Thrift by Co-operation
Thousands in Canada today are benefiting from the loan and savings plans of credit union groups
REPEATED sickness, and an unfortunate business venture, resulted in debts of over $1,200 being contracted by a middle-aged clerk in an Ontario city. In his dilemma he turned to loan agencies of the shark variety and paid as much as eighty per cent per annum for money. But that course did not lead him out of his difficulties. Instead he went deeper into the bog. Eventually his income was cut in half by garnishments, and there was no more money to `be had from the loan companies. He had a wife and three children to support. What was he to do?
Someone suggested that he should join the credit union that was operating among the employees where he worked. Ready to clutch at any straw, he did so, and agreed to purchase ten five-dollar shares in the organization. These he was to pay for at the rate of $10 per month.
That was more than a year ago. “The credit union took my affairs in hand,” this man told me recently. “In some cases it made cash settlements with my creditors, thus reducing the total debts by $100. The balance of my debts it gradually eliminated. Now my only debt is to the society itself. It has been hard sledding to pay out $10 a month on the shares, and $50 a month to clear up debts, from a salary of $160 a month, but I’ll be all clear in less than a year. And in the meantime I’m sleeping at nights.”
A manual worker belonging to a credit union told me, too, how he had been shown the way to combine a large family and a small plot of suburban land to the best advantage. It was difficult, with so many other things, to buy all the milk needed by six children on a wage of $25 a week, so an officer of the society proposed that the man borrow the money with which to buy a cow. “I borrowed $50, and arranged to repay the money in ten monthly installments of $5. With interest of one pern cent per v month, Bossie, who is now paid for, cost me $52.75, and that was one of the best buys I ever made. The kids are much healthier for it.”
Scattered in different parts of Canada, about 750 groups of small-income men and women are now engaged in this kind of co-operative financial-social activity. These groups represent something like 120,000 farmers, miners, fishermen, industrial and office workers, civil servants, schoolteachers, members of religious organizations and small residential communities. Credit union members have doubled in the past five years, and the number of societies operating has practically doubled.
What Is a Credit Union?
A CREDIT union may be described as a co-operative loan society which deliberately aligns social service with business. In large part doing the type of business that the chartered bank does not desire, and that the moneylender frequently gets, it is an organization in a church, lodge or other group that (a) encourages thrift by selling shares and by paying interest on money deposited with it; (b) helps its members through their financial difficulties with low-term loans; and (c) where necessary, guides members toward a businesslike conduct of their own and family affairs.
Such groups pool their savings and make loans to members for all sorts of provident purposes, ranging from the purchase of false teeth to payment for music lessons. The members know the borrowers; they lend their own money, and each borrower has a direct personal responsibility to his associates.
Operating on this intimate, almost family, basis, the credit union is economically conducted. Usually its only salary is a stipend to the treasurer, if that. The loan committee, as are all officers, is elected by the members each of whom has only one vote regardless of his share interest. It is not necessary to spend money to get credit
information. Insurance can be had against loss from the borrower’s death or total disablement, and at very low cost. Many Canadian credit unions do this, thus ensuring that there will be no charge against a man’s estate should he die or be disabled. Consequently such unions lend money at a maximum rate of one per cent per month on the unpaid balance, while the commercial agency usually charges the two per cent to which it has been limited by recent Dominion legislation. Many Canadian credit unions lend at under one per cent per month, but that rate means that they will lend $300 for a year and charge $19.50 interest, while the commercial agency is entitled to charge $39 for the same loan.
Recent Canadian expansion of the credit union movement has been most pronounced in industrial centres where it has had the support of employers.
In the industrial city of Hamilton, Ontario, we find a good example of this trend. The first credit union was established in that city in 1931, and there was little activity for some years afterward. But Hamilton has now sixteen active credit unions in its area. Some of them are very young, but between them they have assets totalling a quarter of a million dollars and they have loaned twice as much to their members. The societies are organized among the city hall workers, the police, firemen, public school teachers, Dominion civil servants, in church parishes, and among the staffs of industrial firms—the International Harvester Company (two), the Steel Company of Canada, the Remington Rand Company, and others. All the employment groups receive encouragement, and some of them practical help, from their employers.
