(The headman makes the feast only, but does not repay the loan.)
The headman receives from each member 10,000 cash (ten strings) 10 X 10 = 100.
| Number | 2 | receives | 9 X 8 = | ... | 72 |
| " | 3 | " | 8 X 8 = | 64 + 10 = | 74 |
| " | 4 | " | 7 X 8 = | 56 + 20 = | 76 |
| " | 5 | " | 6 X 8 = | 48 + 30 = | 78 |
| " | 6 | " | 5 X 8 = | 40 + 40 = | 70 |
| " | 7 | " | 4 X 8 = | 32 + 50 = | 82 |
| " | 8 | " | 3 X 8 = | 24 + 60 = | 84 |
| " | 9 | " | 2 X 8 = | 16 + 70 = | 86 |
| " | 10 | " | 1 X 8 = | 8 + 80 = | 88 |
| " | 11 | " | 9 X 10 = | ... | 90 |
In the following modification of the plan of loan, the headman pays back his loan, like the other members, and also provides each feast, which is regarded as his interest.
| Headman | receives | 10 X 10 strings = 100 | |
| Number | 2 | " | 9 X 8 = 72 + 10 = 82 |
| " | 3 | " | 8 X 8 = 64 + 20 = 84 |
| " | 4 | " | 7 X 8 = 56 + 30 = 86 |
| " | 5 | " | 6 X 8 = 48 + 40 = 88 |
| " | 6 | " | 5 X 8 = 40 + 50 = 90 |
| " | 7 | " | 4 X 8 = 32 + 60 = 92 |
| " | 8 | " | 3 X 8 = 24 + 70 = 94 |
| " | 9 | " | 2 X 8 = 16 + 80 = 96 |
| " | 10 | " | 1 X 8 = 8 + 90 = 98 |
| " | 11 | " | 10 X 10 = 100 |
In these examples it will be observed that the earlier each member draws his money, the less he gets on his investment. In the case last supposed, the final recipient, who has no interest to pay, but who receives interest from all but the headman, gets back all his money in a lump, with interest upon it. As already remarked, for the sake of simplicity we have disregarded the actual time for which the money is loaned, and for convenience have assumed a rate of interest which would probably be below the real one. It is evident that so far as financial considerations go, taken by themselves, it is for the advantage of the partners to come as late in the drawing as possible. But it is far from being the case that financial considerations are the only matters to be taken into account. The man who needs money, and who can never be sure of getting as much as he needs upon any better terms than these, will gladly take it as soon as he can get it, arranging the wedding for which he perhaps wishes to employ it, to suit the time of the loan.
Like other human contrivances, Chinese loan societies are to be judged by their results. The practical operation of these organizations often presents an instructive view of many aspects of Chinese life. The man for whose benefit the society is got together does not find that others are hungering and thirsting to do him a good turn, unless they clearly see their way to recover what they put in, with liberal interest. It is therefore often necessary to use a great deal of persuasion, to induce one to join, and especially to persuade him to bring in others. No one is willing to enter into a society of this kind unless it is reasonably certain that every member will meet every assessment, for if any individual fails to pay, everything is at a deadlock. To guard against this, it is customary to have security, or bondsmen, in some instances the headman acting as bail for all the rest. In case of failure on the part of any member to meet his payment, the headman is then required to pay the amount lacking, and this he is of course very unwilling to do, however freely he has engaged to do so. Troubles of this nature lead to many fights, and if this extreme measure is not resorted to, it is not at all unlikely that the person technically responsible will try the familiar method of begging off, striving to induce a creditor to accept a k‘o-t‘ou in place of cash. If sufficient pressure can be brought to bear in favour of any defaulting member, this plan may succeed in its object, as well as in breaking up the loan society.
Where the number is enlarged to more than a score, as in some districts, the probability that some one will fail to meet his obligations is greatly increased. It is also a fatal objection to these long loans, that before the whole term of years elapses, it is morally certain that something will occur to disturb the very unstable financial equilibrium of the members. For instance, the T‘ai-p‘ing rebellion, with its long train of sorrows, and the continual famines and floods of later years in Northern China, have tended to bring loan societies into discredit, because experience has shown that thousands of persons have put into them what could never be recovered. It is the almost unanimous testimony of the Chinese whom the writer has consulted on the subject, that in these days such societies fail to accomplish their uses, and are little better than a fraud. Whether a man loses by them, or not, will depend, however, mainly on his own skill in keeping out of those which are unsafe, regardless of the pressure which may be brought to bear upon him. Some men will tell you that they have been partners several times and have never lost their capital, or only lost it once, while others have a totally different account to give.
A Chinese whose easy-going disposition made him a valuable neighbour to those who wished to borrow without being at the inconvenience of repaying, stated that he had been six times a member of a loan society, and while once the capital had been doubled by a fortunate speculation, on each of the five other occasions he had lost all, or nearly all, put in. That such experiences are far from being uncommon, is testified by a current adage, to the effect that if a man has been in a loan society with another three separate times, if he has not been cheated, he has at least been robbed!
After the foregoing account of Coöperative Loan Societies was written, a suit was reported in the Hong Kong papers, which well serves to illustrate the legal difficulties which seem to puzzle not only the lawyers, but apparently the Judges also, for the case which was first heard in July, came on for another hearing upon appeal the next January, and was not decided until the following March. There were four plaintiffs and four defendants. It appeared that twelve men decided to form a Money Loan Association, one of them being trustee, and taking up the subscriptions. Each member undertook to pay $50 per month, by which a sum of $600 would be made up. Each month the members were to meet at a dinner, paid for by each of the members in turn, and at these dinners tenders were received for the fund of $600, the member offering the highest interest getting the “pool,” less the amount of interest. After the association had run for eight months, the headman or trustee failed in business, disappeared, and the association came to an end.