Hirasawa Katshuiko, Nihon University
Ⅰ. Introduction
On March 11, 2011, a massive 9.0 magnitude earthquake struck 130 km off the Oshika Peninsula in Miyagi Prefecture. This was the fourth largest earthquake in the world. The earthquake was felt in many parts of Japan, including Miyagi Prefecture, where it registered a seismic intensity of 7, and Fukushima and Ibaraki Prefectures, where it registered a seismic intensity of 6 above. After this earthquake, there were two more earthquakes with a magnitude of 6, and by the end of May, there had been more than 160 earthquakes.
These many earthquakes and the resulting tsunami caused enormous damage. In fact, by January 2024, the death toll had reached 15,844, with 3,349 people still missing and 128,529 houses completely destroyed. Of course, the effects of the earthquake were not limited to this direct damage, but also affected infrastructure such as gas and water supplies, as well as business activities.
For example, Mr. S., who runs a supermarket in Kesennuma City, lost his father in the tsunami, and his mother and wife are also missing. In addition, the supermarket he ran was swept away by the tsunami. “There is a debit of 500,000 yen, please transfer the money to your account,” he was suddenly contacted by the local regional bank in despair. “I’m looking for my missing family and I don’t have time for this,” Mr. S. replied, but the local bank kept contacting him. Mr. S. deposited the money, but was “astonished at the lack of humanity” of the local bank.
The supermarket that was washed away by the tsunami was rebuilt with loans from the local Kesennuma Shinkin Bank and government-affiliated banks. It was the local shinkin banks that supported the local economy after the disaster. Of course, many companies and organizations, including major banks, supported the economic recovery, but it was the local financial institutions that supported the local economy. For example, despite the fact that 7 out of 12 branches of Kesennuma Shinkinbank were completely destroyed by the tsunami, they started making payments on March 14, immediately after the disaster, because they felt that “what customers want most is money”.
Looking back at those days, Kesennuma Shinkinbank’s General Manager Sugawara said, “The disaster victims didn’t even have ATM cards, savings books, or personal seals,” so they came up with the idea of allowing people to withdraw up to 100,000 yen if they could name a Shinkin Bank employee. In fact, “there were long lines of people outside the branches[1].
In this way, Shinkin Bank has been supporting the reconstruction of local communities since immediately after the earthquake, and has continued to promote initiatives such as providing loans for reconstruction, donating relief funds from other Shinkin banks, and conducting volunteer activities by bank employees based on the Shinkin Bank network. Shinkin Bank is a cooperative financial institution limited to a specific region, and it has supported the development of small and medium-sized enterprises and the self-employed in that region. In fact, not only during the earthquake, but also during the COVID-19 pandemic, Shinkin Bank made a map of stores where take-out food was available, and closed the staff canteen for a few days to contribute to the sales of take-out stores so that staff could eat take-out food. Shinkin Bank is considered an organization with a social mission.
However, various problems have been pointed out with regard to Shinkin Banks. For example, in 2006, the Office for the Promotion of Regulatory Reform proposed a review of preferential tax treatment and funding methods. Of particular interest was the question of how Shinkin banks should be regulated. It was said that “there were indications that they were not functioning as well as financial institutions with a joint-stock company structure” (Aikawa, p. 62). Indeed, there were cases at that time where financial institutions were involved in scandals and went bankrupt, and the way they were governed was questioned as a factor.
However, there is research that suggests that the governance systems of cooperative organizations are superior to those of joint stock companies in countries such as Germany, and in fact there is no particular increase in the number of bankruptcies of cooperative financial institutions, so “it is not clear on what basis this is claimed” (Aikawa, 2007, 63). In fact, many studies on the governance of cooperative organizations have questioned the relationship between the way cooperative organizations are governed and economic efficiency, but they have not questioned the problems of cooperative organizations based on the mutual support of their members. Rather, it seems that in the context of financial instability, the governance of not only large banks but also cooperative organizations has been called into question.
Of course, there are problems with the governance of cooperative organizations. While it is true that cooperative organizations have a structure in which each member participates in and controls management based on the principle of one person, one vote, in Japan, unlike in Europe and America, “people become members in order to receive loans” (Aikawa, 2007, 64), and for this reason members often do not take an interest in the management of cooperative organizations.
Despite the fact that they take the form of cooperative organizations in the same way as in Europe and America, where do these differences come from? The aim of this paper is to identify the factors that lead to the differences in cooperative financial institutions in Japan by asking about the differences in the establishment of cooperative finance in Germany and Japan, with this awareness of the problem[2]. This kind of work requires an extremely broad consideration, and in this sense, the discussion in this paper is limited to a basic examination to clarify the factors involved.
