International inst. of iigriculture Systems of Rural Cooperative Credit Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019324668 62d Congress I cttinjattj' (Document SdSeBdon \ SENATE \ ^^_^^^ ^SYSTEMS OF RURAL COOPERATIVE CREDIT^ AN OUTLINE OF THE EUROPEAN COOPER- ATIVE CREDIT SYSTEMS FROM BULLETINS OF ECONOMIC AND SOCIAL INTELLIGENCE PUBUSHED BY THE INTERNATIONAL INSTITUTE OF AGRICULTURE HG 2041.162 ™" """'''"y Library ^ffiK,SJS»°SPeratfyecredit:ano PRESENTED BY MR. McCUMBER April 17, I9I2.— Ordered to be printed WASHINGTON . -^ GOVERNMENT PRINTING OFFICE 1912 Ha PREFACE. In September, 1910, the International Institute of Agriculture began the publication of its Bulletin of Economic and Social Intel- ligence. This bulletin is published once a month, and the greater part is devoted to a survey of agricultural cooperation in the various countries of the world. Some of the studies published in these bulletins have been col- lected in separate volumes, forming a series of monographs on agri- cultural cooperation. As repeated requests have been made to the institute for the collection, in a small pamphlet, of the most essential information concerning the Raiffeisen and other systems of rural cooperative, credit, the following outline of these systems has been compiled. It ! may be followed by others on the different branches of rural coop- eration. Rome, February 26, 1912. G. LORENZONI, General Secretary. SYSTEMS OF RURAL COOPERATIVE CREDIT. Inteoduction. Since the early part of the nineteenth century European farmers have been struggung against adverse economic conditions. Chief among the difficulties against which they have had to contend has been the competition of new countries of immense territory and virgin soil, which, owing to the improvement in the means of trans- port, have been able to flood the markets of Europe with agricul- tural produce. Even in the most perishable products the competi- tion has been severe, for the development of cold storage has enabled them to be brought to Europe from the most distant parts of the world. To make headway against this competition an economic trans- formation has been necessary, comparable to the transformation which has taken place in industry. The European farmers have accordingly reorganized not only their technical but their business methods. The new business methods, which have spread all over Europe and have been adopted even by the new countries (the United States and the British colonies), as well as by Asiatic countries, such as India and Japan, consist ia the main iu the applicatioji of coopera- tion and mutuaUty — combined efforts and the acceptance of mutual obligations — to the various branches of the business of agriculture, of which the following are the most important: (1) The provision of capital. (2) The purchase of agricultural requirements. (3) The preparation and sale of agricultural produce. (4) Farm insurance. It is with the application of cooperative and mutual methods to the provision of capital that we are here concerned, and we will endeavor to trace not only the principles of cooperative. credit, but the methods in which those principles have been applied in various countries. , The main principle underlyiog all forms of cooperative credit is that if a group of persons combine to furnish a collective guaranty they can, on the security of that guaranty, obtain money at lower rates of interest than they could obtain it individually. The collective guaranty may be that of real property. A number of landowners may obtain capital on the security of a collective mortgage of their lands. This is the basis of German Landschaiften, one of wie oldest forms of cooperative credit institrution. Or, again, the collective guaranty may be a personal one. A number of persons may obtain capital by making themselves jointly 4 SYSTEMS OF EXTBAL OOOPBBATIVE OEEDIT. responsible for its repayment. Such liability may be unlimited or limited. Unlimited liability is a fundamental part of the RaifFeisen system, but in the Schulze-Delitzsch system the hability of the membera of the group is usually Umited. Where the members are landowners the collective personal guaranty becomes indirectly a property guaranty. Upon 'such guaranties capital may be obtained in a variety of ways. In Germany the Landschaften issue bonds, but the Raiffei- sen banks derive their working capital mainly from the deposits they are able to attract. In France the rural banks depend mainly upon capital advanced by the State. In all countries the credit societies are able to obtain capital from the larger banking institutions or from the investing public. Having obtained the capital, the group of persons must be able to lend it to one another at a rate of interest only shghtly in excess of the rate which they pay collectively. This requires two condi- tions — (1) that the expenses of management shall be small in propor- tion to the business done, and (2) that the risk of loss shall be reduced to a minimum. Where the business is very large, the expenses are not propor- tionately high, even if the undertaking be conducted on ordinary commercial lines, as we shall see in the case of the Schulze-Delitzsch banks. Where, however, the business is small there must be no attempt to pay high dividends and the management must be largely voluntary. In the banks formed on the Raiffeisen system (which are individually small, though in the aggregate they do an enor- mous business) the payment of dividends is either prohibited alto- gether, or it is limited to a small percentage, while the management is almost entirely gratuitous. To reduce the risk of loans to members, many safeguards have been devised which are adopted to varying extents in the different systems. Where the members are landowners and can give mortgages of their property, it is only necessary to insure that the amount of the loan snail be fully secured by the mortgage, allowing for any possible depreciation in the value of the property. Loans on mortgage are, however, an inconvenient form of credit, where capital is only re- quired for a comparatively short period, and the following are the principal safeguards for loans given on personal security: (1) That loans are only made to members of the group and that only persons known to be trustworthy are admitted. (2) That membership is confined to persons residing within a smaU district and that, therefore, the members are personally known to one another. (3) That the members being mutually responsible, it will be to the interest of all members to keep an eye upon a borrower and to see that he makes proper use of the money lent to him. (4) That, in like manner, it is to the interest of all members to help a member when he is in difhculties. (5) That the borrower is required to find sureties or give other collateral security for the repayment of the loan. (6) That the borrower binds himself to apply his loan to a specific purpose which will bring in a monetary return sufficient to enable SYSTEMS OP EITEAl. COOPBEATIVE CREDIT. 5 him to repay the sum borrowed, to pay the interest charged, and to leave a profit for himself. It is not to be supposed that the whole of these safeguards are adopted in all cases. Loans, for example, are sometimes given on the borrower's mere note of hand, without any collateral security. The fixing of the application of the loan, again, is most' important where the borrowers are small cultivators unaccustomed to com- mercial methods, and is usually relaxed as their economic education becomes more advanced. We thus find it more generally insisted upon by the Eaiffeisen banks in Austria and Italy, where they are of more recent introduction, than in Germany, where the members have now become familiarized with the commercial uses of credit. We shall now see how these principles are apphed in practice. In the survey which follows of agricultural cooperative credit in various countries we shall begin with Germany, since it was in that country that the three most important forms of cooperative credit — the Raiffeisen banks, the Schultze-Delitzsch banks, and the Landschaf ten- were originated. We shall then deal with Austria and Italy, in which countries the systems adopted are mere modifications of the German systems, and it wiU only be necessary for us to indicate in what respects they depart from the German model. Then will follow chapters on France, where cooperative credit is based largely upon an elaborate system of State aid, and Belgium, where we shall note the existence of a form of organization not found in other countries. The last two chapters wiU relate to Great Britain and Ireland, where cooperative credit is not as yet highly developed, and to British India, where it has been promoted directly by the Government. Chapter" I. RURAL BANKS IN GERMANY— THE RAIFFEISEN SYSTEM. In the first half of the past century the small farmers and small artisans of Germany, who could not have recourse directly to cap- italists or to banks, suffered severely at the hands of the usurers from whom they procured the credit which was indispensable to the exercise of their business. The seriousness of the situation, rendered more acute by the economic transition which was taking place and was bringing with it a great and urgent need of credit, was clearly recognized by two men, who have deserved well, not only of Germany but of the whole civilized world, by devising and putting into practice thie best methods of remedying the evil. These were Frederick William Raiffeisen, burgomaster of Weyerbusch, and Francis Fred- erick Schulze, better known by the name of Schulze-DeUtzsch. The former was the originator of the rural cooperative banks, which have spread into all civilized countries; the latter of the urban popular banks. These two forms of cooperative banks, although somewhat dif- ferent in their organization, are based on the common fundamental principle of organizing the would-be borrowers themselves iu order that they may obtainDy combination the credit facilities which they would have sought individually in vain. Such cooperation has made possible, on the one hand, the collec- tion amongst the members themselves, in the form of shares or of 6 SYSTEMS OP BUBAL OOOPEBATIVE OEEDIT. small deposits, of a considerable amount of capital which serves to supply the credit requirements of their fellow members. On the other hand, the cooperative credit societies, being.regularly managed and subject to rigorous supervision, have been able to procure credit on favorable terms from outside sources of capital. The credit given by the Raiffeisen banks, which are rural in char- acter, and by the Schultze-Delitzsch, which are mainly urban, is usually personal credit. Although they occasionally grant loans on mortgage for long periods, they generally confine themselves to the making of loans for comparatively short periods (in the Raiffeisen banks usually for one year, with a maximum of three or five years; in the SchuIze-DeHtzsch banks, three or six months) on personal security or on the security of personal property. Loans on mortgage for long periods are, however, granted by another type of cooperative credit society, of which we shall have occasion to speak later, viz, the Landschaften and Ritterschaften. These are associations formed by landowners with the object of obtaining credit for land improvement by the issue of mortgage bonds. We shall describe in this chapter the organization and working of the Raiffeisen banks. ^ 1. Organization of the Rtjbal Banks. The fundamental principles of the Raiffeisen system are: (1) Unlimited liability of the members. (2) A restricted area of operations. (3) Gratuitous management. To these principles, which he wished to be always applied with the utmost rigor and without allowing any exception, Herr Raiffeisen added a body of moral and educational doctrines. In addition to the rural banks which foUow strictly the Raiffeisen principles, and are combined in a national federation with headquar- ters at Neuwied (now removed to Berlin), there have also arisen other organizations which, although adopting the fundamental ideas' of Raiffeisen, have not accepted the excessive strictness of his rules and have treated as superfluous the mystical doctrines which he had intro- duced into cooperation. The societies of this type, after having long hesitated between a separate organization and the Schulze- Deutzsch Federation, were finally collected under the guidance of William Haas into a separate national federation which had its head- quarters first at Offenbach and then at Darmstadt. The former of these federations became aflBJiated to the National Federation in 1904, and to indicate the rapid development of the rural banks we may here state that the number of societies embraced within the National Federation increased from 10j786 in 1904, with a membership of 954,000 and a total business (mcoming ajid out- goings) of 2,490,000,000 marks,* to 12,614 in 1909, with a member- ship of 1,163,000 and a total business of 4,456,000,000 marks. Certain differences (not, however, very serious) continue to exist' between the pure Raiffeisen banks and the societies established on less strict lines. We shall have occasion to speak of these differences > A mark is equivalent to 0.238 dollar or 0.0489 pound sterling BYSTEMS OP BUBAL. COOPEEATIVE CKEDIT, 7 in outlining, as we now proceed to do, the leading features of the or- ganization of the Raiflfeisen banks. The statements are based upon the reports of the National Federation and the figures relate (except where the context otherwise indicates) to the year 1909 and to the 12,614 rural banks embraced within the National Federation in that year. Memhership. — The members are farmers, usually peasant-pro- prietors. The 12,614 rural banks existing in 1909 numbered in all 1,163,186 members; that is, an average of 92 members per bank. The number of members per bank vanes considerably, however, in different regions, the highest average being in WestphaUa, where it reaches 160 members per bank. The mmimum number required by the legal constitution of the banks is 7, and some of the re- cently formed banks have exactly this number of members. The highest number of members contamed in any one bank is 1,400, but this is a very exceptional case. Liability. — The principle maintained by Raiffeisen was that of the unlimited joint and several liability of the members. Whilst for other forms of rural cooperation the system of hmited habUity s increasingly adopted, the system of unlimited liability is still re- garded in Germany as the system best adapted to rural cooperative credit. Of the banks existmg in Germany 92 per cent are based upon unlimited liabihty and about 8 per cent upon limited UabUity. A fractional percentage of the banks were based upon an interme- diate system, known as the system of unlimited habUity to make sup- SJiares. — Kaiffeisen commenced by excluding shares altogether, in order to avoid any danger of capitalistic speculation and, in fact, up to 1876 none of his banks had shares. Being obliged in that year to comply with the imperial law which compelled cooperative societies to have foundation capital, he sought to evade the law as far as possible and fixed the shares at a maximum value of 10 marks. The Darmstadt Federation, on the other hand, recommended comparatively large shares, but in no case higher than 600 marks. In very few cases, however, does the value of the share exceed 100 marks. In 1909 the average paid-up capital per member amounted to 19 marks. But in this regard also there are great differences as between different regions. The necessity of forming a foundation capital is, in fact, not so great in the case of the exclusively agricultural banks, the operations of which are guaranteed by the l&,nds of the members, as in the case of banks whi(3i can only offer a personal guaranty. Thus in Rhenish Prussia and Hesse, which are mainly industrial, the average paid-up share capital is respectively 103 and 86 marks, while, on the otherTiand, the average is lowest m other regions, such as WestphaUa and Oldenburg, where it hardly reaches 4 or 6 marks. In the societies where the liabihty is unlimited a member can not take more than one share ; in societies with limited liabihty, however, he may take many. The value of the shares and, in the latter case, also their number are fixed by the rules. The shares are repayable to the members upon withdrawal from the society, and interest is paid upon them at a rate which must not in any case exceed the mterest which borrowers pay upon loans from the society. 