The Not-for-Profit Perspective of Canadian Credit Unions

Credit unions in the United States are not-for-profit enterprises. In Canada, this is not the case. Canadian credit unions have been deemed to be for-profit, income tax paying organizations since the early 1970s. The book, Deposits fully guaranteed: A history of Saskatchewan's Credit Union Mutual Aid Board, 1953-1983 by Dennis Schroeder (ISBN-10: 0969025327 ; ISBN-13: 978-0969025320) provides an interesting overview of how the Canadian federal government bowed to pressure from Canada’s chartered banks leading to Canada’s credit unions losing their not-for-profit status.

Over time, being considered for-profit, has arguably had the benefit of escalating in importance the financial performance of Canadian credit unions. Nonetheless, the Not-For-Profit perspective should not necessarily be ignored when thinking about how to operate a for-profit, income-tax paying credit union. This is because the Not-For-Profit perspective typically does not hold financial results as the sole end goal of the enterprise. There is some other purpose or mission that is the end goal of not-for-profits which strong financial or fiduciary performance supports.

The examination of a typical Canadian credit union’s Mission or Purpose will generally reveal that the credit union is focused on the financial well-being of its members, being inclusive, providing the products, services, information and advice to its members that will help members advance their personal financial literacy and well-being, concern for improving the economic and social well-being of the communities in which the credit union operates, and the like. There is significant commonality to the mission and purpose of most Canadian credit unions because most have adopted the seven internationally accepted co-operative principles. Strong financial performance of the credit union is necessary for the credit union to put these principles into action but financial performance (and the typical expectation of maximization of financial return to the shareholders of a for-profit enterprise) has not been the typical end goal of a Canadian credit union.

By way of comparison, a typical Canadian bank’s end objective is to maximize financial return to its shareholders. Everything the bank does will generally be done to advance the financial interests of its shareholders. Those shareholders are not necessarily customers of the bank so there will be competing interests between customers and shareholders of a bank. As discussed earlier, credit union shareholders and customers are the same people; they are the members (i.e., owners) of the credit union. The interests of customer and shareholder are aligned by default in a credit union because they are the same people.

This difference between banks and credit unions has very significant implications for credit unions. It presents a significant competitive difference that credit unions can take advantage of in competing with banks but it also introduces the risk that a credit union can inadvertently destroy value for its membership by focusing too intently on the maximization of financial performance of the credit union. These topics will be the focus of future writings.