The September 2010 Credit Union Magazine cover story, “Could alternative capital unleash CU’s true potential?” raises a number of interesting points. The story notes that the lack of capital is inhibiting many healthy credit unions from growing. In an economy sorely in need of investment dollars, organizations need to expand their thinking and see how others have faced similar situations.
The National Cooperative Business Association (NCBA) is an organization consisting of cooperatives from all sectors including agriculture, energy, health, housing, purchasing, worker, and, of course, credit unions. Its mission is to develop, advance, and protect cooperatives.
NCBA has been working for several years on a plan to create an equity fund that would accept investments from a wide variety of sources but would invest exclusively in U.S.-based cooperatives. Working closely with key members of the credit union community and the Calvert Foundation, a leader in socially responsive investing, NCBA plans to have the fund operating in 2011—in time for the year 2012, which the United Nations has declared the “International Year of Cooperatives.”
Practically all other co-op sectors, including cooperative banks, are able to use outside capital, generally through preferred shares, that cause no dilution in the ownership structure. These preferred shares have no voting rights. The members continue to be the only voting shareholders and they control how their cooperative operates.
As the leading cross-sector cooperative organization, NCBA recognizes the need for, and promotes very stringent safeguards to protect, the ownership structure. It has been accomplished in the past for other organizations and can be done for credit unions. Strong commitments from the board and management to cooperative principles, as well as legal safeguards, are critically important.
Research conducted by the University of Wisconsin Center for Cooperatives, and funded by NCBA and the U.S. Agriculture Department, shows there are more than 29,000 cooperative businesses in this country that are generating $133 billion of income from $652 billion in revenue holding more than $3 trillion in assets. Cooperatives directly employ more than 850,000 people.
But as cooperators, we do very little to “recycle” our wealth. Cooperatives in this country aren’t investing in other cooperative sectors. When we compare our experience with cooperatives in Italy or the Mondragon co-op in the Basque region of Spain, we are falling far short of our potential. Those are just two of many countries that have developed robust methods to support each other, and their co-op employees and members enjoy some of the higher standards of living. In the U.S., we have the ability to support each other for everyone’s gain, but we need the infrastructure to make it possible.
As a brief example, the vast majority of U.S. co-op employees have the ability to participate in 401(k) plans. Too often, however, these co-op earnings are used to purchase the stock of major banks and investor-owned corporations that are often at odds with cooperatives. You wouldn’t open up a checking or savings account at your competitor’s branch, so why would you buy its stock?
Through the creation of the National Cooperative Equity Fund, NCBA will create the investment vehicle allowing cooperative and non-cooperative members to invest in the cooperative system, which rewards economic and social progress. By allowing credit unions to accept alternative capital, this would be a very sound investment for the fund. Eventually, it will also allow credit union members to invest additional funds to further support credit unions and all cooperatives.
Credit unions provide a real solution for our nation’s economic woes. And there’s no justifiable reason why alternative capital, if structured properly, shouldn’t be used to help foster that growth.
Paul Hazen is president/CEO of the National Cooperative Business Association. Contact him at 202-638-6222 or at email@example.com.