Microcredit involves extending small loans to poor borrowers who frequently lack collateral, employment or a credit history. It became a popular idea with the founding of the Grameen Bank in Bangladesh in 1983, and the awarding of the Nobel Peace Prize in 2006 to its founder Muhammad Yunus. The United Nations declared 2005 the International Year of Microcredit. Critics have argued, however, that the commercialized microcredit promoted by the World Bank leads many borrowers into a debt trap from which they cannot climb out; commercialized microcredit can be likened to loan-sharking.
In early Ontario, I have argued that debt not only impoverished new settlers, but also created political dependency. Debt and the threat of lawsuit and jail was a blunt weapon used to keep people in line; and they lost their farms as a result. The scope of the problem of debt in Upper Canada was conveyed in a series of parliamentary reports; as early as 1827, the eleven district jails in the province had a capacity of 298 cells, of which 264 were occupied, 159 by debtors. William Lyon Mackenzie reported a typical case in Markham in his newspaper, The Colonial Advocate: Henry Ausman was a Hanoverian German who moved to Markham in 1802 as part of William Berczy’s failed “German Mills” settlement. He leased lot ten on the fourth concession of Markham, a crown reserve lot, seven years later. In 1830, his 21 year lease came due, but he was in arrears on his rent. “Being anxious to take out a new lease, lest some other person would apply for his lot, and also desirous to finish a sawmill he had begun to build on the premises, he borrowed £25 from the Bank of Upper Canada.”[i] He was able to renew his lease, but unable to repay the loan at the end of the standard 90-day term, having an outstanding balance of £21 3s. The Bank sued to recover the debt (using Ausman’s own lawyer) and as Ausman complained, the Sheriff’s bailiff came and seized and
“sold a yoke of six-year old oxen and a yoke of handsome steers, which brought in all about sixty dollars. In a week or so afterwards he sold a waggon and potash kettle, and refused to give any statement of sales or receipts thereon. He refused to levy upon the new lease though offered him for that purpose, but sold the mare from under your petitioner for $16.50. On the 2nd day of April, [the bailiff] came to your petitioner’s house in Markham and sold his other horse together with the harness and a potash kettle which had cost $90 in York, two large six-pail kettles, a yoke of four year old bulls, a three year old heifer almost ready to calve, ten sheep with the wool, and ten lambs. Of these sales he refused to give your petitioner any account or receipt, although the property sacrificed was of the value of at least one hundred pounds.”
As Ausman pointed out, the interest on the £21 for a year would have amounted to only a little more than a pound. The bank arbitrarily decided NOT to renew the 90 day loan so that its officers – members of the “Family Compact” – could profit from Ausman’s tragedy.
The Children of Peace had a unique – microcredit – solution to the problem of debt. Just before the Children of Peace consecrated their temple on the 28th Sept. 1832, they reorganized themselves as a joint stock company that amongst other things, extended loans to members. The highly symbolic temple was intended solely as a place for their monthly alms sacrifice for the poor, “Israelite fashion.” Their Charity Fund, composed of alms collected in the newly built temple, rapidly expanded beyond their charitable needs, making “money useless like the misers store, to the dissatisfaction of the brethren.” The elders used that surplus in the charity fund for loans. Since they controlled the loan process themselves, they could ensure that terms were manageable, that no one was denied credit, and that the repayment of the principal remained flexible in difficult times. Their records show that the amount of the loans made between 1845 and 1854 averaged £19 5s – or about the average debt of those sued in the Home District Court. The Charity Fund as mutual credit institution was used, in other words, to resolve the debt crisis that caused Henry Ausman to lose his farm. It is no surprise that by 1851, the first complete census, the village of Hope was the most prosperous agricultural village in Ontario.
Commercialized microcredit utilizes the forms of mutual credit in order to exact higher interest from poorer customers with lower default rates. Perhaps the poor would derive greater benefit from mutual credit itself, as the example of the Children of Peace shows.
[i] Colonial Advocate 5 Aug. 1830