What Is a Financial Cooperative?
A financial cooperative (co-op) is a type of financial institution that is owned and operated by its members. The goal of a financial cooperative is to act on behalf of a unified group to offer traditional banking services. These institutions attempt to differentiate themselves by offering above-average services along with competitive rates in the areas of insurance, lending, and investment dealings.
- A financial cooperative is a way to structure a financial institution so that it is owned and operated by its members (e.g., a credit union).
- Control of the cooperative is often democratic, with each member having one vote.
- These co-ops tend to offer quality service along with competitive rates. Unlike banks, they may be focused on the financial wellness of their members instead of maximizing profits.
- Co-ops range in size and form and can vary based on competition from for-profit firms as well as local regulatory frameworks.
Understanding Financial Cooperatives
Credit unions are the most popular form of financial cooperative because they are owned and operated by their members. These financial institutions often pay higher-than-average interest rates and are only accessible to those that have accounts.
The size of financial cooperatives can vary from only a handful of branches to being widespread with thousands of locations. Many financial cooperatives offer products and services that are comparable to those offered by the major diversified banks.
How Financial Cooperatives Are Structured
Financial cooperatives have open membership, and unlike banks, they may be more interested in seeing to the financial wellness of their members rather than turning a profit. Control of the cooperative takes a democratic form with each member getting one vote. Their individual financial standing is not relevant, and they do not hold different layers of control based on the ownership of shares.
The members of a cooperative, while being owners, are also customers. The size of the cooperative is based on the number of members who participate. As more members join, the financial cooperative has more resources to offer financial products, reduced fees, lower interest rates on loans, and higher yields on savings. Credit unions, in particular, offer ATMs and collectively may have more of these devices in place than large banks.
In addition to the financial products and services the cooperative offers, they can also be sources of financial education for its members and others. The services that cooperatives make available might include retirement planning and understanding of how credit works.
A Brief History
The history of financial cooperatives stretches back to rural cooperatives that formed to offer credit and financial services to farmers. Consumer cooperatives may also be established to make a variety of products and services available to members, such as healthcare, housing, grocery, and insurance. Housing cooperatives, for instance, can be made up of apartment complexes where members reside and in which and they buy an ownership stake.
The scope of cooperatives can vary from small, local operations to large cooperatives that operate across numerous states. A financial cooperative may form a board of directors to provide leadership and structure to the organization.