Al-Ahram: A Diwan of contemporary life (494)
Credit agriculture
The idea of an Egyptian agricultural credit bank was born on 20 April 1931 during a meeting of the Ministry of Finance. The alarming drop in cotton prices had made such a bank imperative. Panic had set in, among small cotton producers in particular, who had long used their land as collateral for loans which they would pay back with the proceeds from their sales. But proceeds plummeted with the result that many farmers lost their land to creditors. Professor Yunan Labib Rizk* writes about the founding of a new bank to help solve the problem
With the onset of the global depression of the 1930s, the entire Egyptian rural economy was in jeopardy. As a result, according to Al- Ahram, an agrarian bank would be founded as a joint stock company in which the Egyptian government was one of the shareholders. Its major function would be to extend loans to farmers, enabling them to cover the costs of harvesting, purchasing essential equipment for cultivation and irrigation and land reclamation. It would also extend loans to agricultural cooperative societies and help subsidise their sales of seeds, fertiliser and other supplies, and it would assist in the establishment of other organisations concerned with the promotion of agriculture and financial assistance to that sector.
The concept of extending credit to the agricultural sector was not new. As Al-Ahram observed, the government had often intervened to extend loans to farmers when the country was passing through difficult economic straits. However, it added, such loans had generally been limited to cotton producers. At the same time, the newspaper felt that this process should not be a government function. Rather, it should be undertaken by an autonomous agency that would receive all possible moral and material support from the government in the interests of aiding small farmers and "delivering them from the clutches of money-lenders".
An agricultural credit bank was the perfect answer, wrote Al-Ahram. "Ever since Egypt became an agrarian country, ever since loans to promote cultivation and develop produce became vital to agrarian life and ever since the Egyptian government began to extend credit to farmers on the basis of their cotton production, there existed the need to regulate financial assistance. The existing banks and money-lenders have long been the Egyptian farmer's sole recourse for loans. However, banks have other operations which force them to extend loans at interest rates that are sometimes too cumbersome for farmers while money-lenders, who are in closer contact with the farmers, exact exorbitant rates by exploiting the ignorance and naïveté of the farmers, their lack of contact with the banks and the fact that banks rarely consider them worthy of their patronage."
It took another two months for the founders of the bank to arrive at a draft of its articles. Consisting of five articles, the most important was the second for it delineated three different types of loans. Short-term loans, for periods not exceeding 14 months, would be extended to cover costs entailed during cultivation and harvest and the provision of seeds and fertilisers. Medium-term loans, for periods of up to 10 years, would be extended to cover the purchase of agricultural land and livestock and the costs of land reclamation through the construction of irrigation and drainage canals. "Unless exceptional circumstances dictate otherwise, these two forms of loans will be limited to small landowners and to agricultural cooperative societies, with the purpose of supporting and facilitating the spread of such societies," the article stated. Thirdly, the bank would grant long-term loans for periods up to 20 years, the purpose of which was to facilitate the reclamation of land, "which could benefit from public irrigation and drainage works".
The rest of the articles pertained to the location of the bank's headquarters which was to be Cairo; its founding capital, which was set at a million pounds divided into 250,000 shares valued at LE4 per share; and to its board of directors, which would consist of a minimum of 12 members and a maximum of 16. The document further stipulated, "The Egyptian government shall be represented on the board of directors in proportion to its shares. It will have the right to appoint its own representatives on this board. The other members shall be appointed by the general assembly in agreement with the non- government shareholders. Circumstances permitting, the founders shall constitute the first board of directors."
On 18 July, the bank was officially established by royal decree. In addition to the Egyptian government, other agencies that participated in its founding were the Egyptian National Bank, the Bank of Egypt and a number of foreign banks: the German Eastern Bank, Credit Lyonais, the Ottoman Bank, the Bank of Athens, the Italian Egyptian Bank and Barclays Bank for independent British possessions and overseas colonies.
As lower interest rates were to be the bank's salient feature, the Ministry of Finance pushed for an additional provision that would afford the new bank a certain amount of flexibility while keeping rates lower than those charged by other banks and money-lenders. That provision read: "In the event that economic circumstances in the world or in Egypt render it necessary to review the interest rate set by the government or by the Agricultural Credit Bank, it shall be agreed upon henceforth that the current difference in these rates shall remain fixed whenever the said rates are brought under review."