II. Civil Society and Credit Cooperatives in Germany
The origins of Japan’s cooperative financial institutions can be traced back to the Kamakura period, when the first “Tanomoshikou(mutual aid associations)” and “Mujin(mutual aid societies)” were established. These organizations were financial institutions for the general public, where members contributed a fixed amount of money or grain, and then lent money to members who won the lottery or bid successfully. The aim of these organizations was to provide mutual aid, and this spirit of mutual aid was passed on to the Hokoku-sha of Ninomiya Sontoku and the Sezokabu Kumiai of Oohara Yuugaku at the end of the Edo period, which would eventually lead to the establishment of Japanese credit unions.
However, the modern cooperative financial institutions can be traced back to the credit cooperatives established in Germany by Yajirou Shinagawa and Tousuke Hirata during the Meiji era. They studied in Germany and learned from the credit cooperatives established by Franz Hermann Schulze-Delitzsch, and they enacted the Industrial Association Law, which defined cooperatives. In this way, Japan’s credit cooperatives developed and grew under the influence of Hermann Schulze-Delitzsch.
As is well known, Hermann Schulze-Delitzsch, along with Friedrich Wilhelm Raiffeisen, is positioned as “a pioneer of the modern cooperative movement” (Suzuki, 2002, 72), and the ideals of credit cooperatives have been examined based on his ideas. The following points should be noted. Schulze-Delitzsch began to address the problems of craftsmen and the self-employed in the late 1840s, and in 1949 he participated in the establishment of a cooperative organization for shoemakers, and in 1950 he founded the famous remedial loan society.However, because small businesses were unable to obtain funding through this organization, the remedy loan society was restructured based on the regulations of the Credit cooperative in Eilenburg (Ruhmer, 1937, 159f).
In general, the principles of cooperative organizations are said to include membership, mutual aid, and the one-person-one-vote system. However, Schulze-Delitzsch’s first loan society was an organization with a “charitable” character, and the principles of cooperative organizations were reorganized to refer to the Eilenburg loan society. In order to understand how the credit union was formed, it seems necessary to examine not only Schulze-Delitzsch’s ideas, but also the Eilenburg loan association. Here we will briefly trace the development of Delitzsch’s credit cooperative based on the research of Otto Ruhmer[3]. We will leave the introduction to Otto Ruhmer’s research and its critical examination as a topic for the future.
Hermann Schulze was a member of the Prussian National Assembly in 1848, and because there was other members with the same name, he was given the name of his constituency and became known as Schulze-Delitzsch. Schulze was born and raised in the town of Delitzsch. Although he was elected as a member of parliament from this town, Eilenburg was also his constituency, and Schulze’s most important base of support was the working-class town of Eilenburg (Ruhmer, 1937, p.76). In fact, Schulze was involved in various activities in Eilenburg.
Eilenburg was a rural town with about 2,000 inhabitants until the beginning of the 19th century. The establishment of a calico printing factory in the early 19th century led to the development of Eilenburg as an industrial town. In 1834, weaving machines were introduced and productivity increased significantly, but the introduction of the machines also led to the dismissal of 118 weavers. Although Eilenburg’s economy continued to develop, the situation of the workers deteriorated. According to Otto Ruhmer, the wages of the workers in Eilenburg were lower than in other towns, and the working hours were 14 to 16 hours per day (Ruhmer, 1937, p. 4).
In addition, the economic crisis of 1846-1848 led to an increase in the number of unemployed and poor, and the situation of the workers deteriorated further. Against this backdrop, there were many riots, but on the other hand, workers learned that they could improve their situation by uniting, and this eventually led to the formation of the Workers’ Society. This organization functioned as a mutual aid society for sickness and death (Ruhmer, 1937, p. 9). This would eventually evolve into a cooperative for craftsmen.
Delitzsch was a farming village with a population of about 5,000 at the time, but the economic crisis of 1846/48 and the poor harvest of 1846 began to have an impact on the town. The man who rose to the challenge of overcoming these difficulties was Hermann Schulze. He was the leader of a men’s choir, and in order to address the poverty of the residents, a fundraising committee was formed with him as its chairman. While in other towns in Prussia there were riots, e.g. the inhabitants attacked grain storehouses, there were almost no riots in Delitzsch thanks to Schulze (Ruhmer, 1937, p.14f).
