Saturday, March 31, 2007

Van Ornum, Co-operation, IX

Twentieth Century, July 12, 1894, 7-8.

CO-OPERATION.—EUROPEAN CREDIT BANKS.—IX.

BY W. H. VAN ORNUM.

When a Raffeisen Loan Bank is to be started, a definite district is selected, commonly containing about 400 inhabitants. Within the limits of that district members are selected with great discrimination by those who have undertaken its formation, or who have already joined, the object being to secure a membership limited to the very best materials. No difference is observed between the rich and poor, except, that as the bank is based on the unlimited liability of its members, the well-to-do are generally accorded a leading part in the administration, because they must bear the brunt of the liability. A committee of five is elected which is charged with executive work of the institution. A council of supervision is also chosen, consisting from six to nine members according to the size of the district, to supervise the work of the executive committee and overhaul all that has been done at least once a month. Both the executive committee and the council of supervision serve without pay. The cashier is the only person who receives pay for his services; and he has no voice in the administration. The bank is strictly forbidden to transact any of the ordinary business of a bank. Originally there were no capital shares or entrance fees. But Bismarck insisted that the plan should include a share capital. The associations replied by placing the shares as low as ten or twelve mark, payable by installments. Raiffeisen insisted that there should be no dividends, but again Bismarck interfered. And again the associations practically annulled the chancellor’s edict. Every farthing that is left over is rigorously passed to the reserve, which slowly but steadily grows and forms a solid basis of credit for the association. Not even in the event of the dissolution of the association is any sharing out permitted.

Borrowing is not made easy, but hard. While money must he found for all who need it, in every case the borrower must make out a good case; prove that he is trustworthy, and that his enterprise is sound. If he does this, no matter how poor, the money will be placed at his disposal. Without such proof, no matter how rich, the money is sure to be refused. He must then apply the money strictly to the objects for which he received it. The smallness of the districts enables every one to act as a check upon every other. No one can misapply the money without others knowing it.

Every three months a complete review is made by the council of supervision. If necessary better security is called for from the borrower in the interests of the association. If not forthcoming the loan is called in at four week’s notice. This, however, is almost never resorted to. It is only an expedient which may be resorted to if necessary.

Lending is almost entirely done on personal character. Notes of hand are taken, generally unbacked, or else backed by one, or at most two.

In addition to the close supervision by disinterested officers of the associations, men who serve without pay, a corps of inspectors are kept travelling from one association to another examining books and accounts, and the workings of the associations.
The associations obtain money by borrowing it from banks and individuals; which they can do by reason of the confidence inspired by their strict business habits. They are able to get all the money they want at the lowest rates of interest. So great is the confidence inspired in the stability of these banks that the law courts actually allow trust funds to be paid to them on deposit. During the two critical periods of German credit; the war of x866 with Austria, and that of 1870 with France, when deposits were withdrawn at wholesale from other banks, deposits were actually pressed upon the Raiffeisen banks for safe keeping, although it should be without any interest at all.

With a record of millions of money lent, mostly to poor people, through a more or less complicated sys. tern of business in about a thousand associations, and extending over forty three years, there have been only ten cases of embezzlement or misappropriation of funds; and in every case these were met out of the reserve, or by the sureties. No wonder they command confidence; and no wonder they can obtain all the money they want for any length of time for productive purposes, as low as per cent per annum ! Unlike the Schulze-Delitzsch banks, loans are made for long time. The record shows that about 15 per cent of the loans are made for one year; 43 per cent from one to five years; 34 per cent for from five to ten years; and 8 per cent for a longer period. So long as a borrower continues regular in his payments, and applies his loan to the objects for which the money was granted he may be sure that it will go on.

These associations have led to other co-operative schemes, such as co-operative associations to insure cattle against disease; co-operative dairy associations; co-operative hop growers’ associations, and co-operative vine growers’ associations. These latter have doubled the receipts of the cultivators in many districts. Grapes are gathered and are taken directly to a common press, where they are immediately tested for sugar, and credited to the grower according to an agreed scale. By means of their credit associations they can pay cash down, only reserving a small balance to be paid at the end of the year. The result is, the wine is made pure and cheap. A move has lately been set on foot to establish co-operative wine shops for the sale of wine from co operative associations.

Like the Schulze-Delizsch, the Raiffeisen banks are based upon the principle of unlimited liability. This is essential to their very existence; but they introduce an element of safety wholly wanting in the first. Each being restricted to a certain district, and that too a small one, the members are kept, constantly in touch One with another; each acts as a check upon the other, and none can misuse the funds borrowed without the fact becoming known to the others whose interests would be imperiled. The workings of these banks has greatly raised the standard of personal character among the people. So greatly do they prize the memberships in these associations that they cultivate a very high degree of excellence in order to obtain them. Drunkards become sober; the indolent industrious; the improvident thrifty; and the ignorant and illiterate learn to read and write that they may become familiar with their business and reports. The meetings are well attended the members taking the liveliest interest in all their affairs. These Raffeisen banks have made character a realizable asset, tending directly to develop a higher order of character among the poor.

Another element of safety that must not be overlooked is, that the work of administration is performed without compensation. The offices offer no temptation for greed ; and the fact that men can be found to do arduous and responsible work of the highest quality without pecuniary compensation speaks volumes of promise for co-operation. The failures which have attended the Schulze-Delitzsch banks are all traceable to this one fault: the carelessness and greed of their officers which was stimulated by the payment of salaries and commissions. The contrast in the results of the two systems is so marked that no room is left for doubt as to their comparative merits. The Schulze-Delitzsch, while developing more rapidly, is far less co-operative and contains many more capitalistic features. Although it has enjoyed a large measure of public confidence it has encountered many signal failures; while the Raiffeisen system has never had one.

In Russia the credit associations have been thwarted and crippled by the vicious and meddlesome interference of the government, so much so as to almost destroy their usefulness. In 1883 there were reports of a thousand associations; but they were mostly nominal. They have since dwindled until it is doubtful if there are now as many as half that number, and they of no great use. If a member borrows for a specific purpose he may divert the funds to other purposes; and the government forbids the association to expel him, thus directly encouraging people to join merely to defraud the associations. Wherever government interferes in the affairs of the people, it always does it to the injury of the people.

It is reported that in some of the provinces of China there exists a form of mutual bank, whereby the people can easily obtain the means necessary for making improvements; but I have been unable to obtain satisfactory details of their plan and workings.

Co-operative credit has recently obtained a foothold in Japan also, with every prospect of success.

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