DURING THE late 1840s, famine ravaged parts of continental Europe as well as Ireland and the Highlands of Scotland.
In Flammersfeld, a poor district near Koblenz in what is now the German state of Rhineland-Palatinate, the young burgomaster, Friedrich Wilhelm Raiffeisen, was so distressed by the plight of the peasants who had to live on credit at usurious rates of interest that he established a number of welfare schemes funded by private charity.
From 1852 when he was appointed burgomaster of nearby Heddesdorf, now a suburb of Neuwed, a city on the Rhine, until he was forced to retire in 1865 when he was losing his sight, he launched a series of societies with the dual purpose of raising the moral stature of the peasantry and freeing them from indebtedness. In 1864, he founded the first rural credit society that was financed by its members.
The concept proved popular. More societies were founded and Raiffeisen established regional and national structures to ensure their orderly development in 1872 and 1876.
All members of these societies had to be of known good character and be acquainted with one another. Liability would be unlimited. All loans would be for productive purposes which would generate a sufficient return to repay the sum advanced and the interest. The term of each loan would be decided jointly by the borrower and his peers, and profits would be reserved rather than paid out in dividends. Nobody apart from the treasurer would be paid for his work.
Meanwhile, urban credit societies were being promoted by the lawyer and politician, Hermann Scultze-Delitzsch. They differed from Raiffeisen’s societies in that they had purely economic objectives and, for the most part, members’ liability was limited.
By the time of Raiffeisen’s death, rural co-operative credit societies fashioned largely on his principles had mushroomed not only across Germany but in Austria, Italy, Switzerland and the Benelux countries. Today, co-operative banks that trace their origins to Raiffeisen’s work have a significant presence in many European countries.
In the Netherlands, in 1898, the societies were numerous enough to form themselves into two regional groups which would merge in 1972 as the Coöperatieve Centrale Raiffeisen-Boerenleen (farm loan) Bank BA. In 1980, the bank adopted the snappier title Rabobank Nederland. The Rabobank Group is now a major international provider of financial services with businesses in 45 countries.
Raiffeisen’s work impressed Fr Thomas Finlay SJ when he was a student in Prussia in the early 1870s. A quarter of a century later, as vice president of the Irish Agricultural Organisation Society (IAOS), founded in 1894 by Horace Plunkett, he proposed the establishment of rural credit societies in Ireland and the secretary of the IAOS, George Russell was given the task of promoting them. The Congested Districts Board paid his salary for some years.
Plunkett shared Finlay’s enthusiasm. He wrote in Ireland in the New Century in 1904, that credit associations on the Raiffeisen system had “marvellously beneficial effects on distressed rural communities abroad and were more likely to do more good in Ireland than in any other country. Their exact purpose is to create credit as a means of introducing capital into the agricultural economy. They perform the apparent miracle of giving solvency to a community of almost entirely insolvent individuals”.
By 1910, there were more than 260 in existence. While little has been written, or at any rate published, about them, it appears that, typically, a society or “rural bank” comprised a small number of farmers who joined together to buy young cattle for fattening. Funding came from loans and grants from the Department of Agriculture and Technical Instruction (DATI) and the Congested Districts Board, loans from the joint stock banks, and private deposits. Interest was charged at one penny per pound per month, a little over 5 per cent per annum.
But Plunkett’s and Finlay’s hopes were not realised. Differences arose between the DATI and IAOS, and government support was withdrawn completely from 1915. No regional groups were formed. No mechanisms for auditing existed. Potential borrowers didn’t want others to know their affairs and credit worthy farmers were reluctant to become financially involved with their poorer neighbours, especially when they could obtain credit from their dairy co-operative and have repayments deducted from their creamery cheques.
In 1912, a Departmental Committee on Agricultural Credit found that only 176 societies were active and that many were “defective”.
In 1927, the minister for lands and agriculture, Patrick Hogan, told the Senate that he envisaged that the Agricultural Credit Corporation (ACC) then being established would become “a sort of clearing house for credit societies which are particularly useful in certain poorer areas where the average loan is £3 to £10”. But it wasn’t to be.
In 1938, when most of the surviving societies were collecting arrears rather than lending, the Commission on Banking, Currency and Credit concluded that there was “little prospect that any useful development of co-operative agricultural credit could be brought about on the initiative of the State or the ACC”.
Twenty years later, Economic Development, published by the Department of Finance opined that “history affords no support for the belief that (agricultural) credit societies could be successfully established”. And that was that.
Happily, the failure of these societies did not discourage Nora Herlihy (1910 -1988) and her colleagues from launching the Credit Union movement, which is one of modern Ireland’s greatest success stories.
The Agricultural Credit Corporation was re-organised in the 1960s with advice from the American Farm Credit Administration and became a major and steady source of loan finance at commercial rates for farmers and agri-business, funded largely by deposits from the general public. In 1988, it was given limited scope to lend outside the sector and in 1992, it became a full bank, ACC Bank plc. The Rabobank Group purchased the bank in 2002. Both banks now find themselves in the news for matters that have little or anything to do with farm credit.