Bonds are issued against acquired mortgages and secured by the latter. Almost all these banks issue their bonds to bearer, a privilege granted them by the State. Inasmuch as the bonds are held in many cases by small investors, the State, in order to protect the interests of these bondholders, from the very beginning secured to itself the right of control, limiting at the same time the field of operation of these banks by certain legal enactments and regulations.
On the whole, interest rates on mortgage loans are subject to but slight variations. It should be remarked, however, that the borrower when obtaining a mortgage loan has to pay a bonus the rate of which will be considerably higher in times when money is scarce than in times when its supply is redundant.
In times of a large increase in the supply of bonds the mortgage banks may go into the market to buy their own bonds. Such action prevents serious fluctuations in the quotations of these securities and fits them to be objects of permanent as well as temporary investments, including the investment of funds which must be kept in liquid shape.
In the present day when complaints are urged against the great indebtedness of country landowners, the fact must not be lost sight of that the transition from extensive to intensive operations in agriculture could not have been accomplished without a wide use of mortgage credit, and that such development was necessary to feed the rapidly increasing population of the country. Moreover, through this great growth in the population a basis was created for industrial activity on a large scale.
RAIFFEISEN AND SCHULZE-DELITZSCH BANKS
[188]The Raiffeisen bank is the Schulze-Delitzsch bank applied to the country, with the variations required and justified by the difference of environment.
The model rules of the Raiffeisen societies state that: "the object of the society is to improve the situation of its members both materially and morally, to take the necessary steps for the same, to obtain through the common guarantee the necessary capital for granting loans to members for the development of their business and their household, and to bring idle capital into productive use, for which purpose a savings bank will be attached to the society." One word in the above, viz., "morally," intimates at the outset a distinctive trait. Raiffeisen always kept the moral aspect very prominently before him. He insisted that all the members of his institutions should profess the Christian virtues. In his propaganda he used to the full the one intelligent power in rural districts, the parish priest or pastor. With their help he developed a new parochial life around the village bank. With their help he touched in the peasant the chord of neighbourly affection and stirred him to give it practical effect.
What is the structure of a Raiffeisen bank? and, first of all, whence comes the working capital?
The subscribed capital of the bank is practically nil; there is nothing but the universal unlimited liability of the associating members. Schulze-Delitzsch, dealing with industrialists subject to unseen risks, who operated in trade matters out of sight and control of the society, obliged his associates to subscribe a considerable share capital, not only as a proof of thrift, but as a material guarantee for their individual and corporate debts. Raiffeisen, dealing with agriculturists and villagers, demanded no such security, since each member possessed in his little farm, his cattle or implements, material guarantee far beyond those of any subscribed share. In addition he avoided the danger to which a share bank is always exposed, namely, that the concern may be run for the benefit of a few non-borrowing shareholders, rather than for that of the general credit-seeking members.
Unfortunately this natural difference was elevated, or rather dragged down, into an issue of principle; and the law of 1889, drawn up under the guidance of the Schulze-Delitzsch party, insisted that every co-operative society should have shares. The Raiffeisen societies comply with this by nominal shares of (say) 10 marks[189] on which no dividend is declared; though, occasionally, some of the annual profit is indirectly returned to individuals in the shape of a slight addition to deposit rates and a slight deduction from loan charges, calculated at the end of the year.