8

MMM

0

|
7

iM

\

|
1761 01

|

—————
a
—_——
=e
a

3

Agricultural
Indebtedness

and its Remedi¢s

CALCUTTA UNIVERSITY

Rs. 5

ive

~

7

:

v.archive.org/details/agriculturalindeOOraysuoft

Agricultural Indebtedness in India -

and

Its Remedies

BRING

SHLECTIONS FROM OFFICIAL DOCUMENTS

CoMPILED BY
yoke
Seer" RAY, M.A.

Asst, PRorgessor OF EcoNoMIcs

Published by the

CALCUTTA UNIVERSITY

ISIS

PRINTED BY
ATULCHANDRA BHATTACHARYYA
AT THE

CALCUTTA UNIVERSITY PRESS

Senate House, Calcutta

INTRODUCTION

More than two years ago the Calcutta University
decided to publish for the use of advanced students and
teachers a series of selections from authoritative docu-
ments treating of Indian economic problems, by bringing
together in a collected form the large amount of
valuable materials that lie scattered in old and inacces-
sible Blue Books, in the proceedings of Legislative
Councils, and in Government reports and publications.
The first subject which appealed to me as one of the
most important and far-reaching was that of ‘agricultural
indebtedness’. A special interest centres round the sub-
ject, because the general state of indebtedness is almost
as old as the British rule in this country, for I
find reference to the subject in the literature on the
Permanent Settlement in the Blue Books of 1813 and
preceding years. But it appears that no scientific and
systematic treatment of the ‘disease’ was attempted till
the seventies of the last century, when the indebtedness
of the Deccan ryots, who had been the victim of great
vicissitudes of fortune almost since the conquest of the
Deccan, rose to such magnitude as to demand prompt’
legislative action. Their accumulated indebtedness,
aggravated by the cotton crisis in Bombay, culminated
in serious agrarian disturbances. in the year 1875 ; and
the Government of India being awakened to the gravity
of the problem redressed the situation by the enactment
of a law for the relief of the Deccan ryots. This condition

é

a a INTRODUCTION

of indebtedness was not confined to Bombay alone.
The Famine Commissioners of 1882 and 1901 drew
prominent attention to the wide-spread character of this
evil and suggested various legislative and executive
measures to remedy it, among which were: (1) an altera-
tion in the practice and procedure of civil courts and
the institution of special courts and agencies for the
cheap and summary disposal of suits against agricultural
borrowers ; (2) restrictions on the alienations of lands ;
(3) the establishment of co-operative credit banks ; and
(4) the introduction of a large measure of elasticity in
the collection of land revenue. The first had already
been incorporated in the Deccan Agriculturists’ Relief
Act ; the second was found suitable for special areas such
as the Punjab and Bundelkhund ; the fourth was adopted
as a general executive measure in almost all provinces ;
and the third were introduced by legislation for the pur-
pose of providing facilities for cheap credit to the ryots.
A measure, akin to this, had been proposed in 1884 by
Str W. WEDDERBURY, then a District Judge in the Bombay
Presidency. It consisted in the establishment, as an ex-
perimental measure, of an agricultural bank in Poona,
which was intended to take over the functions of the
village money-lender on condition that it should restrict
its dealings with only the solvent class of cultivators and
supply to that body capital on definite terms to be appro-
ved by Government. The proposal was, however, nega-
tived by the Secretary of State on the score of its financial
unsoundness. The co-operative credit societies which
were established in 1903; on the urgent and emphatic
recommendation of the Famine Commission of 1901 were
designed to utilise the combined eredit of the agricul-
tural population for the purpose of making loans on
their own responsibility to their fellowmen at a small
rate of interest. The measure has proved an unqualified

7

INTRODUCTION V

success ; and it is estimated that it has saved the agricul-
turists Rs. 10,00,000 in interest on every crore lent out
by the societies. A short history of this movement is
given on pages 444-49.

An interesting and instructive account of the co-
operative credit movement in Europe is given in Chapter
V (pp. 283-406) which contains selected extracts from
the valuable Reports of Str F. A. Nicnouson published in
Madras in 1885 and of Mr. J. R. Cantu, published as a
Blue Book in 1913. In the same chapter has been inclu-
ded, as a subject of comparative study, an account of
the Egyption system of making agricultural loans. It
consists in the Government’s enlisting the co-operation
of a private Bank for providing borrowing facilities to
the fellaheen and differs essentially from th co-operative
eredit system. The whole financial responsibility for
these loan transactions rests with the Bank, which,
financially assisted by Government, distributes the loans
through its own officers, the Government having no
pecuniary interest in the operations. The part played
by the latter is limited to the collection of the Bank’s
dues through the officers who collect the land-tax, the
Bank being thus saved the cost and responsibility of
collection. It will be remembered that if was generally
predicted that a similar system would prove a failure in
India, although it had worked well in Egypt ; the reason
apparently being that the volume of operations and the
area of territory over which they extend in the latter
country are much smaller and of more manageable
demensions than could possibly be dealt with by a Central
Bank in India.

The compilation is designed to be a source-book and
guide for advanced students and teachers who desire to
prosecute a special study of the subject, and I hope
to follow it up, under the auspices of the Calcutta

v1 INTRODUCTION

University, by similar compilations on some of the most
important and fascinating subjects, such as Land
Revenue. Provincial and Local Finance, amine, Cotton >
Duties &e.

DARBHANGA BUILDING,
S. C. RAY.

December 24, 1914.

TABLE OF CONTENTS
CHAPTER I

INDEBTEDNESS or THE LANDHOLDING CLASSES

(i) Extracts from the Report of the Deccan Riots Com-
mission, 1875, on the extent, nature and causes of
indebtedness in the Deccan %

(ii) Extracts from the Famine Commission’s Report,
1880, on the causes of, and remedies for, agricultural
indebtedness ... ve

(iii) Extracts from the Famine Commission’s Report,
1901, on the indebtedness of the Bombay ryot

CHAPTER II

Grant or Loans anpD ADVANCES TO AGRICULTURISTS.

(i) Extracts from the Proceedings of the Governor-*

General’s Council, dated 30th December, 1870.
Str Jonny Srracuey’s speech on the Agriculturists’
Loans Bill a3 ue
(ii) Extracts from the Proceedings of the Governor-
General’s Council, dated 28th September, 1871.
Sir JoHN Srracuey’s speech on the Land Improvement
Loans Bill ine a
(ii) Extracts from the Famine Commission’s Report,
1880, on Land Improvement Loans i
(iv) Extracts from the Proceedings of the Gevernor-
General’s Council, dated 26th October, 1882.
(2) Mr. Crosruwaire’s speech on the Agricultural
Loans Bill jas ee
(4) Governor GENERAL’s speech on the Agricultural
Loans Bill roi ve
(v) Extracts from the Proceedings of the Governor-
General’s Council, dated 4th January, 1884.
Srr 8. Baytey’s speech on the Agriculturists’ Loans

Bill eee eee oes

eee

PAGEs.
1—19
20—32
338—39
40—4.3
4.4,— 4.8
49—53
544—58
59

60

Vili TABLE OF CONTENTS

v) Extracts from the Famine Commission’s Report
] >

1901. Nib

Advances by Government bs 61—66
(vi) Extracts from the Irrigation Commission’s Report, |

1903.

Loans for Agricultural Improvement an 67—87

(vii) Resolution of the Government of India, dated 30th
November, 1905.
Principles on which the system of loans and

advances to cultivators should be worked ... 88—100
(viii) Extracts from the Land Improvement Loans Act,
19 of 1883 . 1LO1—108
(ix) Extracts from the Ae mealianane foams Act, 12 of
1884 Aptae oie ne ee LOE

(x) Extracts from the Notification of the Gov ernment of
Bengal, dated 23rd March, 1909.
(a) Rules under the Land Improvement Loans

‘Act, 19 of 1883 ee ae a OBST
(4) Special Rules under ditto .. 1i8—119
(c) Rules under the Agriculturists’ Loans Act, 12

of 1884 Ese ae ... L20—125
(d) Tables for calculating instalments of re-payments

of Loans is ven w. L26—27

CHAPTER III

Revrer or INDEBTED AGRICULTURISTS

(i) Extracts from the Proceedings of the Governor-

General’s Council, dated 20th June, 1878.

Mr. Cockerebt’s speech on the Bombay Indebted

Agriculturists’ Relief Bull nee: », 128—185
(ii) Extracts from the Proceedings of the Governor-

General’s Council, dated 17th July, 1879.

Sir T. Horr’s speech on the Deccan Agriculturists’

Relief Bill see ... 136—178
(iii) Extracts from the Peveacaices ef the Governor-

General’s Council, dated 24th October, 1879.

Sir T. Horx’s speech on the Deccan Agriculturists’

Relief Bill er Fe Morais i ... 179—190

TABLE OF CONTENTS
CHAPTER IV

RESTRICTIONS ON THE ALIENATION oF LANDS

(:) Extracts from the Proceedings of the Governor
General’s Council, dated 27th September, 1899.

(a) Str Caaries Rivaz’s speech on the Punjab
Alienation of Land Bill ;
(4) LinuteENant GovERNoR’s speech on the Punjab
Alienation of Land Bill .
(ii) Extracts from the Proceedings of the Governor
General’s Council, dated 10th August, 1900.
Sir Caries Rivaz’s speech on the Punjab Aliena-
tion of Land Bill $ a
(iii) Extracts from the Proceedings of the Governor
General’s Council, dated 19th October, 1900.
(«) Lrmurenant GoveRNor’s speech on the Punjab
Alienation of Land Bill
(4) Str Cuarues Rivaz’s speech on the Punjab Adige.
nation of Land Bill E
(c) Governor GENERAL’s speech on the inwb tie
nation of Land Bill
(iv) Statement of Objects and Reasons of the Panjab
Alienation of Land Amendment Bill, 1906
(v) Extracts from the Proceedings of the Punjab Council,
dated 25th October, 1906.
Mr. Gorpon’s speech on the Punjab Alienation of
Land Amendment Bill, 1906

CHAPTER V

Provision oF BorrRowIne FAcILities

(i) Despatch from the Governor General in Council to the
Secretary of State, dated 3lst May, 1884 on a
proposal for establishing Agricultural Banks

(ii) Reply of the Secretary of State to the above

_ (iit) Extracts from the Famine Commission’s Report,
1901, on Agricultural Banks

iv) Statement of Objects and Reasons of the Rete
Credit Societies’ Bill, 1903 se

ix

191—200
201—202
203—210
211—217
217—224
224— 230
231—234
235—242
243—249
249—254
255—261
262—264

x TABLE OF CONTENTS

(v) Extracts from the Proceedings .of the Governor
General’s Council, dated 23rd October, 1903.
Sir D. Isperson’s speech on the Co-operative Credit

Societies’ Bill ... 265—275
(vi) Statement of Objects and Resa of the Co-operative
Credit Societies’ Act Amendment Bill, 1911 we 276—277

(vii) Extracts from the Proceedings of the Governor
General’s Council, dated Ist March, 1911.
Sir R. Cartye’s speech on the Co-operative Credit
Societies’ Act Amendment Bill ke 5 278-—282 ©
(viii) Extracts from Sir F. A. Nicuotson’s report on
Agricultural Banks.
(a) Methods and principles of organised eredit in

Europe — ... 283—295
(4) Analysis of Resp Land Banke ... 296—305
(c) Credit Agricole oe Ss ... 805—308
(d) Popular Banks iG ve ... 308—312
(e) Scuutze-Deitzscu Loan Societies ... 812—319
(7) Ratrrmsen Credit Unions .. 3819—844
(g) Popular Banks (Luzzarri) - oi ave OdE—— BAS
(4) Madras Loan Societies (Nidhis) .. 846—371
(2) Recommendations 371—875

(ix) Extracts from the Report by Mr. J. R. Carne
on Agricultural Credit and Agricultural Co-operation
in Germany (Ed. 6026 of 1913).
(a2) Mortgage (Long-term) Credit .. 875 —389
(4) Personal (Short-term) Credit ... 9389—406

(x) Extracts from the Proceedings of the Conferences
of Registrars of Co-operative Credit Societies.

(1) Fourth Conference.

(a) Str R. Cartyin’s speech ... 407—499
(4) How best to encourage the assistance of non-
officials . 410—414
(c) Organisation of co-operative stores and develop-
ment of other forms of co-operation ... 415—420
(2) Fifth Conference.
Finance and control of co-operative credit societies... 421—425

(5) Seventh Conference.

Co-operative banks and popular education we 426—443

(xi) Extracts from the
Material Progress of India, Decennial Issue, 1913.

TABLE OF CONTENTS

Report on the Moral and

Co-operative Credit Societies

(xii) Extracts from the Administration Reports
Egypt and the Soudan on the Egyptian system of
making loans to

(4)
(c)
(a) PA
(e) ”
i Sie

Extracts from a Minute of Str Ricnuarp Trupie, dated
30th August, 1878, on the Deeecan Agriculturists’

Relief Bill

<i) Despatch from the Secretary of State to the Govern-
ment of India, dated the 26th December, 1878, on

agriculturists.

(a) Report of 1895

1896
1898
1899
1901
1902

Apprnpbix I,

Appenpix II,

the Decean Agriculturists’ Relief Bill

(ii) Despatch from the Secretary of State to the uve er-
nor-in-Council, Bombay, dated the 26th December,
1878, on the Decean Agriculturists’ Relief Bill

of

xi

444—4,4.9
450—451
4.52
4.53—454
4.55—464
465—4.66
467—468

I—6

7

7—14

—t

:
~

ed
ee

CHAPTER I,

INDEBTEDNESS OF THE LAND-HOLDING CLASSES.
[ Hatracts from the Report of the Deccan Riots Commission, 1875.]|

The earliest record shows that indebtedness was common among
the Deccan ryots when their country came into our hands. Mr,
Commissioner Chaplin reporting on the newly acquired Deccan
districts in 1822, writes :—

“The ryots in many villages, though usually frugal and provident,
are much in debt to sowfars and merchants owing to the oppression
of the revenue contractors ; many of these debts areof long standing,
and are often made up of compound interest and fresh occasional
aids which go on accumulating so as to make the accounts exceedingly |
complicated ; a ryot thus embarrassed can seldom extricate himself.
His exertion may be compared to the hellish torments of Sisyphus,
who had no sooner rolled his burthen to the summit of the hill than it
fell back upon him with redoubled violence. * * * The Miras* fields
of ryots are sometimes mortgaged for these debts.” |

Again he writes : “The Collector of Ahmednagar, notwithstanding
some embarrassments, is of opinion that there is an universal tone of
satisfaction among the ryots resulting from the improvement of their
condition, and he thinks that they are gradually extricating them-
selves from their difficulties. The general feature of the picture is
correct, but it is perhaps charged with colours a little too brilliant,
He thinks that complaints against them from the sowkars are
decreasing, but this circumstance is partly to be ascribed to many of
these debts having been declared inadmissible.

These debts were of two kinds, public and private. The public
debt of the village community arose usually from advances or loans
made by the Mahratta Government to be recovered with interest from
the revenues of villages assigned to the State creditor; the private

* Miras tenure comprised a right of occupancy at the customary rate and other
privileges distinguishing it from the ordinary tenancy-at-will,

2 INDEBTEDNESS OF THE LAND-HOLDING CLASSES,

debts were the result of the system before mentioned by which the
collection of the State dues was made through sowkars, who
usually recovered in kind what had been paid in cash and drafts.
The great mass of ‘tthe agricultural population had no such
interest or title in their land as to afford security for large debt.
Mr. Chaplin indeed mentions that “ Mras holdings are sometimes
morgaged,” but in another place he estimates the selling value of
miras land at not more than 2 or 3 years’ purchase, and states that land
yielding Rs. 200 of gross produce can seldom be mortgaged for more
than Rs. 100. The usual and recognized method for recovery of debt
was for the sowkar to send a Mohosul, that is, a servant whose main-
tenance had to be paid daily by the debtor, or to place a servant in
“Dharna” at his door, (which is the process called “Tuquaza” by
Mr. Chaplin,) or to confine the debtor in his house or otherwise
subject him to restraint and even severer measures. It is plain that
such methods could not be put in force against any but the humbler
class of debtors, and doubtless the ordinary dealings of the sowkar
and ryot were based rather on the ascertained result of experience,
teaching each his own interest than on any power of compulsion in
the hands of the creditor. The ryot’s constantly recurring necessity
could not be relieved unless he maintained his credit by good faith ;
and, on the other hand the sowkar had no support from without to
look for in exacting more than a fair profit, which, considering his risks,
would be also a large: profit. Honesty was the ryot’s best policy and
caution was a necessity to the money-lender.

The condition of the ryot as regards his relation to the money-
lender when British rule commenced may be summed up as follows :—

Ist.—There was a considerable burden of debt, and many of
_ the ryots were living in dependence upon the sowkar,
delivering to him their produce and drawing upon him

for necessaries.

2nd.—The ryot’s property did not offer security for large
amounts ; his cattle and the yearly produce of his
land being the lender’s security, the mortgage of
miras land was rather a means by which the sowkar
got a firmer hold upon the produce than upon the
land itself, for immovable property was not sold for

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 8

debt, and the mzvas title would have no value for a
non-agricultural landlord.

3rd.—Rates of interest were very high, and much of the debt
consisted in accumulations of interest.

4th.—The causes of indebtedness were chiefly the revenue system,
and sometimes expenditure on marriages or such
occasions.

5th.—The amount of individual debt was usually moderate.

6th.—The sowkars were usually men of substance maintaining
establishments employed in dunning and looking
after debtors.

7th.—The creditor receiyed little or no assistance from the
State in recovering debts, but had great license in
private methods of compulsion.

Causes of Debt.

The estate of an ordinary Kunbi ryot, exclusive of his land and
its produce, has been estimated by competent
authority to be of little more than Rs..200 in
selling value ; it will be somewhat as follows :—

Poverty.

Rs.

Live stock 125
Implements and utensils 20
House . 50
Miscellaneous 20
Total 215

The recorded results of personal enquiry by the Commission
prove how many of the population are possessed of less than the
above average. With the exception of the land all the items
of the estate are subject to depreciation, and imply yearly:
charges for maintenance and renewal. The people being thus
possessed of very little beside their land, what kind of income
does that yield them? The two crops—dajri and jowar—form
the great bulk of the agricultural produce; in a large portion
of the area under report they constitute ths of the whole.
Supposing that the rainfall was sufficiently cotistant to ensure a

4 INDEBTEDNESS OF THE LAND-HOLDING CLASSES. —

moderate return every year, it would still be imevitable that the
Kunbi should draw the whole of his year’s income from land in the
lump during the two months of harvest. As, however, there is one
year of drought in every three, over much of the region, and a good
crop also only once in three years, it follows that the income
yielded to the Kunbi from his land is received zz fwél triennially
instead of annually. It is everywhere a serious aggvavation of their
ill fortune to the cultivators of indifferent soils that, their land yield-
ing only one kind of produce, they receive the whole return in a lump,
while better soils that admit of a variety of crop enable the cultivator
to spread his receipts over six months of the year. This evil
is intensified for the ryots of the disturbed districts by their capri-
cious climate. It is hardly possible to conzeive any conditions more
certain to produce indebtedness among the poorer classes than these.
When to these conditions is added the variation in the value of the
ryot’s produce which leaves him in absolute uncertainty at seed time
what his crop will be worth if he get one, it is apparent that no great
degree of improvidence is needed to account for his indebtedness, but
rather that considerable industry supplementing the income of agri-
culture, and considerable frugality in living must be presumed in order

to account for the large number of Kunbis who are not burdened with
debt.

It would be idle to say that improvidence does not exist as a cause

of indebtedness. It consists however rather in
Improvidence. , . ; .
the short-sighted imprudence of an ignorant class
ready to relieve present necessity by discounting future income on any
terms, and unable to realise the consequences of obligations foolishly
contracted, than in an extravagant expenditure or misapplication of
income. The results of the Commission’s enquiries show that undue
prominence has been given to the expenditure on marriage and other
festivals as a cause of the ryot’s indebtedness. The expenditure on
such occasions may undoubtedly be called extravagant when com-
pared with the ryot’s means, but the occasions occur seldom, and
probably in a course of years the total sum spent in this way by any
ryot is not larger than a man in his position is justified in spending
on social and domestic pleasures. The expenditure forms an item of some
importance in the debit side of his account, but by itself it rarely —
appears as the nucleus of his indebtedness, The sums usually spent on

{INDEBTEDNESS OF THE LAND-HOLDING CLASSES, 5

these occasions have probably been over-estimated, or the operation of
other causes in producing debt has been overlooked by the officers
who have attributed the ryot’s burdens so largely to this cause. This
oversight would indeed be a natural consequence of the fact that it is
only on marriages or similar occasions that expenditure by a Kunbi
comes under observation. The amount spent by a Kunbi of average
circumstances on the marriage of his son is from Rs 50 to Rs 75, a
sum which by itself even at 24 per cent. interest could be repaid with-
out much difficulty if his average margin of profit was not forestall-
ed by other debt, and he were treated with fairness and moderation by
his sowkar. The constantly recurring small itens of debt for
food and other necessaries, for seed, for bullocks, for the Government
assessment, do more to swell the indebtedness of the ryot than an
occasional marriage.

Asa matter of fact the ryot’s surplus is, in the majority of cases,
already forestalled. Even those who are in fair
Inherited debt. i :

circumstances and solvent have usually to main-
tain their credit by handing over all that can be spared of their crop
‘on account’ to their sowkar, and the poorer must doso under pain of
civil process. ‘There has never been a time when a large proportion of
them were not under the burden of debt, and their present indebtedness
is in great part a legacy from their forefathers. The enquiries of the
Commission enable us to state with some measure of certainty that
the chief cause of the present indebtedness of the ryot is ancestral

debt.

It was hoped that the permanent title and the light assessment
: guaranteed by the survey settlement would so far .
Stimulus to borrow: J2crease the ryot’s profits, and stimulate his indus-
ing given by survey try that, by degrees he would free himself from
settlement contempo- ; ; :
rary with stimulus the debt which hung round him. The increased
cece a pe "i production and the stimulus to agricultural enter-
recovery. prise did indeed follow as anticipated, but
debt instead of diminishing, increased. The
facilities for recovery of debt offered by our civil courts had
ealled into existence an inferior class of money-lenders dealing at
exorbitant rates of interest with the lower strata of the agricultural
poor. As the value of. the ryot’s title under the survey settlements

came to be recognized, and his eagerness to extend his cultivation grew

6 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

accordingly, a fresh start was given to the money-lender in his
competition with the ryot for the fruits of the soil. The bulk of the
people were very poor, and the capital necessary for extended cultivation
could only be obtained on the credit of the land and its produce ; exist-
ting debt left but little margin of profit to the ryot even under the
reduced rate of assessment This margin would go but little way to
cover his increased needs for the stock, seed and assessment of new
cultivation. While his return in produce for the first year or two would
be but nominal, even the most cautious could not be expected to
wait for accumulation of profits to take up fresh land for fear that
the more wealthy or reckless should be before-hand with him. This
too sudden extension of cultivation following the survey assessment
was prominently noticed by Mr. Hart in 1841, and in the Ahmednagar
District it was so excessive as to cause a re-action in the third and
fourth years after these settlements.

The increase of the population taken as a sign of prosperity has
been a subject of congratulation with the officers
who have recently had to deal with the revision
of assessment in the Poona District. It is doubtless a feature in

Incrase of Population.

the history of this region which, as much as‘any other, marks its
changed condition during the last 30 years. The returns show an
increase in population of about 45 percent. in that period, and it is
probable that the ratio of increase is progressive rather than uniform,
as the spread of vaccination, sanitary precautions and facilities for
medical treatment have reduced the virulence of epidemics, and
improved communications have made dearths impossible and facilitated
access to the markets for labour. Cultivation has reached its limit.
The area of six cultivated acres per head of agricultural population
must, considering the precariousness of the climate, be taken to mean
that the produce of a good season of but three acres is available to
each person of the cultivating class, half of the area of six acres
being deducted on account of bad seasons, and the average yield
being thus reduced to about half a good crop per annum.
Comparing this with Guzerat, where the rainfall is rarely
deficient, we find that each member of the ryot’s family here
has yearly the net produce of three acres of 8 annas assesment, while
in Guzerat each person has the produce of two acres of Rs. 2-13-4
assessment, the former paying Rs. 3, the latter Rs. 5-11, to

INDEBTEDNESS OF THE LAND-HOLDING CLASSES, 7

Government, the net produce being in the case of the latter both of
much higher value and having the additional advantage of not being
received all at once. It has been estimated that the yearly cost
of food and necessaries to each member of a Kunbi’s family is about
Rs. 25. Admitting that the food consumed by his family does not
eost the ryot the market value, it is nevertheless plain from the figures
of estimated yield* of land, that in a year of average rainfall his
receipts from six acres—two of each kind of soil—will leave a very
narrow margin for Government assessment and expenses, amongst
which the interest on the sowkar’s loans in bad years must count as
a current and unavoidable charge.

The deficit which frequently exists is made up by the produce of
Produce of land not Stock and of the dairy, and by the labour of the
alone sufficient for the Kunbi and that of his family and his cattle. In
Kunbi’s needs. j . wil oe .
illustration of this it may be noticed that the
Collector of Ahmednagar reported that, owing to the drought and
failure of crops in 1871, the agricultural population had toa great
extent left their villages in search of labour for their maintenance.
This exported labour must be looked upon as maintaining the solvency
of the district, for little else is exported. The railway is not used for
the export of produce. As stated by the Superintendent of Survey
regarding the ryots of Bhimthari District, the practice is to save the
surplus of a good season to meet the deficiencies of bad years. A little
produce is sent to Poona in carts for local consumption, but the food
grain of the region is consumed by the inhabitants.

The normal effect of a pressure of population upon land is that, so

soon as extended cultivation has reached the
Industry and enter-

prise being discouraged limit of profitableness, the cultivating class
by pressure of debt, ‘ : °
production is notin. endeavours by improved agriculture and increased

Zoey industry to obtain more from the soil. This
result is under the present conditions not to be looked for here ; on the
contrary, there is a widespread belief that land is not so productive as
it used to be. That their present state of indebtedness prevents the

ryots from making efforts to improve the outturn of their land, there

* Goop sorn. MIDLING, Poor.
7 Ra eh ) | Ey. Saaee SS wa
Jowar ge tle ..8> ‘6 13. 0 7. 13:0

5
Bajri ae 10 19..6 6 8 0 4 6 0

8 INDEBTEDNESS OF THE LAND-HOLDING CLASSES,

can be no doubt. Writing of the Ahmednagar ryot more than
20 years ago, Lieutenant Burgess of the Survey says, “As long as
the ryot is in the hands of the money-lender, how can he prosper,
being so involved? Should he do so, his prosperity would only make
the usurer the richer without materially, if at all, increasing his own
resources.” This lesson the ryots have apparently now learnt; they
find that the lands broken up and the wells dug with borrowed capital
yield a profit only to the sowkar. To use Sir G. Wingate’s words,
“the ryot toils that another may rest, and sows that another may
reap.” The result has been well shown in a report from the Irriga-
tion Department dated 16th June, 1875. It was found that the ryots
did not use the water of the Lakh Canal, an important irrigation
work in the Ahmednagar District. The Executive Engineer for
Trrigation reported to Colonel Merriman, the head of his department,
on this subject as follows :—“While on the canal I questioned the
ryots closely, and they stated that, without exception, they were all
deeply indebted to the money-lenders, who get as much as possible in
the shape of interest on money lent out to each land-holder at harvest
time. They stated that a very large portion of the value of each crop
goes towards paying interest on their debts, and that they are dis-
couraged from taking more trouble than necessary with the cultivation
of their land. I consider it is very probable that this is the reason why
so little is done towards extending irrigation on this canal.” The
Assistant Collector in charge of the District, Mr. Blathwayt, writes
on the same subject to the Collector of Ahmednagar :—‘“T believe the
fact is that the holders of landunder the Lakh Canal are generally
poor. Their lands have been mortgaged to sowkars who take away
the products of the fields for interest of the money lent, and the poor
landholders have to troubie themselves for nothing ; they have to pay
for the water, but could not get the profits to themselves, and conse-
quently do not care to use the water.’ On the above, Colonel
Merriman, the Chief Engineer for Irrigation, remarks :—“The reason
given by Mr. Blathwayt is a very sufficient one. The district is very
thinly populated, and the indebtednes of the cultivators no doubt
explains why the progress of irrigation is so slow.”
Whether the land itself now yields less than formerly it is im-
Productiveness said possible to determine with certainty. Possibly
to be diminishing. the belief generally held on this point is in some
measure due to the fact, that as cultivation extended until it embraced

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 9

the poorest and most unprofitable soils, the general average of returns
per acre diminished. The estimate of the cultivator was formerly
based on the return of the better lands; he has now to include
much inferior soil, but has not proportionately reduced his
expectations. 3

The following causes, however, may have operated to decrease the
actual out-turn of land in cultivation. A consequence of the payment
of assessment by registered holdings instead of by actual cultivation
is the discouragement of fallows. The ryot having nothing to pay
for his wastes could well afford to let his land rest and cultivate
portions in rotation. During the early period of our administra-
tion, the lands of this region were largely devoted to grazing purposes,
and there was no direct Government demand upon the wastes so used.
The encouragement given to cultivation by the survey was accompanied
by adiscouragement to grazing, through the right of pasture being made
subject to purchase from Government. The supply of manure from
flocks and herds, the demand for which should have increased with this
increase in cultivation, diminished, and doubtless with it must have
diminished the fertility of the soil. 3

Thus it will be seen that while increasing population demands more
from the land than it yielded 40 years ago, the conditions of agri-
culture have not tended to increase its fertility, and indebtedness
has taken away the natural motive to industry—the hope of gain—
and thereby prevented relief from the increasing pressure being sought
in improved cultivation. We are dealing now with the causes of in-
debtedness, and have been led to dwell upon one of its consequences ;
the case is only an illustration of the familiar fact, that the conse-
quences of an evil often tend to reproduce it.

Another method in which relief from the pressure of increased
She population might naturally be sought is emigra-
result of increased tion. The habits and instincts of the Kunbi make

nea him most averse to leave his village except for a
short absence, but in a remarkable case in which 19 cultivators
with their families, in all 66 persons, most of them inhabitants
of Poona District, and many from villages in the area under report,
went into Khandesh hoping to find work at Jalgaon, wheré there
is a railway station with large traffic; failing in this they
were already on their march to Indore to apply for land under H, H,

2

10 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

Holkar, when they were met by Mr. Pollen, the Assistant Collector
in charge of the District, through whose means they were settled on
waste lands in Khandesh. The cause of their leaving their homes,
they informed Mr. Pollen, was that “their lands had gone and
their creditors were merciless.” In this case \t is true the emigration
was directly caused by the consequences of debt, and in so far as the
ereditors of these men had taken from them their yearly produce or
their property unfairly, so far was the pressure which forced them to
emigrate due to other causes than the increase of population ; but at
the same time the operation of this cause is indicated. We find the
natural course of events which follow that cause in their story, their
yearly income failing, they lived on their capital until that was
gone, their labour was not wanted for the cultivation of the land
they had lost, and there was no other opening for them nearer
home. |
The conclusion which we would adopt on the subject of the in-
Conclusions as to the Crease of population as a cause of indebtedness is
increase of population. that, had the agriculture of the district to support
only its own producers, including a fair interest on capital actually
expended on account of the land, it would be sufficient, with the
assistance of the wages of exported labour during the idle season and
bad years, to maintain them at their present number, and larger
returns might be obtained from the land by improved cultivation to
meet a still further increase. But agriculture pays a heavy tax to
to the sowkar, much of which neither represents expenditure
on account of the land nor ever returns to the land; such holdings
as pass into the hands of the sewkar will not, under hired
labour, support so many persons as lands cultivated by proprietors,
and these holdings are yearly increasing. Revised assessments have
already in a portion of this region reduced the margin of the ryot’s
profits and thrust his creditor’s demands further upon his capital ; the
revision of the remaining districts will make this encroachment more
general than it is at present. It is not to be expected that increasing
population will produce improved outturn ; the demands of the creditor
are sufficient to absorb any increased return, and the profit of labour
invested will go to the sowkars to the discouragement of such imvest-
ment by the ryot in future. Without such improvement in
agriculture the return from the land must be expected to diminish
rather than increase.

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 11

Another cause of the increase of indebtedness is the facility with
Feuer ok wicker, which the money-lending class can command the
lenders and money- assistance of the law in the recovery of debt, and
lending business. vain .
consequent upon that facility, an expansion of the
ryot’s credit, inducing numbers of small capitalists to compete for
investments in loans to the Kunbi. We have already quoted Sir G.
Wingate’s remarks on this point, although at the present time other
causes have combined to impair the ryot’s credit, still one material
eause of his present condition must undoutedly be sought in the state
of things described in 1852, and since that date other causes have
operated to aggravate immensely the evil which was then
discerned. Whatever facilities were afforded by the law to the
ereditor in 1852 have been greatly enhanced by the introduc-
tion of the present procedure in 1859, and by the punctual
conduct of judicial duties now exacted from the subordinate courts,
while the ryot’s credit has been enhanced by the addition of his land
and agricultural stock and implements to the security liable for his
debts.

The introduction of compulsory registration of deeds dealing with
immovable property in 1865, protected the creditor from attempts to
repudiate or dispute a registered bond. In the meantime the ryot’s
estate had risen in value, and new cultivation offered securities for new
loans; his personal solvency was assured by the large demand for
labour on the railway and other public works, and his title in his land
was, in 1865, recognized and secured by an Act, which confirmed the
rights vested in him by the survey settlement. The American War
from 1862 to 1865, while, on the one hand, it poured money into the
country to seek investment, on the other hand, raised to an extravagant
pitch the value of agricultural securities. To the above causes tending
to attract capital to the business of agricultural money-lending,
we may add that in the dearth of other industries in this
country with a population whose wants embrace little but the
merest necessaries, capital which under other conditions would
find employment in trade or manufactures, here naturally turns to
agricultural investments, and almost the only course open to the
clerk or servant who has saved a little money in a village sowkar’s
employment and desires to earn an independent living, is to set up
in the same business himself, preferably in the place where he is
already known.

12 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

The enquiries of the Commission have made it clear that the
Shictaats ant Gapesier smaller class of sowkars, who are also the most
kind of money-lending unscrupulous, have increased very considerably

ages during the last ten years, and that it has been
acommon practice for the ryot to borrow from one sowkar to pay
~ another, or to borrow from two or three ata time. A result of this is
that in the competition with inferior members of their class even
respectable sowkars ave obliged more and more to resort to the methods
of swelling the debt and coercing the debtor practised by them. We
here again quote the letter of Sir G. Wingate describing the change in

the relations of the parties :—
“The prosperity of the ryot is no longer necessary to the

prosperity of the village money-lender. The latter has no longer
occasion to trust to the good faith or honesty of the former. Mutual

confidence and good-will have been succeeded by mutual distrust

and dislike. The money-lender has the ever-ready expedient of a
suit at law to obtain complete command over the person and
property of his debtor. Itbecomes the interest _of the former to
reduce the latter to a state of hopeless “Indebtedness_in—orderthat
he may be able to appropriate the whole fruits_of his industry
beyond what is indispensable to a mere existence. This he is
enabled without diffleulty to do. So long as aryotis not much
involved, the money-lender is ready to afford him the means of
indulging in ‘any extravagance without troubling him at all about
future repayment. The debt may lie over and he may choose
his own time for repayment. The simple and thoughtless ryot is
easily inveigled into the snare, and only becomes aware of his folly
when the toils are fairly around him and escape is impossible. From
that day forward he becomes the bondsman of his creditor. The latter
takes care that he shall seldom do more than reduce the interest of
his debt. Do what he will, the poor ryot can never get rid of the
principal. He toils that another may rest, and sows that another may
reap. Hope deserts and despair possesses him. The virtues of a free-
man are supplanted by the vices of a slave. He feels himself to be
the victim of injustice and tries to revenge himself by cheating his
oppressors. He cannot get into a worse position than he already
occupies, and becomes reckless. His great endeavour is to despoil
his enemies, the money-lenders, by borrowing continually. When he
has got all that he can from one, it is a triumph to him if by any

if

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 13

amount of lies and false promises he can get something more from
another. When he has two creditors there is a chance of their fight-
ing with each other, and that during the fray he may be able to snatch
a portion of the spoil from both.”

Extent and nature of indebtedness.

In the foregoing pages we have endeavoured to show that the
Resume of previous normal condition of the bulk of the ryots in the
chapters. disturbed districts is one of indebtedness ; that,
owing to causes, some natural and others the result of our adminis-
tration or of internal circumstances, this indebtedness had grown to an
extreme point during the 20 years preceding the riots; that many
years ago elements of danger to the public peace were detected in
the temper of the ryot smarting under the consequence of his debts ;
lastly, that these consequences, averted for some time by the transient
prosperity of the American War period, returned with multiplied
force during the six years preceding the riots.

The extent of serious embarrassment through debt can be ascer-
Analysis of embar- tained with fair accuracy from the enquiries of
rassment in 12 villages. the Commission. It appears that about one-
third of the occupants of Government land are embarrassed with debt,
that their debts average about eighteen times their assessment, and
that nearly two-thirds of the debt is secured by mortgage of land.
For 12 villages the results in figures are as follows :—

Total number of Government occupants be ui 1,876
Number of Do Do embarrassed ... is 523
Assessment payable on their holdings ae .» Rs. 10,603
Amount of debts on personal security oe ws» yy 1,18,009

Do on mortgage of land ah Py |e

The proportion of ‘hatas indebted to the total number of shatas
in these villages is 28 per cent. The total debt is more than eighteen
times the assessment. Of the occupants in embarrassed circumstances,
about two-thirds hold land of less than Rs. 20 assessment. These
figures entirely confirm the opinions stated to the Commission on the
subject by the local officers, and tally in great measure with the
results of investigations into indebtedness in other districts. It must
be noted that the amount of his assessment is not an absolute
standard of a ryot’s solvency. Many cultivate the lands of

14 INDEBTEDNESS OF THE LAND-HOLDING CLASSES. fe

Wattandars or Inamders in addition to their Government holdings
and the assessment does not show any addition for well irrigation,
though the share in a well is a property of some value, and, as such, much
sought in security for debt. Of the cultivators not included among
the embarrassed class, some are in good circumstances, but the lowest
stratum is but little removed from embarrassment; continuous bad
seasons or further fall in prices would rapidly swell the proportion
of embarrassed to solvent ryots, for there is no hard line between the
28 per cent involved and those above them.

The extent to which land has been lost to the cultivating class
cannot be determined with accuracy, for much land is held in mort-
gage, of which the occupancy is not transferred to the sowkar. In
the villages scrutinised by the Commission in the Ahmednagar
District, it was found that about one-eighth of the occupancies had on
an average becn transferred to sowkars, namely, that the direct assess-
ment payable by sowkars for land was about one-eighth of the whole
demand on the village, but this only represents the amount of land in
their occupancy as Government tenants. The increasing extent to
which land is passing from the Kunbi to the sowkar has been illus-
trated above by the growth of the money-lender’s shatas. These
properties have been acquired within the last 20 years, and for the most
part within the last ten years. In 1854 there were six suits on
mortgage bonds of immovable property in the Court of Talegaon in the
disturbed district of Poona, of which four were against Kunbis; in
1872, there were 192 suits of this description, of which 143 were
against Kunbis. In the other courts having jurisdiction in the dis-
turbed portion of Poona, three decrees were issued on this class of suits
in 1854, of which two were against Kunbis; in 1872, 98 decrees
issued, of which 69 were against Kunbis.

It is difficult to ascertain with any certainty the selling value
of ordinary ryots’ occupancies in the region under report. There are
few bona-fide sales for cash, the returns of the Registration record
are valueless for this purpose, and the revenue sales of defaulters’
holdings are, for other reasons, little more reliable. The estimate
may perhaps be hazarded that an average of seven years’ assessment
of dry-crop land would be a good price’ to the seller at present.
Irrigated land would fetch a much higher price, possibly up to 15 or
20 years’ assessment. ‘Taking the debt of the 12 villages dealt with
above, Rs, 1,94,242, we find it is due from occupancies of Rs. 10,608,

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 15

assessment ; a liberal estimate of the selling value of these occupancies
would not exceed an average of 10 years’ assessment, and it is plain
that the debt is nearly double the capital value of the land to
an ordinary purchaser. The solution of this apparent anomaly is that
the amount of the debt as represented in the bonds held by the sow-
har is far more than the real value of the consideration which has
passed, and the sowkars in no case expect to be paid in full; secondly,
that the ryot’s land is often more valuable as security to the sowkar than
it is as an ordinary investment to a purchaser ; for, through the great
reluctance of the ryot to sever all connection with his land, the sowkar
is able to exact more than the ordinary rent; and thirdly, the land is
not the only security which the sowkar holds; the law gives him a
command not only over the debtor’s immovable property, but over
his labour and the labour of his family.

The nature of the dealings.

The transactions between sowkar and ryot are all conducted
by means of bonds; an account current is hardly known.
There is usually a debt of long standing, probably inherited, the
interest of which makes a yearly debit. Besides this debit there
are the retail transactions called in the vernacular “give and
take”, meaning that the debtor delivers his produce, or as much
of it as he is obliged to deliver, to his creditor, and the creditor
supplies his needs—clothing, assesment, seeds, food, and cash for
miscellaneous expenses. Every now and then a larger item appears
on either side,a standing crop as yet unripe is perhaps sold after a
valuation either to the creditor himself or another,—the creditor in
the latter case getting the price paid,—or a pair of bullocks or cow
and calf are given to the creditor on account; against this the debtor
draws occasionally a considerable sum for a marriage, for the purchase
of land or bullocks or a standing crop, or for the digging of a well.
Bonds are continually passed as the account progresses, sometimes a
bond is taken as a deposit, and the debtor draws againstit ; or, a small
transaction is included ina larger bond and the debtor is to draw
against the balance.

Marwari sowkars keep accounts, but often only in the form
of a memorandum book, money-lenders not
belonging to the trading classes often keep

Sowkar’s accounts,

16 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

no accounts; but with all, the bond is the recognized record
of the transaction. Bonds are never or very rarely made for large
amounts. When a large amount of debt has to be reduced to paper
several bonds are drawn : thus a debt of Rs. 175 will be represented
by one bond of Rs. 100, another of Rs. 50, and a third of
Rs. 25. Probably, the chief object of this arrangement is that the
sowkar may have means to get a decree without much cost. A
decree on the Rs. 25 bond will usually give him the power over the
debtor that he requires to compel him to meet demands on
account of the entire debt of Rs. 175, and will not cost so much.
Moreover, interest usually ceases on a bond being converted into a
decree, and it is not to the bond holder’s advantage to take a decree
for the whole debt. When the debt has reached an amount for which
the ryot’s personal security is not sufficient, it is commonly converted
into a mortgage of land ; where the ryot possesses
a well or ashare in a well, the well or share
together with the irrigated land are preferred as security. Sometimes
a joint security of another ryot of substance is
added to the personal bond ; in such cases the
joint surety usually has a direct interest in the loan, or as a near
relation assists the debtor, or his security is purchased by private
arrangement. Often before the mortgage of land is resorted to, there
is a mortgage of the debtor’s house, bullocks,
crops, cart, or other movable property. When
bullocks ars mortgaged, the debtor has to pay for their hire which thus
becomes the interest of the loan. When the mortgage of land is
completed it is usual in the Ahmednagar District for the right

of occupancy to be transferred to the creditor
cele of occu in the Government books. This is not the

case in Poona. It is not easy to trace the
cause of this difference in the practice of the two districts, but it
is probable that the assessment being lower in Ahmednagar, there is
more to be got out of Government land, and the Marwari, who has
almost a monopoly of money-lending in Ahmednagar, is harder and
more exacting in his terms than the sowkar of the Poona district,
while at the same time the ryot is, if possible, more ignorant and help-
less. It is not uncommon for the Ahmednagar ryot to continue
paying the assessment of his land after he has transferred the nght of
occupancy to his mortgagee. |

Mortgages of land.

Joint Security.

Other mortgages.

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 17

When the land has been transferred by mortgage, the sowkar al-
most invariably commences by leaving the debtor
in occupation as tenant, and a form of mortgage
exists in which the profits of the land really are all that is mortgaged,
as the tenant is left in possession without any transfer or acknowledg-

Moctgage tenants.

ment of the mortgagee’s right, so long as he delivers the produce
yearly. Ona failure of the debtor to deliver the produce the mort-
gagee usually obtains possession. Sometimes the produce of the land
is made to represent the interest of the loan, but more usually a specific
rate of interest is cited in the mortgage bond. The debtor holds as
tenant on every variety of terms and conditions. Often these are
reduced to writing: either a lease or a deed of partnership (as the
vernacular name runs) or a simple contract, where a rent in money is
stipulated. Often it will be found that the rent is adjusted
to cover the interest agreed on in the mortgage bond. As the
amount of capital in the mortgage bond is usually more than the
value of the land at 12 per cent. interest, and as the rate of interest in
the bond is usually at least 18 per cent., it follows that the land will
not yield the required sum, and thus the mortgagee constantly receives
the full actual rent of the land, and in addition exacts bonds for the
yearly deficit. Often the rent is settled in /vzd and the rates are
mainly determined by the power of the mortgagee to screw his tenant.
One mortgagor tenant in his statement used the following words:
“T cultivate the land, but I have xo right to take for my use any of.
the produce of the field.” Doubtless, under the hardest conditions,
the tenant does take something as was admitted by another ryot, who
was bound to hand over the entire produce of a field to his sowkar ; on
the other hand, much land is held by mortgagor tenants in Poona at
the usual rental terms, namely, half of gross produce of dry-crop and
one-third of irrigated lands; the mortgagee paying the assessment, and
seed and expenses being shared in the proportion of their respective
interests in the crop. In Ahmednagar the sowkar has more power over
his debtor and trusts him less, and regular contracts as to rent are not so
usual, but the tenant is expected to pay the assessment and expenses and
hand over the rest of the produce. One regular contract is in evidence
under which the mortgagor tenant had to pay the assessment and half
the crop of irrigated land. Considering the expenses of such cultiva-
tion this means tenaney with insufficient wages. On the other hand,
a mortgagor tenant, whose bond was backed by a good security, got

3

18 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

his land to cultivate at one-fourth the produce, assessment and seed
being supplied in the proportions of the landlord and tenant’s interests
in the crop. When the tenant pays in kind, his payments may exceed
the amount of interest stipulated in the mortgage bond ; but he keeps no
account of such payments, and the creditor was found in all cases enquir-
ed into by the Commission to have no conception of his responsibility
for accounts 'on this head. As the responsibility cannot be enforced
by the ryot, it practically does not exist. Doubtless, most mortgagee
landlords ave an account, but the ryot cannot get it without going to
court, which to him is out of the question. Another form of mort-
gage, which is usually entered into only when the parties have come to
a final settlement, is the transfer of the land to be enjoyed for a certain
number of years in satisfaction of debt (v¢vwm vadium) ; it is usually
found,-however, that before the period has expired the mortgagee has
established claims giving him a further lien on the land. A similar
method of settlement by an instalment bond is
gladly accepted by a debtor, but here again the
failure to pay one instalment in a bad year usually gives the debt a
fresh departure. As above stated, the sowkar as mortgagee landlord
usually allows the ryot to cultivate the mortgaged land, and as
long as the ryot is left in this relation to his fields he accepts his
fate without much bitterness. It often happens, however, that owing
to default in payment by the tenant, or to better terms being offered
by another, or to the cattle and implements of the tenant being sold in
execution of a decree, it ceases to be the interest of the mortgagee
to leave the cultivation in the tenant’s hands, and the land is then
taken from him.

Instalment bonds.

Besides the security of the ryot’s personal credit, stock, and
movables, house and lands, and the joint security
of a surety, the labour of the ryot is also drawn
into his dealings with the sowkar. This form of bond is not uncom-
mon in Ahmednagar, the terms being that the debtor is to serve the
sowkar, and that his wages are to be credited at the end of the year,
or that a certain sum is to be worked out by service to the sowkar for
a certain period. Sometimes the wife’s labour is also included in the

bond.

Labour bonds.

It is an almost universal practice to enter in bonds that “no pay-
ments are to be alleged by the debtor, unless they are certified

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 19

Stipulation regarding by a receipt under the creditor’s signature,” or
Serre bonds. “that on payments being made, the bond-holder
shall pass a receipt. As no instance has come to notice of a creditor
giving a receipt for part-payments, it must be presumed that the
former stipulation is inserted in order to deter the debtor from plead-
ing part-payment when sued, and the latter stipulation to satisfy the
debtor’s desire to have something in the bond which shall make it the

duty of the creditor to pass receipts.

One of the most noticeable features of these sowkars’ dealings is
All dealings are the peculiar system of retail business which
redneed to bonds. reduces all transactions, even the most trivial,
to the form of written contracts. This system does not prevail to the
same extent in other parts of the presidency, where the account current
is kept open until the balance has reached an amount which makes
further security desirable. The invariable use of bonds in the region
under report is probably the result of the more precarious character of
the ryot’s assets, due to his greater poverty and to the uncertainty
of the climate, and it is an indication of the extent to which the
character of ordinary trade transactions has been affected by their
alliance witha money-lending business much of which is unsound.
The ryot is constantly in great need, and has thus most limited choice
in his means of relief. The sowsar is sharp in business and fully
‘understands the weak side of the Kunbi and the urgency of his
necessities. The terms upon which they deal are that every debit is to
be protected by a bond giving the sowkar unlimited powers of
recovery, and that the credit side is to be left to the honesty of the
creditor.

[Extracts from the Famine Commission’s Report, 1880.)
(Part II, Chapter III, Section IV.—Pages 130-136.)

No subject has been more strongly and frequently pressed on our
attention than the evil results which spring from the degree to which
the landowners are sunk in debt, the asserted rapid increase of their
indebtedness, and the difficulty they find in extricating themselves
from such burdens. In some parts of India, notably in the four
districts of the Bombay Deccan and in the Jhansi district, their
indebtedness has become so grievous that the Government has
recently been led to take special steps for their rescue, and in other
parts it has, at different times, intervened to protect special classes
whose ruin, otherwise unavoidable, it was thought necessary, on political
grounds, to ward off. On a topic which has been so long and
earnestly debated by every Indian administrator of importance it
is difficult to make any new suggestion. It was fully discussed last
year in the Council of the Governor-General of India, and remedial
measures were adopted which are still only in an experimental stage,
so that we can offer no conclusion based on the result of their actual
operation ; but the subject is one of such gravity that the Famine
Commission have felt bound to give it their most careful consideration‘

2. Wehave found no reason to believe that the agricultural popula-
tion of India have at any known period of their listory been generally
free from debt, although individuals or classes may have fallen into
deeper embarrassments under the British rule than was common
under the Native dynasties which preceded it. It has been usual for
the landholders in all times habitually to have transactions with the
money-lender of their village, with whom they carry on a running
account on friendly terms, taking from him advances for seed and
food in the months preceding the harvest and handing over to him
the greater part of their produce, from the money proceeds of which
he pays their dues to the State and places any balance to their credit.
Under this arrangement the ignorant cultivator was relieved of much
trouble and responsibility, and his payments to the Government were
conducted for him by the money-lender or village-headman. His
account might run on amicably for a long series of years unless
extravagant expenditure on family ceremonies, or a failure of the

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 21

harvest from drought, should involve him in difficulties beyond his
ability to meet. Even in such cases the money-lender would be
deterred from extreme measures by popular opinion, and by the
knowledge that he could count on no support from the ruling authority
in selling up and reducing to destitution a member of the class on
which the payment of the land revenue depended. Thus, though
the cultivator (in the absence of any power of obtaining loans on the
security of his holding) was never deeply involved, he was seldom
free from debt, and lived the life of a contented serf, exempt from
the risks and responsibilities which accompany the possession of
independent rights, but also without any stimulus to raise himself
or improve his position.

8. The changes which have been introduced under the British
Administration are for the most part those which will always occur
in the progressive development of social life from a simple toa
more advanced stage. Of these changes those which have affected
the landed classes consist chiefly in their admission by the State to
better defined rights of property in their holdings, combined with the
more complete recognition of the force of contracts, and the obligation —
on the courts of justice to enforce them. It is to be expected
in every forward movement in the education of a people that while
the result is beneficial to the country as a whole, some classes or
individuals will fail to display the qualities needed to benefit by the
advantages offered, and will suffer inconvenience under the novel
circumstances to which they are unable to adapt themselves. But
although a section of the landholders has thus suffered, we ought not
to overlook the fact that the class as a whole has prospered under
British Administration, and that the more enterprising and substantial
landowners have greatly benefited by the enlargement of their
proprietary rights, and by the moderation with which the land
revenue is now assessed.

4, We learn from evidence collected from all parts of India that
about one-third of the landholding class are deeply and inextricably
in debt, and that at least an equal proportion are in debt, though not
beyond the power of recovering themselves. It is commonly observed
that landholders are more indebted than tenants with occupancy rights,
and tenants with rights, than tenants-at-will, a result obviously
attributable to the fact that the classes which have the best security
to offer are the most eligible customers of the money-lenders.

22 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

It does not appear that in this respect one province greatly differs
from another, but certain localities are from special circumstances
either above or below the average condition. Thus, in the Punjab,
the canal-irrigated tracts are stated to be highly prosperous;
in Eastern Bengal, the profits of jute cultivation have enriched
the cultivating tenants; in the Central Provinces, the land
holders have profited in the same way by high prices of cotton and
large exports since the American War; in Madras, the ryots of the
deltas are in easy circumstances. On the other hand, the precarious
out-turn of the crops, with other adverse circumstances, has grievously
depressed.the landholders of the Bombay Deccan and the adjoining
districts of Madras, as well as those of the somewhat similar region of
Jhansi; and many of the talukdars of Oudh, of Sindh, and of Guzerat
without such excuse, have been led by a course of extravagance into a
_ state of bankruptcy, to relieve them from the consequences of which
special legislative measures have been framed.

~

5. With regard to the creditors of the landed classes we are
informed that in the more prosperous parts of the country the subs-
tantial landowners are themselves engaged in money-lending, and that
neither they nor the professional money-lenders of the better class often
employ the agency of the Civil Courts against their debtors. But it
has happened in some cases that when a district has fallen into depres-
sion, it has attracted an inferior class of foreign usurers, who have no
scruples in using every means open to them to secure-a profit on hazar-
dous transactions, and who, working entirely through the machinery of
the Courts, are not inclined to cultivate sympathetic relations with the
people, by whom they are detested in turn. It is not probable that the
gains of these usurers are excessive, but they are exacted with the
utmost degree of friction, hostility, and suffering, with the unfortunate
result of attaching odium to the civil tribunals.

6. However just may be the terms of abhorrence applied to the
“ Marwari,” or foreign usurer, it must be remembered that he is the
product of a diseased condition of the community. The like condemna-
tion must not be extended to the village banker of the better
class, with whose useful services the rural communities of India have
at no time been able to dispense. Any violent interference with the
legitimate business of the rural banker would be disastrous, as it would
result in the calling-in of all agricultural loans, and the transfer of this
capital to some other field of investment. The State should rather

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 23

assist him in his transactions so far as they are lawful, should afford
additional facilities for the recovery of reasonable claims, and should
thus induce him to make loans at a lower rate of interest than that
which now prevails, under the custom established under Native rule
when the security was very inferior. ‘The aim of all remedial measures
as regards the landholders should be to make his dealings with his
banker fair and open,and while protecting him from extortion or op-
pressive measures of coercion, to constrain him to pay his just debts to
the full extent of his means, but by less cruel and ruinous expedients
than imprisonment or the sale of all he possesses. The means avail-
able to these ends are cheap and accessible courts which shall give full
consideration to the equity of every claim, anda simple method of
recovering debts.

7. The origin of debt among the landed classes is traceable to
various causes, among which the most prominent are the failure of
crops from drought, expenditure on marriage or other ceremonies,
general thriftlessness, an improvident use of sudden inflations of credit,
the exactions of an oppressive body of middlemen, and administrative
errors, such as unsuitable revenue settlements ; and debt once incurred
very rapidly grows with exorbitant rates of interest. In so far as the
causes of indebtedness lie in the inherited tendencies of the people, such
as want of forethought, and readiness to promise anything in the
future in order to secure present gratification, no remedies are possible,
except through the spread of education, the gradual growth of provi-
dent and self-denying qualities under the influence of painful experi-
ence, and the success of the stronger and thriftier individuals in the
struggle for life. It is obvious that there is danger lest any interven-
tion of Government should hinder the growth of such qualities, or
protect the weak and foolish too completely against the consequences
of their own action. But where the misfortunes of the landholders
have ensued on the introduction of novel institutions, some-
what too advanced for their present stage of intelligence and
forethought, it is the duty of the Government, fora time at least,
to moderate the strigency of the action of those institutions;
and this has commonly been the object of the remedies which have
been suggested.

8. Among the administrative measures by which indebtedness
is alleged to have been caused, is the system of rigid and regular
collection of the land revenue. Seeing the very small proportion

94, INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

which the land revenue bears to the gross produce of the land, there
cannot be much foundation for this view, though numerous instances
have been given of men who in times of calamity have been forced
to borrow, and who have never been able to recover themselves
afterwards; and it is to prevent such a misfortune as this that we
have already recommended that on such occasions greater leniency
should be shown in postponing the demand till better times. But we
think that too much weight should not be attributed to this cause ;
the fact that landowners who have no land revenue, or only a light
quit-rent to pay, are often also deeply embarrassed, proves, if indeed
it required proof, that the payment of the land revenue is not the
main cause of debt. Ifa man spends all his income on himself, and
borrows to pay his rent or taxes, it can hardly be said that his
indebtedness is due to the fact of his having rent and taxes to pay,
when these charges bear so light a proportion to income as the land
revenue does to the gross out-turn of the land.

9. It has, again, been alleged that the action of the Civil Courts
has contributed to the indebtedness of the agricultural classes, and
various suggestions have been made for constituting tribunals and a
procedure which may provide more effectually against. this result.
Sufficient regard is not, it is said, in all cases, paid to those equitable
considerations which are of such essential importance in the adjudica-
tion of disputes in which the ignorance, improvidence, or the necessity
of the one party, places him at the merey of the superior intelligence
and resources of the other. Contracts, the extravagant one-sidedness
of which bespeaks a sense of hopeless weakness on the one side, and a
spirit of unscrupulous exaction on the other, have been enforced by
the Civil Courts with too mechanical an adherence to the letter of the
law, and too little regard to the circumstances of the parties and. the
substantial merits of the case. Native customs which tempered the
severity of contracts, such, for instance, as that which restrained the
rate or amount of interest, have been swept away, and a rigid and
elaborate legal system has too often proved only an additional instru-
ment of oppression in the hands of the more wealthy or better
instructed litigant, and an additional cause of ruin to the impoverished
agriculturist.

10. Several alterations have, however, within the last few years,
been made in the Code of Civil Procedure with a view to providing
adequately for the relief ‘of insolvent debtors, to guarding against

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 25

the oppressive use of the machinery for executing decrees, and
especially mitigating the harshness of its operation as regards
agriculturists. Tools, implements of husbandry, the cattle necessary
for tillage, the materials of his house are in the case of an agricultural
defendant exempted from attachment or sale in execution of decree.
The district officer is further empowered to represent to the Court
that the sale of land in execution of decree is objectionable, and that
the decree can be satisfied by temporary alienation or management,
and thereupon the Court may authorise such satisfaction. Another
provision enables the Government in any particular area to transfer
the execution of such decrees as involve the sale of land to the
district officer, who is thereupon invested with authority to deal
with the land, adopting various courses for satisfying the decree, and
avoiding the necessity, except in the last resort, of an execution sale.
The Government, the High Courts, and other superior tribunals will
no doubt continue to watch with care the operation of the law, and to
take every precaution against its abuse.

11. Some evidence was brought before us in favour of a simple
and inexpensive system of settling disputes by the agency of unpaid
arbitrators, and it was suggested that in this way relief might be
afforded to agricultural debtors. We observe, however, the existing
law makes ample provision for recognising references to arbitration by
consent of the parties, and for giving to the awards of arbitrators so
appointed the form of a decree. It has not, however, been found
that this mode of settling disputes is generally popular; and we
were informed that recent changes in the Stamp Law, by which a
heavier fee than before is imposed in submissions to arbitration and
awards of arbitrators, will tend still further to discourage resort to
this mode of adjustment. If this prove to be the case, it would be
matter for consideration whether the Stamp Law might not with
advantage be altered in this respect. Arbitration, other than that by
consent of the parties, stands, of course, on an altogether different
footing, and their is no reason to suppose that it would be for the
benefit of any class of litigant. On the contrary, it would be likely
to open the door to much of that corruption which is so serious a
difficulty in the administration of justice in India. The Civil Courts
are strictly controlled and supervised, and are, whatever their other
imperfections, incomparably purer than any tribunal before known in
India; nor is it probable that an equally high standard of purity

4

26 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

would be attained by recourse to a less exact procedure and _ less
responsible agency.

12. The two most important cases to which the attention of
Goverment has recently been called by evidences of special distress are
those of Jhansi and the Bombay Deccan districts. In both of these
the popular tendencies to indebtedness are said to have acquired an
increased power for mischief under the novel circumstances created by
“the fatal gift of transferable rights in the soil, and the establishment
of Civil Courts in an ignorant population.” In both, the ruin of the
land-owners has been precipitated by the harsh and _ extortionate
practices of an inferior class of money-lenders. In the case of Jhansi,
remedial measures are still under consideration, but for the four
Deccan districts a special remeady has been devised and is now on
trial.

13. The facts of the ease which the Act for the relief of indebted
agriculturists in certain parts of the Deccan was designed to meet,
explain how a rural population may sink below the level of average
prosperity. Much of the soil is poor, the rainfull capricious, and the
out-turn of the harvest liable to violent fluctuations. The conditions
which prevailed in the Deccan under Mahratta rule were unfavourable
to steady industry, and the present generation has come within the
influence of a most exceptional disturbance of prices. A sudden rise in
the value of cotton at the time of the American War occasioned a
vast inflation of credit, which was fed by a corresponding influx
of capital seeking investment, whereby the landholders, under cover
of the proprietary rights they had acquired, were tempted to
improvident borrowing. Being deficient in the qualities of
forethought, energy, and_ self-reliance, they were thus laid
open to new dangers, while their improvident habits were such
that the low unvarying revenue assessments of our Government
brought them no advantage. The extravagant habits engendered by
this temporary prosperity were not easily laid aside, and the subsequent
collapse in prices, combined with bad seasons, threw them into debt.
As indebtedness became more hopeless and inextricable, the money-
lender resorted more freely to the aid of legal process, and the debtors,
exasperated at the invasion of their cherished rights in their holdings,
were driven to despair, and finally on several occasions to rioting and
violence. The proportion of land-owners seriously embarrassed does
not appear to exceed 30 per cent., but the amount. of debt in proportion

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 27

to income is heavier than that stated to exist in other provinces,
and about two-thirds of the debt is said to be secured by mortgages
of land.

14, By the Act which has recently come into force for the relief
of the Deccan agriculturists, village registrars are to be appointed,
before whom agriculturists are to execute all instruments relating to
obligations for the payment of money or charges on property, and all
conveyances and leases: any deed not thus registered and attested is
not to be deemed valid. Agriculturists are entitled to demand receipts
for all payments, as well as yearly statements of account, or pass-
books in which their account shall be written and attested by the
money-lender. The local Government is empowered to appoint
village munsiffs, with jurisdiction in small suits of which the subject-
matter does not exceed ten rupees, a system which has been found to
work well in the Madras Presidency. Suits of larger value will be
tried by additional subordinate judges who, when the defendant is an
agriculturist, will, as a rule, inquire fully into’the history of the debt,
take a separate account of principal and interest, credit the debtor
with any money repaid, -disallow all interest which the Court deems
unreasonable, follow,in decreeing the amount due, the principle of
Hindu Law known as dam dupat, under which the interest must not
exceed the principal, and fix instalments for the payment of the sum
decreed. ‘The Government will doubtless exercise the powers provided
by law for reducing the expense of stamps and fees in these
Courts. Ifthe decree is for less than 50 Rupees the Court may
discharge the agriculturist at once on payment of as much as he is able
to pay. If the defendant is found to owe 50 Rupees, or upwards the
Court may treat him as an insolvent, and any agriculturist whose
debts are of similar amount may be declared an insolvent on his own
application. In such case all claims against him are called in, and
the amount to be recovered from him is ascertained by inquiry into
the history of them all. No agriculturist can be arrested or imprison-
ed in execution of.a decree for money, nor can his immoveable
property be attached or sold unless it has been specifically mortgaged.
In the latter case the Court may direct the Collector to let the
property for a period not exceeding 20 years, if thereby a premium
can be obtained equal to the amount of the secured debt, or otherwise
to sell it. If the debts are not secured by mortgage, the Court may
direct the collector to manage any immoveable property (other than

28 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

houses or buildings) not required for the support of the insolvent and
his family, for a period not exceeding seven years, and the proceeds to
be divided among the creditors. It is understood, though the case is
not directly provided for in the law, that it is the intention that the
agriculturist should, whenever possible, be retained as cultivator of the
managed property paying a reasonable rack-rent under suitable
precautions. While any property is in the collector’s hands the insol-
vent is not allowed to encumber or alienate it.

15. Experience will show whether, after the mass of existing
debt is disposed of under these provisions, the money-lenders will
withdraw their capital beyond the reach of the Act. Some uncertainty
is felt on this subject, but there seems no reason to doubt the assertion
of many native witnesses, including village bankers, that the
creditors are prepared to make large sacrifices in return for’ the inter-
position of Government to effect prompt recovery of their money, and
the measure will at any rate have the effect of clearing off the
existing burthen of debt.

16. The Decean Riots Act has been passed so recently that we
have no information as to how it is found to work in practice, and
such experience can be the only safe guide in this subject ; but if this
proves satisfactory, the principles embodied in it might, with advantage,
be applied to other parts of India. Two of the principles contained
in the Act may perhaps be singled out for especial reference. The
multiplication of small village Courts, presided over by the village
headmen, and of village registrars, before whom all bonds for debt
must be executedswould probably be of good effect in all parts of the
country. Considering that of the 1,400,000 suits annually disposed
of by the Courts of British India, 1,200,000, or 85 per cent., are for
sums under Rs. 100, and 630,000, or 44 per cent., for sums under
Rs. 20, a strong prima facie case appears to be made out for tribunals
which shall dispose quickly, easily, and cheaply, and by a procedure
suitable to the wants of a humble order of litigants, of a vast mass
of petty litigation. Village tribunals of this description already exist
in the Madras Presidency, and we are glad to know that the Govern-
ment of India has invited the various local administrations to consider
how far it may be possible or desirable to extend the Madras system
to other provinces.

17. The second is the creation of special courts with a procedure
specially. devised to take up and dispose effectually of cases of this

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 29

kind. Wherever the indebtedness of the land-owners has assumed
serious proportions, the appointment of special Courts to examine into
their debts, to reduce their amount to the sum equitably due, and to fix
instalments which would pay the debt off in a given number of years,
at a rate of interest proportionate to the diminished risk, would appear
to be the only effectual way in which Government can remedy the
evil.

18. It is, we think, deserving of consideration whether the
existing law of contract and the rules of procedure provide adequately
for the case of the ignorant peasants in any transactions which goes
beyond the scope of their ordinary life. It is characteristic of these
classes to promise anything, to submit to any condition for the
future, if only relief for the present can be secured ; and it is in dealing
with such cases that the Indian Courts are said to fail in providing
adequate protection. The Contract Act does, we understand, mention
certain specific grounds, such as mistake, fraud, or undue influence, on
which contracts may be disputed ; and the general duty of following
- “justice, equity and good conscience”, which has at all times been
enjoined on Indian Courts, renders it obligatory on every judge to
secure, as far as possible, the interests of justice, in ‘its highest sense,
between the parties before him. But if it be the case that this
obligation is sometimes insufficiently recognised, it would be well
that the language of the law on this subject should be rendered more
explicit and the duty of the judge be more distinctly pointed out.
Instances were brought to our notice in which bonds, the terms of which
were in a high degree suspicious, have, on the mere admission of
signature by the defendant, been, without further inquiry, made the basis
of a decree which involved most unfair advantage to the one party and
the total ruin of the other. It should, we think, be expressly enjoined
on the judge to satisfy himself that the defendant was fully alive to
the character of the transaction, that the bargain was not extorted in a
moment of extreme necessity, that the relations of the parties were such
as to leave each a free agent, and generally to apply to the contract
all those considerations which the scruples of English equity judges
have interposed between 1mprovidence and those who would fain turn
it to their own advantage.

19. We advocate, however, one modification of the Bombay Act
in respect of the provision which, if the land has been specifically
mortgaged, necessitates its alienation, temporary or permanent, from

6)

30 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

the management of the mortgagor. This provision is severer than
that of the amended Civil Code under which the collector may liqui-
date a decree by managing the land, for a term not exceeding 20 years
through another ; that “other” being, if the collector thinks fit, the
mortgagor,himself, who may then be kept on as the cultivator of the
land. If the debtor is turned out, and the land is let to another person
for a term of years, at the expiry of that term the debtor will * re-enter
with no increased sense of the importance of thrift, but with additional
incapacity, through the disuse of years, for managing the land. We
therefore recommend that in all such eases the principle should be
followed of paying off the debt by instalments, the land remaining in
the hands of the debtor and being managed by him, on payment of a
full rent, the excess of which above the revenue would go towards the
liquidation of the debt ; such payments being collected from him by
the Revenue Courts along with the land revenue, and being made over
every half year to the creditor. In the event of the debtor’s failure to
carry out such an arrangement, and to pay the instalments thus fixed
unless he is prevented by drought or any other exceptional calamity,
he should be ejected and his rights in the holding sold, when it may
be hoped that he would be replaced by a better and more thrifty man.

20. As a supplement to cheap and accessible Civil Courts, the
assistance of the Revenue officials in the repayment of agricultural debt
is probably the greatest benefit to both debtor and creditor which the
Government is able to offer. The Revenue officers are possessed alike
of the means of ascertaining what the debtor could pay, and of realiz-
ing the instalments of his debt with the minimum of cost and risk to
the creditor. In Upper India, a Zemindar who has a gross rental of
Rs. 100 pays Rs. 50as land revenue, and about Rs. 15 in cesses.
Rs. 10 must be set aside for the vicissitudes of the season, and Rs. 25
may be taken as the minimum annual profit he receives as a proprietor.
In the majority of cases he himself cultivates a portion of the estate ;
if, then, he is content to pay a cultivator’s rent, and to live on a culti-
vator’s profit, he is able to pay his whole proprietary profits, or Rs. 25
a year, or 50 per cent on his government revenue, in liquidation of his
debts. Such an instalment will clear off a debt of Rs. 100 at 12 per
cent in 6 years, or of Rs. 200 at 9 per cent in 14 years. In Southern
India the margin between the Government rates and a full rent is
probably not so great, but the Revenue authorities would decide
what the average profits of a ryot are. On such considerations the

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 31

instalments should be fixed, and when fixed they might be collected
with the land revenue and paid over to the creditor, who would
thus be freed from all trouble in executing his decree, and from
almost all risk.

21. The risk being thus lowered, it is but reasonable that the
rate of interest should be reduced; and this is an essential part of
any scheme for paying off large amounts of debt. It may not be
wise to fix by law the limits of rates of interest which the Court shall
decree, but it would seem desirable that the local Government should
be authorised to indicate to the Courts the maximum and minimum
rates that should, with a general reference to the value of money,
ordinarily be paid. At present 24 and 36 per cent. are commonly
paid by agriculturists,—rates which would be fatal to successful agricul-
tural enterprise in any country. Six per cent. is the rate now usually
paid by Native merchants when they borrow from each other asa
temporary convenience, and something above this may be necessary
in India in the ease of profits dependent on the land and the weather,
but the object should be not to recognise any rate in excess of
that which would be reasonable, having in view the character of
the security offered. ,

22. The same principle adopted for dealing with existing debt might
also be applied in the cases of new loans raised by owners of unen-
cumbered estates. A mortgage need not be an agreement entered into
privately, and on very onerous terms, between the money-lender,
taking all risks, and the landowner, assenting to terms he does not
understand, but might, with advantage to both parties, rather be an
agreement openly made between them before the Collector, and on
terms sanctioned and to be enforced by him. Any mortgage not so
made would rank only as a simple unsecured debt, and no cognizance of
it would be taken by the Court which alone would have jurisdiction
in respect of landed debts. Personal and unsecured debts would not
be put beyond the pale of the law, but decress for them would not be
liable to be executed against the land. In special tracts it might be
thought advisable that the Collector should be empowered to refuse his
sanction to a loan incurred for an extrvagant or merely ceremonial pur-
pose, or for any cause but one of agricultural improvement or necessity.

23. The landholder would in such case execute an agreement before

the Collector, or the Court which deals with agricultural debts, to repay
the loan, principal and interest, in an appointed number of instalments,

32 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

which would be collected from him in the same way as the land
revenue, next after any sums due to the Government. ‘The estates on
which such loans are secured should be free from other encumbrances,
and it should probably be enacted that no claims on the land should be
- recovered except by the Collector as above stated, and that he should
recover none except those thus openly arranged before him. The
landholder would be required to surrender his right of transfer or sale
while his holding is thus charged. His power of improvident borrow-
ing would certainly be restricted, but he would be protected from the
danger of losing his land, while the creditor would have good security up
to a certain definite and calculable limit, and would be able to lend at
moderate interest. If a landholder is unable to offer the security
necessary to enable him to obtain a loan on these terms, we would not
withdraw his power to sell his rights. Nor would we be understood
to recommend any interference with the free transfer of landed pro-
perty, or with the rate of interest, except in cases where, and so long
as, the condition of the landholding community presents unhealthy
symptoms which seem remediable by such expedients.

[ Betracts from the Famine Commisston’s Report, 1901. |
(Part III, Section VI.—Pages 106-111)

INDEBTEDNESS IN THE BOMBAY PRESIDENCY.

326. The indebtedness of the Bombay ryot has for many years
engaged the earnest attention of the Supreme and Provincial Govern-
ments. We agree with the analysis of the causes of such indebtedness
made by the Deccan Riots Commission ; but we desire to call special
attention to the agrarian system introduced by the Survey Settlement
as an accentuating cause of indebtedness, and more especially to the
unrestricted right of the cultivators to transfer their holdings which
the Survey Settlement recognised. A brief exposition of the leading
features of this agrarian system is necessary to explain our meaning.

327. The salient features of the system are, (a) the creation of a
territorial unit of land revenue assessment, which is called ‘the field’;
(4) the assessment of land revenue on each ‘field’ independently, each
’ thus becoming a separate holding ; (c) the recognition of the recorded
occupant of ‘the field’ as possessing complete proprietary rights over
it, subject only to the payment of the revenue or tax assessed on it;
and, (d@) the punctual recovery of the tax from the recorded occupant
in bad years as in good.

328. The system was devised for small cultivators ; there was no
intention to:create large holdings. ‘There would seem,” wrote Captain
Wingate, one of the authors of the system, “to be few grounds for
anticipating the establishment of wealthy agriculturists cultivating
large farms under any circumstances in India. Our measures have
to be framed for the class of small farmers who now prevail univer-
sally.” Accordingly, the ‘field’ was designed to contain “the extent
of land capable of being cultivated by a pair of bullocks.” This was
the theory ; but the facts of existing holdings and their boundaries
were accepted and fitted, as best might be, into the new scheme.

329. The recorded occupier of each ‘field’ under the Survey Settle-
ment became the recognized owner, subject to the payment of a
moderate land tax. His rights as owner were, says Captain Wingate,
“absolutely free from all conditions except the simple one of
discharging the Government tax.” But this condition was to be
rigidly enforced. In the discussions which preceded the adoption

a)

84 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

of the principles of the “Joint Report,’ which is the basis of the
Bombay Revenue system, the advantages of elasticity in the
collection of the land tax did not escape notice. But, nevertheless,
a leading principle of the Revenue system, as finally established, was
* that, in view of the moderation of the assessment, sufficient elasticity
was given by making the assessment of each ‘field’ separate, and

. by giving the registered occupant complete power of transfer or
relinguishment over his ‘ field.’

330. A strong tenure of this sort held at a low assessment was a
very valuable property ; and it is easy to see now that it would have
been wise to have kept a vigilant watch over the use which an ignorant
and unthrifty peasantry was making of it. But the authors of the
system held that the best way “to excite the cultivator to indepen-
dence and to create agricultural capital” was “to exempt him as
much as possible from the pupilage to, and surveillance of, Government
officers.” ‘There was, it was said, “an obvious advantage to get land
out of the hands of the cultivators unable to pay their way and to
transfer it to cultivators with more capital.* ** As the customs and
native revenue systems of India are adverse to land transfers, it is
therefore all the more necessary to adopt measures for giving them
effect.” Accordingly it was decided that there should be no inter-
ference by Government officers with the people, and that no enquiries
should be made regarding the financial condition of the cultivators.

331. Thus things were left to take their own course; and the
result was,—as invariably happens when an ignorant and improvident
peasantry can dispose, without restriction, of valuable rights in land—
that the cultivators sank deeper into debt, and their property began to
pass out of their hands. It must be admitted that the conditions on
which, under the Revenue System, the cultivators held their lands
helped to bring this result about. The rigidity of the revenue system —
forced them into debt, while the valuable property which they held
made it easy to borrow.

332. This is the state of things to-day, and while it remains

unaltered, indebtedness in the Bombay Presidency must continue and
increase.

333. We desire to guard ourselves against the supposition that
we impute want of care or solicitude for the people’s interest to the
authors of the Bombay revenue system. The authors of that system
were men of ability, humanity, and zeal for the public good, and

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 85

nothing is further from our thoughts than to impugn the excellence
of their intentions. "What we wish to point out is that their inten-
tions have not been fulfilled. They expected the accumulation of
agricultural capital; but their plans did not promote thrift, nor did
they conduce to the independence of the ryot. They looked for the
capitalist cultivator ; and we find the sowkar’s serf.

334. On the extent of the indebtedness of the Bombay cultivators
no precise official information, we believe, exists; but there are
materials for a probable estimate. We know that the Deccan Riots
Commission of 1875 found that “about one-third of the
occupants of Government land are embarrassed with debt; that their
debts average about 18 times their assessment ; and, that nearly two-
thirds of the debt is secured by mortgage of the land”’“We “also ’
know that the money-lenders, in the: villages visited by the Commission,
paid about one-eighth of the whole land revenue—their property
having been acquired within the preceding twenty, and for the most
part the preceding ten, years—while it was notorious that the private
transfers of land were, in most cases, not recorded. ‘The
Commission of 1891 found that, within the preceding eight
years, land paying 10 per cent. of the revenue in _ the
districts which they visited, had been sold, two-fifths going to
money-lenders ; while lands paying 174 per cent. of the revenue had
been mortgaged, four-sevenths going to the sowkars. In his evidence
before us, the Chief Secretary to the Bombay Government said that
28 per cent. of the land in Broach had passed into the possession of
the money-lending classes ; and from a report of the Collector of
Ahmedabad it appears that, in his district expropriation of the old
owners has also made considerable way. Taking all these statements
into account, and comparing them with the evidence we have recorded,
we think it probable that at least one-fourth of the cultivators in the
Bombay Presidency have lost possession of their lands; that less than
a fifth are free from debt; and thatthe remainder are indebted to a
greater or less extent.

335. It is unnecessary to retrace here the efforts which since 1875
have been made to remedy this lamentable state of things. Commis-
sions have sat and reported; Acts of the Legislature have been
passed and amended ; executive action of various sorts has been taken.
But, of all, the result has been disappointment. Comparing the
statistics of sales and mortgages in the four districts to which the

36 INDEBTEDNESS Of THE LAND-HOLDING CLASSES.

Relief Acts have applied with the corresponding figures in non-Act
districts, and weighing the evidence of the witnesses on the point,
we form the conclusion that these Acts have done but little substantial
good. Indeed, there is positively room for holding—and statistics
_ show—that transfers of property, both by sale and mortgage, have
become more frequent in districts to which the relief Acts apply. We
therefore think that the time for palliative measures has passed, and
that the hour has come for recognizing facts as they exist, and for
applying those measures which the facts demand, no matter how
unwelcome may be the disillusionment that they may bring.

336. The cultivators, whose names are recorded, may, for the
purpose in hand, be divided into three classes :—(1) those who have
completely lost their lands; (2) those who have only mortgaged their
rights; and (3) those who are free from debt. We are only concerned
with the first and second classes.

337. It is a curious, but common, practice in Bombay for the
money-lender owner to maintain the name of a cultivator of the first
class on the village proprietary register, and to keep his own name
off it. The motive for such action is suggested in paragraphs 70 and
77 of the Report of the Deccan Riots Commission, which also inci-
dentally explain why such a large portion of the land revenue in the
Bombay Presidency is paid by money-lenders :—

“Instances of the redemption of mortgage are almost unknown; a mortgage
is equivalent toa transfer of the ryot’s title, his interest in the mortgaged land,
where, as is usual, he remains upon it as cultivating for the mortgagee, being that of
a tenant at a rack-rent.* * * The ryot’s land is often more valuable as security to
the sowkar than it is an ordinary investment to a purchaser; for, through the great
reluctance of the ryot to sever all connection with his land, the sowkar is able to
exact more than the ordinary rent, and, besides, the land is not the only security
which the sowkar holds; the law gives him command not only over the debtor’s
movable property, but over his labour and the labour of his family.”

338. Now, we urge that the maintenance of the old owner’s name
on the register has inconvenient results in many directions. The first
of these is that, the register is not a record of actual facts as it should
be; and, from this it follows that the demand for the land
revenue is made upon a person who is not actually responsible for
the payment of it; that an opportunity is, thus, given for the
exercise by untrustworthy subordinate officials of powers which are
susceptible of great abuse; that the capitalist owner is exempted from
directly bearing those responsibilities which the possession of property

{NDEBTEDNESS OF Titk LAND-HOLDING CLASSES. 37

should impose ; and that the Government is prevented from protecting
the actual cultivator, z.¢., the expropriated owner, by a Tenancy Law.
Moreover, there is reason for believing that the refusal to recognize
actual facts in this connection has positively contributed to the people’s
indebtedness. It is in evidence that the marwari or alien class of
money-lender, the most exacting of all, does not care to stand forth
as owner and cultivate the land. Had money-lenders of this class
been compelled to record their names, had the duties of proprietorship
been enforced against them, and had their sub-tenants been protected
against excessive rack-renting, these money-lenders would probably
have concluded that land was a less desirable investment than it has
been and is.

339. Two ways of dealing with this first class of cases suggest
themselves, for we put aside as Utopian the re-purchase of the old
holdings by the State. One is to reinstate the old owners by coming
to a composition with the de facto owners, and by arranging for the
payment of the latter’s claims by instalments. This method would,
we gather, be acceptable to Bombay opinion, and, if a practicable
means of enforcing it can be devised, it would no doubt be in every
way desirable. But we fear that, at best, it holds out but a slender
hope of success. There are no possible means by which the de facto
owners can be compelled to part with their property: while even a
liquidation based on consent could hardly be effected within any
measurable period of time.

340. Failing such a scheme, one practicable method of dealing
with this class of cases seems to us to be to recognize the facts, to
record the money-lenders for what they are, namely, the owners of the
land which has passed away from the tenants, and to protect the latter
from rack-renting by a suitable Tenancy Act. There is universal
agreement that the expropriated owner has, as a rule, sunk to the con-
dition of a mere serf, tilling the land and making over the produce
to the owner. In good years he has nothing to hope for except a
bare subsistence; in bad years, like last year, he falls back on public
charity.

341. In regard to the cultivators of the second class who are as
yet the owners of their holdings, and in respect of whom the money-
lender is still merely a mortgagee, the situation is different. The
problem is how to preserve to the vyo¢s their rights in their holdings,
which are fast slipping from their grasp. Here the remedial

38 INDEBTEDNESS OF THE LAND-HOLDING CLASSES.

measures called for are of a legislative as well as of an executive
character. The executive measures are the introduction of elasticity
in the collection of the Government demand, and its corollary,
the improvement in the system of land records. The legislative
measures are concerned, first, with enabling the tenantry to compound
for their existing debts; and, next, with limiting their power of incur-
ring fresh debts, or, in other words, imposing limitations on the
transfer of their property in the future. We will deal with the
legislative remedies first, and then express our views upon the
administrative question.

342. We propose the following legislative measures, and we note
that the probability of lasting success will be greatly strengthened if
Mutual Credit Associations take root and flourish in the country.
In the first place, power should be given by statute for the following
or some similar procedure :—

(1) The account between debtor and creditor should be investi-
gated, and a fair sum should be fixed, to be paid by the former to the
latter in liquidation of the debt.

(2) The average produce of the holding should be ascertained, and
its money value should be expressed in cash.

(3) The surplus produce, after providing for the subsistence of
the cultivator and his family and the necessities of cultivation, should
be appropriated to the payment of debt, provided that such appro-
priation shall not be continued after the lapse of a term of years.

(4) In substitution for (1), (2) and (3) the holding should be
made over, at the land tax assessed, to the creditor in usufructuary
mortgage for a term of years.

In either case the holding should be declared free of debt at the
end of the term. We have ascertained that a procedure similar to
this is followed in Rajputana.

343. Inthe second place, we think that legislation with the
object of restricting the transferability of land should be undertaken in
Bombay; and we might refer to the legislation lately carried through
in the Punjab, as indicating how this object can be effected. Other-
wise we fear that, as the Commissioner of the Central Division said
in 1882, “the number of non-cultivating occupants will continue to
largely increase, and our moderate survey rates, which are intended to
benefit the cultivators, will only benefit land speculators, who will, as

€

INDEBTEDNESS OF THE LAND-HOLDING CLASSES. 39

occupants, pay the low rates to Government and grind down their
sub-tenants under a hideous system of rack-renting.”

344. Coming next to the executive measures, we need not again
refer to the question of elasticity in the collection of the land revenue ;
but a few words are necessary as to improvements in the Land
Records system which are essential to the proper introduction of it.
These improvements consist chiefly in the better organization of the
Land Records staff ; in the mapping and registration of every plot con-
tained in the ‘field’; in the maintenance of a correct map by the
village accountant ; and in the due registration in the village records
of all particulars regarding ownership, encumbrances and cultivating
rights. |

345. We were unfavourably impressed by the insufficient control,
which, under the Bombay system, is exercised over the village
accountant, and with the waste of strength involved in employing one
set of officials indealing with the land revenue, and a different set in
dealing with agricultural statistics. The experience of other provinces
shows that both functions are best and most economically discharged
by one properly graded staff of village accountants, circle superinten-
dents (or 4anwngos) and district superintendents (supervisor sanungos),
working under the Collector. It is only by consolidating the two

staffs in this Way that the necessary control can be established over the
village accountant.

346. Above all, there should be a real record of all proprietary
rights in land, and to this end registration of title in the village
register should be enforced. At present there is no precise informa-
tion as to the actual ownership of the land, and the entries in the
village papers are often at variance with the facts. The result is that,
when the revenue falls due, and the actual cultivator, who is not the
owner, protests that he is not responsible, the local officials are reduced
_to a shrewd guess as to who the responsible party may be. This
throws an enormous power into the hands of the village accountant, a

subordinate official, who, in every province, requires to be kept under
strict control.

347. We advise that no time be lost in giving effect to the reforms
which we have suggested above.

CHAPTER II.

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

[ Faxtracts from the Proceedings of the Governor General’s Council,
dated the 30th December, 1870.)

Sir Joun STRACHEY said :—

A system of advances of this description, under the name of takavi,
had been in force in many parts of India almost from the commencement
of our rule, and there were, in several old Regulations passed at the
end of the last century and the beginning of this, some seventy or eighty
years ago, many provisions bearing on the subject. These old laws
authorized, under certain conditions, the advancing of Government
money for agricultural improvement, and in some parts of India the
system had been acted upon to a very considerable extent. The
security on which these loans were made was complete, because the
security was the land itself on which the improvements were carried
out, and the advances were declared by law to be recoverable by the
same processes as were applicable to the recovery of arrears of land-
revenue. The provisions of these old Regulations had, however, been
found to be very incomplete; and, as might have been expected,
they were hardly suitable in many respects to the circumstances of
the present times, and besides it was thought very desirable to conso-
lidate the whole law on the subject. This would be a further step
towards the carrying out of the great scheme of the consolidation of
the statutes of this country which his Hon’ble and learned friend

Mr. StePHEN had in progress.

The Government believed that the principle of giving the assistance
of the State to private persons for the purpose of carrying out works
of permanent agricultural improvement was one that might with great
advantage receive a much wider and more systematic development
than had hitherto been given to it. The works for which these
advances would be made were not at all great works requiring
engineering skill, but works of improvement within the capacity of
the proprietors and occupiers of the land themselves, with such little
help from the authorities as might be necessary. These works would
be for the most part such works as wells and small drainage works,

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 41

the reclamation of waste land, and so forth. There was another class
of works at the present time for which advances of this kind might be
made with special benefit, and for this class of works, through
imperfections in the existing law, to which he need not now more
particularly allude, advances had hardly been made at all. Northern
India was being gradually covered with a system of great canals for
irrigation ; but the State could only construct the main channels for
these works. All subsidiary works, such as the smaller channels for
bringing water into the fields and the preparation of the land for
irrigation, must be done by the people themselves, by the local
proprietors and occupiers of land. Although these subsidiary works
~ required really little skill, and were for the most part inexpensive,
still the cost of them was often greater than the small proprietors
and cultivators in possession of the land were able to bear without
difficulty ; and the necessity of incurring this expenditure had been
found very often to be a serious obstacle in the way of obtaining
full advantage from the irrigation canals constructed by the Govern-
ment. Without these subsidiary works of which he had spoken, it
was impossible that full benefit could be derived from the canals.
It rested with the occupiers of the land themselves to take water, or
not, as they pleased ; and the result of the present state of things was
that there was frequently extreme delay, after the main channels were
made, in taking the water. Thus there was delay in protecting the
country against famine, and obtaining for the country the vast
accession of wealth and prosperity which was offered to it, and at the
same time, necessarily, delay in obtaining for the Government an
adequate return on the vast sums of money that it had expended.
The Government believed that there could be no object to which
portions of the loans which it was proposed to raise for reproductive
works could be more advantageously and properly devoted than this;
and in making loans for works of this kind there could be absolutely
no risk, for the loans would be given on the security of the land itself,
and under a system already known to the people and highly appreciated
by them. Ina very few years all advances of this kind would be
repaid, without the <slightest doubt, with interest; nor would any
elaborate or expensive machinery be required for the carrying out of
this system under any development we were likely to see given to it.
He believed there could be no doubt that the existing revenue and
other public establishments would be quite sufficient to do everything
which was likely to be required,
6

42 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS,.

He need not now enter into the details of the measure he proposed
to introduce. A more fitting opportunity for doing so would be found
on the introduction of the Bill, if the Council would give him leave to
proceed with the measure. Provisions would of course be required in
detail, to regulate the purposes for which these advances of money
might to made, and for defining the conditions under which advances
should be given, and under which they would be repayable, and, in
cases of failure in re-payment, for defining the manner in which the
money should be recovered. The Local Governments were all con-
sulted regarding this measure in a letter which was published in the
Gazette of India some six months ago. Answers had been received
from all the Local Governments in the north of India; and although
many suggestions had been made, many of which were very valuable
and would require careful consideration in detail, he might say
generally that the proposed measure had been generally approved by
all the authorities consulted.

This system, which had long been in force in India, though in a
very undeveloped form, was identical in principle with that which had
been carried out on a large scale in many parts of the United
Kingdom under the Land Improvement Acts, with results which
were most encouraging, and the nature of which was well-known
to His Excrenttency tHe Presipent, and to which he need not refer
more particularly. He thought it might be safely said that there was
perhaps no country in the world to which a system of this kind was
more properly applicable than India; for in India at the present
time there was one great industry, and one only—the agricultural
industry. The one great source of wealth in India was the land.
It might be safely said that the whole present and future prosperity of
this country, and he might add the future financial position of our
Empire in India, depended on the development of the vast and
practically unlimited, though too often neglected, agricultural
resources of the country. If advantage were taken of the means
which science and wealth had placed at our disposal for the improve-
ment of the land, and, he might add, if we abstained from putting
into operation theories which ignored the only really great and
progressive source of wealth which India possessed, it might be
safely predicted that the increase of agricultural prosperity in India
would be rapid and immense; and he believed that at no distant
period the twenty millions of annual income which the land now

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 43

yielded to the State might be expected to form, he might really say,
an insignificant burden on thefagricultural resources of the country.
The present measure would be a step in this direction, and he thought,
a not unimportant step. He believed that if it were worked intelli-
gently it might produce really great results, and he thought that this
measure would also be valuable at the present time as a fresh recog-
nition of the fact that the Government of India was not only a
Government, but the receiver, as the representative of the public, of
that portion of the rent of the land which had belonged from time
immemorial to the State, and that, in its capacity of chief land-lord
of the country, duties devolved on the Government for the improve-
ment of the land, and for the advancement. generally of agriculture,
beyond the ordinary duties of a Government, and similar in kind to
those duties which a good land-lord had everywhere to perform.

[Extracts from the Proceedings of the Governor General’s Council,
dated the 28th September, 1871.)

Lanp IwprovemMENT Loans Bit.

Tue Hon’sre Mr. (afterwards Sir Joun) Stracuey said that he
need not say much about the objects of the Bill, because they had been
fully stated on former occasions. In regard to the main principles
of this measure, there was no novelty in it. It was a consolida-
tion of the old ¢takavi laws, with some important amendments.
It ought, he thought, to be remembered to the credit of the British
Government of the last century in India, that it recognized
by law the principle now acted upon with so much advantage at
home, under the Land Improvement Acts, that it was the duty
of the State to make use of its resources in encouraging and
developing agricultural improvement. The old Regulations for
which it was proposed to substitute the present Bill, had not,
he believed, in any Province, been applied on any defined and
organized system. Their application had mainly depended on the
opinions or zeal of individual officers of the Government. Nor
would it have been easy to introduce sucha system, for the pro-
visions of the existing law were, to some extent, unsuitable and
obsolete. For instance, if the law were strictly acted upon,
which he believed it never was, they would have to charge twelve
per cent. interest on all advances. What they required was a
well organized system under which the Government should encourage,
by loans granted on the security on the land to be improved, the
construction of simple works of agricultural improvement, such
as, wells, tanks, minor water-courses, and so forth. The Govern-
ment was now gradually covering India with great works of irri-
gation on a scale unknown in any other part of the world, but no
proper provision had hitherto been made for the encouragement of
the humbler but hardly less valuable class of works to which this
Bill referred—works which would be constructed by the landed
proprietors and occupiers themselves.

The present measure brought with it no financial risk, and
imposed no charges whatever on the revenues of the State. Govern-
ment would make advances at a somewhat increased rate of interest

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 45

over that which it itself had to pay, but still at a lower rate
than money could be borrowed at from other parties, and he pre-
sumed that these advances would ordinarily be made, or might,
with perfect propriety, be made from the money borrowed for re-
productive works.

Those works would be so simple that there could be no doubt,
under proper management, of their reproductive character. The
security for re-payment would, in almost every case, be the
land itself on which the improvement was made. He only wished
that they had some such sort of local and well-defined security
for the re-payment to the State of the charges incurred on the
great works of canal irrigation executed by the Government it-
self. There was no doubt that they ought to have such security,
and he believed that at some future time they would get it. This
however, was not a question he need dwell upon now, as it might
perhaps, before long, come up for consideration before the
Council, when the Canal Bill was being proceeded with.

Hitherto, advances of this character had only been made to
the proprietors of the land to be improved. Under the present
Bill, advances, under certain circumstances, might also be made
to tenants ; but the consent (either expressed or implied) of
the landlord would be always necessary, unless the Collector
should be satisfied that the tenant possessed in the land an
independent and transferable interest which would furnish by
itself, without reference to the landlord, a sufficient security
for the re-payment of the loan.

The Government would make rules as regards all details not

expressly provided for in the Bill.

The practice laid down in the old Regulations which had been
found perfectly successful in protecting the Government against
loss, was also introduced into this measure, namely, that advances
would be recoverable as arrears of land revenue.

He hoped that if this measure became law, it would prove
the starting point of a system under which benefits of the
greatest possible value might be conferredupon the country.

The Hon’sre Sm R. Temprx said that he entirely agreed in
the remarks of his Hon’ble friend, Mr. Srracuzy., The Financial
Department concurred heartily in the Bill. The advances provided

46 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

under the Bill would be made, of course, from the cash balances,
and the cash balances consisted partly of the results of Imperial
taxation, and partly of sums raised by loan. Now, how was it
possible to spend such balances more properly than in stimulat-
ing and assisting agriculture—the only reliable field for
taxation ? The security for these advances was the best possible—
the very land that was to be improved. He agreed that it was
highly desirable that similar security should be provided in
' the case of canals; any such proposal would certainly have his
(Sir R. Tempie’s) support. As to the rate of interest, it would
always be such as to fully recoup the Government for all expenses
connected with the loan ; no fraction of any such expenses would
fall on the general tax-payer. In former times some small advances
might have been made without interest, onthe principle, he
supposed, that land revenne not expended might, with propriety,
be spent on the landowner from whom it was derived. But the, prin-
ciple was one that obviously could not be generally carried out.
Those who borrowed should, asa rule, pay interest ; and this being
so, there was no need for the short periods in which, under the
old system, these loans were repayable. These short periods had
to a great extent, neutralized the value of the advance, because
an agriculturist found himself obliged to repay the loan before
he began to reap any advantage from the improvement effected.
Now that aman would pay fair interest, there would be no need
for any such hurry. It was far better that the people should
borrow of Government than from their own countrymen on what, in
any civilized country, would be regarded as exorbitant rates. It
was a great duty to encourage saving, and to lead tenants, as
well as landlords, instead of hoarding their savings, hiding them
in a napkin, melting them down into ornaments, or burying them
in the ground, to apply them as capital to reproductive purposes
in compliance with the sound principles of political economy.

His Excrentency tHe Prestpent said—I cannot allow the Bill
to pass without expressing my satisfaction at the prospect of its
immediately becoming law.

Ever since I have idee in India I have been most anxious that
the system under which ¢asavi advances have for years been made,
should be systematized and rendered more beneficial.

cot

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 47

In Ireland a system of Government advances has been in opera-
tion for many years to the great benefit of the country. I may say
for the satisfaction of my Hon’ble colleague, the Financial Member
of Council, that the system has been carried on throughout the entire
period of the famine without the smallest loss to the Government,
as well as I recollect. From the last returns I see that the sum now
advanced is considerably more than two milions, and the arrears of
principal and interest amount to something like £550

The whole system works like clock-work, with great advantage
to the country, and without the smallest risk of present or future loss
to the State.

In England, where it has not been thought necessary to estab-
lish a Government system of loans, many Acts of Parliament have
been passed to enable private individuals and Companies to carry out
almost the same system; and to Companies which make these loans,
the same facilities for recovery and the same securities are given
as the Government would have thought necessary to enact for its own
loans.

I happened to be connected little with a Company of that kind,
and the result was precisely the same as in the case of the Irish
Government loans.

The sums of money negotiated were exceedingly large, but the
re-payments are made to the day, and I do not believe that the Com-
pany with which I was connected had ever to complain of having a
single bad account.

There are several other Companies of the same kind that have
been engaged in the same transactions, and, with the exception of
some which were not very well managed, the same satisfactory results
have generally been obtained.

It seems to me that such a system which has worked so well
in other countries, and which is so well known and has been so long
in existence in India, must be an immense benefit to the country,
and that if the local Governments take up this measure in the spirit
that I have—no doubt they will—it will be found easy to establish a
small and inexpensive organization for working the provisions of the
Bill in case the district officers have not time to give to it due
attention,

a
Hie

48 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

I think in districts where the transactions may not be large,
and where the system is well known, it may be found that the di
trict: officers can do all that is necessary ; but in other districts, where

- numerous or large works may be desired, and the proprietors are

willing to undertake them, that some small special organization
be necessary for a certain class of works, and that there willbe no
difficulty in arranging for their proper supervision and ¢

There is only one other remark that I wish to make, and that is,
that the Council will perceive the Bill is eT limited to aa
made for agricultural improvements.

I have heard it stated that, by the passing of this Bill, the
Government have announced their intention of withdrawing perma-
nently advances for agricultural purposes that may not strictly come
under the head of agricultural improvements. I can only say that
this is not the intention of the Government, and it is possible
that there still may be certain loans necessary particularly under pres-
sure of famine and distress, such as have been given in former years
under the ¢akavi system, which it is absolutely necessary that we

should make. There is nothing in this Bill to prevent this still being

done.

The whole object of the Bill is to put, on a more systematic foot-
ing, the system of loans for permanent agricultural improvements,
which can have no other effect except that of adding permanently
to the value of the land and increasing the value of the property.

I commend this Bill tothe attention and consideration of Local
Governments, believing that it will not only have the effect of bene-
fiting the people, but it will also bring the officers, who are engaged
in carrying out its provisions, into a most agreeable contact with the
people, and increase those kindly feelings which ought to exist-between
the rulers and the ruled.

[Letracts from the Famine Commission’s Report, 1880.]
| Part II, Chapter IV, Sec. ITI, pp. 143-45.

_GovERNMENT LOANS TO FAcILITATE LAND IMPROVEMENT.

Sketch of existing practice.

1. Advances for the improvement of land are now made for
the most part under Act 26 of 1871. The object of this Act
was to define the purposes for which it was held to be legitimate to
place a charge on the land, as security for the repayment of advances
made by the State, to enable improvements to be carried out, and
to give the Government a preferable claim on the land for such
repayment. ‘These purposes were defined to be undertakings whose
object is the permanent improvement of the productive powers of the
land ; and such undertakings are of three classes: (1) wells, tanks,
or other works for the storage, supply, or distribution of water for
agricultural purposes, or the preparation of land for irrigation; (2)
works for the drainage of land, for reclaiming land from river or
other waters, and for the protection of land from floods or erosion;
(3) for reclaiming, clearing, or enclosing lands for agricultural pur-
poses. ‘The provisions of the Act, which has been amended as to
procedure by Act 21 of 1876, are, that a landowner, or tenant
with his landlord’s sanction, should apply for an advance; and that
the Collector after satisfying himself that the object comes under one
of the above three classes, and that the security offered is sufficient,
may make the advance, and shall ultimately recover it in the same
way as the land revenue is collected. Further details as to the
amounts to be lent, the mode of making applications, the mode of
enquiring into the security and the object, the interest to be charged,
the manner and time of repaying instalments, and the amount of
those inatalments, are to be provided for by rules drawn up by
local governments and sanctioned by the Governor General in
Council.

Defects of the system.

2. The evidence we have received regarding the working of this
Act renders it unquestionable that it has failed to realise the intention
of promoting improvements, and that there is a very general reluc-
tance to make use of its provisions. The sums which have been

7

a

50 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

advanced under the Act are extremely small,* and bear no proportion
whatever to the need which the country has of capital to carry out
material improvements. This result is alleged to be due to several
causes, among which the following are the most prominent :—The
obstacles created by inefficient Native subordinates, to whom the
granting of such advances gives extra trouble; the delay and expense
of the initial procedure, under which the first application has to be
stamped, the bond for repayment stamped and registered, and a
minute and troublesome inquiry has to be made into the nature of
the applicant’s tenure and its value; the necessity of paying interest,
which is usually fixed at 64 per cent. per annum; the small number
of years over which repayment may be spread, and the consequent
largeness of the annual instalments; the early date at which they
begin to fall due, even before the improvement has begun to realise
a profit ; and the rigidity of the rules for punctual repayment.

Suggested alterations in the Act and rules. .

8. The evidence we have obtained on these points leads us to
recommend that the Government of India should cause an inquiry to
be made as to how far these complaints are valid, and to what extent
they can be met by an alteration in the rules. While all needful
precautions are taken to secure the State from loss, every unneces-
sary impediment should be removed which now makes the people
unwilling to apply for such advances. In particular we recommend
that the period over which the repayment of the debt can be spread
should be considerably enlarged; that a reasonable time should be
allowed for the completion of the work before repayment begins ;
that the rate of interest charged should not exceed what it costs
Government to effect its loans; that the annual instalments should
be fixed at an amount which would, in a prescribed term of years,
discharge the principal and interest together, so that any separate
interest account may be avoided, and which should not exceed at the

*The sums disbursed in the last year on record, 1877-78, are as follows :—

Rs.
Punjab (7 districts only)........c.ccsscceesensasecssceens 180,000
North-Western Provinces........cscscssevesceevcseceveves 68,543
BOS os soos os vecgue eet Sas ei sie 0a OEGat adhe seer eae 459
Central Provinceb 2 sccdii Since. cdsstues toe pease 7,515
POMERAT ica. <. «sdexensaupits dwigeyd avaetss ta eee 14,957 ‘

Mates itis nietekao i pea ceeeaaten wine Wie 156,367

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 51

outside 10 per cent. on the original advance, at which rate it is
calculated that the loan, with interest at 5 per cent., would be repaid
in 14 years. If, on the other hand, a period of 20 years is allowed
for repayment, the annual instalments need not be more than 8 per
cent. on the original advance; if 25 years, they might be reduced to
7 per cent.

Advances to be managed by the Agricultural
Department.

4. Notonly should the way be made easy for landowners to
apply for such advances, but they should be encouraged to do so by
the advice and influence of the district officers. We suggest there-
fore the advisability of entrusting this duty to the officer of the
Agricultural Department in each district, who should make it his
peculiar duty to encourage the landed classes to look to Government
rather than to money-lenders for advances of this kind, should advise
with them as to the objects on which money can be most usefully
laid out, and should supervise the proceedings of the native agency
through whom the details of the procedure must ordinarily ke
earried on.

Advances for objects outside the Act, and in
exceptional cases.

5. Besides the advances given for the objects contemplated by
this Act, advances of another kind have been, and still are, made out-
side the Act, such as loans to help landowners to pay off debts, for
the purchase of bullocks or seed grain, and for the construction of
embankments and watercourses, loans without interest to some wild
tribes, or to facilitate the recovery of the country from famine.
It is undoubtedly well that provision should be made for giving assist-
ance in exceptional cases which do not come under this Act, and
peculiarly so when the country is recovering from so great a calamity
as that of famine. We have already proposed that the making of
loans to the landed classes should be a part of the regular system of
famine relief, and this measure should be liberally extended and
prolonged till the effects of the famine have passed away. There
may also be other cases of exceptional calamity, in which relief may
properly be given to deserving tenants or landlords by advances of
-this kind; and it is desirable that the district officers should, under
suitable rules, have the power of giving such assistance where the

52 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

circumstances are personally known. But care should be taken to
avoid falling into excess in doing this. There could be no greater
encouragement to unthrift and recklessness among the agriculturists
than the knowledge that they have no need to accumulate capital to
meet any misfortune that may befall them, but that they can always
rely on obtaining from the Government the money they require on
comparatively easy terms. The landed classes are only too prone to
enter into any contract for the future which will relieve them from
present pressure, and this tendency would be stimulated if the
Government, as a rule, lent money except for the object of a definite
and permanent improvement of the land.

Improvements not to be the ground for increased
assessments.

6. In addition to the difficulties mentioned in para. 2 of this
section as arising out of the working of the rules made under the
Act, another reason has been prominently alleged for the disinelina-
tion of landowners to spend money, whether their own or borrowed,
on the improvement of the land, and that is their doubt whether at
the expiration of a term of settlement they will be allowed to enjoy
the whole profits of such an improvement, or whether it will form
the occasion for an enhancement of their assessment. In the Punjab
itis a rule of the revenue system that constructors of new wells
should be protected for 20 years from enhancement on account of the
_ irrigation thus provided, and that repairers of old wells and diggers
of water-courses should be similarly protected for 10 years. In the
North-Western Provinces, Oudh, and the Central Provinces no
definite rule appears to have been laid down. In Berar and Madras,
rules have been issued providing that the assessment on lands on
_which wells or other improvements have been constructed by the
owners or occupants at their own cost shall not be enhanced at a
future settlement, except on the ground of a general revision of the
district rates. But these rules have not the force of law, and in the
Bombay Presidency alone has this understanding been embodied in an
Act. Wethink it important thata precise and permanent under- °
standing should be come to on the subject and ratified by law. The
landowner should be guaranteed against any enhancement of his
assessment for such a period as shall secure to him such a reasonable
return on his investment as will encourage the prosecution of imiprove-
ments. It appears to be quite possible to draw upa set of rules

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 53

defining what the period should be for any locality or any class of
cases, so that it may be clearly known, without fear of mistake or
danger of retractation and change of view, by every landowner or
tenant who executes a permanent improvement on the land, whether
he is entitled to the entire profits arising from it, or to a part, for
ever, or for a term of years.

Right of tenants to make improvements to be
affirmed.

7. We think also that more distinct legal provision is required to
secure that every occupancy tenant may effect in the land he occupies
material improvements of the kind contemplated in Act 26 of
1871 without requiring him to obtain the sanction of his landlord,
and without endangering the security of his tenure. Such a right
has nowhere been authoritatively declared by the law, and decisions
of the Courts have in some instances negatived, and in others ques-
tioned, its existence. Further, every tenant who is ousted by his
landlord for failure to pay rent or other causes should obtain com-
pensation for unexhausted improvements. A clause providing for
the latter case exists now in the Rent Law of the North-Western
Provinces, but does not appear to exist in the Punjab, Oudh, Bengal,
or the Central Provinces.

[Hatracts from the Proceedings of the Governor General’s Council,
dated the 26th October, 1882. |

AGRICULTURAL Loans BILL.

Tur Hon’pue Mr. CrostHwalte said :—

The Council is aware that an Act was passed in 1871 for the
purpose of enabling Government to make advances of money to the
owners and tenants of land for the sole purpose of improving that
land. After some eleven years’ experience, it is universally admitted
that the Act is a failure. The total advances under the Act for the
whole of India do not come to more than four-and-a-half or five
lakhs at the outside during the year, and the Famine Commission,
in Chapter 4 of the second part of their Report, have called attention
to this subject, and suggested that the Act might be made simpler,
and the Local Governments might have more power to-make the
rules under which the Act is worked elastic and suitable to local
peculiarities. On the report of the Famine Commission, the Local
Governments were asked to give their opinions on these suggestions.
Those opinions have now been received, and are almost unanimous
that the Act and the rules framed under it require simplification.
The North-West Government are specially anxious that this should
be done, and they have pressed it on the notice of the Government
of India. In accordance with those opinions the present Bill has
been framed, on the principle of leaving everything, that can pos-
sibly be thus left, to rules to be framed by the Local Government.
In the present case, I think this method of framing the Act is not
open to objection, because the only interests concerned are those
of the Government which advances the money, and it is presumed
that in making the rules it will take precautions against loss. In
thus amending the law we have also taken the opportunity of endea-
vouring to encourage the application of private capital to the im-
provement of land. We propose to follow the method which has
been for a long time adopted in the English and the Insh Acts,
which have been passed for a similar purpose, the method, namely,
of empowering companies whose articles of association, and the
method of whose business, approved by the Government, are to make
advances to owners of land for the purpose of executing improvements.

»

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 55

We propose that the Government of India should have the power
to place conditions on those companies, to ensure that their business
shall be carried on in a proper and reasonable manner ; and, if those
companies fulfil the conditions imposed upon them, the Bill is so
drawn as to enable them to take advantage of its provisions for
the recovery of the advances; in fact, their loans will be secured and
will be recoverable in the same manner as if the money had been
advanced by the Government.

This is the Bill which I ask leave now to introduce, and I hope
that the Council will give me permission to introduce it,. because,
although I think it is open to doubt whether it will lead to a very
great extension of advances by Government, I think it is quite
probable that it may open the door to private enterprise in the matter.
For my own part, I fear that, until the causes which prevent people
from improving their lands are removed, namely, in the case of
tenants, the want of security that the profits which are derivable from
their improvements will not be appropriated by the landlord; I think
that, until the provincial laws are altered in this respect, there is not
much hope, so far as tenants are concerned, that they will take
advance either from the Government or from private companies; but
I think that, when this Bill is passed, we shall have done all we
ean in a direct way to make the system of advances popular.

Tue Hon’sre Sir Stevarr BAyiey said :—

I have only a few remarks to make in confirmation of the
proposals of my hon’ble friend, Mr. Crosruwarrsn, in connection with
this Bill, which, I quite agree with him in hoping, the Council will
give him permission to introduce to-day.

He has told us of the origin of the Bill, but there was also
another reason for bringing it in which he omitted to mention,
which was a small technical omission, regarding the recovery of
interest on loans, which was brought to our notice by one of the
Local Governments. But, in reading the papers connected with
the Bill, I was very much struck by the unanimity of all those
consulted as to the fact of the old law having failed in accomplish-
ing the objects with which it was established, though there was
considerable difference of opinion as to the reasons of that failure:
reasons were given of all kinds. Some gentlemen, I observe,
actually stated that the agriculturists did not require loans for the

56 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

improvement of their land; but that was not general. More com-
monly it was said that the dealings of the cultivator with officials
in matters of this kind were exceedingly troublesome, that at every
point he was thrown back, and that it took him an enormous
amount of time, and caused him an unreasonable amount of trouble,
to get his loan. That was, I think, very generally agreed.
Another point was the excessive cost of the application in point of
fees; another point was the high rate of interest; another was the
shortness of the time within which he had to repay the amount,
and there may have been other reasons given, but those were the
main ones in regard to the Act as it stood. But the real reason, to
my mind, which has prevented the old Act from having anything like
the operation which we would have wished for it, was brought out
very clearly and lucidly in a report by Mr. Jonrs, Commissioner of
Berar. He explained—and I think every one will agree that his
explanation is incontestable—that the ryot, if he borrows from
the Government, cannot also borrow from the village money-lenders.
It was a sermon on the old text that you cannot serve two masters.
The ryot comes to the Government and he receives the loan, but, in
order to receive it, he must hypothecate his land. Shortly afterwards
he wants perhaps to borrow for some other purpose—for marriage,
or to pay his revenue, or for any one of the thousand domestic
purposes for which he requires money besides agricultural operations.
He then goes to the village money-lender ; the money-lender turns
round upon him and says :—‘ No, you have already borrowed from the
Government, the Government have been ruining my business by
charging a lower rate of interest than mine; the Government have
already got the first lien on your land, and now you can go to
the Government for the other money that you want.’ Well, when
it comes to a choice, and the ryot has to decide whether he should
borrow from one of two competitors,—one of whom can only lend
for one purpose, while the other can lend for all purposes,—there is
very small doubt as to what he will do; he will cleave to the one
who can lend for all purposes, and despise the other who can only
lend for one purpose. That is, I think, the real reason which cuts at
the root of any very extended usefulness of the Act as it at present
stands. There remains the fact that, though this applies to the
cuitivators who are indebted, it does not apply to the cultivators
who are not indebted, These may require loans for agricultural

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 57

improvements, and to them the necessity for keeping on good terms
with the village money-lender does not apply; but the great majority
of cultivators—even those very well off—all over the country, must
occasionally have to apply for loans for temporary purposes. Well,
I suppose, the logical deduction from this would be—‘ Then why
not give up the whole business and try and arrange a system of
companies or banks conducted by private enterprise which shall
take over from you the agricultural loans, and at the same time
carry out the ordinary domestic and industrial loans which the
ryot wants at all times and in all parts of India ?

