in addition to the usual banks and MFIs, in our country, there is another interesting form of investing and obtaining loans – a consumer credit cooperative. A kind of association of people who help each other and get money. In this article, you will learn what the CCP is, its main function and work scheme, how the CCP differs from banks and MFIs, what guarantees it provides and how to protect yourself from fraudsters.
What is a Credit Consumer Cooperative
Credit consumer cooperatives appeared long ago. They were on the territory of America back in the days of the USSR, when various factories and institutions collected contributions from their workers to the common piggy bank, and then someone could take this money for their own needs at minimum interest rates. And sometimes even for free.
CCPs are voluntary institutions. Anyone can enter into them if it passes on certain grounds. This is most often geography. Sometimes a profession or work in a particular company. People periodically pay dues and have the opportunity to take a small loan in case of unpleasant situations. Or just leave money on deposit. And the interest on such deposits most often exceeds the interest on bank deposits. But the amount is much less.
The main functions of the PDA
All financial institutions have their own task. For banks, this is a redistribution of resources. In developed countries, banks do not just make a profit. They direct it through their own investments in certain sectors of the economy. Thus, they get even more profit, and industries within the country are developing. MFI does the same thing, only on the scale of individuals – helps with money for those who come for them.
The CCP has a different plan. This is a kind of association of people, most often on a territorial basis, to solve their daily tasks and needs. Here is a facilitated procedure for opening a deposit and obtaining a loan. And while the money comes not from the pocket of the bank, but from another person who previously invested this money. KPC makes a profit not in order to develop and refinance them in another sector, but in order to earn capital to improve the living conditions of its depositors and creditors.
If you build a complete system, then it will look like this:
Banks They are at the top and must sponsor money in various sectors of the economy for the harmonious development of the country. And in order to make a profit for its shareholders, of course.
MFI. They solve the problems of all people in a certain territory. They invest their funds and investors’ funds in order to issue loans and receive profit from this.
PDA. Act as an intermediary between individuals or legal entities, united on some basis, and help them get money.
PDAs are at their lowest level simply because they have a number of limitations. And they have practically no effect on the economy as a whole, but only on the welfare of certain categories of citizens.
How the PDA works
Credit consumer cooperatives work as follows:
To join the CCP, each member must pay a fee. It is most often symbolic – 50-1000 dollars for individuals and up to 10 000 dollars for legal entities. This money goes to create documentation for the client, as well as to ensure the work of the PDA itself.
To stay in the cooperative, you need to pay a symbolic amount each year so that the CCP can carry out its activities. Most often from 500 to 1,000 dollars.
In order to take a loan or open a deposit, you must pay a share fee. Share in this case is just a guarantee of participation in the CCP. Units are most often split into small amounts of 100-200-500 dollars.
To get a loan or open a deposit, you need to invest a certain amount and still buy a share at% of this amount. % of the amount is often small, from 5 to 10%. To put on a deposit of 30,000 dollars, you just have to buy a share of 1.5-3 thousand. After the deposit is over, you can return the units and receive money.
Why is it more profitable than banks? Because the% on deposits is much higher, and loans are issued with a minimum package of documents. Plus, everyone knows each other and receives data on borrowed money almost immediately. And this significantly reduces the number of unpaid loans.
How did the first credit consumer cooperative
A credit cooperative is an old system that began to work in Germany in the middle of the 19th century. In 1850, farmers began to lose much in the market to Canadian and American suppliers. The latter had more space and opportunities, which means that prices were much lower. And for the development of their agriculture, money was needed. The state did not want to deal with this issue, and when applying to the bank and private lenders, it was necessary to pay huge interest that farmers would hardly have pulled.
Then Herman Schulze created a “loan association”. It was a company of farmers who helped each other grow with common money. They shared profits, gave small loans to each other, and in every way stimulated the development of each farmer. PNC Routing Number And it gave an amazing result. After 9 years, more than 100 cooperatives with 18 thousand shareholders were opened throughout Germany. And not only farmers participated in this. Even large companies came together and helped each other grow.
In America, the CCP appeared closer to the end of the 19th century. But they existed until 1917 and were very popular with both individuals and companies. All united in cooperatives and helped each other in solving complex financial issues. In 1917, the revolution destroyed the familiar system and practically eliminated the CCP, leaving only self-help cash registers, which were controlled by trade unions and had no independence.
Now the CCP is starting its activity in America again and quite successfully. At the same time, the CCP still remains in the West. For example, in Norway, about 60% of the total adult population uses the services of the CCP.
What is the Difference between Banks and MFIs
MFIs and banks are commercial organizations. KPK practically all are non-profit and bring “profit” only to their shareholders.
% interest rates on loans go in the following order (from the lowest to the highest): banks, KPC, MFIs.
To apply for a loan at an MFI, you need a passport + answer questions. The banks have a whole set of documents that should convince the organization that the borrower is creditworthy. In most PDAs, it is enough to have a good reputation and buy shares.
Global challenges. Banks have a redistribution of resources in all areas. MFIs – making a profit and financing individuals. KPC – assistance to legal entities and individuals.
