How Black Cooperatives Shaped Financial Stability

Long before Black people were granted access to institutional banking in the U.S., many Black communities pooled resources to support each other financially. These Black cooperatives were forerunners to modern credit unions.

Mutual Aid for Survival

Early development of Black cooperatives was driven by necessity and survival, according to Dr. Jessica Gordon Nembhard in an interview on the Civil Rights Teaching website. Enslaved people shared kitchen gardens to supplement inadequate rations and pooled earnings to purchase freedom when possible.

In the late 1700s through the mid-1800s, small, informal mutual benefit societies bloomed throughout the U.S. Black religious and fraternal institutions collected dues to pay for burials, support widows and orphans, and provide access to education, job training and health care.

Over time, these societies grew, offering more services; some evolved into mutual insurance companies and other structured financial institutions.

When Financial Institutions Weren't an Option

After the Civil War, Black people found it difficult to access bank services, even in Northern states. In 1865, the Freedman's Savings and Trust Company was established as a federally chartered bank to serve formerly enslaved people. Around 23,000 depositors saved at 37 branches in 17 states and Washington, D.C. 

However, their deposits were invested in speculative railroad bonds — and at the time, deposit insurance didn't exist. The bank's 1874 collapse wiped out the savings of tens of thousands of depositors.

The Freedman's Bank closure devastated the Black community and fed a long-term distrust in the banking system, according to an article by Reginald Washington at the National Archives. 

Some depositors eventually received a portion of their account value, but others received nothing.

Black people were typically barred from banking at white-owned financial institutions, and if they were able to get a mortgage, they were often charged much higher interest rates and fees than white borrowers, according to a report from the Consumer Financial Protection Bureau (PDF).

In response, Black people formed cooperatives and opened their own financial institutions. From 1900 through 1934, 130 Black-owned banks were established throughout the U.S., according to the Consumer Financial Protection Bureau.

Cooperation in Cooperatives

As an alternative to banks, cooperatives pooled money and labor to buy land, operate farms, create stores and warehouses, offer collective lending and form integrated worker cooperatives.

The Farmers' Improvement Society of Texas (FIST), established in 1890, created purchasing cooperatives and helped farm families develop more self-sufficiency and strategies for operating on a cash basis.

In 1934, the American Missionary Association-run Bricks Rural Life School (PDF) developed an adult education program for Black members, then a credit union. Members jointly bought a tractor and later opened a cooperative store and health program.

"Cooperative finance became both necessary and viable because it built strength from within," said Carl S. Brown, vice president of community engagement and strategic initiatives at Self-Help Credit Union, which is based in the Southeast U.S. "People trusted each other more than they trusted outside institutions. These were institutions where your neighbor was the treasurer, recording your deposit in a handwritten ledger and pulling the money from a kitchen drawer. People could see where their dollars were going and who they were helping."

There were also cooperative-style building and loan associations (or thrifts), which helped low- to moderate-income borrowers achieve homeownership.

Thrifts offered reasonable loan terms and conditions, and low interest rates and fees. Thrifts were more informally operated, easier to establish than banks and had fewer capital requirements.

Credit Unions Enter the Picture

The first U.S. credit unions were developed under state laws in the early 20th-century.

Black-founded and Black-serving credit unions emerged primarily in response to exclusion from commercial credit for businesses, and the need for small-dollar loans and savings for individuals.

These institutions operated similarly to credit unions today, and were designed as member-owned, not-for-profit financial cooperatives. The credit unions weren't race-restricted, but their membership reflected the communities that organized them.

In 1918, the Piedmont Credit Union was the first Black-founded credit union, and was created in North Carolina. The credit union's seed capital came from member shares, and the funds served Black farmers excluded from commercial credit. More credit unions were to come.

"In Richmond in 1936, at the height of the Great Depression, 10 Black teachers were denied access to mainstream banks because of segregation. Instead of accepting that barrier, they pooled their own money and formed the Teachers Federal Credit Union," Brown said. Now named Richmond Heritage Federal Credit Union, it is the last Black-owned financial institution in the city.

"They created a financial home where both their dollars and their aspirations were protected," Brown said. "Those educators understood that ownership is power. They built an institution that would stand with them when no one else would."

Black credit unions built systems based on collective strength, Brown said, using strategies including pooled savings for borrowing, character-based lending that focused on knowing the borrower, and partnerships with churches, schools and civic groups that provided trust, membership growth, and a built-in support network.

"These strategies were not just financial. They were cultural," Brown said. "They reflected a community committed to surviving together when the system gave them little to work with."

Credit unions grew alongside the Civil Rights movement of the 1950s and 1960s. "Civil rights and community leaders recognized the credit union cooperative model as a powerful vehicle to provide financial access denied by white banking institutions and the opportunity to build Black wealth through the recycling and reinvestment of capital within a community-owned institution," according to a report from Inclusiv (PDF), an organization committed to serving low- to moderate-income credit union communities.

But the benefits were personal, too. "You weren't just an account holder, you were an owner," Brown said. "You had a voice, a vote, and a stake in how the institution served you. That sense of shared ownership is what made these places powerful. They didn't just serve the community; they were the community."

Why It Still Matters

Today, there are 492 credit unions designated as Minority Depository Institutions across the U.S., according to the most recent NCUA report to Congress (PDF). These MDIs serve nearly a million people in communities of color, and represent over $88 billion in locally owned, community-controlled assets.

They play a key role in preserving wealth and expanding access to credit in communities that continue to face systemic barriers to financial services, according to the National Bankers Association.

"Independent Black-owned MDIs are more than historic symbols," Brown said. "They are practical tools for building wealth where the racial wealth gap persists."

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