RURAL CREDITS 



771 



the entrance fees and deposits of farmer members. (3) The credit of 

 individual members is pooled, thereby increasing the borrowing power 

 of each. The pooling is the result of a collective guaranty of loans 

 made to any member, and its effectiveness increases with the extent 

 to which the collective guaranty increases, being at a maximum under 

 unlimited liability. (4) The security of loans can be increased by 

 careful and intelligent scrutiny of the purposes of the borrower in 

 order to insure against loans for unproductive purposes. And, of 

 course, this feature can be strengthened by inspection to see that sums 

 borrowed are applied for the purpose specified. (5) By means of 

 local supervision the most productive methods of applying loans can 

 be secured and more skilful farming be encouraged. (6) Finally, the 

 security that farmers have to give can be made more liquid and 

 negotiable. To be concrete, land and cotton are not welcomed by 

 our commercial banks as bases of credit; but by co-operating and 

 pooling such resources and making them the basis of issues of equal, 

 transferable securities of convenient denomination, .a ready loan 

 market may be created. Clearly, points i, 2, and 3 insure improve- 

 ments in integrity, or will to pay; and points 3, 4, 5, and 6 insure 

 greater solvency, or ability to pay. These are the very bases of credit. 



In addition to the preceding means of reducing risk, it is to be 

 remembered that economy in direction and management of the credit 

 business can be gained by co-operation. By confining operations 

 rigidly to securing credit, and working through small local units, the 

 simplest and cheapest organization is secured. A single central 

 organization can serve as a clearing house for a large area. 



The greatest need is working capital with which to make crops, 

 with a less immediately urgent need of farm animals. This need 

 exists more urgently among a large mass of poor tenant farmers. 

 Therefore, the most desirable credit agency is one which can best 

 supplement existing agencies in developing such credit as these 

 farmers have. These facts indicate an organization of the personal 

 credit type, confined to as small areas as is practicable, and operating 

 with a liability that is greater than that of corporation stockholders. 

 The object of co-operative credit is not so much to increase directly 

 the money security as to improve integrity and, indirectly, income and 

 ability to pay. 



Recognition of the local situation, however, would seem to indicate 

 some modification of the personal credit idea in making loans to mem- 

 bers, temporarily, at least. The chattel and crop mortgage system 



