modest means. Members know that their credit union will be there for them in bad times, as well as good. This people-first philosophy causes credit unions and employees to get involved in community service activities and worthwhile causes. One of Trenton’s most famous examples of a Community Development Credit Union was ROMA Savings or maybe even the current Polish Community Credit Union.
The Brookings Institution, Washington DC states that: Low Income or Community Development Credit Unions (the terms are often used interchangeably) are designed specifically to deliver financial services and capital to low-income individuals and communities. The term “Low Income” is an official National Credit Union Administration (NCUA) designation for credit unions that serve members, more than half of whom earn less than 80 percent of the average for all wage earners as established by the Bureau of Labor Statistics, or 80 percent of the area median household income as established by the Census Bureau.
The significant feature of the CDCU is that it is a non-profit financial institution dedicated to—and managed by—the members of a geographically designated low-income area. The main emphasis is the empowerment of individuals in under-served communities through responsible money management and saving. In this respect, the CDCU effectively functions as a peer-lender—a U.S. parallel to the more publicized international peer-lending entities like Grameen Bank. It is this “peer lending” characteristic that affords the CDCUs their unique grasp of the needs of their members and communities, and enables them to tailor services, loans and financial education accordingly. It also enables them to educate their members and monitor loan performance on an immediate and informed basis.
CDCUs are of varying sizes and constituencies, in both rural and inner-city areas. They are generally small institutions. As of 1999, over 64 percent of the CDCUs had total assets of under $5 million and over half of these had total assets of under of $1 million. Sixty-five CDCUs had assets of under $250,000.
Maybe this is something worth looking at very closely for those of us who need this kind of financial service or for those of us who know people that might. We all have someone we know that is a responsible renter with a good record of making payments on time. They have a dream to one day own their own home, however, can’t get a loan from a commercial bank. We all know of individuals who have plans and aspirations of one day being their own business owners, but again don’t have the credit rating or collateral leading to eligibility to secure a commercial loan based on their business plan.
Hopefully help is on the way. We will continue look into and gather data regarding the possible organizations currently traveling down this very important road for Trenton!