In 1949, Schulze established a health insurance fund and a shoemakers’ cooperative for the purchase of raw materials. However, at that time there were no financial institutions that could provide loans to workers and craftsmen, so Schulze considered establishing a credit system for workers and craftsmen (Ruhmer, 1937, p.182). On March 16, 1850, Schulze himself announced the establishment of the loan fund, a loan fund for the general public, in the Delitzsch and Bitterfeld district newsletters. This newsletter also advertised a concert to be held on April 24. Schulze had planned the concert for the Loan Fund for Workers and Craftsmen, and he intended to use the proceeds of the concert to benefit this fund.
At the preliminary meeting held immediately after this public announcement, the constitution of the Remedy Loan Society was drawn up and its contents were then examined at a public meeting. An executive committee was also elected at the first meeting, with Schulze as chairman. The original purpose of the Remedy Loan Society was to provide funds to enable poor residents (unbemittelte Einwohner) to maintain their livelihoods and businesses, and indeed the society’s bylaws stated that its purpose was to assist the poor residents of the area “by providing funds which are not dependent upon charity, so that they may maintain their livelihoods and businesses” (Ruhmer, 1937, p. 154).
However, this provision did not include the essential self-help efforts and solidarity among the members of the cooperative organization, and this society was a charitable organization that was financed by donations and interest-free loans (Ruhmer, 1937, p. 155). Because of its charitable nature, it did not have a stable financial base, and it was even considered to receive a loan from the city of Delitzsch. Furthermore, with only 30 members in 1952, it was unable to provide funds to residents in need. In contrast, the credit union in Eilenburg, based on the principles of mutual aid and solidarity among members, grew and by June 1952 had more than 500 members.
The oldest credit cooperative in Germany is the loan association in Eilenburg. Its establishment was proposed at a meeting of the Eilenburg Citizens’ Association in September 1850 and approved at a citizens’ meeting on September 30. Bernhardi and Bürmann, who Schulze often refers to as the executive members, were elected. As mentioned above, this loan association was the first credit cooperative in Germany based on mutual aid and regiments, and in October 1850 Bürmann pointed out that the effectiveness of such an association could be understood from the example of the loan association founded two years earlier in the neighboring town of Düben (Ruhmer, 1937, p. 199).
According to a memorandum from February 1848, the purpose of this association was to provide small loans to members in need. The working fund of the association was covered by a monthly membership fee of 5 Groschen and the association’s surplus, and when members took out loans they had to pay 3.5% interest per year and 1 Pfennig per Thaler per month as an administration fee (Ruhmer, 1937, p.204).
The rules of the Heilkreditverein in Düben were used as a reference, and the rules of the loan association were also formulated in Eilenburg. The rules stated that any resident of the area could become a member. To become a member, one had to pay an initial fee of 6 groschen for the first 6 months and then a monthly fee of 1 groschen (the “tax”). The necessary funds were lent on a system of joint liability, and the loan had to be repaid at least 1 groschen per thaler each week. In addition, the borrower had to pay 1 groschen interest for every thaler borrowed.
Thus, while the Eilenburg loan association was based on self-help and solidarity among its members, the Delitzsch loan association was a charitable organization. In Delitzsch, too, members had to pay a monthly fee of one groschen, but because this could be offset against the fees already paid when the loan was repaid, the membership fee was not considered working capital, as it was in Eilenburg (Ruhmer, 1937, p. 155). The administration was quite strict. Therefore, Schulze would revise the bylaws based on the bylaws of the loan association in Eilenburg.
The revised rules and regulations of April 1852 restricted loans to members. Working capital was to be raised from members’ monthly dues and loans, and all members were jointly and severally liable. Members were required to contribute at least 2 groschen per month. In addition to members’ regular contributions, there was also a provision for honorary members, and all honorary members were wealthy people who provided funds through donations and loans out of a sense of social responsibility. According to the revised rules, honorary members were those who made a lump sum donation of 12 groschen or 1 thaler per year, or an interest-free loan of 5 thalers or more (Ruhmer, 1937, p.160).
With the reorganization of the society in 1952, 14 of the old members resigned, and honorary members also withdrew. As a result, the society lost its charitable character. However, Schulze continued to apply to the town of Delitsch and other organizations for financial support. Therefore, it can be said that “the independence of the credit cooperatives was not a decisive principle” (Ruhmer, 1937, p. 164).
So far, we have traced the establishment of credit cooperatives in Germany on the basis of Otto Ruhmer’s research. I would like to briefly summarize the points that are relevant to the topic of this paper. As I have already pointed out, the development of capitalist production, especially mechanization, led to the impoverishment of workers and the self-employed. In this context, various workers’ organizations and cooperatives were formed to support the workers. Schulze was one of the central figures in this movement. He was also involved in the establishment of mutual aid societies and consumer cooperatives, and it was through these activities that he founded credit cooperatives.