8 SYSTEMS OF KUBAL COOPEKATIVB CREDIT. Entrance fees. — ^The pure Raiffeisen system does not admit of any entrance fees, as being contrary to the lofty conceptions of mutual responsibility which mspired Raiffeisen's propaganda. Raiffeisen wisned that his banks should be open to anyone who required to have recourse to them. The Darmstadt Federa,tion, however, allows small entrance fees, which are immediately carried to the reserve fund. Area of operations. — ^Another fundamental principle of the RaifiFeisen system is that the area of operations should be limited to a commune or a parish. The system of the rural banks is, in fact, founded on mutual confidence and collective liabiUty ; 'the members must not only know each other personally but must also be able to see from day to day the manner in which their money is employed. _ MaTMgement. — ^The organization of the rural banks being, so to speak, familiar and friendly, their management is very simple. The administrative functions are divided between the committee of man- agement, the council of supervision, and the general meeting. The executive work is carried out by the treasurer, who is often the only employee of the bank, and in any case is responsible for the work of the other employees. The general meeting appoints the committee of management, the council of supervision, and the treasurer. The conduct of the business is intrusted to the committee of management, upon which often sit the best educated persons of the district, such as the schoolmasters or priests; for these, however, actual farmers are being more and more substituted. The committee of management usually give their services gratui- tously. This, too, is one of the principles of the pure Raiffeisenism, which, however, permits in any case the remuneration of the treas- urer.* The Darmstadt Federation also allows the committeemen to be paid for their services when the business of the bank is fairiy large. tn. 1909 the expenses of management amounted, on the average, to the modest sum of 638 marks per bank. Here, too, one finds marked differences between the various federations. In Ermland, in East Prussia, and in West Prussia the average expenses of management are rather high, ranging from 1,200 to 1,400 marks. The lowest average is found in the tipper Palatinate, where it is 244 marks. If again we consider the general expenses in proportion to the total business done (i. e., the sum of the incomings and outgoings), we find an average percentage of 0.18, with a maximum of 0.63 per cent in the Nassau Federation (Frankfort on Main) and a minimum of 0.04 per cent in Schleswig-Holstein. ' 2. The Business op the Rural Banks. Let us now examine first.the sources from which the rural banks draw their working capital and then the methods of advancing the capital so obtained to their own members. We shall thus follow the complete cycle according to which the business of the rural banks is conducted. Working ca^tal. — ^The capital' which the banks have at their dis- posal for making loans to their members is composed of the shares paid up by the members, the reserve fund accumulated in previous years, the savings deposits and deposits on current account, and, lastly, the sums which the bank procures by means of loans from cen- tral cooperative banks, other banks, or private individuals. SYSTEMS OP BUBAL OOOPEBAUVE CBEDIT. 9 In the balance sheet, the working capital is approximately the same as the total liabilities. It is true that in the total liabilities are also included items, such as bills issued, which appear in equal amounts on both sides of the balance sheet, and figures relating to certain opera- tions (e. g., property deposited, payments, etc.) which are not part of the capital at the disposal of the bank. However, not being able to eliminate such items, and taking into consideration that they are comparatively unimportant in the case of the rural banks, we can consider the working capital as being roughly equivalent to the total liabihties. The total liabilities amounted in 1909, for the whole of the German Empire, to 1,900,000,000 marks, being an average of 153,000 marks per bank and 1,664 marks per member. These averages varied between rather wide extremes. The average per bank reached almost half a million marks in the Ermland Federation, while it was as low as 67,000 marks in the Grand Duchy of Baden. The average per member was highest in Rhenish Prussia (the Bonn Federation) where it reached 3,000 marks, and lowest in the Grand Duchy of Baden, where it was 700 marks. Let us now analyze the total working capital according to the items which compose it: Percent- age of the total. Share capital.. Deposits cm current account.. Savings deposits Other UabUiMes Total working capital . . 22,358,433 60,981,069 189,077,842 1,455,618,456 217,487,462 1.2 2.6 .9.8 15.2 n.2 '1,935,623,262 100.0 1 1461,089,632, or £94,744,821. . Under the head of "Other liabilities" are included, besides other items, the sums which the b^nks have procured by loan^ from banks and individual capitalists. The share capital together with the reserve funds form the banks' own capital; the remainder is capital from outsicie sources. Follow- ing this simpler classification we find that the former amounts to 73,339,502 marks, or 3.8 per cent of the total, and the latter to 1,862,183,760 marks, or 96.2 per cent. These figures suggest some interesting considerations. We see, first of aU, that the rural banks succeed m carrying on an enormous business on the foundation of an extremely slender capital. The current accounts and savings deposits furnish, however, the greater part of the working capital, viz, 85 per cent of the total. As against this the loans from third parties only form a relatively small figure, which demonstrates the capacity of the rural banks to provide, for the most part, by the ordinary means, for their operations without having recourse, to too great an extent, to loans from outsiders. Out of nearly 2,000,000,000 marks placed at the disposal of the farmers., only 11.2 per cent was furnished by outsiders, while 88.8 per cent was provided by the savings and deposits of tho farmers themselves or of the local public. 10 SYSTEMS OF EUEAX. COOPEBATIVB CiKEDIT. To the capital of the society we have referred when speaking of the shares; of the reserve fund we shall speak when dealing with the distribution of the profit. We need only remark here that the capital obtained from outside sources is 25 times as large as the societies' own capital (share capital and reserve). This proportion is generally considered too high. There is a tendency, therefore, at present to increase the value of the shares, raising it to 50 or 100 marks, in order to provide the rural banks with a wider margin to cover possible fluctuations in the deposits. In regard to the deposits it should be noted that savings deposits may be made either by members or by nonmembers, but that deposits on current account can only be made by members. In 1909 the savings deposits averaged 115,000 marks per bank. In the various federations this average reached a maximum of 447,000 marks in the Ermland Federation and was lowest in Federation of Alsace-Lorraine, where it was the 43,000 marks. The averages of the deposits on current account were lower, being 22,905 marks per bank and 247 marks per member. The highest averages were found in the Grand- Duchy of Hesse, viz, 84,466 marks per bank and 684 marks per member, and the lowest in the Federation of Posen (No. II) and in the Raiffeisen Federation of Alsace-Lorraine, being respectively 4,398 marks and 4,643 marks per bank and 49. marks and 27 marks per member. We have said that 11 per cent of the working capital is drawn from outside sources. These include the central cooperative banks, the banking institutions and the private individuals with whom the rural banks contract debts by means of banking operations. Since the development of the central banks, however, the business of this kind with other banks or with private individuals has greatly dimin- ished. It will be more convenient to speak of the business done with the central banks when we are dealing with these latter, but we may here remark that since the working capital of the central banks is formed to a large extent by the funds received from the local rural banks the proportion of the money provided by the farmers them- selves to be employed in loans for the benefit of agriculture is really even larger than would appear from the figures previously given. The granting of ham, etc. — The business of the banks consists, for the most part, in making advances to members. Surplus money is deposited with the central banks or invested in bankmg operations with third parties. With regard to the loans to members, we wUl speak first of their character and then of the security upon which tney are made. The rural banks make loans of two kinds, viz, loans on current account and loans for fixed periods. At the end of 1909 the loans to the members outstanding were thus classified: Marks. Percent- age of total. Loans on current account Loans tor fixed periods I..""!II^!I"!!! 425,995,403 1,082,446,388 28.3 71.7 Total loans outstanding ,.... 1,508,441,791 SYSTEMS OP EXJEAL COOPEKATIVE CEEDIT. 11 The loans on current account were, therefore, about ia, third of the total loans. In all the banks there is a tendency to extend the practice of g;iving loans on current account. This is generally the most convenient form of loan for the members, for whom the small rural bank serves as banker, just as the great banking institutions do for the merchants and manufacturers of the city. But this form of loan requires a higher economic education ia the members and more advanced social conditions. The members guarantee the fulfillment of their obligations to the bank by finding sureties, by the deposit of valuables (share certifi- cates, etc.), by giving a mortgage or by their mere promise. The finding of sureties is the form of security usually preferred. The period of the loans varies from six months to two or three years and even more in exceptional cases. Various other arrangements have been thought out to diminisb the risk of the loans granted by the rural banks. Thus, for example, the law relating to cooperative societies lays it down that the general meeting shall & the maximum limit beyond which loans must not be made to the members, whatever may be their financial position or whatever the security offered. The principal safeguard, however, for the success of the rural banks lies in their very constitution. The limited area of operations and the nature of rural life make it possible for each member to keep an eye upon the affairs of his fellow members, in which, "moreover, he is directly interested, so that he can easily judge at any moment of their solvency and of the manner in which they are utilizing the money obtained from the bank. Profits. — The object of the rural banks is to give credit to their members on favorable terms and not to make a commercial profit. The Raiffeisen system, accordingly, does not admit of any dis- tribution of dividend, aJl the profits realized being carried to the reserve fund or to the creation of institutions of public utility. The Darmstadt Federation, on the other hand, allows a distribution of dividend on the shares, which, however, must not exceed the maxi- mum rate of interest charged to borrowers. In 1909 the net profit realized by the rural banks was more than 7,000,000 marks. This is sufficient evidence of the flourishing con- dition of these institutions. Of this enormous profit only a small fraction was distributed as dividend. In no case, in fact, did the dividends distributed exceed 4 per cent of the paid-up shares, and in many cases no dividends at all were distributed. In this manner the banks are continually strengthening their financial position. This is demonstrated by the steady increase of the reserve funds. In a single year, from 1908 to 1909, the aggregate reserve fund was in- • creased by 7,000,000 marks, while the profits realized at the end of 1908 were about 8,000,000 francs. Thus seven-eighths (that is, 87 per cent) of the profits made in that year were carried to the reserve. 3. Statistics of the Eural Banks. The following statistics wiU show, better than it can otherwise be indicated, the great development in Germany of the rural banks, which were so modestly initiated in 1862. 12 SYSTEMS OF ETJEAL COOPERATIVE OEEDIT. We give first a table relating to the number of banks legally estab- lished m Germany, as shown by their registration in the Gazette of the Empire. Table I. — Number of rural banks in Germany cm June 1 in each year from 1890 to 1910. Year. Number. Year. Kumber. 1890 1,729 2,134 2,647 3,040 3,850 4,872 6,391 7,612 8,595 9,208 9,793 1901 10,487 1891 1902. 11,121 1892.. 1903 11,750 1893 : 1904 12,477 1894 1905 13,181 1895 1906 13,635 1896 1907 •.. 14,096 1897 1908 14,709 1898 1909 15,158 1899 1910 15,517 1900 We now give some figures showing the business done by the 12,614 rural banks embraced in the National Federation in 1909. It should be noted that while the figures in the preceding table are derived from information which the societies are bound by law to publish, the following figures are privately collected by the federations (of which we shall give an account presently) and, more particularly, by the National Federation. Table II. — Business done by the rural banhs in 1909, Aggregate figores. per bank. Number of banks of whicb particulars are given. Membership Total business done (incomings and outgoings). Total liabilities Paid-up share capital Reserve funds Deposits In hand at end of year Loans outstanding at end of year Loans granted during the year 12,614 1,163,186 Marks. ■ 14,456,161,532 1,935,523,262 22,358,433 50,981,069 1,644,696,298 1,508,441,791 '901,227,744 Marks. 353,271 153,442 1,773 4,042 130,387 119,584 '71,446 1 »1,061,568,167, or £218,131,310. « J214,694,794, or £44,115,544. 4. The Federations and Central Institutions of the Rural Banks.* • The rural banks felt from the beginning the need of combination amongst themselves for common purposes. The need was twofold. On the one hand, a common organization was required to direct the movement and to gjve it imiformity; on the other hand, there was need of central institutions which might equalize the need of credit of the individual banks, supplying them with money when required and employing their surplus funds. 1 We adopt hrae a distinoHon which Is not in general use in English. The word "federation" will be employed to indicate a central organization of cooperative societies for such purposes as propaeanda educ^ tlon, supervision and mutual defense. By "central Institution" we shall mem a central organization of cooperative societies for business purposes. u.6i»iui.auuu ui SYSTEMS OP RtTEAIi COOFEBATIVE CBEDIT. 13 For the first of these objects the federations were formed; for the second, the central institutions. (a) The federations. — The federations of cooperative societies are unions formed for propaganda, education, and mutual defense. They embrace not only rural credit societies, but rural cooperative societies of every ktad. We have already mentioned the existence of two great federations which embrace the whole Empire within their sphere of operations — the Federation of Agricultural Cooperative Societies, with head- quarters at Neuwied, foimded by Raiffeisen in 1877, and the National Federation of German Agricultural Cooperative Societies, which was foimded in 1883, and has its headquarters at Darmstadt. For a long time these led a separate existence, each propagating its own ideas; sometimes, too, there was hostility between them. Finally, in 1905, the Neuwied Federation became aflOIiated to the National Federation of Darmstadt. There is now, therefore, a single organization, the National Federation of Darmstadt, which einbraces a very large majority of the German agricultural cooperative societies, it con- tained on June 1, 1910, no less than .18,962 cooperative societies, including 78 central cooperative societies, 12,894 cooperative credit societies, 2,077 cooperative distributive societies, 2,028 cooperative dairies, and 1,885 cooperative societies of other kinds. The national federation is, in reality, composed of provincial federations. In fact, only five cooperative societies, of which four are central institutions, are directly aflBliated to the national federa- tion, while all the rest are indirectly attached to the national federa- tion by being aflBliated to the respective provincial federations. These are federations which embrace the cooperative societies in a defined portion of the territory of the Empire, and which, although aflSliated to the national federation, enjoy a large degree of autonomy. Besides the work of instruction, organization, and propaganda, they fulfill the very important function of inspection, assigned to them by the law of 1889. For this purpose they employ iaspectors, who, by frequent visits, supervise the management and the conduct of the business of the affiliated societies. To indicate the importance of the provincial federations, it is sufficient to say that of the 23,845 rural cooperative societies existing in Germany iu 1910, no less than 21,830 (i. e., 92 per cent) were organized iu federations. The number of provincial federations affiliated to the national federation is 41. Besides these, there are some independent federations which embrace a limited number of cooperative societies and of which the most important is the Federa- tion of Wurtemberg, containing 1,383 cooperative societies in 1908. (6) Tlie central hanks. — As we have already indicated, the second method of centralizing rural banks and cooperative societies in general is the formation of central banks. Between these and the federations there is no confusion of functions, but they mutually support one another. The central banks imdertake the provision of capital for the rural banks and the utiUzation of their surplus funds, when they have any, always keeping in touch with the corresponding federation, to which they are usualy linked by the fact that the same persons manage the business of both institutions. Further, the central banks, as a rule, only admit cooperative societies which already belong to the federation of their province. 