start companies soon. These companies generally loan small amounts of money on mortgage of personal property as security, although a few also accept pledges, endorsed notes, or salaries as a basis. The rates of interest vary fromper cent a month in a few cases to 3 per cent a month, with varying schedules of special fees for investigation of claims and registration.

What these companies have done toward putting the loan shark out of business may be indicated by the experience of one of them. The Detroit company started its work in 1906, after the passage of the Michigan law on loan agencies, and at that time there were over twenty-five loan shark companies operating in the city. For a time no effects of the reliable company's activity were discernible. Then suddenly things began to happen, and within half a year company after company closed up its office, until there remained only one concern which loaned money on salaries, and which was not complying with the law. There were two other companies which accepted the legal limitations, but the rest were put out of business directly through the efforts of the prosecuting attorney, whose first evidence was furnished to him by the remedial loan company.

A common practice among employers has been to adopt a rule discharging all employees who are found to be dealing with money lenders. The remedial loan associations have sought to and in many cases have succeeded in breaking down this practice by making the employers see that they were doing harm by turning their men out into the streets when they were found to have borrowed money without any investigation of the reasons for the borrowing.

In addition to fostering a new spirit among employers, an important part of the modern constructive campaign is the development of co-operative loan societies among employees themselves. This is one of the most effective ways of dealing with the problem of need for money in emergencies on the part of a man who is dependent on a salary. A great deal of the expense of an ordinary commercial company is avoided in the employees' associations, for the men know each other and the recommendation of a credit committee is sufficient warrant for a loan without the costly investigation of personal cases that a company has to make. The men themselves, contributing to the association and managing it, feel a pride in it, and are able to use it with dignity, while by making it a savings association as well, with an office in the company's building ready at hand when the men draw their pay envelopes, it can be made a powerful influence for thrift.

172. THE MORRIS PLAN OF LOANING ON PERSONAL

RESPONSIBILITY'

There was established in New York on December 31, 1914, a bank under the name of the Morris Plan Company of New York. The Morris Plan had been tried on a minor scale for about fifteen years. The purpose of the bank is to make loans of small sums on the basis of mere personal responsibility.

It aims to accommodate the man of small income who has no bank account—that is, the man with an income of from twenty to thirty dollars a week. Such a man when in need of a loan of from fifty to one hundred dollars cannot get one from any bank merely on his note, even though his note be indorsed by one or more of his friends. One reason is the smallness of the amount-too little for the bank to bother with. And yet this poor man's note, with its indorsers, may be quite as good in its relation to the amount involved as the note of some much larger borrower who, having an account with a bank, can with no difficulty secure a loan of some thousands of dollars. The man with a small income when pressed for fifty or one hundred dollars finds his usual recourse to be the loan shark or a lender on chattel mortgages. A third recourse which ought to be open to him—that of credit at a moderate rate of interest-has long been closed.

On the opening day there were 83 applicants for loans, on the second day more than 100, the third day 200, the fourth day between 350 and 400, and on January 11 more than 1,000. During its first two months, January and February, the company made 509 loans, aggregating $61,780, an average of $121.38 each. At the end of that time there were but seven delinquencies in weekly payments, only two of which were for as long as one week. Of the borrowers, 476 were men and 33 women. The average weekly income of the borrowers was $27.10. The favorite amount for loans was $100, of which there were 206; 132 loans of $50 were made.

The number of loans made by all the Morris-Plan institutions up to December 31, 1914, was 54,515. The average amount per loan was $123.50. Losses from bad credits have been less than one-tenth of I per cent. In less than 2 per cent of the loans have the indorsers been called upon to pay anything. Profits of the banks have been at the rate of 7.8 per cent.

The plan of making the loans is simple. The applicant must furnish references as to his character and must give information as to Adapted from the Literary Digest, May 15, 1915.

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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

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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.