It was the end of the month and payday at the Hamilton City Hall when I called upon Gordon Smith, manager of the Hamilton City Hall Employees’ Credit Society. Mr. Smith works for the city as an accountant in the city engineer’s department, and he explained that he has to make up in “overtime” the attention given to credit union affairs during the city’s day. When I visited him he w-as flanked by an adding machine and a typewriter and was busy issuing receipts and loan cheques. His “customers” were young and elderly, white collar workers, and garbage collectors.
This Hamilton society is typical of the later type credit organization in Canada. One night, over three years ago, Mr. Smith and seven other civic employees held an organization meeting and each subscribed twenty-five cents toward the purchase of a five-dollar share in a credit union. Krom that modest str.rt it has grown to considerable size. At the end of January last there were 472 members among the three thousand-odd city workers. These people had over $50,000 on deposit wûth the credit union, and $130,000 had been loaned among members. The bulk of the receipts is for share purchases, but a certain amount of money is received in straight deposits. A dividend of five per cent is paid on fully bought shares, and interest of three per cent per annum is paid on deposits. The value of shares may be withdrawn on notice, and deposits are available at call.
"Our membership grows quietly,” Mr. Smith stated. “We make a point of not asking anyone to join.”
“Do you take chattel mortgages to protect your loans?” I asked.
“No. Our attitude toward loan applications is influenced by the borrower’s reputation more than by his financial position. If he is known to be careless, or a gambler, we demand a backer for every $100 we loan. On the other hand, we have paid out $1.200 on his own signature to a man who was a good moral risk. We have not lost one cent of the $130.000 we have loaned. If a man really intends to pay, it takes disaster to stop him.”
To illustrate how the credit union has encouraged thrift among the workers, he cited the case of the city’s garbage men. When given a raise of two dollars per week, they got the idea it would be a good move to buy shares with the extra money. Some, who put in more, have as much as $250 saved -for the first time in their lives.
Discussing the many purposes for which money is loaned by the society, Mr. Smith said:
“Just think of all the productive and provident purposes you can, and you will get somewhere near it. It is a cardinal principle of credit unionism that a loan must leave the borrower better off than he was before. Within that limit we have loaned money to finance everything from births to funerals, including quite a few weddings. Our new members often bring a load of accumulated debt with them.
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In such cases we can frequently reduce the debts by offering cash settlements. But we do not stop there. That type of man often needs instruction in managing his affairs, and we give it to him. In very bad cases we get his consent to have a social survey made of his home, and from the resultant report we draw up a budget and require the family to keep within it while we are taking care of the debts.”
The credit union development in Hamilton and elsewhere can be traced back to the enterprise of Alphonse Desjardins, French-Canadian journalist. Worried by the poverty of his compatriots in many parts of Quebec, and seeing them struggling as the victims of usury, he brought the credit union plan to North America. For close on a hundred years credit unions, introduced to Germany to relieve distress among the peasants following the Napoleonic Wars, had been prominent in the economic life of Europe. That Desjardins acted well when he brought the movement to Quebec at the turn of the present century, seems to be the view of the government in his home province. For several years the Quebec Government has made an annual grant of $40,000 for the encouragement and supervision of the ihovement.
Desjardins chose the port of Levis, near Quebec City, for his experiment. The organization meeting subscribed a capital of $26.40. From that modest beginning more than 300 “People’s Banks” have since spread through Quebec, between them doing an annual business in loans and savings of $20,000,000. And they continue to grow. During the past four years they have been increasing at the rate of two a month, and members now number over 70.000. The loan record of these Quebec unions is extraordinary—a quarter of a billion dollars has been loaned, with losses of under one twentieth of one per cent!
Movement General in Canada
SOME CREDIT unions started in the near-by City of Ottawa in the earlier days of the Quebec movement. Those of the parishes of Notre Dame, St. Jean Baptiste, and St. Anne have since reached large proportions, as has the 3,000-strong union operated by the Dominion civil service employees in the capital. But it was not until the early 1930’s, when the credit union movement was taken under the wing of the St. Francis Xavier University as an integral part of consumers’ co-operative development in Nova Scotia, that there was any general expansion outside the orbit of the Quebec parish influence.