14 SYSTEMS OP BURAL COOPBBATIVE CBEDIT. The provincial central banks are cooperative societies with limited liability. The Bank of Darmstadt alone is a company with liability limited by shares, having been founded before the law of 1889 allowed the formation of central cooperative societies composed of other cooperative societies. El 1910 there were affiliated to the national federation 36 provincial central banks, of which 35 were distributed throughout the various regions of Germany, and one was in the German colony of Southwest Africa. Speaking broadly, it may be said that the central banks fulfill the same functions foir the rural banks which "the rural banks fulfill for their members. As in the case of the rural banks, the^working capital is furnished by the share capital, by the deposits of the cooperative societies, and by the sums which they procure by loans from the general central banks, or the Prussian Central Bank (of which we shall speak presently) and from other banks, or private bankers. In like maimer as we have seen in the case of the separate rural banks, the most important part of the working capital is formed by the deposits of the members. This is clearly shown by the following tabie, which indicates the working capital of the provincial central banks at the end of 1909: Marks. Percent- age of total. Faid-up capital Beserve funds ; Deposits of the members -. Loans from the general central banks and the Prussian Central Bank Loans from other banks or from private individuals and liabilities in respect of bills...... „ other items Total 21,493,532 4,321,S0O 137,345,775 19,047,687 28,616,979 1,990,123 8.2 1.6 71.3 7.2 10.9 .8 •262,815,596 100.0 1 $62,609,191, or £12,864,953. From these figures we see that of the working capital of the provin- cial banks 9.8 per cent is formed by the funds of the banks themselves (share capital and reserve), 71.8 per cent by deposits, and 18.9 per cent by loans contracted with third parties. If we compare these per- centages with the correspoading figures for the rural banks, we shall see that the funds of the banfe themselves, though representing in both cases only a small proportion of the total available capital, is appreciably higher in the central banks than in the rural banks, while the proportion of the deposits is less and of the loans from third par- ties greater. Accordingly the central banks, by regulating the rate of interest, endeavor to increase the amount of the members' deposits, and thus to lessen the necessity of having recourse to outside sources of capital. The central banks utilize their working capital in making loans to the cooperative societies either in the form of advances on current account or of loans for fixed periods. The first kind is by far the most usual, unlike what we have seen in the case of the rural banks. This is explained by the fact that the central banks are dealing with economic organisms which are more developed and, therefore, better Systems of kukal cooperative credit, 15 adapted to this more advanced form of credit. At the end of 1909 the provincial central banks had about 182,000,000 marks outstanding on loan, pf which 173,000,000 marks (that is, 95 per cent) were loans on current account and 9,000,000. marks (5 per cent) loans for fixed periods. The remainder of the capital was invested in securities or m discounting bills of exchange, or deposited with the general central banks or with other banks or private bankers. Besides the provincial banks of which we have spoken, there are also two general central cooperative banks which^ unlike the provin- cial banks, have a sphere of operations which is not limited to that of a provincial federation, but extends over the whole Empire. These are the Central Agricultural Loan Bank of Germany, with headquar- ters at Berlin, which was founded hj Raiffeisen in 1876 and until recentlj*- had its headquarters at Neuwied, and the National Bank for Cooperative Societies, with headquarters at Darmstadt, established in 1902 by the national federation. Both of these banks are com- panies with HabUity limited by shares. The Darmstadt Bank deals almost exclusively with the 36 provin- cial central banks. To the Berlin Bank, on the other hand, are afiiliated 4,399 rural banks of the pure Raiffeisen type scattered over the whole of Germany. The loans granted to members amounted, in the case of the Berlin Bank, to 74,600,000 marks (of which 2,000,000 were loans for fixed periods) and in the case of the Darmstadt Bank to about 11,000,000 marks, all being loans on current account. The following table gives aggregate statistics of the provincial banks and separate statistics of the two general banks for the financial year 1909: Table III. — Business done by the provincial banks and the two general banks in 1909. Aggregate figures for the proviacial banks. National Bank lor Cooperative Societies (Darmstadt). Central Agri- cultural Loan Bank of Ger- many (Berlin).' Aggregate figures for provincial and general banks. Number of banks of which particulars are given Uembersbip.'. Sum guaranteed by the liability of the members Total business done (incomings and outgoings) Total liabilities Paid-up share capital , Reserve funds ■. Deposits from local cooperative societies in hand at end of year Loans to local cooperative societies out- standing at end of year : Loans granted during the year 10,987 Maris. 266,830,500 4,913,786,468 262,815,596 21,493,532 4,321,500 187,345,775 182,503,114 732,715,881 1 50 Marks. 5,000,000 836,082,752 17,658,896 5,000,000 8,602 9,922,413 10,703,101 191,479,143 1 4,399 Maris. 8,581,000 787,206,739 91,523,183 8,581,000 712,416 80,379,645 74,673,826 15,436 Maris. 280,411,500 16,537,076,959 371,997,675 35,074,532 5,042,518 277,647,833 267,880,041 '924,195,024 1(1,557,293,580, or £319,993,100. ' The amount of the loans granted by the Central Agricultural Loan Bank of Germany is not stated in the statistics published by tm national federation. ■ Exclusive of the amount of loans granted by the Central Agricultural Loans Bank for Germany. J22a,- 196,170, or £45,239,803. 16 SYSTEMS OP EXniAIi COOPERATIVE CBEDIX. Chapter II. POPULAR BANKS IN GERMANY— THE SOHULZE-DELITZSCH SYSTEM. The rural banks and their central banks are not the only coopera- tive societies in Germany which provide agriculture with personal credit; we must also take account of the popular banks on the Schulze-Delitzsch system.' These banks, which were formed before the rural banks and served as models for the first banks founded by Kaiffeisen, assisted largely at the beginning of the cooperative movement to combat usury, even in the country. Even now, notwithstanding the great development of the rural banks, they are largely utilized by farmers, many of whom belong, as we shall now see, to the banks themselves. While Kaiffeisen adapted , cooperation to the needs and to the mental attitude of the farmers, Schulze-Delitzsch devised organiza- tions specially suited to the needs and economic character of town- dweUers. The Schulze-Delitzsch banks have, therefore, unlike the rural banks, a large range of business in an extended area of opera- tions; they accumulate a considerable quaiitity of capital and they distribute fairly high dividends. They do not follow the principle of unpaid management; on the contrary, their management is rather costly and is conducted on strict business lines. They are very often based on limited liability and they carry on a series oi banking opera^ tions which the rural banks only undertake exceptionally, u at all. In fact, their business approaches more closely than that of the rural banks to banking business properly so-called. The greater nymber of the Schulze-Delitzsch banks are aflBliated to a general federation, of which we shall speak in due course. The number of banks affiliated to this federation increased from 904 in 1901 to 939 in 1910, while the membership increased during the same period from 527,000 to 600,000; the loans granted in 1901 amounted to 2,525,500,000 marks, while the loans granted in 1910 amounted to 4,015,900,000 marks. There exist also a certain number of independent banks, unattached to the federation. Of 1,035 banks which furnished particulars of their working in 1910 to the federation 939 were aflSliated to the federation and 96 were independent of it. The particulars which follow refer exclusively (except where otherwise indicated) to the 939 banks affiliated to the federation. 1. Organization op the Popui-ar Banks. There are marked differences between the popular banks and the rural banks, both in regard to the character of the members and to the size of their shares. Membership. — The average membership of the popular banks in 1910 was 639, a figure considerably higher than the average for rural banks. 1 We employ the expression "popular banks," although this is not the title usually adoirted in Germany, where they are known as "savmgs and loan banks." English writers usually describe them as "urban banks," but we avoid this title, as we are considering the banks in relation to agriculture. The title " pop- ular banks," given in Italy to the Luzzatti banks, seems equally appropriate for the Bchulze-Delitzscb baala upon wnlch the Luzzatti banks were modeled. SYSTEMS OF BTTEAL COOPEBATIVB CEEDIT. 17 Whilst the rural banks draw their members exclusively from fanners, the Schulze-Delitzsch banks include members of various occupations. This is, indeed, a fundamental principle of the system, which regards an equitable representation or the various occupations and social classes as a factor making for the stability and prosperity of the popular banks. in the following figures are shown, by percentages, the different classes which composed the membership of the popular banks at the endof 191(): 1. Independent agriculturists (farmers, etc.) 26. 57 2. Wage-earning agriculturists (laborers, etc.) 2. 41 3. Artisans... 23.03 4. Merchants, manufacturers, etc 19. 72 6. Workmen, apprentices, and wage earners generally 10. 55 6. Professional men, civil servants, clerks, etc 8.93 7. Persons living on pensions or possessing independent means 8. 79 100. 00 The class most largely represented are the independent agricul- turists, who are usually farmers cultivating smaU or medium-sized holdings. Next come the artizans. These two classes together fur- nish about half the total membership. Considering the members from the point of view of social status, we may say that the popular banks contain principally persons belonging to the lower middle classes, without, however, excluding either the working classes or the persons who, like civil servants, manufacturers, etc., occupy a higher economic and social position. Liability. — ^In 1910, out of a total of 939 banks, 567 (that is, 60.3 per cent) were based on unlimited liability and 372 on limited liability. Although the system of limited liability is steadily increasing, unlimited liability is still considered the best system on which to establish popular banks in districts which are not yet famihar with cooperative credit. Shares. — ^The shares of the members are, as we have already remarked, rather high. The general congress of the popular banlis of 1896 recommended that the shares should be at least 300 marks. A subsequent congress recommended for banks with limited liability a minimum of 500 marks, limiting the liability of the members to three times the amount of the shares. At present the average share capital per member is 360 marks, but there is a constant tendency to increase it. In 1882 the average was 223 marks, increasing successively to 226 marks in 1892 and to 276 marks iri, 1902, finally reaching the present figure. It may be anticipated that this tendency will continue in the future, in view of the desire to insure for the popular banks a greater stability and independence. 2. The Business of the Poptilae Banks. Working capital. — ^The aggregate working capital of the popular banks was nearly 1,500,000,000 marks at the end of 1910, giving the truly remarkable average of 1,500,088 marks per bank. This average, which shows the financial importance of the popular banks, is the result of a continuous upward movement. In 1886 it was only 617,000 marks; in 1898 it rose to 800,000 marks and in 1902 it reached the S. Doc. 574, 6a-2 2 18 SYSTEMS OF RURAL COOPERATIVE CREDIT. million. In the last 20 years the aggregate funds at the disposal of the popular banks has therefore been trebled. Examining the sources from which these funds are derived, we find the following figures in 1910: Marks. Percent- age. 216,330,103 94,187,564 1,146,014,688 14.8 6.5 78.7 Total working capital . ................... 11,455,532,359 100.0 1 1346,743,897, or £71,249,028. The proportion of the banks' own funds (21.3 per cent) is there- fore appreciably higher than in the case of the rural banks. The sources of information at our disposal do not distinguish between the funds derived from deposits and those obtained from third parties. The sum stated as capital obtained from outside sources" mcludes, therefore, the savings or deposits on current account as well as the sums which the banks obtain from other institutions or from private individuals by contracting loans at sight or for fixed periods against acceptances or mortgages of their property. BanTcing operations. — Speafing broadly, the Schulze-Delitzsch banks carry on every kind of banking business. Their primary object is, however, that of granting loans for short periods to their members. For this purpose they used 4,000,000,000 marks in 1910, of which at the end of the year 1,200,000,000 marks were still outstanding. In regard to the period of the loans, we find that of the sums advanced during the year 41.5 per cent were on current account. The remainder was lent for fixed periods by means of discounting bills of exchange or giving loans on pledge or on mortgage. This last form of loan is, however, from the very nature of the popular banks, comparatively rare; at the end of 1910 the loans on mortgage amounted to scarcely 10 per cent of the total loans granted. Where special guaranties, such as pledges or mortgages, are not fiven, the loans are guaranteed by sureties or by acceptances, sureties eing usually preferred. A small number of loans are granted with- out guaranty of any kind. Surplus funds are deposited with other institutions or invested in securities or first-class oills (bankers' acceptances), which represent the safest means of realization in case of any unforeseen eventuality. At the end of 1910 the popular banks possessed 61,000,000 marks deposited with other institutions, 98,000,000 marks in securities, and 22,000,000 marks in first-class bills, making a total of 181,000,000 marks of easily realizable assets. They also possessed 51,000,000 marks in real property, including office buildings and property acquired as the result of loans not repaid. Profits and Zosses.— The gross profits realized in the year 1910 amounted to more than 76,000,000 marks. Of this sum, 43,000,000 marks was required to pay the interest on the capital obtained from outside sources. The gross profit represented 5.23 per cent of the worldng capital; the sums paid, however, by way of interest on the SYSTEMS OP EUEAL COOPEBATIVE CREDIT. 19 capital obtained represented only 3.76 per cent of the working capital. The popular banks have therefore been able to procure the funds which they employ at a rate which is not too high, and to realize a moderate margin of interest. From this margin must stiU be deducted the management expenses, which exceeded 12,000,000 marfe. This was equivalent to 16.51 per cent of the total gross profits and to 0.09 per cent of the total business done (incomings and outgoings) . The net profit available for distribution, after deduction of interest on borrowed capital, depreciation, and the various losses, exceeded 18,000,000 marks, representing 8.6 per cent on the share capital." The greater part of the net profit was distributed as dividend; the remainder was carried to the reserve funds, or, to a small extent, devoted to objects of public utility. The rate of dividend distributed varies considerably from bank to bank, ranging generally from 5 to 7 per cent of the paid-up share capital. There were, however, 19 banks which distributed a dividend of more than 10 per cent and 1 in which a 25 per cent dividend was paid. 3. Statistics of the Populab Banks. The popular banks for which statistics for the year 1910 are' avail- able are shown in the following table: - Number of banks. Number of members. Number of members who have taken part in the credit business. 