Posts Tagged ‘7 cooperative principles’

Credit Unions being a Cooperative

July 9, 2010

Recently, the “dot-coop” (or .coop) extension topic was brought up on EverythingCU.com. This question was about whether or not it’s a good idea for credit unions to use this domain extension to signal that they are part of the broader cooperative movement.

This leads to the question: does being a part of the broader cooperative movement still mean anything in today’s credit union world? The reason I like to raise this question is that I had been working with this movement for about eight years before I had ever heard of the Seven Cooperative Principles. I knew that credit unions were member-owned, members had equal voting power, and that they were run as not-for-profit financial institutions. But I didn’t put two and two together to realize that all of these things are principles of the larger Cooperative movement.

So I recently voiced this question in response to the .coop issue, and received a wonderful response from my friend Gene Blishen. Gene is an amazing guy; he walks the talk. He’s the CEO of a successful, small credit union in British Columbia, where he remains true to credit union and cooperative principles while running a productive operation, one which has done some excellent technological innovation based on improving service to the members.

For many credit unions, in the U.S. especially, being a Cooperative has little or no meaning. They are simply trying to be the best financial organization possible, while running under the not-for-profit banner. It’s not that these credit union professionals care any less about their members. They still want to do the best they can for them, and make their lives better. It’s just that they don’t see any significant purpose in the Cooperative movement, or perhaps don’t see how it fits in their workplace. And that’s fine.

Here is Gene’s response on the matter, also posted on his Tinfoiling blog:

I think there is an elephant in the room and it never gets invited to leave.

IF you read the 7 Co-operative principle on which most CUs were founded years ago they were important in the structure and culture of the credit unions. As the financial industry has advanced somehow those principles have been forgotten, neglected or just unknown.

If one makes a decision about anything there are some fundamentals that act when arriving at that decision. Without the knowledge of these principles then the decision gets hijacked by being made outside those principles. If we bring to focus these absolutes that are a given i.e. we need to make money, we need to compete and neglect to discuss and bring forward how we incorporate these values (principles) in our CUs we do an incredible disservice.

Of course we need to make money, I don’t think that is a principle that needed discussion when CUs started. Of course we need to compete, they started because they could compete. But what about democratic owner control? What does that mean in todays CU? Or the education principle? I think we don’t want to discuss those. Why? To be honest because we have failed to bring these to the important level they need to be, we have been too busy making sure we make money and are moving forward in the marketplace.

I look at a CU like a car. You get it into shape. You tune it up. You keep it working well. But is that all? No you then decide where you want to go with it. What destinations are available and when will you get there. You always pay attention to the operation of the vehicle otherwise you won’t get there. Just remember you have seven places to arrive at and the journey can be exciting and very interesting. Remember we do have GPS to get us where we are going these days! 🙂

Here is a related blog post I wrote on the 6th principle of Cooperatives, which is that Cooperatives cooperate with each other: Zucchinis and Credit Unions: Not strange bedfellows

Zucchinis and credit unions: Not strange bedfellows

November 30, 2009

I love it when credit unions display their awesomeness.

And recently, UMassFive College FCU did just that.

I was driving about Western Massachusetts, when I heard a news story on our local NPR affiliate, WFCR, about UMassFive College FCU and their new CSA loan. Here’s the one-minute radio segment about it: Credit Union loans for farm shares

This statement may raise some or all of the following questions from you:

1.) What does CSA stand for, and what is it?
2.) What is a CSA loan?
3.) Why is it a perfect match that a Credit Union should offer a CSA loan?
4.) Why is this a brilliant business strategy on the part of UMassFive College FCU?
5.) What could UMassFive do to promote their CSA loans even further?
6.) Why do I care?

Q. What does CSA stand for, and what is it?
A. CSA stands for Community Supported Agriculture. Basically it’s a cooperative farm, in a similar way that a credit union is a cooperative financial institution. Customers each purchase a share of the food that is made by the farm. For example, one share might cost $700 for the year. During the spring, summer, and fall, you come to the farm and grab that week’s share of food, the contents and amount of which will vary during the harvest season. Typically, you get a box full of fantastic fresh produce each week. Here’s an example of what Simple Gifts Farm’s produce share consists of. The photo on the right is a typical summer week’s share from Doe Run Farm, a CSA in Tennessee.

What is the advantage of a CSA? Terrifically fresh and local food. Savings over what it would cost if purchased from a grocery store. Half-shares are also often available from a CSA, which get you half the amount of a full share of the farm harvest each week, usually at somewhat more than half the cost of a full share. Often times, membership in a CSA also requires a few hours per month helping to box up the week’s harvest.

Q. What is a CSA loan?
A. A CSA loan is a loan for the cost of one year’s share. While many people might be interested in buying local, and supporting local agriculture for a variety of reasons, many of the people interested in doing it can’t afford a lump sum payment of $600-$700. So in this case, UMassFive College Federal Credit Union is offering their members a NO-INTEREST loan, payable over 6 months, to finance buying a share in the CSA. So instead of $700 in one payment, the consumer would be able to pay $117 a month for six months. For many families, they may lower their total grocery bills while receiving a plentiful amount of fresh fruits and veggies.

