The coöperative idea for personal credit was originated in Germany by Francis Frederick Schulze, a little before the middle of the nineteenth century. It passed over into Austria and Hungary in 1851, into Italy in 1860, into Belgium in 1864, into France in 1883, into Scotland in 1889, and into Ireland in 1894. These dates are given to show the order of advance and the recentness of the movement in some parts of Europe. The first German association was formed in 1849 by Frederick William Raiffeisen. Herr Schulze did not get his started until the following year.
Herr Raiffeisen was poorly educated but deeply imbued with religious feelings. He lived among peasants in a sparsely settled and impoverished locality, and his object was to help the lowest classes. The associations which grew up under his guiding hand were mutual societies confined to small farming districts. The thought of profit was discarded and they were managed by the gratuitous services of their members. Herr Schulze was a talented writer and speaker, and when he took up his life work was holding a judicial post in his native town of Delitzsche. His philanthropy, although intense, leaned to the practical side. He believed in paid services and fair returns for money. The associations formed under his leadership were located mainly in towns. They were managed by salaried officers, and membership was dependent upon the purchase of shares on which dividends were allowed. But both kinds were founded upon the fundamental principle of combining persons together and using the credit created by their united guaranty for providing funds for members who might wish to borrow.
In the early days the mutual credit associations were formed simply by articles of agreement in the nature of a partnership contract, and members were jointly and severally liable without limit for all the loans that were made. In course of time, when the Government began to take official recognition of the associations, some of the followers of Schulze favored a limit to this liability. Hence the mark of distinction became clearly defined between "Raiffeisenism" and the "Schulze-Delitzsche" propaganda. The German law, as it now stands, requires mutual banks to have share capital, but allows them to be organized upon the limited or unlimited liability plan. All true Raiffeisen banks, in order to preserve their character, have shares of only a nominal value and devote dividends to educational or charitable purposes. In Germany these local banks are grouped under central banks, which in turn are linked together by two general central banks, and their funds are made to move freely for agriculture throughout the Empire. The centralization of the system has also been inaugurated in France.