The People’s Banks.

Southern Cross, Volume 2, Issue 23, 1 September 1894, Page 3

The People’s Banks.

THEIR SUCCESS IN GERMANY AND ITALY.

DETAILS OF THE SYSTEM,

(Continued from last issue.)

After describing the origin and progress of the movement in Germany, Mr Wise continued,—Money is to be found for every man who needs it, whatever may be the amount; but in every instance he must first make out his case to the committee, or, if they refuse him, to the council, and prove alike that he is trustworthy and that his enterprise is economically justified. Every applicant has to state the purpose for which he requires the money : and the association set their faces sternly against improvident borrowing. If an applicant can make out his case, be he ever so poor, the money will be placed at his disposal. Without such proof, be he ever so rich, the money is sure to be refused. And once the money is granted, it must be conscientiously applied to the specific object for which it was asked. In a small district, as a matter of course, everybody knows everything about everybody else, and is a constant check upon him. A man could not misapply his loan money without his neighbour being made aware of it. If he does misapply it, the loan is at once called in. In another respect, too, the banks are wisely inexorable. Alike interest and principal they insist must be paid in to the very day. On any point will they give way rather than that of prompt and punctual repayment. It has been already said that neither mortgages nor pledges are taken as security for loans. Credit personal credit, pure and simple—is the basis of the system. All that is asked for is a note of hand as an acknowledgment of the debt. THE MOVEMENT IN ITALY. It has remained for Italy—the home of our own banking system —to present popular banks in a more familiar and generally acceptable form. The credit of this work belongs to one man, Signor Luzatti, who has recently been honoured by the position of Financial Minister. Although Signor Luzatti acknowledges his indebtedness to his German forerunners, he has appliedjjtheir principles in quite a. new and original manner, adapting them, as the principles show themselves capable of being adapted everywhere, to the commercial conditions of his own country. In the first place he discarded the principle of unlimited liability. Secondly, he insisted on a share capital, varying in amount from L 5 to a few shillings, according to the position in life of those whose wants the bank was designed to meet. Thirdly, he required that the institution should not be a purely lending association, but

A BANK IN THE TRUE SENSE. This limitation, however, he put upon his banking business —that he would deal only in bills of exchange. Every other source of profit, except that derived from interest on cash credits, he sternly rejects. The funds of the bank are to be invested only in bills, in order that the business may be kept simple and the assets may be always liquid. In other respects his methods are similar to Raiffeisen’s. Moral guarantees and personal character are the only sources of the bank’s support. The first people’s bank was started in 1865 at Milan, upon a capital of £2B, of which Signor Luzatti subscribed £5, He was the millionaire of; the company. At first no paid officers were employed ; now the staff numbers 100. It has a paidup capital of £336,752 held in 165,906 shares. Its reserve is £168,376, It holds £4,000,000 of deposits. Its annual turnover is £100,000,000, upon which its loss averages only ’0036, or something less than 9d on every £IOO. Its advances are almost all in small amounts,more than four-fifths of

these for less than £4O, and many for ,as little as Bs. It makes large profits, and its dividend is 14 per cent. It must be apparent from these figures that the control exercised over the mass of members cannot be very strictly exercised. To remedy this and provide for a large number of members, S. Luzatti has adopted the following plan :—His committee consists of a large number of volunteers, who divide themselves into sub-com-mittees, taking turns to sit. The committee of the Bank of Milan consists of 40 members, who, as a rule, forego their right to borrow whilst they hold office. In order to keep all the members of this large body in touch with each other, and to prevent any inconsistencies in the action of the several sub - committees, the general committee from time to time prepares a table showing what in their opinion each member of the association is good for. This table is called THE “ CASTELLETTO,” and, like every other book, the book is always open to the inspection of members. It is carefully revised from time to time ; but whatever the figures in it are which stand against a member’s name, to that limit he may borrow, and not a penny beyond. Should the estimate fixed in it for any member decline while a loan is out to him, or to anyone else for whom he acts as surety, the debtor is at once called upon to make good the difference. Two or more members may combine to borrow upon the amounts in this list. For instance, if A is considered good for £4O, B for £2O, and 0 for £6O, on the strength of their joint signatures, any one of them is entitled to a loan of £l3O, provided that no other paper is outsigned or backed by any one of the three. Finally, no cash credit is allowed merely for accommodation. If the account does not show from the operations upon it that the loan is being used for trade purposes, it is at once called up. The very success of these institutions has in fact proved a source of danger. S. Luzatti himself was always opposed to HIGH PROFITS. But he was compelled to yield to the advice of the so-called ‘ practical ’ men about him, who advised him to attract capital by the prospect of dividends, and to exclude the very poorest classes as unfit for credit. All these ‘ practical ’ principles have long ago been thrown overboard ; and the rule now is that high dividends are to be avoided. ‘ Study,’ says S. Luzatti, ‘ not making dividends but cheapening loans ; and use your profits to build up reserves.’ ‘ Remember too.’ he adds, ‘ that you sprung from the womb of workingmen’s friendly societies, and, having attained your prosperity, do your best to help the poor.’ The system has been extended to country districts—to which, owing to S. Luzatti’s limitation as to the nature of his securities, his banks were with difficulty made useful —by means of the Casse Rurali, which were founded by Dr Wollenborg, and which are doing in rural Italy as good work as the banks of S. Luzatti are doing in the towns. THE GROWTH OP THE BANKS

Has been phenomenal. Wherever one is established it throws out offspring. In one city you may find four of the institutions, each dealing with a different class of customers —from the bank with £lO shares which caters for the well-to-do tradesman, to the humble institution which lends out sixpences and shillings to the very poorest of the community. In all the bond is the same, viz., the knowledge each member possesses of the other, and the strict adherence to the rule of regarding personal character as the only safe security. The Banco Populare started, in 1867. In 1882 there were 206 offshoots, with an aggregate capital and reserve of £2,312,880, that is about £11,200, per bank, and a members’ roll of 114,177 (821 per bank.) The collective lending of these amounted in that year to £6,241,696. By 1883 the number of

members had increased to 139,959, By ISB9 the banks had increased to 714, with a paid tip capital and reserve of £4,599,180, and lending the sum in that year of £11,437,476. No figures are available since 1889, but it is estimated that these banks do one-third of the whole banking business of Italy, and that their position is growing stronger every year.