Definition of credit union Credit unions are not-for-profit financial cooperatives. In the early stages of development of a nation's financial system unserved and underserved populations must rely on risky and expensive (informal economy|informal financial services) from sources like money lenders, ROSCAs and saving at home. Credit unions proved they could meet demand for financial services that banks could not: from professional, middle class and poorer people. Those that served poorer urban and rural communities became an important source of microfinance. History back ground of credit union The first working credit union models sprang up in Germany in the 1850s and 1860s, and by the end of the 19th Century had taken root in much of Europe. They drew inspiration from cooperative successes in other sectors, such as retail and agricultural marketing. Similar institutions were independently developed somewhat earlier in Japan, in the early 19th century, by agrarian reformer and economist Ninomiya Sontoku. In this village unions, known as nihongo||each person of the village union could borrow fund interest free for 100 days, while the entire membership shared the cost in case of default. These did not have any influence on developments in Europe, as at the time Japan was isolated from the world under the policy of sakoku.
The government's flagship benefit reform has "serious design flaws" and has "veered off track" because of cost-cutting, a think tank has warned.
The Resolution Foundation said Universal Credit could leave 2.5 million families worse off, some by more than £3,000 a year.
It comes as the government announces a further expansion of the scheme. Welfare Secretary Stephen Crabb said the payment was "transforming welfare" and getting people into work faster. Universal Credit, championed by Mr Crabb's predecessor Iain Duncan Smith, aims to provide incentives for people to move off benefits and into work.
Universal Credit replaces six current benefits, including Jobseeker's Allowance and Employment and Support Allowance with a single payment. After delays hit the original timetable, it is being gradually rolled out across the country and is now available to new single jobseekers in every job centre across the UK. The latest target for a full roll-out is 2021. The Resolution Foundation, chaired by former Conservative minister David Willetts, said it had long supported Universal Credit, which it said would simplify welfare and boost work incentives.
Tax credit claimants with a household income of more than £20,000 will see any historic overpayments clawed back at a much faster rate. The UK tax authority said this would cut the time that people spent in debt. But campaigners have argued that some claimants will face "serious financial hardship".
However, it said recent changes, "which have been driven by the government's desire to secure further savings in the welfare budget... have taken it too far from its original purpose". Unless design flaws are eradicated, it said, Universal Credit "risks being reduced to little more than a very complicated vehicle for cutting the benefits bill". It urged Mr Crabb to "reclaim" the reform from the Treasury. The report said while some of the current system's "disincentives" to return to work had been removed by the reform, the opposite was true for many families, particularly "second earners" in couples. While it predicted 2.5 million would be worse off, it said almost two million would fare better under the new regime. David Finch, the think tank's senior economic analyst, told BBC Radio 4's Today programme that, while the benefit provided financial incentives to work, the incentives for people to increase their earnings were "particularly weak". He said people kept about 35p from each pound they earn and benefits were withdrawn when people started to work as little as five or 10 hours a week. Mr Finch added: "There's a risk that people, particularly single parents, get trapped at quite low levels of pay and fail to progress. "So while there may be an incentive for them to get into work, that incentive for them then to boost their earnings and progress in work is weak."
The countries with the highest percentage of credit union members in the economically active population were Barbados (82%), Ireland (75%), Grenada (72%), Trinidad & Tobago (68%), Belize and St. Lucia (67% each), St. Kitts & Nevis (58%), Jamaica (53% each), Antigua and Barbuda (49%), United States (48%), Ecuador (47%) and Canada (43%). Several African and Latin American countries also had high credit union membership rates, as did Australia and South Korea. The average percentage for all countries considered in the report was 8.2% Credit unions were launched in Poland in 1992; as of 2012 there were 2,000 credit union branches there with 2.2 million members
The countries with the most credit union activity are highly diverse. According to the World Council, the countries with the greatest number of credit union members were the United States (101 million), India (20 million), Canada (10 million), Brazil (6.0 million), South Korea (5.7 million), Philippines (5.4 million), Kenya and Mexico (5.1 million each), Ecuador (4.8 million), Australia (4.5 million), Thailand (4.1 million), Colombia (3.6 million) and Ireland
Modern credit union history dates from 1852, when Franz Hermann Schulze-Delitzsch consolidated the learning from two pilot projects, one in Eilenburg and the other in Delitzsch in the Kingdom of Saxony into what are generally recognized as the first credit unions in the world. He went on to develop a highly successful urban credit union system. In 1864 Friedrich Wilhelm Raiffeisen founded the first rural credit union in Heddesdorf (now part of Neuwied) in Germany. By the time of Raiffeisen's death in 1888, credit unions had spread to Italy, France, the Netherlands, England, Austria, and other nations. The first credit union in North America, the Caisse Populaire de Lévis in Quebec, Canada, began operations on January 23, 1901 with a 10-cent deposit. Founder Alphonse Desjardins, a reporter in the Canadian parliament, was moved to take up his mission in 1897 when he learned of a Montrealer who had been ordered by the court to pay nearly C$5,000 in interest on a loan of $150 from a moneylender. Drawing extensively on European precedents, Desjardins developed a unique parish-based model for Quebec:
In the United States, St. Mary's Bank Credit Union of Manchester, New Hampshire was the first credit union. Assisted by a personal visit from Desjardins, St. Mary's was founded by French-speaking immigrants to Manchester from Quebec on November 24, 1908. America's Credit Union Museum now occupies the location of the home from which St. Mary's Bank Credit Union first operated. On November 1910 the Woman's Educational and Industrial Union set up the Industrial Credit Union, modelled on the Desjardins credit unions it was the first non-faith-based community credit union serving all people in the greater Boston area. The oldest statewide credit union in the US was established in 1913. The St. Mary's Bank Credit Union serves any resident of the Commonwealth of Massachusetts
After being promoted by the Catholic Church in the 1940s to assist the poor in Latin America, credit unions expanded rapidly during the 1950s and 1960s, especially in Bolivia, Costa Rica, the Dominican Republic, Honduras and Peru. The Regional Confederation of Latin American Credit Unions (COLAC) was formed and with funding by the Inter-American Development Bank credit unions in the regions grew rapidly throughout the 1970s and into the early 1980s. In 1988 COLAC credit unions represented 4 million members across 17 countries with a loan portfolio of circa half a billion US dollars. However, from the late 1970s onwards many Latin American credit unions struggled with inflation, stagnating membership and serious loan recovery problems. In the 1980s donor agencies such as USAID attempted to rehabilitate Latin American credit unions by providing technical assistance and focusing credit unions' efforts on mobilising deposits from the local population. In 1987 the regional financial crisis caused a run on credit unions. Significant withdrawals and high default rates caused liquidity problems for many credit unions in the region.