Rural Banks

RURAL BANKS. - Credit institutions, with distinctive characteristics, both in the aims they set themselves 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-Eastern Europe.

I. ORIGIN OF RURAL BANKS

The first c. r. was founded in 1848 at Flammersfeld (Germany) by the mayor Friedrich Wilhelm Raiffeisen (1818-88). Struck by the serious repercussions that the German agrarian crisis of 1846-

1847 had on the economic situation of the peasants, he conceived and established this institution, which was to meet the credit needs of small owner-cultivators and at the same time free them from the burden of usurious interest on loans.

Having overcome the obstacles put up by the traditionalist agrarian milieu, the German c. r., which in 1885 numbered 265 and in 1890 numbered 1729, had by 1899 already reached the considerable figure of 9208. In roughly the same year there were in Austria over 2000 c. r., in Hungary 712, in Belgium 271 and in France 450.

In Italy the first c. r. was established at Loreggia (Padua) in 1884, on the initiative of Leone Wollemborg. This precedent, however, had little following. Subsequently the savings bank of Parma became the promoter of such bodies which, according to its program, were to act as intermediary organs between the savings bank itself and the humbler farmers of the province. But for the c. r. to multiply more rapidly one must come to 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 elevation of the small artisan and agrarian class. A meritorious pioneer in this peculiar form of social action was Msgr. Luigi Cerutti, of the diocese of Venice. He soon had disciples and imitators everywhere, so much so that the Catholic c. r., which in 1892 numbered only three, rose to 69 in 1894 and to fully 779 in 1897. Between 1900-14 they rose numerically to about 2000.

II. ETHICAL-RELIGIOUS CHARACTER OF THE RURAL BANKS

According to their historical origin, in Italy the c. r. were distinguished into lay ones, headed by Wollemborg, and Catholic ones, headed by the Christian-social current: the former, although grouped in a national federation and coordinated by a central bank, did not find favorable diffusion, while the latter, as has been noted, in the brief span of two decades formed a powerful economic movement, framed within diocesan and provincial federations and represented by a central body technically and rationally set up and ably directed.

The confessional character of the c. r. gave occasion to state this objection: cooperation is an economic association insofar as it aims to achieve economic ends, and therefore the religious element, which is inserted into the c. r., deprives them of the substantial requirement of economic character and transforms them into instruments in the service of extra-economic ends; consequently the cooperative nature of such bodies can be contested.

From the formulation of the principle to hostility of a practical order the step was not difficult. Credit cooperation promoted by Catholics was considered spurious and was not admitted into state assemblies in which, from a general point of view, the problems of cooperative societies were debated.

Luigi Luzzatti himself, founder of the people's banks and apostle of cooperation, intervened, affirming that the religious factor was nothing but a powerful impulse to drive a particular category of persons, having common beliefs, to unite in cooperatives, whatever their object. And, therefore, the reality of such an event could not have suppressed in such cooperatives their nature, provided that the function performed by them was effectively cooperative, that is, directed to the advantage of their members.

But to strengthen Luzzatti's point of view it would have been sufficient to point out that the ethico-religious inspiration of the c. r. concerns their associative composition and not the enterprise managed by them according to credit technique.

III. ASSOCIATIVE NATURE OF THE RURAL BANKS

Every collective private enterprise is an emanation of an association of persons. Nevertheless there are collective private enterprises on a personal basis and collective private enterprises on a capitalistic basis; collective private enterprises that propose mutualistic aims and collective private enterprises that set themselves aims of profit. The former enterprises assume the legal form of cooperative societies and the latter of capitalistic companies. The rural credit banks fall within the first category of companies. And therefore, in order to grasp the elements that differentiate these bodies from ordinary and special credit institutions, as well as from cooperative banks, one must take into account the individuals who, joining together, proceed to the constitution of the rural credit banks. They present a common professional aspect: they are small entrepreneurs who, taken individually, could not obtain credit from third parties, both because of the modest guarantees of which they are capable and because of the scant liquidity of the relevant investment operations as regards the lenders; or, if able to be admitted to credit, they would be so on conditions of high interest and with maturities not suited to the cycle of their respective productive processes.

The professional qualification of the members of a rural credit bank is what determines its economic character, inasmuch as it is through the exercise of a credit enterprise, managed directly, that the aforesaid members can obtain on loan the monetary capital they need. The rural credit bank, although being of their immediate emanation, nevertheless interposes itself, as debtor and guarantor, between them and the savers, who therefore do not find themselves faced with isolated applicants for credit but rather with an institution endowed with its own legal personality.

It is certain, nonetheless, that the rural credit bank cannot be a guarantor toward third parties of the obligations contracted except within the limits in which the members are in turn guarantors with respect to it. The commercial code of 1882 laid down, in this regard, no special rules for the rural credit banks, which, in their guise as cooperative societies, could at their pleasure constitute themselves as general partnerships, limited partnerships and joint-stock companies. However, from their very rise, the rural credit banks adopted the form of cooperative societies in collective name. One may affirm, indeed, that the expansion of the rural credit banks was greatly facilitated by such a legal configuration which, dispensing the members from the subscription of a share capital, came to pledge the totality of their patrimonies in favor of the creditors. For which reason it was rightly noted that the rural credit banks resolve themselves substantially into a means suitable for the discounting of a collective bill of exchange or into mutual insurance societies for the benefit of one or more creditors.