We have given a great deal of attention to this subject, with the
assistance of my Hon’ble friends, Masor Bartne, Mr. Crostuwarre
and others; we have been practically working at it all the season ;
it has been thoroughly threshed out, anda scheme up to a certain
point has been devised; but the more we worked at it, and the
deeper we dug, the greater the difficulties, and the more insuper-
able they seemed. We were met by these two main difficulties,
in regard to Northern India especially,—first, that the ryot in
those parts has no transferable interest in his land which he can offer
as security, and the only interest he can offer—his crops—are pre-
viously hypothecated to the landlord. These were the two points
at which we struck. We got pretty well on with the work, when it
was brought to our notice that a gentleman in Bombay—Mnr. (now
Sir Wintiam) WerpprerBurn—was at work on a similar scheme, and
he had the advantage of being in communication with certain
bankers at Poona who were apparently willing to assist him in
starting an experiment of the kind. It occurred to us that the
experiment of an Agricultural Banking Society aided by Government
should, in the first instance, if tried at all, be tried in a
selected tract of country, and not thrown to be torn in pieces by
the fortune or ill-fortune which might attend it under the varying
conditions of different parts of India, and, when we came to consider
to what tract of country we should apply it, it seemed to us that very
obvious advantages existed in regard to the Deccan which did not
exist in any other part of India. In the first place, the cultivator of
the Deccan has a transferable interest in his land, and, in the second
place, he has no landlord coming between him and the Government.
Well, Sir Witttam WepperBURN was good enough to come up to
Simla, and we had various conferences with him, and the upshot of it

8

58 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

all is that we propose now to consult the Government of Bombay on
the possibility of introducing such a scheme into a selected area in the —
Deccan. In the meantime, the necessity remains for amending the
existing law, not only on the small technical point which I have
mentioned, but also on the various grounds given by Mr. Crostuwatre.
We wish to amend the defects in procedure, we wish to simplify the
procedure in every direction, to shorten the operations and various
processes through which the ryot has to go before he can get his
loan; we wish for permission to reduce fees and stamp-duties ; we
wish to bring the interest down to the lowest point compatible
with justice and fairness to the general taxpayer, and we wish to
make the law as elastic as possible, and to leave as much
as possible to be provided for by the rules of the various Local
Governments.

These are the objects with which the Bill is brought in, and
I have no doubt that, in the hands of my Hon’ble friend Mr.
Crostuwaitez, these objects will be attained. We have also provided
experimentally—and these provisions will have to be very carefully
considered in Select Committee when leave is given to introduce the
Bill—for permission practically for the Government to make over,
in any tract in which an agricultural bank may be started, its money-
lending business for agricultural operations altogether. Such banks
have not yet been started generally, but I was very much interested
in having my attention recently called to a report in the Bengal
Government Gazette by the Commissioner of the Presidency Division
of Bengal, giving an account of an agricultural bank which has been
started in Jessore. That bank is conducted entirely by Native
managers, and it has been started by Native capital. It is principally
concerned with deposits by agriculturists, but it has also a good deal
of loan work. Naturally, you will ask, if an agricultural bank in
Bengal can do loan work, why should we have been so much hampered
with regard to the security of the land and the crops? The answer is
given in the Commissioner’s report on the bank. The bank lends only
on the security of zamindaris and patni talugs, that is to say, on what
is absolutely, or nearly absolutely, proprietary right, and does not
descend to tenures. This, of course, limits to a certain extent the
usefulness of the bank from our point of view, but still it is a very
useful experiment, and I only hope the example will be followed
freely and frequently in other parts of India,

a tl

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 59

His Exce,LENCY THE PRESIDENT said :-—

I have only to say, in regard to this Bill, that it is not a very
large measure. I believe, however, that it will remove many of the
difficulties which now prevent the practical employment of the existing
machinery for Government loans for agricultural improvements, and
that, as far as it has that effect, it will, I cannot doubt, be beneficial
to the agricultural community.

The difficulties found to exist in India in this matter are not
confined to India alone. We find also at home that loans of this
description are not taken advantage of to the extent to which one might
naturally suppose they would be, for very much the same reasons as
those which have deterred agriculturists from availing themselves of
them in this country,—namely, the difficulties created by the very
strict rules which have been laid down for the guidance of applicants
for loans of this description. These rules have been found to be
unpalatable to English landholders, and I am not by any means
surprised to find that they have had the same effect in this country.
The main object of this Bill is to simplify those rules to the greatest
possible extent, to enable them to be applied to the different parts of
the country as varying circumstances require; and it is my earnest
hope that, although the measure is not one of a very extensive
character, it will effect a small and useful reform in the present system
of loans for agricultural improvements. |

[ Eatracts from the Proceedings of the Governor General’s Council,
dated the 4th January, 1884. ]

Aericutturists’ Loans Bit.

The Hon’ste Sir Srevart Bayxey said that the Act which he was
asking the Council to amend was known as the Northern India
takavt Act. The Act was a very small one, and its whole essence
consisted of one section, which said that,

“The Local Government may, from time to time, with the previous sanction of
the Governor General in Council, make rules as to loans to be made to owners and
occupiers of arable land, for the relief of distress, the purchase of seed or cattle or
any other purpose not specified in the Land Improvement Loans Act, 1883, but
connected with agricultural objects.”

The loans were to be recovered as arrearsof land revenue. The
object of the amending Bill was, in the first place to correct a small
omission which was made in the original Act. The omission was this,
that, although the loans themselves were recoverable as arrears of
revenue, no arrangement was made for the recovery of interest on
these loans. It was proposed to provide for this. The second point
was that the Act, which extends at present only to Northern India,
might, at the option of other Local Governments, be extended to the
provinces under their jurisdiction. The third point was to provide
that loans given on the joint security of village committees, or to
other agricultural associations of the same kind, might be collected
on the joint responsibility in the same™way as in the Agricultural
(Land) Improvement Loans Act. These were all the proposals of
the amended Bill.

[ Letracts from the Famine Commission’s Report, 1901. |
} Part ITI, Section V, Pages 102-106.

ADVANCES BY GOVERNMENT.

310. There is some connection from the historic as well as from
the economic stand-point between the establishment of Credit
Associations and the encouragement of advances under the Agricultural
Loans Acts. The historic connection lies in the fact that it was
originally intended to incorporate in the Land Improvement Loans
Act a scheme for the creation of Agricultural Banks, although not of
the Raiffeisen class. The economic connection lies in the identity
of the object, at which both Agricultural Banks and the system of
Government advances alike aim.

311. That object is the promotion of agricultural prosperity and
the improvement of the cultivators’ condition. ‘The real justification
of the policy (of Government advances to cultivators) lies,” said the
Member in charge of the Bill, which became Act 12 of 1884, “in the
position of Government as the great landlord of the country, and the
direct bearing which the welfare of the cultivator has on its revenues.”
But a wider view may be taken of the responsibilities of the Govern-
ment, and its interest in the cultivator as a citizen no less than as a
contributor to its revenues justifies it in promoting his industry. The
policy of the Zakavi Acts should not be regarded as productive merely,
but also as protective ; and it is upon the protective aspects especially
that we would insist. We recognise the progress that has been made,
since these measures were originally introduced, but we are convinced
that there is both scope and need for a further extension of the policy
in its protective aspect on lines of greater liberality. It will be
convenient to deal separately with the two Acts, although many
considerations apply equally to both.

812. The Land Improvement Loans Act (19 of 1883) in its
present form rose out of the recommendations of the Famine Com-
mission of 1880. That Commission noticed many defects in the
existing law regarding agricultural advances, and their recom-
‘mendations led to improvements, which, so far as they have gone,
have proved beneficial. Still much remains to be done.

62 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

313. It is not necessary to enlarge upon the importance, from the
protective point of view, of agricultural improvements generally.
The Commission of 1880 drew attention to the matter and suggested,
among other reforms, the possibility of “extending the practice of
Bombay and Madras to Upper India so far as to rule that the
assessment of land irrigated from a permanent well should not be
liable to enhancement on account of the well at any revision of the
settlement, provided the well is kept in efficient repair.” This reeom-
mendation was embodied in the Bill which afterwards became Act 19
of 1883, and was thus referred to by the Hon’ble Member of the
Governor General’s Council in charge of the Bill during the debate
upon it :—

“The section, as it left the hands of the Select Committee, proposed
to go even beyond the recommendation of the I’amine Commission,
and to exempt from increase of assessment profits arising from im-
provements effected by the aid of loans taken under this Act, not
merely for such periods as would secure to the maker a reasonable
return for his investment, but for all time. In those temporarily
settled provinces where cultivation has almost reached its natural limits,
this principle might perhaps be applied with advantage; but in others
where extensive areas are still awaiting reclamation, which can
practically yield no return and pay no revenue until irrigated, the
enactment of such a hard and fast rule would result only in a useless
sacrifice of the prospective financial resources of the state.”

814. For these reasons the clause which embodied the recom-
mendation in question was curtailed; and the profits of those
improvements, which consist of the reclamation of waste land, or
the irrigation of land assessed at unirrigated rates, are still, in
Upper India, exempted from an increase of assessment only for a
limited term.

- 815. We have carefully considered this question in the light of
the grievous misfortunes which have within recent years afflicted
Upper India. Our enquiries demonstrate that there is a field for the
construction of wells, tanks and other artificial means of irrigation,
to which it would be difficult to assign a’limit. It has also been
forcibly brought home to us—as it was to the Commission of 1880—
that the present terms on which these loans are offered do not
attract the owners of land to make more than a partial use of the
opportunities held out to them. We are convinced that nothing

ae me

‘GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 638

short of a permanent exemption will stimulate the owners of land
to that full activity, which is on every ground so greatly to be
desired.

316. We recommend, then, that in all future settlements any
increase of assets due to the construction, otherwise than at the
expense of the State, of wells, tanks or other artificial sources of
irrigation should be permanently exempted from assessment to
revenue. We are aware of the objection that it is financially
unwise to exempt permanently the increase of assets due to irrigation
in the poorer soils, because it is in_ the poorer soils that irrigation
will lead to the largest increase of assets. But this objection is
met by the consideration that, from the protective point of view,
it is just the poorest soils which are most in need of irrigation.

317. With a view to the encouragement of well sinking, we
would also recommend that an expert staff be appointed, with power
to disburse loans on the spot. Under the advice of this staff trial
wells might be dug, the cost being recoverable from the landholder
only if good water is reached. In all cases we recommend that partial _
or complete remissions should be granted if the well is a failure
from causes beyond the borrower’s control. The cost of this expert

- staff and of these remissions should be charged to a fund, constituted

from the difference between the rates of interest at which the Govern-
ment respectively borrows and lends.

818. In this connection we would eall attention to the recom-
mendation of the Famine Commission of 1880, that the rate of
interest should be reduced. It is a matter of financial calculation ; but
we consider that a rate of 5 per cent. would be sufficient. The principle
is already admitted; for in the rules of most provinces provision is made
for loans at low rates of interest, or altogether free of interest, and in
Madras and Bombay the ordinary rate for these loans is 5 per cent.
But we think the time has come to introduce a general rule of greater
liberality.

319. Although the rules in this respect are generally liberal,
something may also be done to stimulate improvements by a more
careful adjustment of the payment of interest to the time when the
profits begin to accrue, and by lengthening the period allowed for re-
payment of the principal. We also think that permission should be
given to Local Governments to substitute for recovery of the principal

64 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS,

the imposition of a permanent charge on the land _ irrigated
from the well.

320. In the course of a Resolution of the Bombay Government,
dated 25th July 1884, justifying the policy of charging an increased
revenue on land which possessed the advantage of sub-soil water, it
was stated, that the cultivator would be “stimulated to utilise the
sub-soil water by this method of assessment.” The evidence that we
have taken indicates that this hope has not been realised. Indeed,
this method of assessment has apparently created much dissatisfac-
tion in Guzerat. It was pointed out that the incidence of a “water
advantage” rate is unequal and unfair ; for, while the rich and large
land-holders can construct wells and recoup themselves, the poor
cultivator, with a small holding and without capital to construct a
well, must pay the rate without hope of recoupment. It was said,
moreover, that the holdings of cultivators even when they are not
poor and unable to build wells, frequently consist of patches of land
situated in many ‘fields’, widely scattered over the village, and that it
could not possibly pay to construct a well for any one patch. In
these cases it is urged, that a “water advantage” rate is a mere addition
to the assessment with no fair justification. These objections to a
“water advantage” rate seem to us to be very weighty, and we are
unable, in the face of the results, to reconcile its existence with
the liberal policy of the Bombay Government in foregoing all
additional assessments on account of wells constructed by private
enterprise.

321. The reclamation of waste land is of less importance from
the protective point of view than the extension of irrigation, but we
consider that this also is a factor of protection. We recommend that
in the case of reclamation, exemption should be granted for the term
of the current settlement, or for the term of 15 years, whichever last
expires ; and that in the succeeding settlement, or for the remainder
of the succeeding settlement, assessment at half-rates should be
allowed.

322. Our recommendations apply with equal, if not greater,
force, to improvements made directly by private capital. Such im-
provements are apt to escape notice in the absence of a proper system
of registration; and no effort should be spared to make the rules, for
concessions to improvements made from private capital, and for their
registration, widely known,

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 65

323. The Agriculturists’ Loans Act (12 of 1884) has been to
such extent more successful than the sister Act. But there is one
great objection to the present system—that the relief does not reach
the cultivators, who are most in need of it. The conditions of secu-
rity are strict, and the desire of subordinate officials to avoid all risk of
loss in collection is strong. ‘The result is that these loans in ordinary
times reach only the more substantial and solvent cultivators, who
are the least in need of them. The cultivator who is struggling in
deep waters cannot hope to profit by a ¢akari advance. He is in debt
because he is poor; and his poverty prevents him from obtaining
the means of escape from debt. We recognise that it is impossible
to reach by loans of public money the lowest strata of agricultural
society ; some security at least must be required. But we are of
opinion that more may be done by a development of joint personal
security. One of the three great objects of Act 12 of 1884 was to
“»rovide for loans being made to village communities or other asso-
ciated agriculturists,” and to the principle of joint responsibility we
look for a large extension of these loans. We have already noted
that this principle was applied with great success in the Central
Provinees during the recent famine, and it is not, we think, too much
to hope that a system which was so far successful on one occasion
may be generally utilised to extend the beneficent range of these
advances to deserving but poverty-stricken cultivators. Before this
ean be done, however, there must be a revision of such existing rules,
as lay stress on the need for the security of real property and the
desirability of limiting the advances, that can be made, to those whose
rights in their holdings can be brought to summary sale—an instance,
surely, of the manner in which the object of the rules is lost sight
of in their application. It is scarcely necessary to remark that the
reasons for reducing the rate of interest are particularly cogent in the
ease of loans under this Act.

324. We believe that, if our recommendations, on both those
Acts are adopted, one step will have been taken towards the solution
of a great problem. In the debate on Act 19 of 1883 it was remarked
that, “the Northern India Zasavi Act requires for its application
in each case but little preliminary enquiry,” and the need for enquiry
decreases as the system of records improves. Some help may be
obtained from non-official agency, and some of the stiffness and the
slowness of the present machinery may be removed. Hard and fast

9

66 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

rules limiting the discretion of Collectors, as to the classes to be re-
lieved and as to the extent of the relief, are inconsistent with the
policy that we advocate. It is a good rule, and has worked well in
practice, to authorise Deputy Commissioners, and Assistant or Extra
Assistant Commissioners, to distribute agricultural loans on tour after
anquiry on the spot. We strongly recommend the adoption of this
rule wherever it is not at present in force. It is peculiarly suited
to advances on a joint bond, which it is also calculated generally to
popularise. And it is to the principles of the joint bond and personal
security that we look in the future for the greatest benefit from
these loans.

4;

[Extracts from the Report of the Indian Irrigation Commission, 1908.]
Part I, Chap. VI, Pages 59-70.

LOANS FOR AGRICULTURAL IMPROVEMENTS.

182. The takavi system.—Of all the methods by which Govern-
ment is able to stimulate and assist private irrigational improvements,
the most convenient and obvious is the system of State advances to the
cultivating and land-owning classes, known as fakavi. We propose,
therefore, to consider briefly what use has been made of this system,
and how far such use is capable of extension and the system capable
of improvement. This system has existed in India from time
immemorial, and is now regulated by special laws, namely, the Land
Improvement Loans Act (19 of 1883) and the Agriculturists’ Loans
Act (12 of 1884) for the whole of India, and by rules under these
Acts, framed :for each province by the Local Governments, and
sanctioned by the Government of India. Under the former Act
money is advanced for specific purposes of land improvement, and
under the latter, for seed, cattle, and other miscellaneous agricultural
purposes. But the objects of the two Acts are closely connected,
for it will often be the case that in order to make efficient use of his
improvement the cultivator will find it necessary to provide himself
with cattle and manure, well-gearing and the like, if not with seed.

a * * “

184. It will be seen that in this period (7.e. 10 years ending
1900-1), 625 lakhs of rupees have been advanced by Govern-
ment, 348 lakhs as agricultural loans, and 277 lakhs for the
specific purpose of land improvement. Of this latter sum, 202
lakhs are returned as having been advanced for wells and
irrigation, including in these categories, tanks, wells, temporary dams,
irrigation channels, and the like. The remaining 75 lakhs are
returned as having been advanced for other purposes. But out of
this sum a considerable amount has actually been expended on
irigation. Thus, 10 lakhs at least have been given in the Punjab
for village water-courses in the Chenab and Jhelum colonies, and at
least 30 lakhs have been allotted in Bombay for field embankments
and similar works. Out of the total advanced under the Land
Improvement Loans Act, therefore, at least 242 lakhs, or about

68 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

six-sevenths may be taken as having been advanced for irrigation
purposes. Out of the amounts advanced under the Agriculturists’
Loans Act, substantial sums have been given in Sind for canal clear-
ance, and in all provinces for such objects as the provision of lifting
gear for wells and other purposes closely connected with irrigation.
Of the large sums given out during the famines for cattle and seed,
a very considerable proportion must have been required for the working
of wells, or the cultivation of lands under both wells and other sources
of irrigation, which lands, but for the aid afforded, could not have
been cultivated. It will be observed that considerably more than half
of the total advances were given in years of severe drought—generally
speaking, the famine years 1896-97 and 1899-1901, when large
concessions were made, on account of the impoverished condition of
the cultivators, to stimulate the construction of wells in the drought-
stricken areas, and to provide employment on other works of agricul-
tural improvement, mostly of direct or indirect irrigational value,
for many of the labouring classes who would otherwise have come on
to the State relief works. The amount of the loans in the famine
years cannot therefore be taken as a criterion of the use which has
been, or can be, made of the system in ordinary years. ‘They indicate,
however, what large sums can be disbursed when a keen demand has
been excited by urgent necessity, and when the energies of a large
staff of officers are concentrated upon meeting that demand.

185. It will be instructive to analyse further the figures of ad-
vances for land improvement in ordinary years. The first noteworthy
point is that, out of the 142 lakhs advanced, Madras has given 564 and
Bombay nearly 86, or between them, 924 lakhs. The Punjab comes
next with little more than 19 lakhs, while Bengal, the United
Provinces, and Central Provinces, give only 15 lakhs between them.
Berar and Ajmer-Merwara gave each twice as much as the Central
Provinces. On the other hand, out of the 119 lakhs advanced as
agricultural loans, no less than 78 were given in the Punjab, United

Provinees, and Central Provinces.

186. Now, the diversity of conditions in the various provinces is
such that it would, of course, be unreasonable to expect an equally full
use of the ¢akavi system in every one of them. But we are strongly of
opinion that this diversity does not sufficiently account for the much
greater freedom with which the advances are given for land improve-
ment in the two Southern Presidencies, and for other agricultural

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 69

purposes in the Punjab, United Provinces, and Central Provinces,
than in other parts of India. Weare far indeed from saying that
even in Bombay and Madras the amounts advanced for land improve-
ment have been as large as they might have been if the Governments
and their officials on the one hand, and the people on the other,
had been fully alive to their opportunities. It is worth noting that
in Bombay, during the normal years 1893-94, 1894-95 and 1895-96,
out of 18 lakhs advanced, 12 were given in three districts of
Belgaum, Dharwar, and Bijapur, of the Southern Division, where
vigorous measures had been first started on the initiative of an
individual officer who for a series of years administered the collec-
torates of Dharwar and Belgaum. Similarly,'in the Madras Pre-
sidency out of 30 lakhs advanced in the years 1891-92 and 1892-93
15 were taken up in the single district of Coimbatore. The years
were deficient in rainfall, but Coimbatore was by no means the most
severely affected district, and the large amount of fakavi taken was
largely due to the exertions of the Collector of the time. It is not
perhaps too much to say that, the history of the fluctuations in the
amounts of f¢asavz taken up in any province, is the history of
the interest taken in the matter by individual officers, who were quick
to apprehend the kind of improvements which the agriculture of
their districts required, and the value of ¢a/avz advances as a stimulus
to the execution of such improvements as were most suitable to the
locality and its needs. Thus the advances in the Bombay districts
mentioned were spent chiefly upon the levelling, terracing, and
embanking of fields, while in the Coimbatore district of Madras
they were spent chiefly on wells. And there can be little doubt that,
if all Collectors in Madras and Bombay had taken the same interest
in their takavi work as the heads of the districts mentioned, still
larger sums would have been advanced throughout the two Pre-
sidencies than have yet been given in ordinary years. But if this
is the case in Southern India, far more is it so in the Northern
Provinces, where so little fasavz has been granted up to the present
for land’ improvement, except in famine years. In this view we are
supported by the local members who have been associated with our
Commission. Thus Mr. Witson thinks the Punjab Government
might distribute ten lakhs per annum against the one lakh which it
has hitherto given for wells. Mr. Crappock would have an expen-
diture of four lakhs in the Central Provinces as against a fourth of

70 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

a lakh; and Mr. Arien, of Bengal, without stating any specific sum,
considers that the advances might be very largely increased in that
province.

187. Advances by the Opium Department.—A strong proof, if proof
be required, that much more can be done in ordinary times
by means of State advances than many are inclined to suppose, is to
be found in the operations of the Opium Department, which every
year advances very large sums to cultivators of poppy, on condition
that certain areas are put under that crop, and, in addition, a certain
amount for wells, which, however, are used for other crops as well as
for poppy. We do not suggest that it would be possible for
Collectors to advance on the same scale. But the work of the Opium
Department shows that there is no insuperable difficulty, or reluctance
on the part of the cultivator, to prevent him from taking State
advances from Government for agricultural purposes, when the
advantages to be gained have been properly impressed upon him.

188. Stimulating means required—Although, then, there are
defects in the takavi system to which we shall advert below, and
improvements to be made, yet the first and perhaps the principal
measure required is to quicken the interest of all classes of revenue
officers in fakavi work, to place liberal allotments at their disposal, and
to inquire strictly into the causes of failure to spend up to them.

189. Rate of interest—We have inquired carefully into the extent
to which the free use of fakavi is hindered by defects in the law, rules,
and administration. In the first place, we have no hesitation in
saying that the rate of interest charged is not in itself excessive.
That rate is 64 per cent. (one anna in the rupee) for all classes of
improvements, except in Madras and Bombay where the charge now
is only 5 per cent. These rates are so far below the market rate of
interest that the people regard them as extremely liberal. Some
witnesses have recommended lower rates with a view of popularising
the system; but no one has been found to assert that the existing
rates were too high. The Opium Department, however, make all
their advances, including those for wells, without interest. It would
also appear, from calculations made by Mr. Wixson and CoLoneL
Grey, that the Punjab Government, with interest at 64 per cent.,
gains substantially by the present system. The Imperial Government
which advances money for these loans to the Provincial Government
at 4 per cent., while itself able to borrow at little over 34, also

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 71

presumably gains appreciably. We think that these loans ought not to
be made a source of profit to the State, and that the interest on them
should be reduced to’ point sufficient merely to cover the risks taken.
At present the amounts found to be irrecoverable are inappreciable ;
and the charge for risk might, therefore, be correspondingly small
while the security remains as good as at present. We have made
recommendations which may slightly increase the risk ; but, even if
they are accepted, we would suggest that the rate of interest may,
with advantage, be reduced to 5 per cent. in all provinces. We think
that such a reduction will be likely to strike the popular imagination
as an act of great liberality, and may increase the attractiveness of
takavi loans in far greater proportion than might be anticipated from
the small diminution which would result in the actual payments by
each individual cultivator.

190. ‘The remarks in the preceding paragraph refer generally to
takavi advances in all parts of the country. We have, however, also,
carefully considered whether in precarious tracts where it is desired to
give a special stimulus to irrigation, it would be desirable to reduce the
general rate of interest, or grant loans free of interest. On the whole,
we are of opinion that, it would be preferable to make free grants-in-
aid, as proposed below, charging full interest on the remaining part of
the sum required, which will be treated as an ordinary takavi advance.
This plan has numerous advantages. The financial arrangements will
be sounder and simpler. The free grants will be chargeable to some
final head of expenditure, such as ‘minor works, agricultural’. It will
be easy also to work a system of free grants with considerable
elasticity. ‘Thus the grants might vary from xz/, by tenths to, say,
five-tenths ; or, by sixteenths, to eight annas in the rupee, of the total
sum required.

191. Rigidity of collection.—There is no cause of the alleged un-
popularity of the takavi system which has been more frequently testified
to than the rigidity of the system of collection. It is pointed out that
the money-lender gives time readily to the client with tolerable credit.
Government rarely or never gives time. There can be hardly any
doubt that this does constitute an objection in the mind of the culti-
vator to become a debtor to Government, provided that he can get the
money on sufficiently easy terms elsewhere. It is not that he has
merely to pay the interest. This would probably be no greater burden
to him than an addition to his land revenue assessment, which he pays

72 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.,

with remarkable punctuality. But he has also to pay an instalment of
principal which, if his crops are poor, may be a considerable burden.
The Collector or head of the district has authority, under the rules in
all provinces, to suspend payment on the occurrence of failure of crops
or other exceptional calamity, subject, however, to a report to higher
authority. But this power of suspension is not very frequently exer-
cised, except in years of very general failure of crops ; and when it is,
the result is merely to postpone payment of the instalment for a single
season, with the result that in the ensuing year the cultivator has to
pay double the usual amount. The increased payment must often be
raised with difficulty, and it is probable that under the circumstances,
cultivators would seldom care to apply for suspension of ftakavi pay-
ments. We are of opinion that, suspension should be given without
hesitation whenever, from causes beyond the control of the borrower,
his crops fail to such an extent as to render the payment of the year’s
instalment unduly burdensome to him ; that whenever suspensions of
revenue are granted, they should carry with them automatically suspen-
sions of the ¢asavi instalment which may be due the same year ; that
the officer who has authority to grant the loan should also have
authority to grant the suspensions ; and that the suspended instalment
should not be made payable in the ensuing year with the instalment
of that year, but that the effect of suspension should be to postpone
by one year the payment of all remaining instalments due on the loan.
It seems also unnecessary for the head of the district to report each
case of suspension, as it occurs, to superior authority. Greater leniency
in the matter of recovery cannot well be exercised by Government,
which in these matters is unable to place itself in the same position

as a private creditor.

192. Period of repayment.—There is, however, a measure which
would undoubtedly go far to mitigate the hardship of rigid recovery, and
that is the lengthening of the periods of repayment. In several places
these periods have been criticised as too short. But opinion is not
unanimous on the point, many witnessses considering that the people are
perfectly satisfied with the periods allowed. It is remarkable what a
reluctance there appears to be to work up to the full period of thirty-
five years allowed by law. Except in Madras, where the period for
wells is fixed at thirty years, in no province may the Collector fix a
period longer than twenty years, while in Bengal his discretion is
limited to ten, and in the Central Provinces and United Provinces, to

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 73

fifteen years. Inthe Tunjab, the fixing of a period longer than twenty
y ears actually requires the sanction of the Government of India, which,
it is observed, will only be granted under very special circumstances,
and the injunction is given that advances must be repaid in as short a
period as is consistent with the object for which they are made. This
order indicates the spirit in which the law and rules have been worked,
and the effect has been that loans are seldom granted even for the full
period for which the Collector has discretion. Short periods of re-
payment are considered to facilitate recovery, and are alleged to be in
the true financial interest of the borrower. But neither of these
considerations is mentioned or alluded to in the law, which prescribes
that, in considering the periods for loans, regard should be had, (a) to
the durability of the works, and (4) to the expediency of their cost
being paid by the generation of persons immediately benefiting by
them. [Section 6 (3), Act 19 of 1883]. In our opinion the
borrower may be left to judge what his own financial interests and
those of his successors are in this matter, and it seems to us hardly
necessary for the Legislature to direct that attention should be given
to consideration (2). Up to the present, the periods sanctioned have
generally been so short that it can rarely have been brought into
account at all ; and if, in the future, longer periods are allowed, it will
be many years before the enthusiasm of the cultivating and land-
owning classes for agricultural improvement is raised to such a pitch
as to pass the bounds of prudence, and so endanger the prosperity of
succeeding generations. On the contrary, we apprehend that, by the
encouragement of such investment, posterity are likely on the whole to
reap substantial benefits. There is, also, no apparent reason why, when
desiring a loan for an agricultural improvement, the borrower should
be fettered by considerations, which are never allowed to stand in the
way of the far more extensive borrowings which are made for purposes
of unremunerative and extravagant expenditure. Generally speaking,
then, the sole consideration in determining the period of repayment
should be the durability, or what we may term the ‘life’ of the work ;
the full period so determined should be offered to the borrower ; and
no pressure whatever should be placed upon him with the object of
inducing him to choose a shorter period.

193. Now there are some works, e. g., soundly constructed wells
in various parts of the country such as the Bombay Deccan, which, if
properly maintained, will last practically for ever. In such cases

10

74 - GRANT OF LOANS AND ADVANCES OF AGRICULTURISTS.

there would be no objection, according to the principles stated above,
to the acceptance of a perpetual charge equivalent to the interest om
the capital advanced, instead of an instalment sufficient to extinguish
the debt within a term of years. This proposal deserves examination.
In some Native States money is frequently advanced for well cons-
truction in return for an additional assessment upon the land bene-
fited. But in the Northern Provinces of British India, where the
period of the exemption of improvements from taxation is not per-
petual, this practice could not be worked at all; and in Southern
India it might be looked on, though erroneously, as infringing the
principle of such exemption. Many good authorities doubt whether
the ryot would like the perpetual charge. This is a matter of opinion
which cannot be settled until the feeling of the people has been
tested. But we are ourselves somewhat reluctant to suggest perma-
nent indebtedness asa possibility. ‘There is an undoubted stimulus
to thrift, and advantage to the borrower, in arrangements enabling
him to extinguish his debt within a reasonable period ; and, if the
period of repayment be made long enough, the excess of the annual
payments over the perpetual charge will not be large enough to deter
people from borrowing. Thus, supposing the period which might be
allowed for wells in the Bombay Deccan, where, if propérly made and
maintained, they are virtually indestructible, to be fifty years, then
at 5 per cent. interest, a payment of Rs. 6-8 would extinguish within
that period a debt of Rs. 100, whereas the perpetual charge would
be Rs. 5, or only 8 annas less per annum. No reasonable man would
prefer the perpetual charge for the sake of saving the eight annas.
On the other hand, as the figures given below show, the -perpetual
charge would be a far easier annual burden than the instalment
required to discharge the short-term loans now given, in which the
period extends to but seven or ten years, or even a loan for as long as
twenty or thirty years.

Sum required to discharge a loan of Rs. 100 at 5 per cent.

Rs.
in 7 years ian vy vb ise 17°38
ae, Penge M - te x 13°0
me eee a ig ef ‘i 8-0
fyi a i F a 65
ie | ee x “ hag a 55 .

5 perpetuity an er ¥ edi 5:0

© ei hd”
e

GRANT OF LOANS AND ADYANCES TO AGRICULTURISTS, 75

194. This policy of offermg long periods of repayment should be
followed in all parts of India. [or there is no part in which there
is not great room for the extension of agricultural improvement,
or, in which the State ought not to encourage such extension to the
utmost of its power. but in tracts secure from famine or severe
scarcity, the State will not be justified in running extraordinary
risks, and in such cases a strict estimate should be made of the life
and durability of the improvement. Following these principles then,
we recommend, either that no maximum period should be prescribed
by the law, or that the maximum for the whole of India should
be far longer than the existing maximum of thirty-five years. In
view of the considerations stated below, fifty years would seem to be
a suitable term. Within the provinces, Local Governments might
be empowered to prescribe in the rules maximum periods for different
tracts and districts, and for different classes of works, having regard
to the durability of the work for -which the loan is granted. As the
rules require the sanction of the Governor General in Council, it will
be easy for the Government of India to check any tendency, if it
arises, to allow excessively long, or unduly short, maximum _ periods.
The officer empowered to grant loans should, in every case, have full
power to fix the period within the maximum, if any, without prior
reference to superior authority.

195. Permanent charge for interest.—There is another alternative
which has much to recommend it. Working as before on the basis of a 5
per cent. rate of interest, the borrower, if he would build a thoroughly
durable well, might be charged Rs. 5-8 per cent., to be paid so long
as the well endures, without any demand for repayment of capital,
although he might repay at any moment any portion he wished,
thereby reducing the interest proportionately. This would be identi-
eal with the former proposal if the well endured for fifty years and no
longer. It would be to the interest of the borrower to make
the work last as long as possible, but if it failed within 50 years there
would be a loss to Government. On the other hand, if the work
lasted more than 50 years, Government would gain, as it would
receive something more than the normal rate of interest. We think
therefore that an arrangement of this description should be offered
as an alternative to a loan for a long but definite term, in all preca-

rious tracts where special stimulus is required. If the ryot does

not like the arrangement, it can be dropped.

76 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

196. We cannotsay,which of these proposals would be regarded
with greater favour by the borrowers, but there would be no loss to
Government under either ; although, from the point of view of the
cultivator, there would appear to be a relinquishment of all claim
to the principal, notwithstanding a very moderate charge as interest,
which in the case of the latter proposal would also be relinquished
as soon as the failure of the well rendered the payment burdensome.
These terms would very probably appear to be far more liberal and
attractive to the ryot than to the actuary. And, in dealing with
the people of this country, what may be called sentimental considera-
tions of this sort, are of great importance.

197. Delays in distribution, and exaction of underlings—According
to the evidence which we have taken, one of the greatest obstacles
to the extension of takavi advances consists in the endless delay
and trouble which seem inseparable from official procedure—the
visits to head quarters, the official inspection, and also the substantial
portion of the advance which is apt to stick to the hands through
which it passes. These evils seem to be universally recognized and
admitted, and we have no desire to minimize them. But we have
some doubt as to the extent to which they have effectively lessened
the demand for ¢uwkavi. The payments to underlings seem most
unfortunately to be cheerfully acquiesced in by the people, and pro-
bably do not exceed the discounts and commissions which any
client will have to surrender to his money-lender in the course
of his haggling with him. The head-quarters of the district or
sub-division are often not farther away than the shop of the
money-lender with whom the ryot transacts business. We are
unable to suggest any general remedies. But there seems to be no
reason why journeys to head-quarters should not be shortened or
saved, by giving powers generally to sub-divisional officers, and even
to tehsildars,as in Madras and Bombay, to grant advances within
certain limits, instead of retaining the whole power in the hands of
the Collector, as seems to be done in other provinces. It has also been
stated again and again before us that, if an officer of standing were to
go into camp with money in his hand, receive applications, inspect
sites, settle terms and make advances on the spot, many of the«
difficulties would be removed. This was the procedure perforce
adopted in time of famine, when there was no other way of getting
the large allotments promptly disbursed. Similar methods are

: 4
GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 77

pursued by the Opium Department in the distribution of their
advances. We recommend that the experiment be tried in districts
in which it may be determined to make large advances in future.
There are few provinces in which it would not be possible to select
tracts in which very considerable sums might be distributed in this
way with the certainty of great benefit to the people and the
Government.

198. Inquiries regarding security——One of the chief reasons for
delay in the disposal of applications for takavz has been found in some
provinces to arise from the length and complication of inquiries into
the sufficiency of the security offered. In most cases the security
taken is the land to be benefited. Its value is easy to ascertain
sufficiently well for practical purposes. The principal object of the
inquiries is generally, therefore, the extent to which the land has been
previously encumbered. Now,it was probably the intention of the
framers of section 7 (1) (c) of the Land Improvement Loans Act
that, the land benefited should be saleable for recovery of takave
arrears, just as it would be for recovery of arrears of land revenue,
free of all encumbrances. But doubts have arisen as to the exact legal
effect of this provision. These doubts should, in our opinion, be set
at rest under competent legal advice, or, if need be, by one or two test
cases; and then, if necessary, the law should be amended so as to give
effect, beyond any possible question, to what appears to have been the
original intention of the Legislature. Once the land is made saleable
free of all encumbrances, elaborate inquiries into their existence will
be no longer necessary. The just rights of prior encumbrancers seem
to be sufficiently guarded by section 5 of the Act, which provides that
officers may, if they think it expedient, publish a notice calling for
objections to the grant of the loan, and must consider objections
submitted, and make written orders admitting or overruling them.
This provision could, if thought necessary, be fortified by making
public notice compulsory.

199. The other remedy against prolonged inquiry into the matter
of encumbrances is to prescribe, if necessary by law, that wherever a
record-of-rights has been prepared, objections submitted by prior
encumbrancers will be recognized only if the encumbrance has been
previously entered in the record. This will enable the inquiring
officer, by mere inspection of the record, to ascertain all prior
encumbrances of which he need take account. The existence of

.
78 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

prior encumbrances, however, should not necessarily bar the grant of
the loan. ‘The value of the land as security to the encumbrancers
will generally increase by the improvement. ‘ihe encumbrancer ma

s ys J I y
foreclose and get the benefit of it. But its value for protective

g P

purposes will remain, and the security of Government in the land
for purposes of recovering the advance will not be impaired.

pur} s i

200. Lransfer of occupancy rights.—There seems to be little doubt
that in zamindari provinces the fact that the occupier of the soil is
generally a tenant without rights of transfer in his holding, throws
considerable difficulty in the way of advancing him money for
improvements. For the best and most obvious security for the
advance, namely, the land benefited is not available unless the
land-owner can be induced to stand in; and this he can seldom be
prevailed upon to do. In the Central Provinces an attempt has been
made to overcome the difficulty by making tenants’ holding sale-
| eeep aa’ iss able for the recovery of Government loans,
tions 46 (3) and 70 We think the advisability of making similar
(3). provision in other provinces should be considered ;
although most officers seem opposed to such a measure, mainly from
fear, first of its leading to the acquirement by the occupancy tenant,
to his ultimate ruin, of full rights of transfer, and secondly of the
extreme opposition of the land-owners. But opposition might be
conciliated by giving the landowners rights of pre-emption; and as
regards the risk to the tenants from. an undue extension of the right
of transfer, it may be observed that where the land-owners have
considerable estates, as in many parts of the United Provinces and
Bengal, the greater number of wells and other small improvements
are made by the tenants; and the importance of providing the
tenantry with the best possible security for advances seems suflicient
to justify the running ofa risk, which, after all, can be avoided
by firmness and foresight on the part of the administration. We
understand also that, as a matter of fact, transfers are even now often
effected by tenants in the form of sub-leases. It may, therefore, be
that transferable rights for fakavi purposes will not add much to
existing evils, if evils there be. Ii the sub-leases be valid and legal
security for private advances, fakavi might also be advanced on the
strength of some similar form of conveyance to a Government officer.

201. Jot security—There is, however, away of making ad-.
vances to tenants, otherwise than on the security of their land, which

meena e's

ia

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 79

deserves mention: namely, the taking of joint security from several
tenants. In Northern India the areas irrigated by wells are often
so large that several holders may be interested in the same well.
Indeed it seems to be a general practice in. parts of the United
Provinces for all the neighbours to use a well which commands their
lands, by whomsoever it be made, after the wants of the owner are
satisfied. Notwithstanding the frequent difficulty of inducing
people to co-operate, it seems not improbable that in order to secure
this user as of right, instead of merely by permission as at present,
there would be no insuperable difficulty in inducing neighbouring
tenants to stand joint security for one another. It may be observed
that the Opium Department generally advances for wells on this
system. :

202. Advances on personal security —But even if this measure fails,
we think that the experiment ought to be freely tried, of advancing
to tenants of solidity and character, upon their individual personal
security alone. Their crops and personal property will often suffice
to cover any but a very large loan; and the general integrity of
takavi borrowers, as amply evidenced by the insignificant amount of
irrecoverable loans, is an asset which should by no means be
overlooked.

203. Simplification of accounts.—We regard simplicity in accounts
and procedure as of the greatest importance, with the object of saving as
much trouble as possible to the subordinate revenue officials, who have
it in their power to discourage applications for fakavz. From this

point of view we think the separate account of principal and _ interest

a mistake. With an instalment of fixed amount, and with penal or
compound interest exacted in only very exceptional cases, nothing
more than the simplest record of repayments will be necessary.

204. It has been suggested to us that, when land revenue is re-
covered by rates upon the area cultivated or matured in each harvest, a
takavi advance might be recovered by a percentage surcharged on the
amount of land revenue, so that the recovery would be automati-
cally adapted to the means of repayment. The idea seems to us
admirable. Under this system, however, annual payments will vary
considerably from year to year. It will accordingly be difficult to
settle how much of each such payment should be credited to principal
and how much to interest, and, generally, to determine exactly how
the account stands, and to enable the borrower to keep a satisfactory j

80 GRANT CF. ICAKE ART #IVANCIS 9C £OTICULIURIESE.

check on his repayments. To meet this objection, and to simplify
calculations and accounts, we would make a ccmposition with the
borrower for a definite svm, which would ke determined on terms to
be fixed for each tract. We would say to him, for instance—“‘ You
have borrowed rupees 300. If you repay it by fixed instalments in
twenty years, you will have to pay rupees 24 a year, or rupees 480
in all. We will takeso many annas in the rupee on your land revenue
till you have paid rupees 480, not charging more if the twenty years
are exceeded, or less if the money is recovered sooner.” ‘The result
will be that over a series of good years, when the revenue’ payments
and surcharges would be relatively high, the Government would be
repaid sooner and receive a better rate of interest on the money lent,
while over a series of bad years the period of repayment would be
longer and the interest lower. If the terms of composition are
judiciously fixed, Government will in the end lose nothing on an
average of transactions, and the individual borrower will benefit by
the adaptation of the lean recoveries to his fluctuating resources.

205. Establishments.—If takavi advances increase at all upon the
scale which we should hope and wish to see, there is certain to be a need
for increases of establishments, at any rate in particular tracts where
there is large scope for the work. A great deal can be done by
trifling increases of the subordinate establishments, such as were long
ago made in the three Carnatic districts of the Bombay Presidency
* = “ * But it is not unlikely that in other
places more may be needed than this; and special officers with suit-
able establishments may have to be provided, either to deal with
takavi work or to replace permanent district officials appointed to
deal with it. It is of the first importance that the cfficers dealing
with applications should know the locality and the people. It has
been suggested that the entrusting of the distribution of takavz to a
special officer who would not be responsible for its collection might
prove to be dangerous. We do not attach great weight to this appre-
hension. Subordinate officials are only too prone to the belief that
their reputation depends above all things upon the promptness and
completeness with which they collect Government dues of all kinds ;
and transfers are so frequent that under the existing system, where
all the takavi is worked by the district officials, the distribution of the
advances, and the collection of dues which are paid in instalments

spread over several years, must frequently be done by different
~~

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 81

officers. In districts in which agricultural banks may be succesfully
established, it may be possible to utilize their agency in the distribu-
tion of ¢akavi, or even to make advances to the banks on their own
security for the purpose of agricultural inprovements.

206. Procedure in time of famine.—Our observations have, so far,
been confined to the administration of the ¢asavi system in ordinary
times. In times of famine, large departures will, of course, have to
be made from the ordinary rules. It is unnecessary here to say
more than that, we entirely approve the system followed in recent
famines, from 1896-97 onwards, in accordance with which very
large sums were advanced for private irrigational improvements, and
extraordinary concessions were made. ‘There can be no doubt that,
in addition to the actual help derived from the advances, a valu-
able stimulus was given to the execution of improvements out of un-
aided or only partially aided private resources. The only point on
which we have to offer advice is that, the greatest care should be
taken in famine times to have the advances given out early. The
authorities should begin offering the advances some time before it
has become certain that the impending scarcity will develop into
famine. For each district a sum based upon experience of require-
ments in previous famines should be fixed beforehand ; and authority
to disburse up to that sum should be given to heads of districts by
the Local Governments as soon as they are satisfied that the emer-
gency has arisen which would justify such a measure. The grant
of such authorization would be reported at once to the Supreme
Government as a warning of the financial provision likely to be
required. In this way the delays incurred, at an important crisis,
in the preparation of detailed estimates requiring a number of reports
from the local officials, would be avoided. But these estimates could,
of course, be prepared subsequently at comparative leisure. Small
and temporary irrigation works are those which are likely to be most
useful on the occurrence of famine, and all permanent allotments
should be at once diverted to these, so far as is possible within the
district.

207. Special concessions in famine tracts—We have discussed
above the methods by which the /asavi system may be utilized for the
development of private irrigation works. But we are convinced that,
if progress is to be made at the full rate attainable with benefit to the
country, still greater concessions will have to be made in tracts

11

82 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

exposed to famine. These concessions should generally take the simple
form of free grants of money, which may be fixed at a maximum of
one-half the total amount required, up to a limit of, say, rupees 500.
The localities in which these grants would be justifiable may be
characterised broadly as those tracts which have suffered severely in
any great famine, such as those of 1876-77, 1896-97, and 1899-1900,
and have not since obtained, by irrigation or otherwise, protection
sufficient to guarantee them against the recurrence of similar calami-
ties. i * ane * There may
often be in such tracts better financial justification for the grant for
wells than for a canal depending upon storage. We do not, however,
contemplate the bestowal of free grants in every case even in such
a tract, but only when the concession is justified by the poverty of
the applicant, or where the margin of profit from irrigation is so
close that the concession will make the difference between profit and
loss to the irrigator. The proportion of the free grant to the total
sum required should, we think, vary with the circumstances both
of the tract and of the grantee; and as the development of irrigation
in any tract progresses it will be reasonable to reduce that proportion
gradually to z/. We do not desire that taking of takavi should be
a necessary condition of receiving a free grant. Such grants should
be allowed to cultivators who are, although poor, thrifty enough to
provide the remainder from their own resources.

208. Some witnesses have proposed that in precarious tracts a
bounty should be given on every well. The plan has the merit of
simplicity. But, provided that no inordinate difficulties are found in
determining the resources of the grantee, it may be doubted whether the
plan would be so successful in getting the maximum number of wells
constructed as that which we recommend. Our proposal restricts

grants to people of slender resources, and so encourages more people _

of this class to construct wells with the aid of funds which under the
alternative scheme would go to people of ample means, some of
whom would make wells without Government aid. Other concessions,
such as postponement of comencement of repayment until the work
begins to be remunerative, partial remission of the sums advanced in
case of failure of the work, exemption of improvements from enhance-
ment, and so forth, are discussed in the chapter on private improve-
ments. For reasons assigned in paragraph 190, we deprecate advan-
ces of money free of interest, or at abnormally low rates,

~

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 83

209. Disbursement of loan, and inspection of work.—In order to
secure that loans and grants are expended upon the objects for which

they are granted, it will be necessary to observe carefully the precautions

which we believe are already enjoined in all provinces, namely, the
inspection of the works and the disbursement of the money allotted in
instalments, the second instalments not being granted until the local
authority is satisfied that work to the value of the first has been execu-
ted. Where advances are large, it will be necessary to have a special
agency for inspection ; elsewhere probably the work can be done by the
ordinary establishments with such additional strength as may be
required for the distribution of advances on the larger scale now
contemplated. It is possible that the inspections may be turned by
subordinates into an occasion for black-mailing. But we do not see
how they can be dispensed with. The subordinates’ inspections should
be checked as far as possible by superior officers, who should regard
this duty as one of the most important items of village inspection
work. Care should be taken that the advance or grant will fully cover
so much of the total outlay required to construct the work as the
borrower is unable to provide from his own resources. Insufllcient
allotments merely lead to waste and tempt the borrower to misapply
the money received.

210. Forecast of outlay in each province-—In order to give some
rough idea of the sums which may have to be provided during the
first few years until repayments of ¢akavz bagin to flow in, we
hazard the following forecast of the amounts likely to be required
annually in each province :—

PROVINCE. TOTAL. Free grant. Takavi.

Lakhs. Lakhs, Lakhs,
IE ARs TIN aa2ed asa VPNs cv 8S po0 vob etenees 20 5 15
MME NCGS ay AWkees Ad, sesneesersveccrasencie 15 5 10
TRMEROGE MPOVINOGE: foes see ccvsve ve ctocerces ey 10 2 8
Sr ahs Ee Oe eee EEE 10 1 9
SUMP E tas cola Monh ik sah.nva doe ee ates ov eseeeens 9 1 8
Contral Provinces........0....csecvevveresseces 6 2 4,
Other Administrations.........ccsscseveseeees 5 1 4
; TOTAL....+. 75 17 58

84 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

The amounts at present allotted to these provinces for takavz alone
average 19} lakhs in ordinary years. What we virtually recommend,
therefore, is that Government should treble the existing fasav: grants,
and make an allotment of 17 lakhs for free grants-in-aid of works
of private improvement, under some definite head of expenditure,
say, ‘minor works,—agricultural.’

211. We have very little on which to base this forecast, except
conjecture and the opinions of well qualified officers. The exact allot-
ments will have to be settled with Local Governments and Administra-~
tions. But even this expenditure will effect very little. Thus,
calculating the expenditure required to protect an acre of land by
means of the various private works at Rs. 100 in Madras and
Bombay, and Rs. 50 elsewhere, we find that 75 lakhs would give
protection to about one hundred thousand acres per annum. In
twenty years, therefore, the protected area would have been
increased by two million acres. A considerable portion of this,
however, would not be in the areas liable to severe famine. It
will probably be sanguine if we calculate that one and-a-half
million acres within these areas can be protected in twenty years
by means of fakavi and grants-in-aid. Excluding Burma, the
total area of cultivation exposed to famine may be put roughly at
one hundard and fifty million acres. Thus, by means of tahkavi
and grants-in-aid alone, protection can be given to not more than |
per cent. of that area. This proportion is so small that, if reliance
had to be placed on Government aid only, it might seem hardly
worth while to lend it But the value of fakavi advances and grants-
in-aid is by no means limited to the actual amount of work effected
by their means; they give, in addition a real stimulus to unaided
private effort. Having regard to the rate of progress attained in
the various provinces in the past without any assistance, or with
the aid of comparatively little stimulus of the kind, we shall not
perhaps be over-sanguine if we hope that the area under irriga-
tion from private works may be doubled in fifty years. But even
if this result be obtained, then deducting one-fourth of the increase as
occurring in the-areas not exposed to famine, the increase of protection
in the famine-exposed tracts will not exceed 13 per cent of their
area, and it becomes evident that, notwithstanding every possible
extension of private works, considerable areas must remain without
protection by their means. ‘

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 85

212. Financing of advances and grants-1n-aid.—The amounts of
the grants to be provided for ¢asavi advances, and for grants-in-aid of
private irrigation works, will necessarily come under revision from
time to time, say, at intervals of five years ; but the revision should
be made rather with reference to requirements, and to the maximum
amounts that can be effectively expended under existing conditions
of administration, than to budget exigencies. We cannot too strongly
insist that the success of the policy which we advocate, will depend
on its being pursued systematically and continuously, at whatever
rate of progress may give the best results, and without being liable
to interruption in years of great financial stress. We consider that
the additional expenditure proposed will not impose any permanent
burden on the State, for there will be an adequate return in the greater
protection afforded against famine; but we apprehend that consi-
derations of ways and means may sometimes render it difficult to
carry out this policy continuously. Assuming provisionally that
for the next few years the rate of expenditure will be as proposed,
there may be a difficulty in providing the grants required out of
current revenues. The 17 lakhs to be provided for grants-in-aid
will be practically a new item of expenditure, while the grants for
takavi will exceed the normal under this head by 40 lakhs.
There will not only be a great immediate increase in the demand
under the latter head, but its duration will be greatly prolonged if
the period of repayment of loans is extended as we have suggested ;
and we have also proposed a reduction in the rate of interest which
will involve the surrender of some of the profits which the State
has hitherto made on its /wkavi transactions. We have suggested a
universal rate of interest at 5 per cent. as the basis of all loan transac-
tions for agricultural improvements, in the belief that this rate
will be sufficient to cover all the risks of loss, but if this rate
is likely to be too low, it must be increased. We think that the
State should not look for direct financial profit on these transactions :
but we recognize at the same time that it must be a cardinal prin-
ciple of ¢akavi transactions that they are self-supporting and involve
no loss to the State, and that the expansion of operations which are
recommended depends on the rigorous observance of this principle.

Subject to this condition, however, we think that the only limit
to the ¢akavi grants should be the amount which the people are
willing to take, and the officers of Government are able to
distribute, with due regard to security and other considerations ;

86 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

and that, if the amounts required cannot be provided from general
revenues, some arrangement should be made under which the money
could be obtained from loan funds, as for expenditure which will
be essentially productive, and which will all be eventually recouped.
These conditions will not apply to expenditure incurred on private
irrigation works, which cannot properly be met from loan funds; but
we suggest for consideration that expenditure of this kind should be
recorded under a new head, as grants-in-aid for private agricultural
works, and should be chargeable against the famine grant, or, in other
words, should be met from that portion of the grant which would
otherwise be shown as applied for the reduction or avoidance of debt.
We think that any expenditure which will tend to increase the
protective efficiency of private works is as legitimate a charge against
the famine grant as expenditure on non-productive irrigation works,
and may be justified on the same ground—that it will tend to reduce
the amount of future charges for actual famine relief, and is a better
insurance against the cost of famine than a corresponding reduction
in the public debt.

213. In order, then, to secure that continuity of policy and action
which we have recommended, we further suggest that Local Govern-
ments and Administrations should be invited to submit estimates of the
full amounts which they can distribute over a series of years, not less
than five; and that they should be given regular annual allotments up
to which they should be expected to work. Failure to do so should be
explained, but should not be made the ground for diminution of the
allotments during the remainder of the period, unless the local
authorities convince the Supreme Government that experience already
gained has demonstrated the impracticability of spending up to
them. Similarly, heads of districts and divisions should get for a
term of years regular allotments based upon carefully framed
estimates of requirements. The fixing of allotments, however, should
not exclude the grant of special additional allotments on good cause
shown. Allotments to provinces, or parts of provinces, unaffected by
famine have sometimes been curtailed in order to satisfy the demand
in affected localities. Such curtailments should be avoided, if at all
possible, with due regard to financial exigencies. Any check to the steady
development of private improvements by means of advances is likely to
have serious and permanent effect on the zeal of Local Governments
and officials on which the success of the system so largely depends.

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 87

214. Summary.—tIn order to make our proposals clear, we
summarize below those which relate especially to precarious or selected
tracts. The remainder apply to all parts of India in which fakavi
may be advanced for purposes of irrigational improvement :—

(1) Special liberality in estimating periods of repayment
(paragraphs 192-194).

(2) Special arrangement specified in paragraph 195.
(3) Advance of money on the spot (paragraph 197).

(4) Payment by surcharge on fluctuating revenue (paragraph
204).

(5) Special famine measures (paragraph 206).
(6) Grants-in-aid (paragraph 207).

[ Resolution of the Government of India, No. 6-204-16, dated the
380th November, 19085. |

PRINCIPLES ON WHICH THE SYSTEM OF ADVANCES, UNDER THE LAND
IMPROVEMENT AND Aaricutturists’ Loans Acts,
SHOULD BE WORKED.

The Government of India have had under consideration the system
in force for the advance of loans from State funds to assist in the
development of agriculture, whether under the Land Improvement
Loans Act, 1883, or under the Agriculturists’ Loans Act, 1884.
The recommendations made on the subject by the Famine Commission
of 1901 were referred for opinion to Local Governments, and after
consideration of their replies, and of the recommendations made on
the same subject in the report of the Irrigation Commission of 1908,
the Governor General in Council is now in a position to lay down
the principles on which he considers that such loans should be made,
and to offer certain suggestions with the view of making their
operation more effective. He agrees with both Commissions that the
system is a very valuable one, both in ordinary times and in times
of drought; that it should be the policy of the State, as supreme
landlord and as the guardian of the people against famine, to promote
with reasonable liberality, the execution by private persons of works
which will add to agricultural efficiency and increase the total produce
of husbandry; and, that loans for #1e purpose of purchasing seed
and cattle and for other agricultural (ie not covered by the Land
Improvement Loans Act, should tot be limited to times of special
stress, but should, like those made for the improvement of the land,
form a part of the ordinary revenue administration. The consideration
which has now been given to the subject has led him to the conclusion
that in most Provinces the existing rules might safely and properly
be revised, so as to secure greater simplicity, liberality and elasticity
in the working of the system, and thus increase its popularity and
the advantages derived from it by the agricultural population.

2. This Resolution will first deal with loans made under the Land
Improvement Loans Act on ordinary conditions, and then with loans
on special terms and advances made under the Agriculturists’ Loans

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 89

Act; and it will be convenient to consider land improvement loans
chiefly in connection with the construction of wells, though it should
be understood that the principles enunciated also apply, so far as may
be, to tanks, water-courses, embankments and other works for the
improvement of land.

3. As regards the rate of interest to be charged on ordinary
advances under the Land Improvement Loans Act, the present practice
is that, in Madras, Bombay and Burma the rate levied is 5 per cent., and
that in all other Provinces it is 64 per cent. Both the Famine Com-
mission and the Irrigation Commission suggested that the rate might
with advantage be made 5 per cent. in all Provinces, though the
latter Commission admitted that a rate of 64 per cent. is not in
itself excesssive, and that the people regard it as extremely liberal.
The general opinion of the Local Governments of Northern India,
however, is that there is no good reason for reducing the present
rate of 64 per cent.; and with this opinion the Governor General
in Council concurs. This rate is very much less than that warranted
by the custom of the country and charged by village money-lenders,
and it does not seem probable that a reduction of the rate of interest
from 64 to 5 per cent. would have any appreciable effect in increasing
the demand for loans, as the ordinary borrower would not be likely
to have any clear idea of the benefit he would derive from the
reduction. The Governor General in Council agrees with the Irriga-
tion Commission that loans under the Land Improvement and
Agriculturists’ Loans Acts need not be made a source of direct: profit
to the State; and he considers that where the present rate of interest
is found to result, after taking into account all classes of transactions
(including remissions) under both Acts, in a net profit to the
Local Government, this margin of profit should be utilised, not in
giving a reduction in the general rate of interest charged to all
borrowers, but in granting special concessions to those borrowers
who stand in need of them, and thus rendering the system
more elastic. He would regard the margin between the rate
paid by Government on the loans it raises, and that charged by
Government on the advances made to agriculturists, as an assurance
fund against risks and a sinking fund to cover losses, such as may
be expected to occur in individual cases. For these reasons the
Government of India agree with the Local Governments of those
Provinces in which the rate of interest is at present 64 per cent.,

12

90 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS,

that there is no good reason fora reduction of that rate, and would
ask the Governments of Madras, Bombay and Burma to consider
whether the rate at present charged in those Provinces might not, with
advantage, be raised to 64 per cent.

4, Under the present rules it is usual to levy penal or compound
interest. on overdue instalments, and the Irrigation Commission recom-

mend that such interest should be exacted only in very exceptional —

eases. In this recommendation they are supported by several Local
Governments, and more especially by the Lieutenant-Governor of the

United Provinces, who points out that the failure to pay interest when -

due must be owing either to contumacy or to poverty, and that in the
first case coercive process to enforce payment should be taken without
delay, and in the second the question is whether some remission should
not be granted, and not whether more interest should be exacted.
The Government of India are unable to accept this argument without
modification, as, even when the delay is due to contumacy, it is
impossible, in practice, to levy the arrear at once, and it is equitable
that a delay so caused should involve a penalty, if only as a lesson in
punctuality. They agree, however, that Local Governments should be
prepared to remit or reduce compound and penal interest in cases in
which they are satisfied that the failure is due to inability to pay and
that the levy of such interest would be productive of hardship.

5. Under most of the present sets of rules the maximum ordinary
term fixed for the repayment of a loan is 20 years. The Famine
Commission suggested that this period might be extended, and the
Irrigation Commission recommended that no maximum period for
repayment should be prescribed, or that the maximum term should be
fixed at 50 years, Local Governments being empowered to prescribe
maximum periods for different tracts and districts and for different
classes of works, having regard mainly to the durability of the work
for which the loan was granted. After full consideration of these
suggestions, the Government of India are of opinion that in the case
of ordinary improvements a twenty years’ term for repayment is
generally sufficient for the following reasons. An examination of
interest tables drawn up to show the amount of the annual or
half-yearly instalments required to discharge, within different periods, a
loan of Rs. 100 at 64 or even at 5 per cent. will prove that, to extend
the period of repayment beyond twenty years effects no substantial
reduction in the amount of the annual or half-yearly instalment ; so

~

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 91

that such an extension affords no great immediate advantage to the
borrower, while it burdens him for a longer term with the duty of
making repayments. A still stronger reason is to be found in the
consideration that the amount of funds available for making such
loans is limited, and that the rate, at which fresh loans can be made,
depends to a large extent on the rate at which the money already out
on loan is repaid to Government, so that it may be utilised by being
re-issued in the form of' further loans. Thus to extend the term
generally adopted for repayment would reduce the number of improve-
ments which could be aided by means of the total sum available, and
render it less effective for the purpose in view. The Government of
India, therefore, are of opinion that the ordinary term for repayment of
loans should not exceed 20 years ; but they have no objection to a Local
Government’s taking the power to grant a longer term in special cases.

6. In fixing the actual term of repayment in individual cases some
consideration should no doubt be paid, as recommended by the Irriga-
tion Commission, to the probable durability of the improvement, with
the view of arranging that the whole of the loan shall be repaid
before the improvement ceases to be of use ; but this is a matter in
which the convenience of the borrower may well be consulted, and the
Government of India recommend the following procedure, which has
already been adopted in some Provinces. A specimen table* appended
to this Resolution shows to the nearest anna the amount of equated
yearly or half-yearly payments that would be required to discharge a
loan of Rs. 100 with interest at 64 per cent., in periods
of 10, 15 and 20 years respectively, from the date of the
first instalment, assuming that this is paid at the end of three years ft
from the date on which the loan is drawn. Similar tables should be
drawn up for other amounts and periods, and should be explained to
the borrower, it being left to him to choose, subject to the approval of
the lending authority, which table of payments he will adopt. The
borrower will then easily understand how many instalments of so many
rupees each he will have to repay, and will be able to select the
scale which best suits his convenience. As regards the date from
which the repayment should commence, the Famine Commission

—

: * See pp. 126-27.

+ As stated further on in this paragraph, the period of grace contemplated is not
to excved 2} years ; but three years has been taken in the table to cover the results of
unpunctualities which will probably occur in the repayment of the instalments,

92 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

suggested that a more careful adjustment of the payments might be
made to the time when profits begin to accrue. On this point also the
Government of India think that within reasonable limits the
convenience of the borrower may be consulted, and that the object
should be to ensure that payment, either of principal or interest, is
never exacted before the date when, by the exercise of such due dili-
gence as may reasonably be expected of an Indian peasant, the profits
of the improvement might be expected to cover the payment. This
period of grace should not, however, exceed 24 years in any case, and
interest should be charged during its currency : this will be allowed
for in the tables above mentioned. The Government of India are not
prepared to agree to the suggestion that the borrower might be
allowed to repay instalments of the loan only so long as the well
endures, as this would involve enquiries which would be accompanied
by some trouble everywhere, and might often prove impracticable
owing to insufficiency of staff or of records.

7. In some Provinces the rules regarding the nature of the securitiy
to be required before a loan is granted for the improvement of land seem
to be unnecessarily strict. Under section 7 (1) of the Land Improvement
Loans Act, all loans granted under the Act, as well as the interest
chargeable thereon, may be recovered from the borrower as if they
were arrears of land revenue due by him, and-out of the land for the
benefit of which the loan has been granted, up to the extent of the
interest of the borrower in that land, including the interest of
mortgagees on, or persons having charges on, that interest. Where,
therefore, the borrower’s interest in the land to be improved is sufficient
security of itself to cover the loan, no further security should be
demanded. The Madras rule on the subject lays down that no loan
should be granted unless the value of the security offered exceeds by
at least one-fourth the amount of the loan applied for. The Govern-
ment of India are, however, of opinion that this rule may be relaxed
with safety, and are inclined to suggest that, where the amount of the
loan does not exceed three-fourths of the value of the land after the
improvement has been carried out, no collateral security need be
required. Where the interest of the borrower in the land to be
improved is not sufficient of itself to ensure the repayment of the loan,
it is necessary to require further security, which may consist of other
lands belonging to the applicant, or of land belonging to other
persons who are willing to become his sureties, or of personal sectirity.

€

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 93

It is for the Local Government to satisfy itself that the security
offered, in whatever form it is given, is sufficient to guarantee the
repayment of the loan, and where it is of opinion that security other
than land is sufficient, there is no objection to such security being
accepted. Indeed, the Government of India strongly endorse the
opinion recorded by the Irrigation Commission that, the joint personal
security of several persons may often be accepted as sufficient to
ensure the repayment of a loan, and recommend for the consideration
of Local Governments the rule now in force in Madras to the effect
that, when a loan is applied for by the members of a village communi-
ty, or by a group of cultivators on their joint personal security, the
Collector may, at his discretion, advance on such security an amount
not exceeding five times the annual assessment of the land held by
the applicants. In this connection it may be mentioned that in some
Provinces great delay is caused by an enquiry into previous encum-
brances on the land offered as security ; although, seeing that under
the Act, the existence of mortgages or other charges on the interest
of the borrower does not lessen the security for the loan, it would
seem unnecessary to make elaborate enquiries regarding previous
encumbrances on the land to be improved ; and the Government of
India trust that Local Governments will provide that such an enquiry
shall not be carried further than is necessary with due regard to the
security of the loan. The Irrigation Commission have called atten- -
tion to the difficulty of advancing money for improvements to tenants
in some Provinces owing to their having no transferable rights in
their holdings, and Local Governments will be separately addressed
on this subject. Meanwhile the Government of India
desire to express their concurrence in the recommendation of the
Commission that, where the personal security of a tenant, or the joint
security given by several tenants, is sufficient to ensure the repayment
of the loan, the experiment of making advances to tenants on such
security ought to be freely tried. In some Provinces a rule exists
forbidding the granting of a loan to any borrower, who is in arrears
for land revenue, or for a previous loan; but the Government of
India are of opinion that this in itself is no sufficient reason for
refusing a loan, if the security offered is otherwise satisfactory, and
recommend that Collectors should be given the discretion of granting
loans to persons in arrears, when they are satisfied as to the security

offered.

94, GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

8. The rules in force in some Provinces regarding the procedure
in granting loans might also be revised with the object of affording
greater facilities to persons wishing to borrow. Arrangements
might be made for the supply free of cost of printed copies of a form
of application, to be presented to any revenue officer, and all revenue
officers might be required in the case of an oral application to cause
it to be recorded in the prescribed form by some official. It is usually
sufficient in the case of an application for a small loan to refer it for
local enquiry to an officer not below the rank of revenue inspector, or
field sanungo, though, where the loan applied for exceeds Rs. 500,
it would be advisable to prescribe that the local enquiry should be
conducted by an officer of a rank not lower than that of a deputy
tahsildar. In Madras (¢ahsildars have the power to sanction loans not
exceeding Rs. 250, while Divisional Officers can sanction loans up to
Rs. 500, and Collectors up to Rs. 1,000 ; and other Local Governments
are requested to consider whether similar powers to sanction loans
could not safely be delegated to subordinate officers, so as to obviate
the delay of a reference to higher authority. In the case of a large
loan it is advisable to advance the money in instalments, the second
instalment not being granted until the lending authority is satisfied
by local inspection that work to the value of the first instalment has
been executed; but care should be taken that this condition does not
lead to delay, and reports of trustworthy subordinates as to the
progress of the work should be accepted, subject only to such check
as is considered necessary. Great importance should be attached to
the principle that the advance should be sufficient to cover so much
of the total outlay required to construct the work as the borrower is
unable to provide from his own resources, as it is often better to refuse
altogether an application for an advance than to sanction it in part
only, leaving the applicant to borrow elsewhere to complete the work.

9. The Government of India coneur with the Irrigation Commis-
sion as to the importance of elasticity in the collection of instalments
for the repayment of loans, and approve of their recommendations that
suspension should be given without hesitation, whenever, from causes
beyond the borrower’s control, his crops fail to such an extent as to
render the payment of the instalment unduly burdensome to him ;
that whenever suspensions of revenue are granted on a large scale over
a wide area, they should carry with them automatically suspensions .of
the takavi instalments which may be due the same year ; that the oflicer

GRANT OF LOANS AND ADVANCES TO AGRICTULTURISTS. 95

who has authority to grant the loan should also have authority to
grant suspension; and that the suspended instalment should not be
made payable in the ensuing year with the instalment of that year,
but that the effect of suspension should be to postpone for one
instalment period the payment of all remaining instalments due on
the loan. When a man borrows money he should be required to repay
the loan with interest ; but time should be given him to make those
repayments in such a manner as will not be ruinous to him. As
regards remissions, the Government of India are of opinion that it is
a sound principle not to remit repayment of a loan so readily as
remissions of ordinary land revenue are granted, and that as a general
rule the risk of the failure of an improvement should be borne by the
borrower, as this affords the best guarantee that the money will be

judiciously applied; but they will have no objection to a Local

Government’s remitting outstanding instalments or a part of them,
when a work fails from: causes beyond the borrower’s control and when
recovery of the loan in full would occasion serious hardship; and they
are prepared to consider proposals for the delegation of the power of
granting such remissions to local officers.

10. The foregoing paragraphs have dealt with the treatment of
ordinary loans under the Land Improvement Loans Act. The
Irrigation Commission have made certain proposals with the view of
encouraging irrigation in epecially precarious tracts. /They recommend
that in selected areas, which have suffered severely in recent famines,
and have not since obtained, by irngation or otherwise, protection
sufficient to guarantee them against the recurrence of similar calamities,
land-owners should be encouraged to apply for loans on ordinary
conditions sufficient to pay for a portion of the cost of the contem-
plated improvements, and that Government should make a free grant
of the remainder of the cost, the proportion of the free grant to the
total cost depending on the property of the applicant and the marginal
profit from irrigation, the suggested maximum being half the total
amount required up to a limit of Rs. 500. The Government of India
have no objection to free grants being made under such circumstances,
v.e., When they are applied to works, the suecess of which is caleulated
to reduce future expenditure on famine relief; but under present
circumstances they must be debited in the same way as actual famine
outlay and charged to Provincial Revenues. The Government. of
India will consider separately whether such grants-in-aid might not

96 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

be specially charged against the Famine Insurance Grant, as Protective
Irrigation expenditure to be met from Imperial funds. This course
would, however, require the sanction of the Secretary of State, and it
is subject to the disadvantage that the sums so spent would reduce the
amount available for outlay on ordinary Protective Irrigation works
and on Protective Railways. Such free grants cannot in any case be
charged to the loan account, but it is advisable to provide that they
may be recoverable as an arrear of land revenue, should the money be
spent otherwise than in accordance with the conditions of the gift,
and it will be for Local Governments to consider whether this can be
provided for under the existing law, or whether further legislation on

the point will be necessary.

11. Advances made in ordinary times under the Agriculturists’
Loans Act for the purchase of seed, fodder, cattle, and other require-
ments of agriculture are undoubtedly of the greatest advantage to poor
cultivators, and often enable them to sow their lands or preserve their
cattle without getting into hopeless debt; and, where funds are
available, liberal advances should be made for this purpose. In some
Provinces loans of this character are made free of interest or at low
rates of interest; but the Government of India are of opinion that,
as a general rule, it is good policy to require a borrower who is given
a direct loan to pay a fair interest for it; and that, save in very
exceptional circumstances, the same rate of interest should be charged
as is charged on loans made for the improvement of land. The
principles already enunciated regarding land improvement loans are
generally applicable to advances made under the Agriculturists’ Loans
Act, but as such loans are usually of small amount individually, and
are often required to be disbursed in large numbers and with as little
delay as possible, it is still more important in this case to simplify and
expedite the procedure by such measures as empowering subordinate
officers to sanction loans and accepting joint or personal security. In
accordance with the recommendations made by the two Commissions,
the Government of India have already authorised a system of
employing selected officers to take lump sums with them into camp,
and disburse loans on the spot on the receipt of the borrowers. This
system has been authorised as regards advances to be made under both
Acts, but is specially applicable to petty advances made for the
purchase of seed and fodder. The Government of India also approve
of the suggestion made by the Famine Commission that, where

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 97

available, non-official agency might be employed to aid. in making
enquiries and disbursing loans; and where the number of such loans
is large, it will often be found advisable to make the necessary
enquiries well beforehand, and to arrange for the immediate disburse-
ment of the money when the loan is actually required, as, for instance,
when rain falls at seed-time.

12. The foregoing considerations are applicable to the case of
loans made in ordinary times; and, it remains to consider the case
of loans made to agriculturists in anticipation of scarcity or
during the currency of famine. As regards such loans, the Government
of India agree with the opinion expressed by the Famine and Irriga-
tion Commissions, that loans to agriculturists are especially required
in the very early stages of famine as a measure of moral
strategy, and to put heart into the people, and that a system of
advances when made in good time and with prudent forethought,
is a most efficient form of relief, and one which can to a very
great extent be freed from the pauperizing influences of State
charity. These principles have been incorporated in the revised
Famine Codes and will no doubt be acted upon when occasion arises.
It has been usual in most Provinces to make advances in famine times
on low interest or free from interest altogether, and to remit them
with great generosity. The Government of India however agree
with the Famine Commission that this is mistaken charity, likely to
demoralise the people. They are of opinion that these advances
should always carry interest at the usual rate, and that while due
regard should be paid to the subsequent seasons and the circums-
tances of the borrowers, repayment of these loans should take
precedence of the recovery of arrears of land revenue. If it is
necessary to grant some remission, it should take the form of a
remission of land revenue, and the loan with interest should be
recovered ; or, if this will involve great hardship, a portion of the
loan itself, and not merely the interest, should be remitted. In
times of famine, in place of granting loans free of interest, the
system of making free grants in addition to repayable loans, already
alluded to, may be freely utilised. Advances may be made to land-
owners for the construction of private works to enable them to give
employment to the poor, a portion of the advance being made in the
form of a loan repayable with interest on ordinary terms, and the
_ remainder in the form of a free grant-in-aid from famine funds, to be
13

98 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

spent on the employment of labour in accordance with the system of
“Aided Village Works,” for which provision has been made in the
revised Famine Codes. In such times a similar system may be adopted
as regards advances for the purchase of seed, fodder, cr cattle.

13. The Government of India agree with the Irrigation Commis-
sion that the system of loans to agriculturists would be rendered more
popular, both with the subordinate revenue officers and with the
borrowers, if the procedure and the system of accounts could be
simplified. The chief difficulty in effecting an improvement of
this character is the necessity of distinguishing between repayments
of principal and interest. Under the system of equated payments
mentioned above, it would be unnecessary to show, in the account
made over to the borrower, the distinction between capital and interest;
as all that he need be told is the number of even rupees to be paid
by him at each instalment, and the number of instalments he will
have to pay ; and the Government of India will consider separately
whether it will be possible to relieve the subordinate revenue establish-
ment from the necessity of keeping up for each borrower’s account
details of principal and interest. In any case, however, it will be
necessary to maintain these details in the Account Offices.

14, As regards the source from which funds may be obtained for
increasing the amount available for advances under the two Acts,
the present system is that, funds are provided by the Imperial Govern-
ment and advanced to Local Governments under the Provincial Loan
Account, which includes not only advances to agriculturists, but
also loans to Municipalities, District Boards, and landed proprietors.
Interest at 34 per cent. is charged to the Local Government on the
mean between the outstanding balances at the commencement and at
the close of the years, and Provincial Revenues are eredited with the
full amount of interest realised on the loans granted by the Local
Government, and are debited with any sums which it may be neces-
sary to write off as irrecoverable. The sums recovered by way of
repayment of previous loans are available for making fresh advances,
and should any further sum be required by the Local Government,
it is found, so far as possible, by the Imperial Government from its
resources for the year. The amount outstanding on the 31st March, «
1904, on account of advances to cultivators under the two Acts was
over 24 crores, and the average amount of loans made during the
last ten years has been 86 lakhs per annum, or, excluding the four

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 99

famine years, 57 lakhs per annum. While the Government of India
agree with the Irrigation Commission that it is very desirable that
the supply of funds for this purpose should be continuous and suffi-
cient to meet all reasonable demands, they are unable to accept their
recommendation that the amount available for such loans should be
greatly increased and should be provided continuously without being
liable to interruption in years of financial stress, the money being
obtained from loan funds if necessary, seeing that the additions to
the Provincial Loan Account are made from the cash balances of the
Government of India, which are necessarily limited according to the
circumstances of the year. They, however, recognise that, should
the system of loans to agriculturists be improved in accordance with
the suggestions already made, the demand for such loans ‘is likely to
increase gradually, and so long as it is kept within reasonable bounds,
and isa natural and not an artificially inflated demand, they will
endeavour to meet it to the extent to which funds may be available
from time to time.

15. In this connection the Governor-General in Council thinks it
necessary to utter a word of caution against what he considers to be
avery real and practical danger, namely, the danger of creating,
by too active a policy, a forced and spurious demand for these advan-
ces. Hiven under the most favourable circumstances irrigated
cultivation requires, at all events in the case of wells, more capital
than dry cultivation ; and in many parts of the country, where the
wells are costly and their results uncertain, and where physical con-
ditions make it possible to irrigate only a small area from each well,
only the highest form of cultivation, which entails very considerable
annual expenditure, is likely to be profitable. In such a ease it is
worse than useless to encourage a peasant to contract a debt for the
construction of a well, the profitable working of which is beyond his
resources ; and the Government of India, while they are anxious to
see the system of advances administered in a sympathetic spirit, and
made as simple and liberal and elastic as_ possible, trust that no exces-
sive inducements will be held out to individuals to apply for loans
which they may find it difficult to repay, and that any increase of
demand will be spontaneous, and therefore healthy.

16. Under the Provincial Loan Account system any profits or losses
that may occur on these loans are eredited or debited to Provincial
Revenues, and the Government of India would suggest to Local

100 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

Governments that, as recommended by the Famine Commission, an
administrative account should be maintained for the loans under the
two Acts, showing onthe one side the profit made by the Local
Government by charging to borrowers a higher rate of interest than
it pays tothe Imperial Government, and on the other, the cost of
remissions and of other expenses connected with these loans ; and
that where, on an average of years, the net profits of the Local
Government are large, measures should be taken to reduce them,
not by a reduction of the rate of interest charged, but by more
liberal treatment of those cases in which the borrower has met
with misfortune, or by providing expenditure for such purposes
as maintaining a staff for well-boring or other aids to land improve-
ment, or for an extension of the system of free grants-in-aid.
It must, however, be clearly understood that expenditure on such
establishments or grants, though it may be justified by profits on»
loan transactions, is entirely distinct therefrom, and must be sepa-
rately debited in the Local Government’s current expenditure.

17. Seeing that the financial responsibility for this loan system
rests with the Local Governments, the Government of India are
prepared to relax the present law, under which the previous sanction
of the Governor-General in Council is required for any modifica-
tion of the rules in force, and will take steps to have the necessary
change made in the existing Acts. Local Governments will then
be empowered to revise their rules at their discretion subject only
to the control of the Imperial Government ; but whenever it is pro-
posed to make any change which is not in accordance with the princi-
ples enunciated in this Resolution, or which materially affects financial
arrangements, previous reference should be made to the Government
of India ; and in all cases copies of the notifications effecting changes

in the rules should be sent to the Government of India for their
information.

[Eatracts from the Land Improvement Loans Act, 19 of 1883.)

4. (1) Subject to such rules as may be made under section, 10
loans may be granted under this Act, by such officer as may, from
time to time, be empowered in this behalf by the Local Government,
for the purpose of making any improvement, to any person having a
right to make that improvement, or, with the consent of that person,
to any other person.

(2) “Improvement” means any work which adds to the letting
value of land, and includes the following, namely :—

(a) the construction of wells, tanks and other works for the
storage, supply or distribution of water for the pur-
poses of agriculture, or for the use of men and cattle
employed in agriculture ;

(4) the preparation of land for irrigation ;

(c) the drainage, reclamation from rivers or other waters, or
protection, from floods or from erosion or other damage
by water, of land used for agricultural purposes or
waste-land which is culturable ;

(d) the reclamation, clearance, enclosure or permanent improve-
ment of land for agricultural purposes ;

(e) the renewal or reconstruction of any of the foregoing works,
or alterations therein or additions thereto; and,

(f) such other works as the Local Government, may, from
time to time, by notification in the local official
Gazette, declare to be improvements for the purposes
of this Act.

5. (1) When an application for a loan is made under this Act,
the officer to whom the application is made may, if it is, in his
opinion, expedient that public notice be given of the application,
publish a notice, in such manner as the Local Government may, from
time to time, direct, calling upon all persons objecting to the loan to
appear before him at a time and place fixed therein and submit their
objections.

102 GSANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

(2) The officer shall consider every objection submitted under
sub-section (1), and make an order in writing either admitting or
overruling it:

Provided that, when the question raised by an objection is, in
the opinion of the officer, one of such a nature that it cannot be
satisfactorily decided except by a Civil Court, he shall postpone
his proceedings on the application until the question has been so
decided.

6. (1) Every loan granted under this Act shall be made repay-
able by instalments (in the form of an annuity or otherwise), within
such period from the date of the actual advance of the loan, or, when
the loan is advanced in instalments, from the date of the advance
of the last instalment actually paid, as may, from time to time, be
fixed by the rules made under this Act.

(2) The period fixed as aforesaid shall not ordinarily exceed thirty-
five years.

(3) The Local Government in making the rules fixing the period,
shall, in considering whether the period should extend to thirty-five
years, or whether it should extend beyond thirty-five years, have
regard to the durability of the work for the purpose of which the
loan is granted, and to the expediency of the cost of the work being
paid by the generation of persons who will immediately benefit by
the work.

7. (1) -Subject to such rules as may be made under section 10,
all loans granted under this Act, all interest (if any) chargeable there-
on, and costs (if any) incurred in making the same, shall, when they
become due, be recoverable by the Collector in all or any of the follow-
ing modes ; namely :—

(a) from the borrower—as if they were arrears of land-revenue

due by him ;

(4) from his surety (if any)—as if they were arrears of land-
revenue due by him ;

(ce) out of the land for the benefit of which the loan has been
granted—as if they were arrears of land-revenue dye
in respect of that land ;

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 103

(d) out of the property comprised in the collateral security
(if any)—according to the procedure for the realiza-
tion of land-revenue by the sale of immovable pro-
perty other than the land on which that revenue is
due :

Provided that no proceeding in respect of any land under clause
(ce) shall affect any interest in that land which existed
before the date of the order granting the loan, other
than the interest of the borrower, and of mortgagees
of, or persons having charges on, that interest, and,
where the loan is granted under section 4 with the
consent of another person, the interest of that person,

and of mortgagees of, or persons having charges on,
that interest.

(2) When any sum due on account of any such loan, interest
or costs, is paid to the Collector by a surety, or an owner of property
comprised in any collateral security, or recovered under sub-section
(1) by the Collector from a surety, or out of any such property, the
Collector shall, on the application of the’surety or the owner of that
property (as the case may be), recover that sum on his behalf from
the borrower, or out of the land for the benefit of which the loan has
been granted, in manner provided by sub-section (1).

(3) It shall be in the discretion of a Collector acting under this
section to determine the order in which he will resort to the various
modes of recovery permitted by it.

[Eetracts from the Agriculturists? Loans Act, 12 of 1884.)

4. (1) The Local Government may, from time to time, subject to
the control of the Governor General in Council, make rules as to
loans to be made to owners and occupiers of arable land, for the relief
of distress, the purchase of seed or cattle, or any other purpose not
specified in the Land Improvement Loans Act, 1883, but connected
with agricultural objects.

(2) All such rules shall be published in the local official Gazette.

5. Every loan made in accordance with such rules, all interests
(if any) chargeable thereon, and costs (if any) incurred in making
or recovering the same, shall, when they become due, be recoverable
from the person to whom the loan was made, or from any person who
has become surety for the repayment thereof, as if they were arrears
of land-revenue or costs incurred in recovering the same, due by the
person to whom the loan was made, or by his surety.

6. When a loan is made under this Act to the members of a
village community, or to any other persons on such terms that all
of them are jointly and severally bound to the Government for the
payment of the whole amount payable in respect thereof, and a state-
ment showing the portion of that amount which as among themselves
each is bound to contribute, is entered upon, the order granting the
loan and is signed, marked or sealed by each of them or his agent
duly authorised in this behalf and by the officer making the order,
that statement shall be conclusive evidence of the portion of that
amount which as among themselves each of those persons is bound

to contribute.

[Hetracts fro + the Notification of the Government of Bengal,
dated the 23rd March, 1909.|

RULES UNDER THE LAND ImprevemENT Loans Act, 19 of 1883.

In exercise of the power conferred by section 10 of the Land Im-
provement Loans Act, 1883, the Lieutenant-Governor is pleased to
make the following rules for Bengal (including the district of Sambal-
pur) as to the grant of loans under the Act.

1. (1) Subject to the provisions of these rules, and provided that
; the district allotment is not exceeded without the

Powers of sanction. > Bee ees
sanction of the Commissioner of the Division,
Sub-divisional Officers, and also Deputy Collectors specially empowered
by the Collector with the approval of the Commissioner, may sanc-
tion loans of sums not exceeding rupees 500 in each case, and the
Collector may sanction loans up to rupees 1,000 in each case, for

purposes specified in the Act.

(2) Any loan exceeding rupees 1,000 shall require the sanction of
the Commissioner, and exceeding rupees 5,000, the sanction of the
Board ; and the Commissioner or the Board, as the case may be, may
call for such detailed plans and estimates, or for such professional
opinion, as may seem necessary, before sanctioning any such loan.

2. Applications for loans may be presented to the Collector, or
Application to whom to any other Revenue Officer, not below the rank

to be made. of a Kanungo, authorised in this behalf by the
Collector.

8. (1) Application may be made orally or in writing.

* % *

4. (1) A Revenue Officer receiving an application under rule 2
shall either make a local enquiry himself, or
cause one to be made by another Revenue Officer
not below the rank of a Kanungo, or by some reliable non-official

14

Local enquiry.

106 GRANT OF LOANS AND ADVANCES TO ADRICULTURISTS.

agency, if available, for the purpose of ascertaining the particulars
mentioned on the reverse of Form A.*

(2) A Kanungo shall be so employed only when a gazetted officer
is not available. ,

5. If the Revenue Officer is not empowered by rule 1 to sanction
Giunditeadod SF aol the loan, he shall transmit the application with
see with report of his report to the Collector or to the officer who
santas, vor ordered the enquiry, as the case may be, provided
that, if the receiving or enquiring officer is subordinate to a Sub-

divisional Officer, he shall submit it to the Sub-divisional Officer.

6. The Local Government may, by general or special order em-
Delegation of func. power any person to perform all or any of the
tions. functions of a Collector or of a Revenue Officer
referred to in rules 2, 4 and 5.

7. In deciding whether the’security offered is sufficient, the officer
dealing with the application shall be guided by

8 ity. ; FE
aes the following principles :—

(i) Where the amount of the loan does not exceed three-fourths
of the value of the applicant’s transferable interest in
the land, after the improvement has been made, no col-
lateral security need be required.

* T.—Mahal, field number, area of land to be improved.
I1.—Status of applicant, i.e., proprietor or tenant. Ifa tenant, and the landlord’s
consent is required, whether the landlord objects.
III.—Security—
(i) If the land itself, the nature and value of the applicant’s interest
in it, and the nature and extent of encumbrances, if any.
(ii) If personal, the names and status of the co-sureties, sux
(iii) If property other than the land itself, its nature, value, and nature
and extent of pre-existing encumbrances, if any.

1V.—The Improvement—
(i) Its estimated utility and value.
(ii) Objections, if any, of third parties,
(iii) Probable date on which it will begin to yield profit.
V.—Repayment—

(i) Suitable date for first instalment, with reference to clause IV (iii).
(ii) Proposed instalments and period of repayment.
VI.—Date on which the loan or any instalment thereof should be received by the
applicant,

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 107

(ii) Where the applicant’s interest in the land is not sufficient
of itself to guarantee the repayment of the loan, further
security shall be required, which may consist of transfer-
able interests in other lands belonging to the applicant,
or to the other persons willing to become his sureties, or
of personal security.

(iii) Where a body of five or more co-villagers bind themselves
jointly and severally as contemplated in section 9 of
the Act, their personal security will generally be suffi-
cient, and such officer may, if empowered by rule 1, at
his discretion advance on such security an amount not
exceeding five times the annual assessment of the land
held by such villagers.

8. If the proposed improvement falls within section 4, sub-
section (2), of the Act, and if the security offered
is good and sufficient, the officer dealing with
the application, or the Collector, when the application and report have
been transmitted to him under rule 5, may, on completion of the local
enquiry, sanction the loan himself, if he has power by rule 1 to do so;
otherwise, the Collector shall forward the application, with his report
thereon, to the Commissioner for disposal.
9. Where the Revenue Officer, other than the Collector, has
Disbursement of power under rule | to sanction the loan applied

Procedure.

ee re Shot for, he may, as soon as the local enquiry is com-
pleted, and the particulars mentioned on the reverse of Form A are
filled in, take the security required by rule 11, sanction the loan, and,
if so desired by the applicant, disburse it on the spot. Loans,
or instalments of loans, sanctioned by the Collector or any higher
authority may be disbursed in the village by Sub-divisional Officers
and Deputy Collectors empowered under rule 1, and by any reliable
non-official agency, where available.

Provided that disbursement on the spot may not in any case
exceed rupees 500 for a single item :

Provided also that, when any loan is payable in more than one
instalment, the second or any subsequent instalment shall not be
passed for payment by the sanctioning officer until he has had an
enquiry made locally and satisfied himself that satisfactory progress

is being made with the work for which the loan was sanctioned.
# # %

108 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

13. (1) In the case of a loan granted by instalments, if the
Pecroncmgs ; smebacpaaidheg applicant, after taking one or more instalments,
ment due. fails to take any other instalment within six
weeks from the date on whicn he is entitled to it, the Collector may
declare the loan closed.

(2) The total of the instalments taken by the applicant shall
then constitute the loan, which shall be treated as having been fully
paid on the date on which the last instalment was actually taken; and
a fresh arrangement for repayment shall be made by the Collector,

consistent with rules 17 and 18. * * *%

}4. (1) The ordinary rate of interest on loans shall be one
ues Be anna in the rupee, or 6} per cent. per
annum.

(2) The Local Government may, for special reasons, and on special
application through the Board of Revenue, sanction a loan at a lower
rate of interest, or without interest.

(3) If any instalment of principal or of interest, or of consolidated
principal and interest, is not paid when it falls due, the Collector shall
charge interest on it at 6} per cent. per annum, from the date of its

falling due to the date of payment:

Provided that, whenever the Collector is satisfied that the default
is due to inability to pay, and that the levy of such interest would be
productive of hardship, he may, with the sanction of the Commissioner,
reduce or remit it.

(4) In charging penal interest on overdue instalments not sus-
pended under rule 20, the same period of 15 days’ grace shall be
allowed as in the case of payments of cesses, and thereafter interest
shall be charged on the total of the overdue instalment at the same
rate as the interest on the loan.

15. (1) Interest shall be levied for the period intervening
Interest for interven. between the date of the completion of the loan
ing period. (in cases in which loans are granted in one pay-
ment), or between the dates of the payment of the instalments (in cases
in which loans are granted in instalments), and the date from which.
the first instalment of interest, consolidated with the first instalment
of the principal, becomes payable.

(2) The interest leviable in such cases shall be demanded in a lump
sum on the date on which the first consolidated instalment of principal
and interest is made payable.

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 109

16. (1) The re-payment of the loan shall be made in accordance
with the Table of Equated Repayments of Zahkavi
Loans, prepared by the Accountant-General,
Bengal, similar to the annexed Form F, which shows the amounts of
equal yearly payments necessary to repay a loan advanced with
interest at’ 6} per cent. per annum for any number of years from one
to twenty.

Table of repayment.

(2) When the instalments are payable half-yearly, the sum to be
paid each half-year shall be half the sum shown in the said Table for
a yearly instalment.

17. (1) Repayment shall be by yearly or half-yearly instal-
ments.

(2) The date of the first instalment shall be the time when profit
begins to accrue, but shall in no ease be later

Repayment by instal-
ments; date of first than two and a half years from the date of the
—o actual advance of the loan, or, when the loan is
advanced in instalments, from the date of the advance of the last

instalment actually paid.

18. The date of the last instalment shall not ordinarily be later
than twenty years from the date of the actual
Date of last instal- :
ment, and principle advance of the loan, or, when the loan is advanced
rte ee in instalments, from the date of the advance of

the last instalment actually paid, the amount
of the instalments being fixed, in cases in which such a principle is
applicable, with reference to the annual profit expected to accrue from
the improvement: Provided that the whole amount of the loan shall
in all cases be repaid before expiry of the period for which the im-
provement is likely to be effective.

* # *

20. (1) The realization of instalments or of interest may be
Suspension of instal. Suspended by the Collector on proof of failure of
ica crops from causes beyond the borrower’s control,
or of other exceptional calamity rendering the payment of instalments
unduly burdensome to him.
(2) The Collector shall report every such suspension to the Com-
missioner, who shall pass such orders on the case as may seem proper.

. (3) No interest shall be charged for the period of suspension. The
total amount to be repaid shall remain the same as before.

110 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

(4) The power of suspension of payments of instalments or of
interest on loans which is conferred on the Collector by clause (1) of
this rule may be exercised to the extent of Rs. 1,000 in any one case.

(5) Notwithstanding anything contained in clause (4) of this rule,
in all cases where suspension of revenue or rent has been granted on
a large scale over a wide area, a suspension of payment of instalments
due during the period for which suspension of revenue or rent has been
granted, shall be made by the Collector without reference to any higher
authority, and the effect of such suspension shall be to postpone for
one instalment period at a time the payment of all remaining instal-
ments due on the loan.

21. (1) The Collector shall, in no case without reference to the
ijt Commissioner, remit repayment of a loan; and he
Remission of loan. ate R

may recommend remission only in cases where a
work fails from causes beyond the borrower’s control, and where

recovery of the loan in full would occasion serious hardship.

(2) Remission may be sanctioned by the Commissioner up to the
amount of loan a Collector may sanction, and by the Board up to the
amount a Commissioner may sanction. Larger remissions require
the sanction of the Local Government.

% * *

23. (1) Ifat any time it is proved to the satisfaction of the
Misapplication of Collector that any part of a loan has been
loan. misapplied, he may, after recording in writing
the grounds of his decision, and subject to the control of the superior
Revenue Authorities, proceed to recover the whole amount of the loan
with such interest as may have become due thereon.

(2) Before determining to take action under clause (1) of this rule,
the Collector shall take into consideration the expense of supervision,
even when that may have been supplied by the debtor himself.

SuPPLEMENTARY RULES HAVING EFFECT ONLY IN TEMPORARILY
SETTLED ESTATES.

25. When land is reclaimed from waste and brought under
Hastieintiin of cultivation by means of a loan granted under the
waste land. Act, the increase in value derived from the
improvement shall not be taken into account in revising the assessment

of land-revenue on the land, until after the expiration of a period of

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. lll

three years, reckoned from the beginning of the harvest first reaped
after such reclamation was effected.

26. When land assessed at unirrigated rates is improved by
Improvement by. UTigation by means of a loan granted under the
irrigation. Act, the increase in value derived from the
improvement shall not be taken into account in revising the assessment
of land revenue on the land—

(a) if the irrigation is provided by the construction of a new
masonry well, until after the expiration of twenty
years, reckoned from the beginning of the harvest
first reaped after such improvement was effected ;

(4) if the iwrigation is provided by the construction of a
distributary from a canal, until after the expiration of

a period of five years, reckoned as in clause (a) of this
rule directed ; or,

(ce) if the irrigation is provided by any means other than those
hereinbefore in clauses (a) and (4) specified, until after
the expiration of a period of ten years, reckoned as in
clause (a) of this rule directed.

27. (1) For the purpose of carrying out any irrigation work
Loans combined OF protective work, such as a private tank or
with free grants. embankment—

(a) which is likely either to lead ultimately to an increase in the
land revenue, or to be necessary to secure the land
revenue already assessed, and

(4) which is beyond the capacity of the people, to be benefited
thereby, to carry out without assistance in money,

loans may be granted to a landowner, sufficient to pay for a portion
of the cost of the work, a free grant being made of the remainder of
the cost, the proportion of the free grant to the total cost depending
on the property of the applicant and the marginal profit from the
work ;

Provided that, without the sanction of the Board of Revenue,
which shall only be accorded in special cases, the maximum amount
of the free grant shall not exceed half the said total cost, or Rs. 500,
whichever may be less :

Provided also that the work be carried out to the satisfaction of
the Collector,

112 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

(2) Should the amount of any loan made under clause (1), or any
part thereof, be misapplied, or be spent otherwise than in accordance
with the conditions on which the loan was made, the whole amount
of the loan shall be recoverable as arrears of land revenue under
section 7 of the Act.

(3) In dealing with loans and free grants under this rule, the
procedure prescribed in rules 1 to 23 shall, mutatis mutandis, be
followed :

Provided that the payment of any such free grant shall be deferred
until the agreement in Form B has been registered by the grantee
under the Indian Registration Act, 1877.

(4) The amount of any free grant made under this rule shall not
be included in the loan accounts, but shall be shown in a separate
account, and debited to ‘ 43—Minor: Works.”

SAVING.

28. Nothing in these rules shall be deemed to affect any power
Loans in special Of the Board of Revenue or the Local Govern-
cases. ment to grant, in special cases, loans under the
Act on terms other than those hereinbefore prescribed or to affect the
terms of any special agreement under which any loan under the Act
has been, or may hereafter be granted, or the terms of any unexpired
settlement.

Spectra RvuLES UNDER THE Lanp Improvement Loans Act, 19
or 1883, ror Tracts Arrecrep By DIsTREsSs.

1. These rules shall have effect in such tracts as may, from
time, to time be declared by the Local Govern-
ment to be affected by distress.

Application of rules.

2. (1) On the first warnings of distress, the Local Government
will call upon the Board of Revenue to submit
Allotment of funds. : :

estimates of sums required. for advances under
the Land Improvement Loans Act, 1883, and will allot to each Division
such amount as may, with reference to local conditions, and the district

programmes of village relief works, seem to be necessary.

(2) Commissioners may divide the sums so allotted among the
districts of their Divisions at their discretion, and may transfer
assignments from one district to another ; but the total expenditure
within the Division must be kept within the amount assigned.

(3) Ifa Collector considers the allotment assigned to his district
to be insufficient, he shall report the fact and his requirements to the
Commissioner, who shall, if possible, arrange for a transfer from
another district, or report the matter, through the Board of Revenue,
to the Loeal Government for orders.

3. (1) In distressed areas, loans may be made for land improve-
Loans combined ments which will afford employment to the poor,
with free grants: with the assistance of free grants-in-aid from

famine funds.

(2) The general proportion of the free grant-in-aid to the total
expenditure will be fixed for each Division by the Local Government.
(5) The proportion in individual cases or classes of cases
shall be fixed by the Collector, but the previous sanction of the
Commissioner must be obtained if that proportion varies by more
than 25 per cent. from the average proportion fixed for the Division.

(4) Should the amount of any loan made under this rule, or any
part thereof, be mis-applied, or spent otherwise than in accordance
with the conditions on which the loan was made, the whole amount
of the loan shall be recoverable as arrears of land revenue under section

7 of the Act.
eS

114 GRANT OF LOANS AND AD VANCES TO AGRICULTURISTS,

4. (1) Subject to the provisions of these rules, and provided that
he ee the district allotment is not exceeded, Sub-divisional
Officers and Famine Relief Charge Superinten-
dents, and also Deputy Collectors specially empowered by the Collector
with the approval of the Commissioner of the Division, may sanction
loans (including free grants-in-aid at the proportion fixed under rule 3)
not exceeding Rs. 1,000 in each case, and the Collector may sanction
such loans up to Rs. 5,000 in each case.

(2) Loans exceeding Rs. 5,000 shall require the sanction of the
Commissioner, and loans exceeding Rs. 10,000 the sanction of the
Board ; and the Commissioner or the Board, as the case may be, may
call for such detailed plans and estimates, or for such professional
opinion on the project proposed, as may seem necessary before

sanctioning any such loans.

5. (1) Applications for loans may be made orally or in writing

Bes to the Famine Relief Cirele Officer or Charge
Applications for loans. ‘
Superintendent, or to any Revenue Officer not
below the rank of a Kanungo.

* * %

6. (1) An officer receiving an application under rule 5 shall
either make a local enquiry himself, or cause one
to be made by a Famine Relief Officer not below
the rank of a Circle Officer, or by a Revenue Officer not below the
rank of a Kanungo, or by some reliable non-official agency if

Local enquiry.

available, for the purpose of ascertaining the particulars mentioned on
the reverse of Form D.*

* T.—Mahal, field number, area of land on which work is to be executed.

II.—Status of applicant, i.e., whether proprietor or tenant. If a tenant, and the
land holder’s consent is required, whether the landlord objects.

III.—Security—

(1) If the land itself, or the land itself, together with any other land belonging to
the applicant,—the value of the applicant’s interest in such land or lands, and the
nature and extent of encumbrances, if any.

(2) If personal,—the names and status of the co-sureties.

(3) Ifland hypothecated by collateral surety,—its nature and value, and the
nature and extent of pre-existing encumbrances, if any.

IV.—The work—

(1) Its estimated utility and value.

(2) Objections, if any, of third parties. ‘

V.—Dates on which the instalments of the loan should be received by the applicant.

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 115

(2) A Kanungo ora Circle Officer shall be so employed only
when a gazetted officer is not available. ,
x “ x

7. If the Famine Relief Officer or the Revenue Officer
(ee _ is not empowered by rule 4 to sanction the
Submission of appli- : lt ‘ 4
cation with report of loan, he shall transmit the application with his
scteinsbva ak report to the Collector or the _ officer
who ordered the enquiry, as the case may _ be, provided
that, if the receiving or enquiring officer is subordinate
to a Famine Relief Charge Superintendent, or to a Sub-
divisional Officer, he shall submit the application to his immediate

: s
superior.

8. In deciding whether the security offered is sufficient, the officer
dealing with the application shall be guided by

8 ity ‘ .
“ied the following principles :—

(i) Where the amount of the loan does not exceed three-fourths
of the value of the applicant’s transferable interest in
the land after the improvement h:s been made, no
collateral security need be required.

(ii) Where the applicant’s interest in the land is not sufficient
of itself to guarantee the re-payment of the loan,
further security shall be required,which may consist of °
transferable interests in other lands belonging to the
applicant or to other persons willing to become his
sureties, or of personal security.

(iii) Where a body of five or more co-villagers bind themselves
jointly and severally as contemplated in section 9 of
the Act, their personal security will generally be
sufficient ; and such officer may, if empowered by rule
4, at his discretion advance on such security an amount
not exceeding five times the annual assessment of the
land held by such villagers.

9. (1) Where any application submitted refers to a project
| ‘already entered in the district programme of
St acieeiinine village relief-works, the information given in the
and cel tobe ad- programme and in any plans that may have been
_ prepared for the work, may be referred to in.

dealing with such application, ;

116 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

(2) In determining the amount of the loan in such cases, the
officer dealing with the application shall follow the estimates of cost of
the works as given in the said programme. For other works the rate
shall not exceed the ordinary local rate by more than 25 per cent.

10. Ifthe proposed work be approved by the enquiring officer,
and if the security offered be good and sufficient,
Procedure. t
he may, on completion of the local enquiry,
sanction the loan himself if empowered by rule 4 to do so ; otherwise,
he shall forward the application with his report for orders under.

rule 7.

11. If the loan is sanctioned in the willage by an officer other
Disbursement ofloans than the Collector, the sanctioning officer, after
on the spot. filling in the particulars mentioned on the reverse
of Form D* and taking the security required by rule 13 may, if
so desired by the applicant, disburse the loan on the spot. Loans or
instalments of loans sanctioned by the Collector or any higher
authority may also be disbursed in the village by Sub-divisional Officers
and Famine Relief Charge Superintendents, and by Deputy Collectors
empowered under rule 4, and by any reliable non-official agency,
where available ;

Provided that, when any loan is payable in more than one instal-
ments, the second or any subsequent instalment shall not be paid by
the disbursing officer, except as provided in rule 16.

15. Interest shall be charged at one anna per rupee, or 64 per
cent. per annum, except in the case of a mis-
Interest. imu 8 .

application of the loan, when interest shall be

charged at double the above rate, as provided for in rules 22 and 23.

16. Loans shall ordinarily be given in three instalments, viz.,
Payment of Loans two-fifths before the work has been commenced,
by instalments. two-fifths when it is approximately half finished,
and one-fifth when it has been passed as completed after due inspection.

17. (1) Repayment shall be made by yearly or half-yearly instalments.

(2) The date of the first instalment shall be the time when
Wi conor anbisigke tus profit begins to accrue, but shall in no case be

talments; date of in- later than two-and-a-half years from the date of

talment.
ee the actual advance of the loan, or, when the

L.

* See foot nvte on p, 114,

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 117

loan is advanced in instalments, from the date of the advance of the
last instalment actually taken.

18. The date of the payment of the last instalment shall not

ordinarily be later than twenty years from the
Date of last instal-
ment, and _ principle

on which instalments the loan is advanced in instalments, from the
should be fixed.

date of the actual advance of the loan ; or, when

date of the advance of the last instalment
actually taken, the amount of the instalments being fixed, in cases
in which such a principle is applicable, with reference to the annual
profit expected to accrue from the improvement ;

Provided that the whole amount of the loan, or such portion of it
as will be recovered, shall in all cases be repaid before the expiry
of the period for which the improvement is likely to be effective.

19. (1) In the case of a loan granted by instalments, if the
Cl a eo applicant, after taking one or more instalments,
osure

failure to take instal- fails to take any other instalment within six
cp a weeks from the date on which he is entitled to

it, the Collector may declare the loan closed.

(2) The totalof the instalments taken by the applicant shall then
constitute the loan, which shall be treated as having been fully paid
on the date on which the last instalment was actually taken ; and
afresh arrangement for repayment shall be made by the Collector
consistent with rules 17 and 18. * a5 *

20. (1) The realization of instalments or of interest may be
Suspension of instal. Suspended, by the order, and at the discretion, of
ments, or of interest. the Collector, on proof of failure of crops from
causes beyond the borrower’s control, or of other exceptional calamity
rendering the payment of instalments unduly burdensome to him.

(2) The Collector shall report every such suspension to the
Commissioner, who shall pass such orders on the case as may seem
proper.

(3) No interest shall be charged for the period of suspension.
The total amount to be repaid shall remain the same as before.

(4) The power of suspension of payments of instalments, which
is,conferred on the Collector by clause (1) of this rule, may be exer- .
ciséd to the extent 6f Rs. 5,000 in any one case.

118 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

(5) Notwithstanding anything contained in clause (4) of this
rule, in all cases where suspension of revenue or rent has been granted
on a large scale over a wide area, a suspension of payment of instal-
ments due during the period for which suspension of revenue or rent
has been granted, shall be made by the Collector without reference
to any higher authority, and the effect of such suspension shall be
to postpone for one instalment period at a time the payment of all
remaining instalments due on the loan.

22. (1) If at any time it is proved to the satisfaction of the

Interest to be levied Collector that any ~ part of a loan has been
in the case of mis-
applicatiou of loan, or
of discovery of un- the work for which it was intended, or that

truth of statements - ; :
made by applicant or the statements made by the applicant in his

his sureties.

misapplied, or that it is not being spent on

application for the loan*** or by his sureties in
their bond proffering collateral security, as to the nature and extent of
the encumbrances on the immovable property pledged as security
for the’ repayment of the loan, are in any particular untrue, the
Collector may, after recording in writing the grounds of his decision,
and subject to the control of the superior Revenue Authorities,
proceed to recover the whole amount of the loan, with such
interest as may have become due thereon at the rate of 124 per cent.
per annum, from the date on which the loan was made to the date of
recovery.

(2) Before determining to take action under clause (1) of this
rule, the Collector shall take into consideration the expense of
supervision, even when that may have been supplied by the debtor

himself.

23. (1) In the circumstances described in rule 22, interest shall
Interest for interven. 280 be levied at 124 per cent. per annum for the
sian ¥ Bayona period intervening between the date of the
completion of the loan (in cases in which loans are granted in one
payment), or between the dates of the payment of the instalments (in
cases in which loans are granted in instalments), and the date from
which the first instalment of interest, consolidated with the first instal-
ment of the principal, becomes payable. |

(2) The interest leviable in such cases shall be demanded in a
lump sum on the date on which the first consolidated instalment _of
principal and interest is made payable. «.

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 119

24. If the work for which a loan is made is carried out to the
Form of remission of Satisfaction of the Collector, and in accordance
part of loan. with the conditions imposed by these rules, and
if it is necessary to grant some remission, it shall take the form of a
remission of land revenue. The loan with interest shall ordinarily be
recovered.

RuLEs UNDER THE Aaricunturists’ Loans Act, 12 or 1884.

1. The Collector may sanction loans of sums not exceeding
Power to sanction 8. 700 in each case. Sub-divisional Officers, and
cays any Deputy Collector who may be specially
empowered in this behalf by the Collector with the approval of the
Commissioner may sanction loans not exceeding Rs. 250. Loans
exceeding Rs. 700 shall require the sanction of the Commissioner, and
loans exceeding Rs. 5,000, the sanction of the Board. The district
allotment may not be exceeded without the sanction of the Com-
missioner.

2. Applications for loans may be presented to the Collector or to

Application to whom ny other Revenue Officer not below the rank

to be made, of a Kanungo authorised in this behalf by the
Colleetor.
8. (i) Applications may be made orally or in writing.
* * %

4. (i) A Revenue Officer receiving an application under rule
baaieawee. 2 shall either make a local enquiry himself or
cause one to be made by another Revenue Officer
not below the rank of a Kanungo or by some reliable non-official
agency, if available, for the purpose of ascertaining the particulars

mentioned on the reverse of Form A.*

* T.—Field number, and area of land owned or occupied by applicant, and Mahal
in which it is situated.

II.—Status of applicant, that is, whether proprietor or tenant.

IIT.—Security—

(i) If an interest of the applicant in immovable property, the nature and
value of that interest, and the nature and extent of pre-existing
encumbrances thereon, if any.

(ii) Where sureties offer personal security, their number, names, residence,
status and means.
(iii) If property other than the land itself, its nature and value, and nature
and extent of encumbrances, if any,
TV.—Repayment—
(i) Suitable date for first instalment, with reference to the circumstances
under which the loan is applied for.
(ii) Proposed instalments and period of repayment.
V.—Date on which the loan or any instalment thereof should be received by the
applicant,

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS, 121]

(ii) A Kanungo shall be so employed only when a gazetted officer
is not available.

5. If any Revenue Officer is not empowered by rule 1 to sanction
a . the loan, he shall transmit the application with
Submission of appli- ;
cation with report of his report to the Collector, or to the officer who
ey ape ordered the enquiry, as the case may be, provided
that, if the receiving or enquiring officer is subordinate to a Sub-divi-
sional Officer he shall submit it to the Sub-divisional Officer.

6. The Local Government may, by general or special order,
Delegation of func. @mpower any person to perform all or any of
tions. the functions of a Collector or of a Revenue Officer
referred to in rules 2, 4 and 5.

7. (1) When the applicant possesses an interest in immovable
property of value sufficient to secure the whole
amount that may become payable in respect of
the loan, he shall mortgage that interest, or a sufficient’ portion
thereof, to the Government as security for the payment of that
amount, and no further security need be required from him.

Security.

(ii) When the applicant does not possess an interest in immovable
property of such value as aforesaid, he shall procure some person or
persons to become his surety or sureties for the payment of the said
amount.

(iii) When the sureties are a body of village residents who bind
themselves jointly and severally to the Government for the payment
of the said amount, their personal security may be accepted, provided
that the sureties have executed a bond * ¥ bd In
other cases, the security given by the surety or sureties shall consist
of the mortgage of immovable property.

(iv) The Collector must in every case satisfy himself that the
security offered in whatever form it is given, is sufficient to guarantee
the repayment of the loans, and when he is of opinion that security
other than land is sufficient, such security may be accepted.

8. If the loan applied for is one that can be granted under the
provisions of section 4, sub-section (1), of the Act,
and if the security offered is good and sufficient,
the officer dealing with the application or the Collector, when the
application and report have been transmitted to him under rule 5,
may, on eompletion of the local enquiry, sanction the loan himself, if

16

Procedure.

122 GRANT OF LOANS AND ADVANCES TO AGRICULTU RISTS.

empowered by rule 1 to do so; otherwise the Collector shall forward the
application, with his report thereon, to the Commissioner for disposal.

9, When the Revenue Officer, rather than the Collector, has
Disbursement ofloans Power under rule 1 to sanction the loan applied
on the spot. for, he may, as soon as the local enquiry is com-
pleted and the particulars mentioned on the reverse of Form A* are
filled in, take the security required by rule 11, sanction the loan, and,
if so desired by the applicant, disburse it on the spot. Loans or
instalments of loans sanctioned by ‘the Collector, or any higher
authority may be disbursed in the village by Sub-divisional officers and
Deputy Collectors empowered under rule 1, and by any reliable non-

official agency, where available :

Provided that disbursement on the spot may not in any case exceed
Rs. 500 for a single item :

Provided also that, when any loan is payable in more than one
instalment, the second or any subsequent instalment shall not be
passed for payment by the sanctioning officer until he has had an.
enquiry made locally and satisfied himself that satisfactory progress
is being made with the work for which the loan was sanctioned.

