Mighty oaks from little acorns grow

Picture this: you're an agricultural worker in Germany in the 1800s. Until recently you were tied into serfdom, and whilst you might have a degree of satisfaction knowing your toil was now for your own benefit, you find that you struggle to make ends meet at certain times of the year. Unlike your urban counterparts with more regular income, you cannot access credit systems to help tide you over and nor can you afford to invest in tools and machinery to help your business grow.

This was a quandary faced by countless individuals and families across the soon-to-be unified nation state, and one that had not escaped the attention of public servant Friedrich Wilhelm Raiffeisen. Motivated by his Christian beliefs and own experience growing up in a farming family, Raiffeisen had already launched several pioneering mutual aid programmes, including a communal bakery during his tenure as Mayor of Weyerbusch and a society to assist in the acquisition of cattle during his time as Mayor of Flammersfeld. But he knew that more could be done, particularly to safeguard farmers from the activities of loan-sharks.

Raiffeisen’s early projects relied on richer members of society to make contributions to the benefit of less well-off inhabitants but in 1864 Raiffeisen, now Mayor of Heddesdorf, decided to establish an organisation on more egalitarian principles. Its basic premise was that if you had savings, you could deposit them with the society in the knowledge that they would be used to offer affordable loans to other members. Anyone could join, as long as they were of good character and had some tangible assets: land, livestock, or equipment. All members were equal; everyone could be elected a volunteer director, and everyone was jointly liable for the activities of the society. With a broader aim to build bonds of solidarity between members, this last point was particularly important to its founder. Raiffeisen had created what is now often described as the world’s first credit union.

Raiffeisen’s first society operated within a small local area, and he may well have hoped that soon other communities would establish their own. Initial progress in this was slow. Nevertheless, soon Raiffeisen found a need to create centralised institutions to support individual local societies, including providing clearing services. By the time of his death in 1888, there were 425 rural credit societies in Germany, with similar initiatives being established across the border in northern France, and by 1913, there were 16,927 societies across Germany operating according to Raiffeisen’s principles. Now some of the world’s largest banking groups trace their heritage back to that first credit society in rural Germany, including Crédit Mutuel in France and Rabobank in the Netherlands.

135 years after his death, Raiffeisen would no doubt recognise the difficulties people around the world face in accessing affordable credit today. Still nearly one-third of the global adult population, 1.7 billion people, do not have access to banking services. Amongst the financially excluded are a high proportion of women, particularly in low- and middle-income countries, and the world’s rural poor. Access to credit does more than just allowing people to ‘get by’, it can help lift people out of poverty by encouraging and facilitating entrepreneurial spirit. Where people are excluded from formal banking systems they are often forced into the hands of predatory lenders or loan sharks. Even when credit can be accessed through financial institutions, borrowers may not necessarily be able to obtain preferential terms, such as here in the UK where one quarter of 25 to 34-year-olds rely on credit cards to pay their bills (Opens in a new window). 

In setting the foundations of the credit union movement, Raiffeisen’s work continues to make a positive difference today. With 87,914 credit unions across 118 countries, and over 393 million members between them, credit unions continue to use their deposits to offer affordable loans to those who might have otherwise been turned down for credit. They continue to belong to their members, rather than shareholders, and still promote solidarity, just as Raiffeisen had imagined when he founded his first credit society.

References and further reading

Association of British Credit Unions Limited. "Facts and Statistics". Association of British Credit Unions Limited. Accessed February 15, 2023. https://www.abcul.coop/credit-unions/credit-unions-facts-and-statistics

Iona Bain. "Credit unions are an underused lending resource for young people facing financial hardship". Metro. Accessed February 17, 2023. https://metro.co.uk/2023/01/16/credit-unions-find-the-lending-alternative-going-under-the-radar-18098218/

British Credit Union Historical Society. "Welcome to the British Credit Union Historical Society". British Credit Union Historical Society. Accessed February 15, 2023. https://cuhistoryuk.com

Crédit Mutuel Alliance Fédérale. "Mutualism, born from the energy of a visionary". Crédit Mutuel Alliance Fédérale. Accessed February 6, 2023. https://www.creditmutuelalliancefederale.fr/en/about-us/our-history/energy-of-a-visionary.html

Myron T. Herrick and R. Ingalls. Rural Credits: Land and Cooperative. New York and London: D Appleton and Company, 1928.

International Cooperative Alliance. "Friedrich Wilhelm Raiffeisen". International Cooperative Alliance. Accessed January 6, 2023. https://www.ica.coop/en/friedrich-wilhelm-raiffeisen

Alper Kara, Haoyong Zhou and Yifan Zhou. "Achieving the United Nations' sustainable development goals through financial inclusion: a systematic literature review of access to finance across the globe". International Review of Financial Analysis, 77 (2021).

J. Carroll Moody and Gilbert C. Fife. The Credit Union Movement: Origins and Development, 1850-1970. Lincoln: University of Nebraska Press, 1971.

World Bank. "Financial Inclusion Overview". World Bank. Accessed February 15, 2023. https://www.worldbank.org/en/topic/financialinclusion/overview