Financial Cooperatives


A cooperative is a legal entity owned and democratically controlled by its members. Members often have a close association with the enterprise as producers or consumers of its products or services, or as its employees.

A financial cooperative is a 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 as a traditional banking service. These institutions attempt to differentiate themselves by offering above-average service along with competitive rates in the areas of insurance, lending and investment dealings.

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 financial 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 focused on seeing to the financial wellness of their members rather 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 ownership of shares. The members of a cooperative while being owners are also customers. The size 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 a 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.

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 that the members reside in and buy ownership into.

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.

Non-monetary Cooperative

A non-monetary cooperative provides a service based on entirely voluntary labor in the maintenance and provision of a particular service or good, working in the identical manner of a library. These co-ops are locally owned and operated and provides the free rental of equipments of all kinds (bicycles, sports, gear). This idea has been said to reduce general human consumption of goods, a key subject in sustainable development.

Housing Cooperative

A housing cooperative is a legal mechanism for ownership of housing where residents either own shares (share capital co-op) reflecting their equity in the cooperative’s real estate, or have membership and occupancy rights in a not-for-profit cooperative (non-share capital co-op), and they underwrite their housing through paying subscriptions or rent.

Housing cooperatives come in three basic equity structures;

In market-rate housing cooperatives, members may sell their shares in the cooperative whenever they like for whatever price the market will bear, much like any other residential property. Market-rate co-ops are very common in New York City.
Limited equity housing cooperatives, which are often used by affordable housing developers, allow members to own some equity in their home, but limit the sale price of their membership share to that which they paid.
Group equity or zero-equity housing cooperatives do not allow members to own equity in their residences and often have rental agreements well below market rates.

Members of a building cooperative (in Britain known as a self-build housing cooperative) pool resources to build housing, normally using a high proportion of their own labor. When the building is finished, each member is the sole owner of a homestead, and the cooperative may be dissolved.

This collective effort was at the origin of many of Britain’s building societies, which however, developed into permanent mutual savings and loan organizations, a term which persisted in some of their names (such as the former Leeds Permanent). Nowadays such self-building may be financed using a step-by-step mortgage which is released in stages as the building is completed. The term may also refer to worker cooperatives in the building trade.

Business and Employment Cooperative

Business and employment cooperatives (BECs) are a subset of worker cooperatives that represent a new approach to providing support to the creation of new businesses.

Like other business creation support schemes, BEC’s enable budding entrepreneurs to experiment with their business idea while benefiting from a secure income. The innovation BECs introduce is that once the business is established the entrepreneur is not forced to leave and set up independently, but can stay and become a full member of the cooperative. The micro-enterprises then combine to form one multi-activity enterprise whose members provide a mutually supportive environment for each other.

BECs thus provide budding business people with an easy transition from inactivity to self-employment, but in a collective framework. They open up new horizons for people who have ambition but who lack the skills or confidence needed to set off entirely on their own – or who simply want to carry on an independent economic activity but within a supportive group context. (see also seed finance).

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