For each $50 The interest is Should he fail to

his income. He must have at least two indorsers or co-makers of situation and income at least as good as his own. borrowed he agrees to pay $1 a week for 50 weeks. deducted in advance, so that he receives but $47. make a payment on time he is fined 5 cents and notified of his delinquency. If he gets a week behind, his co-makers are notified. They may be relied upon to see that he catches up again if he can. Should he fail to do so, the co-makers take his place in making the weekly payments.

The profits of a Morris-Plan company are derived, not only from lending its capital, but also from lending the prepaid interest, the incoming payments and money corresponding to deposits-for the plan has its investment as well as its borrowing side.

B. Co-operative Institutions

173. CO-OPERATIVE CREDIT UNIONS'

BY ARTHUR H. HAM AND LEONARD G. ROBINSON

I. HISTORICAL SUMMARY

The number of co-operative credit associations or Credit Unions now in existence in all parts of the world has been estimated to be more than 65,000, with a membership approximating 15,000,000 and an annual business amounting to $7,000 000,000.

Impressive as these figures are, they are less striking than the economic and social results which this form of co-operation has achieved wherever it has found a foothold. It has regenerated and accelerated agriculture, commerce, and industry. It has stamped out usury and raised millions of human souls from the depths of despair to lives of hopefulness and service. It has supplanted shiftlessness by industry; improvidence by thrift; intemperance by sobriety; selfishness by neighborliness; individual effort by concerted action-in fact, has proved to be one of the most potent moral, educational, and social forces in the history of civilization and in the enrichment of the life of the common people.

Credit unionism originated in Germany in 1849. Frederick William Raiffeisen and Franz Hermann Schulze-Delitzsch were the founders of the two systems of co-operative credit which are commonly known as the Raiffeisen system and the Schulze-Delitzsch

I

Adapted from A Credit Union Primer. (Division of Remedial Loans, Publication of the Russell Sage Foundation, 1914.)

system, respectively. All co-operative credit, wherever found, is patterned after one of these two systems.

It is estimated that the total number of Raiffeisen banks in Germany today is 17,000, with a membership of 1,700,000, and loans aggregating approximately $500,000,000. In 1911 the number of Schulze-Delitzsch banks was 1,051, with a membership of 671,589 and total loans of $1,106,165,207.

A modified form of the Schulze-Delitzsch system was introduced into Italy in 1866 and the Raiffeisen system in 1883. Austria followed in 1885 and France in 1892. Ireland has today over 200 co-operative banks. In 1909 Japan had 1,886 Credit Unions. They are found also in Russia and India. Canada founded its first Credit Union in 1900 and now has more than 150 organizations. Credit Unions of various types are known to exist in many of the countries of South America.

The wedge of credit unionism was driven into the United States by the enactment of the Massachusetts Credit Union Law in 1909. Since then legislation has been enacted in New York, Wisconsin, Texas, Oregon, North Carolina, Utah, and Rhode Island.

II. REASONS FOR DEVELOPMENT

The causes of the demand for Credit Unions in the United States are not far to seek. Under present conditions in many parts of the United States if the farmer needs new machinery, live stock, draft animals, or supplies to enable him to live until the time of returns from the harvest, he must buy upon credit at the dealers' prices or mortgage his farm. The absence of adequate credit facilities in some sections is one of the greatest drawbacks to the development of the land.

The need of better credit facilities for the small tradesman to enable him to conduct his business more efficiently and for the wageearner when he meets reverses, sickness, or other urgent need, is fully demonstrated by the pernicious activity of the loan shark. One has only to glance at the records of small loan agencies to be convinced that by far the greater part of loans made, while they may be the indirect result of improvidence, are due to wants that are real and pressing. Not only is small borrowing often a legitimate and defensible procedure occasioned by emergency needs that lay a heavy hand upon the wage-earner, but it frequently is a prudent act committed in the spirit of economy. It enables a man to buy in large rather than

small quantities or for cash instead of upon the credit plan, which allows the instalment agency to reap an unconscionable profit at his expense.

Savings banks, building and loan associations, etc., do not fulfil the requirements of the situation, because they are not well adapted for the promotion of thrift among the poor. And thrift depends upon something besides the existence of a safe depository for surplus funds. In order to be thrifty many a man requires something more than agencies to receive his deposits and return them to him, when needed, intact with interest: he requires an agency which will make its hours of business conform to his convenience, which is conveniently located, which does not require him to stand in line for a long time awaiting his turn at the expense of his lunch hour and possibly of some of his employer's time; he requires an agency to which he is not ashamed to bring a dollar, fifty cents, or even a quarter; an agency which will constantly remind him of his resolution to save and which will reward his thrift by extending credit to him upon easy terms of repayment secured solely by his character and personal worth-credit which will enable him to effect economies in purchasing and embarking in productive enterprises, and will protect him from the usurer.

