How is a Credit Union Beneficial as Against a Commercial Bank in our Times?
Introduction
Banking and financial transactions change every time there is a challenge and a spotted room for improvement. Currently, from the ordinary transactions, filing of records, gathering of essential documents, and other handling of financial problems banks turned into a transparent subject for change and development. The commercial banks, nowadays, are highly competitive as one of the largest stream in terms of financial institutions. With the aid of continuous global change, the environment eventually changes into electronic based system. The existence of credit union in most of the developing countries is attested to be more advantageous in the society that the commercial banking system, even if there are many changes and progress.
Research Background and Problem Statement
Credit unions along with the other cooperative activities evolved from the traditional practice, same as the commercial banking did. The idea and concept of the credit unions is to aid the poor people most especially the people who reside in developing countries. By simply providing them money and making loan transactions, the relationship between the people and the financial institutions are understandably beneficial (Scott, 2009). However, what are the other evidences proving that the credit unions can deliver more advantage to the people than of the commercial banking, particularly in these times?
Research Aim and Objectives
The main aim of the study is to look for the pieces of ideas that can provide explanation regarding the beneficial use of credit unions than of the commercial banking system and transactions. In order to guide the study to deliver the essential ideas about the credit unions, there are three important objectives. First is to compare the policies, regulations, systems, or financial situation of credit unions and commercial banks, like in Ghana and other developing countries. Second is to identify the most appealing characteristics of credit unions to their clients which may serve as a strong foundation regarding the trust and loyalty of the customers. And third, is to determine the level of challenges that commonly manifested in the activities involved in credit unions.
Literature Review
Credit unions, like the other financial institutions are also regulated and commonly administered by the government. This is done through ensuring that all of the support given by various credit unions leads to the common good of the society (Scott, 2009). One example of developing countries is Ghana, in which identified that the microfinance system is being regulated by the commercial banks laws. On the other hand, there are a separate laws for the cooperative and non-bank financial institutions. The credit unions in Ghana is performed under the rural microfinance (RMF) and found to be more beneficial to the customers because of the recorded improvement that reflects in the new era of financial institutions. Through the wise combination of a more commercial approach, reconstruction on the sector and recapitalization and building capacity, and lastly strengthening the regulation, the credit unions seems more admirable. The weak performance that mostly identified under the welfare focus and policies of low interest is reportedly became the center of the idea in focusing for a better management and satisfying the services of the credit unions. Albeit there are many limitations in the credit unions, still it is viewed to resist the impacts of changes in financial stream. In addition, there are no stipulated specific provisions regarding the capital requirement on the users but as long as the members can manage and be responsible on their roles, the credit unions will continue to be strong (Basu, Blavy, and Yulek, 2004). In commercial banking, it is still a debate for some developed countries unto how to compensate the arising problems in banking as well as the insurance of the members whenever the financial crises hit them hard. The only answer that they found is through providing stability which may seem impossible because of the financial conditions and uncertainties (Starr and Yilmaz, 2007).
Methodology
The suggested method that the study can use is through the utilization of the comparative case study in which the most reliable sources regarding to the main subject can be found. The use of the case studies is a proof provided by the past researchers about the emerging markets and developments in credit unions. From there, the researcher/s can measure the impact as well as the appeal of the credit unions in most of the developing countries. Also, the case studies include the use real situations that might unlock the ability of the credit unions to serve a lot of clients.
References:
Basu, A., Blavy, R., & Yulek, M., (2004) “Microfinance in Africa: Experience and Lessons from Selected African Countries”, (IMF) International Monetary Fund, Accessed 01 June 2010, from http://www.imf.org/external/pubs/ft/wp/2004/wp04174.pdf
Scott, J.A., (2009) “Commander and Installation Bank and Credit Unions Liaison Officer Desk Guide”, (DFAS) Defense Finance and Accounting Services, Accessed 01 June 2010, from http://www.dfas.mil/more/referencelibrary/MDA_210-02-D-0003.pdf
Starr, M.A., & Yilmaz, R., (2007) “Bank Runs in Emerging-Market Economies: Evidence from Turkey's Special Finance Houses”, Southern Economic Journal, Vol. 73, No. 4, p. 1112.
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