12. A copy of the order granting the loan shall be given to the
Payment where tobe Pplicant, and, on presentation thereof, payment
made. of the loan or of any instalment of the loan may
be made to him either at the district or the sub-divisional Treasury, or

on the spot under rule 9.

18. (i) In the case of a loan granted by instalments, if the
Bick a ge ae appuCany, after taking one or more instalments,
sector to take instal- fails to take any other instalment within six
pepciaas weeks from the date on which he is entitled to it,

the Collector may declare the loan closed.

(ii) The total of the instalments taken by the applicant shall
then constitute the loan, which shall be treated as having been fully
paid on the date on which the last instalment was actually taken; and
a fresh arrangement for repayment shall be made by the Collector,
consistent with rules 17 and 18. < e -

14. (i) The ordinary rate of interest on loans shall be
one anna on the rupee, or 64 per cent. per
annum, t

Interest on loans.

* See foot note on p. 120,

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 123

(ii) The Local Government may, for special reasons, and on special
application through the Board of Revenue, sanction a loan at a lower
rate of interest or without interest.

Gii) If any instalment of principal or of interest, or of consoli-
dated principal and interest, is not paid when it falls due, the Collector
shall charge interest on it at 64 per cent. per annum from the date of
its falling due to the date of payment:

Provided that, whenever the Collector is satisfied that the default
is due to inability to pay, and that the levy of such interest would be
productive of hardship, he may, with the sanction of the Commissioner,
reduce or remit it.

(iv) In chargiug penal interest on overdue instalment not sus-
pended under rule 20, the same period of 15 days’ grace shall be
allowed as in the case of payments of cesses, and thereafter interest
shall be charged on the total of the overdue instalment at the same
rate as the interest on the loan.

15. (a) Interest shall be levied for the period intervening between
Interest for interven. the date of the completion of the loan (in cases
ing period. in which loans are granted in one payment), or
between the dates of the payment of the instalments (in cases in which
loans are granted in instalments), and the date from which the first
instalment of interest, consolidated with the first instalment of the

principal, becomes payable.

(ii) The interest leviable in such cases shall be demanded in a
lump sum on the date on which the first consolidated instalment of
principal and interest is made payable.

16. (i) The repayment of the loan shall be made in accordance
with the Table of Equated Repayments of Zahkavi
Loans, prepared by the Accountant-General, Ben-
gal, similar to the annexed Form F, which shows the amounts of

- Table of repayment.

equal yearly payments necessary to repay a loan advanced with interest
at 64 per cent. per annum for any number of years from one to

twenty.

(ii) When the instalments are payable half-yearly, the sums to
be paid each half year shall be half the sum shown in the said Table
for a yearly instalment.

124 GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS.

17. Repayment shall be by equated yearly or half-yearly instal-
Re ments, the date of the first instalments being
payment by instal- ;
ments; date of first later than one year from the date of the actual
_percaages advance of the loan, or, when the loan is ad-
venced in instalments, from the date of the advance of the last instal-
ment actually paid.

18. The date of the last instalment shall not be later than five
years from the date of the actual advance of the
loan, or, when the loan is advanced in instal-
ments, ten years from the date of the advance of the last instalment
actually paid.

Date of last instalment.

19. The dates for payment of instalments (annual or half yearly)
shall be fixed by the Collector, with the sanction of

Date of repayments re : ae
of loans. the Commissioner, for each thana of his district,
with reference to the season when repayment can most easily be made.

Ewplanation.—The season at which repayment can most easily be made will
ordinarily be the time when crops grown for sale are taken to market. In jute
districts, for instance, it would probably be best to provide for repayment by one
annual instalment in September, when the jute crop is sold, except in cases where
the borrower himself prefers to pay in two yearly instalments.

20. (i) The realisation of instalments or of interest may be
eae suspended by the Collector on proof of failure
Suspension of instal- ;
ments or of interest. | Of crops from causes beyond the borrower’s con-
trol, or of other exceptional calamity rendering the payment of
the instalments unduly burdensome to him.

(ii) The Collector shall report every such suspension to the Com-
missioner, who shall pass such orders on the case as may seem
proper.

(iii) No interest shall be charged for the period of suspension ;
the total amount to be repaid shall remain the same as before.

(iv) The power of suspension of payments of instalments or of
interest on loans, which is conferred on the Collector by clause (i) of this
rule, may be exercised to the extent of Rs. 700 in any one case.

(v) Notwithstanding anything contained in clause (iv) of this
rule, in all cases where suspension of revenue or rent has been granted
ona large scale over a wide area, a suspension of payment of instal-
ments due during the period for which suspension of revenue or fent
has been granted, shall be made by the Collector without reference to

GRANT OF LOANS AND ADVANCES TO AGRICULTURISTS. 125

any higher authority, and the effect of such suspension shall be to
postpone, for one instalment period at a time, the payment of all re-
maining instalments due on the loan.

21. (i) The Collector shall, in no case, without reference to the
aa Commissioner, remit repayment of a loan; and
Remission of loan. Bes )
he may recommend remission only in cases where

the recovery of the loan in full would occasion serious hardship.

(ii) Remission may be sanctioned by the Commissioner up to
the amount of loan a Collector may sanction, and by the Board up
to the amount a Commissioner may sanction. Larger remissions
shall, in all cases, require the sanction of the Local Government.

22. (i) If, at any time, it is proved to the satisfaction of the
Collector that any part of a loan has _ been
misapplied, he may, after recording in writing
the grounds of his decision, and subject to the control of the superior
Revenue authorities, proceed to recover the whole amount of the loan,
with such interest and costs (if any) as may be payable in respect
thereof.

(ii) Before determining to take action under clause (i) of this
rule, the Collector shall take into consideration the expense of super-
vision, even when that may have been supplied by the debtor himself.

Misapplication of loan.

OL OST €T SOL € sli O 861 6 Fes PI 196 O sig ST LIP

ZI 669 € POLIT 000‘T

6 S8I | 8 OFT | 9 OOT | & SLI | S wos | IL Sez | © 8c | ot oe | at ees ZL L¥0T 006
s 8 O@E | & O€f | 6 SI | 9 SSI .| OT 64T | 8 602 | 9 #92 | 4 ose | SI BLP 9 186 008
isl
a 4 SOL | SI eit | SI ret | OL Set | & zst | & est | ot zzz | & Sez | st GIF <I FI8 O04
=)
= 9 06 IT 16 SI 9OT | SI SIT | SI rel | & LST | et oer | I ZHe | eI Ege 8 869 009
3 ?
2 g oy 9 18 I 68 0 66 b SIL | Stoel | O 6ST | SI Soe | FI 662 I 38g 008
g r 09 Z 99 b IL € 6 I 68 ZI FOL | € Let | Zt FOL | FI 6E2 Il S9F 00F
g € % | sla | 2 e | 9 6 | 9 29 | 6 & | 9 g6 | 6 Ser | st ext b 6Fe 008
if)
= 3.08, | 6 Ze OI 9¢ OL 68 cl FF 9 2g OL 89 9 28 ST 6II I Ze 002
Z
s I SI b Ol I LT SI 61 L % € 9 gI 18 a 0 09 4 911 00T
=
4 6 L Z 8 SI 8 I 6 e II Z st PL ST 6 0 0 08 € sg og
=
4 ‘Vv ‘ST ‘Vv ‘SY ‘Vv ‘SY ‘Vv ‘St ‘vy ‘SI ‘S7 ‘VY ‘SIT ‘Vv ‘ST ‘Vv ‘SY ‘Vv ‘ST "ST
M
e OI 6 h 8 L 9 g P g z I ‘oie 06
g , qunowy

x "SUVA

CL tee
4 ‘SINGWAVd ATIUVER GaLvada
4 . .
< suvah Se aonwbh Jo porwad :unuun sad
4 "7ua0 wal $9 ysavaquy “EQOT Gop suvoryT quamaaosduy punt ay sopun suvor fo quaukndas buinoys a7gvy,
ra (eet d ‘9[ s1ay amg)
led
ame

‘Ht WHOd

127

bed
—

GRANT OF LOANS AND

ADVANCES TO AGRICULTURISTS.

s 46 | z ot | 2 gor | 2 sor | ¢ om | It | ett | 6 gat | 8 zet IT OFI 000T

zrus | 2 o6 | etze | erse | » 66 | & gor | TL 40r | O ett | ® EIT OT 981 006

os, | sos | 8 ze | s gs | * ss | atte | ats6 | & Oot | O 901 6 ZI 008

ys | to | ew | 8 re | & 4h | % O8 | Bes | HT Z8 | aI ee 8 86 00k

s sc | to -| e119 | tte9 | ¢ 99 | S189 | ert | & Gs | 8 OL L 8 009

ergy-| tog | 6 te | € @s | 2 ge | 9 49 | Stee |. et zo | > 99 @ 9b 00s

o 6s | to | + wm | 6 w& | 2 wm | F19F | FT Lr | F OF | O 8a F 9s 00F

* 6 | t os | stoe | stté | t ee | 9 ve | ots | ze | sree € 008

gs et | 0 0 | otros | 9 t | 1 we | Stes | ates | @ oe | 8 9 Z 8 002

ZI 6 OG Bteal Sots) ON Oe. AO sats; Pet: =) Beet) 4 ee TL 00r

pL F 0 ¢ 2 9 99 8 ¢ ZI 9 cI ¢ r 9 or 9 Pik og

‘¥ ‘SY ‘Vv ‘SY V ‘StU ‘Vv °ST ‘Vv ‘SY “VS ett “Nan. Sed ‘Vv ‘SU in SE "Vee “SUT
02 6I SI MI 91 SI FI eI ZI I ee

‘SUVEX i tie

CHAPTER III.

RELIEF OF INDEBTED AGRICULTURISTS.

[Extracts from the Proceedings of the Governor General’s Couneit,
dated the 20th June, 1878. |

BompBay INDEBTED AGRICULTURISTS’ RELIEF BIL.

The Hon’ste Mr. Cock3reEtt said that, the proposal to legislate on
this subject was one of the results of the investigation conducted, and
the report made, by the Deccan Riots Commission in regard to the
very serious disturbances which took place in certain districts of the
Bombay Presidency about three years ago.

% # * * # *

The investigation instituted by the Commission had elicited a
mass of valuable information in regard to the dealings between the
ryot and the money-lender, and as to the condition and circums-
tances of the agricultural industry generally in the Deccan
districts. The fact of the extreme indebtedness ofa large section
of the agriculturists in the districts in which the investigation
‘was made had been conclusively established: nor was this general
state of debt, though it had assumed much larger dimensions
of late years, of recent origin; it had existed in some degree almost
from the time of the conquest of the Deccan and its annexation
to British territory. There had, however, been intervals of pros-
perity: the settlements of 1836-37 recognized for the first time,
or created, the agriculturist’s proprietary interest in his and, and this
gave him a considerably enhanced credit with the money-lender ; then
the construction of railways and public works, and the stimulus given
to the cultivation of, and trade in, cotton throughout these districts
by the American War, followed in succession, causing a free expendi-
ture of money and consequent rise in the value of agricultural
produce. ‘This tide of prosperity began to ebb after 1866-67, and
by 1870 prices had fallen, and an adverse state of things set in, which
culminated in the disturbances of 1875. The small ryot’s condition
had been rendered worse further by a marked increase of population
without any corresponding expansion of the area under cultivation,

RELIEF OF INDEBTED AGRICULTURISTS. 129

or the productive capacity of the land; he had also contracted habits
of increased expenditure on personal comfort, which in his less
prosperous circumstances he was loath to forego.

As an illustration of the extent of indebtedness and_ hopeless
embarrassment which had been reached in the case of some of these
ryots at the time of the outbreak, he (Mr. Cockrreti) would quote
some statistics furnished in the Commissioner’s Report. The particu-
lars in this respect of some twelve villages selected at random had
been recorded, showing an aggregate book-debt of nearly two lakhs
of rupees, whilst the revenue assessment of the debtors’ lands
amounted to about rupees 10,000, and their proprietary interest in
the same was estimated to be equivalent to ten years’ revenue; so
that the total debt in these villages was double the full value of the
entire land belonging to the debtors. This would seem obviously to
point to the conclusion that the consideration actually passed to the .
debtors in these must have been wholly disproportionate to the sum of
their recorded obligations; for under no other hypothesis could the
money-lending creditors carry on their business, where the value of
the security was so much below the outstanding debts represented by
it, without absolute ruin.

This conclusion, as to the extreme disparity between the extent of
the accommodation actually obtained by the borrower and his recorded
obligation in respect of it, was fully corroborated by the facts which
had been recorded by a member of the Commission in regard to this
question. He (Mr. Cockrrett) would cite a particular case—an
extreme one certainly, but one that had been brought to light in the
course of the enquiry. A ryot had borrowed rupees 10, and at the
end of ten years from the date of the loan, his account with his
ereditor stood thus: he had paid rupees 110 and still owed rupees’
220. So that in the short space of ten years, through the process of
repeated renewal of bonds in which compound interest at high rates
was added to the principal, his debt had been made to mount up to
thirty-three times the sum actually borrowed by him.

The causes of this extreme indebtedness had been recorded in
much detail in the report of the Commission, and the possible effect
of the Government revenue assessments and the state of the law
applicable to the relations of creditor and debtor, in conducing to the
emharrassments of the agriculturists, had formed the subject of close
enquiry and full discussion, not only in the general report, but also in

17

130 RELIEF OF INDEBTED AGRICULTURISTS.

the separate minutes or memoranda which had been recorded by some
of the members of the Commission. Foremost amongst the causes of
the existing complications were (1) unfavourable conditions of soil
and climate; (2) increase of population in excess of any increase in
the local supply of means of supporting such population; (3) the
obligations of ancestral debt; and (4) the money-lender’s custom of
inordinately enhancing the original debt by charges of compound
interest at high rates, and constant exaction from the debtor of fresh
bonds or other instruments of obligation.

‘An additional recorded cause of the general increase of debt
amongst the ryots of late years was the greater facility of obtaining
credit on inadequate security, brought about through the more active
prosecution of the money-lending business by a lower class of sowkars.

* * % # * As the
‘ ryots in these districts held their lands under direct engagement
with the Government, the possible-connection of the revenue system
with, and its partial responsibility for, the poverty and embarrass-
ments of the people became an important subject of enquiry. The
report of the Commission, whilst it did not show that the assessment
of the land fixed at the latest revision of settlements pressed with
undue harshness upon the ryots, expressed the opinion that, in the
peculiar conditions of the Deccan, as regards climate and the
productive capacity of the soil, the fixity of the Government
revenue demand operated adversely to the direction of keeping
the cultivator free from the need of recourse to borrowing. A more
elastic system under which’ the demand would better correspond in
point of time with his own realization of profit from the land,
without at the same time introducing to too great an extent the
element of uncertainty as to the amount of the demand, would, it
was represented, be more suitable to the exigencies of the case.
The present state of the law relating to the administration of
justice and the procedure of the Civil Courts, in so far as it
governed or affected the dealings between the sowkars and the
ryots, was fully considered and dwelt upon in much detail in the
report of the Commission. It was held that the difficulties of the
ryot had been greatly increased in his earlier borrowing transactions
with the money-lender through the change in the Law of Limitation
as regards the period allowed for suing on contract-debts which avas
introduced by the Act of 1859, Previous to the operation of that

RELIEF OF INDEBTED AGRICULTURISTS. 131

enactment, the law gave a period of twelve years, and in practice it
was found that the creditor was content to allow debts to run on
without any settlement of accounts, and bearing simple interest at
the ordinary rate for ten or eleven years; whereas after the change in
the law, the custom of coming to a settlement and renewing bonds on
the terms of adding interest to the amount of the original obligation
every second year gradually sprung up and had become one of the
chief causes of the ryot’s embarrassments. At each recurring
renewal of a bond or other instrument of obligation, the opportunity
of enhancing the proportions of the previous debt by the addition of
fictitious charges of various kinds was largely taken advantage of
by the money-lender, and the effect of a renewal, even where no
additional consideration was given, was frequently to double the pre-
vious debt. |

The mode of dealing with cases between the sowkor and the ryot
when brought into Court, and the whole procedure of the Civil Courts
in reference to such cases, were wholly to the advantage of the
creditor. He could, by collusion with the Court’s officers, delay or
prevent the service of the usual process giving notice of his claim
being about to be adjudicated; and where this fraud was not
resorted to, the ryot, from his incapacity, through ignorance, to
set up an answer to the plaintiff’s claim, or his inability to give the
time required for a possibly prolonged attendance at a distant Court,
put in no appearance; and so it resulted that, in the case of an
overwhelming majority of suits instituted by the money-lenders, the
Courts granted ex parte decrees.

It was shown further that the sowkar, having thus obtained a
decree without any examination of the circumstances of his claim,
had thereby acquired a fresh instrument of oppression and exaction ;
for under the the pressure of the process issued by the Court in
execution of the decree, he could extort from his judgment-debtor
almost any terms that he chose to impose upon him, the fear of
having to go to jail upon the issue of a warrant of arrest being
sufficient to induce the latter to agree to anything.

That warrants of arrest. were largely applied for with no ond fide
intention of imprisoning the debtor, was clearly established by the
very small proportion of cases in which such imprisonments had
followed on the issue of warrants of arrest; for, seeing that the
average ryot would only in the gravest extremity voluntarily

1382 | RELIEF OF INDEBTED AGRICULTURISTS.

expatriate himself for any considerable period, the hypothesis that
he could evade a real and active pursuit with the object of appre-
hending him was wholly untenable. Ample evidence was elicited
in the enquiries of the Commission to show that the worst twist
was given to the ryot’s coil of indebtedness after his creditor
had obtained from the Civil Court a decree against him; for the
decree formed the basis of a fresh agreement and starting point
in a further chain of embarrassments, in which the terms exacted
from the debtor were more oppressive than those which marked
the stages of bond-renewals to avoid limitation.

To remedy this state of things, the report of the Commission recom-
mended two projects of special legislation: one, designed to protect
the debtor in his early dealings with his ereditor and mitigate
the difficulties of his position during the first stage of those dealings,
z.e., the period before the institution of a suit against him in the
Civil Court; the other, for the amendment of the existing law relating
to the execution of decrees.

x # * 3 # “

In addition to these legislative proposals, the Commissioners
further recommended, in view to checking the prevalent practice of
granting decrees ex parte, the establishment of special Courts for the
trial of small causes, which should hold their sittings in the
villages in or near which the persons against whom suits were
instituted resided, so as to bring the administration of justice as near
as possible to the home of every person sued in connection with
his borrowing transactions, and that the Native’ Judges of the
regular Civil Courts should be employed in making tours of inspec-
tion of these special village Courts within the local limits of their
jurisdiction. respectively, so as to insure regularity and uniformity of
practice in their procedure and action. ; 7

* * * * * *

In the opinion of the Bombay Government, there was no other
way of acting on the rather vague suggestions of the Commission, that
greater elasticity in the regulation and recovery of the revenue
demand was needed, than reverting to the old system of taking
the Government revenue in kind—a retrograde course which that
Government could never agree to. A fluctuating demand, ¢n the
other hand, under which the revenue-payer would never know what

RELIEF OF INDEBTED AGRICULTURISTS. 133

claims he might have to meet, would, by introducing the element
of uncertainty into the relations between the Government and the
ryot, produce a greater evil than that which it was designed to
counteract.

Some reference had been made by the Commissioners to the system
of revenue administration obtaining in Madras, where similar
ryotwari settlements prevailed; but it was shown in the minute
recorded by a member of the Bombay Council which accompanied the
letter of the Local Government above mentioned, that in point of
fact the grant of remissions in seasons in which, through drought
or other untoward circumstances, there was an extensive failure of
crops, to which the report of the Commission had made allusion, was
as much the practice in the revenue administration of the Deccan
districts as in that of the Madras Presidency.

As regards the effect of the present law and system of ad-
ministration of justice in bringing about or contributing to the state
of things brought to light through the investigation of the Com-
mission, the Local Government were clearly of opinion that the
change in the Law of Limitation introduced in 1859, which so
materially shortened the period within which suits upon breach of
contract would lie, and the procedure of the Civil Courts under
which so many decrees were given on an entirely ew parte view of
the money-lender’s claims, were the causes of much of the ryot’s
embarrassments. They accordingly expressed their concurrence in
those protective measures advocated in the report of the Commission,
which embraced,—(1) the establishment of public notaries for the
preparation and registration of instruments to be executed by the
ryots in favour of the money-lenders, by way of security for the
repayment of loans; (2) the enforcement of the grant of receipts
for money paid, statements of account, and pass-books by the sowkar,
on the requisition of the ryot ; and (3) an improved mode of trial
of suits upon money claims by the Civil Courts; and they pressed
_ upon the Government of India the expediency of reverting to the old
Law of Limitation in force previous to 1859 in respect of suits upon
contracts.

The Local Government further, in connection with the recom-
mendations of the Commission regarding-an improved method of
adjudication of claims for the recovery of debts in the Decean
districts, indirectly invited a declaration from the Government of .

134 RELIEF OF INDEBTED AGRICULTURISTS.

India as to how far definite proposals for an increase of expenditure
on judicial establishments would meet with favourable consideration ;
but as regarded the scheme submitted by the Commission for the
amendment of the law relating to the execution of decrees, they were
not generally in favour of the proposal for the abolition of personal
arrest and imprisonment for debt, nor did they approve of the
suggested limitations in regard to the sale, by the order of Civil
Courts, of immovable property in satisfaction of a decree for money ;
whilst in respect of the further suggested enactment for preventing
the improper use of a decree by the judgment-creditor, they expressed
no opinion.

The whole matter rested in this state until the question of further
action was taken up by the present Government of Bombay, who
early in the current year addressed the Government of India,
submitting fresh legislative proposals for effecting the following
objects :—

Ist. (a) The enforced examination by the Civil Courts of the
merits of every claim for which it was asked to give a decree, whether
any defence was made to such claim or not.

(4) The disallowance of the obligation of any person to discharge
ancestral debts, unless such person in the Court’s presence expressed
his readiness to accept responsibility for such debts.

(c) The disallowance of the compound interest included in any
claim, as well as all interest in excess of a sum equal to the principal
represented in such claim.

end. ‘The declaration of the insolvency of any debtor upon his
personal application, otherwise than after his arrest in execution of a
decree against him.

drd. 'The prevention of the sale of any land by order of a Civil
Court in satisfaction of a decree for money, unless the land had been
specifically pledged as security for the debt, and the contract under ~
which it was so pledged had been reduced to writing, and "the
written instrument embodying the same duly registered. |

Thus far he (Mr. Cocxrergtt) had very briefly summarised the facts
and circumstances leading up to the motion now before the Council,
by way of explanation of the reasons for the special legislation now
proposed. It only remained for him to state the objects of the Bull

RELIEF OF INDEBTED AGRICULTURISTS. 135

which he was asking leave to introduce. They were three in number,
namely :—

1. To empower Courts having insolvency jurisdiction to declare
a person to be insolvent on his personal application, although he might
not have been arrested in execution of a decree.

2. ‘To limit the power of the Civil Court in respect of the sale of
immovable property in satisfaction of a decree for money to cases in
which the property was specifically pledged as security for the claim
decreed. |

3. 'To enforce the reduction into writing of all contracts so
pledging immovable property, and the registration of the instruments
embodying such contracts.

(Betracts from the Proceedings of the Governor General’s Council, dated
the 17th July, 1879.]

THe Deccan AcRricutturists’ Revier Brut.

The Hon’ste Sir T. Hore said that the riots have been followed
by investigations in various forms. A Special Commission, in the
first place, was without delay appointed by the Bombay Government.
It was composed of two European officers, Messrs. Ricnzy and
Izon, of the Revenue and Judicial Branches of the service, Mr.
SAMBHUPRASAD, a distinguished Native Administrator, and a civilian
from the North-Western Provinces (first Mr. Auckianp Cotvin,
now employed in Egypt, and afterwards Mr. Carpenter). Their
report, in five volumes and above 1,500 pages, is a very able survey
of the difficulty in all its aspects. Besides this, the riots gave
a special direction in Bombay to the enquiries into the working of
the Civil Courts then going on throughout India in connection
with the amended Civil Procedure Code under the consideration
of this Council, which eventually became law as Act 10 of 1877;
anda judicial officer, Mr. Witi1am WEDDERBURN, was deputed to
report on the subject. Further, other circumstances led in 1878
to the condition of the peasantry in the four districts of the Deccan
being subjected to a close investigation, in which the most experienced
officers of the Bombay Presidency took part, and which is summed
up in a Minute by Sir Ricnarp Tsmp ie, dated October 29th, 1878.
The famine Commission also this year obtained a good deal of valuable
evidence, to which they have been so good as to allow me free
access. Finally, the question has been very ably and _ instructively
discussed by the Press, both in India and in England. It would be
impossible for me, on an occasion like the present, to summarize all
these enquiries, or to state separately the opinions of all the principal
authorities. I can only lay before the Council what seem to myself,
by the light of this mass of evidence and of my own knowledge and
general experience, to be the condition of the people in the disturbed
area, and the causes which have operated to produce it, and then

explain the measures by which the Executive Government propose ¢hat
relief should be afforded.

RELIEF OF INDEBTED AGRICULTURISTS. 137

The Central Deccan, which is the locality principally distressed,
though unfortunately not the only one, and to which the present Bill
is intended to apply, consists of four ‘districts’ or executive col-
lector’s charges, namely, Poona, Ahmednagar, Sholapur and Satara.
The three first named became British territory in A. D. 1819-21,
but Satara not till A.D 1849. Their area is 21,000 square miles,
and their population three-and-a-half millions ; that is to say, the
population of Scotland, located in two-thirds of its space. Mountains
and forests occupy much of the country, so that the actually culti-
vated area gives about six acres per head of the agricultural popula-
tion. The State is the landlord; the tenure ryotwarz, on the
Bombay system of permanent occupancy, with revision of assessment
every thirty years. The peasant-proprietors themselves cultivate
about three-fourths of their land and sublet the remainder. The
assessment or rent they pay to the Government is at average rates
of from seven annas to twelve annas per acre,. which is équivalent, on
fairly good land, to, from an eighth to a sixteenth of the gross produce,
and on the poor soils to much less.

The proportion and extent of indebtedness are not easy to ascer-
tain. In one batch of twelve villages tested by the Commission of
1875, one-third of the peasant-proprietors were found to be very
heavily embarrassed; and of these, two-thirds were - petty land-
holders, paying assessments of only twenty rupees per annum and
under. Their debts came to eighteen times the average assessment,
and two-thirds of this were secured by mortgage of the land. In
another batch of seventeen villages in Ahmednagar, forty-three per
cent. of the proprietors were deeply in debt, the debts averaging
fifteen times the assessment, but reaching forty-five times in indivi-
dual eases. Only one-third of the debts appeared to be secured
by mortgage, but one-eighth of the land had already been actual-
ly transferred to the money-lenders; and with regard to much
of the remainder, the ryots were virtually mere tenants-at-will
of their creditors. The Collector was of opinion that, through-
out the whole district, three-fifths of the people were so involved
that, in ordinary course, it was impossible for them ever to get free.
Upon this and much other evidence, I must confess myself unable
to share optimist views of the condition of the people. Supposing
only é6ne-third of the proprietors to be irretrievably involved, is a
ruined, despairing and embittered population of above a million souls

18

138 RELIEF OF INDEBTED AGRICULTURISTS.

beneath special consideration? The proportion seems to me, however,
to have been nearer one-half than one-third, and to be, moreover,
constantly increasing. Finally, it must not be forgotten that the
statistics of the Commission, which I have been quoting, are now four
years old. Since then, the terrible famine of 1876-77, and the sub-
sequent indifferent seasons have passed over the land, and cannot but
have left deep traces behind. True, as it is, that the peasant-
proprietary struggled nobly and long to maintain themselves and _ their
dependents without State relief, and vast as was the amount of ac-
cumulated savings, in gold and silver ornaments and the like, which
they were found to possess, we must not forget that those savings
were revealed by their passage to the mint, and that their dissipation
must have left at the merey of the money-lender thousands who
were never so before. We may admire the honest pride and fortitude
which the peasantry, asa body, displayed throughout their long-
protracted trial ; but we cannot ignore the obvious effects on their
condition.

Granted, however, that a large proportion of the population are
deeply involved, we may well enquire whether such a condition is
abnormal. It has been said, and in one sense with truth, that
‘poverty and debt were the familiar heritage of the ryots before
the advent of the British rule.’ Our records of the country when
first acquired tell of indebtedness extending largely among the pop-
ulation. The ryots, itis said, ‘though usually frugal and provi-
dent’, were in many cases ‘living in dependence on the sowkar (or
money-lender), delivering to him their produce and drawing upon
him for necessaries’; and this condition is mainly attributed to the
Mahratha system of levying heavy contributions from bankers, to
whom the revenues of villages were assigned in repayment, and of
collecting the State dues generally through the agency of such capi-
talists, who recovered in kind what they paid in cash. Indebtedness
thus arising mainly from a vicious system of collecting the land re-
venue paid by all, necessarily extended toa large proportion of the
population. But the amount of individual debt appears to have
usually been moderate—necessarily so, it may be added, because the
security and means of recovery were small, since land was not sold ,
for debts, and little or no assistance in recovering them was given
by the State. Very much the same condition of affairs is shown by
ample testimony to exist now, toa greater or less degree, in the

RELIEF OF INDEBTED AGRICULTURISTS. 189

Native States of India. I have myself noted it in those of Western
India, with many of which I have had considerable official experience.
The reply to our enquiry, then, is that, as compared with former
times and with Native States, indebtedness now in the Deccan
extends to smaller numbers, but is heavier in individual incidence,
followed by consequences infinitely more serious, and decidedly
abnormal.

*

Some may feel inclined to question whether,’ after all, there is
any real harm in the present state of things. The institution of
private property in land is essential, it will be said, to the well-being
and progress of every civilized community, to the encouragement
of industry and the accumulation of capital. But it is indispensable
that such property should be in the hands of those who by their
capital, intelligence and industry are qualified to turn it to the
best account. If this condition be not fulfilled, but the land be
held by a class who, through their ignorance, improvidence and
want of energy, have bnrdened their heritage with debt which can
never be repaid, and thus have deprived themselves of all incen-
tive to labour and all interest in its results, then the only remedy
is to promote, rather than to obstruct, a gradual restoration
of healthier conditions of society by the bankruptcy and evic-
tion of the incapable. True as such principles undoubtedly are
in modern European populations, considerable caution is necessary
in applying them to the ill-studied and little-understood problems
of Oriental life. Assuming hastily a similarity of premises, we are
apt to jump to familiar conclusions, and to inaugurate action wholly
inapplicable and _ pernicious. Much of the difficulty in the present
instance arises from such inconsiderate interference in the past.
When we overturn by an Act of the Legislature institutions which
popular consent has maintained for above a score of centuries, we
sometimes forget that we are not the bearers of a political revelation
from Heaven.

In the present instance there seem grave reasons for doubting
whether the premises upon which a policy of /azssez faire is based
are sound. Ifthe present conditiom of the Deccan ryots is caused
by inherent moral and physical defects, unfitting them for peasant-
proprietorship ; if they encumber the land to the exclusion of a class
of intelligent, enterprising and energetic capitalists, and if the land
is such that capital in large single sums can alone effect its improve-

14.0 RELIEF OF INDEBTED AGRICULTURISTS. .

ment, then, indeed, we must perhaps sit down and sit out the process
of gradual transfer of the rights of property from the one class to
the other, merely softening, if need be, the fall of the sufferers.
But consideration will show that no such circumstances exist in the
Decean. The Mahratha symbi is not the defective and useless
creature postulated. No such material composed the armies of
Sivaji and his successors, which defeated the Moghuls, overran half
India, and founded an empire of which the remnants still flourish
around us. Asa soldier, the Mahratha in olden days was as enter-
prising as he was hardy, equally able to ‘bide a buffet’ and to strike
a blow. At present, he furnishes material perhaps second to none
in India for the purposes of modern war. All representations of him
as thriftless, enervated and puny are incorrect. As a peasant-pro-
prietor, he is no unfavourable specimen of the class. Mr. CHapnin
and our other early authorities give him credit for many sterling
qualities. He is still represented by the Commission as ‘a simple,
well-disposed peasant, contented with the scantiest clothing and
hardest fare,’ not without ‘masculine qualities’ and ‘a stubborn endur-
ance,’ though still mostly uneducated, and consequently without a
broad range of intelligence. Of course, improvidence and slovenly
cultivation may be detected in individuals or particular localities.
But we must not expect toomuch. Under British rule, the /Aumbi
has undoubtedly progressed as fast as adverse circumstances allowed.
He works his fields to the best of his lights, and in the dry season
travels far in search of day labour, or with his cart on hire. During
the late famine he displayed resources equally creditable to his thrift
and his good feeling. His embarrassed condition seems to be rather
his misfortune than his fault, induced by the calamities of the last
century, the obligation of ancestral debt, the burden of the land-
revenue demand—formerly in amount and latterly in imposition
—and the facilities for extortion conferred by our laws upon his
creditors.

On the other hand, those into whose hands the land is now
observed to be passing are not yearning for it in order to improve
it by their intelligence, enterprise and capital. With solitary excep-
tions, the transferees are the professional money-lenders, who have
no wish even to hold the status of landed proprietors, much less to
invest their capital in comparatively unprofitable agricultural experi-
ments. Often too they are aliens, who return home after a time,

RELIEF OF INDEBTED AGRICULTURISTS. 141

So far from eagerly getting the land formally transferred to their
own names, they show general reluctance to doso. They prefer to
keep the ryot on his land, and extract all they can from him : the
punctual discharge of their advances is the last thing they desire.
As Mr. Auckianp COLVIN says,—

‘the position is that of a man recorded as occupier of his holding, and responsible
for the payment of revenue assessed on it; but virtually reduced by pressure of debt
to a tenant-at-will, holding at a rack-rent from, and sweated by, his Marwari
creditor. It is in that creditor’s power to eject him any day by putting in force any
one of the decrees he has against him; and if allowed to hold on, it is only on condi-
tion of paying over to his creditor all the produce of his land not absolutely necessary
for next year’s seed-grain, or for the support of life. * * * * He has nothing to
hope for,, but lives in daily fear of the final catastrophe. Under a so-called ryotwari
settlement it is gradually coming to this, that the ryot is the tenant, and the Marwari
is the proprietor. * * * * ‘The proprietor is irresponsible; the tenant unpro-
tected. It promises to become, not a ryotwari, but a Marwari, settlement.”

Such conditions deprive the transfer of land from distressed to
monied classes of all the glamour with which political economy
would surround it. They show that the noble gift of property in
land, made by the British Government to the peasantry for their sole
benefit, is passing, contrary to their intentions, and in frustration
of their objects, to a class unfitted to possess it. As observed
as early as 1852 by Sir George Wineare, the great author
of the gift :—

“Tt was never contemplated that the measures intended to secure these benefits
for the class of landholders should transfer their dearest rights and the possessions
that had descended to them from their forefathers to a class of usurious money-

lenders, and degrade the former to the position of labourers or of tenants cultivating
their former lands at the will of the latter.

In short, the second of the premises on which a policy of Jatssez
faire would rest is as unsound as the first. In the words of Mr.
Pzpper, a gentleman who has long made a special sudy of this subject,
* * %*—4t cannot be too clearly understood that only in the dream
of a visionary will the English agricultural system of large landlords,
capitalist farmers of large farms, and peasant-labourers for wage,
ever be substituted for the petite cu/twre of India. Happen what will,
each ryot will till his petty holding ; but he may be, as we have made
him in Bombay, its proprietor ; he may be, asin the North-West, a
member of a proprietory cultivating community ; he may be, as in
Ragputana, the customary tenant of an hereditary lord ; or, he may be,
as I fear he is becoming, the praedial serf of a money-lender.’

142 RELIEF OF INDEBTED AGRICULTURISTS.

Only one of the three premises mentioned above remains—
that the land is such that capital in large single sums can alone
effect its improvement. That is exactly what it is not. There are
indeed certain localities, limited in number, where irrigation projects
may alter the character of the produce and counteract seasons of
drought. But these are far too extensive for individual enterprise.
They must be undertaken by joint stock companies or Government,
and the latter has them in hand. But the great proportion of the .
cultivated area is such, that the most it is capable of, can be made out of
it either by mere careful tillage and economy of stable manure, or by
petty improvements, such as, for instance, digging a well, banking up
a stream or watershed at certain seasons, making a supply-channel
from a neighbouring canal or river, or altering the level or inclination
of a field—by action, in short, of exactly the kind which the peasant-
proprietor, standing on his own land, fully realizing its capabilities,
and feeling pride and pleasure as well as utility in developing them
to meet the growing needs of himself and his children, is at once the
most competent and the most likely to apply. That he has so improved
his estate since it came into his hands when he could, despite all the
adverse circumstances by which he has been met, is proved by the
increase in wells and the reclamation of unassessed waste within hold-
ings during the last thirty years. Whether he shall pursue these
inclinations freely, or continue, as at present, thwarted and check-
mated at every turn, it now mainly rests with us to decide.

To the question, therefore, whether there is, after all, much
harm in the present state of things, we must, perforce, answer that
the harm is of the greatest. To a peasantry such as I have described,
expropriation means discouragement, despair and exasperation. To the
money-lending class, it means the acquisition of what they are unfitted
to use and do not particularly desire to have, of what yields
them at best a precarious profit, not exceeding that which reasonable
rates of interest, combined with easy recovery, would produce, but
wrung forth with trouble, anxiety, expense, popular execration, and
even personal danger. To society, it means the discouragement of
labour in extracting wealth from the soil, the application of capital
in disadvantageous and comparatively unproductive channels, and the
fomentation of disorder and outrage. As reported to the Bombay Govern-
ment in 1858 by Mr. J. D. Inverartry, the Revenue Commissioner—

‘the question is one of vital impertance both to Government and the people.
Even the passive society of the Hast cannot bear so great a burden without making

RELIEF OF INDEBTED AGRICULTURISTS. 143

from time to time convulsive efforts to shake it off. These efforts must increase in
frequency and strength, unless the legislature seriously takes up the evil and applies
the knife to it.’

Assuming, then, that indebtedness to an unusual and extreme
extent is the condition of a large proportion of the people in the British
Decean, we must enter into a critical examination of its probable
causes before we can hope to apply an effective remedy. These causes
are numerous, and complicated both in themselves and in their action
and reaction upon each other. They may be conveniently classed as
‘normal’ and ‘ special.’

The normal causes are those which may be found at work, more or
less, at alltimes, and some in all parts of India, others only in certain
localities. First of these stands poverty. It is obvious that where
there is a peasant-proprietary, though the stimulus to individual
exertion is considerable, and in India the Hindu joint-family system
tends to preyent minute subdivision, the individual capital cannot be
great, and misfortunes comparatively small will throw even a thrifty
and industrious person into the hands of the money-lender for temporary
loans. Besides this, the 4unbz of our Deccan labours under the special
disadvantage of a soil mostly indifferent, and a rainfall so precarious
that he hardly gets a full crop once in three years. Finally, the
obligation to pay a father’s debts, laid by Hindu Jaw upon a son with-
out any equitable restrictions, imposes a burden oppressive at all
times, and too often aggravated by fraud in the creditor and ignorance
in the debtor. The Commission, in fact, go so as far as to term
ancestral debt the ‘chief cause’ of the ryot’s embarrassments. Next
to poverty comes ignorance, which renders the unlettered peasant unable
to read and often to understand, the documents aud accounts in
which he is vitally concerned, or to state and substantiate in a Civil
Court a good defence when he has one, and thus makes him a tempt-
ing subject for every kind of roguery. Social observances, such as,
marriage, birth and funeral expenses, also swell the roll of obliga-
tions ; but being connected with religion, they are to a great extent
unavoidable. If occasionally excessive in prosperity, they are reduced
in bad times. The Commission consider that in amount they are
generally not larger than the ryot’s income, if otherwise only fairly
taxed, would justify, and that undue prominence has been given to
them as a cause of his ruin. Jmprovidence must be admitted to con-
tribute its share to the catastrophe; but it consists, as the Commission

144 RELIEF OF INDEBTED AGRICULTURISTS.

remark, ‘rather in the short-sighted improvidence of an ignorant
class, ready to relieve present necessity by discounting future in-
come on any terms, and unable to realize the consequences of obliga-
tions foolishly contracted, than m an extravagant expenditure and
misapplication of income. ‘To this may be added an honest and
confiding, rather than vigilant, temperament. A soil yielding but
one crop, and therefore the whole year’s income at one period, a
climate so capricious as to preclude at seed-time any safe estimate
of what the harvest, if there be one, will be worth, and prices.
varying above cent. per cent., as they twice have done in this century,
might well derange the calculations, and produce the bankruptcy,
even of sober men of business.

Besides these normal causes conducive to indebtedness, there
exists a long array of special ones, some gencral in their operation,
others peculiar to the Bombay Presidency or the Deccan alone.
These I propose to notice in four groups—namely, those increasing
credit, diminishing ability to repay, proceeding from the revenue
system, and comprised in the term ‘arming of the money-lender.’

Increased credit obviously flowed primarily from our establishment
of a settled government, and the consequent immunity of the ryot
from being plundered and murdered by hostile armies, or drawn
from his fields, perhaps killed in battle, on his own side, as also from
the grosser forms of private crime. A like effect followed our land-
settlements. The meaning of the phrase ‘land revenue’ varies
ereatly in different parts of India. In Bombay the State is the land-
lord, entitled to the entire rent—that is, to the whole net produce
or surplus after deducting the cost of cultivation and of the subsistence
of the peasant and his family. The State has no intermidiary or land-
lord to think of, to whom a certain proportion of the rent must be
left. It may relinquish to the peasant-cultivator as much or as little
of the rent asit chooses. The Native governments preceding us
relinquished but little, and the cultivator was rack-rented. Hence,
even a small debt pressed heavily, and complaints of indebtedness
were general when we acquired the country. Gradually we reduced
our land-revenue demands, producing immediate relief and recovery
of agriculture, until by the revenue survey system, founded by Gorps-
mip and WineaTe in 1838-40, and gradually extended throughout
the Presidency, we levy, says Mr. Pepper, only one-half, a¢ most, ‘of
the net produce or rent, thus leaving the cultivator a liberal margin

RELIEF OF INDEBTED AGRICULTURISTS. 145

upon which to borrow and repay. But we went further than this.
Under the Native government a cultivator could not, according to
custom, be ejected as long as he paid the revenue demand; but that
demand was so high that his right of occupancy was worth little or
nothing and was, besides, mostly not recognized as saleable. The land
was not his tosell, being deemed the property of the State. Under our
settlement, however, ‘this right of conditional occupancy’ (to quote
Bombay Act 1 of 1865) ‘is declared to be a saleable and transferable
property.’ Though the land is still termed “Government land,”
the occupant has acquired a tenant-right far wider than that of
Ireland, and has virtually become proprietor, while the Government
retains only a rent charge, variable once in thirty years, within
certain prescribed limits. The right of property thus granted
acquired simultaneously a considerable value through the reduction
of the revenue demand and its invariability for thirty years. The
gift, intended to enrich the ryot, increased his credit along with
his means, thus exposing him to the loss, not only of the extra share
of net produce bestowed, but of the land from which a livelihood had
hitherto been secure.

Fast upon these additions to solvency and credit came days of
brilliant but ephemeral prosperity. Commencing with 1850, railways,
roads, bridges and other public works poured millions into labourers’
hands, while a series of good seasons gave the best encouragement
to agriculture, and brought almost every available acre under the
plough. Then came the American war, raising to almost fabulous
rates the prices of cotton and other produce. These circumstances
had a double effect: many ryots paid off, or greatly reduced
their debts: many more, both of these and others, increased their
expenses, and some even borrowed largely upon the strength of
increased’ incomes which they supposed would last for ever: all
learned a higher standard of comfort and new wants, which they
eould not relinquish with readiness equal to the subsequent
rapid contraction of their means. A _ further expansion of the
ryot’s credit was induced by greater facility in obtaining loans,
owing to two reasons. The arming of the money-lender, to which I
shall presently allude, rendered frauds and legal recovery of advances
easier. Also, the general prosperity increased the capital of money-
lenders for investment and the number of persons competing in the
business. Money was lent recklessly, on unsound credit ; money

19

146 RELIEF OF INDEBTED AGRICULTURISTS.

was lent designedly to secure the unwary ryot as a bondslave
for ever. |

Diminished ability to repay arose partly from greater pressure
on the land by the population, which had grown 45 per cent. in the
thirty years ending with 1875. The proportion of 167 souls per
square mile becomes extremely heavy after making allowance for
mountains, forests, &c., and for the defects of the cultivable soil and
the climate. But even the cultivable area cannot be, on an average,
as productive as in former days. When only a half of it was culti-
vated, the best soils were chosen, fallows were readily allowed ; the
waste land and forest supported cattle freely ; the stable manure was
sufficient. Now all is reversed. The waste land has disappeared ;
the cattle and manure are insufficient in proportion; the jungles
have become reserved forests ; the poor soils reduce the average ; and
the general result is a lower yield per head for subsistence or repay-
ment of debt. Again, the ryot’s solvency was reduced by a great
fall in prices after the close of the American war. Between 1836
and 1866 prices rose from fifty-six to eighteen seers per rupee :
between 1866 and 1874 they fell again to fifty seers. With the various
causes of low prices ; with questions such as those of the effect of
levying revenue in money instead of in kind ; of the sufficiency of the
circulating medium, or of the action of the so-called ‘Indian tribute,’ I
am not now concerned ; for our present purpose, to note the fact of the
fall is sufficient. A series of bad seasons has, likewise, supervened.
Finally, the effect of an absence of stimulus to exertion in lessening
ability to repay must not be overlooked. Where the ryot is hope-
lessly involved, and all produce goes to the creditor, a bare subsistence
being given back, what inducement can there be to add to the latter’s
gains? The ryot pays off less; his debt on paper increases, and
what more? He thinks it ‘as well to be hung fora sheep as for a
lamp.’

To our revenue system vaust in candour be ascribed some share in
the indebtedness of the ryot. Time would fail me were I to
attempt to enter here into the elaborate question of the pressure of
the land-revenue demand, nor does my subject require that I should
do so. The Commission’s report and the other enquiries to which
I have referred contain the fullest information on the subject. Suffice
it to say that itis amply proved that the riots had no immediate
connection. with the revision of assessment, which was_ neither

RELIEF OF INDEBTED AGRICULTURISTS. 147

imposed nor contemplated in many of the localities where they occurred.
Still less can the general indebtedness of the ryot be ascribed to the
weight of the assessment, whether unrevised or revised, since the
proportion of the net produce taken is low in itself ; very low for
a landlord to take ; far lower than that prevailing in ‘alienated’
British villages and adjacent foreign States. I am here, of course,
speaking broadly, irrespective of individual instances of over-assess-
ment, which in so vast an undertaking may not improbably have
occurred. But it seems likely that indebtedness arising mainly from
other causes, normal or special, may have been aggravated by our
rigid system. If any considerable increase at a revision were gradu-
ally worked up to in the course of two to five years, the ryot would
have time to readjust his expenses to his means instead of being taken
by surprise, and perhaps driven to the money-lender. Again, if the
recovery of instalments were more coincident with the time when the
ryot realizes on his produce, instead of falling sometimes too early
and sometimes too late, and so the land-revenue were more in_ practice
(what it is in law) a first charge on the latter, much temporary borrow-
ing, fraud in crediting produce, and eventual Government process for
recovery, might be avoided. Some debt, too, may be caused by the
fear of eviction—a mode of recovering the revenue for whicha ~
substitute is much needed. Moreover, though the system of taking
revenue in kind, besides involving the injustice of assessment on the
gross produce instead of the net, is so open to fraud, when adopted
on a large scale, as to be impracticable, its object might be attained,
in localities subject to drought, by such suspension of the revenue
demand as to spread over three or four years, according to the seasons,
the aggregate amount to be recovered in that period. Finally, in
times of famine, suspension of demand might be systematically
granted, as of late it has been by Str Ricuarp Tremp is, and even total
remission, which is not inconsistent with the Bombay settlements.
And, above all, whatever relief is deemed reasonable should be granted
in time.

The arming of the money-lender is a general term which I shall
apply to the process of increasing in numberless ways the legal power
of creditor over debtor, which has been synonymous with the elabora-
tion of our Indian law procedure. In otir early judicial dealings with
our hewly-acquired possessions in the Bombay Presidency, we combined
as far as possible the Native model in form with European common

148 RELIEF OF INDEBTED AGRICULTURISTS.

sense and equity in practice ; but gradually the system was made
more regular and rigid. Mountsruart E.puinstonn’s Code of 1827, how-
ever, still contained much of the old leaven, such as arbitration courts,
usury law and a long limitation for suits. Only gradually did credi-
tors perceive and work up to the advantages the law had given them.
At first the debtors complained of usurious interest only. From 1843
to 1850 the Court’s influence became rapidly more apparent. Attach-
ments, and the extortion of new bonds with a premium for forbear-
ance, increased. From 1850 to 1858 credit and frauds much expan-
ded. Numerous public officers pointed out the mischief which was
going on ; none foresaw more clearly than Sir George WineatEe how
the benefit of his settlement was being turned into wrong channels, or
pleaded more earnestly, though in vain, for prompt and effective
remedies. While affairs were in this state, the legislature stepped
in to aggravate the evil. In 1859 the period of limitation for suits
was reduced and _ the first Civil Procedure Code was passed, followed
by the Stamp Act in 1860.

The condition then consummated, which has lasted with but
slight variation for about twenty years, may be thus briefly summa-
rized as it appears in the Deccan. The procedure is highly elaborate
and technical ; the penalties for contravention of it, severe, and litiga-
tion, dangerous without the guidance of a pleader, whose services are
costly and interests often at variance with those of his client. The
procedure is the same for a debt of Rs. 5 and Rs. 5,000, except in
the rare instances where Small Cause Courts are established. Stamp
and court expenses have nearly doubled. Arbitration has been gradu-
ally shouldered out, partly by the superior prestige of the Courts,
partly by the stamp-duties, partly by its disadvantages for the money-
lender. Suits may be heard ew parte in the absence of the defendant,
and are found to be so, in the four Deccan districts, in above half
of the cases. Great weight is attached by the Courts to bonds, and
they are therefore largely, almost exclusively, depended on. However
fraudulent, extortionate or in excess of consideration a bond may be, the
burden of proof lies on the debtor, and in practice his defence is generally
hopeless. Payments on a decree made by the debtor out of court were
(till 1877) ignored, and were therefore obtained, wherever possible,
by the fraudulent creditor. The reduction of the limitation period
for bonded debts from twelve to six, and im some cases three years,
and for simple money debts, from six to three years, respectively, has

RELIEF OF INDEBTED AGRICULTURISTS. 149

subjected the debtor to compound interest, frequent suits, extra cost
and a vast increase of his liabilities. The power of obtaining arrest
and imprisonment gives the creditor the means of extorting almost
any terms for his forbearance in exercising it. Of all the weapons
he has obtained, this has been proved to be the most misused.
The power of sale in execution extended, till 1877, to every-
thing the debtor possessed: since then certain bare necessaries
have alone been exempted. Land remains saleable, whether ances-
tral or acquired, subject to certain provisions for saving it analogous
to an elegit, which have hitherto~proved inoperative, but are now
being amended. Of all sales it is a characteristic that the pro-
perty, through technical difficulties, constantly goes for a mere
song, and the creditor is the purchaser. Decrees were, till 1877,
interminable, and the Commission found numbers to be of twenty
years’ standing. Now they may be executed for twelve years. A
Sub-judge mentions one executed wzve times. If the persecuted debtor
turned towards the law of insolvency, he, till quite recently, found it
little more than a name. Until actually arrested or in jail, he could
not resort to it at all; and whether, after doing so, he escaped its
pitfalls and two years’ imprisonment or not, his subsequently acquired
property and earnings were liable (unless his debt was under Rs. 100
and the judge chose to discharge him) until the last pice due, with
interest, had been repaid. Finally, the increase of work entailed
delay, with loss of time and money, in the disposal of cases, while
financial reasons led to reduction in the numbers of the Courts, and
consequently to their greater remoteness from the ryot’s home. And
all this is the more important, in that a vast increase of litigation
has followed the new law, so that in 1876 there were 37,128 suits,
and in 1878 (after the famine) 27,577, disposed of in our four districts
alone.

The tendency of the change of relations thus gradually brought
about by the law will be seen to have been all one way in favour of
the party possessing the most intelligence and money. Even of old,
the superiority of the money-lender over the ryot was considerable,
though the former had little power of compulsion ; but by the law this
superiority has been infinitely increased. The likening of the contest
between them to one ‘between a child and a giant’ is no figure of
sptech; yet the law presumes them both to be equal! That the
superiority is fully and often fraudulently availed of is proved by the

150 RELIEF OF INDEBTED AGRICULTURISTS.

vast increase of litigation just mentioned ; by the evidence of judicial
and revenue officers and of numberless debtors; by the serutiny of
accounts by the Commission, and by the use in 1874 of some 150,000
warrants as threats only. The general result is that through these
undue powers the ryot is enslaved by a vast amount of debt, which
has been much enhanced by our legal system, and in part was never
incurred by him at all. In concluding this sketch, it seems scarcely
necessary for me to add that the law, and not the Judges, are to
blame. Some of the most valuable proofs of the defects of the former
are derived from judicial officers, Native as well as European; and I
fully agree with Mr. AuckLanp Cotvin that it is ‘very much to the
credit of the subordinate judicial administration that it has expressed
itself so clearly as to the position which it is compelled to occupy.’

Having thus enumerated the various causes of the ryot’s
indebtedness, I will briefly classify them according to the possibility
or expediency of remedial measures. As causes regarding which
little or no special action is practicable we may put down all normal
ones. Ignorance, improvidence and extravagant ceremonial or social
expenditure can never be eradicated from the world, either in the
Deecan or elsewhere, though time, experience and education may
reduce their strength. An agricultural population everywhere is
comparatively ignorant ; they are found so even in England under a
compulsory educational system, much more in India, where compulsion
cannot be thought of. But village-schools are exceptionally numerous
and efficient in the Bombay Presidency; cultivators’ children form
21 per cent. of the pupils, and we may hope for gradual improvement
in this respect. Comparative poverty must continue the lot of a
peasant-proprietary whose soil is poor and climate capricious. Periodi-
cal absorption of savings by famine can, at least, be only diminished
in degree by palliatives of partial applicability, such as forest
conservancy, railways and irrigation, which, under Sir Ricwarp
TEMPLE’S vigorous administration, are being promoted as_ rapidly
as means allow. Prices must take their course.

As causes regarding which interference is undesirable may be
mentioned the increased credit due to orderly Government, property
in land and competition of money-lenders, and the lessened ability to
repay arising from the diminution of waste land for fallows and
grazing by the extension of cultivation and forest reserves. The
raising of the land-assessment to the level of Native States in order

RELIEF OF INDEBTED AGRICULTURISTS. 151

to stimulate exertion, and the lowering of it so as to pay private debts
at the expense of the community in general, are equally out of the
question.

Respecting the remaining causes, action, either executive or
legislative, seems open to us. Lxecutively, some little might probably
be done to relieve pressure of population by favouring emigration to
other districts. Then, though the idea of Government Agricultural
Banks appears to me to be unsound in theory and unworkable in
practice, the opening of local loans in small amounts, as in France,
might offer to bankers an alternative for indiscriminate lending on
usury, and to cultivators an investment preferable to ornaments. The
system of advances by Government for land improvement, also, might
be simplified.” Again, relief might be afforded by modifying, in the
directions I have already indicated, the mode in which our land-revenue
demand is imposed and levied. Stamp and process fees and datta seem
also capable of revision. Finally, there are exchange and cognate
financial questions. But I must not dilate upon these executive
remedies, which are beyond the sphere of this Council. I have
touched on them merely in order to show that I am not so simple as to
suppose that all the ryot’s difliculties will be removed by the passing
of the Bill before us. Legislatively, what we can do, what is proved
by over-whelming evidence to be the thing required, what we un-
doubtedly ought to do, promptly and effectively, is to restore, as far as
may be, the rude balance between debtor and creditor, which has been ~
disturbed by our own legal institutions. We may take back many
of the weapons inconsiderately placed in the money-lender’s hand and
shown to have been misused ; we may check the undue credit arising
from unjustifiable facilities for recovery ; we may increase ability to
repay by removing discouragements to industry; we may obey the
long-neglected proverbial mandate to hear both parties; we may
substitute for the blind and ruthless operation of legal machinery the
intelligent dispensation of justice between man and man.

As introductory to a fuller definition of the principles upon which
our proposed measure should rest, and to a detailed explanation of the
Bill itself, it may be instructive to survey, briefly, the relations of
debtor and creditor as they were found on the introduction of British
rule, and as they may now be seen subsisting in some of the best
ajministered Native States. For the former period I can quote no
better sketch than that given in the despatch of the Secretary

152 RELIEF OF INDEBTED AGRICULTURISTS.

of State dated December 26th, 1878, which has recently become
publie.

‘Under Native Governments, it seems no assistance was, ordinarily, afforded by
the State to a creditor for the recovery of his debts. No Court of Justice was open
to him, and he was left to his own devices to extort what was due, Government wink-
ing at very forcible measures that were occasionally employed. The result was not
so bad as might have been expected. It speaks well for the national character that
contracts were rarely repudiated. And the Commissioners observe that in these pro-
ceedings honesty was the best policy for the ryot, and caution was a necessity to the
money-lender.’

In order to state correctly the present practice in Native States,
I have made special enquiries in four cases. As to Hyderabad, H1s
Excettency Sir Satar June has favoured me, through the Resident,
Sm Ricuarp Means, with a valuable memorandum and*summary of
regulations. From Bhaunagar, a large State in Kathiawar, which
was, till lately, under joint-administrators, English and Native, during
the minority of the Thakur, and of which a graphie account by Sir
Davip WebDERURN appeared last year in the Vortnightly Reriew,
I obtained a note through Mr. Perctvan. The system in Morvi,
another Kathiawar State, is described in communications from the
administrator, Mr. SHAMBHUPRASAD, who wasa member of the Deccan
Riots Commission. About Baroda full information is forthcoming in
the administration reports of Str T. Mapwava Rao and letters of some
private Native friends I have there. In all these States, civil suits
for debt are comparatively rare. ‘The limitation period, where there
is any definitely laid down, is twelve and six years. The Hindu rule
of dam-+dupat, or disallowance of interest at any time in excess of the
principal, is observed in Baroda, Bhaunagar and Morvi. In
Hyderabad usurious interest is summarily cut down to a reasonable
rate. Imprisonment for debt is not allowed in Morvi, nor, apparently,
in Bhaunagar. In Baroda it is forbidden altogether during the
cultivating seasons, and very sparingly used at other times. In
Hyderabad it is reserved for cases of contumacy and fraud. As to
the sale of a ryot’s land and house for debt, both are exempt in
Bhaunagar, and the former (if not both) in Morvi. In Hyderabad
the sale of either is said to be resorted to in extreme cases only. In
Baroda only such portion is saleable as may be in excess of what is in-
dispensable for the residence and support of the ryot and his family, and
sales are not favoured by the Courts. "The sale of movables is also
under characteristic restrictions. In Baroda the ryot’s implements

RELIEF OF INDEBTED AGRICULTURISTS. 153

and cattle necessary for cultivation, cooking utensils and clothes indis-
pensable for daily use, ‘the ornaments which a married woman must
have on her person as long as her husband is alive’ (even if not hers,
but her husband’s), and two months’ corn for the ryot and his
family are all exempt. In Bhaunagar only agricultural stock and
implements in excess of what is necessary for cultivation, as also
the produce, may be sold; and in Morvi the rule seems much the
same. In Hyderabad the reservations embrace cattle and implements
necessary for agriculture, seed-grain for the next season, grain for
subsistence for six months, and necessary apparel and cooking
utensils. In all the States the fixing of instalments is common, and,
whatever may be the standard rules promulgated through a desire to
imitate our judicial institutions and to obtain credit for well-organized
government, a summary inquiry into the facts of the case, with
serutiny of accounts, and a more or less rough-and-ready adaptation
of the ecreditor’s demands to the debtor’s means, appear to be the
practice. This practice, being supported by popular opinion, is
probably less affected in individual cases by corruption, partiality or
oppression than might on general grounds be expected. Having
held for many years intimate relations, official and otherwise, with
Native States, which in Bombay form one-third of the Presidency,
I can say with confidence that, making due allowance for the growing
mischievous tendency to copy the British system blindly, the picture
just presented is, on the whole, fairly typical of them all.

This picture may, at first sight, seem to exhibit conditions under
which either the ryot can get no credit or the money-lender no
returns. As a matter of fact, however, neither result occurs, because
all the parties concerned—debtors, creditors and rulers—thoroughly
understand the limits to their several action which are essential to
their several ends. No doubt the ryot has a hand-to-mouth. sort of
existence; but even this is endurable, combined with immunity from
eviction. I have come upon a passage in Sir T. Mapuava Rao’s
Administration Report of the Baroda State for 1875-76 so ably
describing the position that I must ask leave to quote it at
length :-—

Sales must not be made so rigorous as to crush or impair industrial energy or to

’ inducé its emigration. The Civil Cow ts have'to be specially careful in regard to the
last mentioned point, which mainly concerns the ryots. These have frequent dealings

with the sowkars whose exacting tendencies are well known. The Civil Court should
take up such a position between the ryot and the sowkar as freely to allow benefits to

20

154 RELIEF OF INDEBTED AGRICULTURISTS.

pass, bnt effectually to arrest mutual injuries. The ryot here can never, as a rule,
altogether dispense with the services of the sowkar; for the seasons are not so
regular nor are the means of irrigation so extensive as to ensure equability or
constancy of production. Again, the land-tax is in most cases fixed, and absorbs a
considerable proportion of the produce; and, again, the prices of produce fluctuate,
changing the incidence of the tax on the produce from year to year. In other wcrds,
while the outturn of the land is necessarily varying, the ryot has to pay a fixed and
considerable tax, which must come from the land. Jn other words, again, the
exchequer has to draw a constant and continuous stream out of a fitful supply. The
sowkar by his interposition meets the mechrnical necessity of the problem. He is
the receiver of the fitful supply, and enables the ryot to pay the sarkar equably. He
often performs another useful function, namely, he enables the ryot also to draw fiom
that fitful supply an equable subsistence for himself and family. It is thus to him
that both sarkar and ryot are indebted for equalising to each, their annual receipts
from a fluctuating source. He, therefore, fulfils very beneficial duties, and deserves
to be conserved as an almost indispensable part of the rural organization. At the
same time, we are bound to see that he does not override the interest of the ryots.
Let the Civil Courts enable the sowkar to recover his just claims from the ryots. But
the Courts should not permit the sowkar to press the ryots to the point of crushing.
This point should be well defined and ever kept in view. No process of the Corrts
should, without the concurrence of the revenue-officers of the sarkar, deprive the
ryot of his land, of his agricultural cattle and implements to the extent necessary for
the cultivation of that land, of his cottage, and of food and raiment according to the
necessity of himself and family. These should be left to the ryot, and, as a general
rule, placed beyond the grasp of the sowkar. It should be understood that the first
demand on the produce of the land is that on account of the sarkar tax; the next is
that on account of the subsistence of the ryot and his family; and the last is that on
account of the debt due to the sowkar. The surplus which may be forthcoming in
good seasons after meeting the first two demands may be made available to the
sowkar for the recovery of his advances made to or for the ryot in bad seasons. This
being understood, the sowkar will easily limit his advances to the prospects of such
recurring surplus, and will not go beyond. This principle of adjustment may be
expected to work well and to the advantage of all the parties concerned, provided
that the land-tax is not so excessive as to trench upon the subsistence of the ryot and
the remuneration of the sowkar in an average year. Asa rule, the principle is not
novel in Native States, and has been long in operation, more or less. Our new Civil
Courts should recognize and respect it, and by no means set it aside. After what I
have stated, I need hardly say that our Courts should not imprison the ryot on
account of debts dne to the sowkar and consign industrions hands to idleness, unless
where the debtor may be fairly presumed to possess the means of payment and to
withhold payment from a refractory spirit.

The Quarterly Review, in an able and interesting sketch of the
Deccan published last April, further truly describes the useful
functions of the money-lender in relation to both the State and
society :—

The village banker is essential to the social system of the country. At orfce the
purckaser of rural produce and the local agen’ of the central mercantile firms, alike

RELIEF OF INDEBTED AGRICULTURISTS. 155

the village shop-keeper and money-lender, he enables the peasantry to derive full
benefit from a good season, and to moderate the recurring disasters of drought and
flood. Without his aid the rent would not be realized. His functions in normal
times are most important, but in the abnormal times of famine they are indispen-
sable. Then the banker and shop-keeper is stimulated to double activity in both
capacities. He advances from his stores, food, seed, stock, and even money to the -
peasantry, who can offer nothing but their credit in return. By relieving the better
classes of the community he lessens the pressure on the public purse. But he does
more than this. * * * Experience has proved the advantage of leaving the
transport and distribution of food-supplies to private trade. * * * It is the
sowkar who spans the gulf which separates want from plenty, and fulfils the functions
of distribution which no State agency can perform!

The problem before us is how to keep the money-lender in his
place, to encourage and support him in all useful functions, but to
restrain him, as he is restrained in Native States, from becoming the
enemy and oppressor of the poor. The leading principles of our new
measure, then, should be to give both sides fair play, instead of setting
the two classes by the ears; to diminish the risks of fraud in
borrowing and extortion in repaying; to diminish the risks of loss
in lending and excessive. delay in recovery; to obliterate any stigma
resting on our judicial institutions. We must foster due credit, check
that which is undue, and allow free scope to all civilising processes
and healthy relations between capital and labour. We must hold
the ryot responsible in our Courts for’what he has really borrowed,
not for what he has not, and make him repay by his own exertions all
that he reasonably can repay, not set him free, by sudden, one-sided
or ‘heroic’ remedies, to enter on a fresh career of indebtedness. In
short, we must see the parties as they really are, in a condition of
Oriental, not of European, civilization, and deal with them by the
Indian experience of success in past generations and failure in the
present, rather than by the intrusion per sa/tum of alien institutions
which are in their own land the rsult of centuries of experience under
totally different conditions.

I will now endevvour to set forth, es clearly and fully as time and
the occasion permit, the principal provisions of the Bill I am intro-
ducing, premising that, as the latter is intended to supplement, modify
and dovetail into the Civil Procedure Code, and it therefore in some
parts presents to the unskilled reader a confused and imperfect aspect,
I shall discard its arrangement, and endeavour to express in plain
English the effeet which its provisions (coupled with the code) are in~.
tended to produce. :

156 RELIEF OF INDEBTED AGRICULTURISTS,

The first object aimed at is to establish precautions against
fraud by either debtor or creditor in their original transactions
with each other, and so keep them on good terms and out of
Court, as far as possible. The Commission thus enumerate the

chief frauds which are practised :—

By creditors : (1) forging bonds ; (2) withholding the considera-
tion mentioned in bond ; (3) obtaining new bonds
in satisfaction of old bonds and of decrees, and
nevertheless enforcing the latter; (4) not giving
credit for payments; (5) refusing to explain or
wrongly representing their accounts to debtors.

By debtors : (6) tendering in evidence false receipts and false
evidence of alleged payments ; (7) pleading that
bonds are false when they are really genuine.

* * *

The next step contemplated is that, whenever serious
misunderstanding unfortunately arises between money-lender and
ryot, either party should be able to resort to a friendly non-
judicial authority bound to use his best offices to reconcile the
two, and that no litigation should be commenced without a certificate
from the Conciliator (as the authority constituted by chapter VI
will be termed) that his endeavours in this behalf have failed.
Such Courts of Conciliation were advocated by Sir Jonny Srracury
just twenty years ago,and by Mr. Cusr in 1870 in the Caleutta
Review. On the present occasion, their success in France was
brought forward last year by Sim Erskine Perry in some Notes
which have been published in India; and the subject is suggested
for consideration in the Secretary of State’s despatch already
referred to. For details of the French system, derived from personal
observation during a residence in France, I am much indebted to Mr.
FirzpatTrick, the Secretary to the Government of India in the Legisla-
tive Department. The proposed Conciliators will so far differ from
the French Juges de Paix, that they will not have, in addition to
conciliatory functions, a petty judicial jurisdiction (up to 100 franes,
equal to Rs. 50), nor will they be able to compel the attendance of the
defendant before them ; but they will, in consequence, be unable to
exercise undue pressure, which in India might perhaps uhder
some circumstances be apprehended.

RELIEF OF INDEBTED AGRICULTURISTs., 157

** Closely “connected with the subject of conciliation is that of
Panchayats, or arbitration by non-official persons or bodies, such as
the Poona Arbitration Court, and of incorporating such arbitration,
with more or less assistance and control, into our judicial system.
The question is a difficult one in some aspects. All that Iam now

able to say is that it is under careful consideration. * * *

Supposing that, notwithstanding all the preceding _ pre-
cautions, the dispute unfortunately develops into litigation, the
Bill next endeavours to place the Courts of law within easier dis-
tance from the homes of the people, and to make them more absolute,
less technical, less dilatory and less expensive. I may here
mention that, out of 4,650 villages in our four districts, only
29 per cent. are now within ten miles of their Courts ; 35 per cent.
are from ten to twenty miles off ; 24 per cent. from twenty to
thirty miles ; and 12 per cent. between thirty and sixty miles—
distances which, in the absence of railways, represent a consider-
able inconvenience and loss of time to those obliged to attend.
In pursuance of the objects just named, chapter V empowers the
Local Government to appoint any Patel of a village whom it deems
competent to be village-munsif for his own village, or, if desired,
for other villages also within a radius of two miles. The munsif’s
jurisdiction will be limited to suits for money not exceeding ten
rupees, and will generally follow the model of the Madras village-
munsifs system, constituted under Madras Regulation 4 of 1816,
except that the munsif will not have, as there, a further jurisdic-
tion, by consent of parties, extending up to Rs. 100. The munsif’s
decision will be final, except in case of corruption, gross partia-
lity or misconduct proved before the special Judge, to whom I will
presently refer. This Madras system is well worthy of attention.
It is a remarkable fact that these munsifs dispose of nearly one-
fourth of the whole civil litigation of the Presidency. In other
words, some 45,000 suits, for which the people in Bombay might be
dragged to our regular Courts, with all their attendant delay, cost
and harshness, are in Madras quietly disposed of at the people’s
own homes without any one of these evils. Nearly the whole of these
suits are for sums not exceeding Rs. 20, and nearly half for Rs. 5
and under ; but the returns do not show how many of them are for
Rs? 10 and under, and therefore tried without. the consent of both
parties. It has been surmised that many of the disputes here dignified.

158 RELIEF OF INDEBTED AGRICULTURISTS.

by the name of ‘suits’ are so petty, that in Bombay they are
never brought toa regular Court at all ; but the general statistics
do not bear this out, as in the Bombay mofassal in 1877 there were
144,412 suits toa population of 154 millions, while in Madras there
were only 190,290 to above 81 millions. Again, I understand from
Mr. CarmicuaEL, Member of Council at Madras, who has kindly given
me much information, that the bulk of them are not between usurers
and ryots. But the fact remains that a very inferior agency can
dispose successfully, without appeal, of suits not lower in value,
though differing somewhat in nature, from those with which we have
to deal. Although, however, village-munsifs may thus be a fairly
efficient institution in Madras, where they are a survival of
ancient times, and where society is still in a comparatively simple
state, it would be impossible at the present day to constitute them
by law throughout all villages or village-circles in our Deccan
districts. 'The people are now too independent, too active-minded,
too irreverent to accept implicitly the decision of village seniors
as such, or, as a native newspaper puts it, “in the present times

of freedom and liberty, when even children do not obey their parents,
the village headmen have no authority and influence.’ Even if we, in
Bombay, could successfully impose on our hard-worked and ill-paid
patels this, to them, novel function, there is the further diffi-
culty in their case that the bulk of our petty suits are brought by
money-lenders, with whom the pate? would too often be, by want of
education or by absolute interest, unqualified to cope. Our
advaneed conditions postulate a more skilled judicature, better
Judges, and, consequently, fewer of them ; and these the Government
must in the main provide. Atthesame time, there can be no harm
in taking advantage of the present opportunity to empower the
Government to invest with petty jurisdiction up to Rs. 10 any village
patels whom it may here and there find to be qualified by education
and character. We may hope that the number of such
will gradually increase.

Next above these new Munsif’s Courts come the existing
Courts of Subordinate Judges, who are all trained officers, divided
into two classes, with proportionate. powers, and receiving salaries
of from Rs. 200 to Rs. 800 per mensem. These Courts it is proposed
to strengthen in two ways. Their number will be increased frém
24 to 36, thus diminishing their local jurisdictions and the distances

RELIEF OF INDEBTED AGRICULTURISTS. 159

to them from the people’s homes; but this, being an executive
measure, needs not to be provided for in the Bill. Their powers
will, moreover, be considerably increased. By chapter II of the
Bill, all subordinate Judges in the forvr districts will be invested
with what are termed small-cause-court powers, but enlarged so as
to include mortgage-cases of the class in which agriculturists are so
commonly involved. And by chapter IV they will all receive jurisdic-
tion in insolvency. The question of how far the summary jurisdiction,
not open to appeal, which the small-cause-court model implies, might
safely be entrusted to the two classes of subordinate Judge, has re-
ceived careful consideration in connection with the opinion of the
Secretary of State in paragraph 33 of the despatch: ‘I am_ inclined
to think that the principle of summary jurisdiction without appeal
might be conferred experimentally on all civil Judges in the Decean
with great benefit.’ It is considered that such jurisdiction may be
conferred on the first class subordinate Judges up to the full limit
allowed in the Mofassal Small-Cause-Courts Act, namely Rs. 500,
and on the second class subordinate Judges up to Rs. 1000 absolutely,
and up to Rs. 500 by consent of the parties (on the analogy of the
higher jurisdiction of village-munsifs in Madras). But three special
safecuards are proposed in chapter VII. Firstly, inspection. A
special Judge will be appointed to inspect, supervise and control
the proceedings of the subordinate Judges, munsifs and conciliators
under the Act in all the four districts, and see its new principles and
policy effectively carried out. The special Judge will be aided, in
each pair of the four districts, by a special assistant Judge or sub-
ordinate Judge, who will during the greater part of the year be
engaged in travelling about, inspecting and supervising all sub-
ordinate Courts. In Bombay the Collector and his assistants similar-
ly move about, inspecting and controlling the revenue and magisterial
administration, mixing with the people, and, in particular, examining
the civil work done by mamlatdars.. Long expertence has proved
that the system produces excellent results. Secondly, reviston. The
power of revision vested in the High Court by section 622 of the
Code of Civil Procedure is extended, on the analogy of section 295
of that Code, to the special Judge, who will be enabled to call for
and examine the record of any case and correct failures of justice, as
alsg similarly to deal with cases called for and referred to him by his
assistants just mentioned. The powers of the High Court under the

160 RELIEF OF INDEBTED AGRICULTURISTS.

same section will remain intact. Thirdly, sitting “on banco.’ The special
Judge and the assistants with his authorization are enabled to stay the
proceedings in any case pending in a subordinate Court, and to sit with
the Judge as a Bench to try it. The power of withdrawing a case and
trying it himself, or transferring it to another Court, which the district
Judge possesses under section 25 of the Code of Civil Procedure, will
also be exercised by the special Judge, and by his assistants with his
authorization. These provisions will enable important cases to be tried by
superior officers or a Bench, and promote that exercise by such officers
of their personal example, and that enlargement of their practical
experience, which are thought so desirable by the Secretary of State.

In concluding this part of the subject, I should explain that the
amended jurisdiction will, for convenience’ sake, supersede altogether
that under the Mofassal Small-Cause-Courts Act, and thus litigants
who are not agriculturists will, in money cases, obtain throughout the
four districts the special advantages designed for the latter. Also
no special provision is made for subordinate Judges moving about
and sitting at different places, because they can be required to do
so under the existing law.

The procedure followed by the Courts under their new jurisdiction
will be pretty nearly that of Small-Cause-Courts, which again differs
but little, except as to recording evidence at length, from that of the
Code of the Civil Procedure. One exception, however, is so import-
ant as to require special mention. The Commission pointed out that
the proportion of eases decided in Bombay ex parte, or in the absence
of the defendant, vastly exceeded that in any other part of India.
In the four districts the proportion ranged in 1876 from 60 to 74
per cent., and last year from 57 to 66 percent. This has been
ascribed to a variety of causes, of which the chief probably are ignor-
ance of the ryot that he has a defence, want of means to pay a
pleader, conviction that the Court, for want of time or other reasons,
will not go into the merits of his case or look behind the bond, fear
of irritating his ereditor by a defence or fraudulent non-service of
summons. The various provisions of the present Bill, however,
completely alter the position. The obligation laid on the Court of
going into the whole merits of the case, and, behind the bond, if
necessary, to which I shall presently allude, will remove the first
three of the above causes of backwardness on the ryot’s part, nd
will ‘probably lead to his more frequent voluntary appearance, But

RELIEF OF INDEBTED AGRICULTURISTS. 161

that obligation ean scarcely ever be successfully performed in his
absence and without. his help; and it is therefore considered indis-
pensable to make it incumbent on the Court ordinarily to exercise,
in all cases of a defendant’s non-appearance, the power of compelling
him to attend, now vested in it by the Code for exceptional use.
Compulsory attendance will meet the other two causes of absence
above mentioned. Any hardship which it might be supposed to in-
volve will be more than balanced by the consequent better hearing
of the ease, and will, moreover, be much lessened by the proposed
bringing of the Court nearer to the debtor’s home.

Closely connected with the question of procedure is that of how
far effect should be given to the suggestion of the Secretary of State
that possibly it would be desirable to exclude professional pleaders
from the ‘courts with summary jurisdiction and without appeal up
to a limited amount’ which he desires. Upon this point we have
two precedents. ‘The French Code excludes all skilled advocacy from
the Courts of the Juges de Paix, whether in conciliation or trial of
suits, in the following most stringent terms :—

‘Aucuns avoues, greffiers, huissiers et ci-devant hommes de loi on procureurs ne
pourront representer les parties aux bureaux de paix.’

The Madras Regulation for village-munsifs excludes professionals,
but allows the deputation of a relative, servant or dependant—so that
for instance, a sowkar could send his gomashta, and a ryot could send
or bring with him a clever son or nephew, educated in a Government
school. It may be true that where a case, involving even a moder-
ate amount, is intricate, owing to mortgages or other exceptional
circumstances, a competent pleader may be of@nuch use both to the
parties and the Court. On the other hand, it must be admitted that
a pleader is a weapon at the command of the rich alone (one subordi-
nate Judge even states that a pleader who often took ryot’s cases
would lose his best customers) ; that in simple suits a pleader can often
add nothing of value to what is in evidence, but only wastes time
and introduces confusion; and that the presence of pleaders pre-dis-
poses some Judges to decide on what counsel put before them instead
of going independently into the merits. Upon a balance of such
considerations, the draft Bill follows the Madras law in excluding
pleaders, but admitting non-professionals, in all cases before a village-
munsif or conciliator. It also attempts to check the unnecessary
employment of pleaders in higher Courts, by excluding pleaders’

21

‘162 RELIEF OF INDEBTED AGRICULTURISTS.

fees from the costs awarded in cases before a subordinate Judge not
exceeding Rs. 100, unless the Court certifies that professional assis-
tance was necessary to the proper conduct of the case. The appoint-
ment of a pleader by the Court in cases where the debtor needs
counsel but cannot obtain it, is also provided for. This has been
suggested in several quarters, and seems reasonable.

I must here venture to express my regret that a material simplifica-
tion of the civil procedure with a view to saving delay and expense has
not been found to be feasible. I see from official returns that in the
Bombay Presidency in 1877, the average duration of uncontested
suits was 132 days, and of contested suits 272. It is no doubt true
that the intricacy of a suit has no necessary connection with the amount
in issue, and that a mortgage for Rs. 50 may present the same
features as one for Rs. 5,000; and it may be argued with much show
of reason that a Procedure Code should provide for all possible cir-
cumstances, and be of general applicaction. At the same time,
looking to the fact that, out of about fourteen hundred thousand civil
suits of all kinds disposed of annually by the Courts of all grades in
British India, some twelve hundred thousand, or 85 per cent., are
for sums under Rs. 100, and six hundred and thirty thousand, or 44
per cent. for sums less than Rs. 20, I cannot but feel, and I think
the people feel too, that our Civil Procedure Code, with its six
hundred and fifty sections and all that they involve, is in minor cases
a burden almost too heavy to be borne. I trust the day may come
when not only Deccan ryots but all India will obtain some relief
in this respect.

Having thus noticed the proposed reorganization of the Courts,
I proceed to explain some important changes contemplated in the
substantive law which they administer. These group themselves
round two main heads—the definition of a debtor’s liability and the
mode and extent of its enforcement.

A court proceeding to determine the amount of a debtor’s
liability is met em Jimine (in our four districts at any rate) by
the undenjable fact that, as Mr. Pepprr expresses it, ‘the passing
ofa bond by a native of India is often of no more value as proof
of a debt he thereby acknowledges than the confession by aman
under torture of the crime he is charged with.’ The Commission
urge two points,—that the money-lenders have learned, through our
system, to use and rely upon bonds almost exclusively, and that

RELIEF OF INDEBTED AGRICULTURISTS. 163

their bonds are mostly no correct representation of actual transac-
tions. In close connection with this difficulty about bonds is
that of usurious and of compound interest, whether only levied
in the account, or also provided for in the bond. That the money-
lenders do obtain bonds on false pretences ; enter in them sums
larger than agreed upon; deduct extortionate premiums ; give no
receipts for payments and then deny them ; credit produce at
fraudulent prices ; retain liquidated bonds and sue on them; use
threats and warrants of imprisonment to extort fresh bonds for sums
not advanced ; charge interest unstipulated for, over-calculated,
or in contravention of Hindu law, and commit a score of other
rogueries—these are facts proved by evidence so overwhelming
that I scarcely know whose to quote out of the five volumes compo-
sing the Report of the Commission. Hence arises the question
whether, as the Secretary of State expresses it, ‘the Courts should
be obliged to enter into the merits of every money-ckim, whether
for principal or interest, as they deemed just, and should in no case
give compound interest, or a larger amount of interest than the
principal sum.’

The answer in the affirmative has been maintained, in
various quarters of not inconsiderable authority, to be in accor-
dance with sound general principles of equity. Str ARrHuR HosHouss,
in a note on the execution-sale of land dated April 28th,
1874, when alluding to some remarks by ‘a man like Sir Jonn
STRACHEY, who treats the subject with equal sobriety and ability,’
continues :—

‘From my point of view, I say that, if what he has said, or the major part of it,
be now true, it can only be met by a large increase of correctional power over
coutracts to be vested in judicial tribunals and strengthened by a usury law. In
our own country the Courts of Equity invented laws for the protection, not only of
persons of weak character and immature age, but of expectant heirs, of rever-
sioners—in fact, of all persons placed under temptation to make improvident
bargains. When they came across the usury laws they made them subject to the
more sweeping law created by themselves, and moulded them so as to produce
fairly reasonable, though not very legal, restits. They laid hold of mortgages under
which the mortgagee became absolute owner if the debt were not paid by a certain
day, and declared that the parties did not mean what they had said, but that,
notwithstanding the absolute forfeiture, there remained an equity of redemption
in the mortgagor. * * * I do believe that sensible Judges, armed with a large
power of moulding improvident bargains, and strengthened by a usury law in the
back-ground, may administer more than a trifling palliative.’

164. RELIEF OF .INDEBTED AGRICULTURISTS.

Sir Greorce Wineate wrote thus in 1852 :—

‘It remains to be shown how it is that the creditor in our Provinces has acquired
a degree of power over his debtor which is wholly unknown in native States. This
power, it is clear to me has been conferred by our laws, which enable the creditor to
obtain a decree against a debtor for whatever may be written in his bond, and
enforcement of that decree by the attachment and sale of whatever property,
movable or immovable, his debtor may possess or acquire. * * * The trst
remedy I have to suggest is as follows. * * The enactment of alaw to permit
the Conrt to decree in all cases, on equitable consideration, whatever rate of interest
it may deem proper, but that in no case shall the total amount of interest exceed
the principal: and that the Court shall also in all cases be at liberty to fix the
amount of the principal on equitable considerations with reference to the amount
which it may consider to have been actually received by the debtor, and irrespective
of the sum entered iu the bond or acknowledgment of the debt.’

Mr. PEDDER says :—

A bond should not be considered sufficient proof of a debt uriless its antecedents
will bear the light, and show that the consideration for which it was passed was a
fair as well as an actual one. * ad . = * be

It appears to me that some limitation of the rate of interest and some restriction
on grossly unfair stipulations in contracts, as contrary to justice and public policy,
are practicable and expedient.’

From ‘The Land and the Law,’ a well-known pamphlet by the
Hon’ste Mr. Justice West, of the Bombay High Court, I take
the following excerpts :—

‘If, on the one hand, therefore, the State must needs lend its aid to the creditor
as an essential condition of material progress, it must, on the other hand, assign
bounds and conditions to this aid, without which it will probably become an instru-
ment of social and political mischief. Particular classes in England supposed to be
specially subject to imposition or unfair usage,—as seamen and miners—are protected
against disadvantageous bargains. The truth is recognised and acted on that there
is no real equality, even of the rozghest kind, between them and their employers.
Still less can such an equality be assumed with safety ina community split up into
Sections, divided by the impassable barriers of caste and hereditary occupations.
The extremes of astuteness and gullibility are thus fostered and brought into
contact. * * * At an earlier stage, borrowing at interest in England, as else-
where, was generally an appeal of helplessness to avarice. * * * ‘There are
few who will deny that the India we have to deal with is much more like that
earlier England than the England of today. In the case of all obligations for a princi-
pal of not more than Rs. 500, the Courts should have full power to treat any
interest in excess of nine per cent. as simply penal, and to cut it down to such rate
as should, under the circumstances, seem just. * * * Compound interest should ~
be disallowed, consistent as it is with sound commercial principles, in order to
make it a disadvantage to creditors to leave obligations unsettled until the debtors
are involved beyond redemption.’

~

RELIEF OF INDEBTED AGRICULTURISTS. 165

But upon this subject not only opinion but precedent are forth-
coming. Of the manner in which our Government, a few years ago,
deemed it necessary to protect. the ryot we have a striking instance
in a Clause (still unrepealed) of the Bombay Regulation of 1527, It
runs thus :-—

Clause 2.—And in the case of a cultivator of the soil sued upou’a written
acknowledgment executed at a place which was not at the time of such execution
under British jurisdiction, if the cireumstances are such as to convince the Court
that the creditor might reasonably be expected to possess other proof of the amount
besides such written acknowledgment (the consideration received for the same being
contested), then the said writing shall not be held conclusive as to the amount,
whether the defendant prove a deficiency in the consideration or not, but the Court
shall pass a decree for only such amount as the claimant may otherwise prove.to be
due.

The law which preceded it, Regulation 1 of 1823, was even more
explicit :

Section 36._-Whenever a cultivator of the soil is sued upon an acknowledgment
in writiug executed by him before the territory, where it was executed, came into the
possession of the British Government, it shall be competent for him to plead that he
did not receive a full consideration for the same, whereupon the plaintiff shall be
required to prove his debt in the same manner as if no acknowledgment had been
executed ; and such sum only as in the circumstances of the case is just and equit-
able shall be allowed in the decree.

The wisdom of our early legislators in thus dealing with the facts
around them was greater than their foresight, which led them to_hope
that with the planting of the British flag, and the establishment of
‘a regular system for administering justice’ the causes would pass
away by which ‘cultivators were easily induced to grant written
obligations for larger sums than were due.’

What the Bombay Government of Sir Ricuarp TEMPLE have from
the first substantially advocated, and what we really need, is
something approaching to a restoration of this early law, together
with power to cut down unreasonable interest. The Court should
set itself to do substantial justice in every case which came before
it, instead of being satisfied with the letter of a bond, or the bald
assertions of either party; and it should, of its own motion, make
such inquiry as it found necessary ‘+o this end. . On the one hand,
a simple denial of consideration should not throw the burden of proof
on the plaintiff, but, on the other, if the circumstances were such
that he ought to have clear accounts and evidence, and he failed to pro-
duce them voluntarily, or on the Court’s requisition, the Court would

166 RELIEF OF INDEBTED AGRICULTURISTS.

draw its own conclusions against him accordingly. If he did not
come into Court with clean hands, he would be entitled to little
consideration. The Court should not go further in any case or against
either side than sufficed to get at the truth of the matter, and to
give an equitable decision. There appears no reason to fear that
such an exercise of its discretion by the Court would be either
unfair to the creditor or demoralizing to the debtor. The objec-
tions to usury-laws are well-known and so cogent that only special
circumstances can justify special legislation. Even a maximum
legal rate of interest, however, had this advantage that, as Mr. West
says, “it set up a standard, and gave fixity to men’s vague ideas of
what might reasonably be asked for the use of money in those
numerous cases in which the loan partook but slightly of the charac-
ter of a true mercantile transaction.” Where the rate of interest is
regulated by the ordinary laws of supply and demand, interference is
indefensible, unless, as in the case of interest after decree, the security
be changed. But where, as Srr Joun Srracuey has said, ‘ the condi-
tions depend more upon the degree of simplicity in the borrower, and
of rapacity in the lender, than on anything else,’ no such respect
need be paid to them—the less so that with Hindus we have the
support of the law of dam-dupat, and that the security will be greatly
increased by the provisions for recovery to be mentioned shortly.
It has been urged and with some truth, that there is nothing in the
present law to prevent such enquiry and doing of substantial justice ;
that certain rulings of the Bombay and other High Courts are sugges-
tive of this course and support dam-dupat, and that the provisions
of the Contract Act as to undue influence are very wide. But,
however this may be, the practice of the lower Courts is usually differ-
ent, and there are good reasons to fear that, unless their duty in this
respect be clearly expressed in the law, ignorance of rulings, press
of work, indolence or a desire to get through cases rapidly, will, as
hitherto, tend to prevent its performance. It may be pointed out
finally, that, Lorp Cransrook, besides confirming the sanction given by
Lorp Satissury to the introduction of the Bombay draft Bill contain-
Ing provisions on the principle above referred to, appears to look with
approval on ‘extending the powers of Judges to modify the contracts
entered into between man and man.’ In accordance with this view,
the first four sections of Chapter III have been framed, and awvill
apply to all determination of the debts of agriculturists which may

*.

RELIEF OF INDEBTED AGRICULTURISTS. 167

take place under the Act. The history and merits of disputed or
doubtful cases will be enquired into, and an account will be taken in
a certain way if the Court considers the agreement not fair and
equitable. Whether these sections express intelligibly, or will secure
effectively, the action needed, seems doubtful; but they can perhaps
be improved in Select Committee. Regarding this safeguard and }
those of registration and accounts already explained, I should perhaps
observe that any ingenious person can imagine methods by which
debtor and creditor in collusion may evade them. But the same may
be said of many other most beneficial enactments. We can only help
those who will help themselves; and I believe a large proportion of
our Deccan peasantry will take heart of grace to do so.

A second important question affecting the determination of the
amount of the debtor’s liability is that of the period of limitation.
The old law of Bombay (Regulation 5 of 1827, octions 3 and 4) fixed
twelve years in the case of debts supp “be ond, and six years
in the case debts not so supported, as f |
suits for recovery must be brought

vithin which civil .
espe . By Act 14 of
1859 these periods were reduced to six and “haa years respectively,
with the further restriction that a debt supported by written con-
tract was to come under the three years’ period, unless it was
registered. This is the present law, Acts 9 of 1871, and 15 of 1877
having made no material change. There is an almost universal
consensus of opinion that, as the Commission say, ‘the reduction
in the periods of limitation has been the cause of considerable
hardship to the debtor.’ Under the old law, the debtor was
rarely sued or called upon to renew the bond till near the expiration
of the twelve years, and then he was, at most, sued under the
provision of dam-dupat for twice the principal sum lent. But under
the law since 1859, the creditor is forced within every three years
either to sue the debtor, or to obtain from him a fresh bond for
principal and any accumulated interest. In practice, he does so nearly
every two years, in order to make sure of not missing the period
through any accident or default. To show the difference between
the two laws: Rupees 100 at 9 per cent. become Rs. 208 in 12 years;
but if the bond be renewed triennially, the amount is raised to
Rs. 260. At the higher rates which are but too common the effect
is more startling. Rupees 100 at 25 per cent. become Rs. 400 in
twelve years; but renewals every two years produce a total of

168 RELIEF OF INDEBTED AGRICULTURISTS.

Rs. 1,139! That these results are actually enforced in practice
is amply proved by the evidence taken by the Commission, from
which Mr. Pepper (in an interesting article in The Nineteenth Century
for September 1877) gives a few illustrations. In short, the debtor
thus suffers the cost of writing and stamping a new bond ; is charged
compound interest instead of simple; often has to bear the expenses
of a suit; and, finally, is frequently obliged also to submit toa
large nominal increase of the principal, as the price of the creditor’s
forbearing to sell him entirely up, or to have him arrested and
imprisoned. It is perhaps unnecessary for me to quote numerous
authorities at length to prove these general results. The collective
opinion of the Commission has been stated. Mr. AucKLanp CoLvin
summarizes the evils, and favours a change. Mr. SamBuuprasaD has
treated the subject with much minuteness, and strongly urges
the restoration of the old Bombay law. Revenue and Judicial
Officers, both Native and European, take the same view in their
letters to the Commission. Mr. Pepper has been quoted already.
Mr. WEDDERBURN, in a report specially called for by the Bombay
Government, advocates a twelve and six years’ limit; and it
has, I observe, been adopted as desirable at a public meeting of the
inhabitants of Poona held not long ago. The Collector of Poona gave
evidence to the same effect before the Famine Commission.

The only plea which has, as far as I am aware, been advanced
in favour of the three-years’ period is that, it obliges the making up
of accounts at short intervals, thus enabling the ryot to know how
he stands, and preventing his being deeply involved without his know-
ledge. This objection had, undoubtedly, very considerable weight
at the time it was made. Whether the benefit of a short account,
thus secured by a three-years’ limitation, outweighed the evils of
a new bond, compound interest, &e., which it entailed, is a point
upon which there may well be difference of opinion. But the whole
aspect of the question seems to be changed by the provisions in
Chapter 9 of the Bill regarding receipts and statements of account.
Taken in connection with section 17, which enables any agriculturist
to sue for an account, and to get a declaration of the amount
really due to him under all the new and searching provisions of the
Act, it would appear that the object of short accounts will now be
attained, and perhaps more efficiently than it ever could have
been by the indirect expedient of a limitation-law. Under these

RELIEF OF INDEBTED AGRICULTURISTS. 169

circumstances, it is proposed to restore, by section 72, the old
Bombay law.

I now proceed to the second head—the mode and extent of
enforcement of equitably determined liability. In the execution of a
decree by sale of movables, the necessary wearing apparel of the
judgment-debtor and his wife and children, his implements of
husbandry, and such cattle as the Court may deem necessary to enable
him to earn his livelihood as an agriculturist, are now protected by the
amended Code of 1877; so it has not been thought necessary to go
further. As to execution against the person by arrest and imprison-
ment, I rejoice to state that it is now considered expedient to
abolish it altogether. Imprisonment will still be inflicted as a
punishment for fraud detected on insolvency; but that is a totally
different thing. The maintenance of imprisonment for debt, as
found in the Indian law, is equally indefensible in principle and in
practice. As to principle, the Deccan Riots Commission make
clear that point, utilizing the opinions of Jonn Sruarr Mitt. Their
appendices teem with evidence in detail as to the extortion and
wrong of which the warrant of arrest becomes in practice the engine.
Unacknowledged payments, fresh bonds for sums unadvanced, life-
long slavery, and even female dishonour may all be obtained—the first
three constantly, by the mere production of the warrant of arrest
without enforcement. They say, for instance, that in 1874 “t
would seem probable that somewhere about 150,000 warrants had been
used as threats only.’ The outery against imprisonment from
officers well qualified to judge of it has been uniform and _persis-
tent. Its abolition is unanimously recommended by the Deccan
Riots Commission. Mr. Pepper and Miss Nieurineate have in The
Nineteenth Century brought the evils it causes prominently before
the British public. Srr Erskine Perry gives its abolition his
‘unqualified approval’ in a note dated December Ist, 1877. Judicial
officers and pleaders take the same view as the executive. Were it
even defensible in theory, which we have seen that it is not, the
abuses to which, in a country like Western India at least, it is
proved to lead in practice, afford sufficient ground for its condemna-
tion in the districts to which the Bill is to apply. The case has
already been once laid, though less perfectly and authoritatively
thar? at present, before the Governor General’s Council in the
debates on the Civil Procedure Bill, The representations I then

22

170 RELIEF OF INDEBTED AGRICULTURISTS.

made had the warm concurrence of Sir Epwarp Baytery and the
learned Advocate General for Bengal (Mr. Paun). The discussions in
Select Committee as well as in Council showed that the objections to
the measure related less to its principle than to the other arrange-
ments, such as an effective insolvency-law and a speedy recovery of
bona fide debts, by which it ought to be accompanied. These the Select
Committee and the Council could not see their way to, owing to the
insufficiency of the judicial machinery in the mofassal; and the
matter may be held to have been deferred rather than negatived.
But the present Bill provides all these necessary accompaniments
for the districts to which it is to apply. Imprisonment was, at
best, a barbarous device to meet the case of a debtor’s concealing
his property or refusing to give it up. Under the draft Bill, it
will be quite unnecessary for these purposes, and reserved for cases
of flagrant fraud or dishonesty in insolvents. In this altered
position, I trust that no hesitation will now be felt by the Council
in abolishing a system which has been proved to be grossly abused
as an engine of extortion, and is in opposition to the legislation
of the civilized world. :

- The case of execution of a decree by sale of immovable
property remains for notice. The problem of whether such sales
should be enforeed—one of the most difficult by which Indian
administration is beset—is entirely the creation of British rule.
Although the later Hindu law permitted the sale of land ‘on proof
of necessity’ and Mahomadan law placed no bar to it whatever, the
general feeling of the country against alienation of ancestral
lands, coupled with the trifling value of the right of occupancy
and the political objections to expropriation felt under a Native
Government, to which I have already alluded in my sketch of the
system of Native States, appear to have co-operated to prevent
sales to any noticeable extent. But under our judicial system
‘the sale of land registered in the collector’s book is’ (as observ-
ed by Lorp Staniey in a despatch of January 25th, 1859) ‘the most
ready way of enforcing a judgment: it gives the least trouble to
both the creditor and the Court, and holds out every inducement
to both to resort to that mode of satisfying the decree in pre-
ference to any other, even in. the most trifling cases.? The Code
provides, indeed, an alternative to sale of the nature of an e/egit,
or temporary alienation, by allowing the land to be placed under the

RELIEF OF INDEBTED AGRICULTURISTS. 171

management of the collector for a term of years, not exceeding
twenty, whenever there is reason to believe that the liability can
be thereby cleared off. But the sections enacted in 1859 were not
efficient for the purpose in view, and therefore little acted on.
Those substituted in 1877 accidentally became almost unintelligible
and we are now amending them. Practically, therefore, sale has
hitherto stood in the Code unfettered. The extent to which this
judicial system has been allowed to play varies remarkably in
different parts of India. In Lower Bengal a zamindari and certain
subordinate tenures are freely saleable, but the tenure of an
occupancy-ryot is not; ‘and the local legislature are just now
considering whether transfer shall be allowed, provided the
purchaser be a brother-ryot and not a money-lender. Saleability
in execution will, of course, follow power to transfer. In the
Punjab, hereditary or joint-acquired land cannot be sold in execution
without the sanction of the Chief Court, or other land without
that of the Commissioner. In the Central Provinces and - Oudh
ancestral property connot be so sold without the sanction of the
Chief Commissioner, or self-acquired property without that of the
Commissioner. In Ajmer all sale is absolutely prohibited. In the
N.-W. Provinces, Madras and Bombay sales are unrestricted. The
position of the question as I have just described it is generally
admitted to be unsatisfactory. In a correspondence originated by the
despatch of Lorp Sranuey already quoted, carried on throvgh the last
twenty years, and now here embodied in some four hundred pages of
print, the question of a remedy has been discussed by the most able
administrators throughout India. The alternatives of making land
by law absolutely unsaleable for debt; of enabling proprietors to make
it so by voluntary trusts or entails; of limiting sale (as in some
native states) to any surplus unnecessary for the subsistence of
the proprietor and his family; of replacing sale in execution by
usufructuary mortgages for the debter’s life, or a maximum term of
years; of restricting sales to’ specifically pledged land; and of
confining the power of sale to the Chief Court of a district—all
these have found powerful and zealous advocates. In favour of
restriction generally, it is urged that to a community whom a variety of
circumstances combine to constrain or tempt into debt, the addition of
the land to the security they can offer is no advantage whatever, but
the reverse. It merely amounts to a permission to live on capital, instead

172 RELIEF OF INDEBTED AGRICULTURISTS.

of living on income, anticipated perhaps, but still only income. The
process of living on capital is but a short one, all the world over.
Abolish the whole land-revenue to-morrow, and the process would
merely be somewhat prolonged. ‘The inevitable end must come at
last, but its concomitants of eviction and penury will, where the evil is
wide-spread, lead to large charitable relief in famine—perhaps
eventually to a poor law, and are also, in parts of India at least,
politically dangerous. But the conclusion of this Council when
passing the Civil Procedure Code, as explained most fully by Sir
Artur Hosuovss in a remarkable speech on March 28th, 1877, was
that, though special measures might be admissible in particular
localities, the plan of temporary alienation through the Collector for
a term of years, whenever the property would be ultimately saved
thereby, being in accordance with the past course of legislation
regarding land in England, and not inequitable, deserved a fair trial;
and that, before going further, an attempt should be made to give
life to the intentions of the legislators of 1859, which have to a great
extent failed of effect.

My object in this statement of the position of the land question,
which I fear may be deemed a digression, is to account for the absence
in the Bill of any attempt at a final comprehensive settlement of it,
and at the same time to show the connection and admissibility of the
two limited measures which are proposed. Section 23 exempts the
land of agriculturists from attachment and sale unless it has ben
specifically pledged. The equity of thus restricting a creditor’s
security has able champions in the general correspondence already
referred to. But in Bombay the question is mainly one of fact,
whether the existing debt can be held to have been, on the whole,
contracted in view of the security of unpledged land. Keeping in
mind the large proportion of such debt which the Commission found
to be ancestral, the recent date (1865) of the legalization of transfers
of occupancy, the known reluctance of the ryots to pledge their
land, and other considerations, the first local authorities have decided
that it cannot. I must confess to some misgivings as to how the
exemption may work in practice. The money-lender may everywhere
make the execution of a bond, laying on the land all his existing
unsecured advances, an indispensable condition of further accommoda-
tion. At the same time, the exemption rests as to the past upoa’a
perfectly intelligible and reasonable basis, while as to the future, the

RELIEF OF INDEBTED AGRICULTURISTS. 173

proposed village-registration will at least ensure that every ryot
when he pledges his land shall understand what he is doing, and
insolvency will open to him a loophole of escape when unreasonably
pressed by an extortionate creditor, if he prefers that alternative.
The second measure, also contained in section 23, is the grant of power
to the Court, when passing a decree or subsequently, to direct the Col-
lector to pay off the amount by managing, for not more than seven
years, any land not specifically pledged, after deducting a modicum
sufficient for the support of the debtor and those of his family depend-
ent on him. This course, which is only a new application of the
principle of temporary alienation, will add greatly to the creditor’s
security, while diminishing the worry and expense to both himself
and the debtor; but I reserve further exposition for the Insolvency
chapter, where analogous provisions occur.

While thus contemplating the continued recovery of debts from
movables and land, however, policy no less than justice demands
that the last refuge of an effective insolvency-law should be pro-
vided for the debtor. Such a law is really the bottom of the whole
matter. Compared with what we mean to compel a man to pay, the
question of what we shall hold him to owe sinks into insignificance.
The need for it has been generally admitted for a long series of years,
and has led to various legislative efforts and measures. Sir Groree
Wineare in 1852 advocated strongly ‘the enactment of a simple and
equitable insolvent-law to enable a debtor hopelessly involved to free
himself from all his liabilities within a limited period’; and, so recently
as December 23rd, 1877, he wrote thus: ‘Of all the remedies
proposed, I estimate the Insolvency Act as of the highest importance,
and as likely to prove the most efficacious.’ Sir Barrie Frere in 1858,
when Commissioner in Sindh, issued Rules which worked well, but
were superseded in 1861 by the Code of Civil Procedure. Mx.
Wittiam Frere, Member of Council at Bombay, introduced into
the Legislative Council there in 1863 a Bill based on these Rules and
the Insolvent Act of the Presidency town (11 & 12 Vie., cap. 21), but
applicable to the whole Presidency. It was carefully matured ‘in
Select Committee, but was eventually withdrawn in 1867 for a variety
of reasons, of which the expediency of awaiting the result of con-
templated legislation in England was one of the chief. Sr1r Jasus
SrepuEN in 1870 introduced into the Legislative Council of the
Governor General an Insolvency Bill applicable to-all India, It was

174 RELIEF OF INDEBTED AGRICULTURISTS.

taken almost entirely from the English Bankruptey Act of 1869;
and on circulation to the Local Governments was generally held to be
too complicated and unsuited to the circumstances of the Indian
mofassal. In 1872 Mr. (now the Hon’sre Jusritcn) West, Judge of
the Sadar Court in Sindh, proposed a Bill with the essential features
of the original rules of that Province; but the matter was not
proceeded with. The measure generally is also advocated in his
well-known pamphlet, ‘The Land and the Law.’ In 1872, also, the
Punjab made a material step in advance in the Laws Act then
passed.

Upon the acknowledged harshness of the Indian law of Insolvency
as it stood up to 1877, I need not enlarge. The new Code of that
year, together with the amending Bill, which will, I hope, be passed
at our next sitting, have so far relaxed it, that a debtor arrested
or imprisoned, or whose property has been attached, may, by applica-
tion, obtain a general inquiry into his affairs, a declaration of
insolvency, and a release, if in jail (with immunity from subsequent
arrest for the scheduled debts) on Jond fide surrender of all his
property. A judgment-creditor also may apply for such declara-
tion. A final discharge may also be granted by the Court at its
discretion where the debts do not exceed Rs. 200, and is in any case
acquired on payment of one-third of the scheduled debts, if the
assets do not produce more, or after the lapse of twelve years. The
law is still, however, most defective. Application may not be
made by a debtor until process has issued against him; arrest is
retained, and imprisonment, though for a shorter period ; a// property,
except the movables exempt from sale in execution, must be
surrendered ; the debtor may be summarily imprisoned for a year,
‘at the instance of any creditor,’ for concealment or bad faith, while
no such penalty awaits the creditor; and, in some cases the debtor’s
future earnings will be unreasonably burdened, while in others the
creditor will not get what might fairly be recovered for him. Finally,
the whole becomes a farce through the restriction that the Court may
not grant a declaration unless it ‘is satisfied’ that the debtor ‘has
not, knowing himself to be unable to pay his debts in full, recklessly
contracted debts,’ as if persons able to pay in full were the usual
customers of the money-lender.

~The fact is that insolvency-law for the Indian mofassal made an
altogether false start. In England fraud by the debtor is the chief

RELIEF OF INDEBTED AGRICULTURISTS. 175

danger, and even the legislation of 1869 has failed through his
ingenuity ; in India fraud by the creditor has almost solely to be
guarded against. In England insolvency is presumably a man’s
fault; in India it is presumably only his misfortune. In England
embarrassment ordinarily arises from gross extravagance or reckless
trading; in India one or more bad seasons, the loss of a bullock
or two, or the religious necessity of marrying a child, are
its most frequent origin; extortion and fraud by ereditors help
its onward course. Yet in England insolvency has_ hitherto
been treated more leniently than in India. Misfortune has here been
made a crime, for which even life-long slavery might not atone.
Surely, we must divest ourselves of much confusion of ideas. Whether
a man 7s insolvent or not is a mere question of fact, quite uncon-
nected with the enquiry how he came to be so. How much he can
repay, without being made a useless or dangerous member of society,
isa mere matter of calculation, into which the moral aspects of his past
conduct cannot enter. To such enquiries, ideas of revenge and punish-
ment are altogether irrelevent. Imprisonment is only appropriate
for concealment, contumacy and other forms of fraud. To declare
an agriculturist inso'vent when he is so; to set a reasonable time
before him during which he shall work himself free and reserve the
means therefor; and eventually to start him afresh with the lesson
of experience, seem more sensible than to lock him up for a time
while his family are starving, and then turn him adrift a beggar. To
the creditor certainly the former course will be the more profitable, as
also to society.

In accordance with these principles, the Bill, in the first place,
provides (section 20) for the numberless petty cases in which the
means of the debtor, the claims against him, and _ his partial or total
inability to satisfy them, come before the Court in the course of the
suit or application for execution. Where this is so, it is far shorter,
simpler and less troublesome to all parties to empower the Court at
once to settle the matter than to let it go on through the perfectly
useless, but costly and vexatious forms of taking out execution, and
applying for declaration of insolvency. Where the case is quite
simple, the Court will, therefore, release the debtor from any balance
which it is satisfied he cannot pay. When there are several creditors
or other complications, and the amount exceeds Rs. 50, it may at
once direct the taking of insolvency proceedings. Again, where such

176 FELINE CF IDTIBIID “CRICTIIURIETS.

proceedings are instituted, either so or on the application of either
debtor or creditor, ascertained insolvency will be at once admitted,
and the Court will proceed to turn the available assets to the best
advantage. To avoid the frequently ruinous loss through selling
movables by auction, the Court may hand over articles at a valua-
tion made by assessors. As to immovable property, any portion
specificaily pledged for a scheduled debt may he let rent-free for a:
premium for a term not exceeding twenty years, instead of being
sold if the debt can thereby be cleared: off. Portions unpledged may
be handed over for a term not exceeding seven years to the Collector,
who will assign to the insolvent sufficient to maintain himself and
those of his family dependent on him, and lease the remainder for the
benefit of the creditors. In practice, the lessee will probably some-
times be a creditor, but more often the insolvent himself under due
security. If the debts cannot be fully paid off by these measures, the
insolvent will be discharged from the balance. The propcsal which
has been made that the fixed period should be subject to the life of
the insolvent has been rejected as too unfavourable to the creditor.
The limit of seven years has been fixed after careful consideration
of the various proposals relating to temporary alienation contained
in the land-sale correspondence already spoken of. If a man’s debts
are so heavy that he cannot clear them off in this time, it is
better that he should get a discharge for the balance, than that he
should drag onas aslave without hope of freedem or stimulus to

exertion.

Reviewing the Bill broadly, it may fairly be said to secure, to
an extent not hitherto attempted, (1) precautions against frand by
either debtor or creditor in their original transactions with each other ;
(2) interposition of friendly conciliation between disputants, previous
to litigation ; (3) approximation of the Courts to the homes of the
people; (4) some small simplification of procedure and diminution
of the expense and technicalities arising from legal practitioners;
(5) equitable jurisdiction to reduce all exorbitant, fictitious and
fraudulent claims; (6) finality of judicial decisions, subject to ade-
quate safe-guard; (7) prompt and unfailing enforcement, throvgh
the collector when necessary, of all adjudicated claims of reasonable
amount ; (8) discharge of the debtor from such claims, or balance of
them, as, after all reasonable enforcement for a long period, could not
be fully realized except by demoralization or life-long bondage.

-

RELIEF OF INDEBTED AGRICULTURISTS. 177

Such a result, while falling not short, in favour of either debtor
or creditor, of what is fairly commensurate with the nature of the
ease, the analogy of law in other countries, the rules of pecuniary
need and supply, and the strictest equity, goes no farther in reform
than the political necessity of a prompt and effective remedy for the
social disorders of the Deccan appears imperatively to demand.

If Tam asked what I think will probably be the effects of the
measure, and how far I expect it to be successful, I must reply that,
although I cannot undertake to answer for all the detailed provisions
of a Bill which is the outcome of revision at more hands and autho-
rities than one, I think that it cannot but be most beneficial, and that
it will to a great extent meet the needs of the Deccan, provided
it be supplemented by executive action in the directions already indi-
eated. Of course, no one expects from it the abolition of indebted-
ness for all time. The ryots are ‘depressed and crushed by a variety
of concurrent causes.’ With only one class of these, though, perhaps
the largest, does the Bill profess to deal, but in a way which may
reasonably be rewarded with success. At least, it gives effective help
toevery ryot who is disposed to help himself. The reorganization
of the Courts is favourable to all parties. The relations of debtor and
ereditor are adjusted on fundamental principles, equitable as between
the two, and essential to the cohesion of society. A man should pay
what he really owes, and no more; but his creditor should not be
allowed to use the State for the purpose of beggaring and enslaving
him. Onthe other hand, we cannot justly and reasonably legislate
for the summary relief of the debtor from unjust and extortionate
claims, unless we also give to the ereditor full and effective aid in
obtaining all that is fairly due to him, and reasonably recoverable.
A ereditor’s difficulties when he has got his decree should be reduced
toa minimum. If we make the decree a just one, it should be effect-
ively enforceable. Without ample provision on this principle, the
destruction of the ryot’s eredit or his bondage to secret and extor-
tionate agreements must ensue, and all our well-intentioned interfer-
ence will do harm instead of good. With such provision, the measure
will not injure the ryot’s legitimate credit, but improve it. Against
all prognostications to the contrary, I set the actual facts observable
in native states. The ryots there get all the credit that is good
for them. I have no faith in the virtues of unlimited ‘tick’. Borrow-
ing and lending with a view to securing permanent enslavement will

23

178 RELIEF OF INDEBTED AGRICULTURISTS.

no doubt be checked ; and so much the better. Bona fide debts should
be more easily recovered, and more reasonable interest would thus be
profitable. Finally, a legitimate mode, more practicable than any
yet suggested, will be provided for gradually clearing off the mass of
existing debt which now weighs upon the people and stops all im-
provement, while the great institution of a peasant-proprietary, which
is at once essentially Indian and considered in Europe the best form
of tenure for a free people, will not be destroyed.

(Betracts from the Proceedings of the Governor-General’s Councerl,
dated the 24th October, 1879.]

Deccan AGRICULTURISTS’ Retrer BIL.

Sir T. Hore said :—

Considerable criticism has been directed against section 22,
which exempts land from attachment and sale in execution of decrees,
unless it has been specifically pledged. In my introductory speech
I sketched the position of the land-sale question, and explained the
reason for the absence from the Bill of any attempt at a final com-
prehensive settlement of it, and for considering the restriction of sale
to specifically pledged land to be equitable. In the decision of the
question I had taken no part, as this restriction had been proposed
by the Bombay Government, and accepted by the Government of
India and the Secretary of State, before my connection with the Bill
commenced. I ventured, however, to express my views as follows :—

I must confess to some misgivings as to how the exemption may work in practice.
The money-lender may everywhere make the execution of a bond, laying on the land
all his existing unsecured ‘advances, an indispensable condition of further accom-
modation. At the same time, the exemption rests as to the past upon a perfectly
intelligible and reasonable basis, while as to the future the proposed village registra-
tion will at least ensure that every ryot when he pledges his land shall understand
what he is doing, and insolvency will open to him a loophole of escape when
unreasonably pressed by an extortionate creditor, if he prefers that alternative.