Q. 3.) Why is it a perfect match that a Credit Union should offer a CSA loan?
A. The sixth of the Seven Cooperative Principles states that cooperatives should cooperate with each other. Both credit unions and CSAs are cooperatives. Both are (usually) dedicated to local cooperative principles. It’s a perfect fit.

Q.) Why is this a brilliant business strategy on the part of UMassFive College FCU?
A.) Because great businesses differentiate themselves, which creates a brand unique to that business. Credit unions are the only type of financial institution which can partner with CSAs in this way, authentically. (Banks could do it, but they’d be seen as copycats. Realistically, offering these types of loans is not on any bank’s radar screen.) This loan does many things at once: Strengthens the credit union’s brand as a local cooperative, actively doing things to strengthen the community which they serve. It also helps the CSA by making it possible for more people to afford to buy shares in it. It helps the member by spreading the payments for a CSA share out over several months.

There are other benefits of of buying local food, (belonging to a CSA is one way to do it), from which the Credit Union’s brand image is enhanced by association: CSAs help reduce the nation’s overall energy consumption and greenhouse gas emissions by reducing the fuel needed to package and transport food through the wholesaler to supermarket supply chain.

Offering interest-free CSA loans is not going to add significant dollars to the CU’s bottom line, nor is it going to cost them a significant amount. But their reputation is enhanced immeasurably, and management and the board must be taking the position that the PR gained, and thus future business, will more than offset the small amount of the cost of the program. Already, being interviewed by the local NPR affiliate is fantastic marketing, which had no cost.

Q. What could UMassFive do to promote their CSA loans even further?
A. Right now, their CSA loan page has a link to a local food site. I’m not sure if UMassFive is promoting this in their lobbies and teller lines too, but if not, they should. Also, they could provide a more direct link to the CSAs that are in the same area as the majority of their members. And of course, they should get in touch with all of these area CSAs and make them explicitly aware of their interest-free loans. UMassFive could also create a CU/CSA-day event, inviting representatives of the CSA to bring samples to the CU, and make it a festive occasion, bringing both more awareness to the CSAs themselves, and to the fact that UMassFive supports them. Also, UMassFive could publicize the WFCR story about their CSA loans nationally, which if successful, will increase the pride that its members have in it.

Q. Why do I care?
A. Long before I knew what a credit union was, as a child, my mother belonged to a food coop. Now that I’ve made a profession helping credit unions, it’s great to see a credit union that is doing something that makes a lot of sense from a business and community-enhancement standpoint. And by so doing makes the world a better place.

Oh yeah, and my mother is a not only a member of UMassFive College FCU, she’s also a member of CSA Simple Gifts Farm in North Amherst. And on Thursdays in the fall, she often brings my son there to help gather the week’s share.

Will Magnus- I love you man, but BZZZZTT!

March 20, 2009

Will Magnus is a comic book scientist, and the pseudonym for a very smart guy who is giving us an insider’s view of the mess at the Corporate Credit Unions.

His blogging has enlightened me in ways that an outsider otherwise would never know, including sharing with us a top-secret Letter of Understanding and Agreement that the NCUA foisted upon all but four of the Corporate Credit Unions.

In his latest missive, he’s given a very thoughtful response to how the Corporate Credit Union system should be reformed. There are many details in it that are way beyond of my circle of knowledge, so I have no comment on them. But I offer an even higher altitude suggestion for the reform of the corporate credit union system.

Will Magnus advocates for all Corporate Credit Unions to be abolished or phased out, and replaced by one single Corporate that will then be responsible for…. well, everything.

I love you Will, but WRONG WRONG WRONG.

Efficiency is a worthwhile pursuit. But efficiency above all else leads to disastrous results and unintended consequences.

How *should* the Corporate CU system be restructured?

I advocate a system modeled after one that has proven itself for more than two hundred years; and that’s our government. Yes, the government is not perfect and has its share of problems. But I am writing specifically about our three-branch system of checks and balances. The Executive, Judicial, and Congressional branches keep each other in check. The geometric shape which is the strongest is the one which contains the fewest sides, and that is the triangle. There is a reason why Schoolhouse Rock sang that “three is a magic number” a couple of decades ago, and the reason is as old as time.

A single Corporate Credit Union, no matter how well regulated and transparent, smacks of what America itself rebelled from, namely monarchical rule.

The current investment losses have to do with bad mortgage securities. We can write regulations to prevent that in the future. But that’s like removing your shoes to go through airport security- a knee-jerk response to trying to prevent the latest threat, when the next threat will be something else entirely, having nothing to do with airplanes OR shoes.

Creating a single Corporate Credit Union to maximize efficiency is the worst possible solution to this problem. The credit union movement flourishes because of its diversity. One of the problems with the Corporate Credit Union system is that there is only one “wholesale” credit union that all regional “retail” corporates invest in. The problem is that so much money, and therefore power, is invested in a single entity. There is truth in the old saw “absolute power corrupts absolutely”.

We ought to divide US Central into three relatively equal entities that compete yet cooperate with each other. Whatever form a re-engineered corporate credit union network takes, we need our Corporate Credit Unions to be based on the exact same cooperative principles that regular credit unions operate by. The seven cooperative principles should be etched in stone at the entrance to any corporate, league, office, or branch of credit unions of any type.

That’s my two cents on reform, feel free to share yours.