It was one thing to found a new financial institution -- it was another to change the life-long habits of Egyptian farmers. Not only did money lenders continue to have more immediate access to farmers, there existed what might be termed long established affiliations of mutual interest in rural Egypt. That such connections were particularly resistant to change is evident from a number of official cautions. We have, for example, a memorandum from the bank to the Ministry of Interior stating: "Events since the bank began operations a few weeks ago indicate that mayors in the provinces are being lax in undertaking the measures required of them. We would therefore like to draw your attention to the need to instruct your officials in the provinces to carefully examine all complaints brought to them by representatives of our bank regarding the behaviour of rural mayors." Another example concerned reports in Menoufiya that money-lenders were hampering the operations of the new bank. Al-Ahram relates that the governor of that governorate had summoned all district police commissioners to a briefing in which he instructed them to be more vigilant in monitoring the actions of money- lenders in xtheir areas of jurisdiction.
Global economic crisis combined with entrenched rural patterns of behaviour -- such was the backdrop against which the Agricultural Credit Bank began operations.
In a letter to the minister of interior, the first chairman of the board of directors, Mahmoud Shukri, announced that the bank would begin operations on 20 August 1931. He also said that preparations were under way for opening branches in Girga, Qena, Assiut, Minia and Beni Sweif, "and then in all other directorates in the country", before the beginning of the cotton season, and asked the minister to instruct government officials in the provinces to offer all possible assistance to the agents the bank would be sending to set up those branches.
The minister readily met Shukri's request. His first action was to instruct directorate chiefs to create in every village a "village agricultural credit committee", headed by the village mayor and consisting of the local banker and the village elder. The purpose of these committees, Al-Ahram relates, was "to check the information provided by each applicant for a loan and to verify or modify and complete that information where necessary". To drive home the seriousness of its intention to ensure that the committees functioned properly, the minister instructed rural officials to bring any mayors or village elders who were remiss in the performance of their duties on these committees before a disciplinary board and "to exact the harshest penalties in these instances".
Provincial officials set to work to promote the new bank. In Tala, the district commissioner addressed a large assembly of local parliamentary representatives, village mayors and rural notables, in which he lauded the government's efforts in launching the Agricultural Credit Bank in the interests of alleviating economic hardship. He was followed by Ahmed Naguib, secretary-general of the bank, who "explained to the audience the principles upon which the bank was founded". He also discussed "methods of stopping compulsory sale [of agricultural land], the advantages of agricultural syndicates and the procedures for applying for loans".
In Fayoum, Directorate Chief Mohamed Sadeq El-Khulousi convened a similar meeting of parliamentary representatives, local government officials and local farmers in order to promote the new bank. He, too, praised the government for founding a bank that would help alleviate economic problems. However, he also stressed that the bank was not there "to lend farmers money for weddings, building houses or any expenses for which the loans were not intended, for that would be very detrimental to all concerned".
Naguib made an appearance in this meeting. On this occasion, he entertained the questions and concerns of the participants. One objected that it was unjust to link loans to the size of land farmers possessed. A second complained that the closest branch of the bank was in Beni Sweif, something which would pose considerable difficulties for prospective clients in Fayoum. A third expressed fear that predictions of the cotton yield for that year were exaggerated and appealed to the government to intervene "today before tomorrow and tomorrow before the day after!"
As long as he was in the neighbourhood, Naguib visited Beni Sweif and Minia. In the former he met with local officials and responded to the concerns of local farmers. Perhaps the most common complaint he heard there was against the five-piastre application fee charged by the bank. The chief of the Minia directorate decided to spare the visiting bank official the "headache" of having to field questions from the public. He advised anyone with grievances to direct them to the Ministry of Finance in its capacity as one of the founders of the bank.
The largest of these meetings took place in Assiut on 15 September 1931. Attended by the parliamentary representatives, notables and prominent cotton producers in that major cotton producing centre, the meeting had clear political overtones as was evident from the speeches delivered on the occasion.