939 96 600,387 44,965 368,649 23,394 Not fl.fTfiiifLtfirl to t>Te- TiitJonHl ffidpration Total 1,035 645,342 382,043 — iiL — . ... . — It is worth noting how these banks really apply cooperative prin- ciples in relation to their members. More than half of the members took advantage, during the course of the year, of the credit facilities which they offered. The following table contains particulars of the business done by the popular banks in the year 1910: Table IV. — Business done by the •popular hanks in 1910. Banks affiliated to the national federation. Banks not affiliated to the national fed- eration. Total. Total business done (incomings and outgoings) Total liabilities Paid-up share capital Eeserve funds Loans outstanding at end of year Loans granted during the year Jfarfcs. 12,912,128,660 1,477,195,299 216,330,103 94,187,664 1,201,862,882 4,015,920,815 Marlia. 654,053,803 100,338,847 19,413,932 6,523,311 83,907,985 175,841,173 Maris. > 13, 566, 182. 463 1,577,529,146 235,744,035 .99,710.876 1,286,770,867 24,191,761,988 > {3,231,801,035, or £664,071,333. ■$998,681,640, or £205,188,822. 20 systems op bttral. coopbeativb credit. 4. Federations and Central Institutions of the Popular Banks. • (a) FederatioTis. — The great majority of the Schulze-Delitzsch banks are affiliated to provincial federations (32 in number), which in turn are affiliated to the General Federation of German Cooperative Societies, The provincial federations include besides the urban cooperative credit societies cooperative distributive societies, cooperative produc- tive societies, and cooperative building societies. In 1911 the federa- tions embraced 1,514 cooperative societies, of which 973 were credit societies, 290 distributive societies, 63 productive societies, and 188 building societies. (6) Ventral institutions. — ^For the popular banks the need of central banks has not been felt so strongly as for the rural banks. The popu- lar banks have, in fact, by their very nature, greater facilities for obtaining access to the open money market, and the promoters of the movement even hold that to be bound closely to specific central banks would be a hindrance rather than an advantage to the development of their business. Up to now three provincial federations have estab- lished central banks. These banks are companies with limited lia- bility. Their importance is not great. To equalize the funds of the popular banks there exists a special sec- tion of a private bank, the Dresden Bank, with which the cooperative societies have current accounts so as to facihtate the movement of their funds and to equalize the various debits and credits. The same institution also serves to facilitate the cashing of biUs and checks, which are immediately honored and credited to the respective accounts. In the year 1910 the total value of the biUs cashed was 748,000,000 marks. Chapter III. THE PRUSSIAN CENTRAL BANK FOR COOPERATIVE SOCIETIES AND OTHER STATE BANKS IN GERMANY. We have had occasion to refer to the Prussian Central Bank. This bank, which itself is in no wise cooperative, is a State institution which serves not only the rural cooperative societies, but also the popular banks and the savings banks. Founded by the law of July 31, 1895, it received from the Prussian Government an initial foundation capital of 5,000,000 marks, which has been successively increased to 20,000,000 marks in 1896, to 60,000,000 marks in 1898, and finally to 75,000,000 marks in 1909. This capital has been furnished by the State bymeans of the deposit of Prussian consohdated stock at 3 per cent. The affiliated banks can further contribute to the increase of the foundation capital by taldng shares. Although placed under the direct control of the State, the bank is an independent corporate body, with its own administration, com- posed of a committee of management, aj)pointed for life by the King, assisted by a council of experts, consisting of representatives of the cooperative societies, chosen by the King. The functions of the coun- cil of experts are merely consultative. The object of the bank is to provide working capital for the follow- ing institutions: SYSTEMS OF BTTEAL COOPERA.TTVE CREDIT. 21 (1) Central banks (not for the cooperative societies separately) of any kind of cooperative societies legally established; not only, there- fore, for the provincial or general central banks of the rural banks, but also of every other kind of cooperative society. (2) The loan banks attached to the cooperative land credit insti- tutions (landschaftliche Darlehenskassen). (3) The provincial or communal personal credit institutions. (4) The public savings banks. From all these institutions the bank also receives deposits on cur- rent account or savings deposits. At the end of 1909 the bank had busmess relations with 52 central cooperative banks of which 19 were rural and 33 urban. Besides these it counted amongst its ordinary clients 8 loan banks attached to land credit institutions; 6 provincial credit institutions, etc.; 744 public savings banks and 684 other corporate bodies or individuals. The means for carrying out its objects the bank derives from the 78,000,000' marks intrusted to it by the Government, from the de- posits of the aflSliated corporations, and from loans contracted with other banks. The bank can not lend to cooperative societies individually, but only to unions of cooperative societies or to central banks composed of local cooperative societies. It fixes for every central bank a maximum limit of credit, based upon the financial condition of the bank, of the societies which compose it, and of their members. Within these limits loans are granted according to the available capital and to the guaranties offered. In regard to the form of the loans, they are either given on current account, on the security of bills of exchange (which the bank dis- counts), or against the deposit of goods or securities. The following are the most important particulars relating to the working of the bank during the year 1909: Marks. Total busmess done (incomings and outgoings) 15, 197, 809, 000 Totalliabilities 199,725,926 Paid-up share capital 76, 400, 000 Reserve funds - 5, 400, 000 Deposits in hand at end of year 102, 740, 303 Loans to cooperative societies and similar institutions outstanding at end of year ;.-.. ..-- 40,279,662 Loans granted to cooperative societies and similar institutions during the year 737,268,000 In several other States of the Empire similar institutions have been founded on the model of the Prussian Bank and endowed with capital out of the public treasury, either gratuitously or at a low rate of inter- est. We may mention amongst these the Central Bank of the Agri- cultural Cooperative Societies of Bavaria, which received a grant of 100,000 marks and advances of 4,000^000 marks, and the Agricultural Bank for the Cooperative Societies of the Kingdom of Saxony, to which advances of 6,000,000 marks were made at various times. 22 SYSTEMS OF ETJEAL OOOPEKATTVE C5KEDIT. Chaptee rv. COOPERATIVE LAND CREDIT SOCIETIES IN GERMANY— "LANDSCHAF- TEN" AND "RITTERSCHAFTEN." Besides the cooperative banks of which the preceding chapters give a summan^, there is another very characteristic form of coopera- tive credit in Germany, that of the Landschaften and Ritterschaften, cooperative institutions, organized generally for a Province or some other administrative unit. Their object is to obtain for their mem- bers the credit they require for land improvement by means of bonds guaranteed by the landowners of the Province collectively. The foundation of the first of these German institutions goes back to the end of the eighteenth century. There are now 25. It is in Prussia, and above all in the five eastern Provinces, the an- cient nucleus of the Monarchy, that they have always flourished best. Even to-day, 18 are in Prussia and 10 of these in the five eastern Provinces. The bonds issued by the 10 Landschaften in the eastern Provinces in 1908-9 amounted to a total of 1,633,135,940 marks.* This is a sufficient proof of the usefulness and of the vitality of this form of cooperative credit, but it will give an even better idea of the important part played by the Landschaften and Ritterschaften, to state that the total bonds in circulation, issued by the Landschaften in Prussia, amounted to 2,742,344,385 marks ^ in 1909, while the total amount of bonds issued by other German institutions, more or less of the same type, was 787,855,425 marks ' at the same date. In other terms, this form of cooperation furnished German agricul- ture in 1909, with a total of loans on mortgage of more than 3,490-, 199,810 marks. This is a considerable sum, \mich it would obviously not have been easy to obtain from the private and purely capitalist banks, and above all at so low a rate of interest, for these societies are satisfied with an interest which does not generally exceed 3^ to 4 per cent. 1. CooPEEATiVE Land CEEDrr Societies foe Laegb Estates in Petjssia. In Germany, the first of these societies was founded in Prussian Silesia. After the Seven Years' "War (1756-1763), the great military King and administrator, Frederick II of Prussia, saw that this Pro- vince, formerly rich and flourishing, was in a deplorable condition. The continual wars, the successive alterations of the currency, and the high price of land, followed by an alarming fall in its price, had almost ruined the landowners. In 1767 a Berlin merchant, named Buring, presented to the King a scheme for an administrative and financial innovation, based upon the fact that it is the soil itself which represents the greatest part of the nation's wealth. He showed that the land is an asset, and that to obtain for the farmer the credit he required, it was enough to give this asset currency, according to the expression of the day. It was in fact, an anticipation of the fundamental principle underlying the ' Not counting the new Institute ol Credit tor Brandenburg, wliich only issues bonds oJ the Central Landschsft. > S6S3.294,429, or £134,239,113. > $187,686,697, or £38,563,913. SYSTEMS OF EtJSAL COqPEEAnVE CBEDIT. 23 "assignats" which he wished to put ia practice in favor of the pro- prietors of the "noble" estates.' To surround these new mortgage bonds with sufficient guaranties and also to. gain the confidence of the capitalist, he depended on the principle of cooper.p,tion, and proposed to the King to combine the noble proprietors of Silesia in a compulsory cooperative society in which, in exchange for the duties they would have to fulfill, they should be granted the enjoyment of certain privileges. This scheme of Biiring's, at first rejected by the minister. Von Hagen, was accepted in its entirety in the royal decree of August 29, 1769. The regulation of July 9, 1770, combined in compulsory cooperative societies the noble landowners of each principality of Silesia. The union of these societies formed the Generallandschaft of Silesia. The success obtained by this system was more than satisfactory. The Generallandschaft of Silesia has now been in existence for 140 years, and during that time its energy has permitted it to overcome and almost to avoid the difficulties which generally arise in enter- prises of this nature where the interests of the State and those of individuals have to be reconciled. It has' been able also to obtain for its members sufficient credit, and always at a rate of interest far lower than tliat paid in countries and districts where this system of cooperation does not yet exist. Encouraged by these results, several other Provinces soon followed the example of Silesia. On June 15, 1777, the "Kur- und Neumarkische Landschaft" for the nobility of the Province of Brandenburg was created by Royal charter. Other charters established one in each of the following Provinces: In Pomerania, on March 13, 1781; in West Prussia, on April 19, 1787, and in East Prussia on February 16, 1788. In 1821 the Landschaft" of Posen was founded. It was, however, dissolved in 1877 and the New Association of Credit (founded in 1857) took its place. These Landschaf ten to which the title of "old-established" is given to distinguish them from the others, have all a semiofficial character. On the one hand, the inspection of their business is conducted by the State, which generally intrusts it, in the first instance, to the president or prefect of the Province, and secondly to the Prussian nunister of agriculture. On the other hand, they possess certain prerogatives usually reserved to the State; thus, for example, in case of non- payment, they have the right to proceed to the administration of the mortgaged lands or to compulsory sale by auction, without recourse to the law courts. The employees of the Landschaften are indirect employees of the State and generally they have authority to sign certain public docu- ments. These Landschaften have constitutions varying considerably from each other, being adapted to the special needs of their Province or to those of the moment of their foundation. They have, however, this in conmion, that each has a committee of management and a general ' In German "BittergOter." Tiey are the estates belonging to the "Rittdrsohalt": that is, the nobility and landed gentry. Such estates were originaly beld by military service and the proprietors had manorial jurisdiction and certain administratiTe privileges. 24 SYSTEMS OP EUEAL. COOPEBATTVB CKEDIT. assembly of landowners. The syndics, that is to say, the members of the committee of mafegement having legal knowledge, receive Eay. The other members of the committee and of the general assem- ly are landowners who receive only an annual indemnity correspond- ing to their traveling and incidental expenses. Four of the five old-estabUshed Lanaschaften, those of Silesia, of Brandenburg, of Pomerania, and of West Prussia, are decentralized. In other words, they are composed each of several cooperative societies or of several almost independent administrative sections. In Silesia each of these cooperative societies disposes of a separate fund, and the engagements undertaken are for this reason covered by a double guaranty, first by the society of the principality and then by the Landscnaft of the Province. The 5 I^andschaften of which we have spoken were formed directly by the State. Of the 10 other societies of this type in Prus- sia, 9 were formed by the Provinces, and one by private initative. Three Lantischaften, fornled in Hanover before its union with Prussia, differ from the other Landschaften in that they do not issue boads, but obtain directly from capitalists the money which they require to lend to their members. The societies formed by the Provinces did not enjoy the legal advantages enjoyed by the old-estabUshed Landschaften. Not tUl the Prussian law of August 3, 1897, were their legal rights extended. This law also conceded to all the Landschaften that should be foimded before the 1st of January, 1900, the privileges of forced administrar tion of estates, of forced sales, and even of the seizure of the movable property of the debtor in case of an estate already mortgaged having deteriorated. These privileges had, however, to be conceded by royal decree in each new case. The same law recognized the bonds of the Landschaften as a trustee investment. When we consider the whole class of Landschaften we see that they have in their organization and in the management of their affairs certain features in common. The total number of landlords of a district collectively grant a loan to the proprietor applying for it, the object of the loan being stated in detail in the application. He can not be refused this demand. His land serves as security to the Landschaft. To be quite safe, and not to risk losses, the body of proprietors do not grant loans exceeding a certain percentage of the value of the land, varying with the Provinces and according to the method of fixing the rate of interest. As the body, of landlords possess real estate of enormous value, but have seldom large sums of money at their disposal, they have to get from third parties the sums needed for loans to the landowner borrowing. For that they have recourse indirectly to the capitalists, offering them, as investments for their money, bonds issued by the collective group. In order to render the negotiation of this paper easier for the lenders, special banks have been instituted in connection with the Landschaften dealing with this business, under the control of the society itself and without any inten- tion of making a profit. The profits go to the Landschaft as such. Formerly it was the mortgaged land that served as security under a secondary security of the Landschaft. To-day this is no longer the SYSTEMS OF RTJEAL COOMlEATIXrE CHEDIT. 