This is the field of the Credit Union. By its proximity and convenience it persuades the man who has not been reached by the savings bank to become thrifty, and this without interfering with the growth of ordinary banking institutions; instead, it actually increases the field of the banks. It makes the accumulated capital available to the persons who assisted in its accumulation. It does not become a substitute for the building and loan association or the remedial loan society; instead, it becomes a complement of these agencies, for the basis of the security for its loans is not collateral but character.

Character is a recognized form of security. Most borrowers possess such security and are entitled to credit upon this basis, but to ascertain the credit to which they are entitled requires a more or less intimate knowledge of their personal habits and of their financial and domestic situation. Credit Unions are formed on the principle that a man's best asset is his own associates' estimate of him. Their advantage is obvious. They are composed of a small homogeneous membership, mutually acquainted. Only those known to be honest and industrious are admitted to membership, and loans are made only to such members as have a legitimate need for the money.

III. PRINCIPLES AND ORGANIZATION

The main principles and most approved form of organization of Credit Unions may be outlined as follows:

a) FUNCTIONS OF A CREDIT UNION

1. It encourages thrift by providing a safe, convenient, and attractive medium for the investment of the savings of its members through the purchase of shares and the making of savings deposits.

2. It promotes industry by enabling its members to borrow for productive and other beneficial purposes.

3. It eliminates usury by providing its members, when in urgent need, with a source of credit at reasonable cost, which they could not otherwise obtain.

4. It trains its members in business methods and self-government, endows them with a sense of social responsibility, and educates them to a full realization of the value of co-operation.

b) BASIC PRINCIPLES

1. Equality. All members share equally in privileges and ratably in profits.

2. Democracy. The one-man-one-vote principle is fundamental. Each member has but one vote irrespective of the number of shares he may hold.

c) WHERE AND BY WHOM ORGANIZED

Any number of persons may combine to organize a Credit Union in a city, town, or rural community. In states that have Credit Union legislation a certain number of the incorporators must be citizens of the United States and of the state. Where a Credit Union is organized as an unincorporated or voluntary association this is not necessary.

d) BASIS OF MEMBERSHIP

The basis of membership in a Credit Union must be some common bond or community of interest. This may take a number of forms. It may be a neighborhood. It may be common occupation, employment by the same establishment, or membership in the same church, club, lodge, labor union, or other organization. In rural communities the church, parish, school district, or local grange furnishes a satisfactory foundation for membership.

e) QUALIFICATIONS FOR MEMBERSHIP

I. Identification with the basic unit upon which the Credit Union is founded the church, the club, the business establishment, etc.

2. Good moral character and a reputation for honesty, sobriety, and industry.

f) CAPITAL REQUIREMENTS

1. Capital consists of payments of members for shares and of unpaid dividends credited thereon.

2. There should be no limit to total number of shares.

3. Limitation upon number of shares held by one person is wise. 4. Par value of $5.00 is desirable.

g) FUNDS IN ADDITION TO CAPITAL

A Credit Union may accept the savings deposits of its members, and may borrow from members and others.

Interest on savings deposits should not be more than 1 per cent in excess of savings bank rates in the community.

Borrowing by the Union is merely an emergency measure and should be employed only when absolutely necessary to meet the credit demands of its members.

h) EMPLOYMENT OF FUNDS

Except for the Guaranty Fund, which the law may require to be invested in a particular manner, the funds of a Credit Union are primarily to be used for the purpose of making loans to members. Surplus funds should be deposited in banks or invested in prime securities.

i) WHO MAY BORROW

All members in good standing, except the Board of Directors, officers, and members of the Credit Committee and Supervisory Committee.

j) PURPOSES FOR WHICH LOANS MAY BE GRANTED

"It is essential that a Credit Union should loan only for productive purposes, purposes that will effect a saving, supply an urgent need, or that will otherwise prove of benefit to the borrower."

k) RATE OF INTEREST ON LOANS

As a matter of principle the interest charged on loans should be no greater than is required to pay the operating cost, a moderate rate of interest on deposits, to provide for a reasonable reserve or guaranty fund, and to pay a moderate dividend on shares. It is well to fix the maximum interest rate in the By-Laws. This rate should as nearly as possible approximate the banking rate of interest. (In New York the maximum rate of interest that a Credit Union may charge is 12 per cent per annum.) Care should be taken that the total charges upon loans do not exceed the maximum allowed by law.

1) DURATION OF LOANS

The By-Laws may fix a general maximum, but the time of individual loans should be fixed by the Credit Committee with due regard for the nature of the employment in which the members are engaged, their ability to repay, and the objects for which loans are made. A maximum of one