THE STORY OF A PEACEFUL REVOLUTION.
Co-operation Banking and Credit banks.
CO-OPERATIVE Banking, which forms a very large part of the co-operative movement abroad, is as yet in its infancy in the United Kingdom, and this is the more remarkable from the fact that it is a subject which has constantly been discussed by British co-operators for the past thirty-ﬁve years.
The importance to the democracy of retaining control over the employment of its accumulated savings has been urged over and over again by leading co-operators, but without avail, and practically the whole of the ﬂoating capital of co-operative societies, of trade unions, and of friendly societies is still handed over to private banking ﬁrms, by whom it is lent to employers of labour, to merchants, and to traders. Not only do the bankers proﬁt by these transactions, but their competitors are enabled by the use of co-operative capital to oppose the progress of industrial democracy.
On contemplating the enormous accumulated funds of workmen’s organisations, estimated in 1902 by the Chief Registrar of Friendly Societies to reach a total of £157,526,982, it is easy to realise the power that an intelligent use of these funds would place in the hands of the workers, and difficult to understand why steps have not been taken to utilise this vast capital in the interests of associated labour. See Table (16).
DISCUSSION IN CONGRESS, 1869.
At the ﬁrst of the present series of Co-operative Congresses, held in 1869, the question of Co-operative Banking was discussed, and the need of a co-operative bank was urged on the ground that a co-operative outlet was required for the surplus capital of the stores, and that progress in manufacture was hindered by the want of the necessary capital. As a result of this discussion resolutions were adopted affirming—
(1) That it was expedient to establish a Co-operative Banking and Credit Association with a central office and branches.
(2) That it should be formed as nearly as possible on the model of the North of England Co-operative Wholesale Society,  and composed exclusively of co-operative societies registered under either the Industrial and Provident Societies Act or the Joint-Stock Companies Act, but no society to be deemed co-operative which divided proﬁts exclusively on capital.
(3) That trade societies of working men which obtained a legal position should be admitted as members.
(4) That the business of the association should be to keep the money both on current account and on deposits, of co-operative and trade societies, whether members or not, to discount the paper of co-operative societies, give guarantees for their transactions, and do all the usual banking business for its customers.
(5) That money be received on deposit from registered friendly societies, beneﬁt building societies, and individual members of co-operative societies.
This proposal was strongly supported by Mr. Thomas Hughes (the president), and by Messrs. J. M. Ludlow, E. O. Greening, Wm. Nuttall, and others.
At the following Congress, 1870, it was reported that the results of an inquiry as to the willingness of co-operative societies to join in the establishment of the bank had been handed to a high authority upon banking, whose name, however, was not disclosed, and a report of this authority in favour of the proposal, together with various criticisms on the proposed constitution, was read to the Congress. After further discussion, the resolution of the previous year was re-afﬁrmed and the subject referred to the executive of the Congress for further development. Efforts to induce the trade unions to join in the establishment of the bank were made by Messrs. Hughes, Ludlow, Morrison, and others — who were then actively engaged in promoting legislation for the legalisation of the trade unions — but without success. At the succeeding Congress, in 1871, a further paper was read from the banking expert, urging that in the Wholesale Society was to be found the nucleus around which the scheme of a bank could be gradually evolved, and recommending that the Wholesale Society should open an account at the Bank of England, appoint a London bank as its agent, and at once begin to act as a banker. The Congress, however, appeared to lean to the side of caution; the question as to how the bank would ﬁnd investments for its capital seemed to puzzle some delegates, while others were in favour of further propaganda before taking any deﬁnite action. Eventually the matter was referred to the Provincial Committee of the Central Board with instructions to bring it before the societies in the neighbourhood of Manchester, and, if approved, to ask for the adoption of the scheme by the directors of the English and Scottish Wholesale Societies.
ESTABLISHMENT OF A BANKING DEPARTMENT OF THE WHOLESALE SOCIETY.