My doubts have now been more than echoed by Mr. Justice
Maxwett Metvitt and Mr. Justice West, the former of whom predicts
that loans excepting on mortage, will soon be unknown; while the
latter, concurring in this, adds that the mortgagee will, by the opera-
tion of the Bill, be driven on to become a purchaser, and the ryot
will have no alternative but acquiesce in sale. Here I would only observe
that the most demonstrably correct economic calculations are liable
to be defeated by moral and sentimental causes, and that it by no
means follows that mankind will do what logically they ought to do.
It may be that the affection which the ryot bears to his land will
lead him to defeat his creditor by insolvency; that the competition
amongst money-lenders, which the Deccan Riots Commission report,
will check the exaction of landed security; and, best of all, that
the difficulties of borrowing will tend to keep the ryot’s tran-

180 RELIEF OF INDEBTED AGRICULTURISTS.

sactions within his means. The issue can only be known upon ex-
periment. But it seems clear that the course which has been adopted
was the best under the circumstances. No solution of the land-sale
question generally admitted to be satisfactory is forthcoming. Mr.
Justice MELvILt candidly admits that he has not got one to produce ;
the reservation to the ryot by ‘a kind and impartial authority’ of
the ‘minimum of land’ requisite for ‘ a decent subsistence,’ which Mr.
Justice West advocates has been severely criticized, directly and in-
directly, by very competent authorities. To have postponed relief
to the Deccan till this question was settled for all India would
have been little less than criminal ; to have made no attempt to check
the rapid alienation of ryots’ lands, by a method equitable in itself
and offering the chance of even a limited success, would have been
neglectful. At the same time, it is also clear that the land-sale question
cannot be put off much longer; and I earnestly hope that what has
been written, said and done upon this Bill may accelerate its solution.

I must now notice the important subject of management by
the collector, provided by clause 2 of section 22, and by section 29.
In my introductory speech I said that—‘compared with what we
mean to compel a man to pay, the question of what we shall hold
to owe sinks into insignificance’; and, again, that ‘we cannot justly
and reasonably legislate for the summary relief of the debtor from
unjust and extortionate claims, unless we also give to the creditor
full and effective aid in obtaining all that is fairly due to him and
reasonably recoverable. A creditor’s difficulties when he has got his
decree should be reduced to a minimum. If we make the decree a just
one, it should be effectively enforceable. Without ample provision on
this principle, the destruction of the ryot’s credit or his bondage to secret
and extortionate agreements must ensue, and all our well-intentioned
interference will do harm instead of good. With such provision,
the measure will not injure the ryot’s credit, but improve it’.

In short, I look upon this provision as the keystone or
test-point of the Bill. If it works well, the ryot’s eredit will
be secured on a satisfactory basis: if otherwise, his borrowing,
even for reasonable purposes, within the limits of his true means
will become most difficult, while the alternatives of absolute
non-transferability of land, or eviction and a poor-law, will
stare us in the face. I note, on the one hand, that the Poona
Sabha, Mr. Moorzt and Mr. Naytor doubt the collector’s power to

RELIEF OF INDEBTED AGRICULTURISTS. 181

manage vast numbers of small holdings, while the Commissioner and
the other two Collectors consulted express no misgivings on the
subject. I myself consider that there need be no fear of failure,
provided it be, from the first, recognized that the duty is important
and difficult, not to be performed by mere perfunctory orders,
passed on from the Court to the Aulkarni through an intervening
chain of little-heeding functionaries. Success will, I anticipate,
lie most frequently in a pretty close adherence to the system in
native states, and to the provisions for security and recovery
still extant in our law, though of late years little resorted to.
If the ryot be retained as cultivator wherever possible,—if a
reasonable rack-rent be imposed, personal security exacted, precau-
tions taken against making away with the crop, aid given when want-
ed in securing a fair price, and payment required at the time
means are forthcoming, I see no reason why satisfactory results
should not be attained. But careful supervision by assistant or
deputy collectors and mam/atdars will be indispensable ; and possibly
the appointment of a special officer fora few months to start the
system in the four districts might be advantageous. These, how-
ever, are details, which will, I doubt not, receive full attention
from the Local Government. * * ws

A consideration of the chapter on Insolvency, together
with the sections about going behind the bond, suggests the interest-
ing question as to whether their combined effect may not be to
destroy credit, put a stop to money-lending, render the revenue
irrecoverable and bring the country toa deadlock. On this point
Mr. Justice Maxwett Metvitt, who, I hope I may say without
offence, has treated the problem forced upon us with equal moderation

and statesmanship, makes the following remarks :—

I presume that the Government is satisfied that the effect of the measure will
not be to destroy the ryot’s credit altogether, or to induce the money-lenders to
close their shops. If this should not be the result, but if, on the contrary, it should
turn out that after the agriculturists have been-relieved of their existing debts on the
easiest possible terms the money-lender will go on lending, not on his own terms but
on such terms as may, in the uncertain future, be deemed reasonable by the Judge
for the time being, it would indeed be a consummation devoutly to be wished.
Regard being had (to use the phraseology of the Evidence Act) to the common
course of natural events, human conduct and public and private business, I should
be inclined to fear that such happy results as I have last contemplated are not likely
to ensue ; but it must be admitted that Natives often disappoint our most reasonable
expectations, and that the consequences of such a measure as that which is proposed
ean only be determined by experiment,

182 RELIEF OF INDEBTED AGRICULTURISTS.

What Mr. Metvitn himself anticipates is tolerably evident ;
though he qualifies any conclusion very much in the way I myself
have done when speaking of the possible effects of the restriction
on the sale of unpledzed land. Bat, perhaps, I oaght to offer some
explanation of the grounds on which, subject always to the same
qualification, the Government may be held to be justified in antici-
pating that the dire results just alluded to may not come to pass,
and, consequently, in persevering in the measure before us. It is
atruism that a thing is worth what it will fetch, and per confra,
that in the long run, temporary disturbmg causes apart, a thing
will always feteh what it is intriasievwly worth. Now, the Bill
does nothing to diminish the intrinsic value of land, but rather
the reverse. The value of land depends, at bottom, on the net
produce, or surplus after three deductions, for the cost of cultiva-
tion, the subsistence of the peasant and his family, and the
Government.demand.* Lin] is worth as many years’ purchase of
this net proluce as correspon with the current rate of interest. And
this rate of interest ultimately depends upon the facility of recovery.
Now our Bill does not alter the Government demand, or, consequently,
the net produce, but it inereases the facility of recovery. It must,
therefore, increase the ryot’s sound erelit, instead of diminish-
ing it. I will make my meaning clear by illustration. Suppose a
ryot’s holding yieldine gross produce worth Rs. 100, of which
Rs. 50 go for the three deductions I have just named, leaving Rs. 50
as net produce or margin on which the ryot may borrow. In view
of the provision in the Bill for seven years’ management of
unplelgel lands, the money-lender would be justified in lending on a
money bond Rs. 180 if the rate be 20 per cent., Rs. 228 if it be
12 per cent., and Rs. 252 if it be only 9 per cent. Which of these
rates he will adopt, or whether he must exact a higher rate still,
obviously depends on his chances of getting prid. But these chances
are greatly improved by the Bill; for the ryot will strive to pay
punctually rather than come under the management of the collector,
and the collector’s management (if efficient, as it must be made). will
mvke loss more improbuble still. Notwithstanding all fair allowance

* TI of course ignore such extraneous value as the land may now possess
through the means a hold on it now gives the creditor of commanding
the labour of the debtor and his family and _ other illicit advantages,
—( Deccan Riots Oommvesion Report, page 60.) .

RELIEF OF INDEBTED AGRICULTURISTS. 188

for risks, lower rates will thus prove as remunerative as the present
high ones. For a loan on mortgage, the principle of calculation and
the advantage are the same as for a loan on personal bond ; but in the
end there is this difference, that in the latter case, if the sow/ar lends
beyond the limits, he will lose his money, while in the former, if the
ryot borrows beyond them. he will loss his land.

- All this, it may be said, is very well in theory, but in practice
the conditions of advances depend far more upon ‘the degree of
simplicity in the borrower and of rapacity in the lender than on any-
thing else’; and to this existing uncertainty you have added the
fresh one as to what rate of interest each individual Judge will think
reasonable. I reply that the former uncertainty will be diminished by
the Bill; and that the second will prove more imaginary than real.
There will be far less temptation to extortionate bargains and frauds,
and far more risk in them, now that the whole history-and merits of
the case are to be laid bare in court. And the provisions for manage-
ment and recovery by the collector, standing behind all agreements,
will reduce the factor of uncertainty in credit which arises from in-
dividual character, and willassist the courts in gradually establishing
rates of interest varying within but a moderate range. Their decrees
will thus in time afford the advantage, without the well-known evils,
of usury laws, of which Mr. Jusvice West has well observed in his
pamphlet on ‘The Land and the Law,’ that ‘they set up a standard,
and gave fixity to men’s vague ideas of what might reasonably be
asked for the use of money in those numerous cases in which the
loan partook but slightly of the character of a true mercantile tran-
saction.’

While thus contending that the Government are justified in
believing that the ultimate effects of the Bill will prove beneficial,
I do not conceal from myself for a moment that a trying time of
transition must intervene before all parties have understood and
settled down to their new relations. It is to be fully expected that
difficulties between debtor and creditor will arise in many individual
cases, and even in villages or falugs generally, and that their
effects may appear in the recovery of the land-revenue. But if
judicial and revenue officers alike strive to remove misconceptions and
fears; if the former are even-handed and temperate in their judg-
merfts, and the latter efficient in their management of attached
land; and if, I venture to add, the revenue demand can be so timed

184. RELIEF OF INDEBTED AGRICULTURISTS.

and adjusted as not to drive the ryot to the sowkar, even temporarily,
in order to meet it—then I believe that all trouble will be soon and
safely tided over. That the sowkar will permanently cease to lend,
there need be no fear whatever. The ryot is just as likely to cease
to cultivate. The ryot is as necessary to the sowkar, who can only
employ his capital in agricultural dealings and banking, as the
sowkar is to him. The pair will not sit down and starve together,
with a bag of money between them !

Another large question, which I cannot pass over without remark,
is that of the novel provisions for village munsifs and conciliators.
It has two branches—the one relating to their personnel, and
the other to their functions. I will first speak of the personnel
available for each office. As to village munsifs, it will have
been gathered from what I said in my introductory speech that
I did not expect that more than a pated here and there would be
found qualified to be a village munsif. If the suggestion which I
put forward in 1863, in 1867, and again in 187], that after a
‘reasonably distant future date no person should be appointed pate/
who had not received a suitable education, had been adopted, the
class would now have stood higher in education and_ intelligence
than they do. But a knowledge of reading and writing is not, after
all, indispensable to successful disposal of petty suits, though
absence of interest is so; and this is just what will be in patels
so rare. Now, however, that the restriction of village munsifships
to patels has been removed and the proposal in the Bombay draft
assented to, any person of local influence will be eligible, and the
field of selection will be advantageously enlarged. Virtually, it
will become nearly the same as that from which conciliators are to
be drawn. As to whether competent persons can be found for the
two offices, especially the latter, I observe some striking differ-
ences of opinion. On the one hand, the Poona Sarvajanik Sabha,
Mr. Byramsr Jistpuar in his clear and representative memorial, and
a portion of the native press appear to have no misgivings. On
the other hand, the Collectors of Sholapur and Satara seem to be
pretty much of the opinion of the Commissioner (Mr. E. P. Roserr-
son) that too much power will be thrown into the hands of a class
quite incapable of exercising impartiality, or of resisting local or
personal influence and acting independently and uprightly.’? One
of the principal native newspapers, too, the Dayan Prakash, which

*e@

RELIEF OF INDBTED AGRICULTURISTS. 185

has produced several very able articles on the Bill, thinks that,
though the experiment may well be tried, the difficulties in the way
of obtaining proper Conciliators are insuperable. Finally Mr. Justicz
West appears almost to question whether half-a-dozen men of inte-
erity and intelligence can be found for Conciliators in the whole
Decean tract. Such an opinion, even if not meant to be taken
literally, cannot but arrest our serious attention, coming, as it does,
from one who is not only a Judge of the High Court but Vice-
Chancellor of the Bombay University. I do not ignore the pro-
bability that men qualified in all respects will not be easily met
with; but I must confess scepticism as to a population of even
three millions and a half (which the four districts comprise) being
in a condition verging on that of Sodom and Gomorrah. If it be
so, notwithstanding all our education, civilization and vaunted pro-
gress, then the inference seems difficult to resist, that our measures
for the advancement of Natives to higher positions in the public
service are premature. If the population, as a whole, are thus tainted,
ean our Subordinate Judges, our Deputy Collectors and our Mam-
latdars be utterly different from their caste-fellows and kinsfolk?
Without pursuing this interesting dilemma, I will only say that,
having spent a large share of my time in the Mofassil, and having

always mixed freely and canfidentially with the people of all classes,

I should have no difficulty in finding a sufficiency of competent
men in the districts with which I am best acquainted. It is now
for those who think similarly to bestir themselves, lest the Native
community lose the honourable and beneficent sphere which the
legislature lays open for them, and to make good their opinions by
presenting suitable persons to the notice of the authorities. And
it is for the latter to strive without prejudice to give the experiment
a fair trial, remembering that a knowledge of law is unnecessary,
and even reading and writing are not indispensable to a successful
discharge of the functions in question, in which the layman of age,
influence, shrewdness and good temper may easily surpass the highly-
trained judge. After all, if a competent Conciliator cannot be found
for any particular local area, no one will be appointed, and the require-
ment of conciliation before suit will not apply there.

Turning from personnel to functions, I observe considerable
confusion and misapprehension of those of Conciliators. A Con-
ciliator is neither an arbitrator nor a judge, either in our Bill or in

oA, 3

186 RELIEF OF INDEBTED AGRICULTURISTS.

France, whence the institution is derived. He is simply a dis-
interested third party, who is charged to endeavour to bring disputants
to an amicable settlement. It so happens that in France the Con-
cilators are Juges de Paix, and so have a jurisdiction to try the more
petty of the cases (within, say, rupees 50) in which it is their duty
to conciliate. But they conciliate in all the superior cases which
they have no power to try. The functions of conciliating and try-
ing are distinct, and have no necessary connexion with each other.
Appoint our Village Munsifs or Subordinate Judges to be Conciliators
(there is nothing in the Bill to prevent this), and they will be the
exact counterparts of the Juges de Paix, except in one parti-
cular, to which I will presently allude. Some authorities, including
Mr. Justice Green of the Bombay High Court, think that they ought
to be so appointed. But others, and especially the Local Government,
consider that judicial functions might impart to their recommenda-
tions a weight amounting to undue pressure, which parties, and
especially the ignorant 7,0, might be unable to resist. The one
particular of difference from Juges de Paw to which I referred is
the absence of power to compel attendance. Considering the doubt
whether competent Conciliators can even be found at all, the Bill
follows the opinion of the Bombay Government, thus expressed in
Sir Ricuarp Tempre’s Minute of April 14th, 1879 :—

Though he (the Conciliator) would not have the power of deciding, or enforcing
his decision if he formed one, still he would, by compelling attendance, be able, if
so disposed, to put great pressure on the ryot to admit or to compromise the claim.
Such power of applying pressure by an educated man of position upon an uneducated
and humble man on a claim preferred by aman generally of some education and

wealth is a power that ought not to be conferred upon HONORARY CONCILIATION
JupGEs in the present state of society in the Deccan.’

I myself doubt whether the want of this power will affect the
status of Conciliators, as some apprehend. If they can settle disputes
equitably, the people, debtors as well as creditors, will readily resort
to them. But here, as in the case of giving powers of conciliation to
Judges, the Bill presents no obstacle to a change hereafter. The Local
Government can, under section 37, give power to compel attendance
whenever they think fit.

In connection with Chapter VII, some exception has been taken
to the cost of the extra Subordinate Judges’ Courts to be constituted,
and of the supervising officers. The object of bringing the Courts
nearer to the homes of the people might, it is said, be as well, or even

eo

RELIEF OF INDEBTED AGRICULTURISTS. 187

better, attained by making the Courts move about. The existing
Judges, it is added, have not got too much to do as it is; and the new
summary procedure, with the temptation to refer difficult points to
arbitration, will lead to their having still less. That the Courts should
move about to some extent would certainly be advantageous; and I
hope that the hitherto dormant powers of section 23 of Act 14 of
1869 will now be exercised to enable them to do so. But this can
never be more than a limited benefit. There are rarely above two or
three villages in a faluga containing suitable accommodation for a
Subordinate Judge and his clerks, to say nothing of parties and their
witnesses; and even these are often not conveniently accessible in the
rains. The presence of a considerable body of strangers, too, is always
a source of annoyance and expense to the villagers, even if the calls on
them do not exceed those of hospitality. Time would likewise be
lost in travelling and settling down at each place; pleaders in non-
agriculturists’ cases would be inconvenienced, and minor practical
difficulties would crop up. It is questionable whether, between
waiting till the next visit to the locality to begin, and adjourning till
the next visit to complete, any saving in time would result; while,
finally, the ryo¢ would in very many cases be living no nearer
to the selected village than to the Court’s head-quarters.
As to the other statement, it remains to be seen whether
the duty of going more fully into cases will not neutralize
any saving in time obtained in other ways. But however this
may be, I can see no good reason why the judicial unit of adminis-
tration should be larger than the executive unit. Every ¢aluga ought,
in my opinion, to have its Subordinate Judge as well as its Mamlatdar.
If the civil work proved insufficient to occupy the Subordinate
Judge’s full time, he should be invested with criminal powers. The
Mamlatdar and his first farkun, being ‘proportionately relieved, could
then better overtake the multifarious and increasing duties heaped on
them, besides taking back, at a great saving of expense, the registra-
tion work, of which they were a few years ago relieved.

I will now notice three subjects, the entire omission of which
from the Bill has been the cause of much adverse comment. The
first is that of a modification of the rigidity of our Jand-revenue
system. The Anglo-Indian Press, and seven out of the eleven
vernacular newspapers of the Bombay Presidency which have noticed
the Bill, have commented more or less emphatically on the absence of

188 RELIEF OF INDEBTED AGRICULTURISTS.

provisions in this direction. On the merits of the question in the
abstract, it is unnecessary for me to add anything to the few remarks
which I had to make, for the completion of my argument, in my
introductory speech. But as to its omission from the Bill, I may say
that it is held that for whatever action (if any) which may be
necessary, no legislation is required, but that if the fact were
otherwise, the Bombay and not the Governor General’s Council
is the place where it should be undertaken. Legislation is
unnecessary, because the question is an executive one. ‘The
power of fixing the rates of assessment, original or revised, is
given to the Bombay Executive Government by sections 100 to 107
of the new Bombay Revenue Code, as it was by the previous
law; the power of fixing instalments is so given by section
146; the granting of remissions is equally an executive matter.
The regular mode, therefore, of securing all that the advocates
of a change of system desire is by executive order, or by rules made
by the Local Government under section 214 of the Code. Supposing
however, that it were thought proper to tie down the Executive
Government in these matters more than it is now tied, then the proper
course would be to amend the Bombay Revenue Code ; and that is
the function of the Bombay Legislative Council, which passed it,
not of the Governor General’s Council. Our present Bill, I need
searcely say, would not be before this Council at all but that it
modifies the Civil Procedure Code, which the local legislatures are
precluded by Act of Parliameut from touching.

Another omission which has been censured is that of any reduc-
tion of stamp or court-fees, process-fees, batta, ete. Here, again,
legislation would have been superfluous. In Act 7 of 1870 the
Governor General in Council is empowered by section 35 to reduce
or remit any of the court-fees mentioned in the schedules ; and the
High Court, with the sanction of the Local Government, may under
chapter IV fix process-fees as it thinks proper. Act 1 of 1879,
section 8, contains a similar power to reduce the stamps to which it
applies, among which arbitration awards are included. Iam not
authorized to announce any decision on this subject ; but it will be
seen from paragraph 16 of the letter of the Bombay Government,
No. 2056 of April 15th, 1879, which was published in the Bombay
Government Gazette of the 30th of July last, that some reductions
are locked upon generally with favour. I may add that the regular

RELIEF OF INDEBTED AGRICULTURISTS. _— 189

inspection of Courts under section 9 of Act 14 of 1869, which is
now, as Mr. Naytor remarks, so little practised, is needed, znter alza,
to check abuses connected with these charges. In 1876 the Judge of
- Khandesh brought to light a custom of enhancing the amount pay-
able for stamps by requiring, in certain cases, an application on
stamped paper before a witness was examined. He also found that
in process-serving, ‘in one Court alone as much as 96 days’ pay was
obtained for 24 days’ work, and 102 days’ pay for 26 days’ work,
of the serving establishment.’

The last omission I have to explain is that of any legalization
of panchayats or arbitration courts—a subject which I mentioned in
my introductory speech as still under consideration. A proposal
for the definite incorporation of such Courts into our judicial system
has been put forward by the Judge of Ahmednagar, Mr. Wepper-
BURN, with the concurrence of a body of Native geatlemen, including
some judicial officers, whose position and attainments entitle their
views to the fullest consideration. I must say frankly that I look
upon as wholly visionary the idea that it is possible now-a-days to
find in every village, or even in every small circle of villages, body of
men sufficient in number to allow selection from them by litigants
for the formation of a panchayat, and at the same time qualified to
be arbitrators by influence, intelligence and absence of interest. And
even were this otherwise, I should expect that the strict regulations,
involving checks and delays, which the proposal just referred to com-
prises, would practically destroy the freedom, simplicity and promp-
titude supposed to be the chief recommendations of the panchayat
system. That the provisions for arbitration in Bombay Regulation
7 of 1827, which succeeded the even more efficient ones of Regula-
tion 7 of 1802, had fallen entirely into disuse before their repeal
in 1861, and that the present new ‘arbitration courts’ are kept at
work chiefly by the exertions of a very small number of disinterested
and impartial individuals, are facts not very encouraging to a new
departure. At the same time, as there undoubtedly is a popular
sentiment, originated probably by aversion to our Courts as now
conducted, running in favour of voluntary settlements, I personally
can see no harm in aiding them by legislation of a purely permissive
kind. We might safely revert to pretty much the position of
Regulation 7 of 1827. Persons whom the Government deemed
of good character and competent, as also the members for the time

190 RELIEF OF INDEBTED AGRICULTURISTS.

being of any well-conducted local arbitration court, might be officially
recognized as arbitrators. Such recognition should have the effect
(1) that they should be entitled to the aid in their proceedings of
issue of process by the Subordinate Judge of the division ; and (2)
that any reference for arbitration to them might provide that in the
event of any party thereto giving notice, within fifteen days of the
date of the award, to the Subordinate Judge of the division that he
was dissatisfied with the same, the matter in dispute should be referred
back to the same court or arbitrator, sitting with such Judge as
president. This would supply the recognition and control for arbitra-
tion which its advocates seem to desire, without putting any pressure
on parties to resort to it. But even thus much is considered by the
Local Government to be undesirable and likely to lead to prejudicial
results. As they are, of course, the best judges of the state of.
affairs in the Deccan, the law will remain as it is. I may, however,
point out that there is nothing to prevent parties appointing Village-
Munsifs and Conciliators to be their arbitrators and that an explana-
tion making this clear has been added to section 43.

In conclusion, I must observe that it would be premature to indulge
in any congratulations upon the passing of this measure, and still
more so to attempt to appraise its several parts, to distinguish the
several sources whence they may have been derived, and to distribute
praise or blame accordingly. It will be time enough to do that, if it
need be done at all, when the Act has become an acknowledged failure
or success. At present it is the measure of the Government of
Bombay (and I am glad to think that through many vicissitudes it
has substantially remained so), prepared in general consultation with
myself. But I hope that we may augur well for its future from the
fact that it not only has the approval of the highest official authorities
but has secured, in a degree quite unprecedented, the substantial
support of the Press and the public. Itisa sincere and carefully
matured attempt to solve a difficult problem and to meet a great
emergency. If the course of event should prove that we have erred,
we shall have erred in good company, and after all possible precau-
tions to ensure success.

CHAPTER IV.

RESTRICTIONS ON THE ALIENATION OF LANDs.

[Hetracts from the Proceedings of the Governor General’s Council,
dated the 27th September, 1899.]

PunszaB ALIENATION OF Lanp BI.

Tue Hon’ste Str Cuartes Rivaz said :—

The question of the indebtedness of the agricultural classes in
different parts of India has attracted the notice of Government
from the early times of British rule, and various schemes have
been proposed, from time to time, with the object of protecting
land-holders from the effects of debt and the consequent loss of
their lands. But, so far as I have been able to ascertain, Mr.
Justice West, of the Bombay High Court, was the first, in a
pamphlet, entitled The Land and the Law in India, which he published
in 1872, to formulatea plan for imposing some definite limitations
on the power to alienate land. The theory he propounded was
that, although the British Government had, for the most part,
divested itself of that exclusive ownership in land which had been
recognized as existing under native rule, still it had retained a
right of protective ownership ; and that, as experience had proved
that the principle of free trade in land, which had been allowed
to spring up, was not adapted to the present condition of the
agricultural population of India, the Government ought, in the
exercise of its protective right, to impose limitations on the further
application of this principle, and to pronounce all land to be
inalienable except with its assent. His proposed scheme, broadly,
was that the power of assent should be delegated to Collectors of
districts or other local officers, and that only excess land, above
what was necessary for the comfortable maintenance of an
agriculturist and his family, should be allowed to be alienated, or be
liable to attachment and sale in execution of decrees.

In 1875, in consequence of agrarian riots in the Bombay Deccan,
a Commission was appointed to enquire into the condition of the
agficultural population of that part of India. The result of these
enquiries was the passing of the Deccan Agriculturists’ Relief Act

192 RESTRICTIONS OF THE ALIENATION OF LANDS.

in 1879, by which the ordinary civil law in four of the Bombay
Deccan districts was, in many respects, amended in favour of
acricultural debtors.

In 1881, legislation was undertaken for the relief of large
land-holders in Sindh and in the Broach and Kaira districts of the
Bombay Presidency, and in 1882, for the relief of encumbered
estates in the Jhansi division of the North-Western Provinces.
A main feature of all these enactments was that, while the estate
remained under Government management, the indebted owner was
debarred from alienating any portion of it.

The question of agricultural indebtedness was included by the
Famine Commission of 1878 in the scope of their enquiries, and,
in their report, they expressed their views on the desirability of
protecting agricultural debtors, among other means of relief, by
imposing restrictions on land transfers.

In 1886, Mr. THorpurn, now Financial Commissioner of the
Punjab, then a District Officer in that Province, wrote a book on
the indebtedness of the Mahomedan land-holders of the Western
Punjab, entitled Mussulmans and money-lenders in the Punjab, which
attracted the notice of the Secretary of State for India, and on
which he asked for the views of the Government.of India, In this
book, Mr. THorpurN recommended, among other measures of relief,
that it should be made illegal in the west of the Punjab for any
person deriving profits from a shop or from money-lending to
acquire any interest in land, except (1) in arable or pasture land in
the immediate vicinity of a town or large village, or (2) in manured
and irrigated land elsewhere. The then Lieutenant-Governor of the
Punjab, Sir James Lyatt, in expressing his views on
Mr. THoRBURN’s proposals, said, as regards the particular reecommen-
dation which I have just mentioned, that he was disposed to think
that it would probably be necessary to take steps to check the
alienation of lands to money-lending classes in the Punjab, but that
the remedy suggested by Mr. THorsBurn, namely, to make it illegal
for the moneyed classes to acquire lands, other than those of two
highly artificial descriptions, seemed to him to be impracticable.

In 1891, a Commission was appointed to report on the working
of the Deccan Agriculturists’ Relief Act of 1879 and on the
desirability of extending a similar measure to other Provinces,

RESTRICTIONS OF THE ALIENATION OF LANDS, 193

The Government of India, in forwarding this Commission’s Report
to the Secretary of State in 1894, together witha draft Bill to
provide for the relief of the agricultural classes, in which certain
changes proposed by the Commission in the Deccan Act had been
incorporated, remarked that such legislation would, however,
only partially meet the difficulties connected with the general
problem of agricultural imdebtedness ; that remedies of an entirely
different kind, including measures for further restricting the right
of land transfer seemed indispensable; and that this part of the
subject would be separately and carefully considered.

Accordingly, a Circular was addressed to Local Governments
in October, 1895, in which it was said that the Government of
India were distinctly of opinion that some action in the direction
of restriction upon the alienability of land was generally advisable,
and even necessary, though the manner and degree of the restriction
must vary from province to province. Each Local Government
and Administration was requested to take the subject into its most
eareful consideration, and to communicate its matured views and
definite proposals for action in the direction indicated. Two
Notes accompanied the Circular, in which the whole subject of
agricultural indebtedness in India and the various possible remedies
for checking transfers of land were exhaustively explained and
discussed.

On receipt of the replies to this Circular, it was decided to
deal first with the Punjab, as being the Province where the
question of agricultural indebtedness was of special importance
in its political aspect, and where it was probably possible to go
further than elsewhere in respect of imposing direct restrictions
on land transfers. ‘The reply from the Punjab had been to the
following effect :—‘The JLnieutenant-Governor, Sir Dennis Fitz-
PATRICK, recognized that a poimt might be reached at which the
amount of land alienated, and the number of proprietors reduced to
the condition of tenants or labourers, would constitute a political
danger of formidable dimensions, and that where this danger point
was reached, the only remedy was to attack the evil at the root by
imposing direct restrictions on alienation—for instance, by prohibit-
ing land-owners of specified castes or tribes from alienating their
ancestral lands, without official sanction, beyond their life-time
or for a fixed period, to any {person not belonging to those castes

29

(194 _ RESTRICTIONS ON THE ALIENATION: OF .LANDS.

or tribes.’ While this case was under consideration, a special
enquiry, the results of which were highly interesting and
instructive, had been made by Mr. Tuorsurn, the Commissioner of
_the Rawalpindi Division, regarding the indebtedness of the agricultural
classes and the amount of land alienations in four assessment circles.
of that portion of the Punjab; and Sir Dennis Frrzpatrick came
to the conclusion that in one at least of these circles a case for legis-
‘lation had been made out. He was, however, strongly opposed to a
law of general application to the whole Province, and did not pro-
pose to go further than to take power by law to apply restrictions
on transfer to any particular tract in which a full enquiry might
show that they were required.

Both the Financial Commissioners of the Punjab, on the
other hand, expressed a decided opinion in favour of restrictive
measures of general application, and suggested that all permanent
transfers of ancestral land. ought to be prohibited unless sanctioned
by the Revenue Officers, while temporary transfers ought to be
limited to 15 years, the land reverting to the alienor at the end of
this period free of all encumbrances. A majority of the Judges of
the: Chief Court were also in favour of imposing direct restrictions
on alienations. My Hon’ble friend Mr. Jusmcn Cuarrersesr, after
discussing the question in an able paper and pointing out that the
customary law of the Punjab enables heirs to set aside many aliena-
tions, went on to say that he considered that the great recommenda-
tion of a measure directly restricting alienations would be that it
would exactly define the limits of the land-holders’ power of alienation
and would thus have a_ beneficial effect in checking litigation. He
thought that the restriction to life or to 15 years of a land-owner’s
power of alienating his ancestral lands would be regarded by the bulk
of the land-holding class as consistent with the traditions of the
Province, and would be agreeable to them. It is not clear, however,
whether the Judges advocated a general enactment on these lines,

or merely an enabling one, as recommended by Sir Dennis
Firzpatrick.

The Government of India, in communicating to the Punjab
-Government the opinion which they had formed on the evidence and
recommendations contained in Sir Dennis Frirzparrick’s minutes
and. in the reports of the Judicial and Revenue Officers of the Purjab,
expressed their belief that partial legislation would fail in its object,

RESTRICTIONS ON THE ALIENATION OF LANDS. 195

and would produce more difficulty ‘and jealousy than legislation of
a general character. It was said that a strong case seemed to have
been made out for prohibiting all permanent alienations of agricul-
tural land, except with the sanction of some duly empowered Revenue-
officer, and for restricting temporary alienations to the term of the
alienor’s life, or with the consent of his heirs to a maximum period
of 15 years. In inviting the Punjab Government to consider these
proposals, it was suggested that the quickest and easiest way of deal-
ing with them would be to have them discussed by a Committee of
selected officers.

Accordingly, the Lieutenant-Governor, Sir Mackworru Youns, cir-
culated to selected officials and non-officials a series of questions framed
on the proposals of the Government of India, and followed this up by
convening a strong Committee of Revenue-officers over which His
Honovr himself presided. The recommendations made by this Com-
mittee were that any permanent alienation of agricultural land toa
non-agriculturist, if made without the sanction of the Deputy Com-
missioner of the district, should be void, but *that otherwise there
should be no restriction on sales or other permanent transfers; that
the definition of an ‘agriculturist’ should be ‘any person who either
in his own name, or in the name of an agnate ancestor, was recorded
as an owner of land, or as a hereditary tenant in any estate at the
first regular settlement,’ and that of ‘land’ as in the Punjab Tenancy
Act, that is, all agricultural and pastoral land, whether ancestral or
self-acquired ; that the only forms of temporary alienations to be
allowed in future should be, (1) usufructuary mortgage, with delivery
of possession to the mortgagee, for a maximum period of 20 years,
and on condition that at the end of the period of mortgage the
mortgaged land shall revert to the mortgagor or his successor in
interest with the mortgagee debt extinguished, (2) simple mortgage
which, in certain circumstances, may be converted into a usufruc-
tuary mortgage of the nature I have just mentioned, and (8) leases
for 20 years, or for the life of the lessor, whichever is less; that
the form of mortgage which is conditional sale be declared illegal
with retrospective effect; and, that the hypothecation of a share of
the produce of land should be prohibited for any term exceeding a year.
The Committee proposed to make their suggested restrictions on aliena-
tion? general throughout the Punjab, but to give power to the Local
Government to exempt any district or part of a district, or any person

196 RESTRICTIONS ON THE ALIENATION OF LANDS.

or class of persons, from the operation of the restrictions in whole
or in part. They also proposed to amend the existing law of pre-emp-
tion in the Punjab, to revise the present order of priority of pre-
emption which is laid down in section 12 of the Punjab Laws Act,
so as to exclude strangers who have bought into the village, and to
transfer the hearing of pre-emption cases, both as regards the
fixation of the pre-emption prices and questions of title, from the Civil
Courts to Revenue-officers.

These proposals of the Punjab Committee constitute the founda-
tion of the scheme which is embodied in the Bill which I am
introducing. They have, as I shall explain, been modified in some —
particulars, but such modifications have been made with the sole
object of securing more effectually the intentions of the Committee,
and do not affect any question of principle. I turn first to the restric-
tions to be imposed on sales and other permanent transfers. It
appeared to us that the proposal made by the Punjab Committee,
that alienations between ‘agriculturists’ should continue to be free
from all restrictions, was open to objection. In the first place, the
definition of ‘agriculturists’ which has been framed by the Com-
mittee, or indeed any other practicable definition of the term, must
necessarily include numerous classes of persons who, although land-
holders since the early years of British rule or even prior thereto,
are, in reality, primarily traders and money-lenders by nature and
profession, and not true agriculturists in any proper sense of term.
Moreover, since even the dona fide agriculturist is not infrequently also
a money-lender, we think it desirable to retain power to prevent such
men from buying up land in a village where they would come in as
outsiders and constitute a foreign element in the village community.
We recognize, however, that we must guard against unduly narrow-
ing the market for free sales, and we propose to attain this object
by the following means. On the analogy of section 45 of the Cen-
tral Provinces Tenaney Act of last year, we are providing that all
permanent transfers must receive the previous sanction of a Revenue-
officer, but that sanction shall be given, asa matter of right, in cases in
which the Revenue-officer is satisfied that the intending transferor is a
person who is not a member of an agricultural tribe, or, in cases where
the intending transferor is a member of an agricultural tribe, that the «
transfer is either to an agriculturist, (as defined by the Punjab Com-
mittee) holding land as a proprietor or occupancy tenant in the village

RESTRICTIONS ON THE ALIENATION OF LANDS. 197

in which the land sold or otherwise permanently alienated is situated,
or to another member of the same agricultural tribe residing in the
same district. Our scheme is thus based in this respect on the feeling
in favour of the prior rights of the village community and on the
recognition of the principle of tribal organization which are well
known powerful factors in the social economy of the agricultural
classes of the Punjab. To prevent difficulties or inequalities in the
application of this portion of our scheme, power is being given to the
Local Government to specify by notification what are the agricultural
tribes in each district, and to extend the definition of ‘ district’
in any particular case beyond the ordinary limits of the revenue
district.

Next, as regards temporary alienations, while we accept the conclu-
sions of the Punjab Committee that only the two forms of mortgage
proposed shall in future be allowed, that existing mortgages by way of
conditional sale shall be void, and that leases shall be limited to a fixed
term, we have reduced the maximum period of temporary alienation
from 20 years as proposed by the Punjab Committee to 15 years. We
are providing that any person who has made a permissible mortgage
or lease shall be debarred from making any further alienation of his
land during the currency of such mortgage or lease, but, after careful
consideration, we have decided not to impose any further restrictions
on temporary transfers, whether by ‘prescribing an interval between
two successive mortgages or leases, or by making the alienor retain a
right of cultivation in the alienated land, his rent being fixed by
authority, or by prohibiting the mortgage or lease of more than a
certain portion of a holding. We are also providing that any per-
manent alienation made without the required sanction shall take effect
as a usufructuary mortgage on the conditions prescribed for such mort-
gages, and that existing conditional sales and future unauthorized
mortgages shall be treated in like manner.

We have accepted the proposal of the Punjab Committee in regard
to prohibiting hypothecations of produce.

We are supplementing our proposed restrictions on voluntary
alienations by abolishing the sale of all agricultural or pastoral land
in execution of any decree or order. Under the present practice, sale
of such land in the Punjab in execution of a decree requires, in the
case of ancestral land, the sanction of the Financial Commissioner,

198 RESTRICTIONS ON THE ALIENATION OF LANDS.

and, in the case of other land, the sanction of the Commissioner of the
Division. Such sanction is very seldom given; still, as the allowance
or disallowance of sales depends on the individual judgment of the
Financial Commissioner or the Divisional Commissioner, as the case
may be, an undesirable element of uncertainty is thus introduced
which it is advisable to remove. Moreover, under our proposed restric-
tions on mortgages, land could in future only be sold in execution of
decrees for unsecured debts, and not for debts secured by a usufructu-
ary mortgage. We, therefore, consider that sales of agricultural or
pastoral land im execution of decrees of the Civil Courts should, in
future, be absolutely prohibited in the Punjab.

As regards amending the law of pre-emption in the Punjab we
agree with the Punjab Committee that an amendment of the present
law on the lines they mention is desirable, and will be a useful adjunct
to our scheme for restricting land alienations. We propose to deal
with this matter separately—after further consulting the Punjab Gov-
ernment—either by revising the present pre-emption sections of the
Punjab Laws Act, or by cancelling those sections and framing a new
enactment. |

On the all-important question whether the proposed Act shall be
an enabling Act or a measure of general application, the Government
of India adhere most decidedly to the opinion which they expressed,
as I have mentioned, in addressing the Punjab Government, in favour
of an enactment of general application. It seems to us self-evident
that, if any restrictive scheme is to be worked in the partial manner
which was so strongly advocated by Sir Dennis Firzparrick, it is in-
evitably doomed to failure. In the first place, the remedy would not
be tried till the disease was very largely beyond cure; and in the
second place, if the restrictive measures were confined to scattered
tracts throughout the Province, the agricultural population in those
tracts would be placed at a very serious disadvantage. Their credit
would be injuriously impaired, for the money-lenders, while able to
look to the land for their security everywhere outside these special
areas, would naturally avoid lending to men who were prohibited from
giving such security. The agriculturists in these areas would thus
stand apart as a proscribed class, and would naturally resent their posi-
tion. If, on the other hand, the restrictive scheme be made of general
application, there is no reason to suppose that the credit of the
general agricultural community will be materially impaired—not

RESTRICTIONS ON THE ALIENATION OF LANDS. 199

more so, at any rate, than is desirable in their own interests. Take for
instance, the case of the occupancy tenants of Upper India. Alike
in the Punjab, the North-Western Provinces, Oudh and the Central
Provinces, the occupancy tenant is very materially restricted in his
powers of alienation ; still it is a well known fact that this class of
agriculturists, as a body, is prosperous, and can obtain accommodation
from money-lenders on much the same terms as _ small-proprietors,
The fact is that the money-lender must continue to exercise his pro-
fession, and the agricultural community must, under the rural
conditions of this country, continue to constitute his principal
clientele. 'The money-lender plays a most useful, and even necessary,
part in the social economy of village life, and no one wishes to
eliminate him or to place unreasonable restrictions upon his transac-
_tions. If our proposed scheme is made of general application, he will
have to adapt himself to the new conditions, and will be easily able
to doso. If, on the other hand, the scheme is applied only to selected |
and scattered areas, the money-lender will clearly be master of the
situation as regards such localities,

Such is the plan which the Government of India put forward
with the object of checking the transfer of land from the agricultural
classes in the Punjab. It certainly goes further in imposing direct
restrictions on alienations than has hitherto been attempted in other
parts of India, but the circumstances of the Province with which we are
dealing are quite special, and I trust that I have shown, although I
fear at tedious length, that our scheme is the outcome of very careful
investigation and deliberation.

After all, it must be borne in mind that we are aiming at
reverting to some extent to a state of things which prevailed in the
Punjab before it came under British rule. It is an arguable question
whether the right of free transfer of land was recognised under Native
rule, or whether it is what has been called the ‘fatal gift’ of the
British Government; but, in any case, the question is for practical
purposes one of mere academic interest, for it is an undisputed fact
that in former times the exercise of the right of transfer, at all
events in favour of money-lenders or other out-siders, even allowing
that such right did exist in theory, was for several reasons exceedingly
rare, and we know that even in these days in most Native States
alienations of land are either absolutely prohibited or largely restricted.
We know, too, that in the Punjab the custom of transferring land

200 RESTRICTIONS ON THE ALIENATION OF LANDS,

did not gain a footing for several years after the annexation of the
Province, but that, as land has increased in value and become more
attractive as a profitable investment, the number of transfers has in-
‘ereascd correspondingly and is still increasing. In a letter addressed
by the Punjab Government to the Government of India in 1888,
during the Lieutenant-Governorship of Sir James Lyatt, it was said
that ‘after allowing for the greater accuracy of the statistics of later
years, Str James Lyatt considers that the statements of sales and
mortgages from 1866 to 1886 show a large gradual increase in the
area sold and mortgaged in’ the Punjab,’ and that, ‘in both the east
and west of the province there are districts where the transfers to
money-lenders are serious and appear to be increasing and where the
fact requires Government to consider if a remedy cannot be found
and applied.’ In the following year, H1s Honour the present Lieute-
nant-Governor, then Financial Commissioner, recorded his opinion
that ‘ the only safe conclusion is that there is year by year a gradually
increasing amount of land being sold and mortgaged.’ These opinions
have been confirmed as districts have come under settlement during
the past ten years, and the question of transfers has been specially
investigated by the Settlement Officers, while the enquiries made by
Mix. THorpurn in 1895, to which I have already alluded, showed that
in one out of the four circles with which he dealt, the amount of the
cultivated area which had been purchased or was held in usufructuary
mortgage. by money-lenders was as much as 28 per cent., while in
another circle it was 20 per cent. These facts speak for themselves.
The Punjab is pre-eminently a land of yeomen and peasant. proprie-
tors, and the expropriation by the money-lending classes of these
men who furnish the flower of the Native Army

sturdy land-holders
of India, and who look forward, amid all the hardships and glories
of a military career, to spend their declining years on their ancestral
acres—has, under the influence of conditions which have sprung up
under British rule, been progressing, as I have shown, in different
degrees of rapidity in all parts of the Province. The sole and entire
object of the measure which I have been explaining is, while affording
ample facilities and a sufficient market for unobjectionable transfers,
to arrest the further progress of this mischief, and to check, by remedial
action, an ever-increasing political danger; and I venture to express
a confident hope that our scheme will be received in this spirit by

those in whose interests it has been devised, |

RESTRICTIONS ON THE ALIENATION OF LANDS. 201

His Honour tue Linvrenant-Governor said :—It is unnecessary
for me to allude to the history of this important and much pondered
measure, as this has beea fully detailed by my Hon’ble friend Mr.
Rivaz. I shall confine myself to indicating briefly, what I believe to
be the principal object of Government in prosecuting, through infinite
varieties of opinion and shades of controversy, the course which has

, at last landed us in our present position, and to an expression of
opinion as to the suitability of the lines on which, as explained by the
Hon’ble Member, the Bill has been framed.

The object, in which all are agreed, is to provide a corrective for
the result of our own acts, to mitigate the almost revolutionary effects
of British rule as applied to land tenures in the Punjab. In conferring
or confirming an almost unlimited proprietary right in land, in sepa-
rating the judicial machinery from the executive, in encouraging free
resort to the Courts, we have for five decades been pouring new wine
into old bottles; some of the flasks are cracking, some have already
burst. The State must needs be prepared to undertake some risk in
this process, which has been accompanied with many extraordinary
and beneficial developments, but if it is too rapid, there is something
worse than danger to be faced, and that is positive unfairness. If the
processes of law which are incidental to land cases are beyond the com-
prehension of the average land-holder; if they are too drastic to per-
mit of the continuance of methods which though halting and
imperfect are sanctioned by ingrained habit and long established
custom; if they place the more astute money-lending class in a more
advantageous position than the unsophisticated rustic: then the un-
fairness becomes marked, and interference becomes necessary. There
is now a consensus that this is the case, and the Legislature is being
invoked to remedy the evil. As to the limits of such interference
there are, as I have already said, infinite varieties of opinion. There are
also various methods of interposing: one has passed the stage of dis-
cussion and has taken shape in*the amendment of the Contract Act,

,with the express purpose of placing the money-lender and the agricul-
turist on a level in the Courts; one has been dealt with in the
discussions on the present measure, but has been dissevered from it,
owing to its complexity, and will probably form the subject of legis-

~ lation hereafter—I allude to a proposal to amend the law of pre-
emption. Except as regards matters of procedure, the Bill which is
now about to be introduced comprises, in all probability, all the

26

202 RESTRICTIONS ON THE ALIENATION OF LANDS.

remaining methods which are applicable or in any way advisable.
The main features have been sketched by the Hon’ble mover, and
consist of the restriction of the power of alienftion of land by sale or
perpetual lease, and of the prohibition of all usufructuary mortgages,
except what I may call the automatic repayment mortgage, where
after the expiry of the term of mortgage, which is limited to a
maximum of 15 years, the land reverts to the mortgagor, with the
mortgage debt extinguished. ‘The second of these provisions has my
unhesitating concurrence. It is, in a way, the sheet anchor of the
measure, as preserving the credit of the, agriculturist. In regard to
the restriction of sales, it would be tedious, as well as unnecessary,
for me to explain my personal attitude. 'The measure as now proposed
is a compromise, arrived at, after the fullest consideration, between
two sets of opinions, and, like most compromises, deliberately and
thoughtfully adopted, probably represents the best counsels. In _ the
first place, there is nothing absolute about the restrictive provisions.
The person who lies under the greatest disability under the proposed
Bill, can obtain a dispensation from its provisions, if due cause be
shown. ‘Then the market for sale of land will be fairly open under a
system which permits transfers to any agriculturist of the village or
any member of the same agricultural tribe in the same district, it
being understood that the werd ‘tribe’ is used in its widest signification,
and that the ‘district? may be wider than the Revenue District, if
reason exists. And I concur with the Hon’ble mover that in these
provisions there lies, to some extent, a reversion to a state of ideas
which was prevalent in the early days of Punjab administration, and
is still widely recognized in Native States.

Therefore, with due reserve as to details, I support the Bill which is
now before the Council, believing it to be in many respects one fraught
with great benefit to the Province, while those provisions regarding
which there is most room for difference of opinion embody the result
of one of the most laborious and protracted investigations ever conduc-
ted by the Government, and I feel it to be my duty to accept theme

(Extracts from the Proceedings of the Governor General’s Counctt,
dated the 10th August, 1900. ]|

PounsaB ALreNnATION OF Lanp Birt.

Tur Hon’ste Mr. Rivaz said :—

I think it will be convenient if, in presenting the Report of
the Select Committee on the Punjab Alienation of Land Bill, I
explain somewhat fully the alterations which we propose to make
in its main provisions.

~The Bill which I introduced in this Council last September
imposed restrictions on permanent and temporary alienations of land
in the following manner. In the first place, as regards permanent

-alienations, that is, by sale, gift or exchange, the proposal in

this respect of the Committee of Punjab Revenue officers which, was
convened by His Honour the Lieutenant-Governor in July, 1898, was
that any permanent alienation of agricultural or pastoral land, as
defined in the Punjab Tenancy Act, toa non-agriculturist, if made
without the sanction of the Deputy Commissioner of the district,
should be void, but that otherwise there should be no restriction
on sales or other permanent transfers. I explained, when intro-
ducing the Pill, that the Government of India were unable to
accept this proposal in its entirety, because it seemed to them
that to allow permanent alienations, free from all restrictions,
between so-called agriculturists was open to objection on two
grounds. Firstly, because the definition of ‘agriculturist’ as
framed by the Punjab Committee, that is, ‘any person, who either in
his own name, or in the name of his agnate ancestor, was recorded
as an owner of land, or as a hereditary tenant in any estate at the
first regular settlement,’ or any other practicable definition of
the term, must necessarily include numerous classes of persons
who, although landholders since the early years of British rule
or even prior thereto, are primarily traders and money-lenders by
nature and profession, and not true agriculturists in any proper
sense of the term ; and, secondly, because even the Jona fide acri-
wulturist is frequently also a money-lender, and it was desirable
to retain power to prevent such men from buying up land ina
village where they would come in as outsiders and constitute a foreign

204 RESTRICTIONS ON THE ALIENATION OF LANDS.

element in the villaze community. In modification, therefore,
of the proposals of the Punjab Committee on this all-important part
of the scheme under consideration, the Bill, as introduced last
September, provided that all permanent transfers must receive
the previous sanction of a Revenue-officer, but that sanction
should be given, as a matter of right, in cases in which the
Revenue-officer was satisfied that the intending transferor was
a person who was not a member of an agricultural tribe, or, in cases
where the intending transferor was a member of an agricultural tribe,.
that the transfer was either to an agriculturist (as defined by the
Punjab Committee) holding land as a proprietor or occupancy-tenant
in the village in. which the land sold or otherwise permanently
alienated was situated, or to another member of the same agricultural
tribe residing in the same district.

e

Of these provisions we propose the following modifications. .
In the first place, in deference to a strong body of opinion, on
‘this point, we think that the sanction of a Revenue-officer need
not be obtained in cases where such sanction must be given as a
matter of right. This was only intended as a _ precautionary
measure, and we agree, on the whole, with those who think that the
advantage to be gained in this respect would be outweighed by the
inconvenience which would be caused to those with whose free right
of permanent alienation there is no necessity for interfering. In
one respect, however, we propose to restrict the free right of
alienation by members of non-agricultural tribes, namely, when a
member of such a tribe acquires land hereafter as an ‘agriculturist’
from a member of an agricultural tribe. We think it obviously
necessary that a member of a non-agricultural tribe should not
have the power to sell, or otherwise permanently alienate, without
sanction, any land acquired under such conditions except to another
agriculturist in the same village, or to a member of an agricultural
tribe, and we propose to make provision accordingly. Then, as
regards permanent alienations by members of agricultural tribes, we
have been unable toaccept a suggestion which has been put forward
that no restriction should be placed on such transfers between
members of any agricultural tribe, because we think that the
widening of the market of free transfer to this extent would be open
to the second objection which I have mentioned as applfing to
unrestricted transfer between agriculturists, namely, that the door

&

RESTRICTIONS ON THE ALIENATION OF LANDS, 205

would thus be opened to the money-lender who belongs to an agri-
cultural tribe buying up land ina village where he would come in
as an outsider. At the same time, we recognize the force of the
objection which has been taken that if free transfers are limited
too strictly to within the same tribe, the market, in the case of
some small tribes, will be undesirably narrowed. We propose there-
fore to meet this objection by empowering the Local Government,
with the sanction of the Government of India, to group together,
when thought advisable, small and what may be called cognate
tribes in the same district or in a group of districts, and to
allow permanent alienation without restriction within such groups.

As regards permanent alienations, therefore, the scheme of the
Bill, as amended by the Select Committee, now stands thus ;

‘Any member of a non-agricultural tribe may, without sanction,
make a permanent alienation of land to any person, except in respect
of any land which he acquires hereafter as an ‘agriculturist’
from a member of an agricultural tribe. In this one ease he will
only be able to alienate, except with the sanction of the Revenue-
officer, to another ‘agriculturist’ in the same village or to a member
of some agricultural tribe.’

‘A member of an agricultural tribe may, without sanction, make
a permanent alienation of land toa member of the same agricultural
tribe, or, in certain cases, toa member of any other agricultural
tribe included in the same group as his own tribe in the same
district, or, if so notified, in a group of districts. In all
other cases, every permanent alienation of land by a member
of an agricultural tribe will require the sanction of the Revenue-
officer.’ |

We have revised the definition of ‘agriculturist’ so as to
enable the Local Government, in cases where the first regular
settlement has been made within the past thirty years, to go back
to the record of some previous settlement; we have amplified
the definition of ‘land’; we have ineluded ‘exchanges’ in, but
excluded gifts or bequests for religious or charitable purposes
from, the definition of ‘permanent alienation’ ; we have made clear
that the right of unrestricted purchase allowed to an ‘agriculturist?
sas such can only be exercised in the actual village or villages
in which he has acquired such status; and we have also

206 RESTRICTIONS ON THE ALIENATION OF LANDS.

made clear that the action of a Revenue-officer, when granting
or refusing sanction toa permanent alienation, is purely executive, and
that any such order sanctioning an alienation is no bar to a suit on
any question of title, or to any question relating to any reversionary
right, or right of pre-emption, in a Civil Court.

* * * *

1 come now to temporary alienations of land, that is, alienations
by means of mortgage, lease or.farm. The Bill as introduced allowed
for the future only two forms of mortgage, namely, either a usufruc-
tuary mortgage, with delivery of possession to the mortgagee, for
a maximum period of fifteen years, and on the condition that at
the end of the period of mortgage the mortgaged land would revert
to the mortgagor or his successor in interest with the mortgage-debt
extinguished, or a collateral mortgage which, in certain circumstances,
might be converted into a usufructuary mortgage of the nature just
mentioned. These provisions were in accordance with the recom-
mendations of the Punjab Committee, except that the maximum
period of mortgage was reduced from twenty to fifteen years. Exis-
ting mortgages were not interfered with, except when any such
mortgage was by way of :conditional sale. In these cases, the mort-
gage was to be null and void, but the Revenue-officer was empowered,

“on the application of either party, to order the mortgagor to execute
a fresh mortgage of the usufructuary nature just mentioned, fora
period of a fifteen years, or for such less term as the Revenue-officer
might consider equitable. We now propose the following modifica-
tions of these provisions.

In the first place, we think that, except as regards conditional
sales, which ought, in our opinion, to be absolutely prohibited, there
is no reason to impose any restrictions, whether as to form or period,
on mortgages made by any member of a non-agricultural tribe to any
person, or by a member of an agricultural tribe toa member of the
same tribe or of a tribe in the same group. Then, in deference to
the opinion expressed by a large number of the officers consulted on
the Bill, we have extended the maximum term of usufructuary
mortgage to twenty years, as was originally recommended by the
Punjab Committee. We also propose, in adoption of a valuable
suggestion made by Mr. Dovin, the present Chief Secretary to thee
Punjab Government, and supported by the Lieutenant-Governor, to

RESTRICTIONS ON THE ALIENATION OF LANDS. 207

allow a third form of mortgage, whereby the mortgagor will retain
an inalienable right of cultivating occupancy of the mortgaged land
as the mortgagee’s tenant, on payment of a fair rent which will be
determined, in case of dispute, by a Revenue Court under the provi-
sions of the Punjab Tenancy Act. A mortgage in this form may be
made for any such term as may be agreed on, but the mortgagor will
only be liable to ejectment from his cultivating occupancy if he uses
the land in an improper manner, or, if his rent is payable in kind, if
he wilfully fails to cultivate the land, or if a decree for an arrear of
rent has been passed against him and remains unsatisfied ; but, even
if so ejected from his cultivating occupancy as a tenant, the mort-
gagor will retain the equity of redemption of his proprietary right
on payment at any time of the original mortgage-debt. We also
propose to give power to the Local Government to allow other forms
of mortgage, at its discretion, in addition to the three forms just
specified, so as to permit the use of any existing local kinds of
mortgage which are of an unobjectionable nature. As regards condi-
tional sales, we propose, as I have already mentioned, to absolutely
prohibit the future use of this kind of mortgage in respect of land
owned by any class of persons, and, as regards existing mortgages
of this kind which have been made by any member of an agricul-
tural tribe, we propose, in modification of the provision in this respect
of the Bill as introduced, to allow the mortgagee to elect either to
keep his present mortgage with this particular condition struck out,
or to apply to the Revenue-officer to give him instead a usufructuary
or collateral mortgage in one of the forms to be hereafter allowed by
the Bill, on such conditions as to the amount of mortgage-debt and
period of mortgage as the Revenue-officer may consider reasonable.
Except in the cases which I have just specified, no existing mortgages
will be interfered with in any respect.

As regards mortgages, therefore, the scheme embodied in the Bill,
as amended by the Select Committee, stands thus:

Any member of a non-agricultural tribe may mortgage his land
in any form and on any conditions he pleases except by way of con-
ditional sale. So maya member of an agricultural tribe when the
mortgage is to a member of the same tribe, or of a tribe in the same
group. But in all other cases a mortgage by a member of an agri-
efiltural tribe will have to be in one of the three forms which I have
explained, or in some other form permitted by the Local Government,

208 RESTRICTIONS ON THE ALIENATION OF LANDS.

Existing mortgages will not be interfered with in any way,
except when any mortgage which has been made by a member of an
agricultural tribe contains a condition which is intended to operate
by way of conditional sale. In this one class of cases the mort-
gage will be revised or altered in the manner I have described.

The conditions which will apply to all mortgages made under our
proposed enactment, and those which may be inserted by agreement
between the- parties, are specified in clauses 7 and 8 of the Bill.
Some of these conditions I have already mentioned in explaining
the forms of mortgage which will be permitted, and I need only say
further under this head that, in-the case of term-limited usufruc-
tuary mortgages, the mortgagor will be able to redeem his land at
any time during the currency of the mortgage on payment of the
mortgage-debt, or of such proportion of it as the Revenue-officer
may consider to be equitable, and that in no case will the mort-
gagor be deemed to bind himself personally to repay the mortgage-
money.

As regards leases, we have amended the provisions under this
head of the Bill as introduced by (1) including temporary aliena-
tions of the nature of a farm in the proposed restrictions ; (2) exten-
ding the maximum period of a lease or farm to twenty years, and
excising the condition that, if the alienor dies within this period,
the lease or farm will terminate ; (3) limiting the restrictions to
eases where the lease or farm is by a member of an agricultural
tribe toa person whois nota member of the same tribe or of a
tribe in the same group. Thus the restrictions on leases and farms

are brought into harmony with those on mortgages.

We have made provision for allowing a person who has made a
temporary alienation by mortgage, lease or farm for less than twenty
years to make a further temporary alienation of the same land during
the currency of the first transaction for a term not exceeding twenty
years in all, but have retained the provision of the Bill as introduced
which bars a further alienation of the same land during the currency
of a mortgage, lease or farm, when the first temporary alienation
has been made for the full term permitted.

We have retained the provision. which enables the Revenue-
officer, either of his own motion or on the application of the person
entitled to possession, to eject a mortgagee, lessee or farmer who

RESTRICTIONS ON THE ALIENATION OF LANDS, 209

remains in possession after the expiry of the term for which he is
entitled to hold under his mortgage, lease or farm.

We have also retained the provision of the Bill as introduced
that a permanent alienation which requires sanction, but which is
made without sanction, shall be treated asa usufructuary mortgage
made in the first form prescribed by the Bill, and we have further
provided that any mortgage made by a member of an agricultural
tribe in any manner or form not permitted by the Bill shall be re-
vised and altered by the Revenue-officer so as to bring it into
accordance with such form of mortgage permitted by the Bill asthe
mortgagee may appear to be equitably entitled to claim, and that
any lease or farm made by a member of an agricultural tribe to a
_ person other than a member of the same tribe or of a tribe in the
same group for a longer term than twenty years shall be deemed to
have been made for only twenty years.

As regards the restrictions on hypothecations of agricultural
produce by members of agricultural tribes which were included in
the Bill as introduced, we have, in modification of the absolute
prohibition of such transactions, proposed to allow alienations or
charges of this description to be made fora period not exceeding
one year, or in special cases for a longer period with the sanction of
the Revenue-officer.

We have retained the provision which forbids the sale of land
in execution of a decree or order, but have so far modified such
provision as to make it applicable only to land belonging to a member
of an agricultural tribe, and we have also made clear that the pro-
hibition only applies to a decree or order of a Civil or Revenue Court.
The prohibition as to sale will not, of course, extend to temporary
alienations of land for satisfying a decree which are made by the
Collector, when so authorized by the Civil Court, under section 326
of the Code of Civil Procedure.

We have retained but amplified the clause which prohibits the
registration of any instrument contravening the provisions of the
Bill ; we propose to prescribe that transactions which require the
sanction of a Revenue-oflicer shall not be entered in the record-of-
*rights or in the annual record under the Punjab Land-revenue Act,
until*proof of such sanction is produced ; and we have provided for
the proceedings of Revenue-officers under the Bill being regulated

27

210. RESTRICTIONS ON THE ALIENATION OF LANDS.

by the procedure of the Punjab Land-revenue Act. We have also
made clear that matters which the Local Government or Revenue-
officers are empowered to dispose of under the Bill shall be excluded
from the jurisdiction of the Civil Courts, and, in order that all
proceedings before Revenue-officers under the Bill may be dealt
with promptly and inexpensively, we propose to exclude legal practi-
tioners from appearing in such cases,

The last point which I need mention is that we propose no
alteration in respect of the general application of, the scheme embodied
in the Bill, subject to any territorial or personal exemptions which
the Government of India may from time to time make on the
recommendation of the Local Government.

I trust, my Lord, that I have succeeded in showing that, while
the Select Committee have not altered the Bill which I introduced
last September on any important point of principle, their proposed
modifications of, and additions to, some of its provisions will have
the effect of placing the scheme under consideration on a broader
and more elastic basis. As regards the main object of the Bill,
namely, the restriction of permanent and temporary alienations of
land by the agricultural classes, the scheme, as it now stands, will,
as regards sales and other permanent transfers, while adhering to the
principle of limiting the market of unrestricted transfer to within
the same village community or agricultural tribe, enable the Local
Government to meet the case of any tribes which are too small to
provide any real market of sale within the tribe, by grouping them
with other cognate tribes within the same district or a group of
districts ; and, as regards temporary alienations, the maximum period
for which self-redeeming usufructuary mortgages and leases may be
made has been extended from fifteen to twenty years, while another
form of usufructuary mortgage is proposed under which the mort-
gagor may mortgage for any period he pleases, but on condition of
retaining a cultivating right of occupancy in the mortgaged land on
payment of a fair rent, and preserving his right to redeem the pro-
prietary right whenever he may be able to do so,

[ Betracts from the Proceedings of the Governor General’s Counetl,
dated the 19th October, 1900.

Punzasp ALIENATION OF LAND BILL.

» His Honour tue Lizurenant-Governor (Sir M. Youne) said :—

While congratulating my Hon’ble friend Mr. Rivaz on having
safely piloted this Bill through troubled waters and on having great-
ly improved its form in the process, I am bound to confess that I
find it impossible to speak with much confidence as to its probable
effect. Throughout the discussions which have taken place regard-
ing it, 1 have been conscious of seeing more clearly the objections
to drastic legislation than the arguments in favour of it. I have
been more in sympathy with the Punjab Revenue authorities of the
past than with newer views. Fifteen years ago Sir Cuarizes Arr-
CHISON, writing of this subject, held the opinion that ‘so far as the
evils complained of are inherent in the character and _ traditional
habits of the people, or in the gradual extension of law and systematic
government over a country governed more or less irregularly, little
if anything can be done to improve the position of the agriculturists.’
Two years later Cotone, Wacen, one of the most thoughtful and
experienced Revenue officers whom the Punjab has produced, wrote
in this connection that ‘ we cannot succeed in protecting people against
themselves; nor ought we to hamper those who are thrifty by
restrictions intended for the protection of those who are not.’ Sir
James Lat in 1891, though strongly impressed with the danger-
ous rapidity with which transfers of land were proceeding in the
Punjab, thus expressed himself: ‘No one ventures to say that we
ean go back from the gift of proprietary right, and it is generally
admitted that it existed before our time, and that what we have
really done is to make it more valuable, and thereby to promote its
being encumbered and eventually transferred.” He confined his recom.
mendations to measures designed to check the progress of transfers
so far as it is due to the action of our laws and Courts. His pr>.
gramme consisted of an Act to be framed for the Punjab on the model

*of the Deccan Agriculturists’ Relief Act of 1879. He sketched the
outlimes of the measue which he proposed and asked for early leave to
assemble a Committee of Punjab officers to draft a Bil! on those

912 RESTRICTIONS ON THE ALIENATION OF LANDS.

lines. No action up to date has been taken on these proposals, and
the letter forwarding them remains unanswered. Personally I should
have been content to follow Srr Jamus Lya.t’s programme. But
restriction of the power of alienating land had no place in his scheme,
nor did he ever contemplate such direct interference with the diseretion
of proprietors. The initiative in this respect was taken by the Govern-
ment of India in 1895, when the Governor General in Council
announced the distinct opinion that some action in the direction of
restriction upon the alienability of land is generally advisable and
even necessary throughout India. As explained by the Hon’ble
Mover in his speech in this Council on the 27th September, 1899,
this opinion was framed in connection with, though not in conse-
quence of, the recommendations of the Commission appointed in 1891
to report on the working of the Deccan Agriculturists’ Relief Act
of 1879 and on the desirability of extending a similar measure to
other Provinces. What led the Government of India to this conclu-
sion has not been explained. The idea did not emanate from the
Local Governments, and up to the present time I believe no province
except the Punjab has been asked to consider it. I shall probably
not be far wrong if I say that Mr. THorsurn’s advocacy of the cause
of the indebted peasant of the North-West Punjab against the money-
lender had a good deal to say to it, while the distinguished Punjab
officers who at that time and since have been connected with the
Supreme Government have greatly influenced the decision. Be that
as it may, the proposal to restrict the alienation of land in the Punjab
was made to Sir Dennis Fitzpatrick in 1895 by the Government
of India and not initiated by the Punjab Government. In reply
Sir Dennis Fitzpatrick committed himself to the opinion that, if
an overwhelmingly strong case were made out in regard to any
particular tract, legislation empowering the Local Government to
interfere with alienation in that tract would be justifiable, and having
satisfied himself that such a case had been made out in regard to at
least one assessment circle of one tahsil in the Gujranwala District,
he founded on this conclusion a recommendation for an enabling Act
restricting transfers, not for an Act applying throughout the Province.

The reply to Str Dennis Firzparrick’s proposals was received in
April, 1898, after I had succeeded to the Lieutenant-Governorship of
the Punjab. The conclusions framed by the Government of {india
were set forth in that reply and consisted of two main propositions:

~

RESTRICTIONS ON THE ALIENATION OF LANDS. 218

first, that a strong case seemed to have been made out for prohibiting
all permanent alienations of agricultural land, except with the sanction
of some duly empowered Revenue-oflicer ; and, second, that the legis-
lation for giving effect to this view should be general and not
partial in its character, in contradistinction to the proposal of Sir
Dennis Firzpatrick. I was invited to summon a Committee of
selected officers to advise me in framing my conclusions upon the
scheme of the Government of India, and this I did after circulating
to selected officials and non-officials a series of questions framed on its
proposals, and submitted the resolutions of the Committee with my
own opinion, not quite so soon as I was asked, but still within four
months of the date of the letter calling for it. The proceedings were
conducted at high pressure, but the subject was familiar to all of us,
and my own opinion, which had been formulated and recorded nine
years previously, had not changed since that time in any material
degree; and, had I felt myself at liberty to do so, I should have
reiterated my former views and advocated resort to the less drastic
measures proposed by Mr. Etsmre and myself as Financial Commis-
sioners in 1889, and amplified by the then Lieutenant-Governor, Sir
James Lyatt. But there were two reasons against my taking this
course. The first was that the Government of India with those
opinions and many more before it had committed itself to a definite
preference for interfering with the right of alienation, and, although
I was freely invited to express my opinion, I felt I should only be
justified in placing myself in opposition to its views if absolutely
sure that the policy was mistaken, and that the measure could not be
adapted to the Province in any form without serious risk. I was not
prepared to go so far as this. In stating my second reason I have to
make an admission. The oflicers whom I nominated to the Committee
represented the best: experience available, and a very strong embodi-
ment of it. I did not pack my jury, but just took the best officers
I could bring together. And they were unanimous in accepting the
main features of the Government of India scheme. Under these
circumstances, while giving full expression to my personal doubts as
to the wisdom of the measure, I considered it the more important
part of my duty to give it the best shape possible, and this was what
I endeavoured to do in conducting the proceedings of the Committee,
and in drafting the opinion which I submitted to the Government of
India. I regret that that opinion has not been formally placed before
the Members of Your Excellency’s Council. It would have rendered

914, RESTRICTIONS ON THE ALIENATION OF LANDS.

the explanation, which I have felt it my duty to give, unnecessary. It
would have made it clear that while the measure now before the
Council goes beyond the utmost recommendations of the Local Govern-
ment itself, it has the support, on the one hand, of the deliberate judg-
ment of the Government of India, and, on the other, of a strong
body of opinion within the Province; it would have shown that while
I was personally very doubtful, and even apprehensive, of the effects
of such a measure, I had waived my personal opinion, and confined
my efforts to shaping it so as to conduce in the best possible manner
to the end desired. This attitude has been described in one quarter,
which I am bound to regard with veneration, as ‘ correct.’ It will no
doubt be described by others as timid. Ido not much care what is
thought of it, but I am anxious for reasons which I will explain that
my position should be made quite clear. That position is deseribed in
the following extract from the opinion already mentioned :—

Assuming that the Government of India have determined to adopt stringent
measures for checking the alienation of land, and to make those measures of general
application to the Punjab, subject to special exemptions, I recommend that the
scheme accepted by the Committee for dealing with permanent alienations, of which
I have given sgme account above, be approved. I believe it to be workable, and to be
as little open to objection as any which can be devised ; while, if successful in check-
ing the transfer of land to the hands of the money-lender without unduly depre-
ciating the wealth of the zamindar or creating wide agrarian discontent, it will be a
boon to the country.

This, after the fullest consideration, is all I am able to say in
favour of the Bill, and it is on this assumption and subject to this

consideration that I shall record my vote in its favour.

But, my Lord, it is not merely for the purpose of justifying my
vote, still less with the object of gratifying a not unnatural desire to
explain precisely my attitude towards a measure which will affect so
closely the vast majority of the people of the Punjab, that I have
taxed the patience of the Council with what sounds I fear too much
like a long personal explanation. I have a more important object in
view. The passing of this Bill is only the first act in a long drama.
The working of it will be for many years the subject of anxiety to the
Administration. A large number of opinions have reached the
Council, some of them professing to come from bodies of agticulturists
who are intimately affected by the measure. There ate no doubt
many genuine sentiments in these papers, but neither the agricultural
community nor the village money-lender have really had their say,

RESTRICTIONS ON THE ALIENATION OF LANDS. 215

nor have they as yet any idea how they will be affected by the
measure. Nor, I venture to say, has any Member of Your Excel-
leney’s Council. It is only when the provisions of the Bill come to
be applied that we shall learn the effect of the experiment. How far
they will depreciate the value of land, how far they will be disregarded,
how far they will be evaded, how far they will pinch the borrower,
or make the lender’s trade impossible, will only be revealed by degrees.
The venture, which is a bold one, may be successful, or it may”
be a failure. But failure in legislation is of two kinds. A law may
be more honoured in the breach than in the observance, and no great
harm is done, though such laws are to some extent a source of weak-
ness to the Administration. But if it actually results in injury to any
class of persons, the failure is more serious. And the question
whether this measure will cause injury or not depends very largely on
the way in which it is worked. The Government of India has re-
tained in its own hands to a large extent the working of the Act.
This seems to me not unreasonable in view of the fact that it is the
Government of India which is responsible for the enactment. But,
when the Local Government proposes rules or notifications under the
Act, I hope it will be remembered that the Punjab Committee con-
sidered that their proposals embodied the maximum in the direction
of restrictions on alienation which could be regarded as either safe
or desirable in the interests of the Province, and _ that, although a
strong body of opinion exists.in the Province, that interference with
the right of alienation is possible and justifiable, those most nearly
affected cannot be said to have manifested any desire for such legis-
lation, while the Head of the Local Government, concurring with his
predecessors, would have preferred a less drastic measure to that now
before the Council.

And now, my Lord, having explained the limitations under which
my vote in favour of this measure will be recorded, I propose to make
only a few remarks in regard to its provisions. As explained by the
Hon’ble Mover in introducing the Bill, the proposals of the Punjab
Committee constituted the foundation of the scheme which it then
embodied. And subsequent alterations have still further assimiliated
it to those proposals, while other important additions have been
made which in no way militate against them and have my entire
conéurrence. In one respect, however, the Bill departs from the
distinct recommendations made by the Punjab Committee, That

216 RESTRICTIONS ON THE ALIENATION OF LANDS.

Committee contemplated no interference in respect of alienations
of land to agriculturists. The Hon’ble Member in charge of the Bill
explained in his speech on the 10th August last why he was unable
to accept this view. The reason was because the agriculturist
is also in many cases a trader and a money-lender. Accordingly
the Bill as introduced in September, 1899, limited the freedom
of such transactions to members of the same agricultural tribe
“residing in the district where the land was situated. The limits
of the district for the purposes of this provision might be
extended or restricted. The term ‘agricultural tribe’ was
similarly liable to formal definition. The Punjab opinions
recorded on the Bill supported almost unanimously the view of the
Punjab Committee, and advocated no restriction on alienations to
members of an agricultural tribe. In my opinion of the 15th May
I strongly advocated this course, because otherwise matters would
be made too hard for the small proprietors of small tribes. I
pointed out that the main object of the Bill would not thereby be
interfered with, while its principal danger would be averted.
With reference to this view the Hon’ble Mr. Rivaz explained that
the Select Committee had recognized the foree of the objection that,
if free transfers were limited too strictly within the same tribe,
the market in the case of some small tribes would be undesirably
narrowed. Accordingly he announced that the Bill had been amended
so as to permit of the grouping together, when thought advisable,
of small and what may be called cognate tribes in the same district
or in a group of districts, and to allow permanent alienations
without restriction within such groups. Now, the Bill itself as
amended and as now presented to the Council says nothing about
cognate tribes. It merely provides in section 4 that the Local
Government, with the previous sanction of the Governor General in
Council, may determine what bodies of persons in any district or
group of districts are to be deemed to be agricultural tribes or
groups of agricultural tribes for the purposes of the Act. I still
hold the opinion that the Punjab view is correct, and that the best
plan would be not to interfere with permanent alienations by a
member of any agricultural tribe to a member of the same or any
other agricultural tribe, and that provision in order to meet the ,
Hon’ble Member’s objection should, if necessary, have been made in
the Bill. But, as this opinion has not been accepted by the Select
Committee, I will only record my hope that in working section 4 of

RESTRICTIONS ON THE ALIENATION OF LANDS. 217,

the Bill the Government of India will disregard the suggestion,
which is not contained in its provisions, to group only those
tribes which are cognate, and will give full effect to the view of
the Punjab Government and its officers in considering the recom-
mendations of the Local Government under section 4 of the Bill.
I cannot too strongly insist upon the view, that the great danger
of the measure consists in the effect it will have on the small
agricultural tribes, which will often be found scattered in isola-
ted villages far distant from each other. The machinery for meeting
the ease of such tribes is provided in the section I have quoted,
and I hope it will be freely utilized.

I find it unnecessary to refer to any other provision of the
Bill which, on the assumption which I have explained, and subject
to the remarks I have made, I accept as the best measure that can
be devised for giving effect to the views of the Government of
India. I shall direct my best attention during the remainder of
my term of office to its working, and earnestly hope that it may
conduce more than I anticipate to the welfare of the agricultural
population of the Province.

I will only add in conclusion that the legislation of this Bill
needs to be supplemented by a system of Agricultural Banks, and
that I listened with much satisfaction to the announcement of my
Hon’ble friend Mr. Rivaz that the Government of India had such a
system under consideration, and that of the Hon’ble Finance Member
that he regarded the project with special interest and proposed
shortly to take it in hand.

Tue Hon’site Mr. Rivaz said :—

With reference to some of the views which have been expressed
in the speeches just delivered, I am afraid that I must ask the
Council to bear with me while, at the risk of exposing myself to
the charge of wearisome repetition, I make yet a few further re-
marks regarding that all-important part of our scheme which im-
poses restrictions on permanent and temporary alienations. I say
again that the main object of the scheme is to discourage, as far
as possible, members of agricultural tribes from selling their
lands. To those who, while agreeing that sales to professional
money-lenders ought to be prohibited, yet wish to leave the
market of sale unrestricted as regards members of all the agricul-

28

218 RESTRICTIONS ON THE ALIENATION OF LANDS.

tural tribes between themselves, I wish to say, how can this be
justified ? Our sole justification for interfering with the free
right of sale which the Punjabi land-owner has hitherto possessed
is that he has proved himself incapable of making proper use of this
right, and that he has been unable to resist the temptation of rai-
sing money on his land, even to the extent of selling it, for
purposes of pure extravagance. If, however, we only go so far as to
prevent him from selling his land to the professional money-lender,
but still allow him to sell as he, pleases to any member of any
agricultural tribe, what would be the result ? To my mind it would
certainly be this. We should, by thus partially narrowing his
market of free sale, depreciate the selling value of his land
to some extent, but not sufficiently so to discourage him from selling
except in cases of real necessity. He would still be tempted to
sell for purposes of extravagance, but whereas formerly, when he
wanted to raise (say) one hundred rupees, he could do so by selling
a couple of acres, he would now have to sell three. Would this be
a fair way of dealing with the small proprietor ? He would certain-
ly disappear under such conditions at a more rapid rate than he is
disappearing at present. I am not prepared to say whether the
accumulation of large landed properties in the Punjab is, from a
political point of view, desirable or not; but I do say most
distinctly that it is no part of our scheme to encourage the growth
of large properties at the expense of the small proprietor. I
repeat that our main object is the preservation, not the extinction
of the small proprietor. This then is my objection to keeping
the market of free sale as wide as some desire to keep it. If,
however, we limit the market, as our scheme contemplates, to the
tribe, or, in special cases, to a group of small similar tribes,
then I claim that we are really narrowing the opportunities for
sale to an extent which will remove the temptation to sell needless-
ly, yet will afford a sufficient market in cases of real necessity.
As I have said before, itis neither possible nor desirable to pro-
hibit sales altogether. The individual must in some cases part with
his land, but under our scheme the powerful factor of sentiment
comes in, and the land, though lost to the individual, is preserved to
the tribe. If, however, in any particular case a man who is compelled
by necessity to sell his land is really unable to find a purchaser for it
at a fair price within his tribe, the Bill provides a ready remedy. As

RESTRICTIONS ON THE ALIENATION OF LANDS. 919

His Honour tue Lizvrenant-Governor remarked, in his speech in
this Council on the introduction of this Bill a year ago, ‘there is
nothing absolute about the restrictive provisions. The person
who lies under the greatest disability under the proposed Bill
can obtain a dispensation from its frovisions, if due cause be
shown.’

Moreover, it must be remembered that, although our scheme
imposes material restrictions on sales, it provides large facilities,
larger, perhaps, in my own opinion as the Bill now stands, than is
altogether desirable, for raising money on mortgage. In short,
the key-note of our scheme is to discourage sales but to provide
ample reasonable facilities for temporary alienation.

Tur Hen’stz Mr. Tupper said :—

_ As I have been closely connected with the progress of the present
measure in its different stages during the past four years, I am
anxious, with Your ExceLLEency’s permission, to take this opportunity
of explaining why it has my hearty support.

The reasons for adding to the already existing restrictions on the
transfer of agricultural land in the Punjab are both political and
economic. While I admit the force of the economic reasons, which
have been fully explained to-day by the Hon’ble Member in charge of
the Bill and by the Hon’sitz Nawas Munammap Hayat Kuan, I wish to
say that it is the political reasons which have most strongly influenced
my judgment in this important matter.

Here, as often happens in India, the political argument is in a
measure an historical argument. It is what I have gathered during
the course of my service concerning the political and administrative
history of the Punjab that has convinced me of the political necessity
of some measure of the present kind.

The written history, the traditions, the existing tenures and the
social institutions of the Province combine to suggest the probability
that before any authentic and continuous narrative becomes possible
the plains of the greater part of the Punjab were peopled by fairly
compact emigrant tribes who either occupied the waste or drove out
or subjugated previous inhabitants and possessed themselves of the
land, practically as its masters, much in the same way as, within his-
torical times, the Bannuchis, the Marwats and the Darwesh Khel
Waziris possessed themselves of most of the Bannu district, and the

490 RESTRICTIONS ON THE ALIENATION OF LANDS.

Yusafzais, Muhammadzais, Khalils, Mcohmands and Daudzais estab-
lished themselves in the Peshawar Valley. When the Delhi empire
fell to pieces, and in the Punjab the confusion consequent on its ruin
was worse confounded by the successive irruptions of Nadir Shah and
Ahmad Shah Durani, many of the tribes of the Western Punjab
asserted an independence similar to that with which we are familiar in
the case of the Afridis and the Orakzais. Amongst these independent
tribes I may instance the Gakkhars of Rawalpindi, the Janjuas of
Jhelum and the Sials of Jhang. By this time also the Sikh mzs/s,
which were in origin predatory bands like those of the Pindaris, were
acquiring or had acquired political and territorial power. The inde-
pendent tribes came into conflict with the now formidable Sikh mzs/s,
and the mzs/s in their turn were incorporated in the vigorous army and
the tolerably well consolidated kingdom of Maharaja Ranjit Singh.
In the Eastern Punjab the history was rather different. But in the
border land between the Sikh and the Mahratta Powers strong Jat
villages frequently defied all authority ; and the Sikh mzs/s, as in the
Central and parts of the Western Punjab, acquired dominant autho-
rity in the country between the Sutlej and the Jumna. The composi-
tion of the Sikh mzs/s is somewhat obscure, and the mzs/s certainly
often included men other than those belonging to the dominant clans ;
but I think I may safely say that the mzs/s were mainly recruited from
Jats, that is, from men of those very agricultural tribes thickly
clustered in the central Punjab whom it is an object of the present
measure to maintain in the enjoyment of their ancestral lands.

Now, one result of all the history is that we still have the lands
of the Punjab plains held largely, though not exclusively, by tribes of
bold traditions and high spirit, whose courage and love of adventure
commands the hearty sympathies of men of our race, but whose in-
herited qualities, formed in times of war and depredation, are far
better suited to success in the field of battle than in the Courts of law.
No one wishes men of this type, whose courage in our cause has again
and again earned our gratitude, to be dispossessed of their ancestral
lands. I say no one advisedly, for I do not believe that even the
trading classes, who, by the undesigned effects of our system, are
being drawn into the possession of some of these lands, really them-
selves desire the social revolution which would ensue if we did not
interfere to check that process while there is still time to check it with
effect. ‘The insidious danger with which the old dominant agricultural

~

RESTRICTIONS ON THE ALIENATION OF LANDS. 221

tribes are threatened under our rule is not, I think, due to any
deliberate design or wish to oust them from their possessions, but to
the scope allowed to perfectly reasonable commercial instincts from the
time when law and order superseded the anarchy and turbulence of
former days. And these commercial instincts, even though they do
not evoke enthusiastic sympathy, we, who belong to a pre-eminently
commercial nation, can regard at least with justice and respect.

In truth, the contest between the agricultural tribesman and the
money-lender for the sources of wealth which have been so enormously
developed in the Punjab during the last half century seems to me
to have been quite inevitable. It has been suggested that the present

legislation is revolutionary in character and unsuited to the social con-

ditions which exist in the Punjab. I venture to think that the
ednverse is true. The object of this Bill, as I understand it, is to
avert a social revolution, not to create one. The Bill is conservative
of the possessions and status of the classes who were dominant before
our day and still represent by far the most important political forces
which we have to take into account in this part of India. It has
been cautiously devised by the co-operation of many authorities to suit
the peculiar social conditions which have followed upon the regular

working of British Law Courts in what was once the kingdom of

Ranjit Singh.

It would be possible to take this Bill clause by clause and show
how each is intended to harmonise either with the rural economy of
the Punjab at large, or with the administrative system which we have
established there. I do not propose to occupy the time of the

Council with any such detail; but we may take as an illustration a
‘main principle of the Bill, namely, that as between certain classes

permanent transfers of agricultural land shall be allowed only with the
sanction of a Revenue-oflicer. Restrictions on the transfer of land
are, as my Hon’siz friend NawaB Munammap Hayat Kuan and the
Hon’sie Mr. Fansuawe have pointed out, no novelty in the Punjab.
There were administrative restrictions dating from 1850, referred to by
His Honour tan Lieurenant-Governor in paragraph 6 of his

-memorandum on the proceedivgs of the Simla Committee of 1898, of

which the object was really the same as one object of the present Bill,
that is, to prevent the transfer of land to strangers unconnected with
the village community. There are still the restrictions, arising out of
the claims of reversioners under the customary law. There are the

992 RESTRICTIONS ON THE ALIENATION OF LANDS.

restrictions, which in cases affecting certain classes we are about to
make absolute, on the sale of agricultural land in execution of decrees.
All these restrictions have failed for various reasons to avert what
some of us have at length, after fifty years of British rule, been
convinced that it is most necessary to avert—I mean a direct though
never-desired and never-intended consequence of the establishment
of that rule on the position of the old agricultural tribes.

The early administrative restrictions took their later form in the
law of pre-emption. That law in itself was insufficient—for this
reason amongst others, that it deals with the issue perceived by the
first administrators of the Punjab, the issue between the village-
community and the outsider, and does not deal with the much wider
issue now seen to have been developed—that between the trading
classes and the old agricultural tribes. Moreover, that law, as it has
come to exist, actually admits the outsider whom it was the original
intention to exclude. This defect will, I hope, be shortly remedied
by a Pre-emption Bill to be introduced in the Punjab Council, partly
on its own merits, and partly as being supplementary to the present
measure. The customary law relating to the claims of reversioners
is wholly insufficient, both because its action depends on the interests
and even the caprice of individuals, and because, while alienations
may be made in case of necessity, necessity has been held to exist in
money if wanted for just debts. Finally, the Punjab rules as to
sales in execution of decrees have been evaded by resort to mortgages
by conditional sale. I do not pretend that the step we are now taking
is not a momentous one ; but to my mind it seems just as much a
natural consequence of the administrative history of the Province as
the retention of the zamindar in the possession of his ancestral lands
is a political necessity arising out of its political history. Restric-
tion after restriction has either missed its actual mark or has other-
wise failed to secure that retention. Is it not at least reasonable that
we should now intervene, and that in the directest fashion by the
present legislation ?

As to temporary transfers, if the mortgagor is not a member of
an agricultural tribe, or if he is such a tribesman, and the mortgagee
is a member of the same tribe, or of a tribe in the same group, there
is no change in the law except in so far as the Bill gives power to
determine what bodies of persons shall be deemed to be agricultural
tribes. In other cases we have been guided by experience in selecting

RESTRICTIONS ON THE ALIENATION OF LANDS. 2238

for adoption those forms of mortgage which are believed to be least
harmful to the agricultural debtor ; and because some forms of mort-
gage and conditions of mortgages not recounted in the Bill may
nevertheless turn out to be innocuous, we have guarded the position
by enabling the Local Government to add to the forms of mortgage
and conditions so enumerated. ‘This is one of the many precautions
we have taken to ensure that the Bill shall not jar with the common
customs of the peasantry.

Lastly, I wish to express my concurrence with some of the re-
marks of the Hon’sLe tHe Nawas in regard to the trading classes
from whom most of the opposition to this measure proceeds. I agree
in the assertions made by him and in some of the papers connected
with this Bill as to the important and useful place which'the village
money-lender occupies in the agricultural system of the country.
I hope and indeed believe that the more enlightened members of the
trading classes, all of whom have benefited enormously by British
rule, will recognise that in the present legislation there is neither any
hostility to them nor any disregard of their just rights. We do not
indeed wish them to supplant the zamindars, and so far as we can we
intend to prevent their doing so. But we mean that the zamindars
shall pay their just debts; and I have heard to-day with much
satisfaction that measures are in contemplation which will enable men
of the trading classes,—or indeed of any class,—who hold decrees
in their hands, to get their money for them more easily than is often
the case now. I would repeat here the remark that I have made
elsewhere that a far-reaching measure of the present kind is the
more likely to succeed if it does injustice to nobody. Itis not, in
my opinion, in any way unjust to the sowkar. It leaves open a wide
field for the investment of capital in the customary way in mortgages
of asuitable description—mortgages which do not need the sanction
of any revenue authority but are necessarily subject to the essential
condition that the mortgagor who isa member of an agricultural
tribe shall not be permanently dispossessed. Is it too much to ask
the sowkar, who owes so much to law and order and improved
communications and the assistance of the courts, to be content without
the permanent possession of lands which are in the hands of their
ancestral proprietors a strength to the State, but would be in his
hands a danger to himself, even sometimes as it is, and more certainly
and widely should the law and order on which his tenure depends be

924, RESTRICTIONS ON THE ALIENATION OF LANDS.

at any time temporarily interrupted ? The permanent transfer of the
ancestral lands of the agricultural tribes to the trading classes does
no good whatever so far as I can see, not even economic good, for
the agricultural tribes are the better agriculturists: and on the
historical and administrative grounds which I have explained I
heartily rejoice that Government has determined as far as possible
to put a stop to it.

His ExceELLENcY THE PRESIDENT said :— 5

When the Government of India utilises its legislative power
to pass what is certainly a drastic, and has been described in the
course of these debates as a revolutionary, measure, affecting any
subject, but more particularly affecting the land, there are two
questions as to which it should, in my opinion, satisfy itself.
The first is—has the existence of an evil, calling for legisla-
tive interference, been established ? The second is—is_ the
particular legislation proposed the right remedy ?

The first of these questions we had answered to our own satis-
faction a year ago. A careful study of the reports and returns,
extending overa period of more than thirty years, had convinced
the Government of India that the alienation of land in the Punjab,
practically initiated by the British Power after annexation, is
progressing with increased and alarming rapidity ; that in conse-
quence of this progress land is passing away from the hands of the
agricultural ciasses whom it is our policy to maintain upon it, and
into the hands of classes or persons who, whatever the part that
they may play in the economy of agrarian life, are not, in our
judgment, either necessary or desirable as land-holders ; and that
consequently a grave political as well as economic danger threatens
the province, which it is the bounden duty of Government to avert.
Nothing that has occurred in the interim has tended to shake our
confidence in the substantial justice of this conviction. On the
contrary, I think that it has been strengthened by the evidence
that has since poured in. We have been told, it is true, that there
can be no political danger in leaving things as they are, because
| the discontent of the Punjab peasantry is never likely to take the
form of active rebellion. I should be sorry to think that our
political objections to a continuance of the stafws quo were sup-
posed tobe based upon such fears as these, It is nota disloyal

RESTRICTIONS ON THE ALIENATION OF LANDS, 225

peasantry that we apprehend. It is a despondent, debt-ridden,
expropriated and impoverished land-owning class, particularly
a class recruited from the stable and conservative elements so
forcibly described by the Hon’ste Mr. Turrmr, which would be both
a source of weakness to the province and of alarm to the State.
Again, it has been said today that the sowkar isa very useful and
even indispensable factor in rural life, who is quite content if
he secures his reasonable profits, and has no a priort appetite
for land. So far as I can see, the model money-lender whom I have
deseribed, and whose utility Ido not dispute, will not be at all
injured by this Bill. The zamindar will still require money, and
the danzya will continue to provideit. Butit is the SHynocx, who
insists upon his pound of flesh, and who, under the existing system
is in the habit of taking it in land, because it is the one security
which his debtor can furnish, at whom we aim. A money-lending
class I fully believe to be essential to the existing organisation
of agrarian life in India ; but we do not desire to see them convert-
ed into land-grabbers, either voluntary or involuntary, at the
expense of the hereditary occupants of the soil.

I do not, therefore, feel any doubt as to the seriousness of
the malady which we have been called upon to diagnose, and for
which, if we value our responsibility, it is our duty to prescribe.
But there arises the second question, whether we have or have not
adopted the right prescription.

Now, there is one objection that has been raised to our Bill
which would equally apply to any Bill. It has been said that social
customs and institutions cannot be changed by arbitrary dispositions,
either of law or executive authority ; that they should be allowed
to work out their own salvation ; and that, in the process of what
is deseribed as evolution, but is in reality only blind and irres-
ponsible abnegation of control, the desired reform will some day
come. With me this argument carries no weight; for it is the
argument, both of the optimist, in so far as it cheerily but thought-
lessly assumes that things, if left to themselves, will come
right in the end, which I may observe in nine cases out of ten
is not the case; and of the pessimist, in so far as it contends
that Governments ought not to attempt to solve problems, because
their solution is hard; while it is also in direct violation of
historical facts. If successive British Governments had contentedly

29

226 RESTRICTIONS ON THE ALIENATION OF LANDS.

accepted the proposition that social and agrarian evils are not
to be rectified by legislation, where, I wonder, would the boasted
advance of the nineteenth century have been? How would the
men in our Coal-mines, the women and children in our factories,
ever have secured the full protection which they now enjoy ? Would
labour have emancipated itself from the all-powerful control of
capital ? Had they not been guaranteed by legislative enactments,
where would the valued privileges of compensation for improvements,
compensation for accidents, compensation for disturbance, have been ?
Even in India itself how should we have built up the fabrie of
social and agrarian rights without the instrumentality of the law ?
Finally, as regards this particular case of land in the Punjab,
I do not see how there can be anything immoral or revolutionary in
taking away or modifying a privilege which, it is proved beyond
possibility of doubt, was for the most part one of our own arbitrary
creation. If it is an improper thing to diminish or destroy
proprietary rights in land because it involves an interference
with the course ‘of nature, equally was it an improper thing to
create them as we did fifty years ago, when they did not already
exist. You cannot apply the argument atone end of the scale,
without admitting it at the other. This is the answer to the plea
of inviolable promises and inviolable rights that was put forward
today by Str Harnam Sinan. The objections in principle to legisla-
tion of this description may, therefore, I think, be disregarded.

There remains the question whether this particular Bill and the
methods to which it proposes to give the sanctity of law are the best
remedy that could have been devised. I have been a good deal struck
in the discussion, both in Council and in print, by the absence of
any alternative prescription. Inaction, I may point out, is not an
alternative. It is only an evasion of responsibility. It does not, of
course, follow, because no other suitable or likely remedy has been
pointed out, that ours is the sole or the right one. Such a contention
would be both illogical and foolish. But given an evil which all
admit, if the method of cure or rather of prevention which is suggested
by the responsible physician is questioned either by the patient or
by the public, the onus, I think, lies upon the latter of indicating
a better plan. The fact that in the present case no such rival panacea
has been forthcoming leads me to claim that the Government proposal,

Ewhether it be sound or unsound, at any rate holds the field. |

RESTRICTIONS ON THE ALIENATION OF LANDS. 927

I now turn for a few moments to the Bill itself. It will not be
denied that we have proceeded with the various stages of its growth
and enactment with singular care and deliberation. The Bill in its
original shape was the outcome of years of patient study. In the
form which it has now finally assumed, it also bears the impress of
repeated reference, of diligent reconsideration, and of an anxious desire
to meet, in no dogmatic frame of mind, the criticisms whether of
expert authority or of public opinion. We should, I think, have
been very obstinate and unwise had we adhered to every clause, or
even to every leading feature of the Bill, as introduced last year,
It was emphatically a case in which a reasonable spirit was called for,
and in which some concession was required to the arguments of
opponents, not for the mere sake of compromise, but in order to
bring the measure into closer harmony both with the feelings of the
community and with the needs of the case. It is in such a spirit
that the Bill has been conducted through Committee by the Hon’siz
Mr. Rivaz, on whose behalf it will, I am sure, be admitted by all
of his colleagues that if he has been clear as to where to stand firm,
he has also known exactly how to conciliate and where to yield. As
a result of the labours of the Select Committee, for which I must,
on behalf of the Government of India, thank all its members, the
Bill now emerges a more efficient, a more elastic, and therefore a
more workable, measure. In the old Bill, for instance, the Revenue-
officer’s authority for every permanent alienation of land was made
obligatory even in cases of merely formal sanction to alienation
between non-agriculturists. Now this sanction has been wisely dis-
pensed with. Next, we have extended the miaximum period of
mortgage, when made by a member of an agricultural tribe outside
his tribe or group of tribes, from fifteen to twenty years; we have
added another form of mortgage which is likely to prove both ser-
viceable and popular; and we have given power to the Local Govern-
ment to prescribe, in case of necessity, yet other variations. These
are only a few among the many changes, and, as I think, improve-
ments which have been introduced into the Bill. I do not say that
they have converted it into a perfect measure. I have seen enough
of agrarian legislation in the British Parliament to know that it never
attains perfection, that it often fails in what are thought in advance
to» be its most certain effects, and that strange and unforeseen conse-
quences ensue. No doubt our Bill will not differ from English or

a
>

998 RESTRICTIONS ON THE ALIENATION OF LANDS.

Irish Land Bills in this respect. Some of its provisions will not do
what is expected of them. Others will meet with a surprising and
unexpected vogue. That is the fate of all experimental legislation ;
and that we are making a great experiment I for one have never denied.
Given the desirability of making it, which I have already argued,
the utmost that we can do is, as far as possible, to anticipate every
likely consequence, and te graft upon it the wisdom of the most expert
intelligence.

There are some features in the Bill upon which I admit that the
arguments are very evenly balanced. It has been said, for instance,
that we have drawn the restrictions too tight, that the phrase ‘ agricul-
turist’ is too narrow and inelastic a term, and that there should be
no restriction upon dealings between members of that class. I am
not insensible of the danger of unduly narrowing the market for the
compulsory vendor, or again of excluding asa purchaser the dona fide
cultivator who may not happen to fall within the agriculturist defi-
nition. But, on the whole, I think that in these respects we have
gone as far as prudence and the main principles of our legislation
allow. The embarrassed land-owner should find a sufficiently wide
market within the limits of his tribal group; while the category
of agriculturists is, as has been shown, neither so rigid nor so exclu-
sive as has sometimes been assumed. Money-lenders are inside as
well as outside it; nor need the credit of the debtor be permanently
impaired for lack of a partner to the desired transaction.

As regards the future of this legislation, I will not be so rash as
to prophesy. I should be treading upon too uncertain ground. One
thing only I will predict, namely, that the gloomy forebodings of its
opponents will not be realised. The case for the Opposition, as I
may call it, has been stated upon a previous occasion in this Council,
and again to-day, as well asin a printed Minute of Dissent, by the
Hon’ste Sir Harnam Sineu. If we are to believe the opinions
which he has expressed or recorded at different stages, and I quote
his actual words, the majority of the peasant-proprietors of the Punjab —
are to be reduced by this Bill to a state of serfdom worse than that of
the Middle Ages; it is to be followed by the impoverishment of
millions of men living upon the soil; it is to doom the people to
perpetual misery, and to destroy their happiness and contentmené;
British prestige will be rudely shaken; agricultural eredit will be

RESTRICTIONS ON THE ALIENATION. OF LANDS. 999°

destroyed; and the progress of the province will be retarded for at
least fifty years. Every age and every epoch has had its Cassandra;
and I do not complain of my Hon’ble friend for donning the familiar
garb. I venture, however, to think that if his superlatives had been
fewer, his invective would have been more convincing, and that his
vaticinations will be found to have been a good deal exaggerated. If
this be so, I am confident that no one will be better pleased than
the Hon’ble Member himself. I will not rush to the opposite ex-
treme. I have no intention of claiming that universal peace, or
prosperity, or affluence will settle down upon the land in consequence
of this Bill. Far from it. There are many questions as to the future
to which I should hesitate to give a confident reply. Will this
measure really secure to the agricultural tribes of the province the
full possession of their ancestral lands? Will it restrain them from
reckless borrowing? Will it save them from the mesh of the usurer?
Or, while protecting them from usurers of other castes, will it hand
over the feebler and less thrifty units in the class to the richer and
more powerful members of the tribe? Or, again, will it effectually
divorce the money-bags of the province from the one form of invest-
ment which has always been dear to successful speculation? It
would require a keener insight than mine to answer such questions
with any certainty. It may be permissible, however, to anticipate
that while all of these consequences will to some extent ensue, no
one will follow to the exclusion of the others. The moneyed classes,
the nouveaux riches, will still have their opportunity of obtaining land,
but not on such easy terms as in the past. The agricultural tribes-
men will not allin a moment be converted to frugal or provident
habits ; but the opportunities and the temptations of borrowing will,
it is hoped, be less. The weakling and the spendthrift will still go
under, and his possessions will pass to his stronger brethren. But
the transfer will be more frequently to men of his own tribe or tribal
group, and less frequently to outsiders who are not connected either
with the traditions or with the traditional occupation of the province,
The transition will not be abrupt or sensational. It will be enough
if, though gradual, it is sure. I shall myself watch the venture
with the warmest sympathy and interest, not merely because I have
been head of the Government of India at the time when this Bill
has passed into law, nor because I know it to have been framed with
the most conscientious regard for the public interest, but because it

930. RESiRIcTIONS ON THE ALIENATION OF LANDS.

is the first serious step in a movement which is designed to free the
agricultural classes in this country—the bone and sinew of our
strength—from an incubus which is slowly but steadily wearing

them down.

Tur PunsaB ALIENATION OF Lanp AMENDMENT Bit, 1906.
Statement of Objects and Reasons.

The first and most important amendment contemplated by the
present Bill is the abolition of the statutory agriculturist. This is
effected by the repeal of section 2 (1) and of section 3 (2) (6) and the
proviso thereto.

The experience gained of the working of the Act has shown that
there are grave objections to his existence. The fundamental objection
is that the so-called agriculturist is in many cases not an agriculturist
at all, and that when he is not a member of a notified agricultural
tribe he frequently belongs to the dania class whose acquisition of
the lands of agricultural tribesmen it is the primary and avowed
object of the Act to prevent. In every village where there are agri-
culturists who are not members of an agricultural tribe, there is a
standing menace to the successful working of the Act. If a dania
has held land for 30 or 40 years in a village, he does not cease to be
a bania ; and if he is a land-owner, it does not follow that he is not
also a money-lender. ‘There is nothing in the structure of rural society
in the Punjab to separate danzas who have held lands since the first
Regular Settlement from others. At present such a danza is ina
position of great advantage, because the door closed upon the mass of
the money-lending classes is left wide open to certain members of
those classes who in the absence of competition of their class have
better opportunities now of permanently acquiring the lands of zamin-

dars than they had before the Act was passed,

Agriculturists who are not members of notified agricultural tribes
will be found to belong to one or other of the following groups,
namely,—I dansas, that is, village shop-keepers, grain-dealers and
money-lenders, whatever their caste or tribe; II Hindu settlers who
are not money-lenders ; III village menials; and IV tribes practising
agriculture, but usually having also various other avocations, such as
trade, money-lending, military or other service, and the like. The
cases of individuals falling under groups I, II and III could, it is
considered, be quite adequately met by the power to sanction per-
manent alienations conferred on Deputy Commissioners by section 3 (2)
of the Act, As regards groups of persons falling under group IV,

932 RESTRICTIONS ON THE ALIENATION OF LANDS.

there is the power to notify them under section 4 of the Act. They
frequently petition to be notified, and the facts are examined from time
to time, and if it is possible, consistently with the objects the Act, they
are notified accordingly.

The inclusion of the statutory agriculturist has led to great diffi-
culties in the working of the Act. The status is a highly technical
one, and the people and many Revenue Officers have had great diffi-
culty in comprehending the exact position which he occupies under the
Act. In some districts the records of the first Regular Settlement, or
of the Settlement fixed for the purpose of determining who are agri-
culturists, do not contain the names of all the proprietors or occupancy
tenants which renders it difficult to determine whether persons claim-
ing the status actually possess it. A further difficulty has been
caused by the necessity of providing that the Revenue Records shall
show details of land purchased by agriculturists from members of
agricultural tribes for the purpose of checking subsequent sales of the
same land,—vzde the proviso to section 3 (1) (4) of the Act. These
difficulties are not of great moment: the real objections have been
stated above. The statutory agriculturist appears to have been the mere
creature of the fears with which the working of the Act was re-
garded by those who had no real faith in its principles. The experi-
ence now gained shows that those fears were not justified. His
abolition is proposed not because the working of the Act shows that
he is already absorbing the lands of zamindars, but because the Act
gives him the opportunity to do so and because it is a flaw in prin-
“ciple to exclude the ania in a great mass of cases and admit him in
‘a comparatively few on the basis of an accidental circumstance uncon-
nected with the structure of rural society in the Punjab, vz., the
date of the first Regular Settlement.

It is to be noted also that he finds no place in the Act as modified
in its application to the North-West Frontier Province by Regulation
1 of 1904, and the same omissions as are now contemplated have
been made in the Bundelkund Alienation of Land Act (2 of
1108).

In connection with this amendment it is intended to repeal the
provision in section 4, requiring the previous sanction of the Governor-
General in Council before a tribe is notified as an agricultural tre.
The Act is no longer an experiment, and the Local Government may
now be well left to decide what tribes shall be notified. The question

a
—
Ye

RESTRICTIONS ON THE ALIENATION OF LANDS. 233

has become a purely local one full of local detail, and it is thought
that the Local Government may be left to freely exercise the power of
admiting tribes to the protection of the Act. Such admissions are
now the more necessary in consequence of the abolition of the statutory
agriculturist.

It has been decided to include definitely any right of occupancy in
the expression ‘land’ as defined in section 2 (8) of the Act. This
is in accordance with the judgment of the Chief Court, No. 11 P. R.,
1904, and also assimilates the present definition to that whieh has
been adopted in the Punjab Pre-emption Act, 1905, with the exception
that the restrictive words therein are omitted, as instances of occupancy
rights may possibly be met with which have been acquired otherwise
than under an Act of the Legislature.

The definition of permanent alienation has also been amended so
as to include grants of occupancy rights and gifts for religious or

-charitable purposes. The former amendment is consistent with the

decision that ‘land’ shall inelude occupancy rights while the latter is
proposed in order to avoid a possible evasion of the Act. In the case
of bond fide gifts for religious or charitable purposes the amended

“proviso to section 3 (2) provides that sanction thereto shall always be

given. ‘The policy of treating these gifts in a liberal spirit and in a
manner which is likely to be approved by popular sentiment is thus
maintained.

The right of pre-emption given to a landlord in the case of a trans-
fer by his occupancy tenant was expressly saved in the Punjab Pre-
emption Act, 1905. The provisions of sections 53 and 54 of Punjab
Tenancy Act, 1887, are not expressly saved or repealed in the Punjab
Alienation of Land Act, 1900, with the result that the right given to
the landlord in express terms by Statute is not taken away and is not,
it is thought, even limited by the necessity of obtaining sanction. It
is not thought necessary at present to take away the right, but it is
thought necessary that the Deputy Commissioner should be kept in-
formed of such alienations in order to check evasions of the Act. By
the section it is proposed to insert as section 2-A, it istherefore pro-
vided that the provisions of the Act shall apply to these alienations
notwithstanding the provisions of sections 53 and 54 of the Tenancy
Aset, but in the new proviso to section 3 (2) it is provided that sanction
shall always be given.

30

234 RESTRICTIONS ON THE ALIENATION OF LANDS.

In the cases specified in section 13 of the Act the Deputy Com-
missioner is expressly empowered to eject the person wrongfully in
possession and to place in possession the person entitled to it. No
such express provision is made in respect of a mortgagee without pos-
session who may become entitled to an usufructuary mortgage under
section 6 (/) (4), nor in respect of a mortgagor who under section 7
(2) may redeem his land. It has been thought expedient to make
it clear that a Deputy Commissioner may complete the case without
compelling the parties to go to another tribunal before those entitled to
possession can enjoy it. The power of a Deputy Commissioner should,
however, be so limited as not to affect the claims of persons other than
the parties before him who may have obtained possession. Sections
6 and 7 have been amended accordingly.

Section 9 has also been amended to provide for a case which
has not been infrequent in practice. A mortgagee put to his election
asks for a fresh mortgage which the mortgagor refuses to execute.
Matters are then at a deadlock. The mortgagor, it is true, if he re-
fuses the help offered, might be left to his fate and the mortgage
might be foreclosed against him precisely as if section 9 (2) did not
exist. But the refusal is generally due to ignorance and suspicion,
and to leave him to his fate would be entirely to the advantage of the
mortgagee. It is an object of the legislation to protect the ignorant
mortgagor and to protect his heirs, and to prevent the land going from
the family. Power has therefore been given to the Deputy Commis-
sioner to execute the mortgage on his behalf. The case only arises
where there is a condition intended to operate by way of conditional
sale in a mortgage made before the commencement of the Act, but
these will continue to be dealt with for a good many years to come,
and the amendment is therefore considered advisable.

A new section has been added after section 21. It follows section
27 of the Punjab Pre-emption Act and enables a Deputy Commis-
sioner to take action in respect of a decree or order of a Civil Court
whith appears to him to be contrary to the provisions of the Punjab
Alienation of Land Act. It will enable a check to be placed on
attempts, collusive or otherwise, to evade the Act, and provides a
remedy against mistakes of subordinate Courts.

[ Hatracts from the proceedings of the Punjab Council dated the
25th October, 1906. |

PunsaB ALIENATION OF Lanp Act AMENDMENT Birt, 1906.

Tae Hon’BitE Mr. Gorpon said :—

The Punjab Land Alienation Act which has now been in force
since 1900 was the outcome of long years of discussion. Although
it had come to be clearly recognised that something must be done to
arrest the process of transfer of land from the agricultural population,
there was still plenty of room for difference of opinion as to the way
in which this object was to be attained. Even.the keenest supporters
of the present Act, and those who were responsible for it, might well
be inclined to entertain doubts as to the precise effects of what was
fully recognised to be a legislative ~experiment of a rather revolu-
tionary character. There was nothing which could give any certain
indication of what those effects were likely to he. .

Looking back on six years of practical working of the Act, I
think we may safely say that it has been a success beyond the expecta-
tions of its most ardent supporters. That is a subject, however, on
which it is unnecessary for me now to enlarge. The point on which
perhaps the most serious apprehension was felt was that the Act,
instead of conferring a’ benefit on the class for whose protection it
was meant, would cause serious inconvenience to them by the con-
traction of credit. It was feared that the money-lending class would
not continue, under the altered conditions, to make the necessary
advances to the zamindars, and that the latter would not be able to
get along without the assistance of this nature on which they had
so long depended. We now know that this apprehension has not
been justified in practical experience. Unlimited credit has undoubt-
edly been contracted, the village money-lender is not perhaps now
so keen on pressing a loan on the reluctant zamindar, and the latter
may find it more difficult to obtain the necessary funds for reckless
expenditure. But there is nothing whatever to show that, as a result
of the Act, the zamindar has been hampered in his business and in his

*daily life by the difficulty of getting ready money when he requires

it. Looking at the working of the Act in this direction, it may. be

236 RESTRICTIONS ON THE ALIENATION OF LANDS.

said that it has had a tendency to enforce thrift without causing any
general inconvenience.

It was inevitable, considering that the present Act was in the
nature of an experiment, that some defeets would come to light in
its working. That so very few defects have been discovered appears
to me to demonstrate the wisdom and foresight of those who were
responsible for framing the measure. The objects of the Bill which
I will presently ask leave to introduce are to effect one alteration
which may perhaps be regarded as radical, and to remove certain
defects in detail which have made themselves apparent.

One very striking feature of the Act is that, while the non-
agricultural classes are excluded generally from the power of acqui-
ring land belonging to the agricultural class, this exclusion was
relaxed in the case of a small portion of the former. The relaxation
was undoubtedly due to the apprehension I have already alluded to.
The genesis of the statutory agriculturists may be said to have been
the result of the fear that undue economic inconvenience might result °
from the exclusion uno tctu of the entire money-lending class.

Except to the initiated the term agriculturtst would certainly
convey an erroneous impression of what it was intended to cover.
The word had come to be used in connection with the revenue statis-
tics of the Province to denote a person whose hereditary occupation
was not agriculture, but who had acquired property in agricultural
land. Wehad come to make a distinction for statistical purposes
between those who had recently become land-owners and those who
had been land-owners for some time. The latter were known as
old agriculturists, and 1t was this class in whose favour it was decided
to relax the exclusion from the power of acquisition. It was neces-
sary to draw some artificial line of distinction between the two classes
of non-agricultural land-owners which we were creating, 7.e., those
on whom it was considered desirable to confer the power of acquisi-
tion because of the fact of their having held land for a long time,
and those who had acquired land more recently and were therefore
held not to be entitled to the privilege. This was effected by defining
in the Act an agriculturist to mean any person who in his own name
or in that of his ancestor in the male line was recorded as an owner
or as an occupancy tenant at the first Regular Settlement of pis €
district. But the framers of the Act did not go so far as to extend

RESTRICTIONS ON THE ALIENATION OF LANDS. 237

the advantages which the privileged position involved to all who
came within the definition, and section 3 (1) (4) permits permanent
alienation of land by a member of an agricultural tribe only to a person
who ‘holds land as an agriculturist in the village where the land
alienated is situated.’ Thus the privileged agriculturtst owed his
position to two circumstances which might be purely accidental, the
, point of departure in respect of the original acquisition being taken
to be the first Regular Settlement, while the second accident was
that of the acquisition having been made in the particular village.

