RURAL CREDIT ASSOCIATIONS. — Credit institutions with typical characteristics, both in the aims they pursue and the means they employ, and in the particular legal form they assume.
Their origin is relatively recent, and their spread, after an initial phase of slow development, has been considerable, not only in Italy but particularly in Central and Eastern Europe.
I. Origin of rural credit associations
The first rural credit association was founded in 1848 at Flammersfeld (Germany) by the mayor Friedrich Wilhelm Raiffeisen (1818–88). Deeply impressed by the severe repercussions that the German agrarian crisis of 1846–47 had on the economic situation of the peasantry, he conceived and established this institution to meet the credit needs of small-scale farmers and, at the same time, free them from the burden of usurious interest on loans.Overcoming the obstacles posed by the traditional agrarian environment, the German rural credit associations, which numbered 265 in 1885 and 1,729 in 1890, had already reached the substantial figure of 9,208 by 1899. Around the same year, Austria had over 2,000 such associations, Hungary 712, Belgium 271, and France 450.
In Italy, the first rural credit association was established at Loreggia (Padova) in 1884, through the initiative of Leone Wollemborg. However, this early example had little follow-up. Subsequently, the savings bank of Parma took the lead in promoting such entities, which, according to its program, were to act as intermediaries between the savings bank itself and the humblest farmers of the province. But for rural credit associations to multiply more rapidly, it was necessary to wait until 1892, when, after the publication of the encyclical *Rerum novarum*, the clergy began to take an interest in the establishment of these societies with the aim of contributing to the economic and moral uplift of the small artisan and farming class. A notable pioneer in this distinctive form of social action was Msgr. Luigi Cerutti of the diocese of Venice. Soon he had disciples and imitators everywhere, so much so that Catholic rural credit associations, which numbered only three in 1892, rose to 69 in 1894 and to as many as 779 in 1897. Between 1900 and 1914, their number grew to approximately 2,000.
II. Ethical and religious character of rural credit associations
According to their historical origins, rural credit associations in Italy were distinguished into secular ones, linked to Wollemborg, and Catholic ones, linked to the Christian-social movement: the former, although grouped into a national federation and coordinated by a central bank, did not find favorable diffusion, whereas the latter, as noted, within the brief span of two decades, formed a powerful economic movement, structured into diocesan and provincial federations and represented by a central organization technically and rationally structured and skillfully directed.The confessional character of rural credit associations gave rise to the objection that cooperation is an economic association insofar as it aims to achieve economic goals, and therefore the religious element introduced into these associations deprives them of the essential quality of economicity and transforms them into instruments serving extra-economic ends; consequently, the cooperative nature of such entities may be contested.
From a practical standpoint, the step was not difficult. Catholic-promoted credit cooperatives were considered spurious and were not admitted to state assemblies where cooperative society problems were debated from a general perspective.
Luigi Luzzatti himself intervened, founder of popular banks and apostle of cooperation, affirming that the religious factor was merely a powerful impulse to unite a certain category of people with shared beliefs into cooperatives, whatever their object. Thus, the reality of such an event could not suppress the cooperative nature of such cooperatives, provided their function was genuinely cooperative, i.e., aimed at benefiting their members.
To reinforce Luzzatti’s viewpoint, it would suffice to highlight that the ethical-religious inspiration of credit cooperatives pertains to their associative composition and not to the enterprise they manage according to credit techniques.
III. ASSOCIATIVE NATURE OF CREDIT COOPERATIVES. Every collective private enterprise is an emanation of an association of persons. Nevertheless, there are collective private enterprises based on personal relations and those based on capital; enterprises aimed at mutualistic purposes and those aimed at profit. The former take the legal form of cooperative societies, the latter of capitalist societies. Credit cooperatives fall into the first category. Therefore, to grasp the elements distinguishing these entities from ordinary or special credit institutions, as well as from cooperative banks, one must consider the individuals who, uniting among themselves, proceed to establish credit cooperatives. They share a common professional aspect: they are small entrepreneurs who, individually, could not obtain credit from third parties due to insufficient guarantees or the illiquidity of their investment operations vis-à-vis lenders; or, if admitted to credit, would face high interest rates and terms incompatible with their respective production cycles.
The professional qualification of the members of a credit cooperative determines its economic character, as it is through the exercise of a credit enterprise, directly managed, that these members can obtain the monetary capital they need. Though the credit cooperative is their immediate emanation, it interposes itself, as debtor and guarantor, between them and savers, who thus do not face isolated credit seekers but an institution with its own legal personality.
It is certain, however, that a credit cooperative cannot guarantee third-party obligations beyond the extent to which its members are themselves guarantors. The Commercial Code of 1882 did not provide special norms in this regard for credit cooperatives, which, in their capacity as cooperative societies, could freely constitute themselves as general partnerships, limited partnerships, or joint-stock companies. Nonetheless, from their inception, credit cooperatives adopted the form of general partnership cooperatives. Indeed, one may affirm that the expansion of credit cooperatives was greatly facilitated by this legal configuration, which dispensed members from subscribing to a social capital, thereby committing their entire assets to creditors. It has been rightly noted that credit cooperatives essentially amount to a means suitable for discounting collective bills of exchange or to mutual insurance societies for the benefit of one or more creditors.
