258 PROVISION or BORROWING FACILITIES. 



(2) The area in which the village institution works must be 



well defined and restricted to narrow limits. 



(3) Members must be carefully selected, and none admitted 



but those of approved character. 



(4) All services in connection with the bank's administration 



must be gratuitously rendered. 



(5) There should, in general, be no paid-up capital. 



(6) All net profits are payable, not as dividends to members 



but to the reserve fund, which must be indivisible. 



A few words of explanation on these conditions are necessary. 



296. Unlimited liability is insisted on, because under such 

 conditions a few ordinary villagers can readily provide a guarantee 

 sufficiently strong to satisfy the requirements of those persons willing 

 to lend money to them at reasonable rates. It remains to be seen 

 whether the principle of limitation by guarantee will not be equally 

 efficient and more acceptable. The feeling of joint responsibility 

 induces each member to exert himself to the utmost to safe-guard 

 the common interest ; it compels caution in the distribution of loans 

 to members, and causes them to hesitate over the introduction of any 

 new members likely to cause loss to the association by unpunctuality 

 or backwardness in making payments. 



297. The limitation of area is an absolutely necessary condition 

 in the case of a society which relies so greatly, as a safe-guard against 

 loss, on the bond of common interest, on the influence of social 

 pressure, and on the intimate knowledge the members have of each 

 other's character and affairs. Usually the members of a village bank 

 should all be residents in the same village, or in the same group of 

 villages, provided that no one lives further than three or four miles 

 from the Bank's head-quarters. 



298. The selection of members is one of the principal factors 

 in the success of a village bank, which should never contemplate 

 going to law to recover any of its advances. Loans are made to 

 members on their personal security, guaranteed according to the 

 amount of the loan by the security of one or more other members. 

 The greatest care at the outset must be exercised in the choice of the 

 original members. The latter may be safely relied upon to exercise 

 discrimination in the admission of new members, because the loss that 