: It was not to be expected that a distinction of such a highly
: artificial nature would be at once understood even by those directly
affected. The ordinary zamindar at once grasped the fact that he could
not in future make a permanent alienation of his land except to one
of his own class; but the privileged agriculturist was beyond not
only his comprehension, but also as a rule that of the agriculturist him-
self, and, it may be added, of the ordinary run of subordinate officials
: who had to deal with the details of the working of the Act. Owing
to this and other reasons, it has come about that comparatively little
use has been made of the permission to make permanent alienations to
statutory agriculturists, while we have the broad fact that, notwith-
standing this result, the Act has hitherto worked with all the success
that could be desired, and without any of the anticipated economic
difficulties in view of which the statutory agriculturist was created.

It has thus been proved in practice that the statutory agricul-
turist is not a necessity for the working of the Act. It has also been
proved that the maintenance of this artificial class is highly incon-
venient. The arbitrary line drawn by the Act as to the time before
which the qualifying acquisition must have been made works most
irregularly. First regular settlements were effected in the Punjab
between the years 1837 and 1870, or even later. Hach claim to be
an agriculturist requires special inquiry, and there are many troubles
and uncertainties involved in the determination of the question.
Moreover, further permanent alienations by an agriculturist alienee
are subject to special restrictions, and this involves ear-marking the
areas concerned, while there are other numerous complications which
need not be detailed. These reasons fully justify’ the conclusion
» that ‘the confusion and trouble caused by the introduction into the

= of the statutory agriculturist ave such as would only be justified

“~ aS er een ee eee AS. Pee

938 RESTRICTIONS ON THE ALIRNATION OF LANDS.

by a very much stronger demonstration of the necessity and utility of
the provisions (to this effect) than has so far been brought to notice.’

There is the further consideration of the mischievous effects
which are likely to ensue unless the statutory agriculturist is eliminated.
The agriculturist of the Act belongs in the great majority of cases to
the money-lending class from whose encroachments we specially desire
to protect the Punjabi peasant, and there are indications which clearly
point to the necessity of protecting the latter against the statutory
agriculturist. There appears to be every probability that, unless we
interfere, considerable quantities of land would before long pass from
the agricultural to the privileged portion of the money-lending class.
There is the further real danger of the privileged agricudturist taking
over the debts and mortgages of other money-lenders who have not
the favoured status and then proceeding to acquire the lands of the
indebted peasants.

I should add that when the Punjab Act was extended to the
North West Frontier Province in 1904 the provisions relating to the
statutory agriculturist were cut out. Again, in the Bundelkhand Act,
(1903) there is nothing to correspond to the agriculturest of our Act,
while in framing the Punjab Pre-emption Act, 1905, we studiously
avoided the insertion of any provisions based on the presumption
that the statutory agriculturist was a permanent feature in our
legislation.

For the reasons which I have detailed, not, I hope, at too great
length in view of the importance of the matter, the general conclusion
has been accepted ‘that the introduction of the agriculturist into the
legislation of 1900 was unfortunate, and that the artificial provisions
then inserted may now be abrogated as being unnecessary, inconvenient
and mischievous.’ The main object of the present Bill is to give
effect to that conclusion.

The opportunity has at the same time been taken to provide for
certain minor alterations in the Act which the experience of the last
six years has shown to be required. These alterations fall under
six heads, concerning—

t) the effect of the Act on occupancy rights;
PODLy aS
(#7) the treatment of gifts for religious or charitable purposes ;

(17¢) the authority required for notifying agricultural tribes.

oF

é

RESTRICTLUNS ON THE ALIENATION OF LANDS. 239

(iv) the enforcement of the provisions of the Act regarding tem-
porary alienations ;

(v) the completion of the existing provisions regarding the con-
version of conditional sales into temporary alienations.

(vs) the relation of the civil courts towards the executive in the
administration of the Act.

I will now deal with each of these heads in the order given.

(¢) First as regards the question of occupancy rights. It was the
intention of the framers of the Act that the provisions of the Act
should not apply to occupancy rights, probably because it was thought
that the Punjab Tenancy Act did all that was required in the direction
of restricting the alienation of such rights. In 1904, however, the
Chief Court ruled that the definition of /and in the Act did include
such rights, and that decision bas been since acted on. It has now
been decided to remove all further room for doubt and to confirm
the present practice by expressly including occupancy rights in the
definition of Zand which the Act contains.

An obvious device for evading the provisions of the Act was for
a member of the agricultural class to confer rights of occupancy on a
person in whose favour he could not effect an alienation of proprietary
rights. It has, therefore, been thought advisable to include the grant
of occupancy rights in the definition of permanent alienation given
in section 2 (4) of the Act, so that under section 8 such grants may,
if necessary, be prevented where the alienee is not a member of an
agricultural tribe. I should explain, however, that there is no in-
tention to prevent the Deputy Commissioner sanctioning such aliena-
tions where the object is to promote agricultural development by
giving favourable terms to new settlers and the like.

Another point in connection with occupancy rights is that under
sections 53 and 54 of the Punjab Tenancy Act a landlord can claim
pre-emption in the case of a sale of, or foreclosure of a mortgage on,
aright of occupancy. These sections afford a possible means of
evading the provisions of the Land Alienation Act; and, while it is not
intended to place restrictions on the dond fide exercise of the right of
pre-emption by landlords who do not belong to the agricultural class,

*™Mais considered advisable that such transfers should be subjected to
the review of the Deputy Commissioner. While, therefore, on the

24.0 RESTRICTIONS ON THE ALIENATION OF LANDS.

one hand, such transfers are made subject to the provisions of the Act,
it is at the same time provided that the Deputy Commissioner shall
sanction transfers of this nature made bond fide by a tenant to his
landlord [clauses 3 and 4 (2) of the Bill].

(72) Gifts for religious or charitable purposes—Gifts of this
nature are expressly excluded from the definition of ‘permanent aliena-
tion’ in the Act as it now stands, and here again there is an opening for
evading the restrictions imposed by the Act. In the Bill this matter
is dealt with on similar lines to those applied to the purchase by a
landlord of cccupancy rights, ¢.e., the sanction of the Deputy Com-
missioner will be necessary, but it is provided that sanction must be
given to all dond fide gifts of this character.

(ccc) The permission of the Government of India has been
obtained to a change in respect of the authority for notifying agricul-
tural tribes. Section 4 of the Act requires the sanction of the
Governor-General in Council before a tribe can be notified as an
agricultural tribe. The work of notifying tribes hasbeen practically
completed, and the general principles on which they are selected for
notification have been determined, so that there is no further object
in requiring previous sanction. Clause 5 of the Bill provides for the
deletion of the words which make such sanction necessary.

(cv) The fourth point to be noticed is one of some considerable
importance in the practical working of the Act. One of the main
features of the Act was the limitation of the period of years for
which land could be temporarily alienated by members of agricultural
tribes to outsiders, and power was given to the Deputy Commissioner
to oust a mortgagee or lessee who remained in possession. after the
expiry of the prescribed period. But two defects or omissions have
come to light of which I will notice the more important first. Where
a mortgagee under either of the first two forms of mortgage permit-
ted by section 6 is in possession of the land, section 7 (8) permits
the mortgagor to redeem the land on payment of the mortgage debt
or the proportionate amount of it which the Deputy Commissioner
determines to be due. But if the mortgagee declined to receive the
amount due when tendered by the mortgagor or to give up posses-
sion, the mortgagor would have to face the troubles and expense _
involved in civil litigation. It is a very common cause of complatat
that a mortgagor may be quite ready and willing to make the pay-

ie le

RESTRICTIONS ON THE ALIENATION OF LANDS, 241

ment necessary for redemption, or may even have made it, but finds
himself prevented from getting back his land owing to the passive
resistance of the mortgagee. It is now proposed (clause 7) to give the
Deputy Commissioner power to eject the mortgagee where either
(1) it is proved to his satisfaction that the mortgagor has paid the
mortgage debt or such proportion of it as the Deputy Commissioner
finds to be equitably due, or (2) the mortgagor tenders the amount due.

The other defect is of less importance. Where a mortgage is
without possession and the mortgagor fails to fulfil the terms of. the
mortgage, the mortgagee may apply to the Deputy Commissioner
to be put in possession, and the Deputy Commissioner may thereon
determine that the mortgagee should be put in possession for a period.
But the Deputy Commissioner was not at the same ‘time given the
power of enforcing his decision by putting the mortgagee in posses-
sion. Clause 6 has been framed to remedy this omission.

(v) The fifth of these minor points in respect of which it is
proposed to remedy the defects brought to light in the working of the
Act concerns the matter of mortgages with condition of sale. The
Act declares null and void a condition of sale ina mortgage made
after the commencement of the Act. In the case of a mortgage
with condition of sale executed before the commencement of the
Act the Deputy Commissioner is empowered to put the mortgagee to
his election whether he will agree to the condition of sale being struck
out, or will accept a fresh mortgage in one of the authorized forms. It
has been found in a good many cases that where the mortgagee accepts
the latter alternative further progress is stayed owing to the refusal
or neglect of the mortgagor to execute a fresh deed. The refusal
might be due to one of several causes ; and in particular it would
obviously be to the advantage of the mortgagee that the mortgagor
should refuse, if the result was to leave the condition of sale effective.
It has been considered advisable, in the interests of the mortgagor,
to insure that he should not suffer the consequences of his refusal or
inaction, and itis accordingly provided in clause 8 that, in such
circumstances, the Deputy Commissioner should have the power to
execute the deed on behalf of the mortgagor.

(vz) The last point to be noticed concerns the action of the civil
coutts in relation to the working of the Act. It has been found that
in a large number of cases subordinate civil courts have passed decrees

31

242 RESTRICTIONS ON THE ALIENATION OF LANDS.

(usually with the consent of the parties) involving transfers of land
in contravention of the provisions of the Act. This is a very
insidious form of evasion, because the civil appellate court is seldom
moved to interfere, and there is no other means of putting the matter
right. Hither such cases may escape the notice of the Deputy Com-
missioner, or if they do come to his notice, he finds himself helpless
to intervene. [tis now proposed to provide means by which (1) the
Deputy Commissioner shall be kept informed by the civil courts of all
decrees which they pass involving transfers of land from members of
agricultural tribes to money-lenders, and (2) he shall be in a position,
apart from the wishes of either party, to move the superior civil courts
to interfere. Clause 9 of the Bill has been framed with this object.
It follows the analogy of section 27 of the Punjab Pre-emption Act,
and provides a procedure by which the Deputy Commissioner will be
able to bring before the superior civil courts, with a view to revision,
any decree of a civil court which appears to him to be contrary to the
provisions of the Act.

Ser a
< %

eo

CHAPTER V.

PROVISION OF BORROWING FACILITIES.

| [ Despatch from the Governor-General of India in Councit to the Secre-

tary of State for India.—No. 7 (Revenue), dated 31st May, 1884. |
AGRICULTURAL Banks.

* % * We have the honour to submit, for your Lordship’s
consideration, a copy of correspondence which has passed between
us and the Government of Bombay on the subject of establishing an
agricultural bank in the Deccan.

2. The utility of similar institutions in Europe, America and
Australia is well known to your Lordship, and we understand that in
the British Colonies especially the progress of agriculture and the various
enterprises connected therewith have been much advanced by the
monetary assistance thus afforded to the cultivating and land-owning
classes. There are indications that India, no less than the countries
to which we have referred, suffers from want of loanable capital.
The rate of interest is extremely high even where the security is of
the best description, and the agriculturist when in need of money
for the most prudent purposes, has to pay so dearly for a loan that
it absorbs the profits of his business. The Deccan Ryots Relief
Act, the Jhansi Encumbered Estates Act, and other similar measures
of an exceptional character have tended to relieve the peasantry in
some localities of a hopeless load of debt; but they have not enabled
the thrifty and industrious cultivator to obtain money for agricul-
tural purposes on easier terms or more equitable conditions. We
have endeavoured to meet this need in respect of loans for land
improvement by advances of public money under the Land Improve-
ment Act; but this is not sufficient. The cultivator requires money
from time to time for other purposes, and it has been found that if
he can only borrow for one particular object from the Government,
he prefers to deal entirely with the money-lender who will lend for
all purposes. What is wanted, therefore, is a private bank which
will in a measure take the place of the village usurer, but which will

~ed the same time be bound by the articles of its constitution to

restrict its dealings to the more solvent cultivators and to supply
capital at comparatively easy rates and on equitable conditions.

944 PROVISION OF BORROWING FACILITIES.

8. We consider that banks of this kind if they could be successfully
started, might be of considerable benefit to the country. There are,
however, special difficuties to be encountered in India, which are not
met, with elsewhere in the way of their establishment. Improvi-
dence of cultivators and uncertainty of seasons are elements which
are liable to interfere with a bank’s success; and though these
difficulties might be met by prudent management, yet the bank could
not hope to succeed unless it could start in a field where the agricul-
tural classes were unencumbered with debt, or were enabled to
liquidate their existing debts on reasonable terms.

4, When, therefore, we considered the subject in 1882 in connec-
tion with the Land Improvement Bill, we came to the conclusion
that more assistance must be given by the State to an agricultural
bank in India on its inception than is necessary in other countries.
More especially is this the case in a part of the country like the
Deccan, where the need for a such a bank on the one hand is
greatest, and the difficulties arising from the indebtedness of the
population and from the precariousness of the seasons are, on the
other hand, most serious. If the experiment succeeded, similar banks
might probably be started with less aid or without any aid from the
State, and the benefits likely to arise from such institutions seemed
to us so great that we were prepared to give cordial support to a
poineer bank. We saw that it would be necessary to clear the way
for the bank by liquidating the debts of the agriculturists within
the selected area, on the understanding that our advances would be
taken over by the bank when it started business. We also saw that
-confidence must be given to the promoters of the bank by allowing
it, for a time at least, to recover its loans through the revenue courts,
by assigning in some cases priority to its loans, and by remitting
stamp duty and other dues for a certain period in its favour. In
return for this assistance we considered that the bank should limit its
rate of interest to 12 per cent. and that its management should
conform to regulations framed by us somewhat on the model of
those prescribed for the Credit Foncier in Egypt, with which our
colleague, Mayor (now Sir E.) Bartne, was well acquainted. On
these lines we sketched out a scheme which we thought well worthy
of an experimental trial, although we were not prepared to go beyon4
a limited experiment which might enable us to determine by the
trial of practical experience the conditions under which banks of

=a
|

PROVISION OF BORROWING FACILITIES. 945

this kind are likely to be successful ; the real value of the objections
which are sometimes urged against them, and the best mode of

meeting any difficulties to which their working may be exposed in
India.

5. Hearing from Bembay that a number of native bankers in
Poona and Bombay were willing to give the scheme a favourable
reception, we communicated our proposals to the Government of Bombay
for consideration and opinion. That Government stated in reply that
the scheme was not impracticable, and that it was willing to try it
on a small scale, if the details could be successfully arranged. Two
syndicates of bankers had been formed, one in Bombay and the
other at Poona, which were each prepared to try the experiment if
the Government would accede to their conditions. The Govern-
ment of Bombay recommended us to accept the offer of the Poona
Committee, as their demands were more in accord with our original
proposals than those of the Bombay Committee. The Bombay Com-
mittee, among other things, asked for a monopoly of the agricultural
banking business throughout the Presidency, and for a Govern-
ment guarantee to its debentures. A further proposal has been made
by Mr. Javert Lat Yasnix to start a similar bank in Guzerat;
but his scheme has not yet been considered by the Bombay Govern-
ment, and we only mention it here in order to show that the experi-
ment has excited considerable interest.

6. The Government of Bombay suggested that the experiment
might be confined to the Purandhar ¢a/uqa in the Poona district, and
reported that asum of 64 lakhs would probably be required for the
preliminary liquidation of the debts of the cultivators. Voluntary
liquidation of the nature suggested by us was considered essential
to the scheme, and the Bombay Government agreed with us that
legal provision would be requisite in order to place the Government
advances in the position of first charges. At the close of the letter

the very important question was raised whether the whole of the

bank’s dues should be regularly recovered by the revenue courts or
whether resort to this agency should be strictly confined to cases
of default. As it was eminently desirable that there should be
no misunderstanding on this important point, we explained our

views to the Government of Bombay in our letter, No. 572, of 23rd

May, 1883. We stated that the aid of the revenue court could not
be given to the bank except on proof that it had attempted to

24.6 PROVISION OF BORROWING FACILITIES.

collect the debt; and that in order to secure due exertion on the part
of the bank, it might be desirable to require it to pay fees on all
processes issued on its application through the revenue courts. In
reply to our letter, the Government of Bombay expressed its entire
concurrence with this view, and informed us that the Poona Com-
_ mittee also accepted it, though deprecating any charge on the issue of
processes. In regard to this point we may here state that we adhere
to our opinion that such fees should be charged.

7. The other questions and demands of the Poona Committee have
been carefully considered by us, and, with the consent of the Govern-
ment of Bombay, we have again consulted Str Witr1am WEDDERBURN
personally, who is acquainted with the views of the Poona Committee,
on all the details of the scheme. We propose now, with your Lord-
ship’s concurrence, to sanction the experimental establishment of the
bank in the Purandhar ¢a/uga, and to find the funds required for the
preliminary liquidation. As all that we at present propose is the
trial of an experiment, we wish to meet the views of the promoters
as far as we can, so that the trial may be as fair as possible. At the
same time we keep ourselves free to watch its results, and commit
ourselves in no way to future action either with regard to the bank
which it is now proposed to open, or to any other institution of the
same kind. We consider that the requisite legislation should be
undertaken by the Government of Bombay (though this may require
a confirming Act to be passed by the Viceroy’s Legislative Council),
and we propose to leave the supervision of the bank in the hands of
that Government.

8. The most.important question with regard to the aid proposed to
be given to the bank is undoubtedly the recovery of the bank’s debts
through the revenue courts. The objection has been raised that it is
undesirable in principle to give extraordinary remedies for the re-
covery of ordinary debts, and that if the aid of the revenue courts
were often invoked, they might incur the disfavour which naturally
attaches to the office of debt collector. We are not insensible to the
force of these objections: indeed, we should consider (as would also
the promoters themselves) the whole scheme to be a failure if frequent
recourse were to be had to this extraordinary method of procedure ;
but the promoters of the scheme say they look to the recovery .of=
their instalments regularly as they fall due from the crop, and urge
that the existence of this power will give them valuable facilities

PROVISION OF BORROWING FACILITIES, 247

for so recovering their debts instead of allowing them to accumulate
till recovery is only possible by sale of the land itself. The expense
and dilatoriness of the Civil Court procedure tend necessarily, they
urge, to the latter mode of recovery. As they attach very great
importance to this part of the scheme, we think that the concession
should be granted. in a restricted form. We therefore propose to
confine the privilege to the case of debtors whose affairs are liquidated
by the Government in co-operation with the bank, and to restrict it
to a period not exceeding 10 years. This would apparently be
accepted by the promoters of the bank, and it is justified by the
consideration that the bank takes the place of Government in regard
to the liquidated debts of the ryots. Within this period we would
allow the bank to recover through the revenue authorities from the
debtor and his successors in interest, not only the original advance,
but also subsequent loans made to him for whatever purpose by the
bank, We would require the bank to furnish proof that it had
: attempted to recover the debt through its own agents, and we would
prescribe light fees on all processes. We would further suspend the
the execution of such processes in any season in which the Govern-
ment may have thought it right to suspend the land revenue payable
on the debtor’s land. In respect of other debtors, whose affairs had
not been liquidated, the bank’s remedies would be restricted to the
ordinary provisions of the Civil Code. We are also willing to exempt
the bank from stamp duty on bonds and documents connected with
advances to all classes of debtors, and from Court fees on the insti-
tution of civil suits, for a period not exceeding 10 years, to be fixed
by the Government of Bombay. We would also for a similar period
exempt the bank from registration fees.

9. As to the priority to be given to the bank in respect of its claims,
we originally were of opinion that it would be sufficient if the bank
were placed in the position of first mortgagee in respect of the
liquidated debts which it took over from Government, and also in
respect of any loans which were received for, and dond jide applied to,
land improvement. The Poona Committee, however, have objected
to this limitation, and urge the impossibility of the bank distinguish-
ing in regard to the purposes to which its loans may be applied ; and

wafter fully considering the point, we are now prepared to assent to a
provision that, where the bank has under the liquidation proceedings
acquired the position of the first mortgagee, it should be given, in

248 PROVISION OF BORROWING FACILITIES.

respect of further limited advances made to these clients, the same
priority as an’ ordinary first mortgagee can acquire by stipulation in
accordance with Section 79 of the Transfer of Property Act.
Provision would also have to be made for limiting the maximum
amount of further advances (which we agree with the Poona
Committee should in no case exceed 75 per cent. of the security),
and for declaring what should constitute notice to subsequent
mortgagees.

10. A third concession of some importance asked for by the Poona
Committee is that, the Government shall engage not to revise during
the next 80 years the land assessment of such villages of the taluga
as are still under the original settlement. We agree with the
Government of Bombay that no promise to this effect can be given,
since such revision operations as are now going on must certainly be
completed. It has since been suggested that, should the bank consider
this absolutely necessary in order to give security to their operations,
it might be possible to postpone for a fixed period the collection of
such of the revised assessments as have not been actually introduced
when the liquidation scheme is complete; but we abstain from
expressing an opinion on this suggestion, which has not yet been
considered by the Government of Bombay; we apprehend, however,
that the recently declared policy of the Government of Bombay, in
respect to future revisions of assessment, has now lessened the import-
ance of the question, as it practically gives that security to landed
property throughout the Presidency which the Committee have asked
for in respect of the area selected for the operations of the bank.

1]. We need not trouble your Lordship with the minor details of
the scheme, which remain very much as they were stated in our letter
of 5th December 1882 to the Government of Bombay. The liquida-
tion would be entirely voluntary, and, as suggested by the Poona
Committee, might be confined to occupants of land whose assets are
at least double the gross amount of the awarded debt. The rate of
interest on advances made by the liquidators might be fixed at 9 per
cent. with a sinking fund of from 1 to 3 per cent., and it is proposed
that the bank should take over the entire amount of the sum
advanced by Government on an agreement to repay it within two
years, with interest at 4 per cent. The Bank would be at liberty<
to make loans for any purposes, or to any persons having a transferable
interest in land within the ¢ta/uga, but it would engage to limit the

PROVISION OF BORROWING FACILITIES, 249

rate.of interest on all loans toa maximum of 12 per cent. and to
conform, in respect to other matters, to the rules prescribed by the
Government.

12. We have directed the Government of Bombay not to take any
further action in the matter until we are acquainted with your Lord-
ship’s opinion on these proposals. We do not think that any smaller
concessions than those mentioned by us will satisfy the promoters of
the bank, and we are anxious to give effect toa scheme which we
believe to be advocated on purely disinterested grounds, which can,
under the experimental conditions proposed, be carefully watched,
and which is likely, if successful, to be productive of much benefit
to the country. We viewit as an experiment, and we think that,
even if the results should not equal the expectations of its advocates,
they will at least throw considerable light on the causes and extent
of the Deccan ryot’s indebtedness, and enable us to determine
whether his condition is susceptible of improvement by any action
which can be taken by the Administration.

[ Despatch from the Secretary of State for India to the Governor
General of India in Council, No. 95 (Revenue), dated
28rd October, 1884.]

I have considered, with the attention which their importance
demands, the papers which accompanied the letter of your Excellency’s
Government in the Revenue Department, No. 7, dated 31st May last,
regarding the establishment, as an experimental measure, of an
agricultural bank in the Poona district.

2. The relief of the peasantry of the Deccan, and indeed of other
parts of India, from their indebtedness, is so desirable and. so
important an object that I should be disposed to entertain
favourably any measures for that purpose placed before me by your
Excellency. Ihave, therefore, given the most careful examination
to the principles of the project now submitted to me, and to its
details, so far as they can be gathered from the correspondence.
Some objections to the proposed measures have, however, suggested
themselves to me, and they appeared to me to have such force that
Iam constrained to request your reconsideration of the question.
“* 8. The first observation which occurs to me is that the scheme is
scarcely what it purports to be. It is professedly a private enter-
prise, and it is distinctly stated that from private enterprise

32

250 PROVISION OF BORROWING FACILITIES.

alone is real progress to be looked for in providing the agricul-
tural classes with capital upon reasonable terms. Yet it is
impossible to avoid the conclusion that the proposed bank will
virtually be a Government institution. Government will provide,
in the first instance at least, a large part of the capital (for it
is apparent that much of the working capital will be obtained from
the sum advanced by Government for the liquidation of the existing
debts of the ryots); Government will, at any rate, in the last
resort, undertake the collection of debts due to the bank ; and the
bank is to receive special privileges, and be placed by law in a
position which, in my opinion, could be justified only on the
assumption that it isto work on behalf of Government for political
or social objects rather than to be conducted on ordinary business
principles.

4. The scheme, as laid before me, consists of two parts, the
liquidation of the existing debts of the ryots, and the substitution
of the banks for the sowkars in future loan transactions of the
agricultural classes.

5. <As regards the first, I find it difficult, owing to the deficiency
of detailed estimates, to judge of the financial soundness of
the scheme. I observe, however, that it is conjectured that
about half the ryots of Purandhar are in debt, yet not so
completely insolvent as to make any attempt to relieve them
hopeless ; and that the debts of this moiety might be liquidated for
about 64 lakhs of rupees. I find, too, that the total revenue of the
fully-assessed lands of Purandhar is about 86,000 rupees; but, in
as much ag the solvent ryots are those with the larger and more
valuable holdings, it may be assumed that the assessment on the
lands of that portion of the landholders with whom the scheme
proposes to deal will reach 50,000 rupees. The total value of the
net produce of these lands would, on the “half assets” principle,
be about one lakh of rupees ; in other words, it would not be safe to
assume that ina series of years these ryots could pay in liquidation
of debt more than an annual sum equal to their assessment. But
it must be borne in mind that the interest on the liquidation
advances, independently of the sinking fund at 3 per cent., would
amount, at 9 per cent. on 64 lakhs, to 58,500 rupees per annum, a
sum which, from the figures given above the ryot could not
possibly pay. Even supposing that the interest were fixed at only |

PROVISION OF BORROWING FACILITIES. 95)

5 per cent., instead of 9 per cent., so as to admit of the loan
of 64 lakhs being paid off in about 21 years, no margin would be
left, for the ryots on which to borrow from the bank during that
period. And if they can do altogether without borrowing for 20
years, there is obviously no reason for the existence of the bank.
It would indeed be simpler, and not more anomalous or hazardous,
that Government should advance direct to the ryots the funds
needed to relieve them of their present embarrassments.

6. The scheme further proposes that Government shall lend the
bank the sum necessary for the liquidation at 4 per cent., the bank
charging the ryot 9 per cent. As itis, in effect, contemplated that
Government shall both provide and recover these advances, it is not
clear why the bank should have a profit of 5 per cent. on the tran-
saction, and why the ryot should not have the benefit of the lower
rate of interest.

7. But there appears to be a still graver objection to the proposed
operations. The paid-up capital of the bank is to be, it would seem,
two lakhs of rupees, of which one lakh is to be invested in Government
securities as a reserve fund, and one lakh only to be employed in the
business of the bank. But within two years the bank is to repay,
with 4 per cent. intetest the loan of 63 lakhs advanced to it by Govern-
ment for purposes for liquidation, while the ryots will refund that
advance only by instalments spread over a long series of years. There
is nothing to show the source from which the bank is to obtain the
necessary 64 lakhs. It is apparently intended that it should be by
means of debentures, that is to say, by borrowed capital. I do not
find it explained what security can be offered to debenture-holders,
and it is difficult to understand how the bank could be regarded as
solvent even at the outset.

8. Assuming, however, that these very grave preliminary
difficulties can be overcome, that the existing debts of the agriculturists
have been entirely cleared off, and that they are in a position to deal
freely with the bank, I am_ not satisfied that the business which it
could transact would be of such a kind as to meet all the ordinary
requirements of the ryots. In the first place, I am informed that the
existing sowkars are not merely money-lenders, but that they purchase
$ produce, and supply the ryots with a market. I do not understand

“whether the bank is to undertake this function; and whether it is
to become the great dealer in produce for the tract over which

252 PROVISION OF BORROWING FACILITIES.

its operations are to extend. If so, the business of the bank will
apparently be of a much more speculative and hazardous character than
is contemplated by the Government of your Excellency or by the
Bombay Government. If not, it is not obvious where the ryots will
find their market. Again, it appears to be anticipated by the promoters
that the bank will make advances in comparatively large sums
at a time, and for special objects, such as agricultural improvements
or domestic ceremonies, which are not of constant recurrence.
But loans of this character, I learn from good authority, do not
' form the mass of the transactions of the Deccan ryot with his
village banker. He wants, and at present has a running account,
on which he draws from time to time for small sums of meney, or
for the petty articles of his simple needs, and at harvest-time he clears,
or tries to clear, by the produce of his fields, the debts thus incurred.
It does not seem to me possible that the bank should undertake
this petty but necessary kind of business, and, if it dees not, the
peasant will, in all probability, still-deal with the village sowkar, but
with this consequence, that, as the bank’s claims will take precedence
over other claims, the sowkar will have to protect himself by still
higher interest and more oppressive dealings.

9. Lobserve that the example of land banks in*France, the colonies,
and other countries has been cited to prove the advantage and the
practicability of the proposed scheme. I must, however, remark
that the success of banks dealing with farmers and planters, who
cultivate for a profit upon invested capital, affords no sure indication
of the probable results of a similar institution dealing with ryots
cultivating for subsistence, while there is great doubt whether the Credit
Foncier of Egypt, which is said to be in many respects an establish-
ment analogous to that which is proposed for the Deccan, has proved,
on the whole, beneficial to the fellahs of Egypt.

10. As regards the condition that debts to the bank shall be
recovered by the agency of the revenue courts, I attach great weight to
the criticisms of the Bombay Settlement Commissioner, to the effect
that, should this be done, Government will incur all the unpopularity
and odium of collecting debts which, though private obligations,
are treated as public demands. It would be out of the question that
the revenue officers should undertake this function without satisfying _
themselves of the justice of the bank’s demand, and that they
should put in force the summary process of the revenue law upon

PROVISION OF BORROWING FACILITIES. 253

an ex-parte statement ; and if they are to inquire, however summarily,
into the justice of the bank’s demands, they will in reality assume
the functions of a civil court. Nor are my objections removed by
the proposals contained in the Bombay letter of 26th July 1883,
which purport to provide that the assistance of the revenue court
will be given to the bank only in the last resort. It is evident that
the bank will practically have no other agency for the realisation of
its demands.

11. It is doubtless a serious misfortune that the landholders in
India, even when comparatively prosperous, and able to give good
security, are usually unable to obtain the temporary accommodation they
require, except at a ruinous rate of interest. I fully recognise that it
would be the greatest possible benefit to the agricultural community
if the place of the present race of needy and extortionate money-
lenders were supplied by banks, or other institutions, possessing
sufficient capital, and honestly managed. But I need scarcely remind
your Excellency that no amount of support or encouragement from
Government can render banking operations successful, whether in
India or elsewhere, if they are begun on an unsound basis, and are not
conducted on true commercial principles.

12. It appears to me doubtful whether any ingenuity can provide
an effectual substitute for the operation of the ordinary laws of
trading between the ryots and those, whether sowkars or banks, from
whom they obtain advances; and whether, without the stimulus of
risk of loss as a result of neglect and want of proper precaution on
its part, any bank could carry on its business with success. There
is a strong presumption that Government cannot directly do much
more for the relief of the agricultural debtor than take care that
in disputes between him and his creditors the law shali provide,
and the courts shall administer, speedy, cheap, and equal justice, and
that the ryot shall be as little liable as is possible, from his ignorance,
his poverty, or his position, to be defrauded or oppressed.

13. In the four districts in which it is in foree, the Deccan
Agriculturists’ Relief Act has, Iam glad to believe, done something
in this direction, and it deserves the careful consideration of your
Excellency whether its provisions, or any of them, may be made more

».widely applicable. But, notwithstanding the immense improvement

which has of late years been effected in the efficiency and integrity of
the administration of civil justice generally, much remains to be done

954 PROVISION OF BORROWING FACILITIES.

towards making it cheap and speedy. Everything which adds to the
expense, delay, and difficulty of recovering just debts increases the
price at which the money-lender gives his help to the landowner.

14. It is possible that the adoption of an improved system of regis-
tration of titles to land might tend to give such further security and
greater facility to the business of agricultural banking as would render
it practicable for private capitalists to embark therein with a fair
prospect of success, on terms which should not be so onerous to the
cultivating classes as those to which the latter are now compelled to
submit when borrowing from the village sowkars. It is, I am
informed, in reliance on an effectual registry of titles that the land
banks of Europe and the British colonies have been carried on, and
although I am conscious of the very different conditions under which
an Indian agricultural community exists, yet I recommend this
suggestion to the consideration of your Excellency’s Government, as
possibly affording some opening in the desired direction.

15. With regard to indirect assistance which Government might
give to agricultural banking enterprise, I desire to make one suggestion
with reference to the question of the ryots’ market, alluded to in
paragraph 8 above. I understand that in the Central Provinces, and
other parts of India, great benefit has followed the establishment of
public marts or corn exchanges, where the cultivators can sell their
produce for the best price in open market, and thus avoid the necessity
of handing it over to a money-lender on account. That sale in open
market should be the general practice is, I think, essential to the
success of an agricultural bank, and the general establishment of
public marts seems to me an object which your Excellency’s
Government should encourage, and one on which local bodies may with
great advantage expend their funds.

16. While I have been compelled to state my conviction that the
proposals contained in your letter of the 3lst May are not capable
of practical application, I hope that your Excellency will understand
that I am prepared to give the most careful attention to any scheme
for the promotion of the objects you have in view, which your
government may suggest after consideration of the objections stated in
the present despatch.

—

[Extracts from the Famine Commission’s Report, 1901, Part III,
pp. 97—102. |

Section [V—AaGricutturAL BANKs.

288. We attach the highest importance to the establishment of
some organization or method whereby cultivators may obtain, without
paying usurious rates of interest, and without being given undue
facilities for incurring debt, the advances necessary for carrying on
their business. Agriculture, like other industries is supported on
eredit. “The sowkar is as essential in the village as the ploughman,”
said the Secretary of State in reviewing the Report of the Deccan
Riots Commission and the statement is true in existing circumstances.
But, owing to causes, which it would be tedious to trace, the sowkar
or dania has, from being a help to agriculture, become, in some
places, an incubus upon it. The usurious rates of interest that he
charges and the unfair advantage that he takes of the cultivators’
necessities and ignorance have, over large areas, placed a burden of
indebtedness on the cultivator which he cannot bear. Passed on from

father to son, and continually swollen in the process by compound

interest, this burden of indebtedness has become hereditary and
retains the cultivating classes in poverty, from which there is no
escape, that we can perceive, except through state assistance or the
discovery of some other means by which the cultivator may get, on
easier terms, the accommodation that he needs. But even the fuller
measure of State aid in the shape of fakavi loans, which we shall
recommend, will go but a small way towards removing the difficulties
of the whole class. Government cannot possibly finance all the
cultivators of a district, still less of a province. In the establishment
of Mutual Credit Associations lies a large hope for the future of
agriculture in India; and from the enquiries we have made there is
reason to believe that, if taken up and pressed with patience and
energy, such associations may be successfully worked.

289. This question is, we believe, to come shortly under the
consideration of the Government of India, but it is necessary that
we should call attention to its importance here. The subject was
broached by us in all the provinces that we visited, and was
everywhere regarded with interest. Moreover, as the Government
of the North-Western Provinces and Oudh has actually taken steps
to put the principles of rural co-operative credit into practice, we

956 PROVISION OF BORROWING FACILITIES.

think it well to offer a few brief remarks on the direction which, in
our opinion, a practical scheme of Agricultural Banks shonld follow,

290. The underlying idea in all Mutual Credit Associations,
such as we recommend, is that a number of persons, by combining
together, create a new and valuable security, which none of them
previously possessed as individuals. Co-operation substitutes for
isolated and helpless agricultural units a strong association competent

to offer guarantees and capable of inspiring confidence. The -

advantages of lending to groups instead of to individuals need no
demonstration. Itis simpler fora creditor to deal with a group
of fifty or a hundred associated cultivators than with the same number
singly ; itis simpler for him to obtain repayment from the group
than from each of the members composing it ; itis simpler for the
group to make its own arrangements with each number than for
the lender to try todo so. By the same process of reasoning, it is
simpler for a Central Agricultural Bank to deal with groups of
associated cultivators in each village than to make any attempt to
deal with each cultivator singly.

291. To obtain the full advantages that co-operation offers,
any group of cultivators, voluntarily associating together to obtain
credit on their joint responsibility must agree to abide by certain
recognised rules. Notwithstanding the difference between Hastern
and Western conditions, the rules of the Raiffeisen credit associations
are probably the best that, subject to necessary modifications, any
similar association in India could adopt. On this point some further
remarks are required ; but before offering them, we desire to remove
some misconceptions, which our enquiries have shown to prevail,
both as to the scope of village banks and as to the se ensianrerse
principles which should regulate their working.

292. Itshould be understood from the outset, and made perfectly
clear to all concerned, that the establishment of a village bank does
not imply the creation of an institution from which the villagers may
draw money at their discretion. A village bank, based generally
upon the Raiffeisen system, admits no one to membership who does
not fulfill certain conditions which are essential for the safe conduct
of the bank’s operations ; it works only for the benefit of its own
members, and it grants no loan except for purposes connected with‘ ©
the promotion of agriculture. It is most important that these objects
and limitations should be clearly understood, so that there may be no

PROVISION OF BORROWING FACILITIES. 257

disappointment afterwards, and no unnecessary alarm caused to the
old established village money-lender.

293. Wehave been told by some non-official witnesses that, if
Agricultural Banks do not lend for miscellaneous purposes, they stand
no chance of succeeding, and by other witnesses that, if they do
lend for miscellaneous purposes and thus compete with the money-
lender, they are sure to fail. We think that both apprehensions
arise from a misconception of the objects in view. It is not intended
to frighten the village money-lender by permitting a village bank to
enter into competition with him over the whole field of his business ;
still less is it the intention to encourage borrowing for unproductive
purposes. No association borrowing on the joint responsibility of its
members would be justified in devoting any of its funds to loans for

e unproductive purposes. It does not consequently enter into the
scope of a village bank’s operations to lend for marriage festivities or
for caste feasts or similar objects. If people wish to borrow money
for such purposes, or for any other purpose unconnected with
agriculture, they must still go to the village sowkar or bania. The
co-operative agricultural bank only aims at freeing the great
business of the cultivator’s life from the terrible burden, which now
presses on it owing to the usurious interest taken for agricultural loans,

294. To sum up, the objects of an Agricultural Bank of this
kind may thus be enumerated :—

(1) ‘To enable its members to obtain loans at reasonable rates for
agricultural purposes by placing them ina favourable
position to borrow, and by assisting in the creation of a

\ new credit, which individually they did not possess.

(2) To provide them with a secure place, in which to deposit
their small savings.

(3) To encourage thrift, by holding up before the eyes of the
members the principle that money should not be
borrowed unless for reproductive purposes.

(4) To promote co-operation among the village community in
all agricultural affairs.

295. Having thus defined the scope of an Agricultural Bank’s
operations, we next wish to enumerate the principles upon which they
ave.usually based. They are as follows :—

(1) There should be unlimited liability : members must be
jointly and severally responsible for all the obligations

contracted by their society.
33

)

258 PROVISION OF BORROWING FACILITIES.

(2) The area in which the village institution works must be
well defined and restricted to narrow limits.

(3) Members must be carefully selected, and none admitted
but those of approved character.

(4) All services in connection with the bank’s administration
must be gratuitously rendered.

(5) There should, in general, be no paid-up capital.

(6) All net profits are payable, not as dividends to members
but to the reserve fund, which must be indivisible.

A few words of explanation on these conditions are necessary.

296. Unlimited liability is insisted on, because under such
conditions ‘a few: ordinary villagers can readily provide a guarantee
sufficiently strong to satisfy the requirements of those persons willing
to lend money to them at reasonable rates. It remains to be seen
whether the principle of limitation by guarantee will not be equally
_ efficient and more acceptable. The feeling of joint responsibility
induces each member to exert himself to the utmost to safe-euard
the common interest ; it compels caution in the distribution of loans
- to members, and causes them to hesitate over the introduction of any
new members likely to cause loss to the association by unpunctuality
_ or backwardness in making payments.

297. The limitation of area is an absolutely necessary condition
in the case of a society which relies so greatly, as a safe-guard against
loss, on the bond of common interest, on the influence of social
pressure, and on the intimate knowledge the members have of each
other’s character and affairs. Usually the members of a village bank
should all be residents in the same village, or in the same group of
villages, provided that no one lives further than three or four miles
from. the Bank’s head-quarters.

298. The selection of members is one of the principal factors
in the success of a village bank, which should never contemplate
going to law to recover any of its advances. loans are made to
members on their personal security, guaranteed according to the
amount of the loan by the security of one or more other members. .
The createst care at the outset must be exercised in the choice of the
original members. The latter may be safely relied upon to exercise
discrimination i in the admission of new moerabet because the loss that

PROVISION OF BORROWING FACILITIES. 259

may be caused to the society, by the failure of a borrower and his
sureties to fulfil their obligations, will ultimately fall on the whole
body of members. | :
299. Gratuitous services in connection with the bank’s business.
are desirable, because, as the bank works only for the benefit of its
own members, and the primary object of the society is to facilitate the
obtaining of loans at reasonable interest, any expense would have
to be borne by the society and would tend to nullify the object in
view. Moreover, such gratuitous service directly tends to foster a
sense of public duty and the acquirement of business habits. As a.
village bank does not meet usually more than twice a month and the
proceedings do not occupy more than an hour or so, the amount of
labour devolving on the office-bearers is trifling. |

300. The formation and indivisibility of the reserve is one of the
great sources of strength to a village bank. As the association starts
without any subscribed capital, the formation of a continually
growing reserve to supplement the guarantee of the associated
members is necessary both to enable the members to obtain better
terms when borrowing and to safe-guard them from the loss which
default on the part of any members might bring upon them.
As the members do not associate for the purpose of profit on
invested capital, but for the purpose of furthering their
common interest, all profits obtained from the bank’s operations are
carried to a common fund, the joint property of all the members.
The division of this fund is forbidden in order to prevent its growth
arousing the cupidity of the members, and tempting them to break up
their society for the sake of small temporary profit.

301. The village bank organised on the preceding principles must
obtain at the outset from_some source outside itself the capital with’
which it has to work. In those European countries where the system’
of agricultural banking has taken root, village banks are largely -
financed byt Central Banks operating on a large scale; but in India
there is no hope, in the beginning, at all events, that these Central’
Banks or Joint Stock Companies will come into existence. Efforts must
therefore be made to ereate local agencies. It may be that at first
such efforts may not be successful, and in this ease there would be, we
think, no objection to employing State aid to finance experimental
village banks, But the object should be to avoid the intervention of
the State, except in the matter of audit and supervision,

260 PROVISION OF BORROWING FACILITIES.

302. In the tract of country to be served by village banks there
doubtless will be found influential landlords, merchants, and others
who, apart even from their desire to take part in a movement for the
publie good, will find it to their interest to lend their aid. It will be
possible to organise these gentlemen into a society for the purpose not
only of providing funds for financing the village banks, but also for
the purpose of stimulating their formation and guiding their action.
The money may be subscribed in shares, each of small amount and
bearing interest, say, at 4 per cent. per annum. Such a society
should be called the Organization Society: and should there be any
difficulty in subscribing the requisite capital, there is no reason why,
to begin with, the society should not borrow the amount from
Government.

303. In course of time, and when village banks have taken root,
the Organization Societies in a District or even in a division may be
amalgamated; when this happens, the Central Society would take
on itself the function of financing and controlling all village banks
in its sphere of operation. In this scheme the Organization Society
would, in point of fact, be an intermediate stage of development.

304. The duties of the Organization Society may be summed .
up as follows :—

(1) To promote the knowledge of the principles of Co-operative
banking in the locality.

(2) To organise village banks and to supervise their working.

(3) To grant advances to village banks under its supervision.

(4) To arrange for the proper audit from time to time of the
bank’s books,

305. In many districts there are large land-lords (we especially
instance the Court of Wards, managing estates of disqualified owners)
who may themselves wish to establish village banks on their estates
and to advance to them, at reasonable interest, the money required
for their operations. There is no reason why this should not be
done, and why village banks financed by the land-lord alone should
not work and prosper. But in all cases, whether the bank is financed
by one capitalist, or by a society of capitalists, it is essential to
solvent and successful working that there should be strict attention

to business methods and regularity. To ensure this, external supér-
vision and audit are essential.

PROVISION OF BORROWING FACILITIES. 261

306. The above is only a brief stretch of the principles, organisa-
tion and object of village banks founded on the RarrreisEn system.
It appears to us that there is in every province, which we have visited,
a wide scope for the establishment of such banks: some have been
already established in the North-Western Provinces and Oudh. In
some provinces the hope of successful working is better than in others ;
but everywhere there is justification for an effort. No doubt such
banks may, in the commencement, meet with opposition from the
money-lender, who already occupies the field, and they may also meet
with suspicion and half-hearted support from those who do not under-
stand their principles. But Indian native life presents us with
instances of co-operation for mutual benefit and the principle which
underlies the Ratrreisen system is not really foreign to the thoughts
of the people.

307. The system cannot succeed unless the people themselves
aid freely in working it. But, if the experimental banks initiated
by the Organization Society take root in any district, the future
growth of the movement will be in proportion to the desire of the
people to free themselves of their present burden of indebtedness.
The system separates the working bees from the drones, and gives
the former an opportunity of escape from the disqualifications which
now press so heavily on both classes of cultivators alike.

308. The preceding remarks apply to Mutual Credit Associa-
tions in their agricultural aspects; the same needs exist and a similar
remedy applies in connection with the promotion of rural industries
and the relief of artisans. It may, indeed, be possible for one associa-
tion to combine both forms of relief. But in any case it will be
necessary to legislate concerning the privileges which all such associa-
tions should enjoy; this matter is, we understand, already under
the consideration of the Government of India.

309. There remains the larger question of encouraging land and
mortgage banks and private individuals to apply capital to the perma-
nent improvement of the soil. This was considered in connection
with Act 19 of 1883, and we desire to mention with approval of
its general object.

Co-oPpErRATIVe Crepit Socturizs’ Bru, 1903.

Statement of Oljects and Reasons.

Tu object of this measure is to provide the requisite legal basis
for the establishment in India of Agricultural Banks, or—to use a
more appropriate expression—of Co-operative Credit Societies. Such
a scheme for improving the credit of the masses has for some time

past been engaging the attention of the Government, the advantages

likely to follow the provision of some means of obtaining capital,

especially in connection with agricultural operations, otherwise than at_

usurious rates of interest having, indeed, long been recognized in this
country. Legislation is called for not only in order to lay down the
fundamental conditions which must be observed, but also with a view
to giving such societies a corporate existence without resort to the
elaborate provisions of the Companies Act; but it is thought that
legislation should be confined within the narrowest possible lumits.
The Bill has, therefore, been drawn so as to deal only with those
points which the Government consider to be essential, and its
provisions have been expressed in simple and general terms, a wide
rule-making power being reserved to Local Governments, so that what
is felt to be of the nature of an experiment may be tried in each
Province or part of a Province on such lines as seem to afford most
promise of success. An explanation of the more important features
of the draft will be found in the annexed notes on its clauses.

Notes on Clauses.

- Clause 3 —Much importance is attached to the appointment of a
special officer in each Province, who should, as Registrar of
Co-operative Societies, guide and control such societies, particularly
in the early daysof the movement. Gradually, no doubt, as experience
is gained and the societies are able to stand alone, the fostering care
of the Registrar will be less required, and eventually his duti¢s will
become for the most part purely official.

Clauses 5-8.—The main object is to encourage thrift and

co-operation among persons of limited means, and it is not intended
that the special facilities and concessions contemplated should be made
available for the ordinary operations of capital. The Bill is conceived
primarily in the interests of agriculturists, but it is recognized that
societies may properly be started among other classes of small means

e

PROVISION OF BORROWING FACILITIES, 2638

in towns and large villages. While, therefore, it is proposed to allow
urban societies to be promoted on a share basis with limited liability,
for rural societies it has been decided to insist upon the principle of
unlimited liability. The utilisation of combined credit for the benefit
of individual agriculturists is the kind of co-operation which it is
desired to encourage, and towards this end the measure is mainly
directed. It seems essential that the main qualifications for admission
to membership of a society, whether rural or urban, should be laid
down by legislation, andit is thought that the most prominent
qualification should be residence in the same neighbourhood, inasmuch
as it is an essential principle that the lenders should have that accurate
knowledge of the circumstances of the borrowers which can only thus
be obtained. It is also important that members should be eligible for
admission by election only so as to secure that mutual confidence upon
which successful co-operation must depend.

Clause 8.—As it is desired to foster thrift and mutual co-operation,
it is provided that loans shall be admissible to members only, save in
the case of urban societies, when it is proposed to allow, subject to the
sanction of the Registrar, advances to be made to rural societies in the
same district. The question whether pawn-broking should be
countenanced has been much diseusssed, and the conclusion embodied
in clause 8 is that it should be prohibited except as regards advances
by rural societies on the deposit of agricultural produce.

Clauses 9 and 10.—These clauses aim at strictly limiting the
number and value of the shares held by a single individual, and
rendering shares untransferable until they have been in the possession
of the holder for a certain period. The object is to prevent the
acquisition of a predominant interest in a society by speculators whose
advantage it might be to wreck it, or to use the facilities furnished
by the measure to start banks for ends other than those which it is
desired to promote.

Cleyse 11.—It is here provided that the interests of individual
members in the funds of a society shall be exempt from liability to
attachment by civil process. To deposits it has been decided that this
exemption should not be extended.

Clause 12.—Facilities for the payment of what is due to a member

». on his death are here provided.

Clauses 13 and 14,—The proposal that a summary process for the
recovery of loans should be secured in favour of societies has been

264. PROVISION OF BORROWING FACILITIES.

discarded, and these clauses are confined to giving them a prior claim
as against ordinary creditors on the crops grown, and cattle, etc.,
purchased with the aid of advances, and also a lien on shares, dividends
and deposits.

Clause 15.—This provision will render official audit compulsory,
and, it is believed, will give the outside public and the members
confidence in the management. Even although a society may receive
no financial assistance from the Government, yet it will obtain
valuable privileges under the proposed Act, and it is but reasonable
that it should at the same time be obliged to submit its accounts to
some check, which must in this country take the form of an official

audit.
Clauses 17 and 18.—These provisions as to the dissolution and
liquidation of a society call for no special explanation.

Clause 19.—Power is here taken to grant by executive order
certain exemptions in respect of income-tax, stamp-duties, and
registration-fees. In provinces where there are no records-of-rights,
the searching of registers kept under the Indian Registration Act,
1877 (8 of 1877), is the only means of ascertaining the existence
of encumbrances upon land ; but the right to search free of charge is
a privilege which might be used to obtain information required really
for private purposes, and power has, therefore, been expressly taken to
withdraw it, in case of such abuse, from any particular society.

Clause 20.—The Bill does not provide for the grant of financial
assistance by the Government ; but it may be necessary to afford such
assistance, and the matter is left to be regulated by executive order.
The power summarily to recover any advances made in this way, as
also any other sums due to the Government, is reserved by clause 20.

Clause 21.—The object of the wide rule-making power here
contemplated has already been adverted to.

Clause 22.—It is proposed, as has also been explained above; that
duly registered Co-operative Credit Societies should not be subject to
the provisions of the Indian Companies Act, 1882 (6 of 1882).

[ Eetracts from the Proceedings of the Governor General’s Council,
dated the 23rd October, 1903.)

Co-oPERATIVE CreEpiT Sooterres’ BIL.

Sir D. Ippetson said :—

One of the most difficult problems with which the small
agriculturist is everywhere confronted is, to obtain the money which
is necessary for his operations at a reasonable rate of interest. This is
a state of affairs by no means peculiar to India. The petty
agriculture of Hurope is for the most part financed by borrowed
capital, and there too the money-lender takes advantage of the
exigencies of the cultivator to demand exorbitant terms. In
India, however, the problem is aggravated by the fact that
Indian rates of interest are to sume extent survivals from times
when the security which the agriculturist had to offer was of
far smaller value than at present, and partly perhaps by the fact
that into most Indian contracts there enters an element of
oriental hyperbole, for which full allowance is made when the
settlement is by mutual consent, but which our Courts of Justice
are for the most part unable to recognise.

Some fifty years ago, the establishment of agricultural banks
and of co-operative credit societies for small men was _ initiated
in Germany by Scuutze Detirzscu and Ratrretsen respectively.
The experiment passed through twenty years of struggle and
uncertainty ; but eventually it succeeded beyond all expectation,
the institutions of both classes now exceeding 5,000 in number ;
and the example thus set has been imitated, with more or less
modification, in many European countries where land is commonly
in the hands of men of small means.

Madras } was the Indian province in which attention was
first turned to the subject. In that province an _ indigenous
institution called a Nidhi had sprung into existence at about the
same time as the movement to which I have just referred began.
These Nidhis are modelled very much upon the lines of English
biihling societies, and they find their clients among a more educated
and advanced class than that of the rural agriculturist, to whose
needs their constitution is not well adapted. But the fact that,

34

266 PROVISION OF BORROWING FACILITIES.

notwithstanding numerous failures, and much discredit attendant
upon a period of speculation, they have attained a very considerable
degree of success, since at present they include some 86,000 members
with a paid-up capital of 75 lakhs, is encouraging as suggesting the
possibility of establishing true co-operative credit societies among an
Indian people.

It was the Madras Government, then, who, towards the end
of 1899, forwarded for the consideration of the Government of
India a report upon the subject which had been prepared under their
orders by Mr. (now Sir Frepzricx) Nicnotson, and which is a
monument of research and a perfect storehouse of information ; while
about the same time Mr. Duprernex, a civilian in the United
Provinees, published a book upon ‘Peoples’ Banks for Northern India’,

The Government of India fully realised the doubts and
difficulties which must attend any attempt to introduce the
RAtFrEIseN system into rural India. But they also recognised the
enormous advantage which would result to the Indian cultivators
if by any means they could be induced to utilise their combined
savings under a system of co-operative credit, and so be freed, even
partially, from the necessity of recourse to the professional money
lender. They therefore referred the subject in its most general form
to Local Governments for preliminary consideration and suggestions.

After some intermediate discussion, the opinions of Local
Governments were considered in June 1901 by a strong Committee
under the presidency of my Hon’ble colleague Sir Epwarp Law ; and
it was on the report of this committee, to which were attached a draft
Bill, and draft model schemes of management for co-operative credit
societies with limited and unlimited liability respectively, that
proposals for action first took a form sufficiently definite to
allow of detailed discussion. These proposals were referred to
Local Governments for criticism, and it is upon a consideration
of the replies which have been received to this reference that the
Government of India now propose to take action.

While the subject had thus been under distussion; a certain
amount of experience had been gained from experiments which
had been made with varying success in several provinces of Northern
India. In some cases failure had ensued, or was only averted by
official support ; but in afew instances genuine success had been
achieved, and real co-operation for the purpose of utilising the
combined credit had been arrived at among a cultivating community.

PROVISION OF BORROWING FACILITIES, 267

One thing, however, soon became apparent—that no _ real
advance was possible without legislation. The Companies’ Act at
present in force (Act 6 of 1882) contains 256 sections, and its
elaborate provisions, however necessary in the case of combinations
of capital ona large scale, are wholly unsuited to societies of the

kind which we desire to encourage. The first thing to be done,
' therefore, was to take such societies out of the operation of the
general law on the subject, and to substitute provisions specially
adapted to their constitution and objects. In the second place,
it was desirable to confer upon them special privileges and facilities,
in order to encourage their formation and assist their operations.
And, thirdly, since they were to enjoy exemption from the general
law and facilities of avery special nature, it was very necessary to
take such precautions as might be needed in order to prevent
speculators and capitalists from availing themselves, under colourable
pretexts, of privileges which were not intended for them. These
three ends were the objects which we kept in view in framing the
legislation that I am about to propose.

When we came to consider the details of our Bill, we found
that we had before us an extraordinary diversity of opinion, which
extended in many cases to matters of principle, and which reflected,
not only the individual convictions and experiences of the authorities
consulted, but also the infinite variety that characterises the
conditions with which we have to deal and the material with which
we have to work. But such diversity of opinion was only to be
expected. The fact is that the whole business is of the nature
of an experiment, upon which we are entering with very scanty
knowledge and very little local experience, and in_ which we
shall have to feel our way cautiously, and to gain our experience as
we advance. We have, it is true, European results to guide us, and
European models to imitate. But it by no means follows that what
succeeds in Europe will succeed also in India. Nor indeed is it
probable pat what is best suited to one part of this great country
will always be best suited to another. The conditions and the
character and habits of the people vary infinitely; and we shall
probably find that the institutions which we desire to promote will
take widely differing forms among such widely different classes, as,
"for instance, the yeomen of the Punjab, the ryots of Southern
India, and the tenants of Bepgal. If an institution of this sort,
which depends upon the people themselves combining for their mutual

268 PROVISION OF BORROWING FACILITIES.

advantage, is to sucteed, it must be, as far as possible, an indigenous
and a natural growth. An exotic type may be forced by artificial
stimulus to flourish for a while, but we can never expect it to take
vigorous root, or to continue to flourish when that stimulus is with-
drawn. Certain broad :principles must be laid down, and certain
precautions must be insisted upon; but within those principles and
subject to those precautions, the people must in the main be left
to work out their own salvation on their own lines, the function of
Government being confined to hearty sympathy, assistance and
advice.

Guided by these considerations, we have kept two cardinal objects
in view in framing the present Bill. The first is sempliccty. Some
of the schemes which were laid before us were far too elaborate for
the comprehension of the classes for whom they were intended, but
who certainly could never have complied with their provisions.
Simplicity is the first essential for success. The second is e/astverty.
Our aim has been to lay down merely the general outlines, and to
leave the details to be filled in gradually on lines which the experience
of failure or success and the natural development of the institutions
may indicate as best suited to each part of the country. So far,
therefore, as it deals with the constitution of the societies, we have
confined the provisions of our Bill to those general principles which
we consider that all co-operative credit societies should accept as the
condition of being permitted to enjoy the advantages afforded by our
special legislation. There are other matters in respect of which some
guidance and some restriction will be necessary; but we have left
them to be dealt with by Local Governments in accordance with
local needs, in the exercise of the rule-making power which the Bill
confers upon them. If the Bill passes into law, we shall impress
upon those Governments that simplicity and elasticity are as essential
in the rules framed under the law as they are in the law itself, and
that especially in the first instance, and until further experience has
been gained, the regulative interference of Government) should be
limited strictly to essentials, so as to leave spontaneous growth
unhampered. Experiment is as necessary within the province as it
is within the Empire.

Before turning to the actual provisions of the Bill, it will be well ,
to define as exactly as possible the precise nature of the institutions
which we desire to create, and that we shall best do by defining the

:
€

PROVISION OF BORROWING FACILITIES. 269

precise object with which we desire to create them. That object
may perhaps be defined as the encouragement of individual thrift,
and of mutual co-operation among the members, with a view to the
utilisation of their combined credit, by the aid of their intimate
knowledge of one another’s needs and capacities, and of the pressure
of local public opinion.

The main object of our endeavours is to assist agricultural credit,
which presents a far more important and more difficult problem than
does industrial credit. But we recognise that artisans, employes on
small pay, and other persons of small means residing in towns, may
very properly be admitted to the benefits of our legislation. We
therefore provide for two classes of societies—rural, which are composed
of agriculturists (a term which is not intended to include the wealthy
rent-receiver), and wrban, which consist of artisans or other persons
of limited means. The members of a rural society may live ina
town: so also the members of an urban society may live in a village,
but it must be one single village—a condition which will exclude in
practice all villages that are not sufficiently large to possess an urban
character. In the case of both classes we provide that the members
must be small men, for we are not legislating for capitalists; that
they must be residents of the same neighbourhood, else the
knowledge of one another which is to guide them in their operations
will be wanting ; that new members shall be admitted by election
only, thus securing that mutual confidence which is the only
possible . foundation of co-operation; that a man must be a
member before he can borrow from the society, and must in that capacity
have contributed to the funds of the society, since our basis is mutual
co-operation ; that money shall not be lent on mortgage, so that the
capital may be liquid, and capable of ready realisation; that the
interest in a society which may be held by a single member is to be
limited, in order to prevent an individual from obtaining control ; and
that shares can be transferred subject only to certain restrictions
which ar? intended to prevent speculation. We provide for a simple
form of oe ; for compulsory dissolution, subject to appeal
to the Local Government, in order to meet the case of fraud, or of
bogus co-operative societies which may have obtained the benefits of
the Act while not pursuing its objects; and for liquidation under a

* simple procedure, and subject to appeal to the Civil Courts.

In the case of rural societies we further insist upon unlimited

liability, as best suited to the agricultural classes to whom they are

270 PROVISION OF BORROWING FACILITIES.

confined and most consonant with the mutual confidence which is
to form their basis; we lay down that no profit is to be directly
divided among the members, since their object is not to make money
but to assist one another, and any surplus that may accrue
should either be carried to a reserve fund, or be applied to reducing
the rate of interest upon loans; and we forbid the society to
borrow money without sanction, for it would often be worth the
while of a money-lender to risk his money in order to get a success-
ful society into his power, and so to rid himself of a rival. We
prohibit pawn-broking, since the basis of the operations should be
personal and not material security ; but we allow agricultural produce
to be received as security or in payment, and to be converted into
money at any time by the society, which will generally be in a posi-
tion to get a better price for it than an indebted cultivator could
obtain.

In the ease of urban societies we allow of limited liability and the
distribution of profits, subject to the creation of a sufficient reserve
fund, and we allow them to lend money to a rural society which is
situated in the same district, and with the cireumstances of which they
have therefore the opportunity of being acquainted.

Having thus provided for the constitution of our societies, and
regulated their operations, we proceed to confer upon them certain
privileges. We exempt the shares or other interests of members in
the capital of a society from attachment for their private debts, thus
encouraging thrift, and giving stability to the operations of the society ;
we relieve societies from the necessity for letters of administration
or a succession certificate ; we give them a lien upon certain forms of
property when created or acquired by means of a loan from them,
until the loan is repaid ; and we make an entry in the books of a society
prima facie evidence in a suit to recover money due to it. We take
powers for the Governor-General in Council to exempt societies and
their operations from income-tax, stamp-duties, and registration-fees ;
and it is our intention to act upon those powers, at any } ite in the
first instance. :

Finally, we provide for compulsory inspection and audit by a
Government officer, in order to provide against mismanagement and
fraud, to give the members and the public confidence in the societies, . .
and to justify the privileges which we confer upon them ; we make
Government advances recoverable as arrears of land-revenue; we

PROVISION OF BORROWING FACILITIES. 271

confer a wide rule-making power upon Local Governments while
indicating certain heads under which it will probably be advisable to
exercise it ; and we declare that the provisions of the Indian Companies’
Act shall not apply to societies registered under the new law.

There are four points of some importance as to which the Bill is
silent, but which have been much discussed, and with great diversity
of opinion ; and I may perhaps briefly indicate why our proposals
include no provisions regarding them. The first is, the objects with
which these societies may make loans to their members. It has been
strongly urged that no loans should be permitted except for productive

expenditure, and specially that they should not be granted for such
purpose as marriages and the like. We recognise that there is much
to besaid both for and against the proposal; but we have finally
decided to reject it, mainly on the ground that whatever restrictions
might be imposed by law, it would be impossible to enforce them,
while their mere existence would encourage evasion and deceit. More-
over, we are not without hope that the fact that a society refuses
to lend more than Rs. 50 toa member for a marriage, as being as
much as he can hope to repay, may not unfrequently lead to his
limiting his expenditure to Rs. 50 instead of going to the money-lender
for Rs. 100.

In the second place, it has been suggested that a summary
procedure for the recovery of debt should be placed at the disposal
of these societies. It is true that the recovery of debt by civil suit
is a tedious process, and that a society of the sort we are considering
is perhaps the least fitted of all agencies to conduct such a suit. But
it is a serious matter to place our executive machinery at the disposal
of a private creditor. And, above all, such artificial assistance would
discourage the exercise of that vigilance and caution upon which these
societies should depend for their security. With the local knowledge
which will be at their command, they should, if they conduct their
affairs pYudently, hardly ever need to have recourse to a Court.
Their stitngth should lie in that knowledge, and not in any special
process of recovery. In the rule-making section we have authorised
Local. Governments to provide for the settlement of disputes by
arbitration if a society so wishes; and we do not propose to go

* further.

In the third place, we have been urged to prohibit compound
interest. We have had no hesitation in rejecting this suggestion,

272 PROVISION OF BORROWING FACILITIES.

Compound interst is a devilish engine in the hands of a creditor whose
whole object is to involve his debtor in his meshes. But fairly used,
it is just enough; and prompt recovery of debt is essential to the
working of these societies. There is a danger that they may be too
slack in dealing with their friends and neighbours, and compound
interest will provide a useful stimulus to the debtor.

In the fourth place, we have been asked, with the object of giving
special encouragement to thrift, to extend to mere deposits made by
members with their societies, the same exemption from attachment
for debt for which we have provided in the case of contributions that
have merged in the capital funds of the society; and the precedent
of Provident Funds has been quoted in support of the proposal.
We do not admit the analogy. Provident Funds are protected, not
for the benefit of the subscriber, but because they form a provision
for the widow and the orphan; and we do not think that thrift should
be encouraged wholesale at the expense of the legitimate creditor.
The exemption for which we have provided is confined within definite
limits, and we do not propose to extend it.

Such, my Lorp, are the outlines of the legislation which Iam about
to propose to Council. But legislation is useful only as the basis
of subsequent action ; and the subject is of such great and general
interest and importance that I think I shall be justified in asking the
Council to bear with mea little longer, while I briefly sketch in outline
the action which we propose to take if our Bill becomes Law. I have
said that the whole matter is an experiment, and that we shall have to
gain our experience as we go. Under these circumstances it is essential
to proceed gradually and with the greatest caution. We cannot hope
to escape failures, which will involve loss to individuals; and many
failures would set back the cause which we have at heart, while a few
successful societies will speedily find spontaneous imitators. If by a
stroke of the pen I could cover the country to-morrow with a network
of these societies, I should decline to do so until we know mp>re about
the forms which will best suit the conditions with which we have to
deal. And that knowledge only experience can teach us.

On the other hand, it is abundantly clear that no real advance
will be made without the active encouragement and assistance of

Government. We propose therefore to ask Local Governments to”

select a few places in each province in which to try the initial experi-
ments. They should present some variety of conditions, so as to

©

PROVISION OF BORROWING FACILITIES. 2738

afford a wide experience ; and an important element in the choice
will be the personal character of the District Officer, and the degree
in which he possesses the confidence of, and exercises influence over,
the people. Ishall explain presently how we propose to relieve the
District Officer when the societies have once been formed. But it is
he who must give the first impulse ; he must explain the new law
and preach the new gospel ; he must select the places in which the
experiment is most likely to succeed, and must suggest to the people
that they should try it, putting it to them as action to be taken, not
by Government but by themselves, while explaining how far and in
what way Government is ready to help them.

Indeed, the active assistance and support of the District Officer
will be necessary in every case, until the new plant has taken firm
root and is strong enough to stand alone, and the officer who is in
immediate charge must work in constant consultation with him.
But we do not propose to burden him with the detailed care of the
_ societies. Hon’ble Members will observe that the Bill provides for
the appointment in each province of a Registrar, to whom somewhat
extensive powers have been given in order to secure that our
legislation is not taken advantage of by bogus societies. We
propose that he should be a whole-time officer specially selected for the
work, and that to him should be entrusted the care and supervision
of all the societies in the province. The advantage of concentrating
this duty in a single pair.of hands will be, that the experience of all
the societies will be placed at the disposal of each, since by watching
developments under various conditions the Registrar will gain
experience which will render him an invaluable adviser ; he will know
what has succeeded in one place or failed in another, and will be in a
position to. point out defeets and suggest remedies, and to prevent
the repetition of mistakes. or the first few years atleast he will
constantly be yoing round, visiting the societies and watching their
progress, 4riticising and assisting them, but asa friendly adviser
rather i an inspecting officer. As experience is accumulated
and the societies gain strength and are able to stand alone, and
as their numbers multiply, the ‘dry-nurse’ element will disappear
from his duties, which will become more purely official.

*» J. have only one more point to touch upon. The first question
that will be asked—that has indeed been asked already—is, what is
Government going to do for these societies in the way of financial]

35

274 PROVISION OF BORROWING FACILITIES,

assistance ? I have already said that we propose to exempt for the
present their profits and operations from income-tax, stamp-duties,
and registration-fees. We shall also authorise them to open public
accounts in the Post Office Savings Banks ; and these measures will
apply equally to urban and to rural societies. In the case of urban
societies we propose to go no further.

As to whether Government should contribute to the capital
of rural societies the most opposite and extreme views have been
urged upon us. It has been suggested that we should finance them
entirely ; but such a procedure would be destructive of that thrift
and co-operation and mutual self-help which it is our object to
encourage. It has been proposed that the distribution of Government
takavi advances should be entrusted to these societies ; and I think
it quite possible that some day we may be able to make use of those
among them which have taken root and flourished, and which stand
on a strong and independent basis of their own, as valuable agencies
for the purpose. But they must learn to swim before they are thrown
into deep water; to take care of their own money before they are
trusted with much of ours ; and to allow them to regard themselves
as mere agencies for the distribution and recovery of Government
advances would wholly defeat the object of their creation.

From the opposite point of view it has been argued that any
financial assistance whatever from Government must obscure the
co-operative principle, and weaken the spirit of self-dependence which
we desire to foster ; and it has been urged that Government should
confine itself to sympathy and encouragement and moral support.
To this it has been replied, and not without reason, that assistance
thus restricted would be but cold comfort. We fully recognise the
danger which is pointed out; and we propose so to limit our assistance
as to minimise that danger as far as possible, by laying down that it
must be preceded by, and must depend in its amount, upon a genuine
subscription by the people themselves. But, subject to tnese condi-
tions, we are prepared to give financial assistance at théstart. We
believe that such assistance will have a value beyond its mere use as
capital on easy terms, since it will be an earnest of the reality of the
interest which Government takes in the matter, while the terms to
which it will be subject will stimulate the thrift and self-help that
are to be a condition precedent. We donot contemplate that our
aid will always be needed. Both in the matter of detailed guidance

a
ae
~~“

PROVISION OF BORROWING FACILITIES. 275

and of the provision of funds, we shall not feel that we have suc-
ceeded unless we eventually find ourselves able to withdraw ; for as
has been well said, ‘co-operation must be built up from the bottom,
and not from the top.’ But, for the present, we shall be prepared to
advance money to rural societies in even fifties of rupees, subject to
the condition that the total advance outstanding shall at no time
exceed the total amount subscribed or deposited by the members of
the society, or a limit of Rs. 2,000 in the case of any single society.
It may be said that the first condition will greatly restrict the
advances ; but at any rate they will double the resources at the
disposal of the society. During the first three years of the life of
any society, the advances will be free of interest, and will not be
recoverable except in the case of the society being wound up; while
after that period they will ordinarily bear interest at 4 per cent., and
will be recoverable in annual instalments not exceeding one-tenth of
the total amount due. The Registrar will have power to suspend the
payment of any instalment of capital on payment of any interest that
may be due, and such suspension will simply postpone the payment
of the suspended instalment and of all subsequent instalments by one
instalment period.

Such my Lord, are the outlines of the legislation which @e
propose, and of the executive action which we intend to base upon it.

Co-opERATIVE Crevit Societies Act AMENDMENT’? Bitt, 1911.

Statement of Objects and Reasons.

Wuewn the Bill, which subsequently became the Act of 1904, was
published, the following remarks were made in the Statement of
Objects and Reasons :—*“ Legislation is called for not only in order to
lay down the fundamental conditions which must be observed, but also _
with a view to giving such societies a corporate existence without
resort to the elaborate provisions of the Companies Act; but it is
thought that legislation should be confined within the narrowest
possible limits. The Bill has, therefore, been drawn so as to deal only
with those points which the Government consider to be essential, and
its provisions have been expressed in simple and general terms, a wide
rule-making power being reserved to Local Governments, so that what
is felt to be of the nature of an experiment may be tried in each province
or part of a province on such lines as seem to afford most promise of

success’: and these principles were followed in the Act as passed.

2. he adequacy of the existing Act was examined at a
Conference of Registrars of Co-operative Credit Societies in 1909,
and it was held that the Act still remained in many ways unduly
restricted, and that it also required certain alterations in detail which
had been suggested by experts since 1904. The Conference of
Registrars drew up proposals for the amendment of the Act, and after
consulting Local Governments on these proposals the Government of
India have prepared the Bill now published. The chief changes
contemplated by the Government of India are four in number :—

(4) The Act of 1904 applies to Societies for the purpose of
co-operative credit only, and not to Co-operative Societies
of other kinds, such as those established for production
or distribution. It has in practice been found that the
establishment of Credit Societies has led to th¢ founding
of other classes of Co-operative Societies also, ie it is
advisable that the privileges extended by the Act to
Co-operative Credit Societies should be extended to these
other Societies. It is proposed therefore that the Act as
now revised should be made applicable to all classes of
Co-operative Societies—vide clause 1 (1) and clause 4 of

the Bull.

PROVISION OF BORROWING FACILITIES. 277

(7) In the Act of 1904 Societies were classified according

as they were “ Urban” or “ Rural” and the principle
was laid down that as a general rule rural societies should
be with unlimited liability. This basis: for distinetion
was adopted, mainly because it represented a classification
which had already been recommended and put in force
in the initiation of Co-operative Credit Societies in
certain parts of India, but it was at the time criticised
as unsuitable by experts, and it has in practice been
found artificial and inconvenient. The real distinction
is between Societies with limited and those with
unlimited liability, and it is proposed in the new Bill to
maintain this distinction only while retaining the |
principle that agricultural Credit Societies must, as a
general rule, be with unlimited lability

the Bull. :

see clause 4 of

(177) The Act of 1904 did not contemplate that Societies with

unlimited lability should distribute profits. It is. still
felt that such Societies do not represent the best form of
co-operation for agricultural communities, but this form
of Society has, in practice, been for some time in
existence in several provinces, and Societies of this
character, though not of the orthodox type, are
recognized to be capable of useful work. Although
therefore it is not intended to give them undue

encouragement, it is proposed to legalize their existence

and to permit an unlimited Society, with the sanction of
the Local Government, to distribute profits—see clause 28

of the Bill.

(zv) A cardinal principle which is observed in the organization

’
j

of Co-operative Societies in Europe is the grouping of
such Societies into Unions and their financing by means
of Central Banks. This stage of co-operation had not
been fully realised or provided for in the Act of 1904,
but such grouping of Societies has already been found
feasible in most provinces, and it is now considered
desirable to legalize the formation of Co-operative Credit
Societies of which the Members shall be other Co-
operative Credit Societies—v/de clauses 5 (1), 6 and 10

(3) of the Bill,

[Letracts from the Proceedings of the Governor General’s Council
dated the Ist March 1911.]

Co-oPERATIVE Crepit Societies Act AMENDMENT BILL.

Tur Hon’ste Mr. Cariye said :—I beg to move for leave to
introduce a Bill to amend the law relating to Co-operative Credit
Societies. When Sir Denzin Isperson introduced the Co-operative
Credit Societies Bill in October 1903, he remarked : ‘ I believe that
it would be hard to exaggerate either the importance or the difficulty
of the experiment upon which we are about to embark. I feel by no
means certain of success. And if we do achieve success, I do not
expect to find in it a panacea for all the difficulties of the Indian
cultivator. But I am convinced that if we can succeed in inducing
him to combine with his fellows to utilise their collective credit for the
benefit of each, we shall have done a great deal to lessen those
difficulties and to improve his condition. At any rate, I hold it to be
the bounden duty of Government to give the experiment a fair trial,
and to do all that lies in its power to make it successful. But it must
be remembered that success or failure lies in other hands than ours.
We can do nothing of ourselves. We can offer encouragement,
advice, legal facilities, and executive and financial assistance. It is
for the people to decide whether they will avail themselves of our
offer.’ The offer has been made to the people, and by the people it
has been accepted. While the present Act was under discussion in
Council many fears were expressed. There was, said one Indian
Member, the want of that one essential quality, namely, co-operation,
which has been a prevailing defect of the Indian character from a
long time and the cause of many evils. Another Member held that
insistence on the principle of unlimited liability was likely to keep
away from the new societies those very classes whose help and
co-operation would be indispensable. This Member also htld that
insufficient provision was made for financial resources, and that the
absence of some summary procedure to recover the debts due to
societies, was likely to interfere with their success. Notwithstanding
all these doubts and fears, co-operation has established its footing in
India. While the movement is still in its infancy, yet it is a robust
and vigorous infancy which gives great promise for the future. It
has been found that the root of the matter does exist in India, and

PROVISION OF BORROWING FACILITIES. 279

that: Indians will co-operate, that unlimited liability is not a bugbear,
that societies are succeeding in attracting capital, and that they have
not found the absence of a summary procedure an insuperable difficulty
in the way of collecting their debts.

According to the last figures available, there are now 3,456
urban and rural societies with a membership of 226,958 persons, and
with a working capital of Rs. 1,03,27,743 ; of which, I am glad to
say, only Rs. 7,21,775 comes from Government. This is the result

of 7 years’ working. In Germany there were only 1,729 Co-operative

Credit Societies working in 1890, 23 years after the first Prussian
Co-operative Law was passed. In Austria the co-operative movement
commenced in 1873. After 17 years there was only one RarrEIsEN
Bank for 131,000 inhabitants. Here, excluding Native States, we
have already in 7 years got approximately one rural Co-operative
Society to just over 70,000 people. In Italy the first rural bank was
founded in 1883, and it took 24 years to bring the number up to
1,461. Seven years after the movement had commenced, there were
only 44 banks. Making every allowance for differences in membership
of the societies and for the fact that India has benefited by the
pioneer work, specially, of Germany and Italy, and that the pioneer
work has been done here by the State and not by individuals fighting
against the State, yet the figures I have given testify to an
extraordinarily rapid advance.

It may be asked why, if the movement has been so. successful
under the existing Act, not remain content with it ? My answer is
that it is lar gely owing to the very success of the movement that a
new Act is required. The success of co-operative credit societies has
paved the way for co-operative societies formed for other purposes, and
it is difficult to fit them into the provisions of an Act which was not
intended for them. In saying this I cast no reflection on the framers
of the present Act. It was deliberately resolved to limit the Act to
credit societies, and the decision was a wise one, while the scheme was
in the Sei ctl stage. But now that the co-operative movement
is well established, it is clear that provision must be made for
co-operation not merely to borrow, but also to purchase and produce,
Moreover it is essential to provide, as I will show later on, for the
union of societies in larger bodies so as to secure a large measure of
non-official inspection and control and to facilitate the raising of funds.
Seven years’ experience has brought to light many minor defects in

280 PROVISION OF BORROWING FACILITIES.

the Act. The question of the amendment of the Act was very
carefully considered before the Legislative Department undertook the
drafting of this Bill. Two annual Conferences have considered what;
changes are needed, and Local Governments have been consulted on a
rough draft of a Bill framed at the Conference of 1909.

I will to-day only mention those points in. the Bill which are of
special importance. I have already touched on the need of providmg
for Co-operative other than merely Credit Societies, and I need say
no more regarding this. Another important change relates to the
classification of societies. Under the existing Act the classification
of societies depends on whether or no the members of the societies are
mainly ag¢riculturists. The main division is into rural and urban
societies. In a rural society not less than four-fifths of the members
must be agriculturists. In an urban society not less than four-fifths
of the members must be non-agriculturists ; and in a rural society,
save with the special consent of the Local Government, the lability
of the members is unlimited. This classification was objected to at
the time by many eritics, notably by Mr. Wotrr, and experience has
shown that the critics were right. Si Denzin Ipperson, when
introducing the Bill, pointed out that in the ease of rural societies,
unlimited liability was best suited to the agricultural classes to whom
such societies are confined, and no doubt it is generally the case that
unlimited liability is best for a society of small agriculturists, as it
ensures caution in admission to membership and strict control over the
manner in which loans are spent and the purposes to which they are
devoted. All these considerations, however, apply with equal force
in. many other cases; take, for instance, a small society of weavers
working together in one place whether in the town or in the country.
Again, a rural society may consist of a number of well-to-do people
who could derive great advantage from co-operating but who are
not prepared to undertake unlimited liability for one another’s debts.
The true distinction appears to be between limited and unlimited
societies. In many cases urban societies should be unlimittd. In
some cases there is no reason why rural societies should not be formed
of limited liability.

There is likely to be more difference of opinion regarding the

provisions of section 28 of the Bill permitting of the distribution of |

profits on certain conditions to members of societies of unlimited
lability. The distribution of profits is permitted eyen under the

ac

PROVISION OF BORROWING FACILITIES. 281

present Act, but the stringency of the provisions has been much
relaxed. . It will, I think, generally be recognised that the inclusion
of provisions for the division of profits to the members of unlimited
co-operative societies tends to bring in influences dangerous to the

‘true co-operative spirit.. We must, however, accept facts, and not

insist ‘on pushing too far our co-operative idealism. Especially in the

‘Punjab and in Burma it has been found that the possibility of

obtaining shares in a society with the prospect of ultimately
participating in the profits has induced many who would not otherwise
have done so to join the movement.

The last change in the law I propose to notice—and it is one
‘of very great importance—is that which provides for the possibility
‘of grouping all societies into Unions. I will very briefly indicate ‘the
great importance of this matter. It is not at all unlikely that it may
‘appear'to many who are not acquainted with the subject that it is for
the Government to provide for the inspection of societies, and that
‘Government might well be more liberal in its assistance in the shape
of loans. In my view it is of the utmost importance to the healthy
and successful development of the movement that Government
interference and help should be reduced toa minimum. We have, on
the whole, been very fortunate so far in securing for the development
of the movement officers who have thoroughly sympathised with, and
who have a thorough grasp of, the principles of the whole movement.
But if co-operative societies develop in the future as fast as they have
done in the past, and if Government control continues to be as close
as it is at present, sooner or later the whole business of inspection
must become departmentalised. In dealing with co-operative societies
a mere knowledge of rules is useless. Mere mechanical inspection
and control would destroy, and not build up, the co-operative spirit.

Itis possible to get a few officers with the necessary gifts and

knowledge, but if the number of officers to be appointed were large,
such spegial selection would ultimately become impossible; and
anything in the nature of Government control by officers appointed
ex-officio, and not specially selected, is almost bound in the long run
to be injurious. On the other hand, if co-operative societies join
together to form unions, each of these unions should be able to provide

, from among their members some men with the necessary knowledge

and enthusiasm to guide those who require help. The business of
the unions will be not merely to obtain funds to finance the societies

36

282 PROVISION OF BORROWING FACILITIES,

belonging to them, but to see that the societies are conducted on right
lines and are not endangering the stability of the whole union,
Unions, such as I have described, are also essential to bring co-
operative societies into touch with the money market. In many
eases, the village societies attract loans locally. But more than this
is required ; and it is of great importance, for several reasons, that the
village societies should be in touch, through their unions, with a larger
money market. Among other reasons it is necessary to equalise the
demand and supply of loanable capital at different seasons. Probably
some may say,‘ Why should not Government itself advance the
money ? The money is safe, and it can be lent at rates which
would make the transaction one from which Government would
actually profit.’ I may at once say that personally I have no doubt
that Government could lend, and lend without loss, on a very large
scale. But leaving aside the fact that Government cannot take
out of the hands of private persons the financing of the agriculture
and petty trade of the country, were it to embark on such loans on a
large scale, the advances would necessarily be made on more or less
hard and fast rules. On the other hand, if societies are obliged like
any one else to borrow in the open market, their creditors will exercise
a very powerful, though frequently indirect, influence on the business
methods of the societies and on the objects to which loans are
devoted.

%

[Hatracts from Sir F. A. Nicholson’s Report on Agricultural
Banks, pp. 2-7, 10-12 23-26. |

Metuops AND PRINCIPLES OF ORGANISED CREDIT IN EuROPE.

It is obvious that as all capital is derived from savings, and as all
credit should be based on thrift and prudence, the stimulation of thrift
and prudence is a necessary antecedent to the grant of credit. It is
emphatically 2o¢ the mere outpouring of cheap capital that is required,
not the mere grant of cheap and facile credit to classes unprepared for
the boon : what is wanted is the promotion of facilities for saving,
the encouragement of banking deposits, the inculeation of the true
objects, uses, and limits of credit; in other words, the development
of the essential national virtuesof thrift, foresight, and self-help,
through institutions organized for those ends. Hence the object of
this study is, necessarily, not mere rural eredit-banking, but the
promotion and development of all institutions which, while furthering
useful credit, base that credit largely, perhaps chiefly, on previous
thrift, and are thus able to exercise over their members a beneficent
influence in the direction of self-help ; still more specially those which,
being based on the principles of co-operation, bring the isolated units
of society into association, and, by association, teach the benefit and
virtue of mutual assistance in thrift and in eredit, in combating
improvidence within, and usury without, in developing industry and
in assuring to men the full results of their industry, in stimulating
men to new ideas of life whether economie, social or moral.

Credit— Universal necessity for Rural credit.—The history of rural
economy, alike in Europe, America and India, has no lesson more
distinct than this, that agriculturists must and will borrow. This
necessity ig due to the fact that an agriculturist’s capital is locked up
in his land and stock, and must be temporarily mobilized ; hence,
credit is not necessarily objectionable, nor is borrowing necessarily a
sign of weakness. But such borrowing may be abused, and indebted-
ness may be a symptom and a cause of danger, if the conditions of
eredit are unsound or defective, if borrowing is not a mere temporary,
*preductive mobilization of capital, but the result of ignorance,
improvidence, recklessness, misgovernment, social defects, or even
social arrangements such as the laws and customs of inheritance,

284, PROVISION OF BORROWING FACILITIES.

Credit is a necessity, and borrowing and indebtedness are useful or
dangerous in proportion not merely to the use made of the sums
borrowed, but in proportion as they are the result of a prudential
foresight, or of necessity extraneous to the demands of agriculture.

As a matter of fact the agricultural classes al! over the world are
in a state of extreme indebtedness, due very largely to causes outside
of the demands of agriculture, such as to poverty, ignorance, careless-
ness, the laws of inheritance, foreign competition, seasonal disasters
and epidemic diseases, and the demands of usury ; this indebtedness
is recognized in Europe as a position of danger, and every country
is seeking its remedy, usually in the direction of organized credit.
While recognizing, however, the necessity for organizing and. cheapen-~
ing credis, it is obvious that, since indebtedness is not due merely to
the action of the usurer, no mere change in the machinery of credit
can, of itself, effect a radical eure; it can, per se, only palliate the
symptoms, or retard the catastrophe.

The condttions of credit—The conditions of credit may be summed
up as follows: absolute proximity of lender and borrower; complete
securtty to the lender as regards the title of the property offered, its
freedom from prior encumbrances, the recovery of his capital and
interest at due date, inconvenient amounts, with facilities for enforcing
such recovery in case of arrears; thorough safety and facility to the
borrower, in his ability to obtain cheap loans, at any time, to an
amount proportionate to the security hecan offer, and upon terms
which will beso equitable in themselves, so convenient as regards
repayment, so free from all risk of deliberate entanglement, so based
upon published rule; so devoid of any tendency to discount necessity
or urgency otherwise than by an equitable insurance; that he can
calculate on reaping the full fruits of his prudence, and find, in . credit,
a powerful auxiliary to his productive powers and stability. In
particular, the terms of repayment must be such that he can replace
the loan from the profits of the transaction for which it was’ obtained ;
an improvement to land must be repayable by instalments{over a long
series of years; a purchase of stock must be similarly repayable over
‘a shorter series; advances upon crops or for maintenance may be
repayable in lump or by instalments according to convenience. It is
axiomatic that loans sunk in improvements or enterprises in which
the returns are gradual, shall not be repayable except by instalments
over a period proportionate to the nature of the enterprise.

—_—_ ae
ww
‘

PROVISION OF BORROWING FACILITIES. 285

Judged by these postulates the regime of the individual money
lender is wholly defective ; he satisfies, indeed, the condition of
proximity, but it is impossible for him, trading as he does upon his
private capital supplemented merely by occasional borrowings, to
satisfy the demands for loans at any time and to any amount ; he
has no rules save those of his own conscience, and they are variable
at pleasure; he is but too prone—it is the imperfeetion of human
nature—to exact terms high in proportion to the urgency of the
borrower’s need, and not in proportion to the security offered; his
accounts, if kept at all, are just what he chooses to write and no
others, and are subject to no check or audit: he is apt to be swayed by
greed, whether of money, land or power; he can not consent to lock
up his capital fora lengthy series of years, or to receive it back in
infinitesimal driblets, indistinguishable from the interest with which
they are paid. On the other hand, since it is impossible to trust the
individual money lender with the powers of distraint or other summary
recovery, he is put to considerable expense, delay, loss and fraud in
the recovery of his ‘loans, aloss which he recoups with a handsome
increment from his clients, so that. the punctual and honourable
borrower pays for the offences of the defaulter.

It is, then, certain that the substitution of organized credit for
that of the money lender is a necessary development of civilization:
the individual system is only an elementary stage which must be
eventually passed as general wealth, order, business confidence, and
habits of association develop. The questions for consideration are the
direction in which such credit shall develop, the means by which
it can be encouraged, the modes in which it will work, and the effects
which it can be made to produce upon the nation.

The functions of true credit—It would be out of place to discuss
the remedies for the ill plight of agriculture other than that of the
organization of credit ; it is permissible merely to point to the lessons
of history as teaching the unexpected and indeterminable difficulties
of the social problem, even as regards agriculture. Liberty was
granted to the feudal quasi-serf by the admirable legislation of Von
Stern and Harprensere, with hberty of action as regards the land ;
the unforeseen result is the existing mortgage debt of about
£500,000,000 in Prussia alone. Equality was the revolutionary
demand, and equal rights of inheritance a natural and just corollary ;
again the result has been the overwhelming indebtedness of the

286 PROVISION OF BORROWING FACILITIES,

peasant and the infinite morce/lement of the land even in industrial
Europe. The problems threatening Indian agriculture are precisely
the same in nature, though not yet in degree. Human nature is
everywhere the same, and an uneducated nation largely composed of
isolated, ignorant units, suddenly endowed with new rights and new
values, suddenly placed under the regime of complete individual
liberty of action, will invariably pledge those rights and those values,
till it is found that it is only the form and not the fact of servitude
and dependence, that has been altered.

When, therefore, we are considering the poverty and indebtedness
of the ryot and suggestions for his relief, it is idle, even mischievous,
to fasten attention on one cause or set of causes, and equally idle to
insist each upon his own special remedy as the one panacea for rural
difficulties. The eradication not of indebtedness, but of undue
indebtedness, can only be effected by the slow, persistent, simultaneous
action of a diversity of active remedies, the nature of which is partly
indicated above, but necessarily differs for each community.

But the present study is expressly confined to the remedy found
in the organization of credit, a remedy, however, of almost unbounded
potentialities, provided that it is so prepared as to contain the alternative
and tonic elements of national vigour. The mere supply of cheap
capital ab extra is no sufficient remedy; it would probably intensify
the difficulty by increasing the load of debt; even the supply of such
capital by the “organization of credit,” ¢.e. by the establishment of
banks, is inadequate as a radical means of relief.

It is wot merely cheap and facile credit that is required; it isa
eredit which must indeed be cheap and facile in that it shall be ever
at hand, but it must be credit which shall only be so obtainable that
the act and effort of obtaining it shall educate, discipline and guide
the borrower; it should be granted only to those who have learned
to think, to plan, to save; the method of providing it must teazh the
lessons of self and mutual help, and suggest the extension of those
lessons to matters outside of mere credit ; it must be safe not merely
in eliminating the dangers of usury, but in being controlled, heedful,
and productive.

Hence, while studying credit aud preparing for its organization,
the object to be borne in mind is not the introduction merely of
eheap capital or of banking credit, but of that system which shall most

af
e

PROVISION OF BORROWING FACILITIES. 287

readily and thoroughly develop essential national qualities ; those
systems of banking are to be preferred which tend in themselves to
this result, and the efforts of the State whether in its legislative or in
its executive capacity, should be directed towards the promotion of
such systems. Not joint stock banks merely, still less State banks,
or banks financed by the State for the mere issue of capital, but Mutual
Credit Unions, are the desideratum ; co-operative societies, where the
isolated learn the value and powers of association, where the ignorant
are taught the lessons of business, the reckless learn heedfulness, thrift
and prudence, the idle and intemperate return to industry and sobriety ;
where the prudent, the sober, the skilful, the well-to-do unite with
the poorer and weaker brethern in an association of mutual help and
insensible self-development.

Poverty and indebtedness may not disappear even when such
systems attain full vigour and extension, but the student not of mere
economics, but of national character and development cannot but
believe that a nation in which such institutions are matters of course
in every village, will be in the way of development as a nation of
temperate, self-reliant, independent, yet united men. This is no
dream of Utopia, for systems, still in their infaney even though
their secieties are numbered by thousands, are working on these
lines. * *% *

It is unnecesary to dwell here in detail on the need for thrift ;

it is self-evident, especially in these days of provident institutions.
* % #

There is, however, room in India as in the West, for many classes
of banks ; the joint stock bank is of value in its command of resources,
and in its skilled management ; the co-operative union is a desideratum
for every village; the Mont de Piete, probably as a branch of some
other institution, is particularly needed in a country where savings
are inve$ted in jewellery; the savings bank whether as a separate
entity, primarily for the receipt of deposits, and secondarily as an
investor of those deposits in safe loans, the Agricultural Association
with a credit annex, the land and land improvement bank for the
larger estates and enterprises, the village clubs for the purchase and
. supply of stock, the village granary or Posito, storing surplus grain
at harvest and lending it out in the cultivation season, will all find
place and work in a duly organized system of credit; it is not

288 PROVISION OF BORROWING FACILITIES.

cooperative unions alone that are suggested ; every class of institution
affording facile, cheap, and safe credit is to be encouraged. But it
is believed and urged that in the co-operative system lies the larger
hope for the development of rural society and industry.

~ Classification of Credit.—Credit is classified under. three heads:
‘Real, Chattel and Personal, corresponding to the three divisions of
capital viz., land, goods and ‘character.’ The chief institutions for
these three classes are respectively :—(1) the Land Banks of Germany
Austria and France, with the Building Societies of England and
America; (2) the Monts de Piete of Europe; and (3) the Popular
Banks and Credit Unions of Germany and Italy. In the West it is
generally found that banks are established for, and largely confine
themselves to, a single class of eredit; the Landschaften and ‘ Credit
Foncier’ deal solely in real credit; the Mont de Piete is a mere
pawn-broking institution, the bill of sale or pledge without delivery
being almost unknown in Latin Europe, owing to the state of the
law; the Popular Bank or Union which is entirely co-operative,
deals chiefly in credit based on ‘ character,’ z.e. on personal bonds with
personal sureties. The English Building Society, which is the original
of the Madras Nidhi, almost confines itself to real credit, while the
Madras institution deals or attempts to deal with every class,
* =* ~* ~The following are the banks to be mentioned: (1)
Land banks proper ; (2) special Land banks such as the Rent charge
‘banks of Prussia and the . Peasants’ banks of Russia; (8) Land
Improvement banks; (4) Building Societies; (5) Agricultural banks
(Societies du Credit agricole); (6) Monts de Piete; (7) Positos
or Monte Frumentarii; (8) Popular banks of various types; (9)
Savings banks; and (10) Agricultural Association with Credit

annexes. * * *

_ Popular Banks.—These are of three great classes, viz., those
following the system of Scuuuze-Deuirzscn, of Luzzatt and
Rarrruisen. All are based on the grand common prixciple of
mutuality or co-operation; they are not joint-stock banks, but co-
operative societies ; the units of association are men, not shares.

Schulze-Delitzsch Societies —The first class are the well known
German ‘ Vorschussvereine ;” these were principally started for the
artisan, small trading and professional classes, and their Clientele :
is largely, though not solely, urban. The foundation principles are
those of solidarity or unlimited liability, thrift, and the productivity

PROVISION OF BORROWING FACILITIES. 289

of the loans granted; the area of operation is indeterminate, and
‘the clientele all who will subscribe a share, subject however to the
decision of an entrance committee. Thrift is compulsory, the subs-
eription to a share being a condition of membership; without thrift,
no credit, Funds are obtained chiefly by deposits attracted by the
principle of solidarity; loans are granted chiefly on three months’
bills, Scuutze-De.irzscu believing that money withdrawable on short
notice eould only be lent on similarly short terms,

Beginning in 1850 with asingle petty tentative society, established
solely by the unwearied efforts of Scuutze-Dr.irzscu, a man of very
moderate means and position, but of unbounded zeal, energy and
enthusiasm, this class is now numbered by thousands; these are
grouped in various unions, and these again are linked to a central
agency ; each bank, however, is wholly autonomous and independent,
the unions having only advisory and inspecting powers. A congress
meets annually, and there is a periodical devoted solely to the interests
of the societies. Audit is provided within the societies by the usual
committee of supervision, but by the law of 1889, special external
audit is now compulsory, the unions of societies being generally
expected to supply such audit.

These societies deal in the aggregate in millions sterling; the
1,076 societies which sent in their accounts in 1892 to the Central
Union showed an own capital of £7,197,927 including a reserve of
£1,473,702, deposits and borrowed funds of £21,951,159, and tran-
sactions in advances of £78,080,526 during 1891-92; they had
514,524 members, or 478 per society, of whom about three-tenths
were agricultural. Their defect is in the shortness of their loans;
even for the evrrent needs of agriculturists three months is insuffi-
cient; with however the necessary prolongations of one or two
further periods, current needs may be successfully supplied; but for
all such purposes as the provision or replacement of stock, for
improvements, plantations, buildings and the like, they are obviously
unsuited. ,It is however, perfectly possible to adapt these banks to
all rural needs; loans of longer term can safely be granted even
under the present system of deposits, and by adopting a system either
of long term deposits or of debentures or both, loans of any term may
»readily be granted.

It is said that these banks frequently lose their mutual character,
and become mere general banks, seeking high profits. In order to

37

290 PROVISION OF BORROWING FACILITIES.

develop thrift Scuutzn-Detitzscu offered the attraction of profits as
large as could be made; the societies have been very successful in
earning profits, and the investing members, ag distinguished from the
borrowers, naturally look more to this function than to that of
supplying cheap and safe credit. Moreover the Directors have been
stimulated by substantial honoraria for their services, until this feature
of the banks has become unduly prominent. A co-operative bank
which looks chiefly to dividends and director’s salaries is only co-
operative in name. <A similar tendency is observable even in Madras,
whenever societies admit dividends and directors’ salaries as promi-
nent attractions.

It is believed that loans are chiefly granted for productive
purposes; that at least is a foundation principle, since Scuutzz-
Dztitzscu desired the material advancement of the people by the
development of thrift and productivity.

Members can, of course, withdraw at will, with certain formali-
ties and notice, taking their share values, but not a share of the
reserve with them ; this is common to all co-operative societies.

Self-help is the motto of these societies which have neither
received nor needed any help of any sort from Government, save only
that of a Jaw which was based upon their own experience.

Luzzatti Popular Banks—The second class of popular banks is
the Italian adaptation of the above. Lwvzzatt, then a young Professor
of Political Economy and recently Minister of Finance, is the founder
of this system which has firmly established itself within 30 years,
the number of these banks being now (1894) about 900. In 1887
there were 641 banks, of which 541 reported their statistics, namely,
members 318,979, of whom about one-third were agricultural, own
capital and reserve £4,160,000, deposits, &c., £17,280,000, bills
discounted, loans, &c., £57,000,000.

The Italian banks chiefly differ from their prototypes (1) in
rejecting the principle of unlimited liability, a share capital subscribed
by members only, and a heavy reserve, serving as a guarantee; (2)
in keeping dividends and honoraria as low as possible; Luzzartt in
fact, considers that the great danger to co-operative banks is not
that of failure, but of a success which leads members and directors
towards the race for high profits and snug incomes, and he is conse--
quently endeavouring, and with success, to obtain gratuitous or

PROVISION OF BORROWING FACILITIES. 291

almost gratuitous administration. In this he is assisted partly by
the newness of the banks, partly by the Italian habit of gra-
tuitous public administration as seen in the matter of savings banks,
Monti and other benefit societies. Loans are also granted for longer
terms than in Germany, but the method is still by three months’
bills, periodically renewed, since this method gives the bank consider-
able control over the utilization of the loans and over the borrowers’
punctuality in repayment.

The societies have, of course, a newspaper organ of their own.

The popular banks, both of Germany and Italy, are able to reach
the small folk and grant quite small loans; with the Rarrrrisen
societies they form what will eventually be an almost complete
banking organization for the smaller folk of the countries through
which they are ramified. |

Raiffeisen Credit Unions and Wollemborg Casse Ruralt.—The
Raiffeisen system, also adopted of late years into Italy, is entirely
rural and co-operative. It is again of German origin, of the humblest
beginning, and is due entirely to the philanthropic devotion and
energy of a simple burgomeister (village head), ‘ Father’ Ratrrersen.
These societies are based on the following principles, which are eon-
sidered absolute: (1) limitation of area, usually to a single village,
so that the bank may know and be known of all; (2) unlimited
liability ; (8) reduction of the share capital—now compulsory by law—
to the lowest possible minimum; this principle is expressly intended
to arrest any tendency to the seeking after dividends; (4) absolute
gratuitousness of administration, only the actual clerical work being
paid for, and that on a most economical scale; (5) the utilization
of the loans only for productive purpose, the word ‘ productive’ being,

~ of course, interpreted widely, as, for instance, for the maintenance
of the farmer pending his crop, the paying off of usurious loans, and
the like ; (6) a considerable duration of loans, extending ordinarily
up to 10, and occasionally to 20 years; (7) repayment by instal-
ments; (8) entire absence of increasing dividends, the shares, of an
almost nominal amount, bearing only a moderate interest fixed by
the articles, all other profits being credited to a reserve which is
not the property of members save in their corporate capacity ; hence
? it can only be spent in works of public utility.

These small and weak societies early found the advisability of

grouping themselves sy mutual advice and’ moral support ; there are,

292 PROVISION OF BORROWING FACILITIES.

now several groups, and these again are linked to a central agency.
There is also a Central bank for equalizing funds by lending the
surplus of some to meet the needs of others. The loans granted by
these societies go down to sums that would be considered small even
in India where money is so much more valuable, showing that these
societies are, as indeed their constitution and membership indicate,
the banks of the small rural folk.

RatrreisEn desired the moral, even more than the material, develop-
ment of the rural classes, and endeavoured, therefore, to eliminate
the desire for profits, foresecing that such a desire would infallibly
lead to an opposition between borrowing and non-borrowing members,
and to the loss of the guiding principle of brotherhood and mutual
help, which was the central idea of his system.

His efforts were but slowly crowned with success; beginning in
1849 there were only four by 1868; since that time they have
established their reputation and are now developing at the rate of
several per day; in September 1893 the original Neuwied group itself
completed the number of 1,000, and it is calculated that there are
already several thousands in existence.

Their group organization is not so successfully carried out as is
desirable, and statistics are very defective; it is stated however, that
not a single society has ever become bankrupt, while the vast incréase
in numbers amidst a poor and conservative clientele, argues their
extreme suitability to rural needs. In Italy the work of these
societies has been very particularly described by their founder, Sianor
Wo tempore, and the results as depicted by himself and other
reporters are encouraging and stimulative in the highest- degree,
Both in Germany and Italy these societies have their organ whieh is
devoted to co-operative news.

* % # |

State Banks.—The establishment of State banks is out«of the
question; it is impossible and would, if possible, be inadvisable.
Impossible since, under the postulates of credit—proximity, ‘security
of the lender, facility and safety to the borrower—there must be a
bank in every village, or minor group of villages; such a ramifica-
tion would demand an establishment and find work equal to that
of the existing Land Revenue Department; it is far more difficult
for a great central. agency to lend annually -to. millions. of people,

PROVISION OF BORROWING FACILITIES. 293

with the hundred inquiries necessary on each occasion, and on the
fluctuating security available, than to deal with ordinary land revenue
duties. No such organization has anywhere except in India been
even dreamed of; not even in France with her centralizing tendencies.
Nor, indeed, has the State funds for general dealing in ordinary
eredit. Inadvisable, for if possible, it would render the whole popula-
tion dependent upon the State; it would enormously develop
bureaucratic interference in the everyday affairs of life; it would be
an unheard of experiment in State socialism, and would absolutely
confirm the already overwhelming tendency of this country to look
to the State not only in all emergencies but in the ordinary affairs
of life, to consider it as answerable for or bound to relieve its mis-
fortunes and to accept the burden of all its debts and poverty ; it
would develop, in a high degree, the habit of attempting to
over-reach and defraud that entity vaguely known as “ Government”
which is usually credited with unlimited means and with the ability
to overlook individual debts; it would add the odium of the bailiff
to that of the tax-collector—odio vectigali odium fenebre; it would
choke all private enterprise and, still worse, the development of those
habits of providence, thrift, self and mutual help which are among
the highest qualities of a nation.

Functions of the State—But the State must assist the development
of organized credit. The functions of the State in the matter of
rural credit are considerable; it must remove all disabilities and
obstacles which prevent lender and borrower from meeting on fairly
equal terms ; it must stimulate competition with the money-lender by
suggesting and favouring the establishment of credit associations of
various classes ; it must legislate for the due formation and manage-
ment of such associations, with a special leaning to co-operative
associations as stimulative of essential national qualities ; it should
‘grant certain privileges which cannot be safely entrusted to private
individugls ; it should provide for efficient supervision ; and it may
grant some moderate subventions, either as working or as mere start-

ing funds.

The State cannot do seni ‘ direct means to place lenders and
borrowers on ‘equal terms; education is a chief means, but one of
very slow growth. A usury law is generally a mistake, but the
‘modern German form, though perhaps too drastic in its penalties, is
a great’ advance upon those ancient laws which lay down an arbitrary

294 PROVISION OF BORROWING FACILITIES.

rate for interest, as to this day in the United States. The German
law gives the courts discretion to decide in each particular case
whether there has or has not been usury, the circumstances of each
contract being considered, and especially any undue advantage which
the lender may have enjoyed. A usury law on similar lines may be

wholly though temporarily useful. Similarly, it is advisable to insist

that all persons habitually dealing in credit as a business, shall keep
a fixed set of accounts entered clearly and distinetly in proper vast: ;
the lack of such registers is daily felt.

The real method, however, of bridling the money-lender is by
stimulating competition with him; in Switzerland thirty years ago
the complaints against the usurer were as elsewhere ; banks sprang
up in obedience to the demand and in consonance with favourable
laws of mortgage, registration and other stimulating cireumstances ;
the result now is that the money-lender is authoritatively declared
to be of no account asa factor in general credit, there being about

900 credit banks of various classes to less than 8,000,000, people.
* * %

While it is desirable to develop the suggestive and educative
functions of the law and of the executive in the matter of thrift and
credit institutions, and to give, by law, certain privileges to societies
established to promote national thrift, providence, and productivity,
it isto be remembered that neither the existing law, nor the
Government, nor the state of society, offers any actual obstacles to
the establishment of any class of bank or benefit association ; if the
law does not suggest, it does not prevent; if the executive does not
help, neither does it hinder ; if the conditions of society are not all
that can be desired, neither are they specially unfavourable. Compared,
in fact, with the conditions of Europe, especially in the middle of
the century when banks for the people first arose, the conditions of
this Presidency (Madras) must be regarded as distinctly favourable.
The right of association for any purpose, political, social, or economic
is absolutely free ; fiscal burdens are light ; communications, by rail,
post and telegraph, are good ; justice is accessible, pure, alid fairly
prompt, while, in the village courts, this Presidency has at hand an
unequalled instrument for the enforcement of small claims and con-
tracts ; education, though popularly backward, has produced a large
class of men who are or may become fully aquainted with Western
ideas and methods, while sufficiently in touch with the people to be ableé

{

PROVISION OF BORROWING FACILITIES. 295

to carry those ideas into effect: the ryots themselves are generally
shrewd, while the village leaders are accustomed to combined effort and
system, as in the difficult task of water distribution from great tanks,
compared with which the labour and organization required for manag-
ing petty thrift and credit societies, are but small. The success of
the Nidhis, even in villages, proves that there is absolutely no neces-
sary hindrance to the successful working of association either in the
law or in the conditions of society, although it is most desirable in
the interests of further action, that certain positive improvements
shall be introduced aud privileges granted. What is really wanted
is the advent of men of zeal, enthusiasm, devotion and perseverance
who will take up the Western ideas and methods, and, by personal
labour, solve the difficulties of the problem not on paper but in actual
practice ; the philanthropic reformers of the East must sit down
in the villages as did their prototypes of the West, and must there
establish the petty societies which, as in Europe, shall contain the germ
and promise of infinite potentialities. There can be no higher honour
for any man than to achieve the role of the Scuutzr-Dexitzscn
or the Ratrreisen of India, and the possibility of filling that role is
within the power of hundreds of men in this Presidency.

[Hatracts from Sir F, A. Nicholson’s Report, pp. 98-96.]

ANALysis OF European Lanp Banks.

An analysis of the organization and methods of the various
European land banks will give a more complete idea of Real credit in
Europe than the description of isolated institutions or separate
countries. This chapter refers only to institutions especially
established for the granting of Real credit, and not to ordinary banks
which merely grant mortgage loans as part of their general business,
nor to Savings banks which place much of their deposits in this form
of investment.

Character.—All institutions for the special grant of Real credit
are classified as private or public.

Class I.—Private institutions are associations either (a) of
borrowers, or (4) of lenders, that is, they are either associations of
mutual credit consisting of landed proprietors united in a society for
the purpose of obtaining loans at cheap rates for their members, on
the common security of all, or they are ordinary joint-stock companies
financed by capitalists, large or small, who are looking for a good
investment, and who regard mortgages merely as the means of
returning a good interest on their investments. Lach class seeks its
own profit, which in the former is cheap lIcans, in the latter high
dividends. To a great extent the two classes of institutions are
opposed in principle ; practically however the second class are able
to give cheap loans by reason of the abundance of their funds, and
they are obliged to do so by the law of competition. Loans are
however probably cheaper on the whole in the former class, since their
eredit is unlimited, they have no share capital to absorb peofits as
dividends, and all profits, if any, return to the members. The chief
exponents of the former class are the Landschaften of Germany and
the Boden credit institutions of Hungary ; of the latter, the Credit
Foncier of France, andthe mortgage banks which have sprung
up throughout Europe on the model of the French institution. The
Italian banks are peculiar. * * * _ They are ancient banks’
which of late years have received special privileges from Government

PROVISION OF BORROWING FACILITIES. 297

on condition of devoting a special department to land credit on modern
principles as in the French Credit Foncier. These are now known as the
privileged land mortgage banks of Italy. They are private institu-
tions, several of them, notably the{bank of Naples and Sicily, being
without shares and dividends, and based upon an ancient religious or
pious foundation. Other banks are of the ordinary joint-stock type,
but are not allowed to deal in long-term mortgage loans with
amortization, and upon issue of debentures unless their capital is at
least £400,000. A new society has now (1890) been promoted by
Government with a special law in‘aid ; it is however to be a joint-
stock company, but with special privileges and monopoly, and will be
similar to the Credit Foncier of France.

Class IIJ.—Publie institutions are those founded by the State,
either by Government or by some local body whether province,
municipality or commune. These are but few in number and generally
of no great importance. Germany possesses a few, chiefly the banks
established to redeem the ancient feudal charges which burdened the
peasants. In Switzerland some of the cantons, notably, Berne, have
established State banks which are doing excellent work. Moravia
was endowed with a similar State bank in 1880. But many of the
land banks of Europe are largely controlled by the State; the
Landschaften of Germany and the Credit Foncier of France are
notable examples so that it is difficult to divide banks by a hard-and-
fast line* * * In Russia there are State land banks of four
classes : (1) those directly founded by the State, administered by the
Finance Minister, and yielding profit to the State ; (2) land banks under
Provincial Governments directed by the Home Department; (3)
institutions founded by communes ; (4) institutions under the council
of a particular charity under imperial patronage ; ‘all these were
started before 1852 and little is known of their working. In 1882,
a Peasants’ land bank was established to provide capital for those
peasants, who wished to buy out their land; this is essentially a
State bank.

Initigfive-—Generally speaking, all land credit institutions
prior to 1850 oreven 1860 were due to the impulse of Government,
varying from that of direction or direct fiat, to the mere passing of
laws favourable to their establishment, such laws being frequently
necessary by reason of a prior restrictive legislation such as is generally
unknown in England and India.* 2 i

38

298 PROVISION OF BORROWING FACILITIES.

Some banks, however, have had a purely philanthropic or patriotic

origin. Apart from the Savings banks—the Italian banks were in
many cases works of charity (Monti Pie) and the great bank of
Naples is the result of a fusion of seven Monti of old and charitable
foundation. The chief land banks of Hungary are patriotic and
philanthropic institutions, e.g., the Boden credit institution of Buda
Pesth, which was established in 1863 by a number of large landed
proprietors who subscribed foundation shares at fixed interest below
market rates in order to start the society. It has no shareholders
proper, and no dividend, and is very successful in its way. Another
society was similarly founded in 1871, and another, specially for the ©
relief of small proprietors, had a similar philanthropic origin in 1879.
_. The remaining banks, principally those founded in the latter half
of the century, are joint-stock banks, due to private initiative, but
though very successful, they deal chiefly with urban property ; in
Germany alone thirty-one were founded between 1860 and 1880,
and others since ; these come under the ordinary law of the Empire
and not under any special law; on the other hand they are not
restricted to land mortgage operations unless by their own statutes.

Principles.—The foundation principle of the several banks is
various; some are based on the principle of mutuality; the Old
German Landschaften are the best types of this class, which are
generally founded by persons hkely to become borrowers, who, in
order to obtain cheap credit, unite with an unlimited cuarantee, and
who divide all profits among themselves usually by reducing the price
of loans. They give very cheap credit through having neither
capital nor dividends, and through there being no antagonism, but
rather identity of interest, between the banks and their clients. Some
are Government institutions founded in view of providing cheap
capital for agriculture ; Russia, the small German States, Switzerland
and Austria are the chief exponents of this principle. The modern
type is that of the joint-stock bank limited, in which money is
invested for the sake of dividends.