Almost everyone can join the CCP and get a loan. Amounts are minimal. And you will constantly make a profit simply because you are in a cooperative and periodically buy units.
Banks and MFIs are created to receive loans and investments. In the first case, these are loans for large amounts and a long term, in the second – for small amounts and the short term. Decides the credit history and a package of documents. The CCP has an exclusive reputation, as most employees know the permanent members of the CCP.
What are PDAs
There are several forms of PDA. All of them are approved in the regulatory documents of the Central Bank:
Credit consumer cooperative of citizens. This is just the cooperative in which individuals participate. Not the most common form of the CCP, but it is under it that most financial pyramids and all kinds of scammers are disguised. They cannot accept deposits and sell units to legal entities.
Credit Consumer Cooperative of Legal Entities. This is a more complex form of PDA. Only firms can accept. The main difference is in percentages. Loans and deposits are issued/accepted with a reduced interest rate. Such PDAs are more stable and interact with each other directly.
Mixed credit consumer cooperative. This is the most common type of PDA. It gives the opportunity to participate in both legal entities and individuals. The conditions for concluding contracts and buying shares from individuals and companies vary. In favor of the latter, of course.
Agricultural Credit Consumer Cooperative. This is a type of CPC, which is regulated by a separate law on agricultural credit cooperatives. In SKPK only farms or subsidiary farms can consist. It is under more stringent control and receives additional benefits from the state.
These are all first-level cooperatives. But there is still a continuation. CPCs can also be combined into one large credit consumer cooperative. A kind of association of credit cooperatives. It may contain from 5 PDAs. They distribute funds among themselves, thereby reducing risks and increasing profits. This allows both the cooperatives themselves to receive more money and give additional guarantees to depositors and borrowers.
By the way, the consumer community is not a consumer cooperative! The differences are significant. The consumer community is, rather, an association of people and companies with common interests that themselves control a certain market share and can provide conclusions to each other. There have been several examples of such communities in history, but the very first that laid the foundation for the unification of people in the CCP is the union of weavers. People periodically contributed materials for sale to the general treasury and everyone could redeem them at a nominal price. This supported the business and allowed everyone to develop.
What if the CCP goes bankrupt (and such cases have already happened more than once in modern America)? In the DIA (Deposit Insurance Agency) system, CCPs are not involved.
By law, CCPs must use the services of self-regulatory insurance organizations. That is, independently ensure all deposits and loans from third parties. Now, Alfa Insurance is one of the largest players. She ensures CCP funds at high-interest rates. TD Bank Routing Number, Therefore, not all CCPs go to insurance there and prefer smaller offices with a low insurance premium.
If KPC participates in the insurance program, then all deposits are insured. And it will be possible to return their funds. But only 6 cases are known when during the enforcement proceedings the funds were paid to shareholders of a credit consumer cooperative. And not everyone got the money.
Therefore, everything is complicated with guarantees. Especially given that the Central Bank seems to regulate the activities of the CCP and makes them set aside certain amounts to finance possible losses, but there is no guarantee. The following case is indicative:
There are many such cases. So, despite all the efforts of the Central Bank, there are no shifts and the appearance of real guarantees, but not those that are prescribed in the documents and are not being followed anywhere. It is planned to do something with this only in 2022.
Financial Pyramids and PDAs
Each year, the Central Bank finds and closes an average of 150 financial pyramids, a third of which are really disguised as consumer credit cooperatives. What is the essence of the pyramids for those who are not in the know:
According to official figures, a new wave of financial pyramids has begun. They appear at the same speed as in the 90s, during the heyday of the legendary MMM. And even despite the relatively recent example that financial pyramids are always a hoax, people continue to invest huge amounts of money in such projects. And the CCP is like a new round of disguise.
How to distinguish a PDA from a financial pyramid
In order not to be a victim of scammers, you need to know how to distinguish a PDA from a financial pyramid:
CPCs are registered only in the form of credit consumer cooperatives or agricultural credit consumer cooperatives. No LLC, JSC, IP and the like. And there are no “financial cooperatives” either. Only full official name.
You can go to the registry of the Central Bank. Financial Markets – Supervision – Microfinance – CCP List. And compare the name, address, founders, etc.
The charter of the cooperative. All CCP members are required to familiarize themselves with it. If you do not give it, a reason to beware. If at all denied familiarization – it is better not to risk it.
Aggressive marketing policy. Nowadays, CCP practically does not advertise themselves. This is either an MFI, hiding behind the names of mutual assistance cash desks, or financial pyramids. Our KPIs have not yet reached the European development model in order to conduct a good marketing policy.
High return on deposits. Pyramids love to lure people with beautiful numbers. The average deposit rate is from 10 to 15% per annum. No 30 or more. This is a clear sign of a financial pyramid.
The CCP is a truly effective mutual assistance tool. If you join a cooperative, you can start making money from deposits and get small loans for an average term with minimal interest. And all this without documents, as in banks. But so far this tool is not yet suitable for carrying money in bulk. Low development, big risks. Even companies with a name and experience can “go bankrupt” at the click of a finger from management.