According to the Consolidated Law of August 28, 1937, credit cooperatives may also be constituted as limited-liability companies, in which case the member, besides subscribing to one or more shares, is liable for the payment of social debts up to an amount, to be determined in the articles of incorporation, not less than ten times the nominal value of the subscribed shares. In both cases, social debts are ultimately distributed among the members, and if one proves insolvent, the unpaid portion is redistributed among the others. This guarantee by members in relation to the credit cooperative is, moreover, subsidiary, operating only after the social capital and reserve fund prove insufficient to cover the entity’s liabilities.
Yet the greater guarantee that a credit cooperative can offer creditors, and the greater tranquility this brings to its members, depend on the moral honesty of the members themselves regarding both the proper use of borrowed funds and their present and future solvency. This condition of moral honesty among credit cooperative members is so predominant that from it, as a fundamental premise, stem the principles that Raiffeisen established for the proper functioning of such institutions and which may still be enunciated as follows: 1) limited territorial scope to enable mutual knowledge among members; 2) predetermined number and maximum limit of loans for each member; 3) verification of the use of loaned funds.
It is evident that if the foundational form, whose observance ensures the proper conduct of a credit cooperative, is of a moral nature, the religious element, which lends such a norm superior precision and unequivocal content, not only can act as a stimulus for the realization of the cooperative association from which the credit cooperative arises, but continuously exerts the most effective influence to preserve its conduct from possible deviations and insidious dangers.
CASSAPANCA - C. with depictions of Virtues. Wood and pastiglia (late 15th century) - Florence, Bardini Museum.
Indeed, credit cooperatives were so imbued with Christian religiosity from their very establishment that they appeared to be an exclusive manifestation of Catholic social action. In Italy, this was confirmed in recent times: the decline of credit cooperatives occurred precisely when these meritorious institutions were severed from their spiritual climate and moral environment, which had provided the profound reasons for their flourishing and beneficial development.
IV. ECONOMIC CHARACTER OF CREDIT COOPERATIVES. While the foundation of credit cooperatives lies in their associative composition, their economic character is nonetheless tied to their nature as cooperative credit institutions. Not all cooperative credit institutions are credit cooperatives, and it is clear that they possess distinctive features setting them apart from generally recognized cooperative credit societies.
In principle, credit cooperation is an economic association in that it manages a credit enterprise for the direct benefit of its members. In practice, credit cooperation takes the form of either urban credit cooperation or rural credit cooperation, depending on whether it is intended to meet the credit needs of small independent entrepreneurs in cities or in the countryside.
It should be emphasized that rural credit (c. r.) is a credit institution for small independent entrepreneurs in rural areas—namely, artisans, small landowners, and small tenant farmers—with the criterion that this institution should grant credit for productive purposes rather than consumption. Indeed, its function in the agricultural sector is best exemplified by the discounting of bills of exchange issued by members of rural credit cooperatives to agricultural consortia when purchasing materials necessary for the operation of their farms.
Rural credit cooperatives obtain the necessary funds for granting loans either by rediscounting their portfolio with larger credit institutions, through appropriate agreements, or by collecting savings in the form of deposits. In the latter case, which is the norm, they function as small cooperative deposit and discount banks. In fact, such institutions, though differing in size and social composition, are also popular banks.
Small cooperative banks, not speculative banks: the importance of this distinction is significant. Small, due to their limited territorial scope, the number of members, the quantitative limits on transactions, and the amount of deposits collected; banks, because they act as intermediaries between savers and those in need of credit, their profits arising from the difference between passive and active interest, and because their operations are generally short-term rather than long-term; cooperative, because they are collective enterprises of those in need of credit who do not seek profits from the society but rather the provision of services under the best possible conditions and in a manner consistent with their investments.
In short, rural credit cooperatives, as specialized credit institutions, are nothing more than a federative organization of small artisan and agricultural enterprises with direct and indirect integrative functions. Direct, if each individual member immediately benefits from the services of the rural credit cooperative; indirect, if the member benefits through other cooperatives in which he participates as a buyer of capital goods, as a processor of intermediate products into finished goods, or as a seller of either.
In this case, the rural credit cooperative serves as the organic center of the economic life of a rural community. When this occurs, it is a sign that the cooperative spirit has achieved its highest and most effective realization.
Since rural credit cooperatives are established to meet specific economic needs, they can only consolidate and thrive where these needs are felt. If, due to environmental factors, they were merely small cooperative deposit banks without discounting functions, or vice versa, the conditions justifying their existence would be lacking.
However, there are still many areas in Italy where rural credit cooperatives remain relevant, particularly where small owner-operated farms and small tenancies are already established or can be introduced. In such localities, rural credit cooperatives represent a necessary and valid factor in economic improvement—an improvement that, however, depends on moral factors, such as a professional association cemented by a shared religious inspiration and strict adherence to the precepts of Christian ethics.
See also: ISTITUTO CATTOLICO ATTIVITÀ SOCIALI.