There was no immediate practical outcome from this decision, owing to the apathy of the societies, but renewed energy was, however, put into the propaganda by the advocates of a wholesale bank, and resulted in the Wholesale Society passing the following resolution at its quarterly meeting on May 18th, 1872:—
Considerable interest was aroused in the proposal by means of district conferences, at which the advantages to be gained by the societies were discussed. It was even suggested that secretaries would be saved the trouble of writing out separate cheques, that they would need only to send on their cash to the Wholesale, and when they had accounts to pay would simply have to forward to Manchester a list of the ﬁrms and persons to whom payment was due, when the Wholesale would make the payments for them and debit their account with the amounts so paid. There is no record to show that this labour-saving process was actually put into practice. At the succeeding quarterly meeting it was stated that London agents had been appointed, that £29,000 had been received from the stores, and that over £11,000 of this had been lent out in advances on loan to various companies and societies. The meeting then proceeded to extend the scope of the new department by authorising the committee “to apply for and receive loans from societies which are non-members, whether joint-stock companies, corn mill societies, or retail stores, such loans being used as those are from members, and that the Board be authorised to open current banking accounts with members or non-members.”
At the Newcastle Congress, in 1873, it was announced that the department was in working order, that London and Provincial Banks had been appointed agents, and that it was now possible for co-operative societies to do their banking business through the Wholesale Society at a cheaper rate than through other banks, and that the proﬁts of the department would be divided among the depositors and those doing business with the society.
THE INDUSTRIAL BANK.
At the same Congress it was reported that an “Industrial Bank” had been founded under the Companies Act, by some co-operators at Newcastle, for the purpose of developing the co-operative movement in the northern counties; and a resolution was adopted by the Congress affirming that the Industrial Bank and the banking system of the Co-operative Wholesale Society could co-exist in harmony, and instructing the Central Board “to communicate with both bodies with a view to arranging a system of concurrent action.”
A year later, however, friction had arisen, and the Central Board, in their report to the Congress of 1874, stated that—
After referring to the progress of the Industrial Bank at Newcastle, the report goes on to say that a committee composed of Mr. Hughes, Mr. Crabtree, and Dr. Rutherford had “distinctly recommended the legal separation of the banking business of the Wholesale from its trading business, and would thus have prepared the way for a union between the Industrial Bank and the Wholesale banking business so as to form one Central Co-operative Bank.”
This proposal was opposed by some of the Wholesale directors on the ground that the change might disturb the conﬁdence then felt by the societies in the Wholesale, “and in the end the two systems of banking were left to pursue their separate paths under the expectation that the force of circumstances would gradually bring them together.”
The Industrial Bank, which had admitted individual shareholders as well as co-operative societies, was soon the cause of considerable friction in the movement, its friends urging that the Wholesale banking system of using the deposits in its trading operations was unsafe, and that the department should be entirely separated from the Wholesale and amalgamated with the Industrial Bank. The advocates of federalism, as exempliﬁed by the Wholesale, resented this as an attack on the Wholesale Society, and much feeling was aroused. Eventually, the Industrial Bank, which had advanced large sums to a co-operative engineering society, of which the chairman of the bank was manager, came to an end through losses incurred by the failure of the engineering concern, and the rivalry ceased.
PRESENT POSITION OF WHOLESALE BANKING DEPARTMENTS.
The Wholesale Banking Department has also sustained heavy losses during its existence, but has survived them all and has steadily progressed for many years past. It is still, however, a long way from having reached the position which, as the central bank of the movement, it should occupy, its total receipts in 1902 amounting only to £42,376,364 and its proﬁt for the year to £18,708. 
When it is remembered that the business of the movement amounted in that year to a total of 95 millions, it will be seen that there is still much room for development.
SMALL SAVINGS AND PENNY BANKS.
Many retail distributive societies have established savings bank departments, where small deposits are received, usually at interest of 4.17 per cent. per annum, and withdrawable, in the case of small sums of less than £5, upon demand, and upon short notice for larger amounts.
Juvenile penny banks have also been established in many societies for the encouragement of the habit of saving among children, and a return obtained by the Co-operative Union shows that at the end of 1903, 587 societies had a total of no less than £995,818 on deposit in these banks; the total number of depositors being 570,886.
CO-OPERATIVE CREDIT ASSOCIATIONS.
Co-operative credit associations may, as stated in the Board of Trade Report on Workmen’s Co-operative Societies, be conveniently divided into three classes —
(1) Building Societies registered under the credit Building Societies Acts.
