Rural Credit
Collier's New Encyclopedia (1921)
various systems of extending loans to farmers for the purpose of financing the growing and marketing of their crops. Rural credit may be divided into two chief forms: co-operative and state aid. The former is by far the most extensively practiced. The co-operative method had its origin in Germany, where it was first established by Raiffeisen, from whom it has taken its name as the Raiffeisen system. A number of farmers in a community join together and form a co-operative bank in which the members are jointly liable for the debts of the association. Each member owns a limited number of shares, usually only one. Each member has only one vote in determining the policies of the association. In Germany, before the World War, the share capital of the banks formed only three and eight-tenths per cent. of the total capital available for loans, eighty-five per cent. of the capital being supplied by the savings accounts of the farmer-members. This system has spread all over agricultural Europe, but has made little or no headway in this country. In the United States the farmer usually obtains his credit through the regular commercial banks, through credit at the general store, or by means of crop liens, all of which have been extremely unsatisfactory. Within recent years credit unions have been established, especially in Massachusetts, where th they ial legislahave been encouraged by special legislation. The progress of co-operative credit unions has been so slow in this country, however, that the need of some system of state aid has long been felt, and finally took concrete shape in the Federal Farm Loan Act, passed in July, 1916, with the specific purpose of aiding the farmers to produce for the war needs of the nation during a critical period. See "Co-operation in Agriculture," by G. Harold Powell, and "Co-operation Among Farmers," by John Lee Coulter.
What Has Changed in the Last Century
The Federal Farm Loan Act that Collier's called a wartime measure in 1921 proved to be the foundation of a permanent institution: its twelve Federal Land Banks were folded in 1933 into the Farm Credit Administration, joined by Production Credit Associations and banks for cooperatives, and reorganized by the Farm Credit Act of 1971 into today's Farm Credit System, a government-sponsored network of lenders whose loans to agriculture now run into the hundreds of billions of dollars. It nearly failed in the farm debt crisis of the mid-1980s and was rescued by federal legislation in 1987, which also created Farmer Mac to provide a secondary market in farm mortgages. The cooperative credit that Collier's said had "made little or no headway in this country" did arrive, though not on farms: the Federal Credit Union Act of 1934 built on the Massachusetts experiment the entry mentions, and American credit unions now count members in the hundreds of millions of accounts. Raiffeisen's name survives in Europe in the Volksbanken Raiffeisenbanken and, by descent, in the Dutch Rabobank, one of the world's largest agricultural lenders.
Written for this edition, 2026.