What is Credit Cooperative? Definition of Credit Cooperative, Credit Cooperative Meaning and Concept

Credit cooperatives are private commercial companies whose purpose is to meet the financial needs of their members. They perform the functions of a banking entity, but differ from banks in their form of administration and governance.


Credit unions try to satisfy the credit and savings needs of their members. They are usually local and rural entities, but not necessarily.


Its purpose is to save savings and offer loans. In this sense, it is exactly the same as a bank. The difference is that while the former do not necessarily have to be linked to a social function or a locality, credit cooperatives do. The idea of ​​a cooperative is to offer loans destined for local interest. For example, loans to farmers in the area.


Characteristics of credit unions


These are the main characteristics of credit unions:

  • They are made up of people who associate freely.
  • Joining and leaving a credit union is voluntary.
  • They have a democratic structure and functioning.
  • They seek to carry out business activities to satisfy the interests and economic aspirations of their partners and the geographical area in which they operate.
  • They have the obligation to restore all funds from the public that they receive in the form of a deposit.
  • They have the corporate form of cooperatives and are subject to the supervision of the monetary authorities.
  • The bodies in charge of management and control are: the General Assembly, the Governing Council and the Social Council.
  • The benefits are distributed among the members of the cooperative, a mandatory reserve fund, a voluntary reserve fund and an education and promotion fund that is used to attract new members.

In any case, each credit union may have a specific operation. It will depend on the country in which it is incorporated and its final objective.


Types of credit unions


We can fundamentally highlight two types of credit cooperatives:


  1. Rural Banks or Agricultural Credit Cooperatives: Characterized by their rural nature, they operate at the regional level. They appeared motivated by cooperatives in the countryside as well as by agrarian societies. Its main objective is to finance agriculture, livestock, the forestry sector and all those activities that improve rural living conditions in the rural world.
  2. Non-agricultural Credit Cooperatives: They are characterized by their industrial and urban nature. They have their origin in associations and cooperatives of unions and professions. A clear example is the engineering boxes.

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