(2) Friends of Labour Loan Societies certiﬁed under the Loan Societies Act.
(3) Credit Societies and Banks registered under the Industrial and Provident Societies Acts and the Friendly Societies Acts.
The objects of the ﬁrst group are to receive share capital and deposits from their members, upon which a ﬁxed rate of interest is usually paid, and to make advances of capital to members wishing to purchase or build a dwelling-house, such advances being repayable by instalments spread over a term of years. A very large number of workmen have availed themselves of these societies to become owners of their own dwelling-house instead of continuing to pay rent to a landlord.
There were in 1902, 2,190 of these societies in existence, with an aggregate membership of 595,451, and capital amounting to £63,907,087. They have not usually been regarded as an integral part of the co-operative movement, except in the case of one society, which is well known to co-operators generally, viz., the Co-operative Permanent Building Society, all the officials of which are also well-known workers in other phases of Co-operation. There is, however, except in a few instances, no doubt as to the co-operative character of these organisations. Many retail distributive societies also carry on a considerable business in this branch of Co-operation, the total amount of capital invested by stores in this form of security being stated in the Congress Report for 1902 to amount to £5,327,078. 
LABOUR LOAN SOCIETIES.
The second class — Labour Loan Societies — are societies for receiving share and loan capital from members and for advancing small loans to members requiring ﬁnancial assistance. They are less co-operative in character, the Act under which they are registered giving less real control over the management to the members than is usual in other forms of co-operative societies. They have for many years past been decreasing in number, partly owing to this weakness in their constitution, and partly to the practice which has grown up in many of them of encouraging members to receive loans even when not required. This practice is generally adopted as a moans of increasing the business of the societies, the non-borrowing investor being regarded as not contributing his share to the proﬁts out of which his interest as an investor is paid. Needless to say this practice is a very undesirable one, and leads to habits the opposite of those which it should be the object of Co-operation to encourage. The societies have, however, frequently been of great service to some members in times of temporary ﬁnancial need, and have encouraged the habit of saving in others. At the end of 1902 there were 254 of these societies in existence with an aggregate membership of 32,684, and capital amounting to £254,426.
CO-OPERATIVE CREDIT BANKS.
The third class — Co-operative Credit Banks and Societies, are the most recent development in the United Kingdom of Co-operation as applied to ﬁnancial transactions, and are the most interesting in their operations.
There were 106 of these societies at work in 1902, with an aggregate membership of 7,582, and a total share, loan, and reserve capital of £76,571.  They are mostly in Ireland, there being only seventeen in England and two in Scotland. With the exception of ten in England and the two in Scotland, they are all in agricultural districts, and are formed with the object of assisting the development of proﬁtable industries among agricultural labourers and small farmers.
The town banks are usually registered under the Industrial and Provident Societies Act, the members holding shares upon which a limited interest is paid, and the capital being advanced in loans to members, generally upon the security of two other members. They are somewhat similar in their operation to the labour loan societies, but with the important difference that, as a rule, strict inquiry is made as to the purpose for which the loan is required, and also that every member has by the rules an active share in the management of the society.
The agricultural banks are of a different character. They are usually registered under the Friendly Societies Acts as “Specially Authorised Societies.” They have no shares, the capital consisting of deposits and loans upon which a small ﬁxed interest is paid, and of entrance fees, subscriptions, and reserve funds. In Ireland a number of the societies are working with a loan of from £50 to £100 advanced to them by the Congested Districts Board or the Department of Agriculture. They are all worked upon what is known as the Raiffeisen system, the main features of which are—
(1) That the liability of members is unlimited;
(2) That loans are made to members only; and
(3) Only for purposes which the committee of the societies are satisﬁed is of a reproductive character which will enable the borrower to repay the loan at the termination of the period agreed upon. The officials are generally unpaid, and the proﬁts of the societies are carried to reserve funds, no dividends being paid.
IRISH AGRICULTURAL BANK.