According to the consolidated text of 28 Aug. 1937 the rural credit banks may also be constituted as limited-guarantee companies, in which case the member, besides being obliged to subscribe one or more shares, is liable for the payment of the social debts up to a sum, to be determined in the deed of incorporation, not less in any case than ten times the amount of the nominal value of the shares subscribed. In the one and the other hypothesis the social debts come in the end to be apportioned among the members, and if one of these turns out to be insolvent, the unpaid portion of his quota is distributed anew among the other members. Such guarantee of the members in relation to the rural credit bank is, moreover, subsidiary, that is, it operates after the share capital and the reserve fund prove insufficient to confront the passive situation of the body.

However, the greater guarantee that the rural credit bank can offer to creditors, and the greater tranquillity that is reflected therefrom upon the members, depend on the moral honesty of the members themselves, both as regards the good use of the sums borrowed and as regards their present and future solvency. This condition of the moral honesty of the adherents to a rural credit bank is so predominant that from it, as from a fundamental premise, descend the principles that Raffeisen established for the regular functioning of such institutions and that still today can be enunciated in the following manner: 1) limited territorial circumscription to make possible the mutual knowledge of the members; 2) predetermination of the number and of the maximum limit of the loans for each member; 3) verification of the employment of the sums given on loan.

It is evident that if the basic form, whose observance ensures the correct conduct of the rural credit bank, is of a moral nature, the religious element, which confers upon that higher norm precision and unequivocal content, can not only act as a stimulus to the realization of the cooperative association, from which the rural credit bank arises, but continuously exerts the most efficacious influence to preserve its conduct from possible deviations and from insidious dangers.

And rural credit banks were, in fact, so thoroughly imbued with Christian religiosity from the time they were everywhere established that they appeared to be an exclusive manifestation of Catholic social action. In Italy this was confirmed in the recent past: the decline of the rural credit banks, indeed, occurred when these meritorious institutions were torn from their spiritual climate and from the moral environment from which they had drawn and continued to draw the profound motives of their vigorous and beneficial development.

IV. ECONOMIC CHARACTER OF THE RURAL BANKS

If on the one hand the foundation of the rural banks consists in their associative composition, their economic character is nevertheless connected with their nature as cooperative credit institutions. Not all cooperative credit institutions are, however, rural banks, and so it is clear that these possess their own particular features that distinguish them from credit cooperatives generally considered.

As a general rule, credit cooperation is an economic association insofar as it manages a credit enterprise in the direct interest of those who compose it. In concrete terms, credit cooperation is realized as urban credit cooperation and as rural credit cooperation, according to whether it is directed at satisfying the credit needs of small independent entrepreneurs of the city or of the countryside.

It is worth emphasizing that the rural bank is a credit organ of small independent entrepreneurs of the countryside, that is, of artisans, small owners and small tenant farmers working the land directly, in order to establish the criterion that this institution must grant credit destined for production, and not for consumption, and this function of its can, in fact, be better translated, as regards the agricultural part, into the discounting of bills of exchange issued by the members of the rural banks to the Agricultural Consortia on the occasion of the purchase of materials useful for the running of their holdings.

The rural banks provide themselves with the funds necessary for granting loans either by means of rediscount operations of their portfolio at larger credit institutions, following appropriate agreements, or by means of collecting savings in the form of deposits. In this eventuality, which is in fact the normal one, they are to be considered as small cooperative deposit and discount banks, and indeed as such, albeit different in size and in social composition, are also the popular banks.

Small cooperative banks and not small speculative banks: the importance of such a distinction is notable. Small, because of the restricted territorial area, the number of members, the quantitative limit of operations, the size of the deposits collected; banks, because they occupy an intermediate position between savers and those in need of savings, because their profits arise from the difference between passive interest and active interest and because, finally, the duration of their operations is rather short-term than long-term; cooperative, because they are collective enterprises of those in need of credit who do not expect monetary profits from the company but rather the provision of services on the best possible terms and in a manner consistent with their investments.

In short, the rural banks, in their capacity as particular credit institutions, are nothing other than a federative organization of small enterprises, artisanal and agricultural, having a direct and indirect integrative function; direct if each individual member immediately enjoys the services of the rural bank, and indirect if he avails himself of them through other cooperatives in which he participates as a purchaser of instrumental goods or as a processor of intermediate products into finished products or as a seller of both.

In this case the rural bank stands as the organic center of the economic life of a rural municipality. And when this comes about it is a sign that the cooperative spirit has reached its greatest and most effective realization.

The rural banks, insofar as they are promoted to satisfy special needs of an economic character, cannot be established and flourish except where these needs are felt. If they, for reasons of environment, were only small cooperative deposit banks and not also discount banks, and vice versa, they would lack the conditions by which their existence is justified.

But there are still many, in Italy, areas where the rural banks find grounds for their relevance, and these areas are those in which small owner-cultivated property and small tenant farming are already widespread or can be introduced. In such localities the rural banks present themselves as a necessary and valid factor of economic improvement; an improvement which, however, is enlivened by moral coefficients, such as a professional association cemented by a common religious inspiration and by the scrupulous observance of the precepts of Christian ethics.

V. also: ISTITUTO CATTOLICO ATTIVITÀ SOCIALI.

Giulio Tamagnini