Loans at 60% Interest and the Fight Against Loan Sharks: How People Borrowed Money in Budzhak a Hundred Years Ago

At the end of the 19th century, the Budzhak region was undergoing rapid change. The revival of trade and the development of shipping and industry opened up new opportunities for entrepreneurship, but a lack of funds remained the main obstacle. That is why local authorities gradually established a system of credit support designed to help people start or expand their own businesses. Archival materials have preserved a great deal of information about how this financial mechanism worked: the terms under which loans were granted, the interest rates charged, and which investment methods were considered the most effective in Budzhak’s economic life.

Credit Instead of a Loan Shark

One of the defining features of this period was the rapid spread of credit unions. Vladimir Purishkevich, chairman of the Akkerman County Zemstvo, wrote about the need for such institutions: “Almost everyone knows how often the rural population needs a loan for their household needs (to purchase land, buy a horse or a cow, build a house, pay taxes, so as not to sell grain for a pittance while it is still cheap, but rather wait for good prices). To provide the population with loans, so-called credit institutions may be established in the counties in accordance with the generally accepted charter issued for this purpose by the government, as well as credit societies…”

A letter from the county zemstvo head, Mykhailo Ballas, addressed to the Bessarabian Provincial Zemstvo Administration contains some interesting information: “Loan and savings societies aim to free their members from the need to borrow not only from moneylenders but also from private individuals, since paying excessive interest on borrowed capital is one of the main causes of the impoverishment of households. Based on careful observation, we have concluded that paying high interest on capital is beyond the means of most farmers.”

<picture></picture>
Debt obligation of the Bessarabian-Taurian Land Bank, 1913. IMAGE: violity.com

The first center for credit and savings activities was the Paris volost in Akkerman County (now the village of Veselyi Kut), where a corresponding association was established in 1872. Starting on April 25, 1873, it provided loans to the Paris Rural Society, which comprised 230 farms.

The 7th session of the Bessarabian Provincial Zemstvo Assembly in 1876 approved the establishment of credit and savings societies, including in Akkerman County. While 1,628 rubles and 13 kopecks were initially allocated for these purposes, by 1905 the amount had risen to 2,764 rubles and 48 kopecks.

On February 24, 1897, the Bessarabian Provincial Zemstvo Council reported in a letter to the Akkerman County Zemstvo Council: “By a resolution dated January 12, 1897, the Provincial Zemstvo Assembly authorized the Provincial Administration to petition the government for permission for the zemstvos to open rural banks and other small rural credit institutions…”

From Three to 270: How the Network of Credit Unions Grew

The cooperative movement in Bessarabia dates back to 1877. Its development accelerated significantly during the period of Stolypin’s agrarian reform. Between 1906 and 1911, the number of cooperatives grew from 23 to 165, and the number of credit unions from 13 to 117. At the same time, the authorized capital of credit societies increased from 9.7 to 14.6 million rubles. The largest credit centers were the Chisinau Credit Association and the Danube Credit Association (in Izmail).

In 1905, there were only 3 credit societies; by 1910, their number had grown to 130; by 1913, to 231; and by 1917, it had reached 270. This growth was due to the ability of volost funds to obtain substantial loans from the State Bank to replenish their principal funds.

This is also mentioned in a report by the Akkerman County Council: “The issue of credit unions deserves serious attention from the county councils. Judging by the bylaws, as well as by their practical application, credit unions in our district have unconditional advantages over other forms of small-scale credit organizations; these advantages stem mainly as follows: first, thanks to the Ministry of Finance, the funds for their establishment are already available from the outset; and second, the mutual guarantee system existing in such organizations engages every member in active participation in the society’s affairs, which significantly contributes to the effectiveness and coordination of the societies’ operations…”

How the loan system worked

Credit societies differed from volost funds primarily in the procedure for their establishment. They were founded not by a volost association, but by a group of residents of any social status numbering at least 20 people. To do so, they had to reach a mutual agreement, sign the bylaws, and submit a petition for their approval. All founders were considered members of the credit society and, at a general meeting, elected a board of directors and a council from among their ranks. The board of directors issued and accepted loans, as well as solicited deposits. The council oversaw the association’s activities, reviewed financial reports, and conducted audits. The general meeting determined the procedures for the board of directors and the supervisory board in accordance with the charter, monitored their activities, made decisions regarding the granting of loans, interest rates, and the acceptance of deposits, approved reports, and admitted new members. The establishment of credit societies was facilitated by the fact that the State Bank—and in some cases, the zemstvo—provided the funds for their founding.

A separate type of credit activity was the organization of loan and savings associations. The associations’ bylaws stated: “Only members of the association may take out a loan. Those wishing to obtain a loan must submit a written application to the fund’s board stating the amount they wish to borrow, the term of the loan, and the method of repayment… A loan could not exceed the borrower’s capital or half of their monthly salary. However, upon the recommendation of two members of the association, the loan amount could be higher. Contributions were accepted from members and could be made either in cash or in the form of interest-bearing securities and documents. The total amount of cash contributions from a single person was not to exceed 300 rubles.”