Olects—The objects of the socities are diverse ; in, the Old
Landschaften, the chief object was the relief of the “noble”
proprietors, who were much distressed by usury and war. The
redemption of ancient and oppressive private mortgages by loans
from the society at moderate interest and on long term is a second ‘
and general object. The relief and development of agriculture (a)

‘Sona

PROVISION OF BORROWING FACILITIES. 299

by restoring to it the capital diverted by usurious debt, (4) by
providing cheap capital for improvements and for family purposes,
(c) by bringing into industrial circulation the petty hoards of capital
available but unused is a third ; a fourth object is the reduction of the
general rate of interest by means of institutions of good security
working on a large scale with cheaply borrowed capital, thus breaking
the monopoly of the usurers, or of other imperfect methods of supply,
and governing the rate at which capital could be properly lent. The
Credit Foncier of France and the institutions based on its example
are noteworthy examples of this class. A fifth object is found only

in the modern joint-stock pattern, where capitalists seek a good

investment for their funds, and establish banks for the purpose of
earning dividends as high as security and competition will allow them.
A sixth object is that of loans to public bodies—communes (villages),
district boards, municipalities, &e.—for public purposes, the security
given being that of the corporate property available, or the local
rates and taxes. Here again the Credit Foncier of France led the’
way and has been followed by societies of that type. A seventh object
is found only in a few special banks, v7z., the redemption of rent
charges, feudal dues, &c., by peasants, especially in Germany, Austria,
and Hungary, and the buying in of their lands by the ex-serfs in‘
Russia. An eighth and very-rare object is that of dealing solely
with petty proprietors; in most land banks no application for a loan
will be entertained when the property is worth less than about
£83, e., 1,000 florins, in many of the banks in fact the minimum
loan that will be given is 1,000 florins (rupees) ; * . *

Real credit institutions in general have, in consequence, done little
for the small proprietor. A ninth object is that of lending on urban

‘ property either for ordinary loans ov for special building purposes ;

these are all of the modern type, and such operations are expressly
excluded from land banks proper such as the German Landschaften.
A tenth stibject is the encouragement of thrift by establishing Savings
banks, in which case loans are given on mortgage by the Savings
Banks, i? order to obtain a profitable investment of their deposits.
An eleventh and very important object is that of the new Central
banks, formed not to lend direct to borrowers, but, almost solely, to
,tacilitate cheap credit by the issue from a central institution of
national reputation, of central debentures in representation of
debentures issued by small local banks. A twelfth object-.is land

300 PROVISION O# BORROWING FACILITIES.

improvement, pure and simple; such are the land improvement
societies of England, and the Landeskulturrentenbanken of Germany;
these are generally, if not invariably, the last development of
land credit.

Hence banks which grant land credit are as follows: (1) land
eredit banks proper, whether mutual, joint stock or State, such as
the Landeschaften, the Hungarian Boden credit institution, the Credit
Foncier of France and the State Banks of various German States
and Swiss cantons; (2) the rent charge redemption banks as in
Germany and Russia; (3) communal and benevolent societies of
various sorts;* ° * * (4) the Savings banks; (5) ordinary
banks, * . * (6) Central land banks; (7) Land Improvement
banks or annexes of banks.

Capital.—The oldest forms have practically no original capital ;
they were assisted at starting by a subvention, at low interest (ey.
2 per cent.) by the State, but they had neither shares nor capital,
their funds, beyond the above subsidy which was only intended for
first expenses and asa reserve, proceeding entirely from debentures
issued in representation of loans granted, at first in immediate
representation of specific loans, afterwards, en masse in representation
of the aggregate of mortgage, loans granted by the society. On the
other hand, the banks of Naples and Sicily have immense capitals,
derived from religious foundations (Monti Pie), but no shareholders,
so that they have no dividends to distribute. But, in general, modern
institutions are joint-stock companies with a substantial capital,
usually partly paid up. This capital may be foundation or ordinary,
variable or fixed. Foundation capital is that provided by persons
either merely philanthropic or interested in promoting cheap credit ;
such are the Hungarian banks above alluded to. In the Hungarian
Boden credit institution the founders’ shares were £417 each, of which
10 per cent. was paid in cash and the remainder in bonds which were
merely kept in deposit, and in fact—in that bank—have been «returned
to the subscribers as not required, owing to the formation of a strong
reserve to which all net profits go. This foundation capitel bears a
fixed interest of 5 per cent. which is below the ordinary Hungarian
market rate, and has noclaim to any dividends out of profits.
Foundation shares may be paid off whenever the property of the bank
permits it, but are also retained as fixed deposits. The State
subvention may be called a foundation share, and, as in the cantonal

—

PROVISION OF BORROWING FACILITIES. $01

banks of Switzerland, frequently takes the form of subscription for
shares; in many cases it is paid back when a reserve has_ been
established. Ordinary shares need no. remark. In some banks the
amount of capital is fixed, so that operations, which are usually limited
to a multiple of the capital, are also limited, but in most, the capital
pregresses up to a certain maximnm with the operations; ¢.y., in
the Credit Foncier of France the maximum capital fixed by the
statutes is £8,000,000 sterling; the actual capital at any moment
must be one-twentieth of the bonds in circulation and is now (1892)
£6,820,090, the debentures, mortgage and communal in circulation,
aggregating about £120,000,000. In the German and Austrian
banks, the necessary proportion of capital to debentures is 1 to 5,
1 to 20, &e. Many banks, even when constituted with a capital of
their own, obtain State subventions, e¢.g., the Credit Foncier of France
has a grant of £400,000, but this is usually credited to the reserve.
Reserve.—The reserve is an obligatory element in all cases. The
German Landschaften provide a reserve from the principal or interest
of the State subvention, from profits, from unforeseen receipts, and
from profits on the issue of their debentures, from contribution and
commission paid by borrowers ad hoc, and included in the annuites or
deducted from the principal at the time of borrowing. The Hungarian
Boden credit institution has, as a reserve, the founders’ shares—one-
tenth paid up—the Government contribution for the purpose, the
whole net profits of the institution, the special guarantee fund, and
a percentage payable by the borrower with each annuity. The first
two have been described under capital; the third is possible in this
institution, since—as their is no share capital—there are no dividends

to be paid; the fourth item is derived from a one per cent. deduction

from the amount of all loans made at the time of payment, but
returned to the borrower with interest after his loan is paid off: the
fifth item is a ‘06 per cent. addition to the annuity. The Credit
Foncigr of Fance takes for its reserve from 5 to 20 per cent. of its
net profits, and it should accumulate up to a maximum of one-half
of the,share capital. The employment of the reserve is various; in
general it is to guard against unexpected losses; in some cases its
interest goes to pay for the administration. The funds of the reserve
are usually invested in Government paper or other good securities or
in small and safe banking operations of quick return. There are
special reserves as noted under the Credit Foncier of France, eg., to

802 PROVISION OF BORROWING FACILITIES.

equalize the proceeds of debentures issued at various rates according
to the market; to provide against the loss on repayment at par of
bonds issued below par; also for the issue of lottery prizes and bonuses.
Funds.—These are provided from capital, from accumulations of
profits, from Government loans or grants, from mortgage debentures,
from deposits, loans and bank notes. The first three 7 a -
are comparatively unimportant as sources of funds though all
important as security ; e.g., the capital is usually only one-tenth
or one-twentieth of the amount of. the debentures issued by the
society in the case of the German institutions and the Credit
Foncier of France, and in some, as in the Hungarian Boden
credit institutions, there is practically no capital, but only a reserve.
In the later commercial or mortgage banks the capital is a
real working capital, as in the Hypotheken mortgage bank of
Hungary where only one-tenth of the nominal and one-fifth
of the paid-up capital is used as a guarantee fund (reserve) for the
security of its debentures; so in Germany, the banks since 1860
use their share capital in mortgage operations, and with some which
have not obtained Government authority to issue debentures, this
capital is an important element in their working funds. Such banks
can deal only to a very limited extent in loans for long terms
repayable by annuities. In Belgium in 1890 the paid-up capital
of the four chief mortgage banks varied in actual fact from one-fourth '
to one-twentieth of the debentures issued, and in Italy in the same
year the eight mortgage banks—including the National bank—had a
capital of £1,760,000, and debentures in circulation for £28,062,200.
As shown in describing the Credit Foncier of France, a certain
proportion of its capital, and even of its reserve is used in short-term
loans, but this is not its true use; it is a guarantee fund.
Clientele.—The oldest banks were formed on the principle that
only members might borrow: this is maintained to this day in the
Landschaften and is continued in all popular banks and mutual credit
societies. ‘The question then is, who may become members? In the
Old Landschaften only “ nobles” could be members ; the banks were
expressly founded for them, the “peasants” being disregarded.
Gradually, however, this restriction to some extent disappeared ;
peasants were admitted—with restrictions—to borrow, and the New
Landschaften generally admit them. But a restriction is found in the
minimum prescribed for loans ; in some cases loans may not be given

ire

?

PROVISION OF BORROWING FACILITIES, 308

on property below £83 in. value ; generally the loans may not fall

below £42 or a considerably higher sum, their minimum being pres-
eribed by the statutes. Jiven where the minimum loan is fixed ata
small sum, in practice the loans actually granted are considerable ;
small business is risky, troublesome, and unprofitable to the bank, and
is not undertaken. The Hungarian Boden eredit society, for
instance, had in view the large and medium landholders; it was
founded by rich and patriotic men of the aristocracy, and, by statute,
will not lend sums below £88, 2.¢., practically, on estate of less than
50 acres, though one-third of the whole area of the country is held in
estates below 44 acres. As a matter of fact the loans average far
above the minimum in this as in almost all other land banks; even the
cheap and popular savings bank of Milan cannot in practice lend in

_ Venetia on estates below 75 acres in area, whatever it may be able to
do in its own neighbourhood, while the general average of the Italian

land banks is very far above that. Hence the small proprietors are
not the clients of the land banks: practically none below the pro-
prietors, who in Germany are known as team-owning farmers, 7.e., who
hold above 15 or 18 acres, can hope to borrow.

The joint stock banks, such as the Credit Foncier, will lend to
any one who can offer good real security, but, as a rule havea
statutory minimum for loans, and in practice lend considerably above
that minimum. The real peasant class holding below 20 acres, are
not reached by the land banks generally ; practically they are financed,
as regards mortgage loans, by money-lenders only, and occasionally by
Savings banks, except in Switzerland and in some of the very small
German States. * - >

State Intervention—The most noticeable feature in the organiza-
tion of these land banks is the pervading presence of the State, in all
degrees, from the complete direction and control found in the State
banks, to the general supervision exercised over private joint-stock
companjes; the State in no case leaves this form of bank to its own
devices, but watches its proccedinzs with jealous care, and, usually by
special law, provides most stringent rules and heavy penalties for
malfeasance, or even neglect of regulations. It is true that Conti-
nental Europe is accustomed to a general regime very different from
that of England and India, where the principle of non-intervention is

generally held to be the true gospel in political economy, but in the

matter of these land banks the intervention of the State is so

304 PROVISION OF BORROWING FACILITIES.

marked as to show. that there are particular reasons for it, some
perhaps historical in the custom which has continued from last century
when Frederick the Great erected the first land credit societies by his
simple fiat, some, certainly, in the nature of the operations to be
undertaken and the class of people to be dealt with. It is, in fact,
held by some European economists, German especially, that the State
should undertake banking as it does the Post office, Railways, the
Currency, ete. Others, on the contrary, object to State intervention,
as savouring of State socialism, as tending to cramp, or even stifle the
business energies and independent action of a nation, as developing
still further that dominant bureaucratic action which is so all-prevailing
and powerful in Europe; as favouring—in the matter of credit—the
class of borrowers at the expense of the general tax-payer. Others
however believe that, while not bound to direct action, there are
conditions which call for State interference in favour of an industry—
agriculture—the stability of which is so absolutely necessary to the
welfare of a nation, and they would admit or even require State inter-
vention by way of encouragement and promotion, subvention and
guarantee, control and supervision, and privileged procedure. These
last opinions are almost universal in Europe where the conditions and
history of society are so utterly different from those of England, and
it will be seen that State intervention in all the last mentioned forms
is absolutely universal, not indeed in all forms for all banks, but for all
land banks in one form or other.

Government control and supervision in varying degrees are then
universal in Europe in the matter of land banks ; it is recognised
whether in France, Germany, Austria or Italy, that land banks
must be controlled or at least supervised by Government authorities ;
the absolute need of agriculture for capital on moderate terms ;
the impossibility and danger under existing conditions of
supplying it by private lenders; the inability of the people
generally, under these conditions, to start and _ suceessfully.
work a land bank without State assistance and guidance; the
evil of allowing newly-started banks to risk their credit in loose or
misdirected operations with the consequent danger of failure and
irretrievable damage to credit in frightening capital from associated
and systematic effort; the danger that, without such control, the
landowner might find that he had merely exchanged the private usurer
for a mechanical screw-vice provided with powers of coercion, specially

PROVISION OF BORROWING FACILITIES. 305

supplied, which the usurer lacked, seem to be among the reasons
which have determined all European Governments to interfere more or
less completely in the guidance and supervision of the land banks.
The conditions which existed at the starting of the banks determined
this action: the people were either nobles whose position round the
throne, and in the then economy of their country, required the support
of legally secured credit, or they were poor and ignorant peasants
whose very life blood was being drained by private usury; nobles and
peasants alike were in the hands of the money-lenders, and were
incapable by their sole efforts of extricating themselves or of managing
eredit associations without supervision. Again, in late years it was
necessary, in the still unimproved condition of the petty proprietary
who form the great mass of landholders to prevent associations of
eapitalists from exploiting the country, as the individual money-lenders
had done before them ; per contra owing to the extreme difficulty of
dealing successfully with ignorant, suspicious, heavily indebted masses
of small holders, Government connection with the banks was needed to
give that official sanction and support which in much-governed Europe
is the sine qua non of rural dealing. Hence the great difference
between the history of continental land banking and the banking of
England and Scotland, and it may well be that in this, which is found
a necessity in Europe—and strange to say—as will be hereafter seen in
the most independent of countries, the United States of America, there
is a lesson for Indian rural land banking. Free banking suits English
and Scotch conditions and the peculiar history and development of
society and of economic history in those countries, but is not necessarily
suitable to other conditions as in India; nay, it may bea grave
error.

Crepit AGRICOLE.*

In Europe, rural credit is generally divided into Credit Foncier or
immobilier, and credit mobilier or agricole.

The latter form of credit includes chattel credit, ¢.¢., the eredit
based on movables, such as crops, stock, furniture, ete., and personal

* In Europe the words ‘Credit Agricole’ are‘used in a technical sense; they

? dg not mean ‘agricultural credit’ i.e. credit in general granted to agriculturists, but

those particular classes of agricultural credit not covered by land credit,**namely
chattel and personal credit.

39

306 PROVISION OF BORROWING FACILITIES.

eredit, or that based ona man’s sfatus and general position, his
character, his property and his reputation.

Before proceeding to discuss the ‘ Credit Agricole’, it will be well
to rehearse once more the nature of the credit required by the farmer ;
it is impossible to discuss or devise systems for granting him credit
unless his needs are distinctly defined and grasped. For permanent
improvements then, whether of irrigation, plantation, building, level-
ling, and those lengthy operations which convert mere “ anathi tarisu,”
or neglected and possibly exhausted dry lands into fertile gardens,
long-term loans are needed, in which the capital borrowed may be
replaced by small annual instalments from the improved income. ‘This
form of credit is based upon the sccurity of the land itself, which
remains permanently as the guarantee for the loan. This is the Credit
Foncier. But the farmer, proprietor, or tenant, requires other classes
of eredit ; he needs money for cattle, manure, new implements, seed,
maintenance, wages, rent or assessment, ete., and for this compara-
tively short-term loans are necessary, varying in duration according to
the class of requirement, from (say) three months to three or four
years. Now, unless, as in Switzerland, mortgages are cheap and very
accessible, it is obviously absurd to pledge land for a mere passing
need. The crops, stock, and personal status of the farmer ought to be
amply sufficient for loans necessarily moderate and of comparatively
brief term; if credit has been effectively organized in a country,
nothing can be simpler than for the farmer to seek his banker and
obtain a short loan either on his mere bill or note of hand, or as a cash
eredit, or by a bill of sale, or in other simple ways. But this is
precisely what is universally wanting to the small farmer ; universally,
that is, on the continent of Europe, where “the ignorant peasants,
recognizing nothing save that money is necessary, rush into debt, and
fall into the clutches of men who, under pretext of helping them, only
desire to cause their ruin and to grow rich at their expense.” It is then
the organization of this class of credit that remains to be «discussed.
It will be useful, further to point out that discussions in France have
largely turned upon chattel credit, ¢.g., in giving the farmer a greater
borrowing value in his crops and movables by limiting the landlord’s
privileges over them, in enabling him to pledge his stock, crops, ete.,
without delivery to the pledgee, ete., while in Germany chattel credit
has never attracted much attention ; it is the development of per sortal.
credit that has there occupied men’s minds.

PROVISION OF BORROWING FACILITIES. 307

The reason why Germany has relegated chattel credit to a wholly
secondary place is (1) that as the landlord has by law the first rights
over the crops and stock of the farm up to the amount of his rents, it
is impossible to pledge them by delivery to a third party without
wronging the landlord, unless with his consent ; (2) that crops and
stocks and furniture by their very nature cannot be removed or deli-
vered to the custody of the pledgee without disturbing or preventing
the work of the farm. In Germany, therefore, while personal credit
largely depends upon a consideration of the possessions of the borrower,
those possessions are not themselves given actually. in pledge, and
chattel credit is practically of little use. This is equally the case in
France, but the course of action has been vastly different; the business
men of Germany, abandoning the idea of chattel credit, have sought de-
velopment of personal credit, while their confreres in France have either
unceasingly discussed the possibilities of developing chattel credit, so
that the debates on the Credit Agricole in France have been largely
synonymous with debates on the restriction of the landlords’ privileges
as entered in the Civil Code, the pledge without delivery, the assimila-
tion of the present borrower to the commercant, and his subjection to
the commercial law and Courts, or they have attempted to provide
agricultural credit, which deals with petty transactions over the face
of a whole country, by means of central institutions which could not
possibly touch the difficulties. Hence the actual result is, that in
France, where it is extremely difficult to alter the law, altogether apart
from the practical difficulties in the way of chattel credit, the Credit
Agricole is, still, a matter of discussion, and the peasant is actually
without agricultural credit, except in so far as the usual money-lender
will grant it ; whereas in Germany certain practical minds borrowing
the principles of association, unlimited liability and local effort from
the Landschaften of their own country and the Banks of Scotland,
have founded the popular banks and credit institutions, which, though
not yet fully developed, have, sofar as they have gone, solved the
problem of credit to the petty proprietor, artisan or tradesman, and
while so dying have fostered and are fostering precisely those habits
of thrift, temperance, prudence, punctuality, public spirit, enterprise
and combination, which are the substructure of all permanent and
substantial progress. France has discussed legal improvements and
central institutions, the idea of the latter being based on the success
of the Credit Foncier, and being equally consonant with the

308 PROVISION OF BORROWING FACILITIES.

centralizing ideas and methods which find favour in that country ;
such institutions have neither succeeded nor survived. On the other
hand, the Germans put all legal questions aside and set to work to
develop local societies for mutual assistance and credit, which draw
their funds from outside by virtue of unlimited liability (solidarity),
safeguard all internal transactions by the local knowledge available
to them as a local association or brotherhood, and have eventually
supplied by development, the links between themselves united in
groups, and between themselves and central societies which grew up
to supply a felt want. Not only did they not trouble: the Legislature
to alter the substantive law of the country, but they themselves were,
for many years, to some extent outside the law, as being socieites not
recognized as moral and commercial entities ; they had no locus standi
in the Courts and survived at first solely by virtue of their own
meritorious management. The general result is that while in France
there is—speaking generally—not a popular bank nor a society for
agricultural credit, there are in Germany popular banks ‘and credit
institutions by the thousand, dealing in rural credit by tens of millions
sterling and developing each year not merely in numbers, but, in
importance and in beneficent influence, while their example has been
copied in all other continental countries, and a beginning has, since
1889, been made in France also.

PoruLaR Banks.

Under this head will be described those classes of credit institutions
which are devoted solely neither to Real Credit, nor to the Credit
Agricole ; but which deal simply with credit such as they are able to
supply. It is not intended to discuss ordinary banks, but only those
particular classes of banking or credit institutions, which have sprung
up to mect the wants of the poorer classes, whether urban or rural,
and which seem to offer a solution of the credit question in its
economic, social, aud moral aspects. Such are principally the
co-operative credit institutions known generally as ‘ Popular banks ’ in
Germany, Austria, Hungary, Italy and Russia, the mutual credit
institutions of RatrreiseN and WoLLemBore in Germany and Italy
respectively, certain other Co-operative banks, a few Commercial
banks, and the Central banks for linking Popular banks, &c., and
supplying them with funds. The first two classes are by far tke ‘
most important and suggestive for Indian needs.

PROVISION OF BORROWING FACILITIES. 309

It is to these banks that attention is particularly directed, for it is
on them chiefly that the hope rests of popularizing an organized
system of credit. It is these banks which, as the Popular banks of
Scuutze-Detitzscu in Germany and Austria, and of Luzzatti in Italy,
are giving credit to the amount of at least £250,000,000 sterling to
small trades people, artisans and agriculturists; which, as the- rural
loan societies of RairrnIsEN in Germany and WoLLEmBore in Italy are
extending credit to, and greatly developing the character of, the purely
rural classes ; which in the form of the 2,300 so-called Building
Societies—really Co-operative or mutual banks—in England have about
600,000 members and supply immense credit on real security ; which
in America, in several thousand similar Co-operative banks, are said
to be a financial factor of increasing magnitude, likely soon to
overpass the Savings bank, and to form the chief means of granting
small loans on Real credit. It is these which supply not merely
eredit but credit to the very smallest folk. They not merely supply
popular credit, but they have democratized credit ; their credit is not
merely not that dangerous form of easy credit which often ruins, but
is strongly educative. It not only does not demoralize or enslave,
but directly and indirectly stimulates thrift, foresight, order, business
methods, temperance and morality, industrial improvements, habits of
mutual association and self-help.

These banks have not merely popularized but democratized credit,
which proceeds from the people to the people by the people. Finally,
it is this form which has found a beginning in the hundred and odd
Mutual Funds (Nidhis) of the Madras presidency, a form of society,
which, originating probably in the indigenous Chit association, has
developed by the adoption of the English Building Society rules and
principles.

It will be seen from the mere names of the above classes of
institutions, that one central idea is common to all, wzz., that of
co-operafion or association. That principle is, of course, at the base
of most modern banking societies. The Joint Stock bank is the
leading feature of recent banking enterprise, and is the latest
development from the rudimentary system of the private money-lender
working with his own funds, who subsequently developed into the
partnership banks which still share largely in this business, especially
im country places. But there are two radically different forms of
association, the one is the association of lenders or capitalists whether

310 PROVISION OF BORROWING FACILITIES.

small or large, numerous or few, who bring their funds together im
order to earn the largest possible profits upon them. The prmary
aim of this form of association is large and safe dividends, any other
object being secondary. But the other form is that of the association
of borrowers ; although in the best types of this form capital is
subscribed by every member, the object of the society is profit not
through dividends on the capital, but through personal use of the
subscribed capital and other capital thereby attracted ; it is the profit
of the members not as lenders but as borrowers that is sought, and
dividends therefore are not only not the object of the society but are
opposed to its aims, sinee high dividends mean unnecessarily high
interest on the loans. Many societies, therefore, rule out all dividends,
devoting all surplus profits, after the reserve is supplied, to the
_ reduction of interest, or to works of public utility ; in others a limited
dividend of {say) 5 percent. is allowed, especially on foundation capital ;
dividends are expressly recognized as temptations to forget the primary
object of the societies. Hence, it will be seen that in the first form
(lenders) the interests of borrowers and shareholders are opposed, the
former requiring low interest, the latter high dividends ; in the latter
form (borrowers) the interests are identical, since shareholders are
borrowers and require low interest first. The two classes of institution
may almost be defined respectively as associations of money and
associations of men.

This distinction of interests, radical in itself, is not however the
only one, perhaps not the most important. It is almost universally
the case that joint stock companies are formed on the large scale,
establish themselves in a Jarge town, and work from that centre
outwards, except perhaps in America where the peculiar institutions
known as National banks establish themselves in every small town as
independent institutions, or in Switzerland, where the country is in
miniature, and “ Governments ” exist for areas with the population
of a very small taluk, and where in consequence small bayks start
up in every village. But in all other countries joint-stock companies
for credit purposes take their rise and first establish themselves in
considerable towns, one chief result of which is a large addition to
urban business, whether mortgage or personal, but equally commercial
and industrial, and, finding sufficient employment for capital; these
do not exploit the rural tracts. Hence it results that, except im
England where the rural clientele are largely farmers of—to Indian

~~

PROVISION OF BORROWING FACILITIES, 311

ideas—considerable capital, or country gentry, the countryman is left
without banking facilities.

Again, even if such banks grant credit to the peasantry, they are
lacking to a great extent in the educational and eyen guardian power
which the country banks should possess. It is the English country
bank, not the great joint-stock associations with numerous branches,
which have so long developed and assisted the English tenant
farmer.

Hence in the history of rural credit it is noticeable that no banks
have reached the peasants proper—Switzerland and perhaps Seotland
excepted—unless they were small local institutions, usvally
co-operative or mutual ; even the Savings banks, when they deal in
credit, have only partly fulfilled this role unless they were also
associations of the above character, or developed them by their side
as branches ox offshoots. Indeed, except in Scotland, there was up
to 1850 practically no banking credit at all for peasants, and it is
solely owing to the genius of German philanthropists who were also
business men, that such credit is now available in Europs, and combines
with eredit, an education in many of the finer social and economic
faculties.

It is then under the form of co-operative credit and not of joint
stock companies, of associations of borrowers, not of societies of
capitalists, that rural credit is generally found in Europe.

These banks are now numbered by the thousand ; with their
aid journeymen become masters, labourers become owners ; hopeless
debt is banished and the usurer driven out ; agriculture and industry
developed, and the villages in the poorest tracts become prosperous ;
the illiterate man turns towards education and the drunkard is
reclaimed ; the middleman is eliminated ; the peasant gets full value
for bis produce, and pays his rent with ease ; village life is stimulated
by associated action and by the business education of the bank ;
punctuality, thrift and mutual confidence are taught ; litigation
decreases and morality improves ; self-help and not that of Government
or of philanthropists is the main-spring of action ; activity takes the
place of stagnation and routine ; associated action replaces distrust.
This is true, not of a few isolated villages, but in thousands of cases.
There are several thousand Co-operative banks in Germany alone, a
vast number in Austria-Hungary, and about 900 in Italy ; the
business done is enormous and in sums extending downward to bills

312 PROVISION OF BORROWING FACILITIES.

of less than ten shillings, while it is on record that these societies
form everywhere centres of economic and even of moral progress.
These are sober facts and not coloured pictures of the imagination.
These banks are not all of one type; in Germany there are the
Scuuuzn-Detitzscu and RatrreisEN societies with their offshoots ; Italy
has developed a type of its own, and Austria-Hungary while imitating
those of Germany, has not made unlimited liability a necessary
principle. They appear to be capable of assuming various forms
according to idiosyncrasies of the several countries ; only in all there
must be the common foundation principles of thrift and honesty.
They are of great simplicity and are started and managed by the
people of small villages. There are no losses when the directors keep
the fundamental rules of the society, and avoid speculation or doubtful
loans for the sake of extending business or obtaining high interest,
for they develop an amount of devotion on the part of their members
which prevents them from allowing the banks or their fellow members
to lose by their default ; the clientele is of the lower middle and lower
classes both urban and rural, tens of thousands of members possessing
absolutely no property except their honesty, prudence and capacity for
work,

ScHULZE-DELITzscH Loan SOcIgTIES.

History—Herr Scuuize Dewirzscu was a Village Magistrate who,
having studied the working classes of the towns and rural tracts, was
called to the Prussian National Assembly in 1848. Subsequently
troubled by party intrigues he resigned Government service and
devoted himself with but slight pecuniary resources, to the elevation
of those whom he saw oppressed not merely with want of wealth but
with want of the power to perceive, to strive after and to attain better
things, a higher social, mental and moral development. Be it
remembered that the work of Scuutze DeELirzscH was in its, aim no
‘less than in its results essentially educational in the highest sense of
the word and not merely material. The country and the people were
habituated to live under Government wardship, and to look to the
State for all improvements and for all deliverance from difficulties and
misfortunes. Scuutze Detitzsch saw that it was essential, if the
nation was to become worthy of the name, to turn the Masses
towards self-help, and to accustom them to rely on their own efforts
and their own initiative to work out their national salvation. He

PROVISION OF BORROWING FACILITIES. 313

was the more compelled to this as the habit of leaning on the State
for help in every difficulty, of blaming it for every misfortune, the
habit of submitting to State guidance, regulations and control in all
the affairs of life, was receiving fresh development from the growing
socialism of the State, which, in the hands of Marx, Lassatue &c.,
was assuming its modern form. Scuunze Detirzscu conceived this to
be a radically mischievous development, and he spent his life in comba-
ting it, not by words only but chiefly by his marvellous skill in
developing into solid fact the idea of co-operation. He saw, perhaps
he was compelled to see, that powerful as is the pen, it is per se
wholly insufficient, even powerless, to act on the classes who form
the mass of the nation, and whom it was his aim to develop. Henee, »
while incessant in writing, lecturing, exhorting, it was in the creation
of successful models by the power of his own individual influence and
within his own immediate sphere, that he chiefly trusted. Neither
did he attempt a vast agitation nor the institution of a grand society
to drive all human ills out of the State; he was content to lay the
foundation of a humble village edifice, which, like some Indian fane,
should grow from within outwards till it became world famous; he
believed in local growth and the development of individual powers
inherent in all men, not in the importation of elaborate machinery.
He had no universal panacea with which, in half a dozen years, the
nation was to be re-created, and poverty, the legacy of a series of
generations, the offspring of centuries of error and oppression, the
result of social manners, customs and ignorance, the outcome in
short of its history, was to be straightway eliminated ; he aimed at
practical education, and, if his efforts have been crowned witha
marvellous and probably unlooked for success, it is but the greater
proof of his wisdom in seizing the true idea of progress suited to the
conditions and needs of his country, viz., the development of the
individual through association, so that the powerlessness, carelessness
and ignorance of the isolated worker might give place to the prudenee,
the thoughtfulness, the credit, the strength and self-reliance, of
banded and disciplined groups. Moreover it was not simple credit
that he 4imed at ; credit without a proper knowledge of its use, he
rightly held to be an error if not a fatal injury ; it was disciplined
and safe-guarded credit, credit based on thrift and prudence and
having directly a productive object. Nor was it credit only but all
the benefits of co-operation at which he aimed. His first association

4,0)

§14 PROVISION OF BORROWING FACILITIES.

in 1849 was a Friendly Society for relief in sickness ; his second in
the same year was an association of shoe-makers for buying raw
material; in 1850 the first Loan society was formed with ten
members, all artisans. The organization of credit was, however,
a main object; he saw that by the aid of a little capital, properly
employed, the man of prudence and capacity could often raise
himself a stage higher in the social scale, whereas under the reign
of usury, borrowing was simply the beginning of ruin, or at best a
means whereby the surplus profits of work went to the non-worker.
The want of credit may be imagined from the fact that 60 per cent.
was common, while a workman borrowing 50thalers (£7-10) for buying
material might be charged 1 thaler a day for the loan, or 730 per cent.
per annum. Hence his attempts to form societies both for lending
money and for buying raw material. That this usury was nota
necessary rate, but the result of mere greed and monopoly is shown
by the fact that his petty associations, even at inception when rates
were necessarily high, could lend with much profitat 10 to 14
per cent., and speedily reduced their loans to 8 per cent.

In 1849-50 Scnutze Deitzscu began his famous work with the
above three institutions, all within Delitzsch, a small town of 8,300
people. He added to the above labours that of his pen in tbe shape
of small treatises or tracts, and, in 1854, he started at Leipzig a
periodical for a co-operative propaganda, which, in 1861, developed
into the now flourishing weekly Journal of Co-operation. |

By this incessant individual energy of Scuutzn Detirzscu whose
activity with pen, speech and action was unbounded, thirty mutual
credit societies had been started by 1858, and by 1868 his efforts
had been crowned with unexpected success, a success won by sheer
energy and courage. Not only did his social and _ political adversaries
attempt to crush his efforts, but the money-lenders and brokers from
whom he was endeavouring to deliver the working classes united
against him; they prevented his access to newspapers, and thus
drove him to establishing his own periodical and to the issue of
pamphlets and leaflets. In the early days the police attempted to
interfere on the ground that the societies were not legal or recognized
by law; this nearly fatal interference was successfully opposed.
His societies in fact under the common law of Germany had no com-
mercial status ; they could only sue and be sued as a society if the deed.
of constitution was signed by every member, and the result was that

PROVISION O# BORROWING FACILITIES. 315

. they survived by sheer inherent force and by the extraordinary
credit obtained by the principles of their foundation. The societies
were not recognized as “commercial”, not entering into the category
of those recognized by the commercial law. Hence, as mutual
societies, they were merely on the footing of ordinary individuals,
while if they had dealings of any sort with outsiders, they con-
travened the law. The German law of 1868 first recognized these
societies of unlimited liability as legal entities on a commercial basis.

Principles—These banks start from the fact that capital is
necessary to enable labourers and honest men to lift themselves higher
in rank, to improve their methods and instruments of their work, to
develop their estate, opportunities and capacity; the object
of credit is the capital necessary for these purposes; loans for
unproductive purposes did not enter into his idea of ‘credit.’ Credit
is, in fact, the power of obtaining capital, and capital is wealth
to be used productively. But he had also in view that self-
help is the only true source of such credit, and that capital obtained
by aid of philanthropy, charity, or even of the State except on a
rigid business footing, is an injury; every act of benevolence
accustoms men more and more to dependence on charity; every
State intervention by way of favour renders men less self-reliant, more
helpless in face of difficulty. He disclaimed all external intervention or
interference, believing that men associated on his principles were
sufficient for themselves, and he proved his theory by his success, Not
only did the State not intervene on behalf of his work, but, after
European fashion, it attempted to control it by police mterference.
Fortunately these attempts failed. Not only did the State not give
privileges or freedom from taxation, but its laws did not recognize them
as civil entities, until the law of 1868 was passed, 2.¢., until the
societies had established their position, they had no legal status, and
could not sue in Court or obtain recovery of their dues; their credit
was based on their own respectability and solidarity, since not being
a recognized entity they could not be sued except individually. Yet
they suéteeded and were an established success before the law recog-
nized them. Scuutze Dexirzscu considered that the only province of
the State was to remove obstacle, and he invoked its aid for this purpose

» and not to obtain privileges which he steadily resisted.

In fact the great principle which seems to underlie success in

the Credit associations of “small folk” is that of self-help ; credit

316 ~ PROVISION OF BORROWING FACILITIES.

cannot be successfully given to such folk by large. institutions, and
eredit, which is the result of philanthropic or State effort, is apt to
be either abused or abortive; it is abused for it comes in the guise
of charity, and is received as a mere surplus of the wealth of others
which they can easily spare, with similar subsequent grants beside;
it comes from a general and indeterminate fund, which is popularly
supposed to be inexhaustible. Similarly, when it is supplied by
government it is not only supposed by the borrower to be
from .an inexhaustible source, so that no one will be harmed
if it is not repaid, but it is necessarily surrounded by the
Jender with so many rules and formalities, that it cannot reach those
whom it would benefit. Above all, such credit does not educate ;
it does not teach the borrower that all capital comes from saving ;
yet without this lesson credit is dangerous; credit is only safe when
it brings with it the lesson that there is no royal road to wealth ;
the mortgage of the unearned increment, the cheap loan from the
philanthropist, the Government takavi at charity rates, teach the
ryot nothing, while tending to beget carelessness and improvidence ;
it is the painfully saved surplus from laboriously won earnings that
is the true educator. “If he is to value a gift, he must be his own
benefactor ; if he is to deal scrupulously with it he must be its
guardian”—(Wo.rr). “The only true secret of assisting the poor is
to make them agents in bettering their own condition””—(Archbishop
SUMNER).

As arule, too, these banks are local,and a marked feature if not
a principle, of their establishment is the limitation of their area of
operation. The Schulze Delitzsch banks do not indeed recognize
any limit, but in practice it seems that each bank operates in a small
area; in the Raiffeisen banks thisis an absolute rule. Hence there
arises that local knowledge by the bank of its members, by the members
of the bank and of one another, which seem essential to success in
bringing credit to small agricultural folk. A further principle is‘that of
association with unlimited liability—.a principle which gives the
maximum of credit possible in the absence of material pledge—
compels the admission only of the more prudent and thrifty, binds
the members together in a spirit of fraternity, and at the same time
ensures that loans will only be advanced and spent for productive or
useful purposes. The result of this solidarity of members known
to be prima facie prudent and laborious, coupled with the material

4

PROVISION OF BORROWING FACILITIES. 317

results of their thrift in the shape of share capital and reserve, is not -
only am abundant credit as shown by the deposits, which average
about three times the share capital and reserve, but a large freedom
both from losses or from serious failure. Losses in general have been
trifling, and such as are incidental to all credit operations, while the
general annual profits have been good; but it is doubtful if this
solidarity is essential to success. In Austria it is not compulsory,
and only half the societies have adopted it; in Italy, where the
suecess approaches that of Germany, it is practically unknown in the
Popular banks; the new German law of 1889 cancels the former
postulate of unlimited liability for co-operative societies, and grants an
option between three different methods.

Methods——The method is that of an association, each member
subseribing a share, and thus realizing a share capital to serve both
as guarantee and as a lending fund, as well as to enforce thrift ;
the association is one of unlimited lability, by the guarantee of
which and of its shares, outside capital is attracted, which is lent
out on short-term loans to members only. The profits are credited
to the share capital, after allotting a certain amount to a reserve,
and to the payment of the directors and staff. Members can withdraw
at pleasure, but can enter only after scrutiny by the society. No
local limits are prescribed, but the office is usually placed in a town
or large village. .

Lormation of «a Society.—Seven persons at least must unite to
form a society; these must draw up the statutés (Articles of
Association), the general subjects of which are laid down in the law.
A board of directors and a committee of supervision must also be
elected by the general body. The statutes, with the names
of the directors, must then be registered in fullina register of
societies kept in that Court of the district which keeps the commercial
register. The statutes are examined and certified by the Court,
which also publishes an abstract of them. Only after the above
registration does the society acquire a legal existence, and it is then
consideral as a “ commercial” or trading personality, subject to the
provisions and with the rights granted by the Code of Commerce.

Clhientele.--Any one may be a member, who can prove that he
is worthy of being such; candidates must show that they are
prepared to join in the principles of self-help and thrift ; admis-
sion is granted only after enquiry into the character and

318 PROVISION OF BORROWING FACILITIES.

circumstances of the candidate by the directors or committee of
supervision. As candidates are generally from the same village,
petty town or neighbourhood, this is easy enough. Every member
must sign a declaration of adhesion to the conditions of the society.
The classes aimed at as clientele are those who having no
material capital, save perhaps some tools, yet possess a moral capital
in their honesty, industry and skill; those particularly in view were
the urban artisans, and small traders and agriculturists were not
specially provided for; but nearly one-third of the members are
agriculturists. * i: d

The Banks in relation to Agriculture.—Scuvize Devitzscu started
his banks chiefly for artisans, tradesmen and such like, and without
special reference to agriculture: nevertheless they have done a good
deal for the agriculturists. He recognized that agriculture requires
loans of considerable duration, while his own banks were restricted to
three months’ loans, though with possible prolongations, and he
carefully distinguished between the needs which should be satisfied by
Real credit, and those for which personal credit would suffice. His
own formula was that “ the term of loan should be in harmony with
the reproduction of the capital lent’; hence, for all purposes for which
three or six months would not suffice, ¢.y., land-improvements,
purchase of stock, &c., in which the capital is more or less fixed and
is reproduced only by instalments, he considered that Real credit was
necessary, such as the Landschaften provide, viz., long-term loans
repayable by moderate annuities, and financed by the issue of
mortgage debentures to an amount -corresponding in _ the
aggregate to the mass of mortgages held by the bank. He
consequently desired and proposed (1867) a law which should give
—without special privilege—to any institution which should provide
proper guarantees and fulfil certain conditions, the right to issue
‘‘Pfandbriefe”” (debentures), subject, however, to the control of the
State ; these institutions should rather be Co-operative associations than
Joint-Stock banks, the associations consisting of the land proprietors of
any given area. For all short term needs, “ personal” credit as*granted
by his Popular banks would suffice. His projected law was, however,
not taken into consideration, and long-term credit of the Landschaften
type is still a desideratum for the ordinary German peasant; long-—
term loans upto ten and even twenty years being, however, to a small
extent granted by the Raiffeisen societies. * * *

PROVISION OF BORROWING FACILITIES. 319

Defects.—These are (1) the shortness of the loan term, which
renders societies less useful to agriculturists; (2) indefiniteness of
area leading to a loss of the co-operative bond such as is felt when the
area is limited, and to a difficulty in obtaining information as to the
borrowers and sureties ; (3) the entire absence of control over the use
to which the loan is put, whereby the societies lose a principal
safeguard for the value of their money, and miss some of the great |
functions of co-operative credit, viz., the education of the borrower
and the development of production ; it is even said that petty usurers
obtain loans to no small extent and lend out the proceeds in their
own business; (4) the pursuit of dividends, which though tending
to develop thrift, tend at least as much to injure the borrower, and to
divert societies into dangerous paths of business.

RAIFFEISEN CreDiIt UNIons.

The Raiffeisen societies are due, as in the case of their rivals, to
the philanthropy, prescience, courage, perseverance and skill of one
man, RatFreisEN, a man of slight estate, a burgomaster or village
mayor, of very poor health, with no particular property, but of
unbounded energy. He has been called the Scuvurzz Detirzscn of
rural Germany, for he has done for agriculture,—though as yet on a
much smaller scale owing to the inherent difficulties of the case—
what his contemporary did for the towns. Struck by the misery,
isolation and want of capital among the peasantry, by the shame-
less and fearful usury of the private money-lenders, by the absence
of association and public spirit in the cultivating classes, and by
their need for elevation not merely in the material but on the moral
side, he set himself alone and unaided, to develop a scheme for supply-
ing the needs he saw. Like Scuutze Duuitzscu, talking and writing
were with him merely subsidiary to action, and that action was his
own, and not another’s ; he asked for no aid but that of his own will,
his belic$ in his cause and his confidence in the dormant capacities of
the peasant ; he formulated no great scheme, nor called on others or
Government to do so, but began work in his own village, with the
inspiration of his own ideas and of the needs around him. He had
no ideal extowrage for his work ; on the contrary, the country round
Flammersfeld is represented as very poor, the men of scanty means,
ignorant, very superstitious and overwhelmed by debt, and his first
attempt at co-operative effort was on the occasion of a great famine

sr Pat
~ =

aay
7

- one CA ee

= =

ee |
S 7

320 PROVISION OF BORROWING FACILITIES.

“which decimated the people” ; on that occasion, “the usury was
frightful and bread.and potatoes—the ordinary food of the peasantry,—
were not to be had.” By personal effort he united some of the better
class in a ‘Co-operative society,’ which imported grain direct, ground,
baked and distributed it and brought down local prices by 50 per
eent. ; he also obtained potatoes both for food, and as seed when
spring arrived. This was in 1848. In 1849, he started an association
of the better classes, who contributed funds with which cattle were
bought by the association, and resold to the ordinary peasants who
repaid the amount with interest in five years by easy instalments ;
this was to obviate the ‘ Usure sur le betatl,’ one of the worst forms
of usury found in Europe, the cattle dealer often exercising the right
of taking back his eattle—which remain his till the value is fully

paid up—if a single instalment of the heavy price is in arrears, and
‘no return is made of prior instalments : subsequently this took the

form of.an ordinary loan society, the money and not the cattle, being

made over to the peasant, who therewith bought cattle outright for

cash. In 1854 RatrreiseN founded a society not only for granting
eredit, but for educating orphans, for supplying labour to men out
of work, for buying cattle and for erecting a library. This was

unmanageable and was wound up in 1864, and in that year, the
first regular loan society, under the rules, which, in the main, govern

these Credit Unions, was founded at Heddesdorf, a village of the
- Neuweid Union, of which Ratrreisen was the burgomaster. It is
~ only from 1864, therefore that these societies took their origin. ‘Till
1868 it stood alone, 5 were then newly started and 22 in 1869.
Until, 1879 progress was slow, but from that time the inerease has
been very rapid.* * *

Before proceeding to further details, it should be mentioned that
Ratereisen, to whom this organization of rural credit was solely due,
was forced by ill-health to retire from public service about 1860.
Though sick and nearly blind, he then devoted the remainder of his
life to this work, dying in 1888 after his societies formed an citalhelis
ed and successful system. Curiously enough, his work, though in

% = Germany, has been attacked by business men and others, of: account
of the Christian and philanthropic tone which pervaded his writings

and his works, as though a system, admittedly successful from a
pusiness and economic point of view, were the worse, nay even
objectionable, for having as motives of action, principles based

PROVISION OF BORROWING FACILITIES, 321

otherwise than on the desire for gain. Had the societies been based and
worked on a charity foundation, the objections might have been
understood, but they are not only business associations, but business
successes, and are not open to the reproach of being benevolent
institutions, they are real associations of self-help and self-education
of the highest character.

The Conditions.—It is worth while to ote carefully the conditions
under which RatrreisEN began his work, and the conditions of the
problem ; it is too common in thinking of Europe, to think of its
general civilization, its wealth, culture and education, and to apply
these vague notions to minimize the difficulties of the European
problem, and to exaggerate those of India. The peasantry of Europe
are not the cultured classes, who give the tone and name to European
civilization and progress; they are often but barely instructed, while
their prejudices, conservatism and narrowness of idea are proverbial ;
they are not wealthy but excessively poor ; are much in debt and
ravaged by usury to a degree, of which this presidency (Madras) as a
whole, knows comparatively little ; what can be expected of them when
the vast bulk own less than 7 acres per family, and a large proportion
much less than that ;vast areas of Europe are bleak and infertile,
repaying labour with but a bare livelihood often of the meanest kind,
so that the small peasants obtain a poor subsistence even in good years,
while droughts and floods, hail, frost, blights, and cattle disease are
common fatalities. Moreover, RatrreiseN began his work more than
forty years ago and Europe was not then even as now; the peasant.
had long suffered from other evils, such as from the want of communi-
eations and of good markets, from general ignorance, from most
conservative ideas and practices, from the poorest methods of farming,
from feudal disabilities and customs, which the laws of the earlier
part of the century had so partially relieved that a fresh set of laws
was necessary, ending in 1850, to relieve them. Hence, it must not
be imagiaed that the task of starting credit societies or rural banks
among the peasantry was one whit easier in Europe than in the
Madras Presidency ; ; on the contrary, so hard was it that it took
pearly werity years to establish more than the first such bank, while
the whole of France, the bulk of Germany, Austria and Italy, the
whole of the Iberian peninsula and the whole of Russia are still
* almost unsupplied, in fact, with rural banks for the peasant, for even
the 2,000 or so Raiffeisen societies which have established themselves

41

322 PROVISION OF BORROWING FACILITIES.

since 1868, when their real development began, are but a trifle even
in Prussia alone with its 54,000 communes.

RalrFEIseN was the burgomaster of a villaee—afterwards of a
group of villages—in one of the poorest parts of Germany, the”
Westerwald ; it had but a “‘barren soil, scanty means of communication,
bleak surroundings, indifferent markets.” Nature had proved a very
step-mother to this inhospitable bit of territory, upon which the half-
starved population—ill-clad, ill-housed, ill-fed, ill-brought up—by
hard labour eked out barely enough to keep body and soul together,
with the support of the scanty produce of their little patches of rye,
buckwheat or potatoes, and the milk and flesh of some half-famished
cattle, for the most part ruinously pledged to the Jews. ‘That
reference indicates a peculiarly sore point in the rural economy of
Western and Southern Germany, which led Ratrreisen to become an
economic reformer. In this country we have no idea of the pest of
remorseless usury which has fastened like.a vampire upon the rural
population of those parts. Even the gombeenman cannot compare
with those hardened blood-suckers. The poor peasantry have lone
lain helpless in their grasp, suffering in mute despair the process of
gradual extinction. My enquiries into the system of small holdings
in those regions have brought me into personal contact with many of
the most representative inhabitants—heads of agricultural depart-
ments, judges, parsons, peasants. And from one and all—here, there,
and everywhere—have I heard the self-same ever repeated bitter
complaint, that the villages are being sucked absolutely dry by the
‘Jews’. Usury laws, police-regulations, warnings and monitions have
all been tried as a remedy, and tried in vain.” (WoLFr.)

It was this miserable district “where every little wretched
cottage and tumble-down house was mortgaged and most of the
peasants’ cattle belonged to the Jews,” that was severely visited by
the famine of 1846-47, and it was the misery of the people that
moved RatrreisEN to action. Such were the conditions of the, country
and of the people, and no more unpromising field could have been
selected. And the conditions of the problem were no less difficult,
viz., to supply within, confidence, courage, the spirit of ‘thrift, of
self-help and of mutual help through association to a peasantry 50.
enfeebled, suspicious and dispirited, and to inspire without such
confidence and credit that, upon the guarantee of such a peasantry, ‘
external capital should be attracted in sufficient quantities to free the

PROVISION OF BORROWING FACILITIES. 323

peasants from debt and to supply them with funds for maintenance
and production. This is the problem, such are the conditions, which
RatrFersEen had before him, and, in his solution of it in its most
unpromising form, he has solved the problem so successfully, that the
system is now developing with immense rapidity, so that the end of
next decade may easily see at least 5,000 rural banks of this class in
full operation. For India the solution of the problem presents an
absorbing interest, for there are few, if any parts more difficult, to
deal with, than the scene of RatrreisEn’s first success, while in this
presidency (Madras) alone there are 10,000 villages far more suitable
than Flammersfeld. But the conditions of the country and of the
peasantry do not exhaust the factors of the problem, there must be
imported into it for its solution, the energy, skill and devotion of
promoters of the Raiffeisen stamp ; so difficult is the problem that it
has nowhere been solved, save by such imported elements, and it is
well to recognize this at the outest ; given a Scuutze Dutirzscu or
a Ratrretsen, and they will bring bread out of stones, credit out of
poverty, isolation and ignorance ; without them or some similar
influence the problem remains insoluble.

General Results——-The increase in numbers has already been
mentioned, and it should be noted that this enormous increase has
practically been obtained since 1868 when the societies first began to
develop.** Mr. Wourr considers that there are probably above 2,000
including those that have seceded on minor points only. As 1,730
were entered in a report for 1889, and they are said to be increasing
at the rate of at least one or two per diem, this seems a moderate
estimate.

The loans granted are small; in 1887 in three societies taken at
random, 200 loans were granted for £3,094 or £15-10 each ; of these
35 were below £5, and averaged about £2 ; 139 were below £25, and
averaged £9-8 ; only 26 were above £25, and none wasabove £112-10.
It is clear that these societies have the true peasantry as their
clientele. “4 eae

Prirciples—tThere is little difference between the aims and objects
of Scuutze Detirzscu and Ratrreisen, and that which has been said
above of the former applies equally well to the latter; they differ only
in the less essential matters of method, and in the clientele which they
had in view; the former founded popular eredit for all classes, but
especially for townsmen, tradesmen, artisans, &c., while the latter

324 PROVISION OF BORROWING FACILITIES.

had in view simply the peasantry and rural classes. As in the Schulze
Delitzsch societies, so in the Raiffeisen Unions, the principles of
action are those of self-help, association, solidarity, prudence, thrift
and public spirit, to which, however, Ratrreisen added unselfishness,
in that dividends are forbidden ; all profits, less fixed interest on the
very small shares—introduced only in obedience to the law—go to a
common fund to be used for purposes of general utility, and not for
private gain. Ratrresten, like Scuutze Detirzscu, demanded no
privileges for his societies, but was content to base their success on
honest, energetic and prudent action. In the words of 8. WoLLEMBoRG,
who, in Italy has founded similar institutions, he believed that, “when
a whole class—the peasantry—is in danger, when the need is general
and abiding, no kind of mere assistance, whether from the State or from
individuals, is of any avail; rather is it mischievous, for it not merely
leads men to count habitually on such succour, a succour which must
fail at last, and render more acute the consequent distress, but it
gradually stifles the feeling of self-reliance and personal responsibility.”
Whether he was right in rejecting or in not seeking temporary
aid for nascent institutions, is arguable; success may have been
delayed by the great difficulties of the start; on the other hand, when
achieved it was undeniably due not to external aid but to intrinsie
merit. In actual fact, two or three advances have been made from
the State apparently as encouragement or premia and as aids to audit.
A great deal has been made of the differences between these and
the Schulze Delitzsch societies; but on analysis both seem to have
similar aims; thrift and the promotion of general well-being is the
common aim of both; but while Scuunze Detrrzscu places thrift and
saving prominently forward as the chief factor of credit and of progress,
RalFFEIsEN, while anxiously promoting thrift, desired to guide the
peasantry towards unselfishness and public spirit rather than to
individual profit. Scuutze Detirzscu encouraged thrift and attracted
capital by giving dividends as large as possible, so that there is a
tendency to opposition between borrowing and non-borrowing members,
and possibly to unsafe extensions of credit and enterprise. RArrretsEn
allows no dividends, but only market interest on deposits, and all
further profits go to areserve; there is but small share capital which
is intended (1) for the ordinary purposes of a reserve, (2) for purposes
of public utility. Exaggerated views prevent the partizans of eithet
side from doing justice to the other; both are doing a great work,

PROVISION OF BORROWING FACILITIES. 325

and while the Schulze Delitzsch banks are far ahead in numbers and
operations, the Raiffeisen societies deal with problems of far greater
difficulty, vzz., the advancing of small loans for long terms to men
who, though they possess some property, obtain their profits only
in small instalments, and after considerable delays, and with a certain
amount of precariousness and uncertainty ; the men themselves more-
over, are more difficult to deal with than the comparatively businesslike
artisan and tradesman class. Hence a considerable divergence in
methods as well as difference in results.

The principle of solidarity is common and essential to both: in the
one it is simply a means of obtaining credit, in the other it is not only
that, but a bond of brotherhood.

General Featwres—The chief features are (1) that the society
is absolutely local, the limits of a commune (village) being strictly
maintained as the limits of membership and of operation, (2) that the
administration is equally local, members alone being eligible for
appointment, and is absolutely gratuitous, (3) that there is but small
share capital, all funds being borrowed on the guarantee of solidarity
and eventually of the reserve, (4) that there are, therefore, no dividends
to pay, and all profits go to the reserve, (5) that only members, who
must be residents of the commune, can get loans, (6) that loans may
be of long term, extending to ten or even twenty years, and (7) that, as
far as possible, all funds are the result of local thrift. :

Local Character—A Raiffeisen bank is simply a village society
of agriculturists, labourers, and shopkeepers united for common
interests ; at first afew of the better class unite; these by example
and precept, draw in others. ‘The first steps are hard, but once fairly
started, there is little difficulty, as the advantages are manifest to all.
It is considered that the village should have not less than 400, nor
more than 2,000, inhabitants; several small villages may unite if too
small for a separate society. This principle of restricted area is
deemed essential: the bank is thus at the borrower’s doors. It can
be administered gratuitously and by the most trusted men of the
community; it has a perfect knowledge of the candidates, and can
reject all unworthy of the honour who would be likely to discredit the
the seciety ; it tends, therefore, directly, by reason of the advantages
of membership, to encourage or to incite men to industry, thrift and
sobriety ; as a priest of the Rhenish provinces once said: ‘The bank
has done more in my parish for morality than all my sermons” ; it

326 PROVISION OF BORROWING FACILITIES.

has a perfect cognizance of the solvency and status of would-be
borrowers, and it can and does examine the purpose of every loan and
enforce its due employment, for in a village all is open to the eyes and
ears of all; 1t establishes among the members the bonds of confraternity
and tends to substitute association for suspicion, healthy and active
communal, yet personally free, action for individual isolation and
inertia; it forms acentre of local progress and reform. All are
admissible, even the poorest, who satisfy the administration that they
are worthy of membership, and, as will be seen in Italy, the mere
possibility of joining a society has reclaimed men from drunkenness
and extravagance, and has given them an impetus to sobriety,
industry and even to education in its ordinary sense.

Oljects of a Society.—These are well expressed in section 2 of
the model Articles :—

“The object of the society is toimprove 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 tlie society.

“The Society will also have in view the objects mentioned
in clauses 2 to 6 of Article I of the Law for Co-operative
Societies of Ist May 1889.”

The objects mentioned in the last sentence are—

(1) The supply of raw materials (¢e.g., manures, wool, coal &c.).

(2) The sale in cormmon of the products of agriculture and
industry.

(3) Co-operative production and sale.

(4) ‘The purchase, wholesale, of food-stuffs and agricultural
necessities and their retail sale to members.

(5) The acquisition of implements or machines necessary for

agriculture and industry and their use in common.

These objects cover a wide field, and, if carried out, would
develop agriculture beyond belief ; it is claimed that these societies
are actually developing in the direction here indicated, as will be
seen below. |

It should be noticed that in fulfilling the object of improving °
production, a prime necessity was that of “freeing the members

t

€

PROVISION OF BORROWING FACILITIES. 327

from the grasp of the usurer”’ and one principal result has been
precisely this; the usurer 4as been ousted, and the people set free
to develop their farms or industries. No previous liquidation was
asked for or needed ; the member was a neighbour, his character
was known, the use to which he intended to put the loan and his
power of repaying it was examined, the money was advanced and
the thing was done.

The following paragraphs.are taken partly from the Model
Articles of Association, partly from other sources: Articles, of
course, differ in various societies, but are generally similar to those
mentioned.

Members.—All adults of either sex, in full possession of their
civil rights, may become members ; admission is sanctioned by the
directors, with an appeal to the committee of supervision in case of
rejection. A member may withdraw or be dismissed ; the statutes
detail the circumstances in each case. It may be noted that
dismissal is necessitated by the removal of the member to a
village outside the society’s sphere of operations, or if he joins
another society of unlimited liability, in which case, of course, the
original society might lose its lien over the member’s property.

Members have the right of voting at the general meetings if
present in person; females have no right to take part in such
meetings, but may vote by proxy. Every member is entitled to
ask fora loan. They are bound to answer in all their property for
the debts of the society, to pay up their shares, to obey the rules, and
to watch over the interests of the society in every way.

Administration.—Naturally the best men of the village form the
original members, and therefore the original administration ; the
burgomaster (village head), priest, school-master and bigger peasents
usually form the nucleus. The society has always a board of directors,
including the chairman of the association, a council of supervision, a
generalassembly, and an accountant. Regarding these organs RaIrrrisEN
said “the directors decide, the accountant executes, the committee
of supervision oversees.” The directors elected by the general
assembly represent the society, and have the management of
affairs, including the admission and exclusion of members, the
internal work of the office, the enquiry into, and grant of
applications for loans. For facilitating loans each director has
a register, persons in his immediate neighbourhood or hamlet

328 PROVISION OF BORROWING FACILITIES.

apply to him for loans; on his report the directors consider the
application, the object for which the loan is demanded, and the
worth of the sureties and of the applicant. The president or his
representative, or failing them, a member of the directorate
specially elected by them, represents the society in its capacity of
member of the Central society. The president has other duties,
and is held specially accountable for the cash and the correctness
of the books and balance sheet, and for carrying out the decisions
of the directors.

The council of supervision has a general control; it is bound to
see that the directors observe the rules, and that all resolutions are
earried out; it is required to make a quarterly examination of the
assets and debts of the society, when the position of each loan, its
then value, the use made of the loan, and the status and solvency of
the debtors and their sureties are examined afresh. Hence any
deterioration of an_ estate, any misapplication of a loan, any
degradation of a debtor or his surety, is at once known, and steps
can be taken to safe-euard the society, since the members of the
two councils reside in the villages which forms the sole /ocale of the
bank. It can, moreover, examine the books, cash and securities at
any time, suspend the directors or accountant, and call a general
meeting.

The general assembly is the source of all power and is a petty
democracy. It decides the general rate of interest to b2 demanded
from borrowers, and is likely to keep this as low as possible, since
all the membors are probable or possible borrowers, and since there
are no dividends to pay to investors. On the other hand, it requires
an influential directorate to guide the assembly, e.g., in so fixing
interest that profits may accumulate into a reserve as soon as possible,
and thus improve the material guarantee for the borrowed capital.
No difficulty is found in practice, as the original members, and
therefore the original directorate, are the most enlightened and
influential men in the village. Meetings must be held at least
twice a year, and as often otherwise as the committee or a tenth of
the members require. It is usual to require all members to attend on
pain of a fine in the absence of a valid excuse; this is mtended
to develop the personal interest of all members of every
degree in the working of their society, and is found very effective.
The general meeting in these and other co-operative societies

PROVISION OF BORROWING FACILITIES. 329

usually decides matters which, in an ordinary society, are dealt with
by directors ; it is a small democracy with direct working powers.

All services rendered by the administration are absolutely
gratuitous, only expenses out of pocket, if any, are payable to them ;
the area and number of operations being small, and the accounts
simple, there is but little trouble. The accountant is the only paid
official and must not bea member of either committee ; security,
personal or material, is required from him. He is generally the
villaze school-master, sometimes a forest officer, frequently a tax-
collector, and the remuneration is small. In India the school-master,
or monigar or kurnam would naturally hold the post. There is an
economy about the German and Italian arrangements very striking
to an Indian observer, who is accustomed to see every petty Indian
association, village union, reading-room, &c., spend much of its
scanty funds on establishment.

The accounts are very simple, sometimes rough ; but they are now
regularly audited by inspectors sent round from the central office of
the group to which each society respectively belongs ; these
inspectors pay frequent visits, point out errors, explain the proper
methods and forms of book-keeping, and act generally as auditors
a extra. Their services are paid for not by each society, but by the
central office of the group to which each society subscribes annually.

It will be observed from the above that not only is the
establishment of the societies dependent upon local devotion, but
that, once started, they bring men together in association and tend
to develop in them a most useful and enlightened public spirit ;
they are not merely centres of economic but of social and even
of moral progress. Moreover, these societies do not spring up
from the inherent and active love of progress in the village ; the
peasantry of Germany are not very different from other peasantry ;
it has been only by the unwearied and incessant devotion and energy
of Ratrresen and his immediate disciplesin this propaganda, that,
after many years of effort and example, these societies have won
their slow way to acceptance by the villagers. In some eases the
suspicion of the villagers was overcome by the fact that their principal
men lent money or placed considerable deposits in the nascent bank;
this gave confidence, which, when once given, soon established itself
And the position of the society. It is invariably a case of local
energy, devotion and honesty.

42 a
*

- 830 PROVISION OF BORROWING FACILITIES.

Shares.—Under the law of 1868 it was not clear whether a
share-capital was a necessity ; it is now placed beyond doubt by the
law of 1889, and consequently the Raiffeisen societies which formerly
rejected the share system, now require each member to subscribe a
small share, which, however, only averages 10s., and may be much
lower. Round this question was the principal strife between Scuutze
Detitzscu and RatrretsEN; the former, accustomed only to townsmen,
who either had no property but only wages, or who, being in trade,
were subject to unseen risks, and who operated in trade matters
entirely out of sight and out of the control of the society, obliged his
associates to subscribe a considerable share-capital as a proof of their
thrift and sobriety, and as a material guarantee for their individual
and corporate debts ; but the Raiffeisen societies, dealing solely with
agriculturists and villagers, required no such security; each member
possessed in his little farm, in his cattle and implements, &c., material
guarantees far beyond those of any subscribed shares, Moreover,
a peasant, even though he possesses property, has seldom any cash
in hand, and his savings are necessarily and best invested not in a
savings bank but in his fields or farm-yard ; finally, every act of a
peasant, the state of his crops and stock, his personal possessions, the
new dress he gives his wife, nay, every visit to the public house,
is perfectly well known to every other villager. For these reasons,
RAIFFEISEN considered that a share-capital is not only useless, but
mischievous ; wseless for, as calculated, shares of even £3 only add
to the guarantee provided by the solidarity of the members of his
societies an additional guarantee of 5 or 6 per cent., since
the aggregate actual property of each member in land, house,
furniture, stock, &c., probably averages £50 in value; m/s-
chievous, for it keeps money out of the land, members out of the
society, and induces a habit of looking for dividends, while the
necessity for giving dividends, pro tanto, retards the accumulation of
the reserve which is a prime necessity. What a peasante’ wants is
often not property but simply cash, he is not a pauper, but he requires
floating capital ; and to demand a subscribed share, the value of
which is to be permanently locked up, may be, in view of his property,
an unnecessary burden. Rairreisen, in obeying the law, fixed,
therefore, the shares at a very small amount, while encouraging the
peasant to place any spare cash in the Savings bank attached to the
society, whence it could be withdrawn at pleasure.

PROVISION OF BORROWING FACILITIES. — B3l-

As there are, however, shares, there are now dividends or rather
interest payable on them ; the rate is fixed annually by the committee
of supervision, but must not exceed the rate of interest paid by the
society on its borrowings ; the amount is credited to the shares until
they are fully paid up. The general meeting may determine that
there shall be no dividends.

Shares cannot be transferred or pledged in any way while a
member continues in the society ; on quitting it he is entitled to his
share value.

Reserve.—This consists of the whole net profits after paying the
fixed interest on deposits, &c., and the cost of administration.
It belongs to the society in its corporate capacity alone, and no
individual has any claim to any portion of it. Should it attain
an amount larger than necessary, the general assembly can
devote the surplus to some object of public utility, such as
special beds in hospitals, the improvement of the village,
its water-supply, school, &c., or it can lower the rate of
interest and commission on its loans. Should the society be
voluntarily wound up, the reserve, less any due debts, must be paid
into the Imperial bank or placed in some recognized investment,
thane to accumulate at compound interest, till a new society, under
‘ules, shall be established in the same village, when it is to be
r to them as a nucleus. ‘ Paty
Il cases the reserve is banked with the Central bank
and cannot be used in the ordinary business of the society.
The reserves appear to have been kept down by the low rate of
interest and commission demanded from _ borrowers, who pay
considerably less. than the members of the. Schulze Delitzsch
banks. 3

In spite of the weakness of the reserves, the societies have found
no difficulty in borrowing, and all losses have hitherto been successfully
met from*the reserves.

No entrance fees payable to the reserves are charged to members.

Funds 5— These eonsist of the shares, the reserve and the borrowed
capital. The first source, as already stated, is insignificant in amount,
the reserve cannot be used in ordinary business ; it is on their borrowed
capital that the societies work, thus fulfilling the chief function of
banks, viz., the collection of small capitals and their distribution for
productive use.

332 PROVISION OF BORROWING FACILITIRS.

The societies have not wanted for capital, except at the very
beginning. At first Ratrretsen found funds only with very great
difficulty and amongst the richer men who were friendly to the
enterprise ; his first society could find no friends till a particular
capitalist came forward and lent about £300; gradually, however, as
the security and regularity of the societies became known, money
from the country side began to flow in as deposits, so that a Savings
bank, open to all persons, and not merely to members of the society,
is now the usual adjunct of a society, which draws much or even all
of its funds thence. It is found that the funds supplied by members
of the association in this way are assuming a larger share of the total
funds borrowed, viz., about three-tenths, and that these funds’ are
being received in smaller and smaller instalments, showing that the
small peasants have been reached, and that the hitherto inactive
driblets of capital are flowing in to fertilize the very neighbourhood
in which they took their rise ; these are assisted by the penny (10
pfennig) savings system mentioned above. In some associations the
deposits of members receive higher interest than those of outsiders,
and a large number are actually financed solely from the proceeds
of this savings branch. ‘The confidence of the people in the great
security offered by the solidarity of the societies, most of whose
members possess some material property, is shown by the fact.
in the great war of 1870-71 any amount of funds was offered t
societies without interest, capital seeking security only ; —
distinetly proved in the official commission of enquiry in 1875 that
the Raiffeisen societies, by the nature of their own organization,
though then in their infancy, suffered in time of panic less than any
other credit institution, the reason being that lenders werealso largely
members.

In the infancy of the societies 5 per cent. and even more is paid
as interest to lenders or depositors; gradually this is reduced, _ most
now pay 44, 4 and 3% per cent.

Loans.—These are for all terms, from a ipatlh to ten or even
twenty years. Mortgages are not refused, but personal credit is the
usual form, one or two sureties adding their signatures to that of the
borrower. Cash credits are also granted. Ratrreisen, like ScHuLze
Detrrzscu, believed in the efficacy of personal security; it brings
together the members of a society, and since a member will be very
unwilling to cause loss to his immediate neighbours, especially those

€
«

PROVISION OF BORROWING FACILITIES. 333

who have become security for him, itis one of the most efficacious
modes of securing repayment if not punctuality ; but he directed his
societies to be very careful not to accept, either as principal or surety,
an idler, a drunkard or a spendthrift, and since the societies are purely
local, it is easy to aviod such persons ; hence there is not only great
security to the society, but a direct inducement to the idle, extravagant
or vicious to reform in order to become members of these useful
societies. This is no theoretical fancy, but the result of experience ;
both in Germany and still more in Italy is the evidence abundant
that these societies do reform these very classes ; that they preach
temperance and self-control more practically than sermons, is the
evidence of priests themselves.

When a peasant desires a loan he applies either to the office or to
the director living in his neighbourhood ; enquiry is then made as to the
eandidate’s solvency and his guarantees, and as to the use he intends
to make of the money ; if this latter is approved of, the dates and
instalments of repayment are settled, always in such a manner—and
this is most important—that the periods and amounts fixed shall
agree with the probable receipts of the borrower ; the society prefers to
increase the duration of a loan, and then to insist upon absolute
punctuality—save in cases of disaster, flood, hail or famine, &c.,—
rather than to grant shorter terms with probable inabilities and
delays. In this way, not only can the society calculate on its
returns, but the borrower knows his exact liabilities and
that—save for unusual misfortune—he is safe to have means
to meet them; he is also educated in rigid punctuality and
foresight.

Short-term loans, v7z., those granted up to one year with possible.
prolongations to two years, or even three, are repayable usually by
instalments, as RairrsiseN considered this an important principle.
Long-term loans, of which those above ten years can only be granted
by special arrangement, are always repaid by equal annuities, which
include both interest and principal. It was considered advisable by
Rairretsgy, and his opinion is largely followed, that all short-term
loans should be made payable at a particular time of the year, vvz.,
that when the members have generally sold their crops ; this differs for
various neighbourhoods between November and the end of December.
This practice, however, seems to cause a risk of leaving money
unemployed for some months, unless there is competition for loans.

334 PROVISION OF BORROWING FACILITIES.

Instalments, or portions of instalments, are received at any time in
advance, so as to remove the temptation to spend small sums.

It is an absolute rule that the loan shall be for some useful and
productive purpose ; this is, in fact, one of the chief securities for the
repayment of the loan—a security entirely lost sight of by those who
demand only material and existing securities. When a loan is used
only for a productive purpose, including in this definition the payment
of previously existing debts which enslave the peasant and absorb
his crops, the lender has the best of guarantees that his loan will be
repaid ; the borrower is, in fact, in a better position to repay the
loan than he was when he borrowed it. To this end, not only must
an applicant state the object of his loan, but the truth of the statement
must be enquired into by the committee by its local member. If the
loan is approved of, it must be used for the purpose stated, under penalty
of immediate recovery. This is not merely for the protection of the
interests of the society but of the member; it is desired to teach
members the due use of eredit and to safeguard their true interests ;
control of the use of credit is the base of the society’s action, and the
abuse of this control is checked by the fact that it is the members
themselves who control themselves and one another, and that the
members are men of similar position and needs.

The duration of loans is chiefly from one to ten years; the
societies being composed of actual agriculturists, recognize that three
months are seldom of any use in agriculture; even the Scuunze
Deuitzcu banks, where they devote themselves to the needs of
agriculture, find that their short loans require numerous prolongations
even up to two years; the same will be noticed in Italy also. In 245
societies; it was found that of the total outstanding amounts 15. per
cent. was granted for periods below one year, 43 per cent. for one to
five years, 35 per cent. for five to ten years, and 7 per cent. for above
ten years. Again in ten societies taken at random, 71 loans, or 1]
per cent., were for one year at most, 442, or 68°5 per oent., fur one
to five years, and 132, or 20°5 per cent., for five to ten years.

It has been objected, especially by Scuutze Detirzscn, that money
cannot be lent on long terms (one to ten years) as by the Raiffeisen
societies without great risk of bankruptcy unless they can borrow on
similar terms. Asa matter of fact, the societies do not generally
borrow on long terms, their funds are chiefly savings or deposits. ‘
ScHuLze Dexitzscu and others proved conclusively that, by theory, this

£

;

PROVISION OF BORROWING FACILITIES. 835

means bankruptey, and that the societies could not succeed, but

practice contradicts theory—e pur se muove. It is only necessary

to point to -the German Savings banks, with 55 per cent.
of their enormous deposits on rural and urban mortgages to
disprove Scuutze Derirzscn’s theory ; the savings banks experience
of Austria, of Italy and of the United States is equally conclusive.
The fact is that the good credit of the societies prevents any lack of
lenders; it is said, indeed, that they have more money than
they can lend, probably owing to strictness in lending, that these
creditors are largely members, that their savings are left for a long
time untouched ; that, in fact, the banks find that they can place a
very large proportion of their funds in long-term investments ; finally,
that long-term loans are all repayable by instalments, so that the money
is continually coming in. It is true that the societies have introduced
a rule that repayment of loans of any term can be demanded on four
weeks’ notice, a facility which is also given to the creditors of the
society, but this safeguard is not used in practice except in cases of
deteriorations, or of misapplication of the loan, or of serious diminu-
tion of the solvency of the borrower from his own extravagance.

Cash credits are not extensively used, RatrretseNn being of opinion
that they were unsuitable to the smaller class of peasants; they are
opened chiefly for the better class. Whether the loans are granted on
mortgage, pledge or personal security, the administration is bound to
examine, every three months, the solvency of the parties, the condition
of the property mortgaged and the use made of the loan; even the
habits of the individuals are considered. If necessary, a further
security is taken from him, or the whole debt may be demanded in
accordance with the terms of the bond.

The right of the society to demand repayment at any time on four
weeks’ notice is entered in general terms, but is never practised unless
the property has deteriorated or the solvency of the parties seriously
diminished, or the position of the society, by reason of demands,
imperatively demands this extreme measure. The advisability of this
clause has been much debated. There can, however, be no doubt but
that it is necessary where property is being allowed to deteriorate,
or the borrower is evidently becoming insolvent through extravagance,
or where he has misapplied money lent for a particular purpose. In
‘the first and third cases the rule is universal in land credit societies,
and is especially necessary as a matter of contract where the law, as

336 : PROVISION OF BORROWING FACILITIES.

in India, does not make the mortgagor responsible for deterioration of
the property mortgaged. But the clause seems indefensible where the
demand is necessitated by the position of the society ; it is the duty of
the society so to arrange its affairs as not to require at call loans
which have been laid out perhaps in improvements yielding slow
profits; such a clause must produce a sense of uncertainty,
and might be means of harassing debtors disagreeable to the
directorate. |

As pointed out above, the loans are usually small; some fall as low
as 10 or 20 shillings, showing the class of peasants who are admitted
as members. The largest number of loans are those falling between
£5 and £25, the average appears to be about £15, or less than half of
the average of £33 in the Schulze Delitzesch societies.

The general rate of interest is 5 per cent., with a commission
which raises it to 54 or 6 per cent. It is usual now to take this
commission in a single payment on the day the loan is granted; it is
usually 1 per cent. of the tutal for a loan of one year ; it aggregates 2
per cent. for loans up to five years, and 3 per cent. for those between
five and ten years. This commission pays the expenses of adminis-
tration. |

With all the care taken to fix the easiest instalments and dates of
repayment, it is found that the unpunctuality of the peasants is a
standing difficulty ; they cannot, without vast trouble, be got to under-
stand the absolute necessity of punctuality, and much tact is required
to avoid, on the one hand, a sudden severity which would deter them
from becoming members and taking loans, and on the other, a lenity
which would soon ruin the society. An official Commission in 1875
commented on this fact, and found that the lenity of the administra-
tion on this point encouraged the peasants in their faults.* * *

On this point the Neuwied central directorate allege (1) that the
loans were frequently granted imprudently by the local societies,
chiefly from a false idea of benevolence or compassion ; (2) that bad
harvests, especially in the nine districts (e.¢., Coblentz), caused much
distress and necessary delay.

It seems, however, also true that some local societies shrank from
pressing their debtors, fearing to drive them again into the hands of
the usurers ; they did not insist on punctuality and thereby strengthened

the peasants in bad habits; also that the debtors had the means of:

payment, had they been pressed, and did eventually pay up.

en

3

PROVISION OF BORROWING FACILITIES, 337

It is clear that these faults—undue leniency on the one hand and
unpunctuality on the other—may easily wreck the best system. M. Le
Barsier expressly alludes to that idea of peasants (and others) that a
society (or a Government) is abundantly rich and can afford to wait
for its money, so that unpunctuality with them conveys no sense of
fault. Mr. Wotrr, while admitting, it would seem, that the peasants
are unpunctual, considers that the societies are training them to habits
of punctuality by insisting inexorably on payments at date. Here in
India, poverty is too frequently urged as a reason for granting a loan
of public money, while the ryot—and not merely the ryot—habitually
thinks that the Government is boundlessly rich and ean afford to wait,
or even to lose an individual trifle.

- Other Objects.—The societies do not merely make loans; they do
considerable business in assisting land purchase. In Germany, as in
Italy, land is largely sold by public auction, the purchaser agreeing to
pay by instalments—a practice which enables him to give a higher
price from the ease of payment. For these instalments he gives bonds
to the auction-seller, who in turn sells them at a discount for ready
money to some money-lender or other capitalist. Should the pur-
chaser fail in any one of his instalments, he finds himself liable to be
sold up without mercy, unless he pays a ruinous interest on his
arrears. The society intervenes by taking the place of the money-
lender at a moderate discount, but requires from the seller a guarantee,
usually with personal sureties.

Other objects are the stimulation of, and assistance to, associations
for co-operative production, sale and supply; either by the grant of
advances or by establishing them as branches, with, however, liability
and accounts wholly distinct from that of the parent society. These
are becoming very successful, and supply associations are mentioned
as doing business up to £2,000 per annum, the capital for which is
originally borrowed from the parent society.

The same Article, which deals with these subjects, lays down that
the directors shall endeavour to compose differences between the
membe?s of the society, and to assist them if they are unjustly injured
by third parties.

General Union and Groups.—As the societies increased in number
‘and importance, it was felt that they should be linked in groups
for mutual support and for supervision, for the chief difficulty in

4.3

338°: PROVISION .OF BORROWING FACILITIES,

starting: and working these small local societies is not only that of
their weakness when isolated, but also that of finding capable men
residing ‘ within the area; hence the group and union system. Five

groups are now in existence embracing probably all the - individual
societies. In addition to these local groups there is a Central Union
for the whole of Germany to which all societies may belong. Of

the local groups, Neuweid, the original, will be taken as an example.
It was founded by Ratrretsen in 1877 with the object of extending,

developing, and protecting the local societies. One chief duty is.

that of instructing the peasants in the proper use of credit; this seems

more useful than any other, for cheap credit, without due prudence

in its use, means only quicker ru. Doubtless, too, though it is not
so stated, the peasants are taught the arithmetic of credit, ¢.e., the
calculation of profit and loss probable on a given transaction,
Instruction in book-keeping and the audit of the accounts is another
chief duty; a regular service is organized for this purpose, and the
inspectors give free instruction in the subjects to the societies that
ask for their services. Another duty recently undertaken is the
collection and preparation of systematic statistics; they are still
very deficient. A further and most useful development is the
purchase of good seed, manure, implements &c., for the local
societies upon demand by the latter; eg., in 1887 the Neuweid
Union alone furnished to its members, at cost price, 15,000 tons of
manure and forage, and above 1,600 waggons of coal; in the spring
of that year, it bought 2,000 tons of nitrate of soda at 88} marks
per ton, the price otherwise being 130 marks, hence a large gain to
the members ; in 1889 this business had increased, and so again in
1891, a considerable additional business was done. The steady increase
of this class of business is highly satisfactory, and it seems that up
to 1898 the Union had thus supplied considerably over £500,000
worth of goods. Here, it will be seen, is indicated a rapproachment
between the duties of the local societies as credit societies and as
Agricultural associations. Finally the Central Union busies itself
with the promotion of life assurance, and of assurance against the
effects of hail, cattle-disease and other frequent disasters.

The Central Union holds a general assembly every year composed
partly of the representatives of the individual -sociefies, partly of

delegates from the local groups, which represent the societies belonging:

to them. Discussions take place, and a representative syndicate oF

PROVISION OF BORROWING: FACILITIKS, 339

council is appointed. For business purposes, the Union .is divided
into sections or district unions, each with the duties of the géneral
Union.

Each local society pays annually 15 shillings as subseription for
expenses, including the price of a weekly newspaper (Co-operative
Societies Journal) intended to contain statistics and facts relevant to
the work of the societies.

Central Banks.—The want of a Central Bank for the use of societies
either in investing or borrowing was soon felt, for it was clear that
some societies will, at various periods, have too much and others too
little money, a Central bank would bring about an equilibrium.
Moreover, a well-established Central bank would be in a position to
borrow funds at cheap rates and thus provide for societies in need.
At first three Provincial banks were founded for their respective
groups, these again established a Central bank. This plan failed,
funds being limited to a credit of £7,500 obtained from a Provincial
Hulfskasse (Benefit fund), and the banks were finally closed as
contrary to the then law. The shares are personal, and cannot be
transferred without the bank’s consent. No societies are admitted
as members except those which fulfil Ratrrersen’s six primary con-
ditions, vz., (1) unlimited liability, (2) the intention of promoting
the moral and material welfare of members, (3) the narrowest
possible limitation of area, (4) absence of entrance fees, and smallness
of shares, dividends on which must not exceed the interest paid by
borrowers, (5) gratuitousness of administration, (6) the accumulation
of an inalienable reserve.

The Central bank, as far as pébdidlo, adheres to the same condi-
tions; it is, however, formed as an ordinary joint-stock bank limited
by shares, and its administration is partly paid; the bulk of
the responsible work is, however, undertaken by the committee of
supervision, which is wholly unpaid. The shareholders get dividends,
but not higher than the rate of interest paid to the bank—about 4}
per cent.—by its borrowing members ; it opener only with its own
membeys.

In order to procure funds, the Articles peanile (1) for the issue
of debentures (Pfandbriefe) with the permission of Government as
required by law, (2) for the receipt of deposits from members or the

* public, (3) for receipt of commission, and of the difference between

interest paid and received.

840 PROVISION Of BORROWING FACILITIES.

It appears that the bank is provided with sufficient funds from
the deposits of the local societies; these have always found more
money than they could dispose of, and this surplus can be deposited
with the Central bank at 4 per cent.; the bank lends these deposits
to societies requiring funds at about 4% per cent. with a small
commission. i

The bank is authorized to invest its funds (1) in accounts-current
with its members (societies), (2) in discounting bills and in loans on
pledge, (3) in mortgages or purchase of rent certificates, (4) in
immoveable property, (5) in paper issued or guaranteed by the State
or a commune.

The Central bank is doing a useful and increasing business; and
appears to be solidly based.

Other Unions have followed the Neuweid example in starting
Central banks, e.g., Westphalia and Hesse Darmstadt (Offenbach) ;
the Articles, conditions and operations of these are similar to those
of Neuweid, but the Offenbach bank is somewhat more liberal in
admitting as members societies which do not adhere absolutely to
the strict Raiffeisen principles.

In other Unions, the local societies utilize ordinary banks for the
deposit of their surplus funds and for obtaining credit.

In Hanover a Co-operative Banking Corporation (Limited) had
been formed under the’ law of 1889.

It has been objected that these banks being specialized for agricul-
tural loans, operations would fail, since they would have to receive
and disburse money at given periods, ¢.g., after harvest and before
cultivation, and would not be able to maintain an even current
of business. The result, however, proves that these special banks can
maintain their position, and though no great profit is made, this is
not their object; they were formed as a channel of communication
so as to maintain an equal financial level in the various local societies ; ;
this object has been successfully achieved.

Resume.—There are then in full operation a vast: number of very
small, autonomous, village loan societiess, of unlimited liability and
wholly rural, if not agricultural, drawing funds largely from the
savings of their members, cheaply, almost gratuiteusly administered,
aiming at the moral as well as the material development of their
associates, teaching them the use of credit and guarding them against
its abuse. These societies, originally isolated, are now linked in

a>

PROVISION OF. BORROWING FACILITIES. 34]

Unions or groups for mutual support, inspection and instruction, and
in order to equalise their funds and provide, if necessary, other funds,
a Central bank has been started for each Union which receives and
distributes the deposits of the societies which form its sole clientele
and body of shareholders. These Central banks have wisely provided
in their statutes for obtaining funds ad ertra, chiefly by the issue of
debentures and receipt of deposits, but have not yet had occasion to
do so. It is strange if in this organism of village societies, autono-
mous and independent, yet, as members of one body, linked to, and
supported by, Central directorates and banks, there is not a seed which
may take root and grow in Indian soil, as it has done in Germany,
Austria and Italy.

Differences between the Schulze Delitzsch and Raiffeisen Societies.—
There has been almost, from the first, a regrettable controversy
between the two classes of societies, or between their
principal men, a controversy amounting almost to party _ strife,
and as unnecessary as bitter, seeing that both classes are indepen-
dently useful. It is advisable to mention the points at issue in
order to assist the future practice of this country.

Both philanthropists started with the same idea, vzz., that of
_ providing cheap capital for those, who were debarred from it by its
enormous cost, cheap credit for those, who were exploited by the usurer,
their object was to supplant the individual lender by the organized
bank. Both saw clearly that thrift is at the base of any possible
system ; only persons who showed themselves able to save were deemed
worthy of credit; saving, moreover, as the only basis of capital,
is a sine qua non. Here, however, the two systems diverged ; ScHULZE
Dexirzscu began to foster thrift by rewarding it with dividends and
and profits as high as possible, thus placing the interest of borrowers
in opposition to that of lenders ; Rairretsen placed the interests of
the borrowers first and allowed no dividends. The difference is
considerable, the former tend to become joint-stock societies, in which
investments seek high dividends, some societies declaring dividends
— to mempbers of 30 or even 56 per cent. (Woxrr), a result hardly
commensurate with anything but usury; the latter preserve intact
the co-operative idea of mutual help, and yet are eminently successful
both in attracting abundant deposits at market interest and in_help-
.ing borrowers, the interest of all members is that of the borrowers,
actual or possible, and there is no antagonism between investing and

342 PROVISION OF BORROWING FACILITIES.

borrowing members. It must be remembered that Rairretsen aimed
directly not at the mere material benefits of association, but at its
moral and educative results; thrift was to be promoted not so much to
make a man wealthy as to make him a better moral agent, a better
member of society: he regarded mutual help, the bond of Christian
charity, as the cardinal principle, and the necessary result of his
system; Scnutze De.irzscu looked more to the material, RairrEishN
to the moral and social, results; the former used association to enable
the individual to struggle to the front, the latter used the co-opera-
tive principle not merely for the individual, but as a beneficent method
of increasing the common happiness and welfare. This difference is
important, since the desire for dividends leads to speculation for the
purpose of increasing profits, especially where directors are rewarded
by a percentage. In Madras the Co-operative Funds tend too much to
diverge from the co-operative idea of brotherly help, towards that of
profits upon investments or as a reward for management. The true co-
operative principle worked out in banks is, according to Si1@Nnor
Luzzarrt’s idea, “a bank with fixed dividends on its shares and deposits,
all surplus profits going to the reserve ; when the latter shall be equal
to twice the capital, the shares are repaid, and all subsequent profits
are expended in philanthropic or useful objects.” (Rosranp) The
external profit in this case is that derived by the borrowers from the
cheap and. accessible capital which they borrow for productive or
useful purposes, the investors, at the same time, get a fixed dividend
of interest which is usually somewhat above that of State paper.
The corollary of these views is, in the Schulze Delitzsch societies,
comparatively large shares with considerable dividends and paid
administration ; in the Raiffeisen societies very minute shares—and
then only in obedience to the law—and no dividends but an inalien-
able reserve, and wholly gratuitous administration except as regards
the clerks.

ScHutzeE Duxrrzscu, again, started his societies at any given‘centre
with a wholly indefinite area of operation, the larger the area, the
better the chance of paying business. RatrretseNn, on the contrary,
lays down as an absolute rule that the area of operation must
be small, never exceeding that of a village. The difference here
is radical; in the former societies it is far less possible to know,

much less to influence, the members individually, to judge of their ‘

character and status, to supervise the employment of the loan; in the

an*

PROVISION OF BORROWING FACILITIES. 843

latter societies all members are acquainted, the bank’s clientele are
its neighbours; it can lend upon character, upon the status, both
personal and material, of the borrowers and their sureties. Usury
ean only be fought hand to hand, and it seems likely that only purely
local societies can sueceed—at least as regards the peasantry.

Other radical differences are as follow: in the Schulze Delitzsch
societies, which are largely urban, only short-term loans are granted,
three months being the rule with one or two prolongations; in the
Raiffeisen societies, whieh are wholly rural, long loans are the
rule, two or three years being the average, and ten years the ordinary
maximum. The former societies do not trouble themselves to watch
over the use made of the loan, though they satisfy themselves before-
hand that it is to be used profitably, the latter consider it essential
to see that the loan is used productively, and every three months the
utilization of the loans is examined by the committee of supervision ;
the former societies require repayment of their loans in lump,,. the
return being usually speedy, and the result of a particular operation
in trade, business or industrial contract, &c.; the latter take their
loans, if of more than a very short term, by instalments, per month
or per annum ; the former, lending only in short loans, have no rule
regarding repayment on four weeks’ notice; the latter insert, though
they hardly use, such a rule to provide against the deterioration of
property or the misuse of the loan; the former do an enormous short
term business with artisans, tradesmen and a proportion of agricul-
turists, the latter a far smallar but now rapidly increasing business in

long loans almost solely with agriculturists.

So much for the differences between the systems of the two great
founders of German co-operative effort. On the other hand, it) must
be pointed out that their common object was the strengthening and
raising of the poor by the means of self and mutual help (s’acder
et senter ’aider). They rejected mere benevolence in their methods,
for thovgh charity is a high virtue when applied by individuals to
individuals, it cannot, or rather does not, in our imperfect conditions,
succeed when applied to the relief of classes. Yet it was the main-
spring of their own action; Scuutze Dexrrzscu devoted himself with
such unselfishness to his philanthropie work that, though voted a
statue and a subvention, he left his widow in narrow circumstances,
while Rarrretsen, who might have pleaded sickness to inaction, used
his life so sympathetically and usefully as to win the name of “FatuEr”

344 PROVISION OF BORROWING FACILITIES.

RatrFreisEen throughout the country side. It is personal devotion alone
which effects great reforms among the poor and helpless.

Popuntar Banxs (Luzzatrt).

Objects and Character.—The following extract from No. ;427 of
the Foreign office Report explains the objects and character of these
banks :—

* Like the Credit Unions founded in Germany by Scnuutzer, the
Italian Co-operative People’s banks are simply associations, by, means
of which artisans, peasants, small tradesmen, and, in fact, all classes
of persons who, though honest and intelligent, could not otherwise
obtain credit without submitting to every form of usury, combine to
establish a local self-governing institution of credit to meet their
requirements.

“They are based upon the principle of self-help, and aim at
developing habits of prudence aud thrift in their members, by
providing them with a profitable means of investment for their
savings, while they seek to put down usury by the facilities which
they afford for obtaining loans and advances of money at a reasonable
rate of interest.

“The members, being at once the proprietors of the bank and
its clients, have a direct interest in its making a profit, and a sufficient
inducement to keep the rate of interest charged on loans and advances
within proper limits.

“The pecuniary interest of each member in the association,
through the shares subscribed by him and his contribution to the
reserve fund, offers a material guarantee for the punctual repayment
of his debts to the bank, and a mora/ guarantee is created by the
restrictions imposed upon the admission of new members, and the
sale or transfer of shares, which must be submitted to the board of

G

directors for approval.
“Tn connection with this subject, Stanor Luzzartt observes that

‘in an ordinary joint-stock company the member’s money is the main
> ° . . + . . e

object considered ; but in a co-operative credit association the person

of the shareholder is of much greater importance than the share

itself, since in the latter society the moral worth of the persons who

compose it, united as they are for the purpose of obtaining, by means

of co-operation, the credit which they would not find in other

PROVISION OF BORROWING FACILITIES. 845

institutions, supplements and completes the material worth of the
shares, which are accumulated gradually, and even in some cases by
weekly instalments of a few centimes.’

“Tn order to secure the efficiency of such a moral guarantee, it is
most desirable that the members of the association should be well
known to each other, especially during the early period of its existence,
and that the bank authorities should maintain a strict supervision
over the granting of loans and advances.

“The area in which the operations of the bank are carried on
must therefore not be too extensive, so that its members may have
frequent opportunities of intercourse with it and with one another, and
be able to take an active part in its management without personal
inconvenience, and Sienor Luzzarz1 accordingly recommends the
conversion of branches of existing banks into independent institutions,
whenever their condition is sufficiently flourishing to justify such a
course, as well as the foundation, in large centres of population, of
small independent banks, side by side with those already established.”

44

[Letracts from Sir BF. A. Nicholson’s Report pp. 249-72.)
Manpras Loan Societies (Funps—Nrpuis).

The leading idea of these Nidhis is mutual eredit;a certain
number of men form a company under the Companies’ Act, and
attract other members ; these pay a monthly subscription for a given
term, at the end of that term affairs are wound up and profits
divided. Members may get loans from the society, repaying them
with interest by monthly instalments. The idea is sound, but requires
development ; at present they are of very limited scope and fulfil
merely the object of the similar class of Building Societies of Great
Britain and the United States, on the model of which, even to the
verbal adoption of their rules, they have been founded. It is curious
that these societies, as their history will show, might almost have
been developed directly from indigenous practices, vzz., from the
Kuttu-chit system, a fact which forms a striking argument in favour
of the suitability of the Fund system to the presidency, and gives
promise of its great future development as a method of thrift and
credit. The enormous development of the present system in England,
and especially in the United States, where it appears to be rivalling the
Savings Bank, is a proof of its general suitability to small folk, and
it can probably be adapted to suit rural and agricultural needs.

History.—The Nidhis, as now found, originated in Madras, in the
Fund called the Sadar Court Fund, open to officials only ; it seems to
have been started about the middle of the century. But the founda-
tion principle, vzz., that of association for mutual credit, is found in
the indigenous ‘Kuttu-chittu’ system, whichis universal throughout
the presidency.

This latter system depends upon (1) association, (2) confidence.
(3) honest dealing, and its universality speaks highly for the general
honesty of Madras villagers, for the power of the village and caste
system to prevent fraud, and for the possibility of a development in
Madras of European associations based upon similar principles.
Briefly it is as follows; a number of men unite to subscribe periodi-
cally a small sum each, say 50 men agree to pay Re. 1 per month for
fifty months; each month Rs. 50 are subscribed, and lots are drawn
for the total sum ; the winning lot takes the pool; next month the

PROVISION OF BORROWING FACILITIES. 347

same fifty subscribe, but in drawing for the pool previous winners are
excluded ; this continues for the whole fifty months till each subscriber
has received Rs. 50. This practice—a necessary system where there
is no such thing as even a Savings Bank, and where deliberate hoard-
ing for many months or years is a most difficult operation—gives men the
use in lump of a considerable capital, repayable by small and easy
instalments; it is most useful for building houses, starting a shop,
buying a pair of cattle or piece of land, &c.; it is clearly the result of
the village self-contained system in a country devoid of banks and
communications, and where permanent emigration, even to other
districts or villages, was still of late perfectly unknown. It is said
that, whether from honesty or fear of the consequences, tke system
is never. abused by winners prematurely withdrawing from subscrip-
tion. It will be observed that there is nothing of a lottery in this
proceeding ; the element of chance appears only in the order in which
the subscribers obtain the pool ; every subscriber obtains it in turn,
it is not a gambling transaction in which one person obtains a given
sum by mere chance to the /oss of others; it is no more a gamble than
the drawings by which in England, as in Europe, it is decided what
particular debentures shall be paid off.

A further development, however, is next found; the subscribing
members, or more usually the promoters of the Fund, desire to obtain
definite and increased profits for themselves, drawn from the need of
the subscribers ; instead, therefore, of drawing for the pool, it is put
up to auction in lump or in lot; the lowest bidder takes the amount,
that is, the one who bids the lowest sum below Rs. 50, say 40, obtains
only that sum, but gives a chit or promissory note for Rs. 50, the
difference, Rs. 10, is divided as profits among the other members.
This is similar to the Building Societies system, where loans are
knocked down at auction to the man who bids the highest interest,
or the largest premium ; in both cases it is apt to become an exploita-
tion of need or of recklessness, the man most in need of money has
to pay as high as possible for the accommodation. It has been
common in India, as elsewhere, to get up societies for the sole purpose
of providing the promoters with a living; the so-called “ directors”
get together the subscribers, and withhold Rs. 2 in every 50 rupees
as their own remuneration ; these are not regular village or communal
institutions but outside speculations: in some cases, the borrowers
consequently defrauded the promoters by refusing payment, knowing

348 PROVISION OF BORROWING FACILITIES.

perfectly well that it would not pay their creditors to sue them in
Court, at a distance of perhaps 20 miles, for sums of only Rs. 20 or
Rs. 25, hence the bankruptcy of some such Unions. These Unions

are useful and legitimate, but when they are not sustained by village _

authority, by the power which a local community or caste has over
its individual members, they are very apt to fail, for human nature
can seldom pass the chance of a good thing at another’s expense if
there is practically no risk.

The first Madras Fund (Nidhi) further developed the system ;
about 1850 certain Court and other employes discovered that they
were being ruined by usurers, and determined to start a Fund to give
persons of fixed income a chance of borrowing at equitable rates.
The model selected was the English Building Society so-called. Why
this particular class of society was adopted, or who suggested it, is
not known, but it is clear from the rules and methods of the Nidhis,
which reproduce, in many cases verbally, the rules and conditions of
the English exemplars, that some keen-sighted man discovered the
suitability of the Building Society to presidency needs; possibly the
original idea was actually to provide houses for subscribers. The first
Fund was a ‘Terminating’ Society with a seven years’ period; each
subscriber agreed to pay for eighty-four months, when the Fund
would be wound up and shares repaid at Rs. 1024 per 84 received.
From the collections loans were granted to members at 6} per cent.
interest with penalties for delay ; the loans, repayable by the monthly
subscriptions, were usually on mortgage, and the order of granting
them was determined by lot; the cost of establishment was met from
the penalties and from a charge for commission. Branches were
subsequently started; these were found expensive, and it was
determined to make the Fund permanent, that is, a new series of
subscribers were admitted and shares opened every year, and finally
every month, so that there was a continuous influx and efflux of
members and shares. ‘

The Fund continued in much prosperity and favour till 1872, and
many others were started in Madras in imitation of the original ;
some were genuine Mutual Societies, some were for the benefit of the
promoters and directors; some adopted the practice of selling their
loans to the lowest bidder, so as to obtain high profits; some charged
10 or 15 per cent. or other high interest on their loans ; as in the English
Loan Societies, a sound principle was often abused for the sake of gain.

PROVISION OF BORROWING FACILITIES. 349

But about 1872 it was discovered that the societies were all
illegal and had no civil status, not having been registered according
to the Companies’ Act, which, though for many years in force, was
unknown to the very companies which should have registered ; it is
a very peculiar fact that at the very head-quarters of trade, the
existence of the Act under which companies were bound to exercise
their trade was even unknown to them. The result of the High
Court’s judgment was the collapse of many societies; debtors
knowing that the societies could not go into Court refused to pay ;
even after registration the societies could not sue for acts done
before registration, and the result of course was liquidation. Some
were re-established and duly registered, but the loss to the various
societies was calculated at 20 lakhs.

Other abuses also crept into certain societies; the energetic
and honourable men who began the Nidhis died or retired, and in
some cases were replaced by unscrupulous, incapable or negligent
men ; subscriptions were misappropriated: in one fund many
thousands of rupees of profits were devoted to the payment of handsome
salaries to directors, promoters and staff ; many bogus societies were
started in Madras and in the mofassil for the sole purpose of enriching
the promoters by sheer fraud ; splendid promises were made and for
a while fulfilled, till confidence produced large subscriptions when the
“Fund” closed its doors; impossible profits, such as 2 rupees for every
rupee subscribed, were promised ; these sham companies even got the
nickname of ‘Lubbuck’ (literally, gulping or devouring) funds, and
were a disgrace to the community, and a source not merely of
immediate loss, but of much subsequent distrust of Credit Societies.
tad “3 * A large number were started and closed to the ruin
of many investors. The following table gives particulars from
1872 :—

Average number

, Period. annually
in existence,
1872-77 Ye chs vy 37
1877-82 a hs sty 68
® 1882-87 fa af 3, 157
1887-92 ati vi ine 186

In 1872 there were 20 Nidhis ; 93 in 1882 ; 269 in 1886-87 ;
and 135 in 1891-92. In the five years ending 1892 no less than
260 societies disappeared, 181 of which were in Madras town alone.

350 PROVISION OF BORROWING FACILITIES.

Doubtless many of these were the irregular and often fraudulent
Benefit and Insurance Societies deseribed in the papers read in
Government Order No. 3368 Judicial of the 7th December 1885,
where one person is mentioned as “director” of six Funds, though he
had been “at least thrice punished for theft, misappropriation, &c.” ;
another was a petition-writer, and so on ; these were started, received
subscriptions and disappeared, the “benefit” being only to the promoters.

For the present study the winding up reports of 70 regular Loan
funds taken at random from the registrar’s records have been
analysed ; 42 fell because of the failure of subscribers, especially
those who had borrowed, to pay their dues, probably owing to laxity
and mismanagement; 9 fell because of the misconduct or
fraud of the secretary or other officers; 9 simply decayed,
getting no business; the rest from various causes; natural
expiry being the reason in only 38 cases. Abuse of powers and
embezzlement by the secretary, absolute negligence by directors of
the rules of the society and of business methods, disregard by
directors of the share-holders, the falsification of accounts and records,
dishonest withholding of repayments by borrowers, and negligence
in subseription by non-borrowing members, are the chief features of
these reports.

The notorious case of a certain “Bank” quite recently started
under most excellent auspices in Madras is well known ; the rules
provided especially for audit, and yet the funds disappeared almost,
from the beginning ; the resolutions of the general meetings and the
petitions put into Court and the proceedings in Court disclose
extraordinary laxity and negligence.

The history is very instructive ; it shows that, in the infancy of
a movement, the energy, devotion, zeal and honour of the early
promoters may suffice to thoroughly establish a paying business on
just and honourable principles ; that success means ready imitation ;
that in the imitations and even in the originals there is no intyinsi¢
guarantee that the high principles of the original promoters will be
sustained ; that if the principle of,“/azsser faire’ be allowed free
course amidst a needy population, much too ignorant of business
to be able to guard their own interests, that principle will be abused ;
that the mere fact of laws, even if suitable, being in existence, is
insufficient, unless there is a specific authority whose special duty it
is to work or supervise the working of those laws.

PROVISION OF BORROWING FACILITIES. 851

The above has been simply a sketch of the development of the
Fund idea; as regards the Nidhis themselves, it is found that they
have been prorhoted either by a philanthropic desire to relieve men
from usury and provide a means of saving either for specific purposes,
such as marriages, house-building, &c., or for general thrift, or by a
hope of obtainig profit for the promoters, or by a mixture of both
expectations. Individual energy has always been the proximate
cause ; merchants, officials and vakils have, in most cases, been the
active promoters. Sometimes public meetings were called or printed
notices issued, but generally it appears that the society developed by
simple accretion, not—after the first effort—by an active in-gathering
of members.

The history and general principles of these Nidhis having been
given, it will be well to describe them further under the following
heads, véz., (1) objects, (2) principles and constitution, (3) methods,
(4) Government intervention, (5) results, (6) advantages, (7) defects,
(8) difficulties.

Objects.—These are described as the facilitation of savings, the
relief of members from old debts, the deliverance of them from usury,
the accumulation of a fund for special purposes, such as marriages,
the grant of loans on good security for all purposes, whether for
domestic ceremonies or maintenance, for expenditure on jewellery,
on house-building and repairs, on land, &e. Members alone are
generally contemplated, but, in fact, surplus funds are frequently
lent in small lots to outsiders at a somewhat increased rate of
interest ; in such cases the material security must be carefully looked
to, since the society lacks that derived from a borrower’s membership.
An unexpressed object is also the provision of salaries or profits for
the promoters, directors or officers—a perfectly legitimate object, but
one that is apt to interfere with benefits to borrowers and members, and
tends to departure from the strict rules of the society. The receipt
of deposits is not usually a primary object, in some societies it is only
of subsequent introduction; in hardly any has it obtained any
considerable position. It will be seen that the scope of the societies
is limited, they are not Banking societies so much as Mutual Loan
societies, and they thus fail in one great function of banking, vvzz.,
the concentration of idle hoards for productive purposes.

Principles and Constitution.—Classes of Society.—There are
several classes of Funds, the regular permanent Nidhi, the

352 PROVISION OF BORROWING FACILITIES.

Terminating society, the Chit associations of various sorts, and
the Benefit societies. Of the Terminating societies there is one
which is thoroughly rural, its promoters are village residents, none of
whom knows English, its clients are largely agricultural, its original
term was for seven years, on the expiry of which it was wound up
with anet book profit of Rs. 2,400, of which seven-eighths would,
when realized, go to the directors; about half was still outstanding.
The society was re-started immediately on a much larger seale
’ embracing distant villages, and is therefore likely to be largely
defrauded or to lose heavily. The Chit associations calling themselves
Nidhis vary in method, in one town the method is as follows: each
100 members form a class or group; these subscribe 1 rupee each per
week; from this Rs. 100, Rs. 5 are deducted as commission to the
directors, and the balance, is put up to Dutch auction: the bids go as
low as Rs. 74. The difference between Rs. 74 and Rs. 95 is divided
among the 100 members of the class. The borrower executes a
bond with sureties for the whole sum and repays it by the usual
weekly subscription. No interest is charged, but the premium and
commission amount to very heavy interest. In case of failure to
repay asuit is filed; one of these Funds, started in 1890 at the
head-quarters of a District Munsif’s Court, had, in less than three
years, filed 150 suits; another started in 1891, had filed nineteen in
twenty months. The Benefit societies are those which provide
money for various domestic and social occurrences by means of
subscribed shares, some are, or were, Insurance secieties ; these have
mostly died out, and the so-called Insurance societies described
in Government Order, No. 33808, Judicial, dated 7th December
1885, would never be tolerated under the control of a proper
law. These societies do not come within the scope of the
present study. ,

The central structure of an ordinary society is that of a terminating
society consisting of a maximum number of shares which are paid
up by regular monthly subscriptions and terminate with the period
for which the society is founded. The society is wound up at the
end of the given period, say, forty-five or eighty-four months
approximately, each member takes one or more shares for which he
pays at the rate of (say) 1 rupee per month ; at the end of the period he
will have paid up Rs. 45 or Rs. 84, and will be credited with this amount. ‘
plus profit, a share on which Rs, 84 have been paid in eighty-four

PROVISION OF BORROWING FACILITIES. 3538

monthly subscriptions is usually repaid at Rs. 102-8; the period
may be a little less or a little more than the nominal, terminating
whenever the shares reach the determined value. It is usual, however,
now to make the societies “permanent’”’, that is, fresh series of
shares are periodically and frequently issued, and itis these only and
not the society which are wound up as each series matures, so that
subscribers are continually coming in and going out; this prevents
the accumulation of idle funds at a loss of interest as the termination
of the period approaches, in order to pay off non-borrowing members,
and also permits the entrance of members without the payment in
lump of a erious and often prohibitory mass of back dues, it being
only necessary to pay such as are due for the prior months of each
particular series. It is, however, usually necessary, as each series
approaches maturity, to attract deposits at perhaps 74 per cent.
per annum, in order to pay off matured shares: these deposits are then
repaid from future subscriptions, to the detriment, however, of the
lending power of the society.

All the societies are called “ Limited”; this word is frequently
not even understood by the societies, which in many cases have
explained that the word means limited to a certain number or to a
certain value of shares. Since business is almost limited to the grant
of well-secured loans to the maximnm amount of the share values,
there is no real risk to any member in a decently-managed society.

The essence of the society is mutuality ; itis a group of men
united to help one another by a common contribution of funds which
are to be lent out to members only for their sole benefit, all profits
derived from the transactions are to return to the members, so that
all benefit: the non-borrowing members by the receipt of profits, the
borrowing members by the use of the loaned capital and by a portion
of the profits which they have contributed to the society. That is
the theory, and with the exception of the British Friendly societies,
the British and American Building societies, of which the Madras
Nidhi is a copy, and the Raiffeisen and Wollemborg Rural Credit
Unions, fhere are no societies in the world more thoroughly
co-operative in theory. It is, therefore, greatly to be regretted that,
through want of guidance and explanation, through the total absence

, of any teaching in the idea and methods of co-operation, through the
fact that the only societies available for imitation in this country are
trading joint stock companies, through the personnel of many of the

48)

~

354 PROVISION OF BORROWING FACILITIES.

promoters and directors who are Madras business men, through the
natural and in this case undiverted desire for gain, and lastly through
the fact that the only law governing societies is a Commercial or
Trading Company law, these essentially Co-operative societies have
largely diverged, and are daily diverging more and more, in the path
of mere trading societies. The same tendency is observed in the
Schulze-Delitzsch societies in Germany, and the inference seems
unavoidable that if profits, dividends, and large stipends or honoraria
to directors and office-bearers are put forward as attractions to members
and administrators, the effort after them will soon become dominant,
and substitute the competitive strugele for the co-operative march.

Methods——Under this head will be described the general
working of a regular Nidhi, its clientele and administration,
its funds, loans, &e.

Clientele—In most cases the Nidhis have been started in
considerable towns, Trichinopoly, Coimbatore, Salem, Bellary.
Tadpatri, &c., by the official, professional and trading classes; the
main rule of the Nidhis, viz., the regular monthly payment itself
shows this. It is these classes who are most likely from their
intelligence, knowledge and requirements to begin associations of
this class. Accordingly it is found that the proportion of members
of these classes is, up to date, altogether overwhelming ; the following
table for the thirteen Nidhis which alone have given information as
requested, brings this out clearly :—

a , B
~ 2 Ey 2 AGRICULTURISTS
NipuI 5 | a] 8 2 & Others VEAP
Pe & B a ee = TOTAL.
fo) = g 2 < | Big | Small |Torat.
12 Mofassil [1,084 287 /1,151| 766 | 257 | 200| 3849 | 549 474, 4,669
1 Madras /1,172| 217 | 628 | 46 | 235 81 93 | 174 545 3,017
Total |2,256| 504 |1,779-| 812 | 492 | 281 | 442 | 723 1,019 r 7,686

In this table the principal and working profession of each member
is given, ¢.g.,a vakeel is a professional man even if he owns land,
“merchants” include money-lenders and _ shop-keepers, “others”
includes pensioners who are numerous. It will be seen that the
four classes of officials, professional men (vakils, school=masters,&c.),
merchants and shopkeepers account for 5,351 out of 7,686, or nearly

a

PROVISION OF BORROWING FACILITIES. 355

70 per cent; even in the twelve mofassil Nidhis they are 3,288 out
of 4,669, or slightly over 70 per cent.; agriculturists proper are
only 723, or 9°4 per cent. It is clear, then, that the Nidhis of this
presidency have so far reached only the official, professional, and
trading classes of the towns with a few agriculturists, most of whom
also live in the towns. However well adapted their general
principles may be to the conditions of this presidency, or
however capable of development, the Nidhis have not, during
their forty years of existence and twenty years of extension,
been able to provide the Madras ryot with any appreciable
help.

As a rule there is no condition as to admission except
nationality ; most admit only caste Hindus; some (Madras town)
only Europeans or LEurasians. There is but a single, and that
a very small, Mahomedan Nidhi in the whole presidency, Madras
city included, and the ordinary Hindu Nidhis do not admit
Mahomedans, because of the difficulties arising out the
Mahomedan law of inheritance. Directors generally have power to
refuse admission—a very necessary faculty—so as to keep out
objectionable characters. There is no general condition, however,
as to character, status, &c.; any man who is willing to abide by the
rules, and pay his monthly quota regularly, is an eligible member.
The responsibility of members is “limited” to the maximum value
of their shares; in most Nidhis no single shareholder can hold
more than a certain number—usually twenty, twenty-five or
fifty—of shares, only in one—a ‘Commercial bank’—is there no
limit, and the maximum held in that society by any one member is
165 ;in one society 100, and in two others 300, is the maximum
allowable. This rule may be evaded by taking shares in the names
of relatives. As however—the Nidhis as in Europe, proceed on
the democratic principle of “one man, one vote,’ irrespective
of the skares held, they avoid pro tanto any plutocratic preponder-
ance in the governing power.

As a rule Nidhis have but one office, only a very few have
branches ér agencies; the Hospet Jaya Lakshmi Bhandara has a
sub-agency and three branches ; the sub-agency is an agricultural
Nidhi, practically independent of the original, but the branches work
‘unter the control of the latter. Here again, they resemble the general
run of the German and Italian Credit Societies. |

356 PROVISION OF BORROWING FACILITIES.

Admimistration.—A Nidhi is usually formed by a few intelligent
persons, generally officials and professional men, uniting to the
number of seven at teast, and framing or borrowing a Memorandum
and Articles of ascociation ; these subseribe a few shares fully paid
up, with which to defray preliminary expenses and registration fees ; a
prospectus is then issued, and a meeting called by public notice to
explain the nature and objects of the Nidhi and a list is opened for
members. This or a subsequent meeting appoints the directors and
oflice-bearers, who are, asa rule, of course, the original promoters
of the Fund.

