Microcredit in Pre-famine Ireland
Hundreds of independent, local, quasi-charitable micro-credit societies, or "loan funds," were lending to as many as 20% of Irish households in the mid-nineteenth century.
Monitored by a central regulatory authority, funds in this system were successful in mitigating information, moral hazard and enforcement problems, and thus operated at a surplus in a market where intermediation by the banks appeared to not have been possible. Created under special legislation, their goal was to relieve poverty by providing credit to the "industrious poor" on a large scale, at competitive interest rates, without public funding.
Evidence from the loan funds offers new insights into capital formation in the Irish economy of the nineteenth century and suggests that traditional notions regarding the economic activities of the Irish poor may need to be rethought. It is also relevant for development economists studying current microcredit initiatives.
The paper suggests that in light of this evidence:
- Irish middle and lower classes were being served by an alternative system, and were actively borrowing for a variety of purposes;
- Extent of loan fund operations allows us to reject the idea that the Irish poor were not ready for banking and casts doubt on claims that the degree of monetisation was too low for credit before the Famine.
The paper argues that loan funds were more efficient in providing microcredit to the Irish poor than other commercial institutions such as the joint-stock banks existing in the mid-nineteenth century.
