Question: Summarize "Raiffeisen loan banks of co-operation".
In the famine years of 1846 and 1847 and for some years after, Friedrich Wilhelm Raiffeisen was a burgomaster in the barren Westerwald. The people were hopelessly ground down by debt to money-lenders for small doles of capital, advanced to purchase stock, or meet times of special difficulty. It occurred to Raiffeisen that by combining to borrow a moderate sum of money on their joint responsibility, and afterwards to lend it out among themselves in small sums at a slightly greater rate of interest, the peasants might obtain relief from their burden of usury, and at the same time get the capital necessary to make their labor productive. Accordingly in 1849 at the little town of Flammersfeld, he set up a "Loan Bank." Despite its success, it remained the only one of its kind for five years, when Raiffeisen founded a second. There was no third for eight years more: it was only in 1880 that they began really to spread, but now they are found in many lands and are counted by thousands.
Such a bank is essentially an association of neighbors. Besides borrowing, it also receives savings deposits, which often produce a large part of, or even all, the capital it needs. Usually a few of the members are comparatively well to do people, who join to help their neighbors by increasing the society's credit. This Raiffeisen considered essential. They have no actual privilege, but by common consent they take a leading part. In the true Raiffeisen bank the liability of each member is unlimited, but limited liability has been introduced in some of its modifications. The Society confines its operations strictly to a small area, say a parish, where everyone knows everyone. Each borrower must specify the purpose for which he wants a loan, say to buy a cow or drain a field, or pay off a money-lender, and this is rigorously inquired into. Only members can borrow. Any member, however poor, can borrow for a profitable approved purpose, and no one, however rich, for any other. Practically all the members see that the money is applied as agreed; and, while the loan is often made for a long period, a year or two--even for ten or more--so as to repay itself out of the profit, power is reserved to call it in at short notice if misapplied. Loans are repayable by periodical instalments, but repayments must be made with absolute punctuality. No bills, mortgages or other securities are taken, except a note of hand either alone or with one or two sureties. There are two committees, one to lend and do the work of the society, and the other to supervise the first; and on both of these it is understood that the richer members are to be in a majority. No committeeman or officer receives any remuneration for his services, except that the accountant gets a small salary. Originally there were no shares, and when in 1889 the legislature ordained that there must be shares, the Raiffeisen banks made theirs as small as possible, generally ten or twelve shillings. Nothing is paid on the shares as interest or dividend, all profit being voted once for all to the ordinary reserve and the indivisible reserve, the latter the backbone of the system. In every large district the Raiffeisen banks are federated in a Union, and these Unions culminate in a General Agency. As an intermediary among themselves, and between them and the money market, the banks have also a central bank with a capital of £500,000, and with ten provincial branches. A great deal of agricultural co-operation has arisen from these banks as centers, and with the money they have supplied.
Raiffeisen banks boast that neither member nor creditor has ever lost a penny by them, and while this is denied it seems at least near the truth. Their credit is so good that they can obtain money at very low rates, and as their expenses are trifling they can re-lend to their members at rates but little higher. In Germany they usually lend at about 5%. Only men of good character can obtain membership: thus, besides spreading prosperity, they have everywhere been great promoters of sobriety and good conduct. They were only intended to meet the needs of the peasants, especially of the very poorest, and for this purpose they have proved admirably suited.
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