It is estimated that eighty-five per cent of the population are without bank credit and must turn to specialized financial institutions which make small loans on a basis which the average borrower can meet. Moreover, many of the petty business men who are eligible to bank credit find it necessary to take recourse to supplementary credit facilities.
Again, the newest policy of commercial banking is to eliminate more and more marginal credit customers. Now, customers from racial minority groups are all the more subject to elimination, as on their behalf no social pressure offers resistance to this tendency. For this reason alone, the problem of credit facilities for marginal Jewish groups is of primary importance from the social-economic point of view.
It is the general observation of leaders of loan departments of commercial banks and of loan societies, that fifty per cent of small loans, up to $2,000, go to borrowers for capital purposes, all the other types to pay installment bills, debts, for medical care, taxes, etc., making up the other 50 per cent. Where adequate loan facilities are not available, small borrowers must turn to the loan sharks.
As to the constructive aspect of the small loan service, its value is undeniable. Many people can help themselves intelligently and in a lasting way if they have loan facilities. They are ingenious in their method of living, are industrious in making use of their particular skill, or are inventive in their manner of applying cash for profitable purposes. The community is not overrich in such elements, so all the more these individuals are worthy of support.
Also, a large number of the population would not readily surrender the right to be independent and self-supporting, and for them a loan service will always be required.
While large scale financial institutions of the “industrial bank” type, on the one hand, and purely cooperative “credit unions” on the other are functioning primarily to serve the employees, small business men are inclined to resort to them only too often. The Jewish family, for that matter, was always willing to support the credit of its members in business and thus provided the “co-maker” security demanded by the loan institutions.
The operation of industrial banks, however, required a routine which could not be adjusted easily to the needs of small business men, and their operations were costly from the point of view of the borrower.
By way of economic self-help, then, Jewish small business men have themselves, in the post-war period, created a sort of cooperative lending institution, the “axia.” Hundreds of these were operating in all principal cities in 1929. The volume of their installment personal loans, in 1931, is estimated to have reached $60,000,000. They were agencies for financing small Jewish business men by the accumulation of funds from other members of the Jewish community.
Because “axias” are informal institutions and lack the protecting legislation of public supervision, which distinguish the credit union, large numbers of them were destroyed in the past few years of the great depression. Once in liquidation, an axia is the immediate cause of heavy loss and disappointment. Interest in the institution dies rapidly, loans otherwise collectible become bad, and lawsuits multiply until the last vestiges of the erstwhile large resources disappear in fees for lawyers and accountants.
Little is left today of the tremendous development of these institutions. Although new ones may spring up from the ashes in some instances, but again without great security for the investor. Consequently, it seems improbable that these agencies will again become an important source of credit for marginal Jewish business men.
Although there are over 2,500 credit unions in about forty states, there are fewer open membership business men’s credit unions now than in 1927. Most business men’s credit unions began within groups closely associated by residence, friendship, or other interests. With the spread of the Jewish population in the large cities over the far-flung metropolitan area, however, the credit union knew less and less about its applicants for loans, membership meetings were poorly attended, and it was difficult to get responsible people to serve as officers.
In many cases either a philanthropic impulse or laxity in business policies, favoritism, etc., were substituted for the cooperative spirit, that had motivated the original organization. Two means for improvement have been resorted to. The law has now made difficult, if not impossible, the establishment of open membership credit unions. In the second place, the districting of cities for credit union purposes has been suggested. In actual recent practice, credit unions have been limited to the membership of synagogues, fraternal societies, trade unions, etc.
Next to credit unions as a method of constructive aid to some of the self-supporting elements come the remedial loan societies. They are agencies promoted on a semi-philanthropic basis, usually with limitation of dividends, which make loans similar to those of commercial lenders, such as the loan departments of large banks, personal finance companies, etc., but at lower rates and usually also on the same security, pawn, chattel, co-makers’ notes, etc.
In several Jewish communities throughout the United States there are remedial loan services of this type which render a distinct service to many underprivileged Jews. They help the applicant not only through loans, but also through advice as to his business.
In at least one of the Jewish communities, in Indianapolis, a Jewish Community Credit Union can be found. Its experience has been most encouraging, and it has come to be classified with the highest community service agencies. Its work has helped to save many a struggling small business man, professional man or workman. The deeper value of this experiment lies in the living example of the power of mutual aid and self-help.
Under an act of Congress passed last June, the credit union becomes a recognized financial institution with large possibilities for further development. Credit unions not only supply the credit structure for the urban and rural masses, but may become embodiments of the spirit of unity essential to the cooperative movement. Economic cooperation, again, is the bridge to a peacefully reconstructed social order.
By introducing mutual aid and self-help among the poorer classes, a credit union teaches them to keep accounts and to budget and to bear business responsibility. It eliminates competition for credit facilities and, through operation on a cooperative basis, reduces the business profits, usually accruing to financiers, by returning earnings to the membership.
Credit cooperatives have thus proved helpful to the middle classes in their struggle to maintain themselves against big business. They institute personal credit where none has existed, and they compete with existing banks and force them to show more consideration to small customers.
In this way the credit unon is a weapon for the middle class in its struggle for existence. And since the Jewish people are in the majority middle class, and in view of the aid of the national government, through the Farm Credit Administration and other agencies, it is indeed a timely task for our communal leaders to arouse among the American-Jewish public a lively interest in credit cooperation.