General Assembly,.—Theoretically, the source of power is the
members in general meeting ; they elect directors, auditors, &e., and the
directors report to them annually; in practice the directors and office-
bearers, especially secretary, are the real society, being, practically, the
only ones cognizant of business and of the affairs of the Fund. _When
the general meeting does attempt to exercise power, experience
alleges that it is frequently used badly and ignorantly, a mass of
ignorant voters are won over to dangerous business, to mistaken
appointments of directors or auditors, unconscious of the true duties
of such officers, or of the proper scope of genuine and safe business.
The power in Madras and neighbouring districts is generally exercised
on the “one man, one vote” principle, hence, the experienced director
of many years’ standing has precisely the same theoretical value in
the meeting as the newest joined lad or the old market woman with a
single share. ‘This is the strictly democratic principle adopted in
the Popular banks and Credit Unions of Germany and Italy, which
is found to work very well, the power thus given to the mass of
members, 7. ¢., to the mass of borrowers, tends—but only tends—to
prevent any diversion of the aims or funds of the society towards
speculation or towards private interests, or any monopoly, of the
administration for purposes of private gain by capitalist shareholders.
In the United States, however, it is common, - perhaps géneral, to
allow one vote per share, it is argued by writers of the greatest
experience that though the “one man, one-vote” principle prevents a
few shareholders from combining to control the association, yet, on
the other hand, it allows ten men holding one share apiece to have
the same voting power as ten men holding ten shares apiece (S.
Dexter), and it is evidently considered that a universal and equal vote
is, n business matters, a dangerous vote. It is interesting that this

PROVISION OF BORROWING FACILITIES. 5357

should be the case in the great republic, and shows a curious
divergence between the views of business and of politics. It is right
to add that a limitation in the number of shares to be held and votes
to be given by each share-holder is recommended, also that another
American writer of great experience in Building societies (E. WricLEy)
considers that the stock vote (as many votes as shares) is bad in
principle, as “it gives the preference to capital over brains and
experience ; it gives the richer members power over the poorer ones ;
it tends to destroy confidence, and often leads to fraud and oppression ;
it is a great aid to dishonest management and the bane of large
corporations of the present day.” In certain important groups of
mofassil Nidhis, it is customary to allow one vote for every share up
to ten, and thereafter one for every five ; this gives a preponderance
of power to wealthy shareholders, who moreover are generally thuse
who mostly attend general meetings ; these usethe Funds as investments
and are often directors. Hence there is a tendency to run these
Funds as joint stock companies for the benefit of investors and
towards the development of dividends, and this is much complained
of by many members. The complaint is precisely that the Fund,
under this principle, falls into the hands of a few people who manage
everything with a view to their own interests. Experience seems to
tend towards the adoption of a modified democratic method ; some
Nidhis and many experienced members state distinctly that the
“one-man, one-vote”’ principle is folly, in that the ignorant, unbusiness-
like and improvident have the same voting power as the intelligent
and prudent business man, with a large stake in the society. To
which, however, there is the reply that the poor man is very often as
prudent as the rich ; that his solitary share may be his all; that he
is more likely therefore, to insist on prudent management free from all
speculative bias, and above all that he is more likely to insist on
cheap credit rather than aim at high profits. Theexperience of
Kurope is in favour of the democratic principle in these societies ;
even poor members thus learn to take a lively interest in a society
where their vote is so important, and it is considered that so long as
men do not grow wise in proportion as they grow rich, a Mutual
association should adhere to this principle, as more consistent with
the co-operative formula that a society is an association of men rather
than of shares. It is possible that, as in some Nidhis already, a
middle way may be found, e.., in one Fund one vote is given for

358 PROVISION OF BORROWING FACILITIES.

every five shares with a maximum of four votes ; in another the
maximum is sixteen. Possibly a maximum of five votes, ¢.g., one for
every five or fraction of five shares up to twenty-five would prevent
all undue preponderance of wealth while giving to the experienced
men, with a considerable stake in the Fund, sufficient voting
power to prevent ignorance and inexperience from rash resolutions.
The single vote system seems successful in Europe, and is based on
the true co-operative principle ; the unlimited stock vote is generally
condemned. In Madras and in the mofassil some of the most experienced
men disbelieve altogether in the existing voting system, whether the
individual or the stock vote system. They recommend that the
general meeting should not consist of all subscribers, especially when
the society becomes a large one; a really representative meeting
would, in such case, be too unwieldly to manage, while a door is
opened to great abuses whenever matters of importance, elections, &c.,
are concerned. hey recommend either a resort to intermediate
bodies, each member of which should represent a group of subscribers,
or that the general meeting should consist only of shareholders holding
above a certain minimum number of shares so that the mass of subs-
cribers have no votes, but enjoy all other privileges. Possibly this latter
plan may be advisable in cities with very large societies, but for small
societies the individual or the modified stock vote system seems
preferable as giving all persons a working interest in the society.
It has also been suggested by very experienced and disinterested men,
one being chairman of a large Fund directed almost gratuitously,
that the executive power of a general meeting should be removed
altogether ; 1t should be a mere meeting to receive and adopt reports ;
the real control should be exercised by a board of control of twenty
to twenty-five members, chosen at the first general meeting from the
men of highest reputation, who would hold office permanently, all
vacancies being filled up by the board itself ; this board should control
all the operations of the managing committee. Such a_bozerd of
control was, in fact, in existence, it is said, in the old societies of this
presidency, but has for many years been abolished under the ideas
engendered by the Joint Stock Companies’ Act. The propose is, to
a certain extent, parallel with the practice in the old Land banks of
Germany, where the general meeting is of rare occurrence, its place
being taken by a council of delegates; it exactly recalls also the
universal committee of supervision in Europe, which, in every society,

ae

ee

PROVISION OF BORROWING FACILITIBS. $59

controls the work of the managing board, and safeguards the cause of
the society.

It is, of course, open to Funds to frame Articles as they please in
any of the above directions.

The directorate usually consists, at least at first, of the most
experienced and influential men, retiring, as usual, by rotation, but
re-eligible. They are now almost always paid, either by a share in
the net profits, after the guaranteed interest has been distributed to
members, or by honoraria settled at the general meeting ; they usually
get sitting fees also. In some the directors are paid at a fixed and
often avery large proportion of the profits, in others according to
the number of meetings they have attended. In the largest mofassil
society working rather as a bank, the president and directors work
gratuitously, while the secretary, auditors and appraisers each get an
honorarium settled at the general meeting ; the staff, of course, is
always paid by salary. In Germany the directorate of the Schulze-
Delitzsch banks is usually paid both by salary and by a share in the
profits ; in Italy this was also the case, but Signor Luzzarri strongly
recommends—and the suggestion is now largely adopted—that their
services be given gratuitously ; in some of the very largest banks,
é.g., Milan, this is pre-eminently the case ; in the Raiffeisen and
Wollemborg Loan societies a// services are gratuitous except those of
the accountant. It seems to be the rule that in these co-operative
Mutual Credit societies in Europe, and in the United States, as also
the case of the English Trustee Savings banks and Irish Loan societies
under the Act of 1843, the directorate gives its services gratuitously ;
the Schulze Delitzsch societies are the exception, and the express
complaint made against them is that they are tending towards the
position of mere Commercial societies, and losing their “mutual”
character ; the desire for large profits, and consequently larger
“tantiemes’ to the directors, is not merely keeping up the rate of
interest; but diverting the societies from their true role of assisting
and guiding the poorer classes. This complaint may or may not be
well founded ; the desire for profits does bring about exactly such
results in general, and there is a very strong feeling among the
promoters of Mutual societies that dividends other than fixed, and
wages depending on dividends, are a mistake ; fixed interest and, if
nécessary, moderate honoraria for expenses out of pocket, - are
recommended,

360 PROVISION OF BORROWING FACILITIES.

Now it is curious that in the earliest societies of Madras (1852)
directors did give their. services gratuitously ; the objects of the
Funds were declared to be “mutual benefit,” and the most enlightened
and public spirited of the members undertook the promotion and
direction of these societies for the public good without reward save
that of their conscience. It is now made expressly an item of
complaint that a strugele for profits and stipends has replaced the old
philanthropic public-spirted sense of devotion ; that the emoluments
of directors have been, hitherto, steadily on the increase, while the
posts themselves have become the objects of scramble and intrigue,
votes being even purchased, it is said, from the ignorant mass of
members ; some assert that the class of directors is deteriorating as,
indeed, is probable if office is to be chaffered for. If it is argued
that men require pay for increased work, it is replied that by far the
most arduous work was done in founding and nursing the societies at
their start, not in the mere carrying on of a somewhat greater volume
of business ; that the later history of the Nidhis does not show a
better class of work than the older, while, in fact, the paid directors
have often shown the grossest negligence and incapacity. One large
and flourishing society, in fact, though already directed at very low
rates, has proposed to abolish directors’ fees with the express intention
of stopping this divergence from the “mutual” path ; the proposal
has, however, not been carried ; another large society has reduced it
directors’ fees by one-third. These facts indicate a growing perception
that the initiative idea of the societies has been departed from. It
may be useful here to point to Europe where, as in the Popular and

Savinge banks of Italy, especially, Milan, or as in the great Trustee _

Savings banks and Friendly societies of England, or the Building
secieties of the United States, an enormous mass of high class work
is done without a thought of pecuniary reward by men of great
ability and of engrossing private business, who yet give freely of
their scanty leisure. ;
Directors are responsible for all money belonging to the share
holders, but only occasionally is security demanded from them either
direct or in the shape of inalienable shares as is invariably the case in
Europe, where every director and permanent auditor (censeur)
must hold a number of paid-up shares, which are inalienable, are
specially marked in evidence of this, and are deposited in the company’s
safe. Only the above-mentioned bank has such a rule; in that,

—

PROVISION OF BORROWING FACILITIES. 361

each director, though working gratuitously, is bound to hold twenty
paid-up shares, value Rs 1,000, on which he cannot borrow ; the
secretary (or manager) must similarly hold 100 shares, value Rs 5,000 ;
which are held by the society as security ; the treasurer holds shares
and has given other security for Rs. 5,000. Some Nidhis require a
certain number of shares as a qualification for the directorate, but
there is nothing in the rules to prevent such directors from borrowing
on such shares.

There does not appear to be any rule, as is general in Germany
and Italy, against directors borrowing from the society ; in one Nidhi
the directors may not borrow upon the shares held by them as
a necessary condition of office. In the Building societies of England
and America (with exceptions, e.g., California) and the Nidhis of
Madras, the directors have all the rights of ordinary members, whereas
in the Co-operative banks of Continental Europe, their position is
generally held to entail many duties and responsibilities and to debar
them from the privileges of credit, exeept under special safeguards.

Auditors.—In most Nidhis audit is, of course, very simple matter,
but the larger ones, with thousands of transactions to the value of
lakhs of rupees, require most careful auditing. It is usual for the
rules to provide permanent as well as special auditors ; the former are
appointed for a year or term of years, the latter annually ; the former
are intended to scrutinize the accounts and securities very frequently,
viz., daily, twice a week, weekly, monthly, &c., according to the
Nidhi ; the latter conducts the usual annual examination. Some
Nidhis adopt the plan of disallowing any director from being an
auditor ; in others, the permanent auditor is always a director or
member of the managing committee,

funds.—These proceed from the subscriptions of members chiefly,
and toa small degree from deposits ; the Nidhis do not borrow
except by deposits. In one society, which, however, resembles an
ordinary, bank, there is a capital composed partly of foundation
shares, fully paid-up, and partly of the ordinary subscription shares.

The funds derived from shares are, of course, limited to the amount
declared »by the statutes of the society. These shares have two
objects : (1) they are methods of saving and are investments ; (2) they
are means for (a) obtaining, and (4) paying off, a loan.

As investments these shares are very good; the lowest fixed
interest generally given is 64 per cent., vzz., 1 pie per month per

46

362 PROVISION OF BORROWING FACILITIES.

rupee paid up. To this, however, may be added additional profits
which in certain Funds amount to about 8 annas per share per
annum, equal to nearly 1} per cent. equated upon the average amount
at credit during a term ; hence a saving subscriber gets about 7} per
cent. per annum on his savings. ‘These shares prove, therefore, good,
and, if the rules are observed, a perfectly safe investment.

Their chief function in this country is, however, that of
obtaining and repaying loans ; as’a rule only members can obtain
a loan, and to become a member a man must take one or
more shares, every loan must be a multiple of the share value, e.g.,
if the matured share value be Rs. 100 and the loan be Rs. 500, the
borrower must take five shares ; the loan is then repaid by the simple
process of regularly paying his ordinary monthly subscriptions, pus
interest. It is in this insensible and gradual method of repayment
that one important advantage of the Nidhis resides.

Deposits —These are generally receivable up to an ordinary
maximum of Rs. 5,000 for any one account, the minimum varying
from Rs. 25. In some eases they are repayable at call, but this is
rare ; notice of fifteen days to one month is usually necessary ;
cheques are not generally in use, but a form of demand with the
pass-book as in Savings banks. Repayment of deposits must, by the
rules, take precedence of all other demands for funds, so that on a heavy
run loans would be impossible for a considerable period. In some
Nidhis only fixed term deposits for three, six and twelve months are
received. Some Nidhis only accept deposits from shareholders ;
generally, however, they are taken from any person offering. In some
Funds directors are bound to or do lend under the name of deposits
whenever the Fund is in need of ready money to pay off matured
shares, or to meet demands for good loans. Generally speaking,
deposits in the mofussil are made in large sums by a few people ;
they are not the petty deposits of the masses; in some Nidhis a
minimum, e.g., Rs. 25 is prescribed for each in payment. It is,
however, said that these deposits are in many cases made by money-
lenders ; not necessarily professional lenders, but persons who have
accumulated or inherited. money and utilize it in lending ‘on good
security. Some join as directors and deposit funds in order to
develop business, so as to obtain profits without individual risks and
trouble ; others are mere depositors. The connection of money-lenders,
at least of this class, with the Funds is noteworthy, especially as so

PROVISION OF BORROWING FACILITIES. 363

much of rural money-lending in this presidency is by the moneyed
classes rather than by Marwaris. Interest varies according to term
and bank ; 5 per cent. for ordinary deposits, 6 or 64 for twelve
months’ deposits, are moderate rates, and 74 per cent. is not
uncommon; in some societies three months’ deposits get 6 per cent.
and twelve months’ deposits, 9 per cent. In one society charitable
deposits get 104 percent. The ratio of deposits to capital is usually
small ; the highest proportion, with one exception, is one-fourth of the
nominal capital ; in many cases it is not above one-tenth to one-
thirtieth or even a much smaller fraction of the capital. No limit
to the aggregate amount of deposits is generally imposed by the
rules ; in one Madras case the deposits are three times the amount of
paid-up capital, but this is not an ordinary Nidhi, and is purely European
or Eurasian. The small proportion of deposits, considering the very
good interest paid and the apparent demand for loans is remarkable.

No special security is offered for deposits; the status of the
society p/us the reserve, 7f any, and any amount still due upon the
shares, are the direct guarantees ; this latter approaches zero as the
shares approach maturity, and where a whole series simultaneously
matures, deposits have to be attracted by high interest. Deposits are
more readily attracted to societies which lend ‘chiefly on mortgages
rather than on personal security ; depositors consider such a Fund
more solidly established and less risky than those where loans on
personal security are the chief feature, while the deposits themselves,
being lent on good mortgages, are unlikely to be finally lost. It is
probably the absence of material and solid guarantees for the repayment
of deposits which prevents their inflow ; the interest is far higher than
that of Government paper, and the directors of the bank are locally
well known ; high interest is evidently insufficient per se to attract
deposits. Itis also certain that with substantial and permanent
reserve and other guarantees, deposits would be attracted not only in
largersquantity but at cheaper rates; with Government paper below
4 per cent., it is difficult to believe that 6 to 74 per cent. is necessary
in Funds, if well managed, supervised, and guaranteed. A small loss
of intezest on a good reserve would be far more than recouped by
cheap deposits. Another reason for paucity and dearness of deposits
is the necessary delay in repayments.

The smallness and dearness of deposits, the want of definite
security for them, the difficulty of repayment in case of a run, and

-

~o

364 PROVISION OF BORROWING FACILITIES.

the disorganization of loan operations when deposits are withdrawn,
are among the weak points of these societies.

feserve.—This is generally provided for in the rules by an allotment
of from one thirty-second of the net profits after deducting all dues to
subscribers for repayment of principal and for guaranteed profits; such
allotment is usually trifling. It is also to provide by rule that this
reserve shall be broken up and divided in whole or in part every three
or four years ; on examining a large number of balance sheets, it is only
occasionally that a reserve is ever mentioned, and, where found, it is
usually extremely small. Small as is the reserve at its maximum (usually

only 1 or 2 per cent. of the capital), at certain periods it is either x27 or
infinitesimal. Moreover, the reserve is often laid outin charitable
investments, probably for the deity or temple which gives its name to
the fund ; that is not a legitimate use for a reserve.

Profits—In Mutual Loan societies, such as the Nidhis, profits
ought to be entirely subsidiary to the main purpose, v7z, the cheapening
of credit; profits are indeed a legitimate means of stimulating thrift,
but must not become the chief aim of society, especially when all profits
are provided solely by the borrowers and when directors and office-
bearers, as such, take almost as large a share (usually seven-sixteenths)
as the whole mass of subscribers. After providing the fixed profits
according to the rules, all other profits should be kept as low as possible,
whereas in the report of certain Nidhis. the annual profit is from’ 10 to
14 per cent; part of this, of course, goes back to the borrowers, but the
bulk is absorbed by non-borrowers, directors and office-bearers, and is
unduly high. This divergence from the true co-operative idea is the
besetting temptation of Co-operative societies all over the world ;
in America one borrowing member furnishes the profits for three
investing members and for himself ; in Madras the tendency is for three
borrowing members to furnish relatively small profits for themselves
and for one investing member, and relatively large profits for directors.
There can be no doubt but that the men who start these Fuhds are
not generally awareof. their co-perative origin and development;
co-operation in its modern sense is hardly known in this presidency, and
the compulsory registration of the Funds under the J oint Stock
Companies’ Act causes them to be looked upon simply as Joint Stock
societies, where profits or investments are a principal objeet. In all
correspondence and in public discussions, these Funds, as well as‘
proposed Agricultural banks, are treated as joint-stock companies or

€

ee

PROVISION OF BORROWING FACILITIES. $65

aggregations of shares rather than as associations of members
co-operating for mutual relief.

Profits arise in this presidency chiefly from an unusual souree, vez,
the unpunctuality of the members.

Profit, in fact, is generally obtained from fines, entrance fees and
minor payments and from profits on withdrawals.

Iwans.—The money raised by subscriptions or by deposits is lent
out chiefly to members ; in Madras city personal security is, in some
eases, accepted, but generally only good mortgages and pledges of
jewellery or Government paper. In the mofussil, on the contrary,
personal security is more common than mortgages, which in some of
the largest Nidhis are either expressly excluded, or obtain but a small
percentage of the loans, and then only with the addition of a personal
surety. The reasons assigned for this difference will be seen
immediately ; and afford much ground for thought ; briefly and chiefly
they are that in Madras personal security is shunned because of
personal distrust due to a prevalence of fraudulent practices, and to the
facilities for bankruptcy, while mortgages are favoured because of a
good system of title and of ease in recovery of debts ; in the mofussil,
mortgages are avoided because of difficulties of title and the effect of
the Revenue law for the recovery of arrears, while personal security is
accepted because mutual confidence exists between members résiding in
the same village or town, and intimately known as neighbours. It is,
however, curious that even in mofussil Nidhis, mortgages take rank

prior to personal security in the sequence of preference, and are

granted at lower interest ; this is due either to the fact that the rules
are borrowed direct from Madras, or to an opinion that mortgages
per se are safer than personal security ; if it is the latter, it follows that
mortgages are not largely accepted because of the difficulties of title
and encumbrances.

The commercial bill is not in use as a method of credit; the cash
credit is also absent.

These loans are granted in the usual way, needing no description ;
there is a committee to receive applications, valuers and appraisers and
a decigion. Loans are granted to about balf or three-quarters of the
estimated value of the property, if mortga¢es ; to a somewhat higher
value, if pledges.

Securities are various, v7z, paid-up or partly paid-up shares, jewels,
Government paper, land and house property and personal security,

366 PROVISION OF BORROWING. FACILITIES.

preference being given in Madras city in the order named. In
Madras city mere personal security is strongly objected to and
in fact generally refused; it was deliberately stated in two large
societies, that in that city it is not safe, owing to the facilities for
bankruptcy ; no respectable person, it was said, will stand security
except for very short periods (three months) since the habit of evading
debt has grown up. In the margin of the rules of a large bank
which has collapsed, there is a pencil note by a director that the ruin
of the bank was due to loans on personal security. This is a
very unsatisfactory condition, but: in rural parts this want of
confidence, these breaches of faith, do not exist to a material
degree. |

The method of repayment is that of the Building societies ; suppose
a man has one share payable in eighty-four months at Re. 1 per month;
aloan is granted to him for Rs. 100 upon mortgage of a house worth,
perhaps, Rs. 150 ; this loan he repays simply by his ordinary monthly
instalments of Re. 1 p/us interest; at the end of the eighty-four
months from the date of his entering the society, his share will,
as usual, be worth Rs. 102-8, and his debt is therefore wiped
off. If his loan is for Rs. 500 he must take five shares. Hence he
is able to pay off his debt by small monthly fractions—a very useful
plan to those who get monthly pay.

Method of allotting Loans.—Since nearly every member—at least
three out of four—of an ordinary Nidhi wishes to borrow, there is
much competition for loans. Most of the Nidhis seem to grant loans
according to priority of application ; a list is made, and members get
loans in turn, some Nidhis give directors power in case of pressing
need to allot out of turn. It is hardly necessary to remark upon the
possible results ; the winding-up reports show that officers’ and
directors’ friends are apt to obtain priority, and it is conceivable that
if much power is left to a secretary or ill-paid manager, those who
obtain his favow’ in any way, obtain undue priority. Moreover, with
the limited funds at disposal, those who are in the greatest need, must
frequently fail to get a loan in time to be of use.

Some few Nidhis consequently adopt the auction premiume plan,
usually that in which the bidder offers a premium of so many rupees
for the loan, the highest bidder wins and the premium is deducted

from the amount of the loan, with the full amount of which he is, of .

course, debited.

€
€

PROVISION OF BORROWING FACILITIES. 367

Some adopt the so-called ‘ ballot’ system, this simply decides the
question by lot. At first sight it would seem the best method as
avoiding favouritism and the cost of premiums, but it has been largely
abandoned in America in favour of the auction system, and the new
English Bill of 1893 expressly forbids it in all new societies, because,
apparently persons join societies merely to gamble for the lots, which,
if they win, they sell at a high price to those in need, thus realizing a
heavy profit which should have gone to the society ; in fact a society
seems to be often formed by a ring of speculators who gamble for the
subseriptions and share the profits.

Interest.—The interest in many Nidhis is high ; in some it is, prema
facie, unnecessarily high, but it must be remembered, in comparing
rates with those of money-lenders, (1) that all dealings are, in theory
at least, regular and clear and open to complete inspection and audit,
(2) that in loans payable by instalments counter-interest at the same
rate is allowed on all instalments, while sowcars, specially under the
‘kanthu’ system, allow no interest on instalments, (3) that all
borrowers of regular loans are necessarily subscribers who share in the
profits of the Nidhi, and thereby obtained a further set off against
the cost of their loans. For example, a loan of Rs. 100 is granted
at 6% per cent. repayable in eighty-four months (seven years) by
monthly instalments of Re. 1 each; in these seven years the borrower
will have paid as interest (647) Rs. 43-12. But since he has
repaid his loan by the usual subscription of 1 rupee per month, on
which interest at 1 pie per rupee per month (64 per cent. per annum)
is allowed, he will be credited with 84585 pies, equal to Rs. 18-9-6:
hence for the accommodation of a lump sum of Rs. 100 repayable by
monthly instalments over seven years, he has paid about Rs. 25, if
interest upon interest is neglected. From this again is deducted his
share of the “ additional profits” due to him as a member.

Loan values —The maximum value of loans toa single person is
practitally fixed by the number of shares he may hold, since each
share is for Rs. 50 or Rs. 100, and fifty shares is the general
maximum to be held by one man; Rs. 2,500 or Rs. 5,000 is the
maximhum loan. The minimum varies from Rs. 5 upwards. The
small loans are usually the special ‘ small lot? loans bearing high interest
and for short terms ; regular loans are not of less value than one share.

Purpose of Loans.—This is stated generally as for payment of
prior debts, purchase, building or repair of houses, purchase of lands,

368 PROVISION OF BORROWING FACILITIES,

trade, marriages and payment of assessment ; usually the order stated
is that given above, and the last-named is only mentioned by one
Nidhi. Ina very few cases is the improvement of lands (digging of
wells) mentioned but the purehase of lands and of cattle are
occasionally stated, the redemption of prior debt is common, and in
some cases the repayment of a Government loan is mentioned,
probably when a loan has been called in for breach of conditions. It
is to be remembered that nearly all these Nidhis are in towns, mostly
large ones; hence, agriculture is seldom _ represented, and the
Government assessments are those due by considerable and absentee
proprietors. Nearly all Nidhis expressly state that they do not
interest themselves in the purpose for which the loan is required, they
look only to the security, this seems to be universal. Even when the
form of application contains a query as to the purpose for which the
loan is required, it is merely put to guard against any objection by
third parties that the loan was granted otherwise than for useful
family purposes, or it is, rarely, a relic of a past attempt at control ;
two Madras societies stated that this control was once customary, and
that formerly loans were only granted by instalments, after ascertaining
that the money had been used for the specified purpose, probably
house-building. This practice seems to have generally died out, and
was only intended to safeguard the security given to the Nidhi, as for
instance, when money was granted for repairing a house which was
the security for the loan. In this matter the Nidhis have adopted.
the ordinary commercial practice and fall short of the true co-operative
principle of the guided, guarded and controlled use of credit ; itis the
influence of the society on its members towards prudence and
productive borrowing which is one chief function of the German and
Italian Credit Unions, a function entirely missed by societies which care
only for the security of their money and the due return of profits.
Government intervention.—All societies have to be registered in the
office of the Registrar for Joint Stock Companies; they gbtain
incorporation by this registration and fall under the operation of
the Act. The duties of the Registrar are simply those of
registration, the examination of the articles, the issue of a
certificate of incorporation, the registration of any changes, the
levying of certain fees, the grant-of inspection of documents and of
copies, and the writing of an annual report, which, however, is not
intended to be more than askeleton of bare facts, District Magistrates

PROVISION OF BORROWING FACILITIES. 869

have recently been required to make or cause to be made an annual
inspection of the offices of the companies within their jurisdictions and
a report on the same: the matters for inspection are simply those of
sections 63, 65, and 69 of the Act relating to the establishment of a
registered office, the affixing of a signboard, the use of a proper seal
and designation on all documents, and the placing in public view of a
certain statement in the Fund office ; they should also, in districts
where Nidhis are numerous make widely known, probably through their
District Gazette, the provisions of sections 82-85 of the Act, relative
to the appointment by Government of special inspectors for particular
companies on good cause shown by a certain proportion of
the members.

The only other Government intervention is that of the receipt
of direct taxes under the Income-tax Act and Municipal Act (if in
Municipalities), of fees at the registration of a society or of subsequent
documents, &c., and of indirect taxes in the form of the usual stamp
duties and fees for the registration of documents.

Use made of the Loans —A very large number have been used
in house-building, showing that the Nidhis fill a position similar to
that of English and American Building societies. The payment of
old debts is very frequent, marriage expenses are a considerable item,
as also land purchase, land improvement and well-digging are very
rare. It is stated by most Nidhis that the grant of cheap loans has
done much for the help of the members, but the want of funds is
frequently mentioned as a reason for not doing much more. Several
Nidhis, especially in the Ceded Districts, state expressly that many
of their members have, by joining the Nidhi, “been relieved from
the clutches of the money-lender,” and personal enquiry on the spot
amply confirms this.

Results upon members —It is asserted that habits of thrift,
foresight, business, punctuality, public spirit have been aroused and
strertothened : this is probable. On the other hand, very experienced
men consider that cheap money has often begotten unthrift and
extravagance, and they consider that to attain their full measure of
useftilIness, the Nidhis should control, in some measure, the purposes
to which credit is put. This corresponds with the opinion and
practice of the best European authorities and may be taken as
axiomatic ; it is not merely cheap credit, but controlled credit that
Nidhis should supply. Of what benefit is it to a man that he can

47

370 © PROVISION OF BORROWING FACILITIES.

borrow Rs. 1,000 fora marriage on no higher terms than Rs. 500
formerly, if it merely leads him to borrow and spend accordingly ?
“Lightly come, lightly go,” is but the record of experience. Nor is
it less embarrassing to owe a bank Rs. 1,000 than a sowcar Rs. 500,
in case, indeed, of the borrower’s death, it may be much more so,
from its greater amount.

Unpuncetuality is much complained of, especially in the case of
members who do not draw regular monthly incomes; this is but
natural, and is found in Europe and the United States also, among
the non-wage carners, such as peasants, shopkeepers, &e. This fact
points to the need for an adaptation of the system to such classes ; it is
a priovt impossible that societies started for and by official and other
stipendiary classes, should suit those whose incomes are of uncertain
date or accrue only at certain seasons. Out of seventy societies
taken at random, of which the winding-up reports were analysed, no
less than forty-two failed solely or chiefly because of arrears ; both
benefited and non-benefited subscribers made default, but specially
the former.

It seems that punctuality is in India the hardest to learn of all
business lessons, and, as has been stated, it is probable that
unpunctuality is connived at, if not encouraged, by reason of the
heavy penal interest which results ; in one Nidhi three-tenths of the
income was from fines ;in another and very large one the net profits,
after deducting guaranteed interest, were practically obtained from
this source. Here then is another result of the greed for dividends ;
if these were fixed and all surplus went to a reserve or to works of
utility, it would no longer be the interest of managers to allow
unpunctuality, and the Funds would serve the great purpose of
instilling the virtue of punctuality into an unpunctual clientele.

Advantages, actual or possible.—These will have been understood
from the foregoing sketch ; they are the introduction of co-operative
principles and habits, the stimulation of thrift and providence, the
inculeation of business habits and punctuality, the cheapening of
eredit, the insuring, so lone as the rules are observed, that the
members will, if non-borrowers, get back their money with interest,
and if borrowers, that they are secure from all annoyance so long as
they pay their dues punctually, and that all dues will be rightly
credited to their accounts ; business is extended by eheapening loans,
and not by entrapping the unwary and ignorant, profits are to be

we

PROVISION OF BORROWING FACILITIES. 371

sought by the development of cheap credit and not by squeezing the

individual debtor; the interest of all members, but especially of

borrowers, is, or should be, the primary aim of the directors, and not the
development of large profits for the benefit of the directorate and the
non-borrowers. Small savings are duly eared for and receive interest
higher than can be obtained in the Savings bank ; sums nearly as small
as savings deposits are received with the educative benefit of compulsory
regularity ; petty capital is retained in the noighbourhood in
which it is saved, and utilized zz szfu ; societies and borrowers are in
immediate contact, so that the expenses of enquiry and insurance
against risks are reduced to a minimum ; debts are repaid by a series
of small equal instalments, so that, while the borrower repays with
ease, the society can recover in the Village Court, and its security
increases in proportion as the debt is repaid; all payments are
recorded in the member’s pass-book so that he can note the amount
at his credit, or the balance which he owes at any moment;
the accounts of the society are, to a certain extent, published, and
audit is not only possible but general.

Such are some of the possible benefits of the Nidhi system and
many of these are realized in daily practice, nor is there the slightest
room for doubt that these societies, whenever they have been properly
worked and supervised, have been of very great benefit to their
members in so far as regards the grant of fairly cheap eredit, easy
methods of repayment, and genuine accounts; it is needless to
contrast these advantages with the conditions of private lending.

RECOMMENDATIONS,

It remains to consider what form of institution is best adapted
in this presideney for rural credit, the difficulties in the way of the
banks, and the best means of promoting them and their well-being.
The postulates of credit vdz., proximity, the security of the lender,
and Yacility and safety to the borrower, will be assumed, as also
the correctness of the axiom that credit must be based on thrift, that is,
that the thrift of lenders shall provide the funds for the use of
thrifty borrowers.

The form of the banks.—No central bank, not even a district bank,
can satisfy the conditions of ‘facility’ and ‘proximity’ when the
borrowers are the village folk, the great mass of whom hold lands
assessed at less than Rs. 30, nor can they look at rural credit business

372 PROVISION OF BORROWING FACILITIRS.

when the loans are, as in this presidency, the petty loans evidenced
by registration, court and other statistics. The vast bulk of all
loans are below Rs. 50 ; even mortgages below Rs. 100 number half
the total mortgages and average only Rs. 44 ; the records of the civil
courts tell the same tale, since, in this presidency, for 1893, no less
than 59°4 per cent. of all suits, exclusive of those in village courts,
were for sums below Rs. 50 including the interest claimed; if
village courts are included, the proportion is 68-9 per cent. Again,

om”

including village courts which tried 61,000 suits, the percentage of -

all suits below Rs. 20 was 45°25 per cent., so that nearly half of all
suits were below Rs. 20. This being so, it is clearly useless for any
bank outside a very small circle to think of supplying the country-side
with the credit it needs. Nor is it conceivable that the borrower
could obtain from such a bank either facile, cheap or safe credit, the
expenses of enquiry, the risks of loss on petty loans to unknown
persons, would preclude facility, while the element of safety, would be
largely wanting, since ‘safety’ requires that the destination of the
loan shall be a productive one, that it shall be used in production or
towards economy, and that money shall only be borrowed for such
purpose. Credit banks cannot and do not enquire into the purpose
of a loan provided the security is sufficient, whereas it is of the essence
of village credit that the lending institution shall be a powerful aid to
the borrower in checking extravagance and in suggesting useful
outlay.

Nor is it possible that State banks should satisfy the need for
rural eredit. Still less than Central banks can they satisfy proximity ;
their agents indeed may be amongst the people, but a paid agent is
merely a machine to pay out, to receive, and to enforce hard and fast
rules ; the loans might be made secure to the lender, but solely by
the overwhelming powers reserved by the State creditor, while the
safety of the borrower, except as regards loans similar to those
under the Land Improvement and Agriculturists Loans Acts,
would fail of being met, since the State can hardly influence the
individual in the matter of prudence in his individual actions.
The borrower need not be thrifty, nor would the loan proceed
from voluntary savings but from the national taxes, unless
the State deliberately utilized the funds of the Savings banks
in such loans. But it is difficult to see how the State could ensure
that its loans should be granted only to thrifty persons and for

a®

»

PROVISION OF BORROWING FACILITIES. 373

productive use, unless they were limited, as now, to improvement
loans; this, however, is not what is meant by ‘rural credit.’ There
are, further, overwhelming objections to general State credit; such
are the enormous amount of necessary business with the consquent
abnormal development of a bureaucratic agency which, ex hypothesi
would interfere in the daily affairs of every man’s life, the gigantic
sums required for the supply of general credit ; the development of
the habit of leaning upon the State, and of identifying it with the
prosperity and misfortune of the people, a tendency to regard the
State creditor as a money-lender, who, especially under the popular
delusion of the State’s illimitable wealth, could bear to lose individual
debts ; the odium attached to the State as enforcing, as it would be
bound to enfore, rigid punctuality and complete repayment of dues ;
the political objections to a State assuming the position of general
ereditor with the consequent temptation by its debtors to general
repudiation ; the interference with private trade and the stifling of
all efforts at self-help.

Central banks and State banks being thus found objectionable, is
follows that what will be chiefly required for the credit work of the

, Madras districts, are small, local, locally worked institutions on the

lines of the European village institutions ; it is Village banks, not
District or even Taluk banks, that are required. It does not appear
probable that institutions like the great Scotch banks will ever arise .
to send out their thousand branches and agencies into every village ;
the genius of the people and the absence of a note circulation by banks
seem to rule out this possibility. In the absence of great institutions
with the peculiar ability of the Scotch banks, the only alternative

-is the local Village bank which satisfies the postulates of proximity,

security, and facility, and, in one form or another, is found in
thousands of instances in Europe and America; such are the small
Swiss joint stock banks, the Popular banks and Loan societies, the
Savings banks, Building societies, Positos, &c.. In one form, moreover,
viz., that of the co-operative Village bank, it satisfies the final
postulate of true credit, vzz., that of ‘ safety ’ to the borrower. -

The decisive advantages of Village banks are as follows :—
(1) their absolute proximity to the borrower, (2) their ability to
excite local confidence and consequently to draw in local capital,
(3) their exact knowledge of their clients and their influence over
them as co-villagers ; their consequent ability to prevent fraud and to

874 PROVISION OF BORROWING FACILITIES.

dispense with searches in Registration offices ; (4) their power of
making the smallest loans and of undertaking operations, however
petty, in consonance with village custom and individual needs ; in
fact, of giving preference to small business ; (5) their ability to dispense
with any prior general liquidation of debts such as has been demanded
asa preliminary to the establishment even of Taluk banks, they
would ascertain in each case the borrower’s prior debts, arbitrate with

the creditor for a favourable settlement for cash down, pay down the

sum settled, and accept the debt as due to themselves ; (6) their
ability to work cheaply, almost gratuitously, and thus to provide cheap
credit ; (7) their retention of local capital and of all profits thereon
within the village, and, in the case of co-operative societies, their
retention of all profits for the members and_ borrowers ; (8) their
ability to act as agents and brokers for their members in the sale of
produce and purchase of necessaries ; (9) their capacity of acting as
village granaries, lending grain for maintenance and seed in ordinary
years from their own resources, aud, in times of distress, from those
resources supplemented by State or other grants ; (10) their ability to
act as intermediaries between the State and the individual, whether in
matters of loans for land improvements, cattle, &c., or in other
agricultural or industrial developments, or in times of seasonal stress ;
(11) their power of influencing borrowers towards the true use of
credit, and of watching the utilization of loans in accordance with
contract ; (12) their ability to prevent fraudulent defaults and
collu:ive sales of property, and, in eases of default, to utilize
advantageously the small properties accepted as securities for loans ;
(13) their tendency—in the case of Co-operative banks—to group
themselves into unions for mutual development, instruction, inspection,
and audit ; (14) their steady, educative influence in matters of thrift,
association, and self-help by their continuous presence in the village,
by their continuous object lessons, and by their frequent, though
small, calls upon the activity, thought, and service of their metnbers ;
(15) their tendency to develop high forms both of individual capacity,
of public life, and of national character.

These village banks, then, may assume several forms: thef may,
as Joint Stock banks, imitate the ‘ minuscules societies anonymes par
actions °—the tiny joint stock banks—of Switzerland, with their
little knot of capitalists and their share capital of a few hundred ‘
pounds, they may possibly assume the form of the State aided

€

PROVISION OF BORROWING FACILITIES, 375

Communal banks of Alsace-Lorraine, they may be Savings banks in
origin, dealing in credit merely as a mode of placing their funds either
directly to borrowers or indirectly through loans to credit banks ;
they may be Nidhis either of the present or of a developed type,
developed in their power of safely attracting capital, and of giving
long-term loans ; they may be village granaries storing surplus grain
at harvest, and lending it out among the ryots for seed in the
cultivation season, they may be Agricultural associations with credit
annexes, a most desirable form of institution, or finally, and most
desirably, they may be true co-operative societies and banks,
operating through, for, and upon, the members, stimulating and
collecting their savings, calling forth habits of thrift, economy, and
prudence, guiding their outlay into productive channels, giving them
eredit for productive and useful purposes, promoting co-operative
dealings in sale or purchase, and stimulating activity, union and
associated action among the too isolated units of village life.

| Letracts from the Report by Mr. J. R. Cahill on Agricultural Credit
and Agricultural Co-operation in Germany. Cd. 6026 of 19138.)

MORTGAGE (LONG-TERM) CREDIT.

In the number and variety of the agencies through which they can
obtain long-term mortgage credit on relatively easy conditions, land-
owners in Germany, both large and small, enjoy signal advantages as
compared with the corresponding classes in this country. Setting aside
for the moment the Joint Stock Morteage Banks, the whole of these
agencies are in the~ nature of governmental, non-profit seeking
institutions—using the word ‘ governmental” in a sense that would
comprise the State, provincial, district, municipal (or communal)
authority as well as those corporations of landowners which rank as
public bodies. The various agencies may be divided imto three main
classes according to the purposes for which their loans are granted. In
the first class there are four groups of intitutions, namely, the Land
Mortgage Credit Associations (Landschatten) , the State, Provincial,
and District Mortgage Credit Banks, the Joint Stock Mortgage
Banks, and the Savings Banks, all of which grant mortgage credit
without requiring, in ordinary circumstances, any declaration as to
the purpose of the loan. The second group comprises the Land
Improvement Funds, the Land Improvement Annuity Banks, the
Provincial Aid Banks, and the Imperial Insurance Institutions, all of
which grant loans mainly for specific land improvement or building
undertakings. The third group is that of the Rent Charge Banks,
which are coneerned with loans in connexion with the creation and
equipment of small holdings. _

By far the most important class is the first: at the present time
the total value of the outstanding loans granted on landed properties
by the institutions comprised in it approaches £400,000,060. The
Land Mortgage Credit Associations and the Savings Banks are
represented in this total by about £170,000,000 each. With the
exception of the Savings Banks and of the relatively unimportant
Prussian Land Improvement Funds, all these mortgage credit
organisations obtain funds mainly (when not exclusively) by the issue
of land mortgage bonds. Thus the German landowner, by virtue of
his institutional mortgage credit, is enabled to mobilise, as it were,

a?

PROVISION OF BORROWING FACILITIES, 377

a high proportion of the value of his landed property by the creation
of bonds that flow into the general system of securities, so that
instead of only being able, like the English landowner, to provide an
individual mortgage security of very limited currency, he possesses
facilities for converting a mortgage charge into a security realisable
at any time in the general market.

The Land Mortgage Credit Associations,—twenty-three in number,
of which six were founded in the period 1770-1790, and the remainder
between 1825 and 1896, are associations of borrowers for the purpose
of procuring loans by the issue of bonds secured by the collective
mortgage charges registered against their landed properties. These
bonds are not secured by specific mortgage charges, but by the body
of mortgage charges of each particular association, supplemented
by its reserves and the accumulated sinking fund payments of
mortgagors. They are non-profit-seeking organisations, and, except
in two eases, they possess no share capital. The Prussian Associations
limit their operations to a single Province, extending them occasionally
over portions of an adjoining Province or State ; the areas of the
non-Prussian Associations coincide with those of their respective
States. |

These associations rank as public corporations (in Prussia their
officials have a status similar to those employed by provincial
authorities) ; they are subject to State supervision through a Royal
Commissioner, and their articles of association and regulations require
the sanction of the Crown or the Minister of Agriculture. They
possess certain special privileges, such as the authority to distrain
without having recourse to the ordinary civil procedure. They are
administered by a Central Board, which ineludes at least one
permanent salaried official who has passed the State examination
qualifying for the office of judge. This Board is subject to the control
of a Committee or Council of Administration, and of a General
Assembly, both elective bodies. Directors are also elected for the
chief divisions of the areas of the Associations and a further
decentralisation is secured by the District Committees.

A landowner becomes a member of an Association when such an
Association acquires a mortgage on his land ; membership ceases with
the cancellation of the mortgage. Landowners living within the area
‘eovered by an Association and fulfilling the conditions imposed by its
articles of association, may not be refused loans, and they may claim

48

378 PROVISION OF BORROWING FACILITIES.

them up to the amount for which their estates after valuation furnish
the security required by the particular regulations. The earliest
Associations admitted to membership only large owners holding under
specific tenures, but, especially within the last generation, and

particularly as a result of the great Agrarian Conference of 1894, and —

the subsequent action of the Prussian Government, which urged the
individual Associations to devote more attention to the needs of the
smaller proprietors, small landowners have been brought within the
range of eligibility. That quite small owners may now obtain loans
is evidenced by the fact that one Association, lending up to half the
value of estates on first mortgage, fixes the minimum loan at £15,
some others fixing it at £25; at the end of 1911 one Association had
loans outstanding upon 284 properties of under 124 acres, another
granted (in 1911) 34 loans upon properties of less than 24 acres, and
1,480 loans on properties of over 24 acres, but not exceeding 25 acres.
The maximum limit to the amount to be lent upon estates is fixed by
most Prussian Associations at 3 ths or rds of their value as a first
mortgage chage, in the non-Prussian Associations one-half is the
usual limit.

The loans are, as a rule, made not in cash, but in bonds, which the
borrower cither realises independently, or takes to the Loan Bank of
his Association (if such a Bank has been established), the latter selling
them on his behalf or making him an advance on their security.
Intending borrowers may choose the rate of interest to be paid, the
rates most usually open to their choice being 3,34 4 and 44, per cent.
Bonds of various denominations are issued ; there are bonds of £3 15s.,
£5, £7 10s., £10, £15, £20, £25, and up to £150, some Associations
issuing those of £250; and the Central Association those up to £500.
These bonds, which are not redeemable by holders, have consistently
maintained a strong position in the market ; thus at the time of the
Napoleonic wars, when Prussian 4 per cent. stock sank to 20, Silesian
land bonds never fell below 50. -

The loans granted by these Associations are not subject to recall :
the rate of interest is as moderate as possible, being closely related to
the prevailing market rates for money, and cannot be raiSed, and
while annual payments are required until at least a certain percentage
of the capital debt has been accumulated in a sinking fund, repayment

may be made by additional instalments at the mortgagors’ convenience. ‘

Costs arising in connection with valuation and other preliminary

a®

PROVISION OF BORROWING FACILITIES. 379

expenses are kept as low as possible, and are often waived by the
well-established Associations ; the necessary contributions towards the
cost of administration of the Associations are, moreover, relatively
inconsiderable, as the office holders, apart from the Syndics, usually
give their services gratuitously. Proper consideration of loan
applications is secured by the fact that these organisations are
thoroughly conversant with agricultural conditions, and are
in a position jto appraise the value of estates and the business
capacity of owners through their local representatives, who
are themselves agriculturists and members. Through these
local representatives, who as members are directly interested in
the Associations arealso the good management of their Association,
enabled to secure continuous supervision of the mortgaged security
without incurring expense.

Of the sixteen Mortgage Credit Banks, which have been established
for the whole of a State, Province, or District within a Province, and
whose liabilities are guaranteed by the public authority of such areas,
only one, namely, that at Hanover, restricts its mortgage loans to
those on rural property. The original purpose of many of these
institutions was to assist medium and small landowners, by loans on
reducible mortgages, to redeem burdens or servitudes which still
attached to the possession of their holdings at the, time when the
emancipatory legislation declared such charges to be commutable.
They have lost this special character, and have all developed into
institutions for mortgage and communal credit. The total of their
outstanding loans amounts to about £100,000,000, of which half has
been lent on mortgage security. Funds are mainly obtained by the
issue of bonds, which are recognized as trustee securities, but working
eapital.is also provided by deposits, payments by borrowers into
sinking fund accounts, accumulated funds, and grants or loans from
the State or other authority concerned. The bonds of these Banks
are, in most cases, redeemable by the banks themselves, (but not by
the holders) by drawings, but as a rule a certain period must elapse
after the issue of bonds before a Bank may include them in a drawing.
Most Banks pay their loans in cash, not in bonds, as in the case of
the Landschaften.

These banks have served in an especial manner the needs of
medium and small landowners, and afforded them facilities for obtain-
ing loans at moderate rates of interest,. not subject to recall, and

380 PROVISION OF BORROWING FACILITIES.

repayable in small, fixed annual instalments (with power to make
additional repayments on giving notice of from three to six months),
Sums as low as £15 are lent by at least six of these Banks ; and one
Bank grants loans as small as £2 10s. The rates of interest usually
range at the present time from 3% to 4 per cent.; and there is, in
addition, an annual charge for cost of administration (usually } to 4
per cent.). Sinking fund payments are compulsory in most cases,
and the minimum amounts are variously fixed at 4, ¢ or 1 per cent.
Repayment may be made by the presentation to a Bank of its bonds
bearing the same rate of interest and the same nominal value as bonds
issued to the mortgagor in respect of a loan.

These Mortgage Credit Banks are usually exempted from stamp
duties and court fees. They have also the advantage of the eo-opera-
tion of the local revenue authorities, or other public officials (e.g.,
officials of public savings banks). Some banks appoint private
persons resident in different parts of their areas as their agents, in
order to be in a position to obtain further information with respect
to borrowers. They are thus enabled not only to secure the necessary
local information and. supervision, but can also bring credit facilities
within the convenient reach of farmers throughout their areas. It
is worthy of notice that these Banks do not hesitate to endeavour to
attract clients, whether borrowers or depositors, by advertisements in
daily and other papers.

There are in Germany 37 Joint Stock Mortgage Banks (excluding
the Hessian State Joint Stock Mortgage Bank), which are commercial
undertakings, constituted, in accordance with the Imperial Mortgage
Bank ‘Act of 1899, for the purpose of lending money on mortgage
security. Instead of being associations of borrowers, like the
Landschaften, they are associations of lenders, which were largely
modelled upon the Credit Foncier of France. The last-named was
founded in 1852; of the 37 German Banks one was established in
1858, 27 in the period 1862-73, and 8 in the period 1894-96° But,
unlike the Credit Foncier, which possesses a monopoly for the whole
of France, the German Mortgage Banks represent a decentralised
system, in which any of the Banks is free to extend its businéss over
the Empire. Their business has greatly developed: thus in 1880
the total of their outstanding loans covered by mortgages on urban
and rural property amounted to £77,385,000, in 1900 to £337,882,000°
and in 1911 to £554,870,000.

PROVISION OF BORROWING FACILITIES. 381

They fall into two classes—“pure” and “mixed” Mortgage Banks.
The former, 29 in number, restrict their business to the following :
loans on mortgage and issue of mortgage bonds ; the acquisition and
sale of, and lending on, mortgage security ; the grant of loans to public
bodies and to light railway undertakings ; the purchase on commission
of stocks and shares; the collection of bills and cheques ; safe-deposit
business, and the acceptance of deposits at interest. The “ mixed”
banks engage in ordinary banking business, but speculative business
is prohibited.

All Joint Stock Mortgage Banks require the special authorisa-
tion of the State; and are subject to State supervision in every
branch of their business, each Bank being assigned a Commissioner
who, before any bond is issued, has to certify that it is duly covered,
and who, jointly with the Bank, has the custody of all its books,
documents and cash in hand.

Only about 6 percent. (£34,000,000) of the total mortgage
loans outstanding at the end of 1911 were secured by mortgages on
rural estates, and in 1909, 91 per cent. of the total loans outstanding
on rural mortgages had been granted by one Prussian and seven
Bavarian Banks. The Act requires that, in so far as bonds are
issued upon the security of rural mortgages, half of the total amount
of this class of loans, which are advanced by any Bank, must be
made subject to annual sinking fund payments of at least one-quarter
per cent. ; the majority of Banks require such payments in respect
of all their rural loans, and fix the minimum at one-half per cent.
Rural mortgagors must be accorded the right to repay loans in whole
or part before the stipulated period under the sinking fund scheme,
and may only waive such right for a period not exceeding ten years
from the date of loan. Moreover, although the annual payments
on account of interest remain unchanged, regardless of the progres-
sive diminution of the capital debt by payments to sinking fund,
yet the interest falling upon the amounts credited to sinking funds
is annually applicable to that fund. No agreement permitting a
Bank to call in a loan is valid. Minimum loans are fixed by some
Banks—the Bank showing at present the largest total of rural loans
fixes it at £50; and the maximum loans may not exceed three-fifths
of the ascertained value on first mortgage, or, with the concurrence
of the State concerned, two-thirds of such value. Loans must be
paid in cash as a rule: payment in bonds is only permissible if the

382 PROVISION OF BORROWING FACILITIES.

articles of the Bank expressly permit it, and the borrower gives his
assent. In the latter event specific authorisation must be entered
in the contract for the borrower to repay in cash or in bonds of the
Bank, at his discretion. Bonds of various denominations are issued,
the minimum nominal value appears to be £5, and the maximum
£250. In 1909, 58°48 per cent. of the value of the bonds bore 4
per cent. and 39°65 per cent. 34 per cent.; since-that date bonds have
been issued mainly at 4 per cent. Except in the case of six Bavarian
Mortgage Banks, these bonds are not recognized as trustee invest-
ments, but almost without exception they are accepted as first class
security by the Imperial Bank. Mortgage bonds may not be issued
to an unlimited extent; pure Mortgage Banks may issue only up to
15 times the amount of their paid-up capital and reserves, unless
previous to 1900 a Bank held the right to issue in excess of that
multiple, when a maximum multiple of twenty is fixed. Mixed
Mortgage Banks are limited to a lower multiple. Adequate publicity
is secured by statutory provision, every Mortgage Bank being obliged
to publish, not later than in February and August of every calendar
year, in the Official Gazette and in the news-papers selected for its
regular advertisements, detailed statements showing its position.

German Savings Banks are mortgage credit institutions of very
great importance for farmers; in 1910 their total investments in
rural mortgages may be estimated at £170,000,000. At that date
Prussian Savings Banks alone, out of the total of their invested
funds, which amounted to £579,000,000, had £115,000,000 outstand-
ing on the security of rural property. They are pre-eminently,
especially in Western Germany, the sources of mortgage credit for
small and medium farmers, whom they accommodated also at a time
when no other mortgage institutions were open to them; and they
now provide, in effect, nearly every district with a public mortgage
credit institution.

There are no Post-Office savings banks in Germany. The ¢reat
majority of public savings banks are institutions established, managed
or supervised, and guaranteed by the communal, district, or urban
authorities, apart from whom they do not exist as legal entities.
At the end of 1910, there were 2,844 public savings banks in Germany
(excluding Brunswick) with 7,404 branches or agencies, and 228 other
savings banks with 294 branches. The total deposits of all these
banks reached the substantial sum of £840,000,000; in 1890 and

PROVISION OF BORROWING FACILITIES. 383

1900 the corresponding figures were £257,000,000 and £442,000,000.
It may be noted in passing that the deposits of English savings banks,
Post Office and other, did not amount in 1909 to 30 per cent. of the
German total. While German public savings banks do not usually
accept deposits of less than one shilling, the maximum deposits
receivable in respect of any one account often reach a very high
figure. In Prussia in 1909 there were 395 out of 1,506 public savings
banks which fixed no limit, and for 291 banks the limit ranged from
£500 to £2,500. As aresult, these banks tend to be used as deposit
banks by the well-to-do classes. Their attractiveness consists not
only in the security afforded, but in the relatively high rate of interest
paid. Being institutions independent of a central authority they are
not obliged to accord a rate of interest fixed for all savings banks,
but can fix and vary their rates according to the local cireumstances.
Thus some find it necessary and profitable to pay 3% or 4 per cent.,
while others obtain ample deposits at 3 and 3} per cent. The magni-
tude of German savings bank deposits is also to be explained on
other grounds. Although private banks, both large and small, are
very numerous in Germany, great joint stock deposit banks have not
as yet attained the same development as in the United Kingdom,
where, at the end of 1910, the number of branch banks amounted
to 7,151, whereas the total of branches, agencies and deposit offices of
large banks in Germany in 1911 amounted to about 1,200. Invest-
ment by small capitalists in the shares of joint stock and limited
lability companies being less easy owing to the fact that shares of
the former may not be less than £50, or of the latter £25, their money
is deflected to savings banks. Private insurance, so common as a
form of investment of savings in England, does not appear to have
developed to the same extent in Germany.

The spread of communal and district banks, which serve more
particularly the rural population, has been promoted by the Central
Authtrities, especially those responsible for agricultural matters,
who have also constantly urged these banks to adapt their conditions
of loan to suit the farming class. The special advantage of these
bank? is that they provide farmers with a public mortgage credit
institution in their immediate vicinity, and facilitate personal rela-
tions between borrower and lender. As a consequence of its local
knowledge a savings bank may generally dispense with a special
valuation and its attendant costs, which, for a central credit institution,

384 PROVISION OF BORROWING FACILITIES.

might be out of proportion to the amount of loan. The cost
of supervision is also saved. For the small farmer the procedure
proves far simpler than when bonds have to be obtained and marketed,
and other formalities satisfied as in the case of the Landschaften.
Their disadvantages consist in a higher rate of interest, liability to a
rise in the rate or to the recall of the loan, and the limited facilities
for reducible mortgages. As to the rate of interest: in 1909 the
predominant rate of interest payable on the bonds of the Landschaften
was 34 per cent., and on those of the State and Provincial Mortgage
Credit Banks 34 and 4 per eent., and on those of the Joint Stock
Mortgage Banks 4 and 33, whereas in the same year 35°5 per cent.,
of the mortgage loans made by the savings banks were at 4 per cent.,
and 55:09 per cent. at over 4 but not exceeding 5 per cent. Loans
are liable to be recalled owing to the circumstance that savings banks
must be in a position to realise their assets if necessary at short notice ;
and they reserve the right to raise the rate of interest in order not to
be losers in the event of an increase in the rates paid for deposits
rendering unremunerative a former rate fixed at a time when the
deposit rate was lower. With respect to reducible mortgages there
occurs the same difficulty of lending money for a longer period than
that for which the lender has received it, but in recent years
there has been a considerable increase in the volume of rural mortgage
loans granted subject to sinking fund payments. In 1909 nearly
25 per cent. of the outstanding rural mortgage loans granted by
Prussian savings banks were granted on these conditions.

Most savings banks restrict their Mortgage investments to
property situate in their own or neighbouring districts, or lend less
upon a property not within such limits; and a Prussian Ministerial
Order enjoined that the lending of money on mortgage security
outside the area of the bank should only be admissible when a fixed
period of redemption is stipulated, and when ‘such mortgages do not
exceed the fourth part of its total mortgage investments. Wnder
present circumstances, the greater part of the money collected within
the particular areas is thus devoted to investment within the same
areas. Savings banks usually fix the limit of mortgage loans at” from
one-half up to two-thirds of the ascertained value of the property.
Many banks, however, with a view to encouraging the creation of
small holdings and allotments, are prepared to lend up to three-
fourths or even five-sixths of the value of newly purchased holdings

PROVISION OF BORROWING FACILITIES, 385

situated within their district, provided that at least one-half per cent.
of the capital is to be repaid annually ; in special. circumstances this
sinking fund payment may be waived for a period of two years.

In most Prussian Provinces there are Land Improvement Funds
or Land Improvement Annuity Banks, which form in fact branches
of the provincial administration. ‘They were founded as a result of
the demand by agricultural organisations for the provision of credit
for land improvement which should be adequate in amount, not
subject to recall, amortisable, and bearing moderate interest. In
Saxony, Bavaria, Hesse, and Oldenburg, Land Improvement Annuity
Banks also exist. But these institutions have not developed any
great volume of business, nor have loans been usually made to indivi-
duals, except in Prussia, where, down to the end of 1908, £250,000
out of £565,000 lent had been granted to large landowners holding
under family or other special settlements, and an additional £20,000
‘to other landowners within the same period. In Bavaria and Saxony
where these Banks show greater activity, the great bulk of the loans
have gone to communal authorities for water supply and for local
schemes of drainage and road construction. The Bavarian Legislature
has recently (1908) extended the scope of the Bavarian Bank to the
loan of money for promoting the production and supply of electric
light and power, especially in country districts, as well as the erection
of dwellings for rural and other work-people and the settlement on
the-land of agricultural labourers; and at the same time the limit
of value of bonds (for which the State is guarantor) in circulation was
raised from £1,500,000 to £2,500,000.

The Prussian Provincial Aid Banks grant credit mainly to bodies
of a public or semi-public character—to communes, unions. of
communes (Avezse), school and ecclesiastical organisations, and
co-operative societies, especially those for land improvement. In
two or three provinces, however, loans on mortgage security are
made mther extensively to individual owners. Like the Prussian
Land Improvement Banks they are conducted as a department. of
the provincial government.

Under a Prussian Act of 1850 seven Rent Charge Banks were
created, each to serve one or more provinces, and authorised to issue
bonds to landowners in settlement. of charges and servitudes due to
them (but declared by an Act of the same year to be commutable)
and to colleet’ from landholders thus relieved annuities composed

49

386 PROVISION OF BORROWING FACILITIES.

of interest and sinking fund payments. The special duties thus
assigned to them appear to have lapsed with the redemption of the
liabilities involved, and the Banks were suspended in 1881. Ten
years later they were re-established for the especial purposes of
the new policy of settling small and medium holders on the land.
Their present functions are :—(1) to issue bonds on certain condi-
tions to vendors upon the sale of their property for conversion into
small holdings up to three-quarters of the selling price, and to
eollect the annuities due thereon ; (2) to make advances in connexion
with the creation of small holdings (for paying off charges, erecting
dwellings and farm buildings, &e.); and (3) under certain conditions
to settle by cash payments with co-heirs to properties coming under
the Small Holdings Acts.

These Banks are, in effect, the financial departments of the State
organisations, known as the General Commissions, in connexion with
the creation of small holdings. The Small Holdings Acts, by virtue
of which State credit (that is, through these Banks) is granted, allow
any person or body to undertake the division and settlement of a
property, but require, before State credit is granted, that plans for
division, equipment, settlement, &c., must be approved by the General
Commission having jurisdiction. It should be observed, however,
that these Banks, which from 1891 to 1909 had issued bonds of the
total value of £5,600,000 in respect of small holdings, do not represent
the entire extent of State action in Prussia as regards land division
and settlement. In the Provinces of West Prussia and Posen,
where these Banks do not operate, the Settlement Commission—a
State organisation with some 600 officials which was created in 1886
and has been amply endowed with funds—stated at £30,000,000 down
to 1911—purchases, divides, and distributes estates, and undertakes
all the necessary financial transaetions connected therewith.

Finally, under the Imperial Invalidity Insurance Act there exist
thirty-one Insurance Institutions, each with an independent legal
status, and operating within a particular State, groups of States,
Provinee, or District. These institutions receive the contributions
of, and pay the benefits to, all persons insured under the Act’ against
invalidity and old age. The Act authorises a certain proportion of
the funds to be invested for purposes of general social welfare within
the districts of the various institutions ; in 1909, £14,025,000 was
invested in leans for the housing: of the working classes and £5,143,600

PROVISION OF BORROWING FACILITIES. 387

in loans for agricultural purposes. Under the latter heading
are included loans for light railways in rural districts, for land
improvement, and for the improvement and construction of roads.
Loans are usually made to or through non-profit-seeking co-operative
societies, employers, or to communes; seldom to _ individuals.
Mortgage security is generally required, loans are subject to recall
at three or six months’ notice, and sinking fund payments are

obligatory, while facilities for addditional repayments of debt

appeared to be allowed. The predominant rates of interest now
charged range from 3 to 3¢ per cent.

Insurance Companies have invested nearly three-quarters of their
funds in mortgages, but only an insignificant proportion in rural
mortgages ; in 1907 only 790 loans of the total value of £2,435,000
were outstanding on rural mortgages, as against £162,710,000 on
urban mortgages. Even this small total of transanctions is decreasing.
Such companies are legally permitted to make loans up to three-fifths
or two-thirds of the valuation, but special rules prescribe that they

must not, as a rule, lend over £10,000, and in the ease of loans of

over £5,000, special valuations must be made. :

From the foregoing summary of the organisation of German
mortgage credit it will be seen that German landowners, both
large and small, are amply provided with credit agencies which,
mainly of a public character and non-profit-seeking, grant loans
up to one-half or two-thirds of the valuation on first mortgage
at moderate and unchangeable rates of interest, not subject to
recall, and repayable by small annual instalments to sinking
funds, with facilities to make additional repayments on giving
short notice. The Joint Stock Mortgage Banks form an exception
in respect of profit-seeking, but the Mortgage Bank Act secures
certain important advantages for landowners; and the savings
banks, although in theory they are debarred from granting loans
not subject to recall, do in fact lend a considerable amount against
reducible mortgages (which are not subject to recall) and, as regards
the balance, are seldom forced to exercise their right of recall.
Althovgh not aiming at profits, these organisations are able to
realise surpluses, the State and other Provincial or District Institutions,
as well as the savings banks, contributing considerable sums annually
to their guaranteeing authority for public purposes ; while the
Landschaften, especially as a result of ancillary business (¢.g., their

388 PROVISION OF BORROWING FACILITIES.

Loan Banks), are able to apply substantial sums to the relief of the
indebtedness of their members. |

The organisation of German mortgage credit presents the further
important feature of decentralisation. The savings banks provide
nearly every district with a public mortgage credit institution ; and
the special organisation or organisations for mortgage credit in each
Prussian province, or in each State, bring their services within the
convenient reach of farmers throughout their areas by their system of
local representatives.

Except in the case of the saving banks, capital is mainly obtained
by the issue and sale of land mortgage bonds, for whose interest and
capital the particular institution undertakes the responsibility. The
Landschaften alone appear to leave to the borrower the realisation
of these bonds, facilitating this, however, through their loan banks ;
the other institutions pay the borrower in cash at a rate slightly below
the current market rate, realising the bonds on their own account at
the same time or at some suitable future date. The borrower has
usually to pay from 4 to 4 per cent. as commission for this service.
Loans by the issue of bonds are advantageous as not being subject to
recall or to an increase in the rate of interest on the part of the lender,
and as allowing the borrower to repay his debt by the purchase and
presentation of bonds of the same class and issued by the same
institution when such bonds are low in price. Their principal
disadvantage consists in the possible depreciation in value at the time
of loan, although the borrower is liable to pay interest on and to
redeem the loan at the amount of the nominal value of the bonds (or
must purchase and present such bonds when higher _ prices
prevail). |

The organisation of institutional mortgage eredit in Germany
has been immensely facilitated by the complete system of registration
of title in that country. The uniform system, based on the Prussian
medel and introduced for the Empire‘in 1900, provides for obfigatory
registration of title, prority of each registered charge in the order
of its registration, and freedom of inspection of the registers. These
registers, drawn up for small areas and maintained by them, {escribe
each estate and recite all personal charges (¢.g., usufructuary rights)
and other charges ; and in general, no claims against such states not
duly registered are valid in a court of law. It may be added that
the total costs in connection with the registration or cancellation of

PROVISION OF BORROWING FACILITIES. 389.

mortgages are moderate. The registration of a mortgage charge for
£500 in Prussia costs £2, and its cancellation half that amount,
including in each case the notarial and court fees. Compulsory
registration of title as it exists in Germany, Austria-Hungary, and
Russia, or at least compulsory registration of deeds (as in France,
Belgium, Holland, North America, and elsewhere), appears an
indispensable pre-requisite for the foundation of a system under which
landowners may obtain mortgage credit on suitable terms by the
creation of land bonds which would take their place as first-class
securities in the open market. In Ireland registration of deeds has
been in force since the eighteenth century, and by reason of’ the
transactions under the Land Acts, registration of title has taken place
with regard to a great portion of the country ; in Scotland there is
registration of deeds ; but in England the system of registration of
deeds appears to be in operation only for Middlesex and Yorkshire, and
of registration of title only for London.

PERSONAL (SHORT-TERM) CREDIT.

Under this heading is considered credit based mainly on the
security of the general standing of the borrower, or of the borrower
and his surety, as well as on an implicit estimate of his or their
assets in the event of ultimate default, as distinct from credit based
on the definitely assigned security of real property. The former
eredit tends to have the further distinction of being sought and
granted for relatively short terms.

For the provision of this form of credit in adequate amount and
on suitable conditions as to interest and repayment, farmers, especially
medium and small farmers, require a different credit organisation from
that which has been evolved for merchants and manufacturers ; and
for certain rather obvious reasons. The outstanding feature of the
agricultural industry is the length of period of production. Within
limits the manufacturer can hasten at will the process of production,
and tepeat his products, or the trader can restock his store several
times within the year ; for the farmer the time of beginning and the
time of finishing production are fixed by nature. Although the
duration of the period of production may be shortened to some
extent, artificial hastening processes are not applicable in most cases,

390 PROVISION OF BORROWING FACILITIES.

and lack the effectiveness of the machine in industry. In certain
important branches of agriculture the period of production may
extend over several years : thus a foal requires three or four years,
and a calf two or three years before becoming utilisable or marketable.
And the returns of agricultural production are more uncertain than
those of commerce and industry owing to accidents of harvest, risk of
disease, perishability of produce, and other causes. Another
peculiarity— making due allowance for depressions and for numerous
seasonal trades outside agriculture—is the irregularity of monetary
returns from year to year or thew tendency to fall in certain months
or periods in each year. Unless his farming is mixed the farmer
obtains his main receipts in autumn, when he sells his crops. Under
these circumstances a banking system which aims at a rapid
turnover of funds and grants credits of three and four months, with
one or two renewals for like periods, is of very little advantage.
Urban bankers, being naturally more conversant with commercial
or industrial undertakings, are less capable of judging the standing
of a farmer and his business capacity. Credit implies confidence
and facility of supervision; but the banker is unacquainted with
farming, and farms are comparatively isolated units, usually more
or less remote from the banking office. Ordinary commercial tests
are not often applicable, especially where smaller farmers, whose
book-keeping is apt to be very incomplete and unmethodical, are
concerned. The same difficulty presents itself as to any proposed
sureties, who are also likely to be farmers. Other banking security is
often out of the question; and the procuring and bringing of
sureties to the bank involves great possible loss of time and expense.
The world in which the banker or bank manager moves is not that
of the farmer, so that personal knowledge is infrequent. The whole
situation is rendered even more unfavourable by the supplanting of
small country bankers by branches of great banks, which are directed
on fixed lines from headquarters, and whose managers are frequently
changed. Commercial banks cannot, moreover, be brought nearer
than small towns ; even a branch office (as distinct from a mere
depositing office) entails a minimum expenditure for salaries® and
office of from £300 or £400 per annum. The smaller farmers offer
also little attraction to the ordinary commercial banks as_ borrowers,
and, apart from other disadvantages, pay for the small loans -they
require an unduly high percentage as interest and commission. As a

PROVISION OF BORROWING FACILITIES, 391

result farmers cannot obtain from banks, organised mainly to serve
industry and commerce, credit in suitable amount, at reasonable
interest, and on the security which they can usually provide.

. Yet, while commercial banks have become less satisfactory from
the standpoint of the farmer, his need for working capital has greatly
increased. More scientific and intensive farming, made necessary by
competition which has been facilitated by improved and cheapened
transport, refrigeratory processes, and other causes, requires more
capital expenditure on labour, fertilisers, feeding-stuffs, and
machinery ; payment in kind is being gradually entirely superseded
by payment in currency, while money wages are higher; and other
expenditure, including cash payments to the State and other public
authorities, has increased.

German farmers have advanced very far towards the solution of
the problem of obtaining adequate credit at moderate rates of |
interest and on convenient terms of repayment by means of the
17,000 local co-operative banks established and conducted by them-
selves, such banks being further organised in central co-operative
banks. The membership of 14,993 local banks existing on January 1,
1910, totalled 1,447,766 persons, a figure which represented one-
sixth of the agriculturally occupied population of Germany in 1907 ; the
total turnover in 1910 of 14,729 societies amounted to £ 261,665,000,
and, at the end of that year, the loans outstanding for fixed
periods, together with overdrafts, to £ 93,034,000, while at the same
date the savings deposits totalled £ 92,429,000, and the deposits on
eurrent account £10,865,000. At the end of 1911 there were
affiliated to 37 central banks (omitting the Prussian State Co-
operative Bank) 17,668 societies of all kinds, of which 14,508 were
credit societies ; and the total turnover of these central banks in that
year amounted to £410,391,000.

Different German co-operators employed the same phrase in
givile to the writer the reason for the growth of rural credit
societies: “they are the children of necessity (dee Kinder der Not)”.
Individual small farmers must, in fact, rope themselves together
with’ more or less stable bonds in order to be able to present to lenders
and depositors a security which the latter can accept asa guarantee
that their money will be repaid in the ordinary way and without the
exercise of legal pressure. And such local associations can lend
money to persons not providing “banking security”, as they know

392 PROVISION OF BORROWING FACILITIES,

their trustworthiness and can judge their business capacity, while
supervision is automatically brought into play within their restricted
areas of operation. In ordinary commercial banking facilities it is
probable that German farmers of the present day are better off than
British farmers. As in England the great German Joint-Stock
Banks tend to become greater, and their branches or agencies more
numerous, but banks working only in one locality, one district, or
one province are far more numerous in Germany. There are over
200 small joint-stock banks, besides the urban co-operative banks,
about 1,200 in number, and private bankers are estimated by leading
writers on German banking to number from 4,000 to 6,000. In
nearly every country town in Germany may still be found one or
more substantial banking firms ; and from these, if only by reason
of proximity, freedom of action of managers, relatively good
knowledge of agricultural matters and persons (as being often
established in country district centres) and of competition among
themselves, it might have been expected that farmers could have
obtained credit on suitable terms.

Despite this multitude of Raiffeisen banks, their large membership
and business, Proressor Risser, the most eminent authority on
German commercial and industrial banking, writing in 1912,
observed that much still remained to be done and must be done in
this direction, as “agriculture requires a credit system adapted to the
special nature of the conditions of its production.” And a
distinguished Prussian Minister of Finance, in the course of a
parliamentary debate on the budget of the Prussian State Central
Co-operative Bank, for whose foundation he was directly responsible,
declared : “This must be our goal—to have a co-operative loan bank
in practically every parish of the whole monarchy”.

RatrretseNn (1818-1888), with whose name rural co-operative
banks have become associated, began his co-operative career in the
winter of 1847-8 with the foundation in a small village of a
benevolent society for obtaining corn and potatoes and selling them
at low prices to the poorer inhabitants; this society was one of
many of the same type founded in Germany about this time, évhen
very serious distress prevailed. Two years later he founded in
another village, a society which at first bought cattle and sold them
to poorer landholders, but which later lent money on surety
directly to the latter for this purpose. Upon his transference as

PROVISION OF BORROWING FACILITIES, 898

burgomaster to Heddesdorf, near Neuwied on the Rhine, he
founded a third benevolent society with various objects, but
especially for the procuring of cattle fur, and the granting of credit
to, poorer farmers. This society, which gradually became merely
a loan society, was composed of well-to-do inhabitants living
in or near the village of Heddesdorf, who lent to less
fortunate inhabitants of the area, obtaining capital on the security -
of their collective unlimited liability. The assisted persons had
nothing to do with the society, whose members acted as guaranteeing
intermediaries between the capitalist and themselves. The first
association founded by Ratrretsen in which the fundamental co-
operative idea of the collective liability of the borrowers themselves
appears, was that of Anhausen (1862). There were already in
existence co-operative societies with unlimited collective liability,
which had. been created by Scuutze of Delitzsch, a small town in the
Province of Saxony, for the purpose of procuring credit for their mem-
bers, who were mainly artisans, small employers of labour, and small
shopkeepers. But RatrretsEn had in view the needs of agriculturists,

At the present time the majority of Raiffeisen banks in Germany
may be said to present the following features :—

Limitation of area, soas to secure mutual personal knowledge
on the part of members ;

Low shares ; |

Permanent indivisible reserve fund ;

Unlimited liability of the members ;

Loans only for productive or provident purposes ;

Loans only to members ;

Credit for relatively long periods with facilities for repayment
by instalments ;

The determination every year by the members of each society
of the maximum credit that may be held by individual

r. members at any time as well as of the maximum total
of saving deposits receivable and of loans that may be
taken up by the society ;

Absence of profit-seeking, dividends if paid being usually
limited, as a maximum, to the rate of interest paid by
borrowers for loans ;

Office holders, with the exception of the secretary, not paid for
their services ;

50

394 PROVISION OF BORROWING FACILITIES.

Promotion of the moral as well as the material advaneement
of members, and in particular the purchase of agrieul-
tural requisites for sale to members and often the
procuring of agricultural machines and implements for
letting on hire to members.

Compared with the ordinary urban credit societies of the Schulze-
Delitzsch type, which were originally organised for the special purpose
of furnishing credit to small traders, employers and artisans in
towns, many important differences appear. The areas of the banks
of the latter kind are not narrowly limited, shares are high, being
rarely less than £15, and sometimes reaching £75 and £100; there
is no indivisible reserve ; loans are usually made only for terms of
three months, when they are subject to renewal, and are repayable
in a lump sum, dividends, sometimes very high dividends, are paid ;
reeular banking offices are maintained with at least two permanent
paid officials, who form the committee of management, while the
members of the board of supervision receive remuneration; the
banks confine themselves to pure banking business; and their offices
are usually in towns. At the beginning of 1912, out of a total
membership of 641,429 members in 1,002 credit societies, 26°61
per cent. were returned as “independent farmers, gardeners, foresters,

’ Jn certain districts farmers are attached in large

and fishermen.’
numbers to these societies, which had spread, notably in the smaller
towns of the eastern provinces of Prussia, before the Raiffeisen
movement was introduced in those parts. Thus for 85 Schulze-
Delitzsch societies in east and west Prussia, having at that date
a total membership of 60,391, 29,278 were returned as belonging to
the four classes just mentioned; for 34 in Posen 11,136 out of a
total 22,233 ; and for 80 in Silesia 18,451 out of a total of 59,039.
In many cases where a noteworthy percentage of such members
is returned, they are to a great extent large farmers, the particular
society meets the special needs of landowners by making loahs for
longer terms than the majority of Schulze-Delitzsech banks do,
allows easy terms of repayment, and in other ways adopts the usual
principles of the Raiffeisen societies. There is also a certain tfumber
who become members, not with a view to borrowing, but merely for
the sake of investment of savings, either as shares or as deposits, at
a high rate of interest—shares are frequently as high as £75, and ‘
dividends at 6 or 7 per cent, not uncommon—this is probably

PROVISION OF BORROWING FACILITIES. 395

especially true of a large proportion of the women members returned
as belonging to this group and who numbered 13,203 out of a total
of 170,673, or 7:7 per cent., in 1911.

Asit is a principle of the Schulze-Delitzsch system that the
area chosen should be of a kind to allow of the development of a
regular banking business capable of supporting a salaried staff of at
least two persons and of yielding substantial dividends on shares, these
societies are established in towns or must cover fairly wide areas.
The feasibility of the minute supervision of their credits is thus
diminished and their usefulness to smaller farmers seriously impaired.
Their large membership renders impossible personal relations between
members : in 1911 the average membership was 623, and there were
societies with 11,650 members, 8,987 members, and several with from
2,000 to 5,000. Their business attains sometimes immense proportions :
some banks visited by the writer showed annual turnovers of
-£21,000,000, £10,700,000, £6,700,000,and £3,600,000. Their credit
is dearer and for shorter periods than that granted by the Raiffeisen
banks. They represent in a large measure commercial, profit-seeking
undertakings, being rather companies of lenders having as their
primary object the earning of dividends rather than the provision
of cheap credit. Many have developed into ordinary commercial
banks, others have been absorbed or converted into branches of large
joint-stock banks. The smaller societies tend, however, by reason
of their being localised institutions with organs of administration
composed of many persons representative of the various producing
classes of members, to be in a better position than proprietary or
joint-stock banks to judge the character and standing of such persons,
and thus aid small menunable to furnish ordinary banking security.
The general unsuitability of this type of society for German farmers
is shown by the circumstance that, while they have made no progress
in country districts the Raiffeisen type continues to spread in these
distriets.

The principal functions of Raiffesen banks are: (1) to meet the
needs of their members for supplementary personal credit or current
workmg capital, (2) to promote thrift among the rural population
-by receivng their savings as well as the savings of non-members
and paying interest thereon, axd (3) to actin general as the village

» banker. Theyare not meant to supply members with their entire
working capital but to supplement it; and, speaking generally, they

396 PROVISION OF BORROWING FACILITIES.

supply such credit mainly on personal security and for productive
or prevident purposes. Loans are also frequently granted for part
or full payment for holdings in those parts of Germany where small
holdings predominate ; and a certain number of credit societies have
carried out, with good results, the purchase and breaking up of
fairly large properties.

German rural societies, nearly all of which bear the double title
of Savings and Loan Banks, derive the greatest part of their working
capital, in fact, over 90 per cent., from the deposits of members and
of non-members resident within their own areas. Among the advan-
tages they offer to the rural population as savings banks are almost
absolute security, attractive interest, and proximity. The security
of depositors’ money is safeguarded in ordinary circumstances by the
fact that the rural society confines its business to a small area and_ to
simple, well-secured transactions ; by the regular examination of the
state of its business by the board of supervision (whose members bear
a special responsibility under the Act); by the general knowledge
of the affairs of the society being common to the bulk of the members;
by regular outside audits; and if all these should fail, through the
joint and several liability incurred by members. This liability is
unlimited in the case of 92 per cent. of the societies. The legal
provision that the total amount of the savings deposits that may be
accepted, and of the loans that may be contracted by a society,
as well as the provision that the limits of the advances that may be
made to individual members, must be annually fixed by the general
meeting of members, prevent the extension of business beyond the
collective solvency of the members comprising the society. The
history of German rural eredit societies has demonstrated the excel-
lence of the security offered: itis affirmed that depositors have never
suffered loss. And in the sixteen years 1895 to 1910 only 19 rural
credit societies were involved in bankruptcy proceedings: a striking
record when it is considered that since 1901 there have beerf over
10,000 societies and since 1909 over 15,000 societies of this kind
in Germany. Compared with other banking and credit undertakings
—one German writer has computed the frequency of banktuptey
per 10,000 undertakings over the period 1895-1905 as being fifty-five
times more frequent with them than with the credit societies.

These societies pay from 3to 4 per cent.—at least 70 per cent.
appear to pay 34 per cent. and over—on deposits; and they endeavour

PROVISION OF BORROWING FACILITIES. 397

to obtain deposits not only from members, but from non-members of
every ageand class. Savings boxes are distributed, savings stamps
and savings cards of various values are sold, and every suitable means
taken to collect the uninvested money of the community. As a
result of their success in this respect the savings of rural communities
are utilised for the purpose of further wealth production in the same
area.

Local societies are able to grant loans to their members at from
4 to 5 per cent.; rates not exceeding 44 per cent. predominate except
in the eastern provinces of Prussia, where the population being
thinner, and less prosperous, deposits are less abundant, and higher
interest has to be paid on them, while the credit of the central banks
has to be more frequently invoked. The central banks lend money
to eredit societies at rates which vary according to market conditions ;
but the normal rates of interest for advances within the ordinary
credit, as allotted periodically to each society range from 4} to 5 per
cent. A small commission of 3; or 345 per cent. is also usually
charged yearly or half-yearly on the amount of credit taken up.
The local societies generally levy a single commission of 3, to 4
per cent. (most usually 5/;) on the majority of loans; on advances
for property purchase or settlement with co-heirs a higher commission
is usual. The cheapness of the credit appears more striking when it
is recollected that ordinary commercial credit in Germany is dearer
than in England.

Loans are secured for the most part on personal bonds backed by
sureties, but mortgage security is not uncommon in certain districts.
The committee usually asks the purpose of the loan, and usually enters
this in the minutes of the transaction. Many of the more developed
societies do not ask the question, being only concerned with the
standing of the borrower and of his sureties. Although rural socie-
ties are developing their loan business on current account, the
majurity of loans are still granted for definite periods; at the end
of 1910 loans outstanding on current accounts granted by 82 per
cent. of all rural credit societies amounted in value to about 28 per
centoof their total loans then outstanding. Current account loans
are especially prominent in the two provinces of Saxony and Pomera-
nia, where the majority of societies have adopted limited liability as well
in the societies with unlimited liability in Silesia and Brandenburg.
Care is exercised that loans on current account do not become, in fact,

398 PROVISION OF BORROWING FACILITIES.

standing loans. Most societies insist that there shall be a real
movement in these accounts by requiring a certain percentage at least
of the overdrafts to be repaid into the account within each half-year
or year; otherwise they call in the whole amount at once, or reduce
the credit, or raise the interest. -

As to the loans for definite periods, such periods are determined as
far as possible in accordance with the desire and position of borrowers ;
they are granted usually for at least a year, when they are generally
renewed on application ; they may rnn for two, three, four, or five
years, but those for longer periods are far from rare. Societies reserve
the right to recall loans on notice of from one to three months. Easy
terms of repayment are a marked feature of Raiffeisen societies.
When arranging for loans borrowers submit to the committee the
length of time for which they require accommodation, and their
proposed method of repayment; and they are usually allowed to repay
in instalments of equal amounts spread over a period of years. It is
a not unusual plan to fix the instalments according to the number of
years for which the loan is granted ; thus where a loan is granted for
two, four or five years there is due each year from the borrower fifty,
twenty-five, and twenty per cent. of the loan respectively. Borrowers
are always allowed to make additional repayments on giving notice—
usually one to three months’ notice is required—to the society of such
intention. Repayments of loans appear to be maintained in satisfac-
tory relationship to fresh Joans: in 1909 and 1910 the societies in the
Imperial Federation (to which over 80 per cent. of all rural credit
societies are affiliated) granted fresh loans of the value of £15,075,000
and £16,910,000 respectively , while the repayments on outstanding
loans amounted respectivély to £9,270,000 and £10,990,000. In the
same yearsthe amount paid in by members on current accounts
amounted to £29,878,000 and £33,515,000, while the amounts paid
out to members on the same accouats amounted to £30,683,000 and
£34,130,000 respectively. e

But it may be asked: what course is taken when deposits are
‘insufficient (or even non-existent, as upon the establishment of a society)
or when they are ever-abundant? As a rule credit is obteined,
‘or any excess of deposits over current needs lodged, at a central
co-operative bank. From the beginning Ratrretsen recognized the
necessity for combination among rural credit societies so as to provide
them with a permanent centre at which depositing and borrowing

PROVISION OF BORROWING FACILITIES. 399

might be advantageously transacted by non-profit-seeking organisa~
tions which at once understood and took account of the special financial
structure of co-operative societies and of the conditions of their
business. At the present time over 90 per cent. of the rural credit
societies are shareholders or members of co-operative central banks, of
which there are nearly fifty (including as separate banks the twelve
branches of the Raiffeisen Central Loan Bank) in Germany.

These central banks are organised according to provinces or States.
The German Agricultural Central Loan Bank, founded by Ratrrrtsen
in 1876, extends its operations over the whole of Germany, but it has
decentralised its business by the creation of 12 branches, which limit
their operations to fixed areas co-extensive with a province, part of a
province, or adjoining provinces, a State or congeries of small States,
and which form in fact provincial banks. The other central banks in
Prussia are attached to the Prussian State Central Co-operative Bank,
which occupies in regard to them in some respects the same position
as the Raiffeisen Bank occupies in regard to its branches. The scheme]
of organisation for Prussian societies is, therefore: (1) local societies
balancing as far as possible monetary supply and demand among: their
menibers ; (2) provincial banks adjusting similarly the needs of their
constituent local societies; and (3) larger organisations at Berlin
(namely, the State Bank and the Raiffeisen Central Loan Bank)
balancing supply and demand among the central banks, obtaining
necessary credit, and making necessary investments on the money
market, for them.

- Outside Prussia no State Central Co-operative Bank has been
established, but -in all the larger States the central banks are in
receipt of State advances or credit to assist them when the monetary
demands of the local societies are in excess of the deposits of the latter
and of other available capital.

Commercial Banks urge that the granting of loans for the long
periods required by agriculturists would not be advisable, as their
capital would be unduly tied up. Such banks naturally wish to
realise profits by the frequent turnover of their capital; they often
operate on small margins; and the bulk of their customers, who are
traders and manufacturers, do not as a rule leave money for long
periods on deposit with them. Rural co-operative societies are not
profit-secking speculative undertakings; and German rural societies
have found that the capital on which they mainly depend, namely,

400 PROVISION OF BORROWING FACILITIES.

savings deposits of members and non-members, tends to remain with
them for long pariods. Should a sudden call come, which they are
unable to meet out of their immediate resources, their solvency is
practically assured through their central bank; in the last resort only
would they be obliged to exercise the right, which they reserve, to call
in loans.

No English agricultural credit society established under the
Friendly Societies Act—the small number existing have all been
established under this Act—may grant on loan to any member, to be
held at any one time, a total exceeding £50. German registered credit
societies are only restricted to the extent that every society must fix,
for each year by resolution of a general meeting of members, the
maximum of the total advances that individuals may hold at any one
time. Some societies fix this maximum at a very high figure—
occasionally up to £5,000 and more; a large number of societies do
not allow the committee alone to grant the maximum thus authorised,
but require the additional assent of the board of supervision, and often
fix a lower figure for the committee alone. The advantage of this
facility is that societies are enabled to adapt their eredit business to
the needs of their members and to the state of development of their
own resources. The actual amount of credit extended to individuals is,
of course, dependent on the standing, character, and other security
furnished by each applicant and the bulk of the loans granted by
rural societies are for sums not exceeding £50. Taking as fairly
representative of German rural credit societies the 4,000 societies now
attached to the Federation founded by Ratrretsen, itis found that,
in the years 1908, 1909 and 1910, about 45 per cent. of their
loans outstanding, which totalled 360,000 to 376,000 (1910),
were for sums up to £15,a further 16 per cent. for sums over
£15 up to £25, and a further 17 per cent. for sums over £25 up to
£50. Ten per cent. of the total were for sums over £100.

It is sometimes contended in England that, as farmers have a*con-
siderable reluctance to letting neighbours know that they require
eredit, they are not likely to borrow from a credit society. Practi-
eally considered, such objection should carry little weight. elf a
small farmer borrows from a bank he must explain his position and
bring usually two sureties. These sureties are generally his neighbours
and the occasion often the market day, when other neighbours also
travel to the particular town, And banking offices in small towns

PROVISION OF BORROWING FACILITIES. 401

are wont to be established, not in remote streets but hard by the
market places. Further, a countryside is a small world where every
farmer knows his fellow-farmer’s position or can deduce it from
external evidence. In the ordinary German village bank the grant-
ing of a small loan does not imply meeting the whole committee ;
application is usually made to the secretary, and the transaction
usually carried through without any further formalities. Absolute
secrecy is imposed*upon the secretary and other office-holders, and,
given the small area, such secrecy is more easily enforced. In Germany
it is rather the difficulty of the sureties which holds chief place;
many societies with limited liability now assign to members an open
credit up to three-fourths of their liability without further security.
And, as regards the whole matter of borrowing, it is one of the aims
of a rural credit society to bring home to members that farmers,
like other producers, require to have credit at their command, and that
it is no blot on their business reputation to be borrowers.

As regards the co-operative credit movement in England, the
view appears to be not uncommonly held that the predominance of
tenancy, instead of ownership, is a chief obstacle to its development ;
that the collective liability of a society composed of persons who
are mostly tenant farmers cannot offer adequate security to depositors
or other suppliers of working capital, and that the security offered by
the individual borrowing tenant to his society is necessarily weaker.

The decisive importance of ownership in this connexion may
fairly be contested. To take the matter of the society. All members
are liable to their society either up to a certain fixed amount under
limited liability or up to the full extent of their assests under un-
limited liability. In the ordinary course the committee and board
of supervision of a society will draw up and periodically revise an
estimate of the means of each member, based on the valuation of
each member’s holding, on the rent paid, possibly on the income tax
assessfient voluntarily furnished to them, on the stock held, or on
other supplementary tests of well-being; and in this way the
maximum security offered by their members is ascertained. In
Pruss&, it may be noticed, this valuation, which is undertaken at
regular periods (and duly rectified, if necessary, in the intervals), is
submitted to the local surveyor of taxes, who is authorised to, correct,
if necessary, the sum total but not the individual valuations placed
opposite the name of each member, But this sum total would

5]

402 PROVISION OF BORROWING FACILITIES.

naturally not be taken as representing the ordinary security of the
society for the purpose of credit: it suffices that a small percentage
be taken. The Prussian State co-operative Bank lends up to a
maximum of 10 per cent. of the assests of members as returned and
checked by the local surveyors of taxes in the case of societies of
unlimited liability, while it grants societies with limited hability an
ordinary maximum credit of 75 per cent. of the collective liability
of their members. The Raiffeisen Central Loan Bank grants to its
societies (all with unlimited liability) in Prussia a normal eredit of
10 per cent. of their assests, and to those outside Prussia, where the
returns are not usually checked by the surveyors of taxes, a normal
credit of 5 per cent. The Saxon and Pomeranian Central Co-operative
Banks fix the maximum credit at 75 per cent. of the collective
liability of each of the affiliated societies; the latter have adopted a
liability limited to £10 or £12 10s. per share held, and their members,
speaking generally, are obliged to take up one additional share for
every £100 of assessed value over the first £300, so that the maximum
credit rests on the security of, roughly, the tenth part of the tax-
able property of members. It does not appear that any appreciable
risk would be involved in giving to a seciety a maximum credit of
five per cent. of the collective worth of its members as returned on
the combined authority of the committee and board of supervision.
Societies will naturally require a period of notice before resignation
of membership may take effeet—the German Act fixes the minimum
period at three months and the maximum at two years; members,
though tenants, will not all be simultaneously desirous of resigning ;
their leases do not all expire at the same time; and they will not
be all in debt with their society or all generally insolvent.

Or another basis might be adopted. When Prussian societies do
not furnish a detailed statemant of the assests of members, the
Prussian State Bank allots to each such society a maximum credit
of from £5 to £15, at its diseretion, per head for each member ;
and a South German Bank, in estimating the credits allotable to the
rural credit societies in business relations with it, assesses the value
of each society, in case it should be necessary to recover any alaims,
at the rate of £10 per member. The Prussian Bank does not
confine its rule to rural societies: urban societies come within its seope.
It will hardly be questioned that English rural. societies, even those +
composed entirely of tenants, offer a sounder security on such a basis _

PROVISION OF BORROWING FACILITIES. 403

than do those urban societies of small tradesmen and artisans to
whom the Prussian Bank finds it safe to lend money when organised
in a registered co-operative society.

As to the nature of the security obtainable by the society from
tenant borrowers, it may be recalled that the aim of a co-operative
. society is to furnish supplementary working capital on personal

security, that is, upon the security of the general standing of the
borrower and of his business reputation, supported, if necessary, by
sureties, the ultimate security implicitly involved being the realisable
value of the assests of the borrower or of those of both borrower
and sureties. In Germany this ultimate security consists mainly
in- property, and in so far members are able to provide a better
underlying security. But tenants have leases, and cannot leave
at a moment’s notice; they possess personal property, stock,
machines; their business capacity and character is known in their
neighbourhood ; and it is always open to them to provide sureties,
who need not be members of their society. As societies do not pretend
to furnish the entire or major part of members’ working capital, but
merely to supplement it, the amount of credit which the members may
‘be allowed on these bases is likely to be in keeping with their needs as
well as within the limits of safety for the society. The supervision
automatically exercisable by reason of the narrow limits of the area of
rural societies minimises risk of loss, a risk which is further reduced by
the power, to be retained by the societies, to callin their loans at. short
notice, when there is good evidence of their capital being endangered.

It ean hardly be anticipated that co-operative credit societies will

inerease at first with great rapidity in England. But Evglish farmers
are not alone in being highly conservative and distrustful of fresh
projects ; in Germany the success of the movement was largely the
result of the intensive propaganda carried on continuously from many
sides as well as of the effective assistance of the State. The same
persistent and penetrating propaganda work will be required in
England ; and progress will probably be slow, as in Germany.
There are now nearly 17,000 rural credit societies in that country ; but
twelv® years after (1864) the first Raiffeisen bank was established
there were only about one hundred of that type in existence, and in
1890—nearly forty years after—their total number was 1,729.
Among the chief agencies which promoted the movement, apart
from the State (including the Empprors Wiii1AM I and Witt IL,

4.04 PROVISION OF BORROWING FACILITIES.

who showed their approval by donations to the Raiffeisen Central
Loan Bank, and rulers of Federal States) and the Co-operative Unions,
which have acted in their several districts as the intelligent organisers
and advisers of co-operative effort in all its branches, may be
mentioned, (1) the agricultural organisations, and especially since,
their creation under the Prussian Act of 1894, the Chambers of
Agriculture in Prussia; and similar bodies in other States ; (2)
clergymen ; (3) teachers and communal officials in rural districts ; (4)
larger landowners ; and (5) various educational institutions.

RatrFEIsEN, the mayor of a small, remote district, was first given
the opportunity of putting his ideas into practice outside his own
restricted area by the Agricultural association of the Rhine province.
His book describing his system appeared in 1866, when he had already
founded five credit banks, and attracted in the same year the attention
of the Association which was considering means for improving credit
facilities for the farmers of the province. In 1868 Ratrreisen was
commissioned by the Association to establish credit societies within its
area, and within a year he founded 12 new societies. Shortly after
he was placed in chatge of Aid department for Loan Banks established
by the Association as a branch of its work. Similar associations
throughout Germany took up gradually the active furtherance of the
credit society movement.

Unlike Scuunze-Dexrrzscu, who conceived his societies as purely
business organisations, RAtrreIsEN always laid stress upon the moral as
well as the material aims of his societies, which “rest upon a Christian
foundation” and “aim at promoting the moral and material welfare of
members.’’ Clergymen of all denominations in most parts of Germany
have given their constant and active support to the Raiffeisen banks
since their inception. At the present time large number of clergymen

?

are to be found acting as chairmen or members of committees of
management and of boards of supervision, and in some cases they
undertake the duties of secretary. Rural teachers and communal
officials have rendered great services to the Raiffeisen societies, not
only by encouraging their establishment and becoming members, but
also by accepting in large numbers the most responsible offices sech as
those of chairman of committee and of secretary. Agricultural
colleges of every grade, which are more numerous in Germany than in
England, usually include in their curriculum a course of lectures on :
agricultural co-operation, while at several Universities (e.g., Berlin

PROVISION OF BORROWING FACILITIES. 405

Halle) special courses of lectures on co-operation by various professors
are given each year.

Larger landowners have also taken a considerable part in the
extension of the village banks, not only by promoting their
establishment and accepting office, but also to a certain extent by
depositing with and borrowing from them. The chairmen of the
committee of management of 50 out of 305 Pomeranian societies in
one year was a large landowner; in another year out of 720
Silesian societies there were 209 large owners holding this office. In
the less onerous position of chairman of the board of supervision they
are even more numerously represented ; and they are very generally
found as ordinary members of both organs of administration of a
co-operative society in those parts of the country, that is chiefly in
the eastern provinces of Prussia and in the Kingdom of Saxony,
where large landowners constitute a noteworthy proportion of all
landholders.

Various reasons account fer the more limited participation of
large holders in the society as depositors ang borrowers.. Although
limited liability is regarded by many very competent authorities in
Germany as most suitable in the case of societies which contain a
considerable proportion of large holders, unlimited lability has not
(since 1889) been a chief obstacle: the difficulty lies mainly in the
dislike of a social superior to reveal his position to a committee of
two or three of his smaller neighbours or to submit an application for
eredit to them, as well as in the difficulty for a small local society to
grant credit to such members to the extent that may be required,
without exhausting their own working capital to the prejudice of
their other members, or without risking an unduly high proportion
with a single member. In Pomerania and Saxony (province of),
as well as in Silesia, a considerable number of large landholders are
reported as transacting business with the local societies ; in Pomerania
outof 376 local societies, all with limited liability, there were 107
which fixed their maximum total loans to individuals at from over
£1,000 up to £2,500, 27 at from over £2,500 up to £5,000, and 9 at
from over £5,000 up to £10,000. In many cases outside Pomerania,
Saxony, and Silesia large landowners obtain their agricultural requi-
sities through the local society of which they are members, and in
this way, but seldom otherwise, they often obtain credit from co-
operative credit societies. It may be conceded that local credit

4.06 PROVISION OF BORROWING FACILITIES.

societies are less necessary to large than to medium and small holders ;
they can usually obtain credit more readily and on better terms than
the latter from commercial banks, although in common with other
farmers they usually require such eredit for longer periods than are
customary in commerce. And in Germany, at least, such bank
credit is far dearer than co-operative credit, and repayable under more
unfavourable conditions. That even large holders in England do not
obtain all the credit they need at their banks appears clear from the
considerable volume of eredit which is at present extended to farmers
by dealers and factors for periods of a year or more.

[ Eetracts from the Proceedings of the Fourth Conference of nr
of Co-operative Credit Societies. |

Mr. R. W. Carnyie, C.1.E., President of the Conference, said
that he was glad to report that there was no cheek in the rapid
and satisfactory progress of the movement to which he had alluded
last year. The figures had not been finally checked and must be
accepted as merely provisional. But they showed that the number
of societies of all kinds had risen from 1,357 to 2,008, the number
of members from 149,160 to 184,897 ; the working capital agegre-
gated nearly 8] lakhs of rupees against just over 44 lakhs last year,
and the expenditure had increased from less than 47 lakhs last year
to more than 84 lakhs. This was only the fourth annual Conference,
but these figures indicated that the movement had already progressed
far beyond what could reasonably have been expected by those who
were present at the first meeting in 1906. The progress made during
the year was all the more satisfactory, because the annual reports:
showed that in most provinces the aim of the Registrars had been
rather to foster growth where the seeds of co-operation had already
taken root than to attempt to break new ground. It was also very
satisfactory that whereas State aid accounted for only Rs. 6,86,148
of the working capital or very little more than last year (Rs. 6,51,816),
loans from private persons totalled nearly 25 lakhs of rupees against
less than 124 lakhs at the end of June 1908. Last year in address-
ing the Conference he had had oceasion to point out that the two
questions of vital importance to the future of the movement were
the best means of providing for the supervision and the financing
of co-operative credit societies. In several of the provinces the
question of finance seemed to have been solved. He was referring
in p&articular to Madras, Burma and the United Provinces, but so far
as he could judge, he did not think it probable that this question would
give rise to serious difficulties in the Punjab, Central Provinces or
Bengal. He did not, of course, mean that in those provinces very
large sums of money would at once be forthcoming, but there was
reason to believe that money would come forward quite as quickly as
it would be possible to establish properly supervised societies. It was
too early to say that the question of supervision had been solved any

408 PROVISION OF BORROWING FACILITIES.

where, but the state of affairs in the United Provinces and Madras
gave great promise for the future. The reports for 1908-09 served
to confirm the opinion expressed by the Government of India in their
Circular dealing with the proceedings of the third Conference that
the most satisfactory solution of the problems connected with the
best means of financing Cash Societies and with future arrangements
for audit, inspection and control would be found in the organisation
of societies as they increased in numbers into local Unions and in the
federation, at a later stage, if necessary, of these Unions into Central
Unions. At the same time it was of course possible that in some
provinces other solutions might be found necessary or desirable. The
great importance of supervision not being confined to Government
was well brought out by Mr. Ramacuanpra Rao’s remarks on the
danger of insufficient or routine inspection by Government officers,
and he thought that there was a real danger that if Government
assistance was not kept within moderate limits the whole move-
ment would tend to become departmentalised. He referred to the
fact that in many provinces Registrars had found it desirable to
confine work to concentrated areas and to avoid establishing isolated
societies. ‘There could be no doubt as to the soundness of this policy.
It was far easier to establish in concentrated areas Unions which
could both finance, and, to some extent, supervise the societies in such
areas. Co-operation was, so to speak, in the air. New societies
were far more likely to be started and to be run on the right lines
from the beginning. He sympathised with the difficulties of the
Registrar of Burma who was unable to cope with the demands
of the public. He was not sure that the Registrar was not
over-anxious as to a number of societies being started without
being registered. If such societies sprang into existence it
would not be long before the fact that they were not registered
under the Act was widely known. <A question of great importance
was how far societies should endeavour to pay off their menibers’
debts to outsiders. He could not believe that any one who was in
debt, both to the society and to the money-lender, could derive full
benefit from his society. Of course it was not necessary that thé debt
should be paid off in one instalment. As long as the society cou'd
arrange for the debts of its members being definitely taken over, it did
not much matter if the debts were paid off by degrees. He shared
the doubts expressed by the registrar of Co-operative Credit Societies

PROVISION OF BORROWING FACILITIES, 409

in the Central Provinces as to the advisability of allowing banks to do
general banking business as well as co-operative credit work, but he
had no doubt the members of the Conference would have something
to say on the subject. Another point to which he would draw the
attention of members was the question of devising the best means of
dealing with Co-operative Societies for distribution purposes. It
would be agreed that management was much more difficult in such
societies than in small Cash Societies, and the question how far
co-operation for credit and co-operation for distribution should be
combined was one which deserved careful consideration. The past
year had shown that many difficulties still remained to be overcome,
but they had reason to congratulate themselves not only on the general
progress made, but also on many indications that public interest had
been aroused. There was perhaps seme danger that they might be
urged to move too fast, but the interest which the movement was
beginning to excite among the general public was wholly good, and
unless this interest increased and spread, it would be impossible to
effect that revolution in the economic condition of India which might
be expected from co-operative credit work if it continued. to progress
with the same rapidity as at present.

92

[Letracts from the Proceedings of the Fourth Conference of Registrars
of Co-operative Credit Societies, 1909.]

- How sest To ENcouRAGE THE ASSISTANCE OF NON-OFFICIALS.

The discussion was opened by the following note presented by
Mr. Bucuan (Bengal) in which he advocated the formation of District
Co-operative Committees :

“There is no more important or more difficult) question before
the Conference than the organisation of the future development of
co-operation. We have come to the stage where we must choose
between further officialising and. more completely popularising the
work. Personally I consider it vital to the movement that the
propelling power of popular interest and enthusiasm should be applied
to it as soon as possible, and our principal efforts should be directed
to enlisting and systematising the co-operation of the people in the
work of organisation. I offer the following suggestions for
discussion :—

(2). There are certain facts which few will question :—

(a) In nearly every province the Registrar has great difficulty
in supervising his societies and no time for propagandist work.
Honorary organisers have given most valuable assistance, but their
number and powers are limited.

(4) It is not a sound arrangement that the Registrar should be a
financing agency except in special cases. We want above all things
local capital and a machinery for attracting and dealing with it.

(c) New forms of agricultural co-operation (productive and distri-
butive) should be undertaken and are in contemplation. These forms
present so many variations dependent on local circumstances and
conditions of production, that without active assistance in the districts
the Registrar can accomplish very little. r : |

(d) In no country has co-operation become a force until it has
become a popular movement. And soit will be in India.

(3) We have to face then three alternatives—(1) stoppage of —
progress or development without guarantee of safety if our present
staff is retained; (2) considerable increase of staff and further officiali-
sation of the movement, which we want to avoid; and (3) co-opera-
tion with, and extensive devolution of responsibility to, unofficial

PROVISION OF BORROWING FACILITIES. 411

azencies, combined with a proper organisation of this unofficial assis-
tance. There can be no question that the last alternative is the best
if it is practicable.

(4) From what I have seen of agricultural organisation in Britain
I feel sure that we want something on the lines of the Irish Agricul-
tural Organisation Society, only much more localised. We cannot
work on a provincial scale yet. A Provincial Bank or a Provincial
Union would be handicapped to the point of failure by want of local
machinery. It would be safer and more eflective to build up to them
from below. What I would suggest as a first step is the creation
of District Co-operative Committees. Each would consist of a few
(not too many) members really interested in co-operation and represen-
tatives of different areas. We would thus have virtually a number
of honorary organisers in every district, not acting independently,
but taking counsel together periodically and working out a common
scheme. Each would undertake the preaching of co-operation and
formation of societies of different types in his own area. Above all
they would tap local sources of capital, which would be one of their
ehief duties. That they should find funds for their own societies
would be insisted upon; and the first operations should be confined to
districts where local capital is available. Besides propagandism the
Committees would undertake the initial supervision and control of
the young societies. But this minute supervision would only be
temporary, for they would always work with an eye to the formation
of Unions and to the speediest possible autonomy of. the groups.
So the District Committees and ‘the Unions would be parallel and
complementary developments. Their lines, however, would probably
converge in time, for the Union on its banking side would no doubt
become affiliated to a Central Bank, while the District Committee
might develop into a Central Union to which the local Unions on
their administrative side would be subordinate.

(©) To begin with, the Registrar and the District Officer would
guide these Committees and control them with some strictness. But
within definite limits they would be givena free hand. And as the
movement gathered strength and the Committees proved their worth the
Registrar would gradually withdraw, and in time, I hope, would confine
himself to the merely formal duties of a Registrar in other countries,

(6) The actual constitution of the Committees is a matter for
arrangement. They might be attached to the District Agricultural

412 PROVISION OF BORROWING FACILITIES.

Associations ; but they would probably be more effective to begin
with at least, as independent bodies. In any case the District Officer
should be Honorary President. He would exercise a very useful
supervision without interfering too minutely or making success depen-
dent on his continuance in the district. In time these Committees
might become very useful assistants to the Agricultural Department.
One of their most important duties would be to develop agricultural
co-operation in production and sale; and it is the experience of every
country that the direct linking of the agriculturist with the general
market by a co-operative machinery is one of the most effective
means of teaching improved method of cultivation, breeding, ete. —

(7) Lastly, I think that Government should give some financial
assistance to the District Committees. They ought, of course, to be
composed of voluntary helpers, but there are bound to be expenses of
management which Government might, at least, in part defray. This
assistance would probably best be given in the form of a small yearly
grant to each district. These grants would not, of course, be permanent,
but would be continued until the movement in each area became self-
supporting. There can be no objection to this from a co-operative
standpoint ; even the violent opponents of State aid make a distinction
in favour of Government grants to propagandist effort. Instances
might be drawn from many countries. I need mention only the consi-
derable subsidy which up to last year the Irish Agricultural Organi-
sation Society received from the Irish Department of Agriculture, and
the proposed grant to British Agricultural Organisation Societies under
the recent Development Bill, which I understand is not objected to by
co-operators.

T would be glad if this Conference would consider the above rough
sketch of the line I propose to take next year. Discussion may elicit
a more practicable scheme for enlisting popular interest and support.”

Mr. Gourtay (Bengal) entirely agreed with Mr. Bucuan that the
movement could never be a real success unless and until it becafne a
national movement. Government had shown the way and had proved
the endless possibilities of combination; but it could not, undertake
the indefinite extension and supervision of societies, and co-operétion
would never become a power in the land until it became a really popu-
lar movement. The question before the Conference was what practical
means could be taken to secure this end. Various schemes ‘had been
suggested in Bengal. Mr. Bucuan had just explained one of them

PROVISION OF BORROWING FACILITIES. . 413

and efforts had also been made to train the younger generation in the
principles of co-operation. Co-operative Credit has been included in
the syllabus of Political Eeonomy at the University Examinations, and
instruction in it was given at the colleges. It would greatly assist
them in Bengal, however, if the Registrars would explain what was
being done in the matter in other provinces. Mr. Lanciry (Punjab)
generally agreed in the ideas expressed in Mr. Bucuan’s note. Rat
Isuwar Sanat Banavur (United Provinces) pleaded for more recognition
by Government of the work of honorary organisers. He suggested
that certificates should be given to such organisers on the recommen-
dation of the Registrar. Kunwar Manaras Stncu (United Provinces)
said that his experience pointed to the same conclusion. He believed
that it would have been an excellent effect if the services of honorary
organisers and managers who had year after year done particularly
good work were occasionally recognised in an appropriate manner.
He also mentioned that some District Banks in his province had ‘adop-
ted the system of giving small tokens of approval such as puggrees,
certificates, etc., at their annual meetings to the Sarpanches of borrow-
ing societies who had done good work. The system had had excellent
results, and he thought that it might be followed with advantage in
other provinces. With regard to District Committees, the United Pro-
vinces already possessed similar organisations in the Boards of Direc-
tors of Central and District Banks. Mr. Fremanrie (United Provinces)
criticised Mr. Bucuan’s proposal to form Distriet Committees controlled
and guided by the District Officer. The experiment had been tried nine
years ago in the United Provinces and had failed. Societies started by
prominent men in order to please the Collector would not do
any useful work. Mr. Bucuan said that Mr. Fremantie had mis-
represented his scheme. He did not want prominent men. The Com-
mittees would consist only of men who were really interested in
co-operation. Mr. Wuirrter (Bengal) agreed with Mr. Bucuan
that if the movement was to be a success it must depend on disinterested
work, but he disliked Committees. They were too fond of sitting
round a table and talking. He had much more faith in individual
meneworking in small local areas in which they lived and were
interested. He would recognise them officially. They should be
appointed by the Registrar and should be called Assistant Organisers
or given some such title. All depended of course on the careful
selection of the men. Mr. Huminaway (Central Provinces) referred

414 PROVISION OF BORROWING FACILITIES.

to the Co-operative Journal which had been started in Madras. He
thought that much good would be done by a journal of this kind if
the Registrar noted briefly in it the results of his inspections of
societies and mentioned by name members of Committees who had
done good work. Mr. Ramacwanpra Rao (Madras) said that he had
more offers of non-official aid than he could make use of in Madras.
Mr. CampBeLt (Bombay) said that his experience was that a society
founded on sound lines was the best agent for development. Its
influence soon spread, and it led to the formation of other societies in
the vicinity. He thought, however, that much good would be done
by Provincial and Divisional Conferences. Mr. ADINARAYANA CHETTIAR,
Secretary of the Salem District Bank, asked leave to make a small
suggestion. It would be very popular if a few selected non-official
gentlemen in each province who had been of assistance to the
Registrar were placed on the distribution list of the Co-operative
publications of Government, such as the annual Administration
Report on the working of the societies in the various provinces. It
would be of great use to non-official gentlemen to get these reports
and to be able to keep in touch with the work going on all through
India. The Conference cordially approved of this suggestion. As
regards the general question, it was felt that no cut and dried scheme
could be laid down, and that it must be left to the Registrar and
his staff to decide, with reference to local conditions and the degree
of development attained, how the assistance of non-oflicials could best

be encouraged.

[Letracts from the Proceedings of the Fourth Conference of
Registrars, 1909. |

ORGANISATION OF Co-opERATIVE Stores In INpta.
DEVELOPMENT OF OTHER FORMS OF CO-OPERATION.

These two subjects were referred to a Sub-Committee which was
also asked to consider the question raised by Kunwar Manaras Sineu
(United Provinces) as to whether societies and especially District
Banks might legitimately engage in other than strictly banking
business. The Sub-Committee was composed of Mussrs. BucHan
(Secretary), Enatisu, Surrras and SHama Rao.

Mr. Bucwan presented the report of the Sub-Committee as
below :—

I. Co-operative Stores—The Committee’s first recommendation
is that the Act be amended as soon as possible so as to make the
registration of societies for co-operative distribution, production and
sale clearly permissible.

The Committee have come unanimously to the following conclu-
sions :—

(1) That a society which deals solely in stores is not generally
practicable in a purely rural district owing to the absence, within
_a workable area, of a sufficiently large and continuous demand for
similar articles; that while distributive annexes to rural credit
societies are possible, it is highly undesirable that a credit society
should deal in distributive business until it has thoroughly mastered
its own special work; and that generally speaking, in view of the
different areas which a Credit Society and a store can safely, and
ought to, cover, and of the danger of each department damaging the
other's credit, it is desirable that the separation of credit and distribu-
tive functions should, except in special cases, be insisted upon.

(2) That in small towns, such as the head-quarters of sub-divi-
sions, the formation of stores should not be encouraged unless prices
are unduly high and conditions adverse to the consumer.

416 PROVISION OF BORROWING FACILITIES.

(83) That in the head-quarter stations of districts and in large
towns where the people are mainly wage-earners and artificial con-
ditions have made living expensive, distributive societies should be
developed.

At the same time the Committee wish to record their opinion
that minute official supervision and assistance in the matter of stores
is neither possible nor desirable. These societies must stand on their
own strength. Beyond seeing that their rules make adequate provi-
sion for the safe and honest conduct of business and carrying out
the annual audit, the Registrar ought not to interfere except in very
special circumstances. To safeguard co-operative principles and to
obviate possible dangers the Committee consider that adherence to
the following rules should be strictly insisted upon :—

(a) Credit should be forbidden, and cash dealings only allowed.
If a member requires credit he should get it from his cash society.

(4) To preserve the co-operative nature of a society and to prevent
any tendency to profit-seeking and traffic in shares the dividend on
shares should be limited by rule, shares should be made withdrawable
only, and to their number no limit should be placed either by rules or
by practice.

