Bond of association

These millworkers chartered the first credit union in British Columbia. Powell River, Canada, 1939.

The bond of association or common bond is the social connection among the members of credit unions and co-operative banks. Common bonds substitute for collateral in the early stages of financial system development. Like solidarity lending, the common bond has since played an important role in facilitating the development of microfinance for poor people.

In modern financial systems, common bonds remain a key building block, especially for the strategic networks that underpin many of Europe’s co-operative banks.[1]

Contents

How bonds work

Hermann Schulze-Delitzsch, an early co-operative organizer, explained the concept of the ‘bond of association’ at credit union meetings in this way:

... your own selves and character must create your credit, and your collective liability will require you to choose your associates carefully, and to insist that they maintain regular, sober and industrious habits, making them worthy of credit. [2]

In his book People’s Banks (1910), Henry W. Wolff summarized the character of this ‘common bond’ based on his observations of credit unions all over Europe:[3]

1. many individuals bring small amounts of share capital into a common pool, which collectively amounts to significant base of collateral,

2. borrowers, lenders and guarantors live near one another (e.g., in the same village), making it convenient for the lender and guarantors to monitor the performance of the borrower, and manage any problems that may come up,

3. an ‘inter-connection of liability among members’ is created by the bond, which may either involve direct and unlimited ‘financial liability’, or ‘direct responsibility for good management’ (which once publicly established increases the sense of security of claim-holders), and

4. all operations of the credit union must be conducted along ‘businesslike lines’ based on a strong sense of collective responsibility.

Diverse types of bonds

There are several distinct types of bonds, corresponding to distinctive types of credit unions. For example:

  • The Raiffeisen banks in Germany relied on parish-based bonds, as parishes were very small and people were in constant communication with each other through the central nexus of the local church. Similarly, the Caisses populaires' of Quebec were originally "organized along the boundaries of Roman Catholic parishes".[4]
  • The bonds on the multi-ethnic Canadian Prairies were community-based, linking members through their common residency in small towns and villages.
  • Common bonds in early United States credit unions were generally employee-based, and concentrated in the manufacturing and transportation industries, and among teachers and postal workers.[5]

Debate between Schulze-Delitzsch and Raiffeisen

A bitter debate between two German credit union pioneers over the nature of bonds of association eventually ended in a tie, with Schulz-Delitzsch’s approach dominating in urban settings, and Raiffeisen’s dominating in rural ones.

The bond of association for Schulze’s larger, more urban ‘people’s banks’ required all members to contribute substantial share capital. He advocated that these banks should receive the protection of limited liability.

Friedrich Wilhelm Raiffeisen strongly opposed any share capital requirement. Arguing that most farmers had too little cash to afford share capital, he maintained that the principle of unlimited joint liability was “indispensable in small districts". It was needed "in order to prevent the Unions from excess, since it makes the administrative bodies conscious of their moral and material responsibilities.”[6]

References

  1. ^ Martin Desrochers, Klaus P. Fischer & Jean-Pierre Gueyie. Managing contractual risk through organization: strategic vs. consensual networks. Développement International Desjardins, Levis, Quebec, May 2004.
  2. ^ J. Carroll Moody & Gilbert C. Fite. The Credit Union Movement: Origins and Development 1850-1980. Kendall/Hunt Publishing Company, Dubuque, Iowa, 1984, p. 4
  3. ^ Henry W. Wolff. People's Banks: A Record of Social and Economic Success. P.S. King & Son, London, 1910, pp. 37-38
  4. ^ "Canada's Credit Unions and Caisses Populaires". Department of Finance (Canada). February 2000. http://www.fin.gc.ca/toc/2000/ccu_-eng.asp. Retrieved 2009-10-15. 
  5. ^ Ian MacPherson. Hands Around the Globe: A History of the International Credit Union Movement and the Role and Development of World Council of Credit Unions, Inc. Horsdal & Schubart Publishers & WOCCU, Victoria, Canada 1999, p. 23
  6. ^ Friedrich Wilhelm Raiffeisen. The Credit Unions. Fifth (1887) edition, translated from the German by Konrad Engelmann. Raiffeisen Printing & Publishing Company, Neuwied on the Rhine, Germany, 1970, p. 46.

See also


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Bond Market Association — ( BMA) An industry trade organization for U.S. broker/dealers. Among other things, the BMA has developed standard documentation for repurchase agreement transactions and for describing prepayments received from MBSs. Formerly known as the Public… …   Financial and business terms

  • Bond Market Association — The Bond Market Association (former name: Public Securities Association) was the international trade association for the bond market industry. It had headquarters in London, New York City, and Washington D.C. Twenty per cent of the membership was …   Wikipedia

  • Bond of Association — The Bond of Association was a document created in 1584 by Francis Walsingham and William Cecil, Lord Burghley after the failure of the Throckmorton Plot in 1583.ContentsThe document obliged all signatories to execute any person that: *attempted… …   Wikipedia

  • bond market association — An international trade association of broker dealers and banks in US government and federal agency securities, municipal securities, mortgage backed securities, and money market securities. Bloomberg Financial Dictionary …   Financial and business terms

  • Bond Market Association (BMA) Swap — A type of swap arrangement in which two parties agree to exchange interest rates on debt obligations, where the floating rate is based on the bond market association s swap index. One of the parties involved will swap a fixed interest rate for a… …   Investment dictionary

  • Bond insurance — (also known as financial guaranty insurance ) is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or… …   Wikipedia

  • Bond (sheep) — Bond sheep are an Australian dual purpose (meat and wool) sheep breed that was developed around 1909 near Lockhart, New South Wales by Thomas Bond when he mated Saxon Peppin Merino ewes to stud Lincoln rams. The resulting progeny was selected on… …   Wikipedia

  • bond — [n1] binder or fastener band, binding, chain, connection, cord, fastening, fetter, gunk, handcuff, hookup, irons, ligature, link, linkage, manacle, network, nexus, rope, shackle, stickum*, tie, tie in, wire; concept 497 bond [n2] association,… …   New thesaurus

  • Association — As*so ci*a tion (?; 277), n. [Cf. F. association, LL. associatio, fr. L. associare.] 1. The act of associating, or state of being associated; union; connection, whether of persons of things. Some . . . bond of association. Hooker. [1913 Webster]… …   The Collaborative International Dictionary of English

  • Association of ideas — Association As*so ci*a tion (?; 277), n. [Cf. F. association, LL. associatio, fr. L. associare.] 1. The act of associating, or state of being associated; union; connection, whether of persons of things. Some . . . bond of association. Hooker.… …   The Collaborative International Dictionary of English


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.