This article is written in collaboration with the Singapore National Co-operative Federation to promote greater awareness of credit co-operatives in Singapore in conjunction with the World Credit Union Conference, which is being held in Singapore for the first time. All views expressed in the article are the independent opinion of DollarsAndSense.sg.
At some point in our lives, most of us would need to take a loan. This could be a major loan, such as a housing loan for our home. There are also occasions where we may need loans that are lower in quantum and over a shorter duration such as an education loan to finance our tertiary studies, a renovation loan for our new home or even a loan to help tide over a medical emergency.
For most people, the first place that we would think of when we need a loan will be the commercial banks. However, while banks are the ‘default’ choice for most people, they may not always be the best places to turn to when you need a loan.
For example, banks sometimes include terms and conditions that may not always be ideal for borrowers. Some banks may offer loans that include prepayment penalty, which essentially means you are not able to repay your loan earlier, even if you wish to in order to save on interest costs. Others may require a minimum loan quantum before you are even able to obtain your loan.
Beyond banks, some people also turn to other avenues to borrow money. For example, some people will turn to pawnshops if they have valuables that they can use as collaterals. Those without valuables may turn to moneylenders, both licensed and unlicensed, in spite of the high interest rates and the unfavourable terms which are being offered.
But are there alternative options that people in Singapore can turn to instead?
How Do Credit Co-ops Work
Credit co-operatives, or credit co-ops, for short, are financial institutions that are created, owned and operated by their members, who pool their resources in order to help one another. Unlike commercial banks, a credit co-op is a not-for-profit organisation with a social mission. Its main mission is to provide access to affordable financial solutions for its members, who are also its collective owners.
The fact that co-ops are not-for-profit make them unique institutions, and is possibly why you seldom hear about them. They don’t spend much on advertising campaigns, nor do they need to hit revenue targets for the sake of their share prices or exceed their profit targets year over year.
In contemporary Singapore, where banks largely dominate the banking and financial sector, it may be easy to overlook the value that credit co-ops are able to provide.
Credit co-ops are particularly important in countries or industries where individuals are not able to easily get access to the financial products and services offered by banks.
Credit co-ops in Singapore were pivotal in providing our pioneer generation and those who came after them with credit and other financial services.
A few years ago, I was discussing with my dad on how to finance the renovation of my flat. Between giving their parents a monthly allowance, paying for household expenses and servicing their own housing loan, I was curious to know how my parents were able to afford their renovation. Like many other Generation X folks at that time, they didn’t have much money.
It turns out that my dad, who was an employee of Singapore Telecom, took his renovation loan from a credit co-op.
My dad’s credit co-op disbursed the loan amount needed for the renovation, and monthly repayment for the loan was automatically deducted from his salary each month. Like many things back then, it was simple and convenient. Most importantly, it was a financial solution that worked well.
Since then, the banking industry in Singapore has grown to offer a wide range of services that addresses Singaporeans’ needs, including loans. Does that mean that co-ops are no longer relevant today?
Credit Co-ops Today
Like our reliable power grid, credit co-ops continue to serve their members well and reliably.
Here are three simple fundamentals that you should know about credit co-ops in Singapore today.
- They are still active in Singapore, more than 90 years later
- They are not-for-profit organisations with a social mission
- They are able to offer competitive financial solutions such as fixed deposits. These fixed deposits also tend to offer more flexibility to members. For example, the minimum amount required is usually lower than what is required at banks while interest rates are also competitive.
Here are examples of credit co-ops that are still active in Singapore.
TCC Credit Co-Operative
Available To: All Singaporeans and Permanent Residents.
Probably one of the largest credit co-ops in Singapore, TCC Credit Co-operative (TCC) offers an extensive range of financial solutions, which its members can tap on at competitive interest rates along with favourable terms and conditions.
Products offered by TCC include education, renovation and marriage loans, among others.
For example, the TCC education loan is offered at a flat interest rate of just 2.2% per annum (p.a.). This means that for every $10,000 you borrow, you pay an interest rate of just $220 per year.
For renovation loan, TCC charges a flat interest rate of 4% p.a. up to a maximum of $30,000 or six months of monthly salary, whichever is lower.
For marriage loan, interest rate is at a flat 4.5% p.a. with a maximum repayment period of 36 months.
Read more about the full range of financial solutions available from TCC here.
Straits Times Co-op
Available to: Employees of SPH Group, Times Publishing Group and Subsidiary Companies.
The co-op offers unsecured loans for members of up to two times the amount in their co-op savings account. For example, if a member has $5,000 in savings, they can borrow up to $10,000 at an interest rate of 6% per annum.
Going Beyond Financial Solutions
As with all financial institutions, funds for loans can only be disbursed when there are deposits made by other members.
For example, TCC offers its members a Subscription Savings Account. This method of “saving” is similar to buying shares in TCC where Subscription Account holders are paid an annual dividend from the surplus earned by TCC (usually between 3.00% to 5.00%).
The Singapore Teachers’ Co-operative Society (TCOS), which is a co-op for people in the teaching profession including employees of the Ministry of Education, provides a save-as-you-earn account that gives an effective interest rate of 3.08% per annum. The (small) catch here is that members need to commit to 24 monthly payments, with a contribution range of between $20 to a maximum of $500 per month.
Value Adding to Members in Other Ways
Aside from receiving deposits and disbursing out financial solutions, credit co-ops also strive to value-add and reward their members in other ways.
1. Annual Dividends
Most credit co-ops give out annual dividends to their members. This dividend payout is based on the surpluses that a co-op earned during the year. The amount paid to each member would be based on the number of shares a member owns.
Unlike shares that are traded on the stock exchange, most co-ops have a limit on the amount of shares that a member can subscribe to.
TCOS allow members to purchase up to 2,000 shares of the society, which at $1 per share is $2,000.
2. Common Good Funds
Common Good Funds are designed to assist members in certain stage in their lives.
For example, TCC has a wide range of events where they will provide a gift to members via their Common Good Fund. These include a hospitalisation grant, baby bonus, marriage grant and even funeral grant.
3. Education Scholarships/Bursaries:
To support members’ children in their education journey, most co-ops offer educational scholarships/bursaries, which are given to members’ children.
For example, AUPE Credit Co-operative, which is open to union members, gives study grants of up to $350 per year from primary school all the way up to university level.
Which Credit Co-op(s) Do You Belong To?
It would be useful to know that there are two main types of credit co-ops in Singapore.
The first group are credit co-ops created for members in particular companies, group of companies or sectors. For example, credit co-ops such as the Customs Credit Co-operative (for employees of Singapore Customs) and Keppel Credit Union Co-operative (for employees within the Keppel group of companies) are only open for employees of these respective organisations.
The second group of co-ops were created to cater to a wider group of people. Co-ops like AUPE Credit Co-operative and TCC Co-operative belong to this second category.
As long as you meet the criteria for joining a credit co-op, you may apply to be a member, just like my dad! And there is no stopping one from signing up with multiple co-ops.
With their members-first approach and social mission, credit co-ops can provide compelling financial services that you may consider first before heading to a bank.