However, the remedical loan society he founded was a charitable organization based on donations and loans and was not organized on the principles of mutual aid and solidarity. Against the background of a lack of funds, he would adopt these principles with reference to the loan association in Eilenburg. At the same time, the founding members and honorary members, who had been the basis of the charitable nature of the organization, would withdraw and it would develop into an independent organization.
Nevertheless, he continued to seek loans and donations, and independence was not an important principle for Schulze. At the same time, it is impossible to ignore the existence of workers’ organizations and civic groups as a prerequisite for such organizations. As a matter of fact, the rules of the loan society were discussed in a public meeting. Of course, at the time of its establishment, the operation of the loan society depended on donations and loans from honorary members and other leaders, but later the operation of the society was based on mutual aid and solidarity. Of course, in the analysis of credit cooperatives, the cooperative principles are emphasized, but as far as the history of the creation of credit cooperatives is concerned, it seems that civil society, especially the society of independent workers and laborers, is of crucial importance.
Ⅲ. Japanese Rural Society and Cooperatives
So far, we have examined the formation of credit cooperatives in Germany based on the research of Otto Ruhmer, and we have seen that the nature of civil society is important for the nature of cooperatives. From this perspective, we would like to give an overview of the formation of credit cooperatives in Japan and clarify some of the characteristics of credit cooperatives in Japan.
Japan has a long history of credit systems based on mutual aid, such as kou and mujin. Kou refers to voluntary groups of relatives who come together to help those who have suffered disasters or other misfortunes. Such kou are said to be based on family ties and a “strong sense of coexistence among relatives” (Mori, 1972, 29). Mujin, on the other hand, is said to be “an organization that aims to help the poor by pooling the daily savings of volunteers” (Mori, 1966, 56). Some of these organizations were “commercially oriented and aimed at making a profit” (Mori, 1966, 55), but they were basically run in the spirit of “mutual aid.
Mutual aid organizations such as kou and mujin are said to have existed since around the 8th century, but it was during the Edo period that they began to be used more frequently. Toward the end of the Edo period, “the tanomoshikou system that had been used in farming villages and among the samurai was further systematized,” and “financial organizations” such as interest rates and savings plans (Mori, 1972, 35f) were introduced, such as Sontoku Ninomiya’s houtokusha and Yugaku Oohara’s senzokabukumiai. Let’s start with the senzokabukumiai.
In the late Edo period, with the development of the market economy, many farmers lost their land or were dispersed, and farming villages fell into disrepair. In addition, the frequent occurrence of natural disasters caused great damage to farming villages. Yugaku, who was born in Owari, was invited to the village in Chiba where he was asked to give a lecture, and he became involved in various initiatives to revitalize the region. As one such initiative, he founded the Senzokabukumiai. This was in September 1838.
Senzokabu means “land passed down from generation to generation. Individual farmers would donate a portion of their farmland, and the village would manage it as a communal asset. The farmers would then work together to develop and manage the farmland, and “the management and operation of the land and the reserve fund would be decided by agreement of the members of the association” (Shigemoto, Decent, 352). The profits from this farmland were not repaid, but were accumulated, and when the accumulated amount reached 100 ryu or more, “half of it was to be used for ‘relief’ upon the request of a member of the association” (Shigemoto, 2015, 352).
While Senzokabu was an organization that provided mutual aid based on land, Sontoku Ninomiya’s Houtokusha was an organization that provided mutual aid based on finance. Ninomiya was born in 1787 as the eldest son of a farmer in present-day Odawara City, Kanagawa Prefecture. At the time, the development of the market economy was devastating rural areas, and the samurai system of government was beginning to collapse. Ninomiya’s family was relatively well-off, but when his parents died one by one, he was taken in by his uncle’s family.
While being raised by his uncle, he not only helped with the family business, but also got an education, and eventually became independent by building a hut near his birthplace and cultivating wasteland, as well as lending rice and money. At the time, he was working for a family retainer, but the retainer took notice of his methods and entrusted him with the management of the household. At that time, he developed a financial system based on mutual aid called “Gojoukou Kashikin.
The word “Gojou” means the five virtues, and “Gojoukou Kashikin” is a financial system that applies these virtues. In other words, a person with financial resources accumulates funds in “Kou,” and those who borrow money from this Kou are grateful to the person who provided the funds, and make efforts to return the money promptly and absolutely. This system is regarded as the prototype of today’s credit cooperative. Based on this kind of financial system, they proceeded to rebuild the local economy, which was based on agriculture (Shintani, 2023).