~(c) To guard against fraud and irregular practices, provision
should be made for effective control by the Committee of manage-
ment; stock-taking should be frequent ; and all officers dealing with
goods or money should be required to give security in a certain
amount.

(Z) Speculation in any form should be forbidden. For instance,
a society should not be allowed to purchase large quantities of grain
at a cheap rate with the object of placing it on a distant market and
getting the benefit of the higher price. It should be insisted upon
that the sole function. of a distributive store is to gauge the wants
of the immediate locality and to confine itself to supplying their needs.

(e) As far as possible the Stores should follow the methols of
European distributive societies, vzz., they should sell at the market
price of the nearest large town (thereby minimising competition with
the legitimate trader), and after defraying expenses of managément
and placing 25 per cent. of the profits in the reserve, they should
divide the balance between members and non-members according to

the amount of their purchases, non-members receiving a lower rate ‘

than members,

e

PROVISION OF BORROWING FACILITIES. 417

Il. Other forms of co-operation.—The Committee consider
that all other forms which are practicable in India are covered by the
general term “Agricultural co-operation.” Agricultural Co-operative
Societies fall into three principal classes :— |

(1) Supply, 2. ¢., distributive societies for providing the materials
of agriculture.

(2) Productive, such as co-operative dairies.

(3) Sa/e, such as grain or lac selling societies. The Committee
consider that much might be done in every province in the matter of
agricultural co-operation. Mr. Surrras especially, believes that in
Kastern Bengal and Assam there is scope fer the co-operative supply
of agricultural machinery (provided that sufficient attention is paid to
the peculiarities of local agricultural methods), and a promising market
for a co-operative dairy in Dacca. At the same time the Committee
would draw attention to the intricate and varied nature of the subject.
We are not dealing with general agricultural requirements only, which
are similar the world over, but with a complex market and the machi-
nery of commerce. Hence there is no fundamental type of society
which might be recommended for general adoption. It is possible
that each crop and product under the above three heads (supply, pro-
duction and sale) may have to be dealt with by a different type of
society ; and success will always be a question of minute attention to
details and conditions. The Committee therefore are not prepared to
make any specific recommendations. They are, however, strongly of
opinion that in each province, with the help of the Agricultural Depart-
ments, a survey should be made of the principal crops and _ products,
the methods of cultivation, production and distribution and the condi-
tions of the market for each. And where the enquiry shows that
co-operative methods can be used with advantage, they should be
applied.

II. (1) & (2).—These special subjects have been covered by the
general discussion above.

(3) The Building societies contemplated by Mr. Suama Rao are
constituted on the lines of an ordinary Credit Society, except that
their paraded capital and deposits will have to be raised on long terms.
Such societies can be registered under the Act, and the Committee
consider that: they might serve a useful purpose in large towns.

The members are unanimous in recommending that until the
co-operative movement is thoroughly established and co-operative

53

418 : PROVISION OF BORROWING FACILITIES.

methods fully understood, societies of all kinds should be discouraged
from dealing in other than strictly co-operative business.

Mr. Wureter (Bengal) invited attention to the finding of the
Sub-Committee that a society which deals solely in stores was im-
practicable in a purely rural area. So far as his experience went, he
doubted if the remark was entirely true, and in any case he ventured
to suggest that it required modification, The experience gained hard-
ly justified sweeping generalisations at this stage, and the remark if
it received the zmprimatur of the Conference might tend to discourage
experiments which might lead to useful results. The President moved
that the words “not generally practicable” should be substituted for
“impracticable”. Mr. Bucnan said that he had no objection, and the
report was amended accordingly.

Mr. Govurtay (Bengal) drew attention to paragraph 1 (e) of the
Report and said that the question whether Co-operative Stores
Societies should sell to non-members deserved consideration. The
first principle of Co-operative Credit Societies with which the move-
ment had hitherto mainly been concerned, was that non-members
should be rigidly excluded from the benefits of the society. In the
case of Store Societies with cash transactions there was less danger,
but he was inclined to think that Store should deal only with mem-
bers and prospective members. He would explain what he understood
to be the usual practice at home. The Store dealt with any one
who wished to buy at current market prices. At the end of the year
net profits after payment of interest on shares were divided up rate- |
ably among purchasers who had purchased goods in excess of a fixed
minimum value. A member could claim his rebate in cash or invest
it in the business. But as regards non-members, he believed that
the rabate could not, as a rule, be claimed in eash, but must be devo-
ted to the acquisition of a member’s share. He was inclined to think
that the same principle should be followed in India. At the end of two
years unclaimed rebates would be credited, as in England, to the réserve.
Mr. Ramacuanpra Rao (Madras) was of opinion that dealings with
non-members should be prohibited. This was the principle followed
in all Co-operative Store Societies in Madras, even in the Tripticane
Society in the Presidency town. The societies sold only to share-
holders, but the shares were payable in smallinstalments. The essence
of a Co-operative Society of any kind was that its dealings should be ;
only with members, If this principle were departed from it would

PROVISION OF BORROWING FACILITIES. 419

be impossible to exclude undesirables. Mr. Wure eur (Bengal) agreed
as to the importance of having power to exclude undesirables. Mr,
Bucuan (Bengal) did not agree. If non-members were excluded,
the operations of the store would inevitably remain on a very limited
scale, and members would not be attracted. The dealings would be
in cash, and therefore in his view the moral character of the purchaser
did not matter very much. It would be easy to exclude undesirables
from any share in the management which was the really important
point. He agreed with Mr. Gourtay that rebates in cash to pur- .
chasers who were not members should not be allowed. The
rebates should be devoted to the acquisition of shares. Mr. Pare
(Baroda) said that the question had been exhaustively discussed
by the International Co-operative Union at their Congress at
Buda Pesth in 1904, and that the opinion of the majority
of the Conference was that there was no objection to dealings with
non-members. Other Registrars had not had sufficient experience
of Co-operative Stores to express an opinion on the point, and it
was decided that until further experience had been gained it would
be unwise for the Conference to record a Resolution on the subject.
Mr. Fremantie (United Provinces) said that experience in the
United Provinces had shown that it was not an easy matter to start
Co-operative Stores and to supervise their working when they had
been started. He suggested that it was advisable that such stores
should be started in the first instance on a small scale
and only gradually enlarged. Mr. Bucuan (Bengal) entirely agreed.
Mr. Bucnan (Bengal) suggested that it might be considered
whether the subject of the co-operative insurance of cattle should not
be taken up in addition to other forms of co-operation. The death of
cattle was an important cause of indebtedness in some provinces, and
perhaps the attention of Registrars might be directed with advantage
to the question of devising a practical mitigation of the evil on the
lines ef co-operative insurance of cattle. Mr. Gourtay (Bengal) said
that he understood that the question had been raised by Mr. Ene@uisu
and that Mr. Exeiisu was of opinion that a practical scheme could be
devis@l in Burma. Mr. Fremantin (United Provinces) doubted
whether in India Proper any useful results would be attained. Any
such insurance scheme, if it was to be a success, would have to extend
over an immense area of country. The disease from which they had
most to fear in his province was rinderpest, and the most practical

4.20 PROVISION OF BORROWING FACILITIES.

way of mitigating the evil of rinderpest, was preventive inocula-
tion. |
Mr. Hemryeway (Central Provinces) entirely agreed. Mr. Kine
(Bengal) thought that the question was an important one, but that it
was more for the Agriculture and Veterinary Departments to deal with
than for the Registrars of Co-operative Credit Societies. Mr. Lantusyar
Samaupas (Bombay) said that in his opinion it would be premature to
take up the subject, and the Conference generally agreed in this view.
Mr. Bucuan (Bengal) drew attention to paragraph IT (3) of the
Sub-Committee’s Report. Until the survey recommended by the
Committee had been complete, he did not think that any real advance
would be possible. He would suggest that one or two important
products should be taken up as a beginning, and the condition of the
market studied from beginning to end. He was already enquiring in
connection with ghee. Mr. Hemtneway (Cetral Provinces) thought that
the recommendation of the Committee was couched in much too indefi-
nite terms, and he hoped that it would be modified by the Conference.
If the Agricultural Department were brought into the enquiry, a very
heavy burden would be imposed on it, and he thought that a Conference
of Registrars would not be justified in endorsing the recommendation
in the precise form in which it had been made by the Sub-Committee,
until the Agricultural Department had had an opportunity of expres-
sing an opinion in the matter. Mr. Gourtay (Bengal) recognized the
importance of making such enquiries, but the work involved would be
very great and the enquiry would take years to complete. Perhaps it
would suffice for the present if the Conference contented itself with
suggesting that Registrars should consult the Agricultural Departments
of their respective provinces with a view to further discussion next
year. Mr. Wuerr er (Bengal) thought that a beginning eould be made
by Registrars in specified local areas. After some further discussion
the following Resolution was passed :—“ With reference to the survey
proposed by the Sub-Committee, the Conference recognizes the
importance of collecting information concerning the present methods
of production and distribution of the principal crops and products of
country and the conditions of the market in each ease. But if’ consi-
ders that such an enquiry can be taken up only gradually. <A begin-
ning however might be made, in consultation, if necessary, with the
Agricultural Department, in specified local areas where Co-operative
Credit Societies already exist.”

[Hetracts from the Proceedings of the Fifth Conference of Registrars
of Co-operative Credit Socteties, 1911.|

Finance AND ControL oF Co-opERAtTIVE Crepit Socreries.

The Committee commenced with a consideration of the Neuweid
model of Union and Central Bank. The Central Bank in Neuweid
is a Joint Stock Company based on limited liability, which derives
its strength from the village societies, which are shareholders. It
operates only within the area of the Union which works along with
it and it is intended to serve as a common cash box equalising excess
and want : the dividend on capital is limited to 34 per cent., and all
surplus is carried to Reserve. It has the privilege of obtaining
advances from the Prussian State Bank. It lends direct to societies
at 34 per cent. and allows 3} per cent. on deposits. It bas associated
with it 13 provincial branch banks. It deals only with societies—
and only societies, can be shareholders. The Board of Directors is
appointed by the delegates representing each society holding shares.
Business is done mainly by means of cash credits with societies.

The societies have formed themselves into Unions, the object of
which is to create by co-operation greater confidence. The Union is
confined to a Circle equal perhaps to an area of 4 or 5 districts in this
country. The object of the Union is to take common counsel, to
discuss questions of cemmon interest, to teach co-operative principles
and keep them pure, and to affix a hall mark on affiliated societies,
which adds much to the confidenee felt by the public. Bad banks
are excluded and the general standard is raised. The Unions are
divided into sections (or sub-union sections) dealing with small areas,
each with its own committee and these sections inspect the societies
within them on behalf of the Union. Each section employs an
inspector and the area is not larger than such an inspector can
personally control. The section charges a fee for each inspection to
defray the expenses. The German Law, like the Indian, compels
sécieties to submit to inspection, but the law permits inspection by
officers appointed by recognised bodies of which the Union is one.

Where the societies have a Central Bank of their own, é.e., a
Central Bank in which they themselves hold all the shares, the
delegate to the Central Bank and the delegate to the Union are

422 PROVISION OF BORROWING FACILITIES.

frequently one and the same person and consequently the two bodies
really become closely connected. The Central Bank fully understands
the value of the Union’s inspection and in all-its transactions trusts
implicitly to it. There are cases where the Central Bank is an
outside body, but there too the value of the Union’s hall mark is
appreciated and the Central Bank lends almost entirely on the Union’s
recommendation. The Union itself, however, has no financial
constitution, nor does it guarantee the financial transactions of any
society. “s #9 >

The Sub-Committee are of opinion that the two questions
(a) Finance, (b) Control and Supervision, should be separately dealt
with. With regard to Contro/ they are of opinion that if the
movement is to be made a success, the societies must co-operate with
each other for their mutual benefit in the same way as individuals
co-operate in societies. The object of such co-operation will be to take
common counsel, to discuss questions of common interest, to teach
co-operative principles, and so to maintain these principles pure in the
affiliated societies that the fact that societies belong to the federation
will affix to them a hall mark of sound co-operation. To accomplish
this end the societies must submit to an inspection of their accounts
and working by the representative body.

The Sub-Committee are further of opinion that this body may
without objection be united with a Central Bank provided the share-
holders of this bank are the societies themselves, and they are
inclined to agree that this principle should be followed even where
a few individual shareholders are introduced into the Central Bank
with the object of securing better management. Where, however,
the Central Bank is a joint stock concern, the shareholders of which
are individuals and not societies, or in which the individual share-
holders predominate, there should be a Union of societies distinet
from the Central Bank. Several members of the Sub-Committee
expressed the opinion that the Union as such should have «no
financial constitution and should not make itself responsible in
any way for the debts of affiliated societies ; but inasmuch as_ three
provinces—Madras, Central Provinces, and Burma—have organjsed
Unions which do not finance but yet guarantee, they consider that
it would be well to await the reports of these provinces on the
working of Unions of this kind during the next year before passing
any definite opinion on the subject.

PROVISION OF BORROWING FACILITIES. 423

The Sub-Committee are of opinion that Unions of the kind
recommended by them, should be confined to an area not greater than
a district and, where possible, to a local area less than a district. Such
Unions where not united with a Central Bank have no need for a
financial basis. The costs involved should be defrayed by a levy
pro vata on the affiliated societies. They should be managed by a
general meeting consisting of one or more delegates from each
affiliated society with an executive committee consisting of about five
members elected by the delegates. This committee should employ
and pay the staff necessary for inspecting the societies and for pro-
pagating the principles of co-operation. Ordinarily no society in the
local area should be registered by the Registrar unless such registra-
tion is recommended by the local Union and the Union should
form one of the main channels through which the Registrar
exercises his supervision and control of societies. Such Unions
should be encouraged to hold local conferences. The name
‘ Union’ should, as far as possible, be confined to such associa-
tions and where they are combined with a Central Bank the
association should be known as a Central Banking Union.
Adherence to these terms will -prevent much confusion in
reports.

With regard to Finance the Sub-Committee agree with the finding
of the third Conference that Central Banks registered under the Act
should be organised as Joint Stock Companies with limited liability.
The shareholders should be the societies alone and the Central Banks
should exist wholly for the benefit of their shareholders and should
make loans only to societies which are shareholders. Where however
it is impossible owing to the backwardness of the people to obtain
the necessary business management, there is no objection in the first
instance to admitting a small number of individual shareholders, but
loans should not be made to such individuals. At the same time
the Sub-Committee recognise. that there may be circumstances which
prevent the formation of such Central Banks and in these cases they
consider that there is no objection to a society dealing direct with a
joint stock company willing to finance it. The constitution of such
joint stock companies however (if formed for the purpose of
financing societies) should be carefully serutinised by the Registrar
before régistration to insure that the interests of the borrowing
societies are safe-guarded. The majority of the Sub-Committee are

a

4.24, PROVISION OF BORROWING FACILITIES.

of opinion that one of these safeguards should be the limiting of the
dividends to 10 or 12 per cent. .

The Sub-Committee note that the Central Banks at present in
existence check the security of the societies to which they lend by
one of three methods—(1) by a special staff appointed and paid for
by the Directors of the Central Bank, (2) by accepting the inspection
and report of a Union (or where the Union is amalgamated with a
Central Bank, the Central Banking Union) of societies, who them-
selves pay and employ a staff for inspection, and (3) by relying on
the inspections and reports of the Registrar and his staff. While
recognising that the third method may be necessary in the beginning,
the Sub-Committee are strongly of opinion that it should be done
away with as soon as possible. Of the other two methods where, as
is recommended, the whole or the great majority of shareholders in
the Central Bank are societies and the bank deals only with societies,
the second, viz., the reliance on the reports of the Unions is
preferable. It is better that the inspecting staff should be paid
and employed by the Union or Central Banking Union which would
collect the cost rateably from the societies than that it should be
employed and paid out of the profits of the Central Bank. Where
however Unions do not exist, the special staff must be paid by the
Central Bank.

As has been said above the Sub-Committee see no objection to
combining a co-operative Central Bank with a Union, and such
combinations should be known as Central Banking Union.

The Sub-Committee desire to re-affirm the finding of the third
Conference of Registrars that the great aim of all Central Banks
should be to accumulate local capital, and only in the event of such
capital not being forthcoming in sufficient quantity, should money
be borrowed from outside. At the same time they recognise the
desirability in all cases of a Central Bank having a cash credit
account with a Joint Stock Company such as the Bank of
Bengal, Allahabad Bank, Alhance Bank of Simla or the Benares
Bank.

With regard to rates of interest on loans to societies the Sub-
Committee are of opinion that the Central Bank should not reduce
these below 9 to 12 per cent. in the first instance, even when it is able
to borrow money at 6 per cent. to 7 per cent. The societies as a
rule will take money willingly at these rates and it is desirable that

PROVISION OF BORROWING FACILITIES. 425

the Central Bank should build up a reserve of its own as fast as
possible. It has also to be taken into consideration that the
societies should be encouraged to remit all idle money to the Central

Bank.

54:

[Fetracts from the Proceedings of the Seventh Conference of Registrars
of Co-operative Societies, 1918.)

Co-opERATIVE Banks AND Poputar Epvucarion.

Mr. Crostuwairte presented the following paper for the considera-
tion of the Conference :— _

“The worth of a co-operative society,” it has been shrewdly
observed, “is the worth of its members.” “ Worth,’ from the
co-operative point of view, is of two kinds,—moral and material.
Now the worth of a new society formed from the poor and illiterate
‘classes—and with such we are generally confronted in the Central
Provinces—is crude in quality and doubtful in quantity. Of potential
worth there is probably much, of actual worth little. It is the aim
of the co-operative movement to develop this actual worth by means
of patient and persistent training. To this end every possible means of
broadening the minds and widening the outlook of co-operators must,
be employed. ‘“ No co-operation,” says Mr. Worrr,* “can flourish
without education. We may choose our own methods according to the
circumstances of each case. The great point is that education as such,
education as a main item, education in co-operation, in the mechanical
services entering into its practice, and education in agricultural
eraftlore, should be placed prominently in the programmes of co-
operation, in the very forefront.” wing

Certain European co-operative experts whom I have met do not,
I am certain, understand how very backward rural India is as
compared with even the least advanced of the European countries. As
Mr. Monvaau has so well expressed it, we have in India the fifth and
the twentieth centuries side by side. And there is far more of the
fifth than the twentieth century to be seen in the picture which a
Registrar has to study. I am_ not, however, one of those who hold
. that education must precede co-operation. On the contrary, I am
convinced, after nine years’ experience as an organizer of co-operative
societies in India, that the desire for ‘‘ edueation”—I use the terme in
its broadest sense—is awakened in a most effective and practical
manner by the influence of simple co-operative credit societies.

* “ Co-operation in Agriculture,” page 346,

PROVISION OF BORROWING FACILITIES. 4.27

Popular education can, in fact, very well commence with instruction in
co-operative principles and methods. If European erities only
understood the conditions under which we work, and if they
were faced with the actual task of organization of India, they would
immediately grasp that Indian Registrars are right when they say
that “co-operative cloth must be eut according to Indian means.”
and when the time comes to write the history of the movement in the
- twentieth century it will be remarked, I think, that whereas co-
operative ideas were, in Kuropoan countries, a product of education,
the movement in India was, from the very outset, a means of
education,—it was not education’s child.

No Registrar who understands his business will try and import
an excessive element of officialdom into co-operative institutions, for
he knows well enough that success in organization and solid perma-
nent results are not to be obtained by sham co-operation. Buta
just sense of proportion is necessary to keep the movement on safe
lines; and it is of vital importance that those who are at the helm
of co-operative policy should remember that in Germany and in
England, as well as in other advanced countries, the co-operative
movement was of popular origin and was at first opposed by Govern-
ment. In India, on the other hand, the movement has been directly
inspired by Government in order to raise the skill, character, and
productive capacity of those persons described in the preamble to
Act 2 of 1912 as “agriculturists, artisans, and persons of limited
means,”—a wide description covering some millions of people, but
still, in my humble opinion, not nearly wide enough, unless, indeed,
it is.accepted that there is nobody in India whose means are un-
limited and that therefore the scope of the Act is as broad as it can
be. Unfortunately, amongst the classes especially contemplated by
the Act the standard of education is extremely low. But as that
etandard is raised it is obvious that the prosperity of the country
must also rise; for with the growth of skill, character, and productive
capacity wants and aspirations will certainly increase. In fact the
healthy development of co-operation must induce a general advance
in ptosperity which will affect all classes in India. The movement
is, in truth, calculated to benefit and educate everybody no matter
whether officials or private persons and whether within the scope of
the preamble to the Act or not. It must be remembered that the
Government of India has definitely stated that the organization of

428 PROVISION OF BORROWING FACILITIES.

co-operative societies is not to be regarded as part of the ordinary
duties of the district staff, though Government has also declared that
it fully recognizes that enthusiastic officers can do much to help the
movement.* What I have said so far may not, on first considera-
sion, seem to have much to do with “co-operative banks and popular
education.” But exactly why my remarks are relevant will be
understood when I mention that many of our best co-operative workers
in the Central Provinces are Government officers, lawyers, merchants,
landlords, bankers, Government pensioners, and the like, If the
co-operative movement is to be attractive to men of so many kinds,
the field of enterprise which it is to cover must be a broad one. It
must appeal to the heart and the intellect and not only to the purse
or to a sense of duty.

The mere lending of money is not in itself the aim of co-operative
banking. At first, of course, we must be careful not to undertake
too much. Ambition we must have if we are to accomplish great
things; but ambition must not be separated from caution. Of all
forms of co-operation co-operative credit is the easiest, and it is with
“credit” that Indian co-operation commenced. The organization
of co-operative concerns is, in these modern times, a business in which
paid expert service cannot be dispensed with, and it is essential that
people should understand that until the credit machinery is running
smoothly and regularly, and until its limitations are properly under-
stood by those in charge of it, a great deal of harm can be done to
the movement by persuading or allowing men who have only entered
upon their co-operative studies to embark on schemes which are too
advanced for them. In India, at present, I am afraid that the
tendency is to press too eagerly for the introduction of very advanced
forms of co-operation, the result being that there is a distinct danger
of bringing in too much Government departmental assistance at the
expense of self-help.

Now if we fail to insist on “self-help” in one of the many
branches which co-operative enterprise may undertake we shall find
it difficult to preach “self-help” as regards the other branches. I
hold, it is true, that the time when the co-operative movement ‘will
be able to proceed altogether independently of Government will never
come. Indeed, when we look at co-operation in other countries we

* Government of India (Department of Revenue and Agriculture) Circular No, 5:
299-22 (paragraph 3) dated Culeutta, the 20th Mareh 1909.

PROVISION OF BORROWING FACILITIES. 4.29

find the State an important partner in the movement. A partner,
it must be admitted, whose activities are restricted, as a rule, to doing
what is necessary to help the people to help themselves. As far as
the State and the co-operative movement are concerned, the true art
of administration will be found, I suggest, in accurately placing the
line which is to separate self-help pure and simple from State aided
self-help. This line is by no means immutable, but must, from time
to time, be shifted backwards or forwards. At first, it may well be,
by far the greater part of co-operative ground will be occupied by
State aided self-help. But, if the State wisely administers its aid,
the ground will gradually pass over to self-help pure and simple until
the duties of the State towards the movement stand out clearly defined
in the light of experience. Popular self-help is a delicate plant to
grow. It requires expert care and attention and, if forced, it perishes.
The difficulty is to hit off the happy mean between a disastrous
coddling and an equally disastrous want of supervision and training.

The principles which I would like to see generally accepted are as
follows :—

(2) The progress of our co-operative banks (which include
amongst their members and their directors the best
educated men available) must not be confined to lending
money only, but must extend to the spread of general
enlightenment amongst the societies which are members
of, and are financed by, the banks.

(7) In order to keep the active support of our educated workers
we must captivate their imagination and show them
clearly that co-operative banks are not intended only
for the benefit of certain classes but that they fit into a
scheme of general improvement.

(72) Government must give the necessary assistance in carrying
out this scheme but must not itself undertake too much
or too little. Both ways lies danger. Safety can only
be secured by correct adjustment.

ake We must be careful not to emulate too hastily certain
advanced forms of co-operation in other countries. It
is far better to await the results of education in co-opera-
tion than to force the pace and make a mock of self-help
by running societies with an excessive measure of
Government assistance. Ifa project be such that there

430 PROVISION OF BORROWING FACILITIES.

cannot be a fair division of work between officials ‘and
unoflicials, then clearly it is too advanced and should be
postponed until unofficial co-operators are fit to perform
their proper share of the task.

I will now endeavour to point out by actual illustration how we
have endeavoured to apply these principles in the Central Provinees.
In the first place, we have had the greatest difficulties to enevunter
in the matter of the simple accounts which credit societies must either
keep or have kept for them. When we first started rural organization
work in 1904 early Registrars were under the impression that we
should have no great trouble in finding at least one member of each
society who could azd would keep the accounts satisfactorily. The
secretary of a society was to be not only the trusted accountant
upon whom the Registrar would depend for his annual returns, but
he was also to be the “guide, philosopher, and friend” of the
members. The Government Auditor would, it was assumed, go
round and audit a very nicely prepared set of accounts. As accounts
were (and are still) very simple it was expected that one auditor
would be able to deal with a very large number of societies. These
were the lines we started work on in 1904, In that year I started a
few societies in the Hoshangabad District (they were the first in the
Provinces), and I remember that when Sir J. O. Mitter saw them he
said they were not co-operative societies at all. But, such as they were,
they were the only ones I could get the people to start; and although
they were clumsy little birds they prospered and have now grown
healthy co-operative wings. It must be remembered, in this connec-
tion, that Act 10 of 1904 provided for free Government audit and that
many people thought that every Deputy Commissioner ought to be
the Registrar of his district. I am not going to dwell upon initial
mistakes, especially as I made a good number of them myself; still
less am I going to point out how clever we, who have benefited by
those mistakes, have been in making natural progress. Fut for the
efforts of a succession of able men, who had to carry on the work of
the Registrar, in addition to other heavy duties, the movement in
the Central Provinces and Berar would not be so far advanced as it
is to-day when it is still on the threshold of its existence. The idea
that capable Secretaries would be easily and frequently found was

«

PROVISION OF BORROWING FACILITIES. 431

soon exploded. It was then said by some that the Provinces were
not ripe for the co-operative movement. It was urged that until
the spread of education became far more general it was vain to
imagine that co-operative societies could succeed. But others of us
held different views ; and we determined to push on as best we could.
Credit societies have money dealings, and where there are money
dealings accurate accounts are indispensable. Certain organizers, there-
fore, formed their societies round the Secretary. And the result was
that as tolerably efficient Secretaries were few and far between, co-
operative credit societies came into existence which included in
membership individuals from many villages scattered over extremely
large areas. Now that co-operative principles are better understood
I need not explain why mutual societies on these lines proved quite un-
workable. In 1907, however, thanks to some very valuable advice
from Sir J. O. Miter, we first commenced (in the Jubbulpore District)
to form Raiffeisen societies, without share capital and with unlimited
liability and indivisible reserve funds. It was generally expected that
the movement would make very slow progress, that it would be long
before it could establish itself in the money market,and that. Govern-
ment would, perforce, have to finance the societies. But Mr. Wotrr
urged that Government money was poison to self-help; and what Mr.
Wot rr has to say is always well worth listening to. So we decided to
try and do without Government money and at once we had a fresh
problem to solve. In order to finance, organize, guide, and control our
societies we started ‘“ Central Banks.” Writing in 1907, in ‘ The
Agricultural Journal of India* ” I said, “ Nobody pretends that a
Central Bank with capital subscribed by the leading men of the tahsil,
managed on purely business principles, and existing solely for the
purpose of lending money to rural societies, is itself a Co-operative
Credit Society in any sense of the term. Yet it exists for the purpose
of associating the best business talent available with the co-operative
credit movement, and is intimately connected with the scheme for
financing and testing the merits of rural societies. The Central Bank
should, then, be registered under the Act. Shareholders in the Central
Bank ean, of course, reside anywhere, but the committee should be
chosen from shareholders resident within the tahsil. What is wanted is
a committee with good local knowlege of all parts of the tahsil. It will

* “Co-operative Credit and the Central Bank,” Volume II, Part I, January, 1907,

432 PROVISION OF BORROWING FACILITIES.

not only control the internal affairs of the Central Bank, but will
consider the applications of rural societies for loans and decide to what
extent individual societies are bankable. The Central Bank is not only
to be the source whence rural societies are to derive their capital, but
a means of gauging the worth of newly formed societies. It may be
argued that too much power will be left inthe hands of the Central
Bank, that as ‘interest speaks all sorts of tongues and plays all sorts
of parts, even the part of the disinterested’ the central committee will
be able to starve the rural societies and thus kill the movement.
To this no present answer can be given. The question is
one of confidence, and time alone can prove whether that con-
fidence has been misplaced or not”. That was more than six years
ago ; and the men I was then writing about were the present Directors
of our Central Banks who have proved so well that confidence in them
was not misplaced. In 1907 I had only just started the Sihora
Central Bank and had formed a few rural societies of the Raiffeisen
type. In the Central Provinces and Berar there were, altogether 63
rural societies with a capital of Rs 31,061 and 2,154 members, and
4 urban societies with a capital of Rs 28,509 and 667 members. We
have marched some distance since 1907, and there were on the 380th June,
1913 in the Provinces, the Provincial Bank, 25 Central Banks, (with
their own Union), 1,360 rural societies, 40 industrial societies and 22
other societies with a total membership of 27,292 and a working’ capi-
tal of Rs 34,37,705. Results such as these could not possibly have
been obtained but for (i) the initiative of Government and the help of
its officers, (ii) the enormous amount of time and trouble freely given to
the movement by our unofficial workers, and (iii) the fact that co-opera-
tive credit was welcomed by the people and supplied a pressing need.
Behind the figures are very snbstantial facts produced by careful educa-
tion in co-operation. There is not a man who has done work for the
cause without broadening his mind and his sympathies while acquiring
much fresh knowledge. Most of our Directors knew but little of
modern banking, and nothing of its distant cousin ‘co-operative ”
banking: ; and, if I may be pardoned for saying so, many of them,
before they became co-operators, were surprisingly ignorant of Indian
village life. But active co-operative work takes men out and about,
mentally as well as physically. It rouses the spirit of action and of
enquiry, and, because men cannot be careless or dilatory in money ‘
matters without causing disturbances which it is impossible to conceal,

PROVISION OF BORROWING FACILITIES. 433

the power of actually doing things and not merely talking about them
must be exhibited. Co-operation gives good men a chance of showing
what they can do, it rouses a healthy spirit of rivalry, and it absolutely
defeats the man who talks but does nothing. To get good results cons-
tant work and unremitting care and attention to business are‘absolutely
necessary. Béyond doubt the institution of co-operative banks has
done much to develop the business talent of the Provinces on lines
which must have a profound influence on the future.

Then we have our annual Provincial Co-operative Conferences.
- These give men from the different Banks a chance of meeting each: other
and comparing views on the numerous questions which are constantly
arising in connection with the development of the movement. The
arrangements for the first Conference were made by the Registrar.
Some doubts were expressed as to whether interest in the movement
was then sufficiently great to secure a good attendance. But more
than 150° people were present, and the Conference was followed by
some very valuable and remarkable results. Now we have a Conference
Committee which is composed of un-officials. who appoint their
own Secretary and arrange all details in consultation with the
Registrar. The holdine of these Conferences has aroused a spirit
of independent self-help which cannot but strengthen the move-
ment. |

At first we thought that it was too ambitious to turn our Central
Banks into the more advanced co-operative institutions known as
“Central Banking Unions.” We were strangers to the Joint Stock
Banks ; but, in 1909, the late Mr. Deans, Manager of the Allahabad
Bank, gave us our chance. And in the Government review of the
co-operative work for that year the Chief Commissioner said: “The
past year has witnessed an important advance. The Sihora Central
Bank has shown that well managed societies may expect valuable
support from the Joint Stock Banks and has further justified the claim
of the District or Tahsil Bank to a place in the co-operative
organization by its work in investigating applications of rural societies
for registration. <A financing society, working in a limited area, is
exceyRionally qualified to decide on the fitness and reliability of a
borrowing society ; the sum of the local knowledge and influence
possessed by its directorate is very large and its own interests demand
* eaution and a close adherence to the principles of co-operative banking
in the foundation of its client societies, The Chief Commissioner

59

434 PROVISION OF BORROWING FACILITIES.

sees in this development a very important practical contribution to
the vexed question of organization.” —

Our village societies “with unlimited liability,” once started,
commenced to improve in quality and to show a spirit that had not
been expected to appear so quickly. Accounts remained and still
remain the one part of their business which societies are quite unable
to manage for themselves. From the ranks of the societies capable men
commenced to appear ; and very soon the first type of Central Bank
(of which societies were not members) will have vanished altogether.
Societies hold shares and are members of Central Banking Unions and
they have a voice in their management and votes with which to make
that voice heard. I consider this particular advance towards better
co-operative organization to be far reaching in its consequences, and, as
will presently be shown, it has enabled us to deal with the question of
account-keeping in a way which, but for this co-operative development,
would be decidedly dangerous.

At first the Directors of our Central Banks. employed no paid staff.
They had to master the details of their business before they could hope
to be able to guide and manage paid staff ; so, with the Registrar’s
assistance, they did all the work themselves. In all our young Banks
we still follow the same plan and allow no paid staff until Directors
have acquired solid practical experience. The Auditor on the
Government staff assists, of course ; and, as a rule, we find that until
Central Banks are advanced enough to employ staff the Government
Auditor has to actually write up the accounts of the credit societies as
well as audit them. We are fast getting beyond this very elementary
stage ; in our well established banks the duties of Government are now
confind to supervision and audit. Theydo not extend to the actual
organization of new credit societies and the preparation of applications
for registration, for the banks themselves are able to undertake this
work. Thanks to the fact that our Central Banking Unions have
banded themselves together in the Provincial Union of co-operative
Banks, which is a supervisory body formed to protect the movement
from rash and unwise behaviour on the part of the individual banks
which are (with their constituent societies) its members, we have been
able to provide machinery by means of which co-operation may be run
on safe lines with the assistance and under the supervision of the

Registrar and his small staff. This machinery I will deseribe °

later,

€

PROVISION OF BORROWING FACILITIES. 435

In 1910 the movement commenced to grow rapidly. At
the close of the year there were 280 rural societies with 7,622
members, 8 urban societies with 1,247 members, and 12 central banks
with 804 members. Capital reached the sum of Rs 5,02,080. But
this growth brought new difficulties with it. When I became
Registrar, in 1911, the movement stood in danger of starvation
for want of capital. Deposits were not forthcoming ; stagnation
threatened. Un-official workers were asking how they could be expected
to make bricks without straw, and Deputy Commissioners wanted to
know what was to be done. The Allahabad Bank was willing enough
to advance money, but the Directors of that institution very reason-
ably asked, “How is a Joint Stock Bank to judge the solvency of
remote central banks which are strangers to it ?’ The case of the Sihora
Bank was exceptional; for Sihora is clase to Jubbulpore and to the
loeal agent of the branch of the Allahabad Bank. I had long cherished
the idea of a Provincial Bank as the final link between the Central
Banks and the money market. But, in 1907, I thought that we
might, perhaps, be advanced enough for a Provincial Bank by 1927;
for when the Sihora Central Bank started we scraped together with
the greatest difficulty, the enormous initial capital of Rs. 2,000. And
most of the subscribers were sure that their money was lost to them
for ever from the moment they paid for their shares. I had already
tried to organize two central banks elsewhere and had failed. Un-
official workers were, in those days, very few and absolutely new to the
work; and when, in 1909, I spoke to the Hon’ste Mr. Mupuorkar
about my scheme for a Provincial Bank he told me that I would never
succeed in floating it unless Government would furnish substantial
guarantees. “Give us a Government guarantee”, he said, “and Berar
will give youas much money as you require”. Much the same attitude
prevailed in the Central Provinces. However, by 1911 the position
had changed. Something had been done to show that these new-fangled
co-operative ideas had sense in them and central banks had steadily
earned and paid moderate dividends. For the Provincial Co-operative
Bank a capital of Rs 5,00,000 was asked for and was speedily over-
subseribed. Most of the capital came from Jubbulpore, in which
district co-operation was firmly established. A great deal came from
Nagpur, thanks to the cordial assistance of Str G. M. Cutrnavis; and
the rest came from other districts in the Central Provinces. Nothing
could be obtained from Berar. The Directors of the Allahabad Bank

436 PROVISION OF BORROWING FACILITIES.

were sympathetic ; for they wisely perecived that co-operative banks are
allies of and not rivals of the joint stock banks, and they accepted the
Provincial Bank as the link necessary to complete the chain between
the small and distant village society and the great money markets.
The Provincial Bank has a strong Board of Directors with whom the
Registrar works in close consultation. But at the request of the share-
holders themselves, the Registrar has been exercising and must, for
some considerable time to come, exercise certain executive powers which
are essential to the prompt disposal of business. Here again, it may
be noted that the Directors of the Provincial Bank are being brought
face to face with numerous problems with which, but for the Provincial
Bank, they would not have had any chance of becoming acquainted.
Education in co-operation is leading them along fresh and broader
paths of knowledge and thought. With the opening of the Provin-
cial Bank to deposits (an event which has quite recently occurred) and
the strengthening of its connection with the money market we shall
probably be able, before long, to organize co-operative mortgage credit
societies for our landed proprietors, many of whom are complaining
that co-operation has left them out in the cold. Whether they will co-
operate or not remains, of course, to be seen.

Before the Provincial Bank started work it was difficult and indeed
almost impossible for the Central Banks to accept deposits with safety.
Term deposits, if accepted, carry with them the necessity of meeting
all obligations to depositors exactly on the due dates. Anybody who
has had actual experience of .co-operative banking must be aware that
the requirements of societies cannot be made to fit in with a bank’s
liabilities to its depositors. The provision of ample cash reserves or of

resources from which cash can at once be obtained to meet withdrawals
has to be made before deposit banking can be undertaken. Such _pro-
vision the Provincial Bank has been able to make; and so it has been
possible for our Central Banks to turn their attention to deposit bank-
ing. The results have been surprisingly good; and Central Banks
have been able to prove that they have the confidence of the public
and can obtain large amounts in deposits. Much of the money depo-
sited was lying idle before it was entrusted to Central Banks; and I
cannot but point to this introduction of deposit banking as yet another.
most valuable result of popular education in co-operation. Not. only
do Central Banks receive deposits; but societies also accept deposits
from their own members. Certain minimum annual deposits have te.

PROVISION OF BORROWING FACILITIES. 437

be made according to one of the bye-laws of societies. Now societies
dislike this bye-law, and they try to disregard it. But after a
year or so they commence to appreciate it ; and there are now grounds
for hope that the practice of burying metallic money in the ground
will gradually disappear.

The idea of reserve funds is a novel one to the societies ; indeed it
was novel enough to Central Banks, many of which were eager to
distribute as much profits in the shape of dividends as quickly as they
could. The larger the first. dividend the better, they thought, was
the quality of their business and the greater the proof of their success.
The value of the reserve funds is now more generally appreciated
simply because enlightenment has come with the co-operative
movement. Another advance which is remarkable is the change in
attitude displayed towards borrowing as such. At first Central
Banks paid far more attention to the borrower’s credit than to the
necessity and nature of the purpose for which the loan was required.
But Central Banks now understand, and so do societies, that
borrowing except for productive purposes is not calculated to induce
prosperity and to increase assets. A saner and better use of credit is
being made. Education in co-operation has had this amongst other
effects on popular character. In some districts, too, a marked
decrease in litigation is being attributed by District Judges to the
spread of the co-operative movement ; and I know that a healthy
publie opinion has appeared in villages in which it had either never
existed or had been dead or asleep before co-operation commenced.
It is not in financial statistics alone that the work which is being
done is to be seen. Yet it cannot be too strongly insisted on that
vitality depends on successful finance ; not, of course, on the earning
of large dividends gained by the exploitation of the borrower to his
detriment, but on the effectiveness of that disciplined organization
which makes every man feel that he must do his full share of work and
acquit himself honourably of his duty. Co-operators have asked for and
have obtained public support. They are trustees for public money, and
if any of that money is lost, confidence in the movement—I will go fur-
thes and say confidence in the future of the country—will be shattered.

I have already referred to our Union of co-operative banks. The
objects of this Union are, as stated in its bye-laws :—

(i) to provide a regular and efficient system of supervision,
audit and control for all banks and societies enrolled in membership ;

438 PROVISION OF BORROWING FACILITIES.

(11) to secure uniformity of practice and unity in effort and in
aim amongst all co-operative bodies in the Central Provinees and
Berar ;

(ii) to work for the common good of all co-operators and
especially to see that co-operative business is conducted on sound, safe
and progressive lines.

The Central Banks each elect one delegate who is duly empowered
to act and vote on their behalf at the meetings of the Union Congress
which is made up of these elected delegates. The Congress elects its
own Governor, who may be the Registrar or any other duly qualified
person. At present the Registrar is Governor, and, as such, he
nominates from the Congress members his own advisory council of
four. The Governor’s term of office is terminable only by his death,
resignation, or the vote of a two-thirds majority of the Union
Congress. The Manager of the Provincial Bank is Secretary of the
Congress, ev-oficio. . Every Central Bank must submit an annual
budget to the Governor showing :—

(i) the name and the number of paid servants to be maintained
by the Bank and its societies during the ensuing year ;

(ii) the salaries to be paid to such servants (a) by the Bank,
and (b) by societies ;

(iii) the approximate sums to be expended on_ stationery,
printing, ete., for the Bank and its societies ;

(iv) the means by which it is proposed to raise the funds to meet
these expenses.

Our Central Banks, of course, meet their expenses and pay their
Managers, Inspectors, Accountants, ete., from the income they
derive from interest; of, it must by noted, from the interest on
reserve funds which is left to accumulate in reserve. But the borrowing
societies carry the whole of the difference between the rates of interest
paid by societies and their individual members, as well as all profits
on deposits and on accumulated reserves, to their reserve funds, which
we fully recognize must be strengthened with the least possible delay
by all the means at our disposal. To this policy we intend to hold
fast ; at any rate until reserves bear a far greater proportion to
liabilities than they do at present. Meanwhile, until we can prudently
devote the income from invested reserve funds to meeting annual
expenses, We ask and expect the members of our co-operative societies
to assist us in the efforts we are making for them. And Central

PROVISION OF BORROWING FACILITIES. 439

Banks have, almost without exception, adopted a simple rule under
which each individual member of every society pays an annual Union
subscription of Re. 1. This is an absolutely inclusive charge and, in
return, a trained and efficient staff is maintained for the special
purpose of writing up the accounts of the societies, while all stationery,
is also supplied. Under this scheme in our advanced banks,
to every circle of 100 societies is appointed a Union Auditor. Union
Auditors are under the sole direction, control, and discipline of
the Governor of the Union ; by him they are appointed and by him
dismissed ; they work under the Government Auditors, and no man
ean be employed to audit unless he is recognized by the Registrar
under Section 17 (i) of Act 2 of 1912. For every circle of fifty
societies a Union Mohurir is employed. Union auditors are in a
class alone, but they as well as Mohurirs are paid by the societies and
in this important respect they are distinct from Bank staff
(which is, of course, also Union staff). No pains are spared to make
societies understand that the men they pay are their servants and
not their masters. Societies are learning this very readily ; and they
are quick to detect and to complain of any shortcomings on the part of
their servants. It has already been pointed out that societies have
votes in the Bank which they belong to ; and it is this control which
societies possess over a Bank’s affairs which renders it safe to employ
Union staff. Were societies merely the customers of a Bank and
not its proprietors I believe that this paid staff would speedily become
a colourable imitation of the subordinate Government. staff,—the
Patwari, the Irrigation Amin, and the rest. Education in co-
operation is revealing many things to the humble peasant, and the
revelation connot fail to have a stimulating and purifying influence on
rural politics and environment.

The formation of the Union, itself a product of education in co-
operation, has had and is having a very satisfactory and remarkable
inflience on the quality of the work done by co-operative banks.
Regularity and strict attention to essential banking detail is replacing
spasmodic effort and unpunctuality. Our banks have got far to
trawel before they are perfect; but if they ever develop into model
institutions, as I hope they will, it is to the Union that they will owe
far more than they at present dream. Thanks to the Union an annual
increase in share capital is now assured. And to the Union is
due the establishment of a Famine Insurance Fund which will

44.0 PROVISION OF BORROWING FACILITIES.

increase steadily as the years pass. Union bye-law No. 18 rans as
follows :— | |

“Every Central Bank shall, with its constituent societies, make
an annual contribution to the permanent and_ indivisible
funds of the Union. Such annual contribution shall be a
sum not less than 25 per cent. of the annual expenses
budgeted for.” Then follow these bye-laws :—

“The annual contributions specified in bye-law 13 shall be allotted
to the respective Central Banks making them.and Central
Banks shall employ the whole of the money so allotted in
an increase of their share capital. ”

“Share capital thus obtained by Central Banks shall be employed
by them in their own co-operative business, but shall be
held by them on behalf of the Union and the shares shall
stand in the name of the Union. ”

“The dividends earned by Union shares shall be paid to and
invested by the Governor of the Union in Trustee Seeun*
ties to form a Famine Insurance Fund to accumulate at
compound interest.’ “In the event of famine or wide-
spread erop failure and consequent tightness in the money
market the financial resources of the movement may
‘seriously contract. To provide for such a monetary crisis
the Governor of the Union shall have power to make
loans out of the Famine Insurance Fund to the Provin-
cial Co-operative Bank in time of need at the average rate
of interest at which the Provincial Bank was obtaining
loans from the money market during the preceding twelve
months. Such loans shall be of the nature of temporary
advances only and the Provincial Bank shall bind itself to
recoup both principal and interest to the Famine Insu-
rance Fund as soon as the money market becomes normal
again. 7” f

The spirit of these bye-laws is the spirit of prudent co-operators who
have not been blinded by a new enthusiasm to their duties as servants
of the public. Nor has the Union failed to think of the paid eo-opera-
tive staff whose lives will be spent entirely in the service of the cause.
The Union can employ no servant who is without a Union license ; and
this will give the staff a recognized status. There isa Provident Fund
too, and to this the Union adds for every servant 10 percent. of his

PROVISION OF BORROWING FACILITIES. 441

salary ; compound interest at 6 per cent. is allowed on these contribu-
tion and is credited to each account. Dishonesty and gross neglect of
duty are punished by forfeiture of all claims to any share in the Provi-
dent Fund. Before full privileges in the Fund are allowed 15 years of
approved service must have been completed : while special rewards are
promised to service of exceptional merit and length. Such, in_ brief
outline, is the Central Provinces Union of Co-operative Banks which,
- unless I am absolutely mistaken, will help not a little in the advance-
ment of popular education on practical co-operative lines.

, ¥ conclusion I must mention the valuable work being done by co-
operative banks in the technical improvement of agriculture and indus-
tries. Through the channels opened out by Central Banks, by their
agency and with the assistance of their Directors, the experts of the
Agricultural and Industrial Department, whose task, as we all know, is
one of extreme difficulty, are steadily getting into touch with societies
of men willing and prepared (though by no means perfectly prepared)
to listen to them. ‘This satisfactory result has been gained because,
through Central Banks, communication has been rendered possible with
the small individual cultivator or artisan in his isolation, and his igno-
rance. From their Central Banks, moreover, societies 'ean obtain
on equitable terms, the funds for better seed, better implements, and
better cattle, and better silk, better yarn, purer metal, without putting
their heads into the noose which that universal person, the usurer, knows
so well how to slip tight at his own convenience. If lack of wholesome
eredit stood in the way of agricultural and industrial improvement a
few years ago it need do so no longer. And as popular education in eo-
operative methods progresses the efforts of the Agricultural and Indus-
trial Department must become more and more effective. Our best
banks are already thinking of having their own small demonstration
farms which can easly be inspected and guided by the Agricultural
Department. These farms will adjoin the new buildings which banks
must build themselves before very long, and thus situated they will
serve as continuous object lessons to the many thousandsjof cultivators
who come to the Central Banks for money. I have already been asked
by wWhimaginative people why co-operative banks should undertake
work of this kind. My reply is that in the best and most successful
kinds of modern business the science of philanthropy has been found
both necessary and profitable. From the purely business point of view
I am sure that it will pay co-operative banks to make popular education

56

442 PROVISION OF BORROWING FACILITIES.

part of their programmes. I think I can quite safely go further than
that and say that unless co-operative banks do make popular education
part of their business they will decay just as rapidly as they have
sprung up. I take exactly the same view of the industrial aspect of
co-operative work. Commencing, quite simply, with societies for credit
and thrift, Central Provinces weavers are turning out better and more
marketable staff and are already buying raw materials wholesale. They
have just commenced to think of co-operative sale; and they
are asking for the fly shuttle looms they flatly refused to
consider only two years ago. Brass and bell-metal workers are
difficult people to persuade ; but even they are commencing to use
stamping presses and improved lathes specially designed for their needs
by Mr. Covr, Headmaster of the School of Handicrafts in Nagpur.
These are encouraging signs; and there can be no doubt that
as the co-operative credit and banking machinery becomes more
efficient, faster, and less clumsy in operation, co-operative enterprise
will extend to the production of superior varieties of wheat and
cotton, to the breeding of pedigree cattle, to the control and mange-
ment of cotton gins to the wholesale disposal of manufactured articles,
to the production of pure seed of guaranteed quality and germination.
We are already doing something to direct popular effort in these
directions. But I hold that Government need be in no hurry to in-
troduce these schemes -for they will be found knocking at the door as
soon as our banking and credit arrangements are in order,

A little first-hand knowledge of co-operative work has an excellent
effect upon those who form, upon theories and book learning, opinions
which are too optimistic or too pessimistic. In co-operative affairs
simple facts count for so much; and Registrars have to deal with
things as they are and not as they ought to be. The interests at
stake are so great and so complex that they cannot but be, and must
always continue to be, the intimate concern of Government. But as
I have already said, the co-operative movement can easily be ruined
and the whole structure of our banks and societies can be brought
crashing to the ground by either too much or too little control. It is
the duty of the Registrar to act as co-operative adviser to Governinent
as well as to the people; it is the task of the Registrar to see that
official and unofficial efforts are blended harmoniously together.
He must take his good where he finds it; he must know the
waters over which he has to pilot the movement; and he must

PROVISION OF BORROWING FACILITIES. 445

not allow that aimless drifting which is certain to end on the
rocks of monetary loss. It is essential that a Registrar should properly
appreciate the means at his disposal and be definite in his purposes and
aims. For, when all is said and done, it is the Registrar who has to
frame the policy of co-operative banks; and it must be his care to
make this policy generous and comprehensive. There has of recent
years been much discussion on all sides as to what Registrars should
do and should not do. Similary, there has been much argument as to
the exact pirt which Government should take in the co-operative
movement. This paper has been written in the hope that an account
of our development and our experience in the Central Provinces may
assist in the solution of these problems. I have tried to show that
where officials and unofficials have worked earnestly together for the
cause, there, and there only, have good results been obtained. Where
on the other hand, such co-operation has unfortunately been absent
nothing has been accomplished. It appears to me that the future of the
co-operative movement in India depends upon the continuance of an
equitable partnership between the State and people, and I believe
that this will become more and more evident as our co-operative
education proceeds. That popular effort will speedily gain in strength
and volume must be our pious wish. }

(Letracts from the Moral and Material Progress Report of India,
Decennial Issue, 1913, pp. 249-52. |

Co-OPERATIVE CREDIT SOCIETIES.

The Co-operative movement in India is a recent development, due
to action taken by Government. It has hitherto been concerned
almost exclusively with credit societies, though activity in other
directions is beginning. The movement is not confined to
agriculturists, but it was with a view to their benefit, mainly, that
societies were started, and the great bulk of the societies are rural.
It may safely be said, also, that no line of advance offers greater
possibilities in the way of the improvement of agriculture.

The possibility of improving the credit of the rural population in
India by the establishment of a system of Co-operative Credit
Societies had, at the beginning of the period under review, been for
some time engaging the attention of the Government of India. The
question had previously been taken up independently in some
' provinces, and insome cases practical steps had been taken. The
most striking development of the co-operative principle on indigenous
lines had taken place in Madras, where the ud/is, described as mutual
loan funds, had attained on the whole a very considerable degree of
success, in spite of numerous failures due te fraud, ignorance, the
unsuitability of the law, and the absence of supervision. There were
in 1901 over 200 xzdhis, with 36,000 members and a subscribed
capital of £1,700,000. They found their clients, however, among a
more highly educated and advanced class than the mass of the
agricultural population, to whose needs their constitution was not well
adapted. In other parts of the country the societies that had been
started had hardly passed the experimental stage. In the United
Provinces steps had been taken in 1900, at the suggestion of the
local Government, to establish societies in many districts ; in the
Punjab a few societies had been formed about 1898 by district
officers on their own initiative, and in Bengal several societies had
been started, and appeared to have attained some success. under the
fostering influence of sympathetic officials.

In 1901 a Committee was appointed by the Government of India

to consider the whole subject in the light of reports from the local

PROVISION OF BORROWING FACILITIES. 445

Governments and of the experience already gained in the provinces
referred to above. The report of the Committee was laid before
Parliament. It was now apparent that no real advance was_ possible
without legislation, the elaborate provisions of the Companies Act
being wholly unsuited to societies of the kind in question. Legislation
was therefore undertaken with the object, firstly, of taking such
societies out of the operation of the general law and substituting
provisions specially adapted to their constitution and objects, secondly,
of conferring upon them special privileges and facilities, so as to
encourage their formation and assist their operations, and, thirdly,
as a necessary corollary, of taking precautions against the improper
utilisation by speculators and capitalists of privileges not intended
for them.

Legistation.—A Co-operative Credit Societies Bill was accordingly
introduced in the Governor-General’s Legislative Council in October
1903, and passed into law as Act 10 of 1904. In view of the wide
diversity of conditions in India, and the experimental nature of the
measure, simplicity and elasticity were kept in view as cardinal points.
Broad principles were laid down, and certain precautions insisted on,
subject to which, and to rules to be made by local Governments, in
the same spirit, in accordance with local needs, the people were to be
left to work out their salvation on their own lines, the function of
Government being confined to sympathy, assistance and advice. The
object of the Act, as stated in its preamble, was “ to encourage
thrift, self-help, and co-operation among agriculturists, artisans,
and persons of limited means.” Local Governments were em-
powered to appoint provincial Registrars of Co-operative Credit .
Societies, whose duty it would be to scrutinise applications for
registration under the Act. Subject to the provision that any
association of not less than 10 persons might be: registered by the
special order of a local Government, the Act laid down that a society
should consist of persons residing in the same town or village or the

same group of villages, or, subject to the sanction of the Registrar, of
members of the same tribe, class or caste. Societies were classed as
“ yugal ” or “urban ”, and it was laid down that’ four-fifths of the
members must be, in the first case, agriculturists, and in the second,
non-agriculturists. In the case of rural societies the liability of
‘members was to be unlimited, unless a departure from this rule _ were
specially sanctioned by the local Government ; in the case of urban

446 PROVISION OF BORROWING FACILITIES.

societies, liability might be either limited or unlimited, as might be
provided by bye-laws or rules made under the Act. Profits, in the
case of a rural society, were, in the first instance, to be carried to a
reserve fund, or applied to the reduction of the rate of interest, and
a bonus might be distributed only when requirements in_ these
directions had been fully met; urban societies were also to carry at
least a quarter of the annual profits to a reserve fund. Loans were
to be made only to members, or, subject to the consent of the
Registrar, to a rural society. Limitations were placed on the interest
in a society that might be held by a single member, and on the
transfer of shares. Privileges included the exemption of a member’s
shares or other interests in the capital of a society from attachment
for private debts, the grant to societies of a measure of priority over
ordinary creditors in enforcing claims on crops, cattle, &c., and
provisions for exemption, at the diseretion of the Government of India,
from income tax, stamp duties, and registration fees. Provision was
made for compulsory inspection and audit by the Registrar, for
compulsory dissolution, subject to appeal to the local Government,
and for liquidation under a simple procedure. Finally, wide rule-
making powers were conferred upon local Governments,

The development of co-operative societies during the period under
review took place under the Act of 1904, but in the last month of the
decade the Act was repealed and replaced by the Co-operative Societies
Act (Act 2) of 1912, which introduced important changes in the law.
_ Experience had shown that, in spite of the simplicity and elasticity of
the earlier Act, there were certain respects in which it was desirable
to extend its scope, and some points in regard to which amendment
of the detailed provisions was required. The first change made is
indicated by the difference between the titles of the two Acts. With
the spread of co-operative credit societies, there had arisen in many
-parts of India a desire to initiate other societies of a co-operative type,
having for their aim the production or distribution of commodities
and not merely the provision of eredit. The new Act accordingly
provides for the registration under the Act of any society “which has
as its object the promotion of the economic interests of its members
in accordance with co-operative principles,” or any society “established
with the object of facilitating the operations of such a society.” The
statutory distinction between “rural” and “urban” societies is dropped, .
the radical differentiation between societies -with limited and

PROVISION OF BORROWING FACILITIES, 447

unlimited liability alone being retained. The principile that agricultural
credit societies must generally be constituted on the basis of unlimited
liability is retained, but with a view to bringing within the provisions
of the Act societies that have grown up and done useful work in some
parts of the country, the distribution of profits by “unlimited”
societies is allowed in cases where this course is sanctioned by the local
Government. The fourth new feature of importance in the Act of
1912 is that it provides for the formation of societies the members of
which shall be other co-operative societies. The ¢rouping of societies
in this way into unions, and their financing by means of central
banks, is an essential feature in European systems, and action on these
lines had already been found feasible in most provinces of India. The
other changes introduced by the new Act were of less importance and
do not call for special notice.

Progress of the Co-operative Movement.—The provincial Registrars
appointed after the passing of the Act of 1904 were expected not
only to catry out their formal duties under the Act but also to foster
in every possible way the growth of the co-operative movement. In
the instructions issued by the Government of India, local Govern-
ments were invited to select a few distriets in each province in which
the experiment might be most hopefully tried, and it was pointed out that
it would be advisable to start cautiously and to progress gradually.
Stress was laid on the necessity of reducing restrictions to a minimum,
so that the people might be encouraged (subject to certain necessary
safeguards) to work out the problem on their own lines with such
guidance and help as could be given to them.

When the Act was under discussion many doubts and fears were
expressed. ‘These have in great part been dispelled by subsequent
experience. It has been found that the root of the matter does exist
in India, and that Indians will co-operate, that unlimited liability is
is not a bugbear, that societies have succeeded in attracting capital,
and that they have not found the absence of a summary procedure an
insuperable difficulty in the way of collecting their debts. Making
every allowance for the facts that India has been able to profit by
the experience gained in other countries, and that the pioneer work
has been done by the State and not by individuals, progress has
indeed been extraordinarily rapid. Even so, the movement
hasas yet touched only the fringe of the vast population
concerned.

448 PROVISION OF BORROWING FACILITIES.

The limes of development have been different in different parts
of India, but the same general questions have arisen. It soon became
evident that the future of the movement depended on the successful
solution of the two connected problems of finance—.e., the provision
of funds—and supervision. The main obstacle to expansion in the
earliest stages was the difficulty of attracting outside capital, and, on
the other hand, the limits of personal supervision by the Registrars
were soon reached. The importance of avoiding anything like a
general officialising of the co-operative movement has always been
kept in view, and development was intended to proceed along lines
which would render it possible for societies to provide supervision for
themselves. It was recognised that the combination of village societies
for the purposes of finance and control was as important as the combi-
nation of individuals, and that such combination was intimately con-
nected with the problem of giving them access to the outside money
market. Pending the solution of these problems, the policy generally
adopted by Registrars was one of consolidation rather than extension.
The ideal held up was the formation of societies into local and central
unions which would not only finance their own societies but also super-
vise them and encourage the further growth of the movement. So
far as finance is concerned, there are now in all provinces a number
of “central” societies, which lend to other societies only, and are estab-
lished for that purpose. As regards supervision, progress has been
made in varying degrees in the direction of the ideal above referred to.
“Unions” have been formed in many parts, some of which exercise
supervisory functions only, while others, such as the “Central Bank-
ing Unions” of Bengal, also finance their affiliated societies,

In Bombay a new departure was made in 1911 in the form of a
central bank—the Bombay Central Co-operative Bank—with a Govern-
ment guarantee for the interest on its debentures. The bank, which
was founded on the initiative of leading loeal capitalists, lends only
to co-operative credit societies, subject to the approval of the Registrar,
and at a rate of interest which must not exceed 8 per cent. It was
reeistered in October 1911 as an urban society.

A matter to which special attention has been directed is the eom-
bination of the efforts of the co-operative and agricultural departments
for the development of agriculture. Co-operative work has in many
places been brought into contract with that of agricultural associa-
tions, seed societies of a co-operative character haye been started, and

PROVISION OF BORROWING FACILITIES. 449

in many other ways the desired combination has already been brought
into play.

Satisfactory features of the general development of the co-opera-
tive movement in India have been that only a small proportion of the
capital of the societies has been advanced by the State, that the purposes
to which loans have been applied have been almost entirely productive,
and that loans, generally speaking, have been punctually repaid. The
rates of interest charged vary, but are considerably lower than those
charged by local money-lenders; it is estimated that, at a low compu-
tation,the agriculturists of India are saved £100,000 in interest
charges for every £1,000,000 lent out by co-operative societies.

Eayptran SysteM OF MAKING LOANS TO AGRICULTURISTS.

[Hxtracts from the Report on the Administration of Egypt and the
Soudan, 1895]

The Government has done something to aid the cultivators. In
1894, they received advances of 5,000 ardebs of seed (1 ardeb
=2671bs.) ; in 1895, the quantity was increased to 8,000 ardebs. The
reason why advantage is not to a greater extent taken of the offer made
by the Government in this connection is, that the cultivators are but
too often so deeply pledged to the petty money-lenders that they are
unable to resist the pressure, which these latter naturally bring to bear
on them, to abstain from asking for advances of seed from the Govern-
ment.

The remedy which would probably be the most popular amongst -
the land-owning classes in Egypt, and which has, in fact, frequently
been suggested to me by several leading Egyptians, would be to esta-
blish a Government Land Bank, which would redeem the whole, or
nearly the whole, of the present mortages, and would for the future
advance money at reasonable rates of interest on the security of the land.
Those of my native friends who have spoken to me on this subject
scarcely appear to realize the grave objections which may be urged
against a project of this description, nor the very large amount of
capital which would be required to carry it into execution. Apart
from the fact that it would result in the Government becoming the
creditor of a large part of the population, which is, perhaps, scarcely
desirable on political grounds, it is to be observed that, in order to
attain the object in view which is, I conceive, to afford permanent
relief to the land-owning classes, another step would have to be taken,
namely, that all private mortgages upon land, on the security of which
the Government had advanced money, should be declared invalid. Un-
less this were done, a large number of cultivators, after having
borrowed at a low rate of interest from the Government, would place
second, third, and fourth mortgages on their land on account of ©loans
contracted from money-lenders at high rates. I venture to assert
that in avery short time the condition of the land-owning classes,
generally, under a system of this sort, would be no better than at ‘

present.

PROVISION OF BORROWING FACILITIES. 451

I need hardly add that any such radical legislation as the total
abolition of the right of mortgage save with a Government Bank is
quite out of the question.

There remains, however, another remedy which is more worthy
of consideration. I do not say it will save the hopelessly improvident
cultivator, but it may afford an opportunity to those who are not hope-
lessly improvident of saving themselves.

It would be desirable that some respectable banks should take up
the class of business now almost exclusively in the hands of the petty
money-lenders. I have reason to believe that they have so far
abstained from doing so because the business is very troublesome, and
more especially in view of the large staff of agents, required—not over
luerative. There can, I think, be no valid objection to the Government
acting as pioneer in an enterprise of this sort. Acting on this belief,
the Egyptian Government has recently decided to devote £ E. 10,000*
to advances in sums which are in no case to exceed a maximum of
10 in the aggregate, or of £ 2 per feddant. The rate of interest will
be 6 per cent. No advances will be made to proprietors of over 5
feddans. The formalities to be gone through in order to obtain an
_ advance will be of the simplest description. 7
It has been notified that the Government has no intention of
_ embarking upon banking operations on a large scale. They merely
wish to make an experiment in a few selected districts. . It will depend
on the results of this experiment whether at some future time an
endeavour is made to come to some arrangement with a private bank
with a view to more extended operations. It is impossible to feel
very sanguine of success. All that can for the present be said is that
the experiment seems worthy of trial.

* £E.1=£ 1 Os. 6d.

+ A Feddan is very nearl 4 =an acre.

(Eatracts from the Report of 1896.)

“The experience gained has convinced me of the great benefit
that an agricultural bank would be to the smaller cultivators. The
experiment made this year has not only been a great boon to the
villages where the advances were made, but has had the effect of
making the money-lenders in the neighbourhood reduce their rates
of interest considerably, and has opened the eyes of the fellaheen
to the possibility of money being procured at more moderate rates.”

On the whole, I think it may be said that the experiment has
proved successful, but I must repeat that it is quite impossible for
the Government to undertake operations of this sort on a large
scale. It remains to be seen whether any private bank or banks
will take the matter up. I hardly feel sanguine that they will do so.

I may mention in connection with this subject that during the
year 1896, 8,450 ardebs (an ardeb=267 lbs.) of specially selected
seed was sold to the cultivators by the Government at P.T.* 5§ an
ardeb. ‘The purchase-money was made payable in three equal instal-
ments spread over the last quarter of the year. Money-lenders
were at the same time advancing inferior seed at from P.T. 70 to
100 an ardeb, payable at the time of crop.

It is worthy of consideration whether the system of Government
advances of seed should not receive some further extension.

ec ga il ee

i er ge ee sm

* 1P, T, (Piastra Traffic) = 24d,

[Hvtracts from the Report of 1898.)

As an experimental measure, the Government at one time advanced
£ FE. 10,000 in small sums to the fellaheen. The experiment proved
sufficiently successful to afford encouragement for private enterprise
to enter this field of action. The Egyptian Credit Foncier consented
to lower the minimum amount of its advances to £ E. 100. Inas-
much, however, as the advances made by village money-lenders are
generally in small sums of less than £ E. 10, it was evident that the
limit of £ E. 100 was still too high to reach the majority of those
whom it was desirable to relieve.

A further tentative step has now been taken in the direction of
dealing with this question. The newly-created National Bank is
about to make advances of small sums up to £20 at 9 per cent.
interest. Further, the Bank offers advances up to £ 100 at the same
rate of interest, to those who wish to pay off their old debts ; repay-
ment to the Bank will be made in five yearly instalments due in
October of each year, that is to say, at the time the cotton crop is
gathered. All such advances will be reported to the Government,
who will instruct the tax collectors to enter them on the “Wirdes,”*
and effect the recoveries with the taxes.

The 9 per cent. interest will be distributed as follows : 14 per
cent. will be paid to the local agents of the Bank ; 4 per cent. will
go to the tax collectors ; the remaining 7 per cent. will be retained
by the Bank, which will be put to some expense, notably in the
direction of appointing a thoroughly trustworthy European Inspector,
who will visit the villages and control the action of the local agents.
The services of an official of this description are indispensable.

The experiment will, for the present, be tried in one district only.
Should it prove successful, the Bank will be prepared to extend its
operations.

As the fellaheen at present habitually borrow money at exorbi-
tant rates of interest—sometimes as high as 40 per cent., and even
Higher—it is probable that advantage will be taken of the terms

* The “Wirde” is the Schedule in the possession of each landowner, setting
forth the amounts due for land tax and the dates at which payments should be
made,

454 PROVISION OF BORROWING FACILITIES.

now offered. But I must repeat what I have said before on this
subject, namely, that the measures now in course of execution must
still be regarded as wholly experimental. The relations between
the money-lenders and the cultivating classes, which are very similar
in character in all backward agricultural countries, constitute an
economic problem of extreme difficulty. Iam not aware that any-
where a thoroughly satisfactory solution of this problem has been
found. It is, in fact, impossible to feel sanguine of the success of
any protective measures devised with the object of safeguarding the
poorer class of cultivators against the consequences of their im-
providence. In the present instance, all that is possible is to give
the cultivator a fair chance of escaping from his financial embarrass-
ments ; but no measures devised by the Government can prevent his
incurring fresh pecuniary obligations of a nature to frustrate the
intention of the scheme now contemplated on his behalf. I am well
aware of the force of these arguments. They do not constitute a
sufficient reason for total inaction ; but they enjoin watchfulness, with
a view to deciding, by the light of the practical experience which
will eventually be gained, whether it will or will not be desirable to
continue the experiments now in course of progress.

[Eetracts from the Report of 1899.]

The experiment, however, was sufficient to show both that the
fellaheen would willingly avail themselves: of whatever facilities
could be offered for borrowing at a low rate of interest, and that
the practical difficulties in the way of recovering the «principal and
interest, on a number of small loans, though considerable, were not
insurmountable.

The next step taken was to induce the Egyptian Credit Foncier to
lewer the minimum amount of its advances to £ EF. 100. This
measure was practically unproductive of result, the minimum being
still too high to meet the requirements of the mass of the borrow-
ing classes.

The establishment of a National Bank in 1898 enabled a further
experiment to be made under circumstances which were more favour-
able to success. Indeed, one of the main reasons which induced the
Government to assent to the creation of this Bank was a desire to
facilitate the treatment of the question now under discussion.

The Belbeis district in Lower Egypt was chosen as the field:
of operations. This district consists of sixty-eight villages. In
eighteen of these the land is held by large proprietors. During the
spring and early summer of 1899, 1,580 advances amounting in all
to £ E.4,780, were made by the Bank in the fifty villages where the
land is held in small lots. These loans were all repayable in the
autumn. © The result, 1 am informed by Str Epwry Patmer, the
Governor of the Bank, “has been thoroughly satisfactory ; the whole
of the money due in the year was collected by the Govenment tax-
collectors.” |

I should explain that the debts of the fellaheen may be divided
into two distinct categories. In the first place, it isa very general
practice amongst: the Egyptian cultivators to borrow small sums in
the early part of the year and to repay the loan and interest: in the
aetumn, after the cotton has been sold. In the second place, loans
larger in amount and of longer duration are, for various reasons,
contracted.

‘It was obvious that very little would be done to relieve the
population generally if the Bank confined its operations solely to

456 PROVISION OF BORROWING FACILITIES,

the first of these two categories. It is the second elass of loan
which is most onerous to the population generally, for the rate of
interest usually charged by the village money-lenders is so high
that the cultivator, having once borrowod money, but too frequently
finds himself involved in inextricable financial difficulties as the
result of a loan which may Dey have been for no very consider-
able amount of money. |

Guided by. these considerations, the Bank consented to make
870 loans, amounting in the aggregate to £ E. 26,720, ‘and repayable
in five yearly instalments, to the cultivators of the Belbeis district.
In all these cases the money was advanced to persons who were
already indebted, and who were thus enabled to effect a commutation
of their debts on favourable terms.

It is probable that the business has not so far proved sufficiently
remunerative to the Bank to compensate for the very considerable
amount of trouble and expense involved in dealing with a number
of these petty transactions. This, however, is due partly to the fact
that the operations have so far been conducted on a small scale.
The expenses, which are considerable, owing to the absolute
necessity of employing trustworthy and competent supervising
agency, will, of course, proportionately decrease as the operations
extend.

It was felt, however, that no permanent success could be attained
unless the philanthropic considerations which cluster round the
treatment of this subject were so far discarded as to place the matter
on a sound commercial basis, and thus insure to the Bank an adequate
remuneration for their capital outlay. The Government therefore
consented to allow the Bank, in addition to 9 per cent., which is the
highest' rate of interest allowed by law, to charge a commission of
1 per cent., which will go to their local agents in the villages. It is
estimated that, of the 9 per cent., which will be received by the
Bank, about 3 per cent. will go in expenses, leaving a net profit of
6 per cent., from which, however, any loss incurred by bad debts will
have to be deducted.

This arrangement, I hope and believe, is of a nature to
interest the Bank in the extension of the scheme. In fact, the
Bank has now consented to extend its operations to three more
districts. £ E. 100,000 will be advanced in these districts, of which
£ E. 25,000 will be devoted to loans repayble within the year. The

PROVISION OF BORROWING FACILITIES. 457

balanee of £ E.75,000 will be lent on mortgage, the loans being
repayable in five yearly instalments.

The popularity of the measures recently taken in the Belbeis
district is sufficiently shown by the numerous requests which have
been received by the Bank from persons residing in districts which
have so far not been comprised within the sphere of operations.

I must, however, repeat the warning which I have given on
previous occasions when dealing with this subject. The project is
still in an experimental stage. Its ultimate success, considered in
the light of a possible solution of a very important and difficult
economic problem, depends on whether the majority of the cultivating
classes, having once been relieved from any very onerous debts
which they may have contracted, will or will not use the comparative
financial freedom thus acquired to plunge again into operations from
which it will be extremely difficult, if not altogether impossible, to
extricate them.

It would be premature at present to express any confident opinion
on this point. Such little evidence as is forthcoming, however,
rather points to the conclusion that it is erroneous to suppose that the
Egyptian fellah will almost invariably incur debt up to the maximum
amount of his eredit. I do not doubt that a certain number of
cultivators, after they have commuted debt on which they are perhaps
paying interest at the rate of 40 per cent., or even more, into one on
which they will pay 10 per cent., will use the margin of income thus
rendered available in order to contract further debt ; but I contend
that the present scheme may be considered a success if the number of
individuals who adopt this ruinous procedure constitute the exceptions
rather than the rule.

Much, indeed, has frequently been written and said about the
inveterate improvidence of the fellaheen population ; much also on
the impossibility of saving any one, by legislative or administrative
measures, from the consequences of his own folly. Iam not prepared
to deny that there is much truth in the objections which, on these
general grounds, have been occasionally urged against the measures
nowginder discussion. The other side of the question is that, until
of recent years, the system of government prevalent in Egypt was
certainly not of a nature to encourage thrift. Time will assuredly be
required to wean the Egyptian population from habits acquired during
the long period when but little respect was shown for the rights of

58

458 PROVISION OF BORROWING FACILITIES.

property, and when the demands of the tax-gatherer were not merely
excessive, but also uncertain and capricious. But any one who has
seen much of the fellaheen population can bear testimony to the fact
that they are a very hard-working and industrious race, who are
keenly alive to such matters affecting their own interests as they
clearly understand. _

I know of no reason for holding that, as a class, they are
irretrievably thriftless. Im any case, no harm ean be done by
affording them a fair opportunity for shaking themselves free of the
debts by which they are but too often burthened, and thus giving
them a starting-point for the exercise of economy in the future.
Without, therefore, taking a more sanguine view than would be
justified by the present facts of the situation, it is permissible to hope
that the arrangements now made will be productive of some real
benefit to the mass of the cultivators in Egypt.

Should the operations conducted during the present year afford
sufficient encouragement in that direction, it is to be hoped that
the sphere of petty loan operations will be gradually extended. In
that case, as the sums advanced will be locked up, it will be
necessary for the National Bank to increase its capital.

THe MAIN Features oF THE Eayptian System.
[Eetracts from the Report of 1899.)

There are, broadly speaking, two methods of dealing with this
problem, which, in spite of local differences, presents much the same
features in all countries where a backward agricultural population
is brought in contact with those modern principles on which the
relations between debtor and creditor are based in all civilized
countries.

The first is to protect the cultivator fiom the possible consequences
of his own improvidence, ignorance, or carelessness by protective
legislation, which is devised so that, in one form or another, his
freedom of contract is curtailed.

The other is to dispense with all legislative measures of a
protective character, and to seek fora solution by giving to the
cultivators facilities for borrowing at reasonalle rates, and thus both
affording an opportunity to those who are already embarrassed of
shaking themselves free from the grip of the usurer, and at the same
time providing a means to those who have so far escaped financial
embarrassment of maintaining themselves in a position of solvency.

I need not here discuss the merits and demerits of these two
methods. It will be sufficient for my present purposes if I state
that the second has been adopted in Egypt in preference to the
first method.

There is nothing novel in the principle. Land banks have for
along time past existed in many countries. Such an institution,
under the name of the “Credit Foncier,” was established some years
ago at Cairo. I have explained in my previous Reports that this
institution, though in many respects of great utility, did not aid
in the solution of the special problem now under discussion, the reason
being that the minimum advance made by the “Credit Foncier” was
£100, a sum in excess of the loans usually contracted by the
Egyptian peasantry.

It is in the detailed application of the principle that, so far as my
knowledge of the subject enables me to judge, the Egyptian system
possesses some novelty. I need hardly add that, in a matter of this
sort, the details are of great importance.

460 PROVISION OF BORROWING FACILITIES.

Money may be advanced to the cultivators either by the Govern-
ment or by a private bank. |

The objections to purely Government action in Egypt are twofold.
In the first place, the Government could not, without much ineon-
venience, have provided the necessary capital. In the second place,
the officials of the Government have not the time to go amongst the
villagers and seek out those who are in want of loans. Even if they
had the necessary time at their disposal, it is not altogether desirable
that they should be employed on work of this sort. Further, they
have no personal pecuniary interest in the matter. When it has been
publicly notified that, on application to some Government authority at
a certain time and place, small loans may be obtained on certain
conditions, the Government officials naturally enough, think that they
have done all that is required of them. In Egypt a measure of this
sort would not suffice to wean the cultivators from their long-establish-
ed habits. They would continue to resort to the usurer, and to borrow
money at, perhaps, 40 per cent. although a notice might be posted in
the village informing them that, by walking a few miles, they could,
on certain conditions which they would often fail to understand,
borrow at 10 per cent. What was required was that some trust-
worthy agents should seek out clients, and explain to a large number
individually the advantages of the plan offered for their acceptance.
The Egyptian Government did, indeed, act as a pioneer in this matter.
In 1896 it advanced a sum of £ £.10,000, confining its operations to
a small cluster of villages. But although the experiment proved
successful, in so far as the recovery of the money was concerned, enough
was learnt to shew that if the scale of operations was to be extended
resort must be made to private enterprise.

On the other hand, the employment of private enterprise is not
without its special disadvantages. The main obstacle, which stood
in the way of its employment in Egypt, was that no Bank possessed
the administrative agency necessary to insure the punctual collection
of the interest and capital due on a very large nnmber of petty loan
operations. Neither, under the circumstances, could the agency have
been created. It was clear at a glance that any attempt to credve it
would be so costly as to render it necessary to charge a very high rate
of interest in order to cover the expenses and leave a fair margin of
profit to the Bank. Thus, the main object of the scheme would have
been frustrated.

PROVISION OF BORROWING FACILITIES. 461

Under these circumstances, an endeavour was made to devise a
plan which would combine the advantages and obviate the disadvan-
tages of the two systems. This was done in the following manner.
The Bank incurs the whole financial responsibility of the undertaking.
It takes all the profits, and bears all the losses. The Government has
no direct pecuniary interest in the operations. The Bank, also,
through its own agents, does all the work of lending. In every
district in which operations are undertaken an agent is appointed, who
receives a commission of 1 per cent. per annum on any loan that he
may make. These agents are placed under the general supervision
of one English inspector. I wish to draw particular attention to this
latter detail, as it is an essential part of the scheme. The suceess,
which has unquestionably been attained, is mainly due to the fact
that he constantly visits the villages where operations have been
undertaken. He speaks Arabic well, and thoroughly understands
the habits and customs of the people. He is thus able to control the
local agents, both in the interests of the Bank and of the borrower
and he is able to explain verbally to the latter the precise nature of
the transactions in which they are engaging.

It is only when the stage of repayment is reached that the Govern-
ment steps in. The tax-gatherers collect the money due to the Bank
at the same time as the land tax. Thus the Bank is relieved of all
the expenses of collection.

Money is advanced at the rate of 10 per cent. of which, as I have
already mentioned, 1 per cent. goes to the local agents in the form
of commission. Of the remaining 9 per cent. it is estimated that
about 3 per cent. goes in covering the expenses of the Bank, thus
leaving a net profit of 6 per cent. from which, however, bad debts
have to be deducted. ;

Str Epwin Pacmer, the Governor of the National Bank, who has
taken a very special interest in this matter, writes to me as follows:—

« The experiment so far has undoubtedly been a success, and the
relief afforded to some thousands of fellaheen must have been con-
siderable. The fact that the Bank is prepared to advance small sums
atea fair rate of interest has, in the districts where the Bank is working
caused a fall in the rate usually charged by money-lenders, and the
fellaheen have indirectly benefited in this way too. In one district, the
largest money-lender left when the Bank began operations ; in another,
the Bank was regularly boycotted, and it was impossible to find an

462 PROVISION OF BORROWING FACILITIES.

agent amongst the people of the district of any standing, they being
nearly all money-lenders themselves. An outsider had, therefore, to be
appointed ; he had great difficulties at first, but the people of this dis-
trict now begin to realize the advantages, and are dealing with the Bank.”

I stated last year that I considered the scheme as an experiment.
I am still of the same opinion. Some long time must, in fact, yet
elapse before it can be considered as having passed out of the ex-
perimental stage. Manifestly, the main danger is that the cultivators,
being once free from crushing debt, will use the margin of income
they thus obtain to incur fresh debt. That some of them will adopt
this procedure is highly probable. That the majority will fall into
the same error is very far from being certain. Any opinion on this
subject at present can be little more than a matter of conjecture.
Lengthened experience alone can show whether, now that the taxes
are no longer arbitrary and capricious, and the rights of property are,
in fact as well as in name, secured by law, the fellaheen of Egypt will
abandon the habits of extravagance of which they have so often been
accused, and develop national habits of thrift. I can only speak of
my personal opinion, formed after long residence in this country. It
is that, under favourable conditions for the exercise of economy, the
Egyptian peasant will probably prove more thrifty than the English,
though less so than the French member of a corresponding class of
society. Iam encouraged in this belief by the following remarks
which have been addressed to me by Sir Epwin Parmer. “ There is,”
he says, “nothing to indicate that the fellaheen, once relieved of
their onerous debts to the money-lenders, are inclined to plunge again
into debt, beyond the debt to the Bank; indeed, the facility with
which the recovery of the loans or instalments has been effected would
seem to show that this is not the case.”

However this may be, it is abundantly clear that the experiment
which is one of great interest and importance, is well worthy of a
further and prolonged trial.

Before leaving this subject, I wish to make a few remarks, which
may be interesting both because they are illustrative of the practices
of the village usurers, and because they may serve to explain the
advantages of the conditions now offered to the villagers by the Bank.

I have occasionally heard it stated that 10 per cent. is too high
a rate of interest to charge, as the fellahe:n can often obtain loans
at that rate from the local money-lenders.

PROVISION OF BORROWING FACILITIES, 4638

I have already explained that, in order that these operations
should be properly conducted, it is necessary to employ a somewhat
expensive agency. I am convinced that there could be no greater
mistake than to employ very cheap—and, therefore untrustworthy—
agents, I do not think that 6 per cent., including bad debts, can be
held to be more than a reasonable profit for the Bank. Moreover
I greatly doubt whether the fellaheen would confirm the statement
that they can, without the assistance of the Bank, obtain money at
so low a rate as 10 per cent. Even the loans, which the small
money-lenders make nominally at 10 per cent., generally involve
paying in reality interest.at a far higher rate, the reason being that,
throughout the curreney of the loan, full interest is charged on the
total sum originally advanced. No allowance is made for a reduction of
interest on account of the annual repayments of portions of the
eapital. I give an illustration of the two proceedings, 77z., that
adopted by the Bank, and that very commonly adopted by the
usurers. Suppose the Bank to advance £ E. 100 for five years at 10
per cent., the instalments due to the Bank would be as follows :—

Capital. Interest, TOTAL.
£ E. £E £E
lst year 20 10 30
2nd year 20 8 28
3rd year 20 6 26
4th year 20 4 24
5th year 20 2 22
ToTaL— es 100 30 130

The borrower would thus, in the course of five years, pay £ E. 30
for the use of the money advanced to him.

_ Under the alternative procedure, he would pay five equal instal-
ments of £ E. 30, making in all £ E. 150, of which £ E. 50 would
be on account of interest.

In point of fact, to the fellaheen the Bank’s charge of £ E. 30
is equivalent to a loan contracted from the usurer at 6 per cent., and
I do not think that money is ever obtained at so low a rate as this,

464 PROVISION OF BORROWING FACILITIES. eS

The contracts with the usurers not unfrequently render it difficult
for the fellah, who is already indebted, to take advantage of the
terms now offered by the Bank. A common form of contract is that
of a loan of £E.100 for ten years. The yearly instalment for
repayment of capital and interest is £E.20. Thus, under the
procedure I have explained above, in all £ E. 200 is paid in ten years.
Supposing now that, in the course of two years, a fellah has paid
£E.40, of which one-half would be interest and one-half repayment: of
capital. It might be supposed that, on payment of £ E. 80, he
would be free from the debt. But such is not at all the case. Under |
the terms of the original contract, he is often debarred from freeing
himself unless he pays the difference between £E.200 the total
amount which would have been paid in ten years—and £ EH. 40, being
the sum he has already paid. In other words, in order to liberate
himself, he has to pay £ E. 160, menus discount at the rate of 7 per
cent. on £ E. 160. In cases of this sort the Bank can be of but little
assistance.

[Hetracts from the Report of 1901.)

The distinctive feature of the Egyptian plan for dealing with this
interesting and important subject is that a certain amount of
co-operation is established between the Government and the National
Bank. The Bank makes the advances, and incurs the whole financial
responsibility of the undertaking. The Government, through the
agency of its tax-gatherers, collects the money due to the Bank at
the same time as the land tax. Thus, the Bank, being relieved
of the necessity of maintaining an expensive staff of subordinates,
is able to ad vance money to the peasantry at a relatively low rate of
interest.

Sinee the Bank commenced making these loans in 1899, over
34,000 loans have been contracted; relief has, therefore, been afforded
to an equivalent number of small proprietors. There are now 15,269
loans outstanding, for an aggregate amount of £E.402,000; of
these, 3,326 are repayable within the year, and 11,943 repayable in

five years.

The amount that fell due in 1901 was £ E. 146,000. This sum
was due from over 21,000 borrowers. The whole amount, with the
exception of £E.600, had been recovered on the 31st December
last, and the small sum still owing will probably be collected this
year.

The objection to the plan adopted in Egypt is that the class of
operation involved is more properly the work of a Land Bank than
of an ordinary bank. The National Bank of Egypt cannot reasonably
be expected to lock up more than £E.400,000 of its capital in
undertakings of this nature. For the moment, the difficulty has been
met by the Government advancing £E.250,000 to the Bank. This
will, at all events, enable the operations to continue for the time being.
Whether any more complete change of system will be necessary must
be a matter for subsequent consideration. There can, I venture to
thigk, be no question of abandoning the experiment which has so
far proved eminently successful. There can be no doubt that the
Egyptian fellaheen begin to realize the advantages of getting money
at a moderate rate of interest, and that they are willing to take the
opportunity now afforded to them of shaking themselves free from the
grip of the village usurers, From all I hear, I do not doubt that it

59

466 PROVISION OF BORROWING FACILITIES.

would be quite possible, were the capital available, to extend very
considerably the operations of the Bank. But in a matter of this
sort it is as well to move slowly, more especially as careful supervision
is an essential element to the attainment of the object in view. I think,
therefore, that for the time being it is not necessary to arrange for
any more extended operations than those which may be covered by
the additional £ E. 250,000 which the Government has advanced to
the Bank.

I have, in previous Reports, mentioned that the real test of
success which should eventually be applied to the experiment, which
has now been going on for three years, is whether the fellaheen will,
or will not, use the advantages offered them to incur fresh debts. It
is naturally difficult to obtain precise information on this subject.
Moreover, sufficient time has not elapsed to enable the experiment to
have a fair trial. So far, however, as I have been able to judge, the
alleged irremediable extravagance of the fellahcen has, as I anticipated
would be the case, been greatly exaggerated. Up to the present
time, the number of those who have used their improved credit in
order to incur fresh debt has, to the best of my belief, been very
small.

[Extracts from the Report of 1902.)

After a prolonged trial, it appeared that the somewhat novel
system adopted in Egypt some few years ago had passed out of the
experimental stage, and that the introduction of a scheme of a more
permanent character than that heretofore adopted was justifiable.

Negotiations having this object in view were set on foot, with the
result that on the Ist June, 1902, an Agricultural Bank was started
under the auspices of the National Bank of Egypt. All loans
outstanding with the National Bank were transferred to the new
bank, whose sole business it is to lend money in small sums to the
fellaheen. The capital of the bank was fixed at £2,500,000 of which
£1,250,000 has been already paid up. Interest at the rate of 3 per
cent. is guaranteed by the Government. It was, at the same time,
arranged that the rate of interest at which money was advanced to
the fellaheen, which had previously been 10 per cent., should be
lowered to 9 per cent.

The distinctive feature of the Egyptian system is that, although
the whole of the management is in the hands of the bank, the
Government tax-collectors collect the sums due on account of interest
and sinking fund.

The reasons why the Egyptian system has attained a certain
measure of success are mainly two-fold. They are :—

1. That, although the action of the Government has been so far
philanthropic that they have wished to benefit a large and important
class of the community, the undertaking has in no degree been
established on a philanthropic basis. On the contrary, the basis has
been strictly commercial. There was, in the first instance, some very
natural difficulty in convincing capitalists that the business would
be fairly lucrative; but when, by applying the test of actual
experiment, this difficulty was overcome, the main obstacle to success
was removed,

*2, The supervision, which has been conducted by very carefully
selected British agents, has been capable, vigilant, and honest.

When I say that a certain degree of success has been attained in
Egypt, I merely mean that, under the new system, it is clear that the
fellaheen are anxious to borrow, and that the arrangement for

468 PROVISION OF BORROWING FACILITIES.

advances and recoveries has worked well. Before it can be said that
the system has been completely successful, it has to be shown that the
fellaheen are not, generally, making use of their improved credit to
contract fresh debt at ruinous rates of interest.

Appendix I.

[ Extracts from a Minute of Sir Richard Temple, Governor of
Bombay, dated 30th August, 1878.)

By our despatches of the 19th January and the 4th February
last we submitted to the Government of India a draft Bill for the
relief of the indebted ryots in certain districts of the Deccan,
together with Minutes and papers relating thereto : among which
was a Minute of my own, dated 12th November last.

2. Bya despatch dated the lst July last, the Government of
India sent for our opinion a Bill which they propose to be substituted
for our Bill, and which we are invited to accept asa satisfactory
mode of dealing with the questions at issue.

3. While thankfully admitting the advantages proposed to be
given to the ryots by the Bill of the Government of India, I am
obliged to represent that this Bill is not sufficient to fulfil the objects
which the Government of Bombay had in view when proposing
legislation, and therefore cannot be regarded by us as a satisfactory
mode of dealing with the questiohs at issue. In general terms, it
must be described as omitting the most essential of the several provi-
sions which we devised for the protection of the ryots, and therefore
as taking some of the heart kernel and substance out of our measure.
I am sure, therefore, that my Honourable Colleagues will concur with
me in submitting a further representation to the Government of India
on the subject.

4. Our proposals are justly summarized in paragraph 3 of the
despatch of Government of India of Ist July, thus—

(2) to compel the courts, in cases where agriculturists are sued
on bonds or for money due, to go behind the terms of
the bond, to enquire into the justice of the claim, and
to take into consideration the equity of the interest
charged, even though it may have been distinctly agreed
to by the defendant ;

* (4) to make it illegal to award compound interest, or more
interest than the amount of the principal found to
be due ;

(c) to limit the liability of a ryot for debts incurred by his
ancestors ;

4 APPENDIX I.

(d) to empower a ryot’at any time to claim the benefit of the
Insolvency Court, instead of, as at present, only when
a decree has been passed against him ; and
(e) to proteet a ryot’s ryotwari land from sale for debt except
when it has been specifically pledged by him in a bond
duly registered, and to require that all bonds for land
shall be registered, whatever the value of the land
pledged.
. %. The most important point of allis stated ie the Government
of India thus: [See (a) above.] _

13. The gist of the matter is this:—The Deccan ryots were sued,
still are sued, and will always be sued—unless there be fresh legisla-
tion—on bonds which are, in many instances, utterly unjust, though
they may have been executed in due form. I mean by “unjust”
repugnant to the sense of natural justice as between man and man,
that moral sense which is present in the minds of all men whether
educated or uneducated. The harassment therefrom arising drove
these ryots in 1875 to commit agrarian outrages. A special com-
mission showed after elaborate inquiry that the essential injustice of
the majority of the bonds was the root of the mischief. It 1s clear
that this injustice would be demonstrated by any judicial inquiry
which might be had regarding the origin, progress and circumstances
ofthe debts. The existing law provides for judgment being given
on the bonds ouly ; that much is certain. Whether it provides for the
court, by its own inquiries, going behind the bond is, as we submit,
uncertain. The Government of India seems to consider that it does
so provide, while apparently admitting that the provision .is indirect
rather than direct, and must be gathered from scattered rulings and
clauses, rather than learnt from positively clear enactment. We
submit with deference that the uncertainty is such that the courts
practically do not go, can hardly be expected to go, and for the
most part are sure not to go, behind the bond. ‘Therefore we urge
that there ought to bedirect and positive legsel ation without which
the existing evils must be perpetuated.

16. I must next advert to the apprehension apparently felte by
the Government of India lest we should by our point (a) (causing
the court to go behined the bond) unduly throw upon the
plaintiff the burden of proof in cases where no defence is
attempted.

APPENDIX 1. 3

17. At present the indebted ryots seldom set up any defence to
these claims. They see the futility of disputing the bonds in court,
whatever they may think of the injustice. Indeed they have no
chance whatever before the law of setting up any defence which the
courts could be expected to act upon. But if our point (a) be passed
into law, they would set up defences fast enough, and this too with
some chance of equitable success. In this event it is manifestly just
and reasonable that the burden of proof should fall upon the plaintiffs.
But in the absence of defence in cases of this sort it seems to me but
right that the plaintiff should have to satisfy the court that the bond
is a just one. Iam unable to follow the reasoning (as above quoted)
to the effect that to cast on the plaintiff the burden of proving receipt
of the consideration, and the absence of fraud, would afford
opportunities of evasion to dishonest debtors, and might thus be an
incentive to reckless borrowing. Here we have educated, skilful, and
wealthy creditors bringing claims against uneducated, unskilful, and
poor debtors. Is it unfair to cast upon such creditors the burden of
proving such claims to be just, even if undefended ? On the contrary,
does not fairness demand that such burden should be cast upon them ?
In fact, too, these ryot-debtors are not, for the most part, evasive or
dishonest debtors ; they generally pay all, and much more than. all,
they really owe ! It is this notorious circumstance which underlies the
whole argument. The feeling of despair of ever getting out of the
money-lenders’ books makes them reckless in going on borrowing and
borrowing and destroys all hope vf independence. Our provisions will not
be incentives to reckless borrowing, but: will have the very reverse effect.

18. It may be, as apprehended by the Government of India, that
our provisions will throw much work on the courts, more perhaps than
they can conveniently get through. We are not indeed sure that this
will be the result ; but if it be so, then it ought not, in our judgment,
to be allowed for a moment to prevent the measure being carried. If
there were to be some temporary increase of judicial establishments in
four districts (the Bill will apply to four districts only and perhaps to
some special localities in addition) we shall have to meet the cost from
Previncial finance, which we are most willing todo. Even then the
cost would probably be counterbalanced by increase of stamp revenue.
But the net cost, if any, would be so inconsiderable that we could not
venture to urge it in the face of the clear considerations of justice
towards so important a class of our peasantry.

4 APPENDIX I.

19. No doubt, as justly observed by the Government of India our
proposal will conflict with section 102 of the Evidence Act regarding
the burden of proof. But we submit that this yer seis no prohibitive
reason against our proposal. It certainly renders special legislation
necessary, and therefore we have now to apply to the Legislature. The
question is one of plain justice in these cases. Once that is deter-
mined, it becomes, we submit, the duty of the Legislature to frame a
suitable law to supplement the general law.

20. We willingly aknowledge that either by the new Civil Proce-
dure Code, or by the new Bul, an indebted ryot may, by applying for
benefit of insolvency previsions, save himself from arrest and impri-
sionment ; that his implements and agricultural cattle cannot be sold
in execution of decree for debt ; that his cottage, his land, his tenure
and rights therein cannot be so sold either—all of which constitute
beneficial improvements in his condition, for which he may indeed be
grateful to the Legislature. We now receive permission to provide by
local legislation that he shall not be unreasonably liable for ancestral
debts, nor for an usurious rate of compound interest —all which cons-
titutes a still further improvement, and a further cause of thankfulness.

21. Still we submit that despite these various provisions there
may be, and will be, very many unjust bonds, to which the ryots will
have to submit, unless the courts be not only empowered. but obliged,
to go behind the bonds.

92. No exclusion of ancestral debts, no restriction of usurious
interest, can prevent bonds being drawn up for a fictitious principal, or
in acknowledgment of amounts which were never given by the creditor
nor received by the debtor. And it is this concoction, this manipula-
tion, as it were, of the principal, which is one of tlie strongest elements
of injustice in these bonds, which injustice cannot possibly be remedied
unless the courts be obliged to go behind the bonds.

23. Again, notwithstanding the humane provisions of the insol-
vency law, the merciful exemption of implements of land, and of cotta-
ges from sale, still there are many domestic articles which cannot be
so exempted, which are of lesser importance, and more particularly the
standing crop which is of great importance, as it supplies the food cof
the ryot and his family. What arrangements an insolvent court would
make for the subsistence of the ryot cannot exactly be foreseen.
Possibly some arrangement would be made, though I am advised that
the law does not compel the court to make any such arrangements.

APPENDIX I. 5

Still at the best the creditor would have a strong and tight grasp on
the standing erop. I do not mention the garnered crop, because the
creditor would never let it reach the stage of storage without his
interposition. He would attack it while it was standing on the ground.
He would compel the ryot to hypothecate it for the debt. He would
leave to the ryot such subsistence as he (the creditor) deemed fit. The
standing crop, being the only food snpply of the ryot, is so essential a
part of his little possessions that he must pay extreme deference to the
ereditor who is virtually master of that crop. Then comes the eritical
difficulty. The creditor presents to the ryot an old bond, which must
be paid off immediately, or else renewed on exorbitant terms. At
present these bonds, as already stated, are often flagrantly unjust.
_ This injustice will, we hope, be mitigated by legislation, restricting
usurious interest—even then there will remain but too much scope for
injustice in these bonds. Restrictions on usurious interest may be
useful. Still they cannot prevent alterations in the amount of the
principal as already shown. Thus the ryot must ‘ stand and deliver’
to the bond, under penalty of having his crop attached and his food
supply interfered with. The temptation to renew on some exorbitant
terms will be generally irresistible. The creditors are notoriously
ingenious in framing terms which, though exorbitant, will yet fail to
show on the face of them usurious interest or anything else that may
be illegal, and will yet evade the just intentions of the law. Then
simultaneously with renewal of the arrangement the old bond will be
cancelled. The renewed bond will be executed, and will be ‘the one
formal valid bond, as between the parties, to be presented in court.
And the ryot will from time to time be obliged to pay upon that, or
else will have his crop attached, and his food supply suddenly stopped.
If unfortunately that bond be unjust, as it but too often will be, then
the ryot will be, to a considerable extent, the victim of injustice. He
will not be indeed so helplessly a victim as he has been heretofore, as
he will avoid paying a demonstrably usurious interest ; he will be able
to save himself from imprisonment and his land from sale. But for
fear of his crop and his food supply he will still be, to some consi-
deral#e extent, a victim.

24. From this oppression he may be saved altogether, and his
liability may be limited to its proper proportions, by our proposal
’ (a)—obliging the courts to go behind the bonds. That, at all events,
is the most effectual provision that can be devised. And if well and

60

6 APPENDIX I.

carefully worked, as it probably would be worked, under:a : vigilant
administration, it will be effectual. If this be enacted, then the

Legislature will have done all it can for the ryot in this matter. But

if this be not enacted, then the law, notwithstanding the other improve-

ment, will be incomplete for this purpose ; the remedies will be: only

half measures, and much of the existing evils will remain. In that:
case we shall have undertaken legislation, and yet have fallen short: of
our aim, and have failed to effect our purpose. Perhaps even an im-
pression might arise that the existing evils are irremediable, whereas
all the time they are remediable as we believe. We havea fair ground
for renewing our application to the Legislature, because we are asking
not for the recognition of principles which the Government. of» India
disallow, but for the enforcement. of principles which they seem: to
allow.

25. For all these reasons I propose with the concurrence of my
honourable colleagues to request earnestly the Government of India
to allow the sections quoted in this Minute as taken from our Bill. to
form a part of their Bill.

26. In conelusion, while exposing certain evils and suggesting
their remedy, I am far from implying either that the money-lender is
altogether blameable or that the ryot is altogether pitiable. With, all
his faults, the money-lender is a useful. man, and often gives credit
when it is most needed. With all his sorrows, the ryot enjoys many
of those advantages which peasants most value.

Appendix IT.

[Despatch from the Secretary of State for India, to the Governor-General
of India in Counecil,—No. 63,. (Legislative), dated the 26th
December, 1878.}

I forward, for the consideration of Your Excelleney in Council,
copy of a despatch tf which I have addressed to the
Government of Bombay relative to a Bill which has
been introduced into the Bombay Council for the
relief of indebted agriculturists in certain parts of
the Presidency of Bombay.

3. In my despatch to the Government of Bombay I have
expressed at length certain views which have presented themselves to
my mind on a consideration of the report of the Commission appointed
to enquire into the Deccan riots, and I am desirous that Your
Exeellency in Council should consider these remarks in connection
with further legislation on this important subject.

+ No. 4, dated the
26th December
1878.

[Despatch from the Secretary of State for India, to the Governor in
Council, Bombay,—No. 4 (Legislative), dated the 26th December,
1878. ] ~

_ Ihave to acknowledge the receipt of the despatch from Your
‘Excellency in Couneil, dated the 30th September last, No. 11,
transmitting for my information copy of a “ Bill for the Relief of
Indebted Agriculturists in certain parts of the Presidency of
Bothbay, ” which has been introduced into your Legislative Council.

2. On the 16th November I despatched to Your Excellency the
following telegraphic message :

“ Delay proceeding with Indebted Agriculturists’ Bill. Despatch
follows.”

8 APPENDIX it.

3.° I now proceed to state the reasons which induce me to doubt
whether the provisions in the measure before me are at all adequate
for grappling with the evils which have been so prominently brought
to light in the report of the Deccan Riots Commission.

4. When that report arrived in this country in May 1876, Lord
Salisbury was so deeply impressed with the distressing picture
therein given of the agricultural population in the Deccan, that he
awaited with great anxiety some communication from the Government
of India as to the steps intended to be taken. But none such having
arrived after an interval of nearly a year-and-a-half, His Lordship
appointed a Select Committee of his Council to consider the report.

5. The Committee began to sit in November 1877, held several
meetings and examined some experienced witnesses well acquainted
with the Bombay Presidency ; but before they had terminated their
inquiries, a despatch was received from Your Excellency in Council in
February of the present year enclosing the draft of a Bull for the
relief of Indebted Agriculturists in the Presidency of Bombay, and

which you desired to have introduced into the Council of the Supreme
Government.

6. That Bill contained three main principles :

(1) That the Courts should be obliged to enter into the merits
of every money claim whether secured by bond or not,
and should only award such sums, whether for principal
or interest, as they deemed just, and should in no case
give compound interest ora larger amount of interest
than the principal sum.

(2) That the principle of the Insolvent Act, as. prevailing in
the Presidency town, should be applied to the Deccan
Agriculturists.

(3) ‘That land should not be sold in execution for debt, unless
specially pledged in a bond duly registered.

Lord Salisbury, although not fully satisfied with all the principles
contained in this measure, thought the occasion for attempting
remedial legislation to be so urgent that he sanctioned by telegram
the introduction of the Bill, being quite willing that the experiméntal
legislation contemplated in the Council of the Governor-General
should be attempted. LIalso am of the same opinion.

7. Leave was accordingly given for the introduction of the’ Bill
into the Council of the Governor-General on the 28th June last, but,

APPENDIX Ii. i)

for reasons which have not been transmitted to me, the Government
of India preferred, instead of one comprehensive Act, that your
Government should pass a law dealing with some minor points
relating to interest and to ancestral debts. The bill which I have now
before me is the result of the action of the Supreme Government.

8. I can well understand the difficulties which have deterred the
Government of India from dealing with this subject as a whole, and
which have induced them to leave minor points to be disposed of by
the Local Government ; but if the evils sought to be remedied are
capable of being eradicated by legislation, I am clearly of opinion
that they should not be dealt with piece-meal.

9. The very able report of the Commission and the mass of
valuable information contained in the Appendices enable us, I think,
to draw the conclusion that some of the great causes which lie at the
bottom of the poverty of the Deccan are wholly beyond the reach of
the legislator, and are inherent in the national character and in the
customs which have prevailed for countless generations. The Deccan
ryots, like the general mass of the cultivating classes in other parts
of India, are entirely without capital, and are driven on the first bad
harvest into the hands of the money-lender, not only for the means
to till their fields, but for food to keep themselves and their cattle
alive till the crops of the next season are matured. This fact has
created the system of borrowing at high interest which prevails so
largely amongst the agricultural population, and has made the
existence of a money-lender in a Hindu village as essential as that
of a ploughman.

10. The normal condition of a Hindu cultivator is much
aggravated by local circumstances in parts of the Deccan. The
soil is sterile, the climate is precarious, a good crop being in some
parts obtained only once in three years, the fall of rain is scanty, the
peasantry, though a sturdy and ordinarily a law-abiding people, are
described as “ utterly uneducated and with a narrow range of
intelligence.” It is obvious that the causes mentioned in this and
the preceding paragraph are not to be easily modified by any
legislative act.

11, The districts in which the riots took place came into British
' possessions in 1819, and at that period and for 20 years afterwards
diverse causes, such as the ravages of Holkar’s army and the dreadful
famine which followed his campaign—a famine which was repeated

10 APPENDIX it.

two or three times during the first 20 years of the century—the
subsequently heavy fall of prices, and the consequently oppressive
weight of the old Mahratta rate of assessment which was at. first
continued by the Government. of the day, all these had produced an
amount of poverty and ruin which the Settlement officer writing in
1833 found it impossible to describe.

12. The Government of that day, however, made _ strenuous
efforts to better this state of things. They reduced the assessment
from an average rate of 134 annas to 7 annas, they gave the
cultivators for the first time fixity of tenure, and they abolished
extra cesses.

13. A Resolution of the Government of Bombay, dated. the
30th August 1875, describes the satisfactory results of this new
settlement of the land: “ In 1838 more than 50 per cent. of arable
land was waste ; in 1871 only one per cent. Population increased,
during the term of the settlement, 394 per cent.; agricultural cattle
19 per cent. ; ploughs 224 per cent. ; carts 270 per cent. ; and wells
40 per cent. Government land was unsaleable in 1838 ; during the
last five years of the settlement, examination of the registration records
showed that it fetched from 10 to 52 times its assessment. Thirty
years ago there were no made roads, and communication was. costly
and difficult ; the taluka is now traversed by the railway and by
several excellent roads, and the increase in the number of carts
indicates the extent to which the people avail themselves of the
facilities of communication with markets.”

14. Satisfactory as this picture of progress is (and similar ones
may be produced from all parts of India), there is undeniable evidence
in the report before me that the very improvements introduced under
our rule, such as fixity of tenure and lowering of the assessments, have
been the principal causes of the great destitution which the
Commissioners found to exist.

15. The saleable value of the land greatly increased the credit of
the ryot, and encouraged beyond measure the national habit of
borrowing, which I have before observed on. High prices led to
extended cultivation, to more expensive modes of living, to larger
outlay on the great stimulant to Hindu expenditure, marriage
ceremonies. Recourse to the money-lender beeame then more frequent -
than before and the class of money-lenders competing for custom
increased in most undue proportions. The first fall in prices, and the

APPENDIX II. ll

first bad harvests, both of which have oceurred in these districts; found
the cultivators as poor as ever, but encumbered with an additional
mass of debt. Still no one would advocate as an amendment. of the
law that we should abolish fixity of tenure, or increase the assessment
on the land.

16... Up to this point, then, I can see no opening on which the
legislator can enter with effect. In all civilized societies there is a
vast amount of suffering and destitution, very lamentable to
contemplate, but which it is wholly out of the powers of the State
by any direct action to eradicate. All that Government can do is to
take that itsown institutions shall not aggravate the misery which
so often follows the spontaneous action of the population.

17. This last observation brings me to the consideration of the
Bill now before me. Your Government has distinetly perceived that
the courts of justice we have instituted, and the law they administer
operate most harshly, and frequently with great injustice, on debtors,
who form the great bulk of the population. Here, therefore, is an
opportunity for the beneficial interference of Government. Both. the
Bills which I have alluded to above have been framed with the view
of mitigating the law, and of extending the powers of Judges to
modify the contracts entered into between man and man.

18. I may say at once, after full consideration, thatthe bill
introdueed into Your Excelleney’s Council appears to me to be so
dependent upon the character of the Judge, and so likely to be
defeated by agreements between helpless debtors and wily creditors,
that I cannot suppose it will lead to any substantial results.

19. The question remains as to what shall be done, for it is
clear that some alteration in the existing law is imperatively called
for. A fitting measure can only be properly prepared in India. For
the consideration of the two Governments I proceed to notice the most
salient points which have presented themselves to me on this head
in the Report and Appendices of the Commissioners and the lines of
improvement which have suggested themselves.

20. Under Native Government, it seems no _ assistance was
ordinarily afforded by the State to a creditor for the recovery of his
debts. No court of justice was open to him, and he was left to his
own devices to extort what was due, Government winking at very
forcible measures that were occasionally employed. The result was
not so bad as might have been expected. It speaks well for the

12 APPENDIX II.

national character that contracts were rarely repudiated. And the
Commissioners observe that in these”proceedings “ honesty was the best
policy for the ryot, and caution was a necessity to the moneylender”’.

21. On the establishment of our rule, however, courts of justice
were established everywhere.

22. Itis abundantly manifest to me, on the evidence collected
by the Commissioners, that no evil has been so: loudly, and I must
say so justly, complained of by the people as the action of ‘the | courts.
The extreme severity of the law on debtors has been pointed out by
the report. |

23. The Judges are only the instruments for enforeing the laiw
as it is, and no blame is imputable to them. But the extracts from
the statements of the Judges themselves, cited by Mr. Corvin,
demonstrate completely that, irrespective of the hardness of the law,
they are incapable of administering justice between debtor and creditor.

24. One Judge says—“ the Subordinate Judges in the district
are much overworked, and really have not time to investigate cases
properly and weigh the evidence ” ; another says, “ our Subordinate
Judges are too hard-worked to allow, even if they were inclined to do
so, of their going into the history of such cases. The court) which
was inclined to go into the old history of a ease would have nothing
but the sowkar’s books to go upon if he produced them. ”

25. Another Judge enumerates the frauds perpetrated by the
money-lenders, and states that they are practised with impunity.
When “the deluded sumbi * * * is dragged
into court he is unable to answer the claims, or if he states a defence
he is not ina position to prove it ”.

26. The Commission also assign another reason for our courts
being mere instruments in the hands of the money-lenders, namely,
their great distance from the home of the debtor. A money-lender
may easily instruct a pleader to take out process against a debtor in
a court 40 or 50 miles distant at little cost to himself, but it is ruin
for a cultivator, dependent on his daily labour, to’ absent himself. for
days together from his field, even if he has a valid defence.

27. Here then it is quite clear we have evils produced by the
legislature itself, and which it is within the competence of Government
to extirpate.

28. Iam extremely unwilling at any time, but especially now,
to suggest. any increase to the cost of administration ; but if it is

APPENDIX II. 13

made manifest that our courts of justice are inefficient in these special
cases, and that our Judges admit they have not time to inquire into
the real facts by a thorough investigation, I would suggest that
although an addition tothe cost of administration is very much to be
deprecated, it is imperative to remedy the defects here pointed out.
A re-distribution of expenditure might be made, and I observe that
it is stated in the Commissioners’ report that.88 subordinate courts
bring in a revenue of Rs. 16,89,744, and that the expenditure, includ-
ing salaries of Judges, is only Rs. 6,90,717, .

29. Evils such as have been depicted above, arising out of the
costliness and inaccessibility of courts of justice, though of a much
slighter character, existed in England also, and the remedy suggested
was the establishment of Small Cause Courts. This innovation, after
having been opposed sturdily for many years, was finally adopted,
and has proved so eminently successful that nearly every year witnesses
some extension of their powers. In India also the institution has
been partially adopted. But it is from France that the most
important evidence can be obtained as to the value of local courts.
The agricultural population there is more akin than the English
to that of India, inasmuch as French landed property is in the
hands of innumerable petty owners, who cultivate with their own
hands.

30. In that country small causes up to 100 franes are tried in
every village before the Juge de Paix. The proceedings are summary,
written pleadings are prohibited, and his decision is final on all sums
not exceeding 50 francs. The early meeting of the parties before the
Judge in order to produce an amicable settlement of the suit, which
is so strongly insisted upon by Mr. Bentuaw, is spoken of by the
French authorities in the highest terms.

31. I cannot doubt that the existence of courts with summary
jurisdiction and without appeal up to a limited amount, and possibly
with the exclusion of professional pleaders, placed in localities within
reach of the suitor’s home, would tend to remove many of the evils

which have been brought to notice.

e 32. Iam quite aware of the difficulties which intervene to prevent
the entrusting of large summary powers to Subordinate Judges, and
that no portion of a Judge’s functions requires more experience and self-
control than the exercise of that large discretion over contracts which
the High Court inculeates as belonging to Indian Judges under the law.

61

14 APPENDIX TIT.

For this reason it is obvious that the summary jurisdiction to be
attributed to Subordinate Judges should only extend to a very limited
amoutit. eh.

33. But I am inelined to think that the prineiple of summary
jurisdiction without appeal might be conferred experimentally on all
civil Judges in the Deccan with great benefit, and the limit to be fixed
would of course vary with the rank of the Judge. If the District
Judge could devote one day in the, week to the disposal of small
causes up to, say, Rs. 500, as was the practice formerly of the
Supreme Court at Bombay, he would, in my opinion, confer infinite
benefit on the community ; he would afford an example to the courts
below him of the manner in which such jurisdiction should be
exercised ; and he would personally derive the benefit which experience
in this country proves to result from a Judge of Appeal pai
occasionally employed in trying original causes.

34. How far these suggestions can be made applicable to the
portions of India to which the investigation of the Deccan Riots
Commission have extended, I leave it for the Supreme Government,
in communication with Your Excellency in Council, to decide ; but I
am desirous that no time should be lost, and that a comprehensive
measure should be at.once proceeded with, founded on the principles
which I have indicated, and on those which Lord Salisbury had
previously sanctioned,

-