Documents from credit institutions attest to the scale of their operations. In particular, Minutes No. 1 of the general meeting of the Vedeno Loan and Savings Society for 1910 record receipts totaling 73,693 rubles and 3 kopecks, expenses of 73,172 rubles and 69 kopecks, and a profit of 521 rubles and 84 kopecks.

From Mutual Credit to the Provincial Treasury

Mutual credit societies operated on similar principles. In 1901, their branches opened in Akkerman, Izmail, Kiliya, and Bolhrad. In particular, the Bolhrad Agricultural Mutual Credit Society provided loans secured by agricultural produce and farm implements of both domestic and foreign manufacture. The society owned “Case” and “Overland” automobiles, which were also available for rent. The society paid depositors 7% per annum.

The total capital of the societies in these cities did not exceed 109,000 rubles, and the number of creditors exceeded 2,500 people. Loans were primarily issued in amounts ranging from 14 to 100 rubles, but the interest rate reached 25–60% per annum. The loans were taken out by local merchants, who, due to the high interest rates, were often unable to repay them on time. In Bendery, more than 90 families remained in debt.

In 1906, the Bessarabian Provincial Small Loan Fund began operations. Its main task was to provide financial assistance to landowners for the purchase of agricultural equipment, the procurement of seedlings from abroad, the establishment of grain elevators, and the fight against foreign middlemen. By early 1913, the fund had united 40 credit institutions in the Akkerman and Izmail counties, which had issued 482,000 rubles in open-ended loans and 304,750 rubles in short-term loans.

All savings banks operated in accordance with their charters. In particular, the charter of the Akkerman County Civil Servants’ Savings Bank, established under the Akkerman County Zemstvo Council, defined its purpose and operating procedures. The main objective of the savings bank was to provide its members with the opportunity to save a portion of the funds they received through their employment and, for those who needed it, to take out loans. The capital was formed from a one-time initial contribution, which each member determined at their own discretion but which could not be less than 5 rubles, as well as from mandatory monthly contributions, deposits, and profits derived from the savings bank’s operations. By a two-thirds majority vote, the General Assembly had the right to set the amount of mandatory contributions.

<picture></picture>
A savings certificate for 150 rubles. IMAGE: kraeved.od.ua

According to a resolution of the Bessarabian Provincial Zemstvo Assembly dated December 13, 1875, funds were allocated from the zemstvo administration’s deposits to establish savings societies. In total, 201,145 rubles and 92 kopecks were allocated for these purposes throughout the province, of which 10,356 rubles—or 5% of the total amount—were allocated to the Bender and Akkerman districts.

The Bessarabian Provincial Zemstvo, in a letter to the Akkerman County Zemstvo, reported: “By a resolution dated January 12, 1897, the Provincial Zemstvo Assembly authorized the Provincial Administration to petition the government for permission for the zemstvos to open rural banks and other small rural credit institutions…” At the same time, the General Assembly granted the board the right to utilize loans from the Akkerman County and Bessarabia Zemstvo Small Credit Funds, as well as to apply for loans at the Odessa office and the Chisinau branch of the State Bank. In addition, it was permitted to obtain loans from other credit institutions, provided that the interest rate did not exceed 9% per annum and the loan term was up to 12 months.

The credit institutions operated according to a well-established system, as exemplified by Minutes No. 1 of the regular general meeting of the Vienna Savings Society of Akkerman County. Chairman of the Board Afanasy Stepanov, opening the meeting, announced to those present that out of a total of 269 members of the society, 88 had attended the meeting; therefore, the meeting could be deemed valid. The society’s annual report for the past year, 1910, was discussed; according to the report, the society’s revenue totaled 73,693 rubles and 3 kopecks, while expenses totaled 73,300 rubles and 69 kopecks, leaving a balance of 521 rubles and 84 kopecks.

Interest, Profits, and Loans Up to a Million

The company charged an annual interest rate of 8 to 12% on loans, while depositors received 4 to 6%, depending on the term of their deposits. Loans were divided into two categories: those with terms of up to 6 months and those with terms of up to 12 months. The first category accounted for 44.5% of all loans issued, and the second for 55.5%.

The report of the Akkerman County Zemstvo Administration to the Extraordinary Zemstvo Assembly on May 9, 1917, stated: “We request approval of the distribution of net profit for 1916 in the amount of 25,501 rubles 37 kopecks in accordance with the proposal of the credit union’s board and, secondly, to grant the board the authority to issue loans of up to one million rubles in the current year, since loans totaling up to 800,000 rubles were issued last year.”

The further development of lending activities was interrupted by military operations and revolutionary events in the Russian Empire. Thus, from the 1870s through the early 20th century, financial reforms contributed to the formation and development of a network of financial and credit institutions in the Budzhak region. Various forms of credit organizations gradually took root in the region—loan and savings societies and credit unions, mutual credit societies, zemstvo small-loan funds, and savings funds—whose activities ensured access to financial resources for various segments of the population. Through a system of loans and credit, they served the needs of trade, agriculture, industry, and private enterprise, involving merchants, peasants, landowners, artisans, and industrialists in financial transactions. By the early 20th century, credit and financial institutions had become an important component of Budzhak’s economic infrastructure, gradually assuming the financing functions that had previously been performed largely by merchant capital. This contributed to the further development of market relations and the spread of new mechanisms for financing economic activity in the region.

Андрій Шевченко