25 case. The capitalist who has bought the bonds and is the creditor of the borrowing landowner has nothing to d!b with him. He receives his interest from the Landschaft and the whole of the estates of the Province forms his security. This general security of the "Kreditverbundenen" (credit leagues) was not, however, considered sufficient. To protect the legitimate interests of the creditors as weU as those of the other guarantors, a complicated system was elaborated. First, the value of each property in need of a loan had to be estimated by competent employees of the Landschaft. Generally they contented themselves with the valua- tion of the revenue made for the land tax and they granted loans to the extent of 15 times this net revenue. Only iri exceptional cases, for example, when the proprietor wanted to burden has land beyond a certam degree, he must even to-day, at his own expense, get a special valuation made of the present worth of his land. At first most of the Landschaften only gave mortgages for one-half of the estimated value. Now they generally go as far as to give them for two-thirds of the value. Land already burdened with other mortgages can not receive any loan from the society. The Land- schaften, however, help proprietors when, in order to obtain a loan, they desire to pay off previous mortgages. Except in the case of the three institutions of Hanover, the loans are not granted in money, but in bonds. The interest the debtor must pay the Landschaft is generally from one-half to 1 per cent higher than what the Landschaft itself pays its creditors. This difference serves to cover the expenses of administration, to constitute special funds created in the interest of- all the members of the society, as well as for the creation of reserve funds and for the gradual extinction of the debt. The Landschaft generally renounces its right of calling up the money it lends, but the debtor can always repay the money borrowed. Generally this repayment takes place by gradual extinction, which is often even obhgatory for a certain pro- portion of the debt. The sums so repaid must be considered at the same time as reserves in case of possible losses to be incurred. Nowadays the tendency is to decrease these various guarantees. Perhaps they are no longer necessary. The new Landschaften, for instance, no longer have the general guarantee. In the Mark and in Neuvorpommem the security is hmited to the whole of the lands really mortgaged. In other Provinces there are special reserve funds or rather the obligation for the proprietors to pay in case of need a certain fraction, generally from 5 to 10 per cent, of the sum borrowed. Consequently, we find in these Landschaften the principles sornetimes of the cooperative society with unlimited liabUity and sometimes of the cooperative society with limited liabihty. The public accepts the bonds of all these iostitutes with equal readiness, for the form taken by the security offered does not affect their credit. The total circulation of bonds issued by the Prussian Landschaften increased from 469,407,530 marks in 1866 to 2,507,164,675 marks in 1906 and 2,742,344,385 marks in 1909. This would seem to represent an astonishing increase of debts on mortgage, but it is difficult to know whether, before the landowners availed themselves of the credit 26 SYSTEMS Of EtTEAL COOPERATIVE OBEBlT. offered on such easy terms by the Landschaften, their properties were already burdened with other debts, perhaps on less favorable condi- tions, or if their debt is of mote recent origin. It is noteworthy also that while the increase of the debt recorded in the Landschaften books has increased fivefold in the 40 years from 1866 to 1906, in the same period the funds for its extinction have increased from 20,512,945 marks to 169,901,635 marks, or in the proportion of 1 to 8. This mode of extinction, besides, was unknown to the old-established Landschaften and was only introduced in the last century. It may, therefore, be expected that this progress wiU continue. The rate of interest on the bonds has always been very moderate. Issues at the rate of 5 per cent were only made from 1868 to 1878, a period of trouble and unrest, in spite of abundance of capital. Gen- erally there has been a very marked tendency to foUow the condi- tions of the market and as soon as possible to reduce the interest on the bonds. In 1901 we no longer find bonds at 4J per cent. Those at 3^, 3J, and 3 per cent increase already in 1896 in proportion as those at 4 per cent decrease, though the latter show a further increase in 1901. The bonds have always been weU received on the national market. To open the international market to them, in 1873, certain Land- schaften, with the authorization of the Government, founded a Central Landschaft for the Prussian Provinces, with its headquarters at Berlin. The Landschaften that now form part of it are allowed to issue provincial bonds and also bonds of the Central Landschaft. In issuing these last, however, they are bound to observe certain rules as to the method of valuing the lands. The bonds of the Central Landschaft were well received on the exchanges, where they had almost the same standing as the lanperial and Prussian bonds, but, generally speaking, the Central Landschaft had not the success that was expected. That was due, no doubt, to the fact that the societies already had a sufficiently large cUentele or that they did not wish to have their liberty of action interT fered with. Its issue of bonds up to the end of 1909, amounting to 437,814,250 marlcs, was rather less than that of the Lansdchaft of East Prussia alone, which reached the figure of 443,839,850 marks. 2. Landschaften for Small Estates in Prussia. Although the Landschaften and Ritterschaf ten werie at first exclu- sively intended for supplying the needs of the noble estates, which were generally of considerable size, some of them have extended their credit faciUties to small proprietors and peasants. This was the case with the Landschaften of East Prussia and of Silesia. This latter issues special bonds for peasants' lands. Others founded separately, with special funds, new Landschaften and xiew institutes. Most of the new societies, such as those of WestphaHa and Posen, were, moreover, from the start meant to represent both classes. Since these new institutions only wish to serve the farmer, there is always a limit to the minimum value of land that can be mortgaged. This Umit corresponds to that amount of land on the produce of which the owner can five. Generally it is required that it produce a net incoine calculable for the land tax at a nunimum from 75 to 150 SYSTEMS OP BUBAl, COOPEBATIVE CKEDIT. 27 marl^. In SUesia they go below this Umit and are content that the land be reckoned as bringing in from 15 to 30 marJb. To make it easier and less coin^cated for the peasants, instead of their havmg to go to the central office the Landschaft of East Prussia periodically sends employees of its own mto the villages, previously notifying their advent. These employees give all necessary informa- tion gratuitously and receive appHcations for loans. The Land- schaften have, generally speaking, also had good results in their work on behalf of the peasants, but there still remains much more to be done in the future. 3. Landschaften m the Other States of Geemant. The example set by Prussia has been followed in some other States. Thus a credit association for the noble estates of the two Mecklen- burgs was founded in 1818 at Eostock on the model of the old-estab- lished Landschaften. On December 13, 1825, the credit association for Wurttemberg was founded at Stuttgart. It is the only semi- official institution of the kind to be found m South Germany. Others were subsequently formed in the Kingdom of Saxony and in the Duchy of Brunswick. Only a few of these institutions possess much importance, and all conform more or less closely to the type of Landschaften already described. 4. Private iNSTrruTiONS op the Landschaften Type. Besides the semiofficial Landschaften there are two private insti- tutions of a similar kind. These are: 1. The National Society of Mortgage Credit, formerly at Stettin and now in Berlin, founded under rules dated March 3, 1870, and August 11, 1871. 2. The Bavarian Agricultural Bank, at Munich, founded on Decem- ber 2, 1896. Both are, in the eyes of the law, private cooperative societies. The first is a cooperative society in which the liability, of the members, is unlimited, wliile in the second their UabiMty is hmited. The Berlin Association also grants loans upon town lands. The total number of loans of every kind to the credit of this society in 1907 were 651, for a total sum of 20,367,673 ' marks, which gives an average of 31,268 marks per loan. The Bavarian Bank grants loans to communes and to country land- owners. At the date of its foundation it received ,from the Bavarian State the grant of a loan on favorable conditions of 1,000,000 marks It is also in enjoyment of another loan at reduced interest, and a sub sidy for the expenses of its management. The total number of loans of every kind outstanding at the end of 1907 was 14,675, amounting to 91,397,893 marks.^ These two institutions are most important, particularly in present- ing a new method, which permits the farmers and especially the small 1 J4^52,08S, or £937,008. « $21,773,244, or £4,473,972. 28 SYSTEMS OP ETTEAL COOPEEAMVE CEEDIT. farmers to obtain a large share of the advantages given by the Land- schaften. The Bavarian Agricultural Bank, particulariy, has had excellent results and under circumstances of some difficulty, if we consider how the land is parceled out in small holdings in South Germany and especially in Bavaria. Between 1897 and 1907 the Bavarian Bank granted 14,583 loans on mortgage to a total amount of 103,367,250 marks. Of these 287 loans were on mortgage of holdings less than 1 hectare in extent; 8,653 between 1 hectare and 10 hectares; 5,605 between 10 hectares and 100 hectares, and 38 over 100 hectares. These figures indicate how well it has been able to adapt itself to the needs of different classes of agriculturists. Chapter V. COOPERATIVE AGRICULTURAL CREDIT IN AUSTRIA. In Austria both the Raiffeisen and the Schulze-Delitzsch system have been adopted as means of giving personal credit to the agricul- tural population. The Raiffeisen banks are, however, in relation to agriculture, much the more important. Cooperative credit societies oegan to be formed in Austria about 1850, and they had at first the character of mutual aid societies. Toward 1870 the earhest societies on the Schulze-Delit2sch system were formed, the majority were based on unlimited HabiJity. At first the cooperative credit societies developed slowly, and up to 1860, only 15 had been formed. After this they began to be formed more rapidly, reaching the number of 943 in 1872. Then again fol- lowed a period of slow increase, the number only rising to 1,363 in 1888. At this period, however, the Raiffeisen system began to be promoted, and the cooperative credit societies increased rapidly in number. At the end of 1906 they had reached 7,886; ia 1909 they had risen to 10,097, and in 1910 to 10,893. 1. The Rural Banks. The Raiffeisen banks, first formed in 1886, began to be promoted rapidly in 1889, reachiag the number of 7,631 in 1911. The Raiffeisen banks m Austria being modeled upon those of Ger- many it is sufficient to remark that each member is required to take a share, which varies ia amount from 10 to 20 crowns,^ but the liability of the members is unlimited. At the beginning of November, 1911, the Austrian Government presented to Parhament a bill for modify- ing the law relating to cooperative societies. The main purpose of this biU is to substitute for the present form of unlimited hability the system of unhmited hability to make supplementary payments. The difference between the two systems consists in the fact that, according to the new proposals the creditor would not be able to have direct recourse, in case of the hquidation of the bank, to any particu- lar member to demand the payment of the sum which remains due to him; it would be the society wHch would be responsible to the creditor and it would have the right to demand pro rata payments from the members until the creditors were completely satisfied. > A crown is equivalent to tO.2626, or fO.OUS. SYSTEMS OF EUEAIi COOPEBATIVB CREDIT. 29 The interest paid on the shares is equal to that paid on the savings deposits. The working capital of the banks is formed by the shares, the sav- ings deposits, and the loans which the banks obtain from the central banks. The Raiffeisen banks have been very successful in attracting savings deposits. In Bohemia alone, the sums deposited by boys and servants occupied in agriculture amounted in 1908 to 5,588,078 (jrowns. Many banks require the applicant for a loan to declare the pur- pose which it is to serve ; sometimes it is provided that if a member appUes a loan to any other than the declared object, he shall be excluded for a time (or, ia case of a second offense, forever) from receiving further loans. The profits are carried entirely to the reserve fund which, in case of the dissolution of the society, is devoted to some work of public utiMty. As in Germany, the Austrian rural banks are affiliated both to central banks, with which they deposit their surplus funds, or from which they obtain loans when required, and to federations, which look after their interests. The establishment of Raiffeisen banks is greatly encouraged by most of the provincial governments, which make grants of from 200 to 300 crowns for the initial expenses and loans for long periods with- out interest. In 1909, for example, the Diet of Galicia placed at the disposal of the provincial government a sum of 2,000,000 crowns for the benefit of the cooperative credit societie.s. Ten years later the Diet established the Provincial Bank for Cooperative Credit Societies at Leopoli, by which the fund is now administered. The following figures will give an idea of the development of the Raiffeisen banks since 1900: 1900 1907 (dumber of banks Namber of members Number of loans granted Amount of loans outstanding at the end of the year : crowns. , Amount of deposits ,do 2,906 261,589 S9,531 122,501,009 155,281,000 4,5^7 504,589 108,886 258,532,000 335,620,000 5,8 725,6 1428,242,262 556,319,345 > $86,772,253, or £17,829,986. In 1890 there was one Raiffeisen bank for every 131,294 inhabit- ants; in 1900, one for every 9,002; in 1902, one for every 6,884; and in 1910, one for every 4,018 inhabitants. 2. Tnfe PoPTXLAE Banks. It is not necessary to speak at length of the poular banks, since they have only a minor importance as far as agriculture is concerned, UntU the formation of the Raiffeisen banks, the Schulze-Delitzsch banlffl afforded credit to farmers to a considerable extent, but now the Raiffeisen banks have almost completely taken their place. Even up to now the Schulze-Delitzsch banks make loans for fairly large amounts to farmers known to be of good financial standing; the email loans of a few hundred crowns required by the peasants are 30 SYSTEMS OS BUBAL COOPERAUVB CBBDIT. made exclusively by tke Raififeisen banks. Only in Bohemia, in Moravia, and in Galicia are the Schulze-Delitzsch banks at all numer- ous amoi]gst the farmers and serve to supply their needs. At first in the Schulze-Delitzsch banks unhmited habihty was the rule, but from 1882 onward this was less and less frequently adopted and now new banks are founded almost exclusively with limited habUity. In 1910 there were 2,674 banks with Umited liability and 588 with unlimited liability. Of 2,323 Schulze-Delitzsch banks which furnished particulars of their working in 1908, the membership was 1,479,047; the share capital, 158,000,000 crowns; the loans granted during the year, 1,757,000,000 crowns;* the loans outstanding at the end of the year, 1,704,000,000 crowns;^' the d^osits in hand, 1,587,000,000 cro-vms; the loan capital, 234,000,000 crowns; and the reserve funds, 94,000,000 cro'wns. Chapter VI. COOPERATIVE AGRICULTURAL CREDIT IN ITALY. The principal agricultural cooperative credit institutions in Italy are the rural oanks and the popular banks. The former are modeled on the Raiffeisen banks and were introduced into Italy by Leone WoUemborg; the latter are modeled on the Schulze-Delitzscn banks, adapted to the special circumstances of Italy by Luigi Luzzatti. The Erinciples upon which these two forms of credit society are based ave, therefore, been already described, and we will conme ourselves to indicating how they are organized and how they operate in Italy. 1. The Rural Banks. Rural banks were first advocated in Italy in 1880, but it was only in 1883 that Wollemborg, after a series of lectures and publications, succeeded in founding the first rural bank at Loreggia, in the Province of Padua, with 30 members. In 1884 other ban& were founded at Cambiano di Castelfiorentino, at Trebaseleghe, and subsequently in other parts of Venetia. The banks formed by Wollemborg and his associates were unsectarian in character, but from 1892 onward many banks were formed as a result of the propaganda of the Catholic party with a sectarian character. These have steadily increased in number and now form the largest group of rural banks in Italy. In fact, out of 1,809 rural banks, about 1,200 are sectarian. The Catho- lic banks are found chiefly in Venetia, in Bergamasco, in Emilia, and in Sicily. While the rules of all the rural banks insist upon honesty and good character as a condition of becoming a member, the Catholic banks insist also upon certain religious observances, or, at any rate, upon respect for rehgion. The Habihty of the members is unhmited. This is found, in Italy as elsewhere, to prevent the misuse of loans by compelling the members to keep an eye upon one another; it also gives the bank the confidence of the pubhc wmch deposits its savings. « $366,010,748, or £73,163,183. » »345,271,664, or £70.946,514. SYSTEMS OP EUBAL COOPERATIVB CREDIT. 