SMALL LOANS FOR POOR •PEOPLE.
WE publish to-day in our correspondence columns as letter—by Mr. Herbert Batty—which makes a very interesting and, we believe, useful suggestion. After noting the rapacity of those who lend small sums of money to the poor and the lower middle class, and the terribly bigh rates charged, even where security is given, he points out with truth that nothing could confer a greater benefit on the classes just mentioned than some system under which respectable people temporarily pressed for money could obtain loans at a rate of interest of from 9 to 10 per cent. We agree with him. There are often cases in which the possibility of obtaining a small loan of money on fair conditions might prevent a poor or middle-class family from being overwhelmed by disaster, or, again, where such a loan might enable them to take legitimate advantage of some opportunity for securing their position. As it 'is, however, men in such a situation have almost no resource except to go either to one of those strange, half-amateur, half-professional usurers who carry on a furtive business in many of our villages and small towns, or else to seek out one of the regular moneylenders who suck the very life-blood from those who borrow, and who under one pretext or another draw nearly cent. per cent. Among a very large portion of the public contracting a loan of any kind has come to be regarded, and in a souse rightly regarded, as the first step on the road to ruin, and as some- thing almost disgraceful. Yet under proper conditions there is no reason why a. loan should be any more injurious to the poor man than to the rich. In the well-to-do classes nothing is more usual than for a man to get a loan from his bankers, or, what is the same thing, to arrange for an overdraft, and neither he nor the bank feels that the transaction is a dangerous or a degrading one. Without wishing in any way to encourage the poor or lower middle class to depend upon loans rather than upon savings, we should like to see a similar feeling and similar facilities grow up in their case.
What Mr. Batty proposes is that some Association or Company should be formed for the purpose. No doubt the ideal plan is a Co-operative Bank. or Co- operative Loan Association. The advantages of such a system are obvious. In the first place, the Co-operative Association is formed among people who know each other's characters and circumstances, and who therefore ought to be able to say with more or less certainty whether a loan can or cannot safely be made. Again, as the members of the Co-operative Association themselves con- tribute the capital which is loaned, they would be able in a properly managed concern to get the advantage of the very considerable profit which can be made out of lending money for short terms in small sums without recourse to anything in the shape of usury. A Co-operative Loan Association, if well managed and if too much is not spent on expenses, ought to be able to make 7 or 8 per cent. safely for its members, while charging the recipients of the loans not more than 10 per cent. But though the application of the Co-operative principle to the business of moneylending in small sums is the ideal, there is also no reason why those who are interested in helping the poor to help themselves—which is, after all, the only sound form of charity—should not form an Association to do the work done with such con- spicuous success in Egypt under a scheme which owed its original inspiration to Lord Cromer. In order to combat the moneylenders who were bleeding the Egyptian fellaheen so unmercifully, Lord Cromer induced a body of capitalists to found a Land Bank which should lend money at reasonable rates to the peasantry. The result has been wholly beneficial. It has not only in many cases actually brought about the abolition of the ordinary moneylender, but even where he continues the force of competition has obliged him to abate his normal rapacity and to keep his demands within bounds. Most people are sensible enough not to pay 80 or 90 per cent. for a small loan when they can get the same accommoda- tion from a Land Bank at 10. or 12 per cent. At the same time, a speculation which had originally a philan- thropic basis has turned out to be an extremely lucrative investment for those who first undertook it, —a result in every way satisfactory. No reasonable man should be anything but delighted that those who have beaten the blood-sucking moneylender have also obtained a material reward.