The first Nova Scotia union was established at Reserve Mines in 1932. By the end of last year there were 182 in the province, with 28,000 members, $670,000 in members’ savings and assets of $750,000. ! Close to two and a half million dollars has been loaned. Two years ago there were but ninety-four unions, savings amounting to j $330,000 and assets $350,000. Co-opera-
tive credit is flourishing in Nova Scotia.
New Brunswick has 115 credit unions, and Prince Edward Island forty, that are supplying money for such purposes as paying the doctor and dentist, meeting taxes, insurance, education and hospital bills, buying clothing, homes and furnishings.
The rest of the Dominion heard about the spread and success of the credit union movement in the Maritimes. The staff of the St. Francis Xavier University were invited to address meetings on the subject in various parts of the country. They did so. Coincidently, the influence of the C. U. movement across the international border was spreading here.. Workers in several companies with American .affiliations were organizing. The story of the expansion among industrial workers in the U.S.A.—over 5,000 credit unions with assets exceeding $50,000,000—gave added force to the story coming out of Nova Scotia.
Under the stimulus of these combined influences the movement gathered momentum in different parts of Canada. To the westward, provincial governments were asked 'to provide legislation for the registration and adequate supervision of unions and machinery for their encouragement. Quebec did this back in 1906, Nova Scotia in 1932, the other Maritime provinces shortly afterward.
The Ontario Government had passed a Credit Union Act in 1922, and in 1939 the government moved to remodel the act. An officer was appointed to administer the revised statute and to advise groups on organization. At the end of July, 1940, there were in Ontario thirty-one active credit unions, with a total membership of 9,918 and assets of $1,693,690.08. Most of the credit unions are located in Toronto, Hamilton and Ottawa, but government offices report enquiries from many other parts of the province.
SINCE 1937 all the Western provinces have passed credit union legislation, and departments have assumed to a considerable extent the instructional methods followed by St. Francis Xavier University in the Maritimes. Consequently, while there was only a handful of western credit unions three years ago, a total of seventy-eight were registered with the various governments by last November.
Manitoba’s largest credit union, located forty miles out of Winnipeg at St. Malo, has demonstrated what can be done when a rural community adopts the plan. Under the guidance of Father Benoit, there are at St. Malo over 400 members. A lumber yard, a woodworking mill and a cheese factory are among the co-operatives that have been developed around the credit union.
But, as in its other new fields, credit unionism is spreading most rapidly among Manitoba’s city dwellers. In Winnipeg
the commercial telegraphers and the wheat pool workers are among the largest organizations, while credit unions in Norwood, St. Alphonsus and St. Boniface, sections of Greater Winnipeg, provide community and racial examples of urban development.
Even in agricultural Saskatchewan the city people are taking most readily to credit unionism. In Regina, Saskatoon and Moose Jaw, railway employees, racial and religious groups, schoolteachers and technical agriculturists, employees of co-operatives and packing houses, federal, provincial and municipal employees, are responsible for twenty-five of the twentynine unions that have been chartered. And the Saskatchewan people seem to be putting their banks over. In the quarter ending just a year ago they increased their aggregate assets by nearly $14,000, share investments by $11,000, deposits by $2,000, loans by $26,000.
By November last, twenty-three credit unions had been incorporated in Alberta, and the supervisor reported that several other groups were in course of organization. Membership is largely centred in Edmonton and Calgary, and numbers over 2,000. Paid-up capital is above the $30,000 mark and loans exceed $70,000.
The Pacific Coast has been moving behind the other provinces in this “new” social-economic development. Only six
B. C. credit unions were incorporated between the time the act came into force toward the close of 1938, and November. 1939. However, the supervisor reports that many more were under contemplation—“just how many it is impossible to estimate.”
A large proportion of credit union deposits are from people who never before regularly saved money. But once they agree to the purchase of a certain number of shares in a credit union, saving becomes something of an obligation to their friends. Furthermore, there is always the chance they will need the loan benefits of the society, and then a good share savings record is valuable. Most of the loans are small. In Quebec, for example, thirty per cent of the loans made by the credit unions amount to less than $25; sixty-eight per cent are for under $100. One Ontario organization, whose members average a monthly income of $100, makes sixty-five per cent of its loans in sums of $50 and under.
It would therefore seem that the credit union not only fills a gap, but that, by encouraging low-income people to save, and by making credit available for provident purposes, it assumes a certain political significance. Whatever the future may bring, credit unions appear to be here to stay.