The first to speak was Directorate Chief Ahmed Hussein Fahmi who in the course of praising government efforts, paid special tribute to "Egypt's eminent economic pioneer, Prime Minister Ismail Sidqi, whose outstanding skills and expertise and whose particular connections and prominent position have prevented the dangers that would certainly have descended upon us had he not been in power. He worked day and night, sacrificing his comfort and health, out of love for his nation and his desire to rescue it from this crisis."
Chamber of Deputies member Ibrahim El-Hilali Bek spoke in similarly reverential terms of the prime minister. Ibrahim Sidqi was "Egypt's man of today, its saviour and its beacon", he said. "He was the pinnacle of dedication in his search for a means to alleviate these financial straits. He devoted his days and nights to finding a solution to these unique and unprecedented problems which prevail across the entire inhabited areas of the earth. He left no possible avenue unexplored and he welcomed every suggestion put before him. The Egyptian nation is indebted to His Excellency for having founded the Agricultural Credit Bank, which was created especially to aid the small farmer who, weighed under by financial hardship, had fallen prey to the clutches of usurers. After long having no one to turn to, farmers now have the Agricultural Credit Bank, which arrived at a time in which the need for such an institution was at its most dire. It now stands as the answer to cries for help, as the benefactor in times of need and desperation."
Naguib also undertook promotional tours for the bank in the Delta. His visit to Dekernes seemed particularly successful. Al-Ahram reported that no sooner had Naguib inaugurated the bank's branch office there than "people arrived in droves to ask for application forms for loans to cover the costs of harvesting, the season of which has just begun". It continues, "Requests for applications increased once the villagers learned that the bank's administration approved the construction of silos for the storage of their cotton. As soon as word of this got around, mayors and inhabitants arrived with requests to build silos in their villages."
Following the intensive propaganda campaign, the new bank got down to business. As is the case with any new venture, successes are often marred by problems. From Faqous, Al-Ahram reports that farmers applying for seeds and fertiliser encountered that age-old bureaucratic problem: red tape. "Approvals from the central office" inevitably took considerable time and this was the source of numerous complaints. The newspaper cites an appeal to the director of the Agricultural Bank to issue urgent instructions to his representatives in the countryside to issue fertiliser to applicants. "The harvesting season is upon us and to delay laying fertiliser much longer will render it useless."
On the other hand, the bank agent proved not only a diligent employee but a useful ally of the farmers in their disputes with money-lenders. In this regard, Al-Ahram relates the following story:
"A farmer visited the bank manager to enquire about conditions for making deposits and procedures for taking out loans. He had thought that the bank would simply give him a loan upon request. But when he was asked to bring in his cotton and deposit it in an account as collateral, he said that the khawaga -- referring to the moneylender -- would not approve. The khawaga had told him that if he did not give him the cotton he would file suit. It is well known that this money-lender sets exorbitant rates, ranging between 15 and 20 per cent. The bank representative reassured the farmer and told him that if the khawaga filed suit he should bring the summons to the bank. The bank would then mediate, in implementation of the government decree on these matters, and resolve the dispute by persuading the khawaga to defer a portion of his claim to the following year."
Similar testimonies to the willingness of local bank officials to respond to farmers' needs came from other areas of the countryside. From Etay Al-Baroud, Al-Ahram reports, "The branch of the Agricultural Credit Bank opened its doors two weeks ago to come to the rescue of farmers in need of money to cover the expenses of cotton harvesting and seeds at this critical time." And from Shubrakhit, it reports the recent arrival of the bank's operations supervisor who met with farmers and helped speed up the processing of applications.
At the same time, there was still some controversy over the role of the bank. While some believed that it should distribute seed and fertiliser, others held that this should not be one of its functions. In a statement to the press the bank's chairman declared that the distribution of seed and fertiliser not only did not exceed the remit of the bank, "it fulfils one of the very aims for which it was established".
As 1931 drew to a close, the new bank continued in its publicity campaign in order to attract the farmers' patronage. One advertisement announced that the Ministry of Agriculture had approved an arrangement whereby applications for chemical fertilisers would be presented to the bank's branch offices in the provincial capitals. "The ministry has posted the prices of the various grades of fertilisers and the consignments are due for shipment to the stations in Upper and Lower Egypt beginning on 12 November." A second advertisement announced that the bank had constructed many silos on various farms and was "taking the necessary measures to construct others where required".