31 For their sphere of operations the rural banks restrict themselves to a commune, to a portion of a commune, or to a parish. As a rule, the rural banks have no real initial capital. They receive savings deposits from both members and non members (cmefly the latter), on which they pay an interest varying from 3i to 4 per cent. It is the deposits which furnish the means for making loans, and only in so far as the deposits are insufficient do the rural banks have recourse to other sources of capital. On December 31, 1910, the aggregate amount of the deposits held by rural banks was 60,000,000 francs.* In process of time the banks create a capital of their own, formed of the small payments made by the members upon entrance, or upon taking out their first loan. The loans, which are generally made on the security of bills, are of two kinds. They are either for short periods, not exceeding two years, or for longer periods, extending to as much as 10 years. The first kind are ordinarily renewed every 3 months; the second are repaid by installments. The interest on loans for long periods is slightly higher than the usual rate of interest on loans, which varies between 5^ and 7 per cent. The difference between the interest charged on loans and the interest paid on deposits covers the man- agement expenses and enables a reserve fund to be built up, which, in the event of the dissolution of the society, is devoted to some object of pubhc utility. The societies enjoy certain exemptions from taxation. Thus their notes, biQs, etc., are exempt from taxation for 10 years and until the capital of the bank reaches 30,000 francs. There are no recent statistics embracing all the rural banks, unsec- tarian or Cathohc, in Italy. The latest official statistics, collected by the minister of agriculture, industry, and commerce, gives the finan- cial position of 1,257 banks out of 1,386 existing on October 31, 1905. This shows that of total habilities amounting to 46,665,607 francs,' 32,499,462 francs were in respect of deposits, while 4,855,456 francs were in respect of loans on current account and 6,392,654 francs of loans on the security of bills. The loans outstanding were as follows: On bills, 33,464,274 francs; on mortgage, 897,493 francs; on simple note of hand, 369,041 francs; on current account, 5,978,556 francs; total, 40,709,364 francs.^ Since 1906 no official statistics have been pubhshed, but the National Federation of ItaHan Rural Banks, whicn has its headquar- ters at Rome, has compiled a Hst of rural banks and agricultural coop- erative credit societies in existence on December 31, 1911, from which it appears that there were then 1,855, of which about one-third were unsectarian and the remainder Cathofic. Though complete statistics are wanting, there exist partial statis- tics, compiled by regional or provincial federations, from which we take the following figures: 1 A frano Is equivalent to 10.1929, or £0.0396. > $9,004,450, or £1,850,239. • (7,855,152. or £1,614,080. 32 SYSTEMS OP EURAIi COOPERATIVE GKEDTT. Name of lederation. Federation of the Rural Banks of the Prov- ince of Bologna Federation of the Rural Banks of Romagna. Federation of the Catholic Econonuco- Sodal Associations of the Province of Parma Economioo-Sooial Federation of the Catho- lics of the Diocese of Adria Date which the figures refer. June 30,1911 Dec. 31,1910 Dec. 31,1910 Deo. 31,1910 Number of affili- ated rural bonks of which partiou- laisare given. 62 Member- ship. 6,505 4,723 3,771 3,945 Loans out- standing. Franca. 2,263,762 2,909,040 2,033,S92 2,595,424 Deposits In hand. Francs. 2,608,945 2,826,671 1,683,000 1,795,004 2. The Popular Banks. Unlike the rural banks, which carry on their work in country dis- tricts and have alrestricted area of operations, the popular banks are formed in urban centers and have a large field of operations. In the popular bants, too, the liability of the members is limited. They preceded the rural banks, but even after the appearance of the latter they continued to be of service to agriculture in various ways. Not only do they lend money directly to farmers, but they make advances at low rates of interest to agricultural syncficates, agri- cultural cooperative societies, and even to the rural banks. The popular banks are composed of members belonging to many dif- ferent classes; large and small farmers, farm laborers, artisans, small shopkeepers, clerks and professional men. But the larger number of members belong to the lower middle classes; 23 per cent are artisans or small shopkeepers and 22 per cent small farmers. Clerks and pro- fessional men form 17 per cent and the percentage of the other classes of members is much smaller than these. The value of the shares also varies greatly; it ranges from a mini- mum of 5 francs up to 100 francs, the maximum allowed by the com- mercial code; the lower values are the more usual. The paid-up share capital is usually but Httle less than the sub- scribed capital, because many banks allow the payment by install- ments of the shares subscribed. The banks work in the first place with the capital which comes in spontaneously, the shares and the deposits, and secondly, with money which they obtain by rediscounting tneir bills or contracting loans. As to the deposits, they are of various forms. The humbler classes, not used to business methods, intrust their savings to the banks as savings deposits; the commercial and industrial classes prefer to lodge money on current account and to withdraw it by means of checks the workmen's unions and mutual-aid societies deposit funds not imme- diately required for fixed periods and draw good rates of interest. This variety m the deposits contributes to give elasticity to the opera- tions of the popular banks. The interest paid on deposits varies from 3 to 4 per cent. The Italian popular banks give credit principally in the four follow- ing forms: Loans on the security of biUs or the discount of bills; loans against the deposit of securities, goods or valuables; loans on guaran- teed current account, and loans for holding over delivery of securities. SYSTEMS OF EUEAL, COOPEBATIVE CREDIT. 33 In order to increase the capital at their disposal they have the greater part of their bills rediscounted by larger institutions. Against this must be set, however, the bills which they themselves' rediscount for other smaller popular banks and for rural banks. _ The rate of mterest on loans is usually from 4 to 6 per cent. Some- times it is less than 4 per cent, and there are cases in which it is as much as 7 or 8 per cent. The latest oflElcial statistics of the popular banks relate to the 10 years from 1899-1908. From these we find that in 1908 there were 736 popular banks; of these 690 which furnished particulars of their working, had a paid-up capital of 98,310,108 francs and reserve funds amountiag to 57,354,279 francs. The total deposits in hand at the end of the year were 971,167,644 francs and the capital obtained from outside sources (other banks and private capitalists, etc.), 230,152,110 francs. This gives a total workmg capital of 1,356,984,141 francs ' The loans outstanding at the end of the year amounted to 881,502,350 francs ^ and the profits during the year to 13,679,929 francs. Chapter VII. COOPERATIVE AGRICULTURAL CREDIT IN FRANCE. The first experiments iu' agricultural credit in France date back to the middle of the past century, but its real development only begins after the promulgation in 1884 of the law on professional s3Tidicates. In 1894 the law which instituted local agricultural mutual credit banks gave a powerful impetus to agricultural credit, and in 1899 the law 6n regional banks, which authorized the giving of State aid, con- soHdated agricultural credit in France into an organic system which to-day spreads over the whole country. The characteristics pf this system are th^ following: DecentraHza- tion, mutuaUty, organization according to occupation, and State aid. Its object consists, ia the first place, in supplying farmers with the means necessary for carrying on the ordinary agricultural operations by means of loans for short periods; in the second place to facilitate cooperative societies and individual farmers in carrying on operations extending over long periods. Besides the cooperative credit encouraged by the State there exist also various minor groups of cooperative institutions which have wished to remain entirely independent and which rely solely on their own resources. 1. SXATB-AIDED COOPEBATIVB CbEDIT. The fundamental laws which regulate the State-aided system of agricultural cooperative credit are those of November 5, 1894, sind of March 31, 1899. The former instituted the local mutual agricultural credit bank; the latter the regional bank, which groups together the local banks of a given district, either the region, the department, or a special area determined by its agricultural characteristics. The State has placed at the disposal of the regional banks, in order that they may in their turn finance the local banks, considerable sums, 1 »261,839,«0, or £53,802,887. ' tl70,091,946, or £34,950,572. S. Doc. 574, 62-2 3 34 SYSTEMS OF BUBAI, COOPEEATIVB CKEDIT. which the Bank of France is bound to pay to them as a condition of the renewal of its privileges. The law of November 17, 1897, in fact, laid it down that the Bank of France must advance to the State, without interest, for the whole •period of its concession (that is, to the end of 1920), a loan of 40,000,000 francs, and that it must also make an annual payment (calculated according to the business done), which must not be less than 2,000,000 francs, and is, in fact, between 3,000,000 and 5,000,000 francs. These sums form the State fund, out of which the agricultural credit system is aided. (a) The local banks. — The local banks may be composed either of the whole or of a part of the members of one or more agricultural syndicates, or of the members of one or more mutual agricultural insurance societies. The object of this provision is to strengthen their characteristic of mutuality and solidarity and to facilitate mutual acquaintance and confidence amongst the persons composing the credit society. The objects of a local credit society are to facilitate or to guarantee the operations either of the societies mentioned or of the members. The local banks have a restricted area of operations, limited to the commune, the canton, or the village. The formahties of registration are reduced to a minimum and they are exempted from certain taxes. Their initial capital is formed by shares ("quotes-parts"), sub- scribed exclusively by the members; it is sufficient if one-fourth is paid up. The shares, which are generally of the value of 20 or 40 francs each, do not give any right to dividend, but bear a fixed rate of interest which must not exceed 4 per cent. The societies can receive deposits with or without interest. As to the liability of the members, the law allows the utmost lati- tude to the societies to decide its character and extent by their rules, according to local conditions. In the majority, of cases the societies have decided that their members shall be liable up to the amount of the shares subscribed. Some have fixed upon a wider liability, either unlimited habUity of aU the members, such as is found in the RaiflPeisen banks, or unlimited liability of a certain number of mem- bers (for example, the members of the committee of management), or a liabihty extending to two, three, or four times the nominal value of the shares of each .member. Amongst the promoters of these societies, however, there is now manuest a tendency to adopt unlimited liability as the best safeguard for healthy cooperation. The society is managed by a council and by a committee, which generally comprises a president, a vice president, and a secretary. As soon as it is established it becomes afiiliated to the regional bank of the department. To do this it must subscribe for a certain number of shares in the regional bank. It is then admitted to partake in the credit facilities afforded by the regional bank, which discounts its bills or grants loans to it to foim its working capital. In the first case, when a member applies for a loan from the local bank it requires him to sign a bUl, which is then sent to be discounted to the regional bank, which immediately forwards the amount applied for, less the discount. In the second case, the regional bank grants to the local bank a loan which is usually proportionate to the amount of the shares subscribed. The local bank, when it does not immediately require the money so obtained, deposits it with the SYSTEMS OF KTJEAl, COOPEBATTVE CBBDIT. 35 savings bank and withdraws from time to time such sums as may be necessary. The first system, which is simpler and allows of a greater measure of control by the regional bank over the affiliated societies, is adopted II? the great majority of cases. Thus, for example, in 1910 the regional banks discounted bills to the amount of 67,000,000 francs and only granted loans of 1,250,000 francs. The rate of interest on the loans must naturally be higher than the discount required by the regional banks. The latter being 3 per cent, the greater interest demanded by the local banks does not usually exceed 4 per cent. The margin of 1 per cent serves for the payment of the expenses of management and for the formation of the reserve fund. As to the size of the loans, in some societies the sums which may be advanced to members are proportionate to the shares which they have subscribed, and may be ten, fifteen, or twenty times their amount. In other societies it is laid down that the loan shall not exceed a fixed sum, 1,000 or 2,000 francs, according to the kind of cultivation pre- vailing and to the solvency of the applicant. There are different kinds of guarantee, varying according to cir- cumstances. Certain banks insist in every case upon a surety or a "warrant" or upon the deposit of securities. Others only require such guarantees when the loan is of a certain amount. If the object of the loan is the purchase of live stock, the animals must always be insured. The period of the loans varies, according to the nature of the opera- tions to be undertaken, from three months to a year. The period of the biUs varies according to the period of the loan and according to the system adopted by the regional bank to which the local bank is affiliated. Many regional banks only allow bills of three months, with two, three, or four renewals; others aUow bills for a period equal to that of the Idan. In the case of renewals an installment is almost always required. At least three-fourths of the profits of the society are allocated to the formation of a reserve fund, until that fund is equal to half the paid-up-share capital. The balance, if the general meeting so decide, may be divided amongst the individual members in propor- tion to their deahngs with the society. When a society is dissolved, the reserve fund and other assets are divided amongst the members in proportion to their shares unless (as is generally the case) the rules have provided for their appHcation to some work beneficial to agriculture. The local banks have spread rapidly since 1900, as the following figures indicate: Year. Number of local banks. Member- ship of local baaks. 1901 309 1,335 3,338 7,998 1905 61,874 1910 . 151,621 36 SYSTEMS OP EUBAI, COOPBEATIVE OKEDIT. The following figures give an idea of the business done by the local banks in recent years : 1909 1910 Increase. 2,983 133,382 Fmna. 13,111,206 8,470,764 3,338 151,621 Francs. 14,210,698 9,916,611 365 Membership 18,239 Subscribed capital Francs. 1,099,392 1,455,857 New loans granted during the year (exclusive of renewals) 63,742,093 40,126,197 170,633,340 42,671,323 6,791,247 2,646,126 Total. . . . 103,868,290 60,889,309 113,204,663 61,388,806 9,336,373 Repayments received ....' 499,497 42,978,981 « SI, 816, 857 8,836,876 ' $13,609,893, or £2,796,667. 