We can hardly doubt that if an Association were formed here on the basis of "philanthropy and 5 per cent.," and if sound business methods were adopted, the shareholders of the Association would find ample security for their money, and a very great benefit would accrue to the poor. Probably at first lie expenses would be heavy, because to do real good it would be necessary to establish a very large number of branches throughout the country. Again, the expenses of inquiry might often be great. If, however, the Association worked with the Charity Organisation Society and its branches, we do not see why such investigations could not often be curtailed. Why, for example, should not such a Company as we are thinking of let it be known that they would accept the recommendation of a Charity Organisation Committee as primdfa,cie evidence of an applicant's bona-fides and character? They might not be inclined without some further investigation or security to lend the man money, but at any rate the ground would have been cleared. Again, the Association might in certain cases extend its operations by financing groups of men who wish to associate themselves in some common enterprise, as, for example, taking advantage of the Small Holdings Act.
If an Association for lending money in small sums to the poor were formed, we should like to see it add to its work an effort to popularise the investment of small sums of money in stocks and shares. At present those who save in small sums in this country have very little idea of investing. It is not the custom of the working class to save in this way, and our system of inscribed stocks rather than of bonds to bearer militates against the putting by of small sums except in savings-banks. Abroad men buy a hundred francs' worth of bonds just as readily as they here chancre five sovereigns into a five-pound note. But the change note bears no interest, while the French hundred-franc bond to bearer, with its coupons attached, is always breeding money. An Association which could retail stocks and bonds of all kinds in small sums, and could teach the working class that it is not such a terribly complicated thing to acquire a few shares in a company, would be doing a great public service, and, we do not doubt, might incul- cate the saving habit in many cases where it is now non- existent. When once a man has got a five-pound or ten- pound investment in a company of some sort or other, he soon falls under the beneficent temptation to add to his stock. After all, the saving habit is a habit like any other,—like, for example, the habit of betting, or spending money on going to football matches. In this connexion we desire to endorse the effort which is now being made by our able contemporary the Economist to popularise Consols. Speaking generally, the Economist desires that men should be able to hold Consols just as Frenchmen hold Rentes. For those who so desire, Consols should be made as negotiable as bank-notes. As we understand it, the Economist's suggestion is that five-pound Consol-bonds to bearer, with coupons attached, should be issued. Five pounds, being a hundred shillings, is a very convenient sum, and makes the interest per cent. easily calculable. What a stimulus it would be to saving if any man could buy across the counter a five-pound bond in Local loan three per cent. stock for 99s., and find attached thereto three shillings' worth of coupons. The visible object-lesson in the advantages of saving would surely not be without its effect. We do not doubt, indeed, that if the Economist's plan for popularising Consols were adopted, we should not only benefit the small investor, but should also get a much steadier market for Consols, which, after all, is very desirable. In order that our readers may understand the specific suggestion of the Economist, we quote the last paragraph of an article in its issue of last Saturday :— " The class of small investors constitutes a new field for the Chancellor of the Exchequer anxious to provide a steady market for Consols. It is a perfect Tom Tiddler's Ground' for him, and we quite agree with our correspondents that it is high time for him to go prospecting on the new field. The main facts are simple : What is needed is first, the adoption of the procedure of the great public companies by the banks in respect of certificates, sales, purchases, and dividends. Second, the introduction of £5 bonds transferable to bearer, and if necessary a system of regis- tration, with coupons for interest attached. There are many
subsidiary steps which might be taken with advantage, but these two are the most important."
We must not leave the subject we are treating without pointing out that if our correspondent succeeds in forming the Association he has suggested, great care must be taken, in the first place, to go slowly and tentatively, and next, to secure the help of experienced financiers, who will be able to place the matter on a really sound basis. It would be a thousand pities if a movement which seems to promise so much were to fall into the hands either of unwise or inexperienced persons, who might wreck it, or, again, if it were allowed to be exploited by financial harpies, who are quite willing to cloak their predatory aspirations under the pretence that they are philanthropists. What is essential is that a movement of this sort should have a really sound business and financial basis. If this is obtained, the philanthropic side will not suffer, but rather the reverse. Unless a scheme of the kind of which we have been writing pays its way, and commands the respect of the business world, it will in the end prove of very little practical value.
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