Another important function of the bank was to prevent the spare farmers the agony of having to forfeit their land if they were unable to pay back their debts to money-lenders or other banks. This had long been an aim of the Egyptian government. Twenty years earlier, in 1913, it promulgated the Five Feddan Law which prohibited the forced sale of land by defaulting debtors who owned this number of feddans or less. In the same interest, the Agricultural Credit Bank instituted a number of measures which were announced in Al-Ahram on 11 September 1931. Firstly, it requested land banks to submit to it two records, one listing those lands currently scheduled for dispossession hearings and the second listing all other lands over which creditors have initiated action towards dispossession. In addition, it appealed to the minister of justice to postpone the implementation of rulings on the forced sale of lands, "with the exception of those few instances in which the land is mired in debts far exceeding its actual value". Simultaneously, it secured the approval of the Egyptian Real Estate Bank, the Land Bank and the Mortgage Fund to defer scheduled sales and to prepare a questionnaire to be filled out by debtors or those whose land was scheduled for expropriation and to be submitted to a special committee for review. The bank then notified the chief justices of the Mixed Courts in Alexandria, Cairo and Mansoura of the agreements it concluded with the land banks and the Ministry of Justice, while the minister of justice notified the chief justices of the national courts of the government's desire to defer all compulsory land sale cases.
In spite of these efforts, many of the nascent bank's clients were dissatisfied, as was reflected in letters to Al-Ahram and in reports filed by the newspaper's correspondents in the countryside. Farmers in Menouf complained that their bank branch only concerned itself with loans on harvesting cotton, planting cotton and on seed and fertiliser. Villagers were inhibited from obtaining the first type due to the intimidation of local mayors and money-lenders. They did not apply for the second kind, because small farmers sold all their cotton at once due to their desperate need for money. Applicants for loans on fertiliser had to go through drawn-out procedures before they received their supplies. In all events, such applicants were few, in contrast to the time when the Ministry of Agriculture performed that function. On the other hand, when farmers asked for loans to purchase livestock, the bank refused on the grounds that only cooperative societies had the authority to extend such loans. "Is it because seven out of 67 villages in each district have cooperatives that the 60 others should be deprived of the money and assistance of the bank?" they asked. "When the bank drew up its regulations, did it imagine that cooperatives existed in all agricultural producing villages in the country?"
Another writer, signing himself anonymously as A M H, addressed a letter to the director of the Egyptian Agricultural Credit Bank in which he expressed his reservations about "the detrimental practices of the bank's officials". One of these practices was to purchase large quantities of wheat, regardless of its quality, to distribute to farmers. "Based on my own experience, I am certain that the greater part of this wheat is unsuitable. Were it not for their desperate need, farmers would never accept it due to its poor quality and the fact that most of it is spoilt." A M H went on to urge the officials to take advantage of the expertise of the Ministry of Agriculture "which has never spared any effort in its quest for the highest quality wheat".
Such concerns inspired Al-Ahram to send a reporter to interview the chairman of the bank. When asked why farmers had not deposited their cotton in the silos constructed by the bank, Mahmoud Shukri responded that construction of these silos had had to be delayed until October, by which time there was not enough time to appraise the public on the loaning system and the advantages of depositing their cotton with the bank. On the slowness of the bank bureaucracy, Shukri argued that the bank had taken on operations that had formerly been the responsibility of the government. "In order to grant loans on land, we have to follow the system the government had followed and to consult village councils, all of which takes time."
Apparently, a number of other suspicions surrounding the bank were in circulation, for the chairman took the opportunity of the interview to deny rumours that it was deducting portions of the farmers' taxes to the government from its loans. He also denied another rumour that the foreign shareholders in the bank had put their shares up for sale in the stock market.
Whatever denials and reassurances Shukri may have offered they did not quell public concerns. Indeed, complaints have continued to the present day, long after the Agricultural Credit Bank had changed its name to the Bank for Development and Agricultural Credit, even if the causes for complaint have changed.
* The author is a professor of history and head of Al-Ahram History Studies Centre.