2 $9,998,226, or £2,054,440. The official reports do not indicate the capital of the local banks separately, nor the business done by them, but limit themselves to giving such particulars for the groups of local societies afiiliated to each central bank. From these data, however, it is evident that the capital of the local banks is not very large, and the same may be said of their reserve funds. The statistics give no information regarding the deposits, but it may be assumed that they, too, are not very large in amount. The interest paid on the shares varies from 2 to 5 per cent; the rate of discount from 3 to 5 per cent. (&) The regional ianks. — ^The agricultural credit banks of the second degree, called regional banks, are regulated by the law of March 31, 1899. They receive from the State, out of the funds furnished by the Bank of France, loans without interest, up to the amount four times their paid-up capital, for a period of five years, subject to renewal. If, for example, there are m a department 10 local banks which have each subscribed; 10,000 francs, their shares form an initial capital of 100,000 francs for the regional bank; the Government will then make an advance of 400,000 francs. A special committee, nominated by the minister of agriculture, distributes such sums amongst the regional banks, and a body of inspectors supervises their working. The regional banks are based upon the same principles as the local banks, and they enjoy the same privileges. They are composed of local banks and of mdividual farmers, but two-thirds of the shares are reserved by preference to the former. The local banks usually pay up their shares in full; the individual members as a rule only pay up one-fourth. Each member is hable up to the amount of the shares subscribed. The committee of management of a regional bank is elected from the representatives of the local banks. The law limits the interest on the shares to a maximum of 5 per cent and fixes the maximum of the deposits which the regional banks can receive and the bonds which they may issue at three-fourths of the amount of the securities which they hold. The regional banks can, moreover, have their bills rediscounted by the Bank of France or other credit institutions. The profits are carried to the reserve fund which serves, in due cpurse, to repay the State loans. SYSTEMS OP ETJEAL COOPEBATIVB CEEDIT. 37 To the primary object of the regional banks have in recent years been added others, namely, the making of loans to cooperative societies for the production an4 sale of agricultural produce and of loans to individual farmers for the acquisition and improvement of small holdings. For these purposes special advances are made by the State to the regional banlis out of the fund provided by the Bank of France. The number of regional banks has increased from 9 in 1901 to 66 in 1905 and 96 in 1910. The State has placed at the disposal of the regional banks in the period 1900-1910 the following sums: ' Francs. 1906 3, 717, 530 1907 5, 800, 157 1908 : 8, 750, 717 1910 9, 825, 260 1911 11, 386, 81S Francs. 1900 612, 250 1901 2, 611, 210 1902 1, 304, 337 1903 1, 858, 262 1904 5, 437, 969 1905 5,430,301 On December 31, 1910, the regional banks had at their disposal State loans to the amount of 57,177,425 francs, of which 50,442,585 had been advanced to them for the purpose of financing the local banks. Sixty-seven of the regional banks received advances not exceeding ' 250,000 francs; 33 sums varying between 250,000 francs and 1,000,000 francs and 15 sums between 1,000,000 francs and 4,000,000 francs. The -ysforking capital at the disposal of the regional banks in 1910 for the financing of local banks was 71,423,930 francs (as compared with 61,823,926 francs in 1909) and may be thus classified: Francs. Paid-up capital 15, 912, 801 Reserve funds • 2, 868, 544 State advances 40, 442, 585 Mean amount of deposits 2, 200, 000 , Total 71,423,930 The subscribed capital amounted in the aggregate in 1910 to the sum of 17,493,225 francs. Of this sum about two-thirds is repre- sented by the shares subscribed by the local banks. In the separate banks the paid-up capital r&nged from a minimum of 7,175 francs to a maximum of 1,021,400 francs; aboilt half have a paid-up capital of less than 100,000 francs. The interest paid upon the shares varies from 3 to 4 per cent. The aggregate amount of deposits received by the regional banks up to December 31, 1910, was 16,600,000 francs, the average amount of the deposits in hand being about 2,200,000. The discounts and loans made in 1910 by the regional banks, in accordance with the law of 1889, including renewals, reached the sum of 130,865,263 francs, as compared with 123,222,174 francs in 1909. The majority of the regional banks (55) have adopted a rate of dis- count of 3 per cent. The general expenses amount to 0.32 per cent of the loans. 38 SYSTEMS OF EITEAL COOPERATIVE OBEDIT. Without taking into account the renewals, the following figures show the loans made by the regional banks, etc., hx 1910, as compared with 1909: 1910 1909 Francs. 1,251,220 66,957,353 40,971,508 Francs. 11,480,180 s 61,262,866 38,022,643 Total 109,180,081 69,887,572 100,765,679 69,502,992 49,292,509 • 41,262,683 • $285,611, or £58,687. « $11,821,090, or £2,429,003. » $7,961,919, or £1,636,019. If to the loans for short periods are added those for long periods advanced to cooperative societies and individual farmers, we have the following figures : Francs. Loans for short periods 109, 180, 081 Loans to cooperative societies 2, 284, 265 Loans for long periods to individuals 864, 190 , '112,328,536 To the end of 1910, 131 cooperative societies had received 4,405,840 francs in loans at rates of interest varying from 1 to 2 per cent. (c) General results. — The general restJts achieved in the first dec- ade in which the system of State-aided agricultural credit has been in force are most satisfactory. The local banks are constantly in- creasing and respond ever better to the new needs of agriculture. In the period from 1900 to 1910 they have placed about 384,000,000 francs at the disposal of farmers; the 2,000,000 francs advanced in 1900 have risen to 70,000,000 francs in 1910. It is noted, however, that many regional banks, trusting too much to State aid, are not sufficientjly careful to make the quinquennial repayments of the loans advanced by the State, and neglect to form resources of their own, other than the sums carried automatically to the reserve, by making efforts to attract deposits. The remark also applies to some of the local banks. In view of this, closer Govern- ment supervision is recommended, and meanwhile the ministry of agriculture has reorganized and strengthened the service of inspection. 2. Independent Coopebative Ageicxjltueal CREDrr. We have seen that, besides the State-aided cooperative credit banks, there exist cooperative credit institutions which have wished to remain independent of any financial aid from the State. Let us examine briefly the character and results of the principal groups of these societies: (a) Rural hanks of the Raiffeisen^Durand type.— The rural banks promoted by Louis Durand are modeled on the pure Raiffeisen type, and are markedly Catholic in character. Their members take no shares and receive no dividend. For l^heir working capital they 9 > $21,674,664,.or £4,453,699. SYSTEMS OP EUEAl. COOPERATtVB CEEDIT. 89 avail themselves of deposits, loans from members and others, and the accumulated profits which form the reserve. When the reserve fund reaches a fourth of the capital deemed necessary for the working of the society, the rate of interest on loans is reduced to a figure just sufficient to cover the general expenses. Loans are only granted to members, who are usually small proprie- tors or tenant farmers, for a definite purpose. They are granted on personal security^ or on mortgage, often for rather long periods, with repayment by annual installments, at a rate of interest varying from 3i to 4^ per cent. The interest paid on deposits varies from 2^ to 3^ per cent. The members are Hable to the fuU extent of their pos- sessions for the debts of the bank. The rural banks have adopted the commune as their sphere of operations, and are combined in. regional or diocesan groups, called central banks, which, besides acting as propagandist and supervising bodies, receive the surplus capital of the richer banks and pass it on to those which have need of it. The rural banks are also affiliated to a central federation, the Central Union of Eural and Workmen's Banks with Unlimited Liability, with headquarters originally at Lyon but now at Paris. In 1893 the number of the Durand banks was 17; in 1905 it had risen to 443. The statistics for 1910 give their number as 672, but the Union states that this does not include all the existing banks. The 672 banks of which particulars are given contained 28,279 mem- bers, did a total business (incomings and outgoings) of 19,241,963 francs, collected 11,300,450 francs in deposits, and granted 9,396 loans; their total assets amounted to 12,569,915 francs, and their profits to 49,124 francs. The business of the banks is based almost entirely upon deposits; they obtained only a small sum (935,000 francs) from the central banks. (b) Mutual hanks of the Rostand type. — With the idea of directing local savings to local work, EugSne Rostand urged the Savings Bank of the Bank of Rh6ne, of which he was president, to establish local mutual banks and- to finance them with loans. The law of 1895, which authorized the savings banks to allocate part of their funds to agricultural credit, permitted the bank to advance 20,000 francs to the local banks by way of loans. In the period from 1894 to 1909 there were thus created 22 banks. The Savings Bank of Marseille granted them in 1909 loans to the amount of 45,000 francs. From 1901 to 1909 the Rostand banks had distributed 1,142,663 francs to farmers. (c) Other cooperative, agricultural credit societies. — Amongst the cooperative credit institutions which have risen through private initiative we may mention the cooperative credit banks of the Alpes- Maritimes, promoted by Rayneri, and the Popular Bank of Mentone. These follow the unlimited-habihty system, and are to-day combined in the Regional Bank of Mentone. There also, exist some isolated credit institutions which act in com- plete independence, such as the Mutual Credit Society of Senhs (Oise), which granted loans in 1908 to the amount of 438,888 francs, and the Agricultural Bank, founded in 1898, at Boulogne-sur-Mer, which up to 1909 had discounted bills to the value of 1,734,000 francs. (d) The urlan popular hanks and agricultural credit. — In France there are some popular banks of the Schulze-Delitzsch-Luzzatti type. 40 SYSTEMS OP BUEAL COOPEEATIVE CREDIT. They are fairly numerous in the south, and are conabined in the Fed- eral Centre of Popular Credit managed by M. Rayneri. Although primarily intended for the industrial and commercial middle classes, they encourage agricultural credit in a variety of ways. Of late a new tendency has manifested itself to bring about closer relations between the urban and rural cooperative credit institutions. Chapter VIII. COOPERATIVE AGRICULTURAL CREDIT IN BELGIUM. Not many years ago the Belgian farmers in general, and more par- ticularly the small farmers, were absolutely without any credit insti- tutions to which they could have recourse to obtain capital on equi- table terms. In 1884, however, a law was passed with the object of providing them with credit facilities. Under this law the General Savings Bank was authorized to employ a part of its funds in making loans to farmers and to agricultural cooperative credit societies. The loans to farmers were to be made through the medium of a special kind of association known as "comptoirs," which we shall describe later. The results of this law were, however, disappointing. A few "comptoirs" were formed, but very little use was made of the credit facilities which the law provided. 1. The RxmAL Banks. It was generally felt, therefore, that a better system of agricultural credit was required, and the Abb6 Mellaerts set h ims elf to adapt the Raiffeisen system to local circumstances and to the requirements of the Belgian laws. As the law stood, the rural banks were obliged to take the form of cooperative societies, since it was requisite that they should have the power of admitting new members and of varying the capital without the legal formalities with which commercial compa- nies were obliged to comply. But, contrary to the strict Raiffeisen principles, the law dealing with cooperative societies did not allow such societies to dispense with foundation capital nor to make then- reserve funds indivisible. In order not to depart too far from the Raiffeisen model, the Abb6 Mellaerts decided that the shares should be very small (2 francs); that the dividend payable on the shares should not exceed the rate of interest charged on loans; and that there should be two reserve funds, the " real reserve," composed of the share payments and entrance fees, and the "conditional reserve," to which the net profits should be placed. The "real reserve" should serve to pay possible losses, and in the event of the dissolution of the society any sum still standing to this reserve should be distributed amongst the members. The "conditional reserve," on the other hand, should be returned, in case of dissolution, to the central bank from which the society had borrowed its working capital. Except for these slight modifications, the rural banks in Belgium follow closely the Raiffeisen system. Notwithstanding the difficulties and prejudices which had to be overcome, the rural banks spread rapidly over the country. The first was formed by the Abb6 Mellaerts at Rillaer in 1892, and in 18 years no less than 643 banks were established. SYSTEMS OF BUBAL COOPEBATIVB CBEDIT. 41 The following figures relate to the year 1909: Number of banks furnishing information ... Ana Membership *^« Loans granted in 1909 ::;.■.■.•.■.■.•.■.•.•.•.■.•.■.•.•.•.■.■. X'- ' • 4 162' 9U Loans outstandmg on Dec. 31, 1909 'do sio'q^fi W Deposits receivetf in 1909 do"" 9 742 693 Total working capital, including deposits in hand Dec . 31, 1909 ! ! do ] .' ." 22' 020* 786 reserve fund ^^ _ _ 440,707 2. The Central Banks. All the rural banks in Belgium are affiliated to regional central banks, which are cooperative societies with limited liability Only recognized local banks and the persons who are intrusted with the management can become members of the central banks. The latter are nommated by the general meetings. Each member subscribes for one share of the value of 100 francs and IS liable up to the amount of 1,000 francs. The dividend on the shares is fijced at 3 per cent and the balance of the profits is carried to the reserve. The central banks in Belgium, besides accepting deposits from and malang loans to local banks, supervise their management and inspect theu- accounts. They not only make loans du-ectly to the local banks, but guarantee loans made to them by the General Savings Bank, which, m conformity with the law of 1894, set aside a sum of 1^00,000 francs to be lent at Siper cent interest to rural banks affiliated to a central bank and guaranteed by it. The General Savings Bank has also agreed to accept on deposit from the central banks at 3 per cent interest the sums which they are not able to employ in lending to the local banks. Where a central bank guarantees a loan made to a local bank, the General Savings Bank allows it a commission equal to one-twelfth of the interest charged. There are seven central banks in Belgium, the most important of which is that of Louvain, known as the "Boerenbond." In 1910 out of the 643 Eaiffeisen banlis in Belgium, 304 were affiliated to the Boerenbond. For several years past the Boerenbond has been practically independent of the assistance of the General Savings Bank, having received sufficient deposits to enable it to grant all the loans applied for by the local banks. In 1910 it granted loans to the total amount of 225,000 francs. Eecently, with the object of extending its utility and to find a safe investment for its capital, the Boerenbond has organized a system of land-improvement credit. 3. The "Comptoies Ageicoles" and the Popular Banks. As we have already indicated, the rural banks are not the only institutions in Belgium which provide credit facilities for agricul- turists, the "comptoirs agricoles" formed in virtue of the law of 1884 having the same object. The "comptoirs agricoles" are smaU cor- porate bodies, consisting of at least four persons, which guarantee the loans granted to individual farmers by the General Savings Bank, receiving a small fraction of the interest as commission. IJ803,262 or £165,055. 2 $2,110,292, or £433,624. 