When interest is not paid or a member is neglecting his farm, the local deputy, as he is called, serves as the medium between the association and the delinquent member. In this way the advantages and economy of a centralized organization and at the same time the benefits of a decentralized association—that is, one close to the individual farmer—are secured.
Personal Credit
While the land mortgage association is sufficient to provide the long-time credit that is needed by the landowner, it does not suffice to furnish the short-time loans that are needed to supply working capital, to buy seeds, fertilizers, livestock to be fattened, to pay for labor to grow crops and such operations as require capital for six to nine months. To the farm renter or any farmer who does not own land, the land mortgage association has nothing to offer.
To meet this need the rural banks have been established. The work of this class of banks had its beginning particularly with William Raiffeissen among the peasant farmers of western Germany about the middle of the last century. Raiffeissen saw the dire straits of the small-farmers who were without credit and at the mercy of the usurer. He began by establishing cooperative associations to do their own banking, and there were four fundamental principles that he insisted upon that have been retained in the true Raiffeissen banks of the present time. First, unlimited liability of the members. This was necessary in the beginning in order to get any credit at all. All the members were practically without means and the question of limited or unlimited liability was of little moment to them.
Second. A restricted area of operation for the bank. This was confined to the district in which the members were all personally acquainted with one another. In European farming it is customary, especially for the peasants, to live together in small villages and not on single farms as in America, so that the boundaries for the operation of the bank were generally confined to a single village.
Third. No dividends to members. A low rate of interest, usually 4 per cent., was paid on the capital stock each member had invested in the bank, but all profits made over that amount were set aside in a reserve fund.
Fourth. No salaried officers were employed in the banks except the bookkeeper. The management of the bank was made a matter of honor, the work to be done without any mercenary compensation. The business was done in the most democratic manner possible. Every member was given a voice and made to feel he was personally responsible for the success of the business. Loans were made for specific purposes, for example, to drain a field. The committee considered the