As we have already seen, Schulze in Germany organized a credit system based on donations and loans from influential people in the city. Ninomiya’s “Gojoukou Kashikin” can be said to be comparable to Schulze’s remedy loan society. Let’s trace the history a little further to see where the differences between the two lie.
Ninomiya died in 1856 at the age of 70, but his ideas were carried on by his disciples and eventually led to the establishment of credit unions. Masae Fukuzumi, for example, became Ninomiya’s disciple in 1845 and supported him in his reforms of the shogunate’s domains. In 1850, he left Ninomiya and started a business in the hotel industry, but he also led the Houtokusha movement, which was based on Ninomiya’s ideas. The Houtokusha was founded in Odawara with the aim of spreading Ninomiya’s ideas, but Yajirou Shinagawa and Tousuke Hirata, who drafted the bill for the “Industrial Association Law,” showed interest in the Houtokusha, which had a “structure similar to a credit union” (Nakanishi, 2016, 4), and met with Fukuzumi to discuss the establishment of a credit union.
In fact, Fukuzumi organized a study group on credit unions, but this plan was interrupted by his death. The first credit union in Japan was established by Ryouichiro Okada, who, like Fukuzumi, had studied under Ninomiya. After receiving instruction from Ninomiya, he returned to Kakegawa and became the leader of the Houtoku movement in Enshuu, which is now the western part of Shizuoka Prefecture. In Enshuu, he began lending money, providing the funds himself, to promote agriculture and industry.
In 1879, he was appointed head of Sanojoutou County, which led to his receiving permission from Shizuoka Prefecture to establish the predecessor of Kakegawa Shinkinbank, Japan’s first credit union. Okada had studied the German credit unions proposed by Shinagawa and Hirata. The bank was established with investments from many people, not just the Okada family, and was run according to the Houtoku philosophy (see Sumimoto and Nakanishi, 2016, 7f). In fact, many credit unions were established in Shizuoka Prefecture based on the Houtoku philosophy.
It is worth noting that, at that time, many of the members of the established credit unions were large landowners or people related to the president of the credit union. In fact, although influential people in the town made donations and volunteered as honorary members when Schulze’s remedial loan society was first established, they left the organization when it adopted the Eilenburg mutual aid system. In Japan, on the other hand, it seems that modernization was promoted while the influence of those who made investments remained, and the principle of mutual aid was not thoroughly implemented.
Conclusion
Shinkin banks, as cooperative financial institutions, have contributed to the development of local economies. In fact, in order to promote small and medium-sized enterprises that do not have their own distribution channels, shinkinbanks have provided a number of business matching opportunities and conducted other local support activities. However, on the other hand, various problems have been pointed out, including governance issues. In this paper, in order to clarify what has led to this situation, we have compared the formation process of cooperative organizations in Japan and Germany.
In the early 18th century, the life of craftsmen and workers in Germany became impoverished due to the industrial revolution and the introduction of machinery. Against this background, various cooperative attempts such as mutual aid and cooperatives emerged in Germany. In connection with these movements, credit unions were born. Originally, loan societies operated on the basis of donations and interest-free loans from influential people in the city. However, due to lack of funds, this organization was reformed on the basis of mutual aid and solidarity among members, with reference to loan societies operated in places such as Eilenburg. At the same time, honorary members and others withdrew from membership, and the charitable nature of the organization was swept away. In the case of Germany, it was characteristic that the system of mutual aid and solidarity was introduced against the background of the activities of voluntary craftsmen and workers.
In Japan, the development of a market economy led to the scattering of villages and repeated famines devastated the countryside, so mutual aid organizations were developed to help farmers. Here, as in Germany, they were funded by donations from leading personalities. However, unlike in Germany, the economic relations were not reformed, and they remained in the cooperative organizations. To avoid any misunderstanding, I would venture to say that the cooperative organizations were established without the construction of a modern system of mutual aid and solidarity.
In this paper we have only made a very general comparison of the establishment of cooperative organizations. In the future it will be necessary to go into the actual state of organizational management, including the concept of mutual aid, and its historical development.
Reference
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[1] The information here is based on an article in the Nihon Keizai Shinbun, March 7, 2016. https://www.nikkei.com/ article/DGXMZO97956010S6A300C1I00000/ Accessed February 28, 2025.
[2] Although the development of cooperative organizations in Japan has been greatly influenced by German cooperatives, it has been pointed out that “comparative research between Japan and Germany has hardly been conducted” (Tanaka Y. and Tanaka, H., 2020, 45).
[3] The description here is based on Ruhmer (1937). The relationship between workers’ organizations, production cooperatives, and credit cooperatives is a topic for future research.