During the year 1902 there were at work in Ireland 87 societies, with a total membership of 5,265, and capital amounting to £12,327. A total of £14,652 had been advanced in loans during the year. The working expenses of the 87 societies amounted to only £415, and their total proﬁt, after paying interest on deposits and loans, amounted to £249. To the British co-operator, accustomed to a turnover of many millions, these ﬁgures will appear insigniﬁcant, but the usefulness and inﬂuence of these societies are out of all proportion to their size. Sir Horace Plunkett says:  “They perform the apparent miracle of giving solvency to a community composed almost entirely of insolvent individuals,” and “the industrious men of the community, who had no clear idea before of the meaning or functions of capital or credit, and who were generally unable to get capital into their industry, except at exorbitant rates of interest and upon unsuitable terms, are now able to get, not always indeed all the money they want, but all the money they can well employ in the improvement of their industry.” . . . “The whole community is taught the difference between borrowing to spend and borrowing to make.”
THE “GOMBEEN” MAN.
These co-operative banks are rapidly putting an end to the wasteful and thriftless methods of borrowing formerly in vogue in the rural districts of Ireland. The money-lender, or as he is called in Ireland, the “gombeen” man, has through the agency of these small banks received a very severe check. Instead of interest at the rate of thirty or sixty per cent. being paid to the “gombeen” man, the farmer need now pay only ﬁve per cent. to his co-operative credit bank for a loan. Instead of having to make a journey of ten or twelve miles in order to obtain cash accommodation from the nearest joint-stock bank, he may now get it within the bounds of his own parish. In the poor rural parts of the country, the cost of negotiating loans from joint-stock banks consisted, in addition to a higher rate of interest, of the borrower’s travelling expenses and those of his two sureties, whose food and drink he had also to pay for on the journey. Not once only, but every time the three or four months’ bills required renewing the same outlay had to be met. Moreover, the interest charged was deducted before the money was actually advanced.
CURIOUS METHODS OF RAISING MONEY.
Where farmers had not recourse to “gombeen men” and joint-stock banks, many curious methods of raising money were adopted in the absence of a proper system of popular credit. Perhaps the most remarkable device was one by means by which the farmer could buy on credit. A number of men would agree to drive in their cattle to an auction in the nearest market town, where all the animals were offered for sale as the property of only one of them. The others then bid up to a good price. Cash was paid by the auctioneer to the supposed seller at a discount, and the supposed buyers gave bills for three or four months to the auctioneer and were charged by him an exorbitant rate of interest for the credit. Then the cattle were driven home to the sheds they came from, and the “syndicate” divided the money, less discount for cash, auction fees, interest, and the cost of refreshments. Some times a farmer would buy a beast on credit and sell it for cash immediately afterwards for what it would fetch.
In superseding such methods of raising money the co-operative banks are rendering invaluable assistance to Ireland, not only in enabling necessary capital to be obtained cheaply, but in improving the character of the small Irish farmers. The membership of the society and the feeling of responsibility which the successful management of the society gives, and the steadiness of character required as a condition of obtaining loans from the bank, all tend to inculcate business habits and a greater appreciation of the value of character and of money. The fact that no bad debts have yet been incurred by these banks is signiﬁcant of their success in this direction.
The chief diﬂiculty encountered by the early societies was in obtaining the necessary capital for making advances. The joint-stock banks, when not holding aloof altogether, charged exorbitant rates of interest for loans, usually 10 per cent. The Congested Districts Board and the Department of Agriculture in Ireland have, however, with a foresight unusual in Government departments, seen the great value of this new development and have made advances of capital to a number of the co-operative banks at 4 and 3 per cent. per annum interest. Some of the County Councils, too, realising the great value to Ireland of this form of Co-operation, are making grants towards the expenses of organisation, while recently the joint-stock banks appear to have realised that they were unwise in holding aloof and are now willing to help by allowing overdrafts upon reasonable terms.
On the whole, Ireland may be congratulated upon having forestalled Great Britain in the successful initiation and development of Co-operation in ﬁnance, as well as in agricultural operations generally.
1. The present English Co-operative Wholesale Society.
2. 694 Societies were banking with the Wholesale at the end of 1902. The proﬁts of the Bank are divided among its customers in proportion to the amount of business done with it, non-members receiving a dividend at one-half the rate paid to members. The dividend to members is usually one per cent. upon the average debit and credit balances.
3. See Chapter XXI., page 179.
4. See Table (15) for details.
5. Ireland in the New Century.