42 SYSTEMS OF EUEAL COOPBBATIVE CKEDIX. From 1884 to 1909 only 16 "comptoirs" were formed in the whole of Belgium; On December 31 of the latter year there were 3,605 loans outstanding guaranteed by the "comptoirs," 684 of which had been granted in 1909. Only 104 of these 684 loans were less than 1,000 francs in amount, so that it is clear that the "comptoirs" servS rather the large farmers than the small holders. The 'comp- toirs," in fact, do not care to guarantee small loans, as they do not find such business sufficiently remunerative. It is, too, less hazardous to make loans to large farmers who own their land than to small farmers who can not furnish adequate security. Not the least difficulty in the way of forming "comptoirs" is that of finding men who, for such a slender return, are willing to under- take the liability of acting as sureties. Another form of agricultural credit to be met with in Belgimn is the popular bank of the Schulze-Delitzsch' type. In the whole country, however, there are only two such banks, which are mainly concerned with agricultural credit — those of Goe-Limbourg' and Argenteau. In 1909 these two banks granted 40 loans of the total value of 50,436 francs. Chapter IX. COOPERATIVE AGRICULTURAL CREDIT IN GREAT BRITAIN AND IRELAND. In Great Britain the number of agricultural cooperative credit societies which has been formed is comparatively small, but in Ireland such societies are more numerous. Cooperative credit was introduced into Ireland by the Irish Agri- cultural Organization Society, aided by grants from the Congested Districts Board for Ireland and, subsequently, from the Department of Agriculture and Technical Instruction for Ireland. In .England and Wales credit societies were promoted first by the Agricultural Banks Association and afterwards by the Agricultural Organization Society. The latter in recent years has received grants from the Board of Agriculture and from the Development Commissioners . With few exceptions the form of society adopted has borne a close resemblance to the Raiffeisen banks of Germany. The area of opera- tions is limited to a parish or to two or three adjoining parishes. The members are elected by the committee. Loans are only given to members and for reproductive purposes approved by the committee. There are no shares, but the liability of the members is unlimited. Each member pays a small entrance fee. In some cases "guarantee members" have been admitted whose liability is limited to a specffied sum, but this practice is rare. A small number of agricultural credit societies in which the lia- bility of the members is limited has been formed in Ireland, but the societies of this kind do not seem likely to increase. In Ireland the credit societies have obtained working capital from the following sources : 1. Deposits of members. 2. Advances from local landowners or other persons interested in the well-being of the farmers. 3. Advances from the Congested Districts Board for Ireland and the Department of Agriculture and Technical Instruction for Ireland. SYSTEMS OP EUEAL COOPEEAXIVB CREDIT, 43 4. Loans from tlie ordinary joint-stock banks. The last named is now the most important source of capital. Nearly all the, large Irish banking companies have recognized that the cooperative credit societies can serve as auxUiaries to them, doing busmess with a clientele which the large banks can not reach wathout their intervention. They have, accordingly, consented to advance money to the credit societies at moderate rates of interest. Proposals have been made for establishing a central bank in Ireland, but the need is not a pressing one. In England and Wales greater difficulties have been experienced m obtaining working capital. The large banking companies have not recognized the credit societies, and no Government department has made advances of money to them. The Central Cooperative Agri- cultural Bank (Ltd.) has been formed to assist the societies in find- ing capital. This is a cooperative society, with limited liability, con- taining both individual members and society members. Before obtaining advances from the central bank a credit society must take at least five shares of the value of £1 each. The central bank also receives deposits from societies which have surplus capital not imme- diately required for lending to members. As yet the transactions of the central bank have been on a very small scale. The rate of interest charged by credit societies to their members is usually in the neighborhood of 6 per cent. Sometimes they are able to lend at lower rates than this, but in Ireland the Irish Agricultural Organization Society urges the credit societies to charge even more than 6 per cent in order quickly to build up a reserve fund. The following are the latest available statistics of the agricultural credit societies (1) in Ireland and (2) in England and Wales: Table I. — Statistics of agricultural cooperative credit societies in Ireland in 1909. Number of societies 234 Membership '...'. '.'.'.'.'. 18, 422 Loan capital £,Z2, 780 Deposits £23,688 Total capital .•.-.: £56, 469 Amount of loans granted ^ £57, 640 Nmnber of loans granted 9, 213 Loans outstanding £55, 292 Expenses £593 Net profit £554 Eeserve fund £3, 559 Table II. — Statistics of agricultural cooperative credit societies in England and Wales in 1910. Number of societies ' 40 Membership 663 Loan capital £1, 028 Deposits £548 Amount of loans granted £1, 890 Number of loans granted ^11 9 Loans outstanding £1, 421 Expenses £34 Net profit , £64 Reserve fund , £270 ' 26 societies failed to furnish returns of membership. i^ ' 48 societies failed to furnish returns of loans granted. These include societies which had either not com- menced working or had not vet worked for 12 months (and so had not yet had an annual audit) on Dec. 31, 1909. ' Of these societies, 9 either furnished no returns or reported that they hnd as yet done no business. The remaining figures relate to 31 societies. 44 SYSTEMS OF EUEAI. COOPEEATIVB CREDIX. Chapter X. COOPERATIVE AGRICULTURAL CREDIT IN BRITISH INDIA. In British. Inilia the promotion of cooperative credit, both rural and urban, has been undertaken directly by the State. The cooperative credit societies act, passed in 1904, authorized the appointment by the various provincial governments of officials known as registrars of cooperative credit societies, with wide powers for the promotion and supervision of credit societies. For the "rural" societies, defined as societies in which not less than four-fifths of the members are agriculturists, the broad lines laid down are those of the Raiffeisen system, but considerable latitude is allowed. Save with the special sanction of the Provincial Government, the liability of the members of "rural societies" must be unlimited. All profits must be carried to the reserve fund until it has reached a certain proportion of the total liabilities and until the rates of interest on loans have been reduced below a certain percentage. In practice the great majority of the rural societies are societies with unlimited liability, but some societies with limited liability have been formed. Even where the liability is unlimited, members are usually required to take shares besides paying an entrance fee. Loans are "almost always for reproductive purposes, but loans for other purposes are occasionally allowed. The progress made since the passing of the act of 1904 has been rapid. On June 30, 1910, there were m India 3,145 rural societies, 321 urban societies, and 32 "central" societies. The so-called "central" societies, of which the object is to provide capital for the local societies (rural and urban), show great diversity of character. In some cases they are strictly federal, consisting solely of affiliated local societies- In such central societies the liability of the society members is usually limited to a certain multiple of the shares which they have taken up in the central society. A tjrpe of central society also exists in which the liabiHty of the society members is unlimited. Other central societies contain both individual members and affiliated societies, while yet others contain only individual members. The following tables contain the principal statistics for 1909-10 of the rural and central societies; Table I. — Number, membership, loans granted, etc., 1909-10. Bural societies. Central societies. Number of societies at end of the year Membership at end of the year Amount of loans granted to members during the year , Amount of loans granted to other societies during the year Amount of loans to members outstanding at end of the year Amount of loans to other societies outstainding at end of the year Net profit during the year 3,145 165,560 Rupees.^ •5,434,457 201,606 5,991,865 170,106 274,368 32 3,740 Rupees. 190,902 1,469,750 295,601 1,973,422 52,939 I A rupee is equivalent to 0.324 dollar, oi 0.66 pound sterling. «*1,761,676, or £362,297. SYSTEMS OP RURAL COOPERATIVE CREDIT. Table II.— Sources of capital, June SO, 1910, 45 Rural societies- Central societies. Loans from nonmembers. . Loans from other societies Loans from Oovemment. . Share capital Deposits by members Beservefund Rupees. 1,082,697 2,787,798 696,194 923,677 977,236 206,446 Rupees. 889,228 86,797 60,374 445,448 829,892 11,373 The latter table is interesting as showing to what a large extent the societies have become independent of advances from Government in finding the necessary working capital. It will be remarked that for the rural societies the principal source of capital is "other societies" — that is, not only central societies, but urban societies and other rural societies. The money provided by the members themselves in shares or in deposits also forms a considerable percentage of the working capital, and the societies have been able to obtain money largely from the general public. In the case of the central societies it is not possible to distinguish between the capital provided (as shares or as deposits) by individual members and society members, but a large proportion of the capital is provided by the two classes of members together, and another large proportion is obtained from the general public. The amount which the central. societies have obtained from the Government is comparar tively trifling. Thus, while the initiative in forming societies has been taken by the Government, the societies are very far from being dependent upon the Government for the working capital which they require. Conclusion. In the foregoing chapters we have seen that in different countries and in different circumstances cooperative agricultural credit has developed along different hnes. . In no respect are the differences more remarkable than in the source of the capital. In Germany the Landschaften obtain the capital they require from the investing pubhc by the issue of bonds. The Raiffeisen banks, too, are ahnost independent of advances from the State; they find nearly aU their working capital in the deposits of members and others and in the loans which they obtam from their central banks and from other banking institutions. In France, on the other hand, it is the State which finds the bulk of the capital for the cooperative banks. ,. , .,.a. <• ^u Great variations, too. may be remarked m the habihty of the mem- bers While the principle of mutual responsibihty is always earned out to a greater or less extent, the liabflity of the members ranges from the unlimited MabUity of pure Kaiffeisemsm to a habihty limited to the nominal value of the shares. It seems, however, that unUmited liability, or a near approach thereto, is found by experience to be the soundest basis of cooperative credit, especiaUy where tlie borrowers are small cultivators. 46 SYSTEMS OF RTTBAL COOPEBATIVB CREDIT. ^ Again the methods of granting loans and the security demanded vary greatly. .The effort to reduce risk of loss is everywhere apparent, but there is a tendency to relax precautions which prevent the system from being elastic. This can, it is clear, be most safely done when, the uses of credit are better understood. Where stop-gap borrowing has been prevalent, for instance, credit societies must naturally insist upon the borrower binding himself to apply his loan to a reproductive purpose. In time, however, the credit societies themselves so far educate their members that they only borrow money for investment as capital in their business, and more elastic forms of loan, such as loans on current account, become more usual. In introducing cooperative credit into any country or agricultural district where it has not been previously practiced it is necessary to take the social and economic conditions into account. It must be inquired: Who are the persons for whom the credit facihties are intended? Are they large farmers or small cultivators? Are they proprietors of the lands they cultivate or only tenants ? Are they all approximately upon the same social and financial level or are there wide differences tJetween them ? Do they require the loans for long periods for making permanent improvements or for short periods for use as working capital? Are they accustomed to borrowmg for reproductive purposes or have they borrowed chiefly for stop-gap purposes ? Are they aheady heavily indebted ? Upon the answers to these questions will depend, to a large extent, the form of cooperative credit to be adopted. The most important consideration is whether the capital is required by landowners for improvir^ their property or by farmers to carry on the ordinary operations of cultivation. In the former case the German Land!- schaften furnish a model which should not be difficult to adapt to the circumstances of any other country. In thfe latter case the Raiffeisen system, or some modification of it, is generally the best, but in advanced economic conditions a modification of the less paternal Schulze-DeUtzsch system might, perhaps, be adopted with advantage. It is also important to inquire whether the persons for whom it is desired to provide credit facilities are approximately on the same social and financial level or if there are wide differences between them. It can not be expected, for example, that large farmers will generally be wiUing to join with small farmers in a society whefe the Habihty of the members is unlimited. Where there are great differences of financial status, some limitation of the habUity must be adopted ia order that it may not press too heavily upon the more well-to-do members. To attract deposits, the best and most elastic source of capital, a credit society must be founded on a basis which will inspire pubhc confidence and make the risk of a general withdrawal of deposits almost negUgible. In large societies it may be possible to keep a con- siderable proportion of liquid assets, but, speaking generally, the funds of a credit society must, for the mos$ part, be employed in m aking loans to members on terms which do not admit of their being readily realized. Where credit societies are numerous and are combined together to form central banks a greater elasticity is obta,ined in this respect. SYSTEMS OF BTJEAL COOPEiEATIVE CREDIT. 47 The security which suffices to attract deposits usually suffices also to enable a credit society to obtain advances from banking institu- tions or capitalists.^ In, avaihjjg itself of this source of working capital a credit society must soconduct its business as to be able to repay the money when it becomes due. It can not, for instance, borrow money for one year and lend it out for two. This, however, is a question of common sense in doing business which does not affect the form of organization. We conclude this brief study of agricultural cooperative credit with the warning that the systems which we have described have been devised with the object of bringing credit facihties, such as exist in advanced commercial communities, within the reach of persons who individually were not able to obtaia them. It is not to be supposed that the adoption of any such system will appreciably diminish the rate of interest at which a person can borrow money who can offer substantial security and has direct access to banks or capital' sts. INDEX. Page. Preface 2 Introduction -. - - - 3 Chapter I . Rural banks in Germany— The Raiffeisen system 5 1 . Organization of the rural banks -. 6 2. The business of the rural banks 8 3. Statistics of the rural banks 11 4. The federation and central institutions of the rural banks 12 (a) The federations 13 (5) The central banks 13 .Chapter II . Popular banks in Germany— The Schulze-Delitzsch system 16 1. Organization of the popular banks 16 2. The business of the popular banks 17 3. Statistics of the popular banks 19 4. Federations and central institutions of the popular banks 20 ' (a) Federations , 20 (6) Central institutions 20 Chapter III. The Prussian Central Bank for Cooperative Societies and other State banks in Germany 20; Chapter IV. Cooperative land credit societies in Germany. "Landschaften" ; and"Ritterschaften" ._ 22; 1. Cooperative land credit societies for large estates in Prussia 22 i 2. Landschaften for small estates in Prussia 26| 3. Landschaften in the other States of Germany 27J 4. Private institutions of the Landschaften type 27 Chapter V. Cooperative agricultural credit in Austria 2ff 1. The rural banks 2: 2. The popular banks 2|, Chapter VI . Cfooperative agricultural credit in Italy SO 1. The rural banks 3^, 2. The popular banks 3SV Chapter VII. Cooperative a^cultural credit in France 33' 1. State-aided cooperative credit 33 (a) The local banks 34 (6) The regional banks 36 (c) General results 38 2. Independent cooperative amcultural credit 38 (a) Rural banks of the Raiffeisen-Durand type 38 (6) Mutual banks of the Rostand type 39 (c) Other cooperative agricultural credit societies 39 (d) The urban popular banks and agricultural credit 39 Chapter VIlI . Cooperative agricultural credit in Belgium 40 1. The rural banks 40 2 . The central banks !..!!!!!!!!!! 41 3. The "Comptoirs agricoles" and the popular banks.!!"!!!"!!!"!!!!! 41 Chapter IX. Cooperative agricultural credit in Great Britain and Ireland 42 Chapter X. Cooperative agricultural credit in British India 44 Conclusion 45 48 GAYLAMOUNT PAMPHLET BINDER Monufoeturad by SAYLORO BROS. Inc. SyracuM, N.Y. Stockton, Calif.