Preliminary Programme

The reluctance of formal financial service providers like banks to fund small enterprises is not a recent
phenomenon. Official concerns about it sounded throughout the nineteenth and twentieth century. This
is because the revenues of lending to such enterprises are easily outweighed by the costs of monitoring
and administration plus the risk of default. Under certain conditions, societies can however find new
solutions, such as credit cooperatives, to small enterprise funding issues. This research contributes to
this literature by showing that, at least in case of the Netherlands, even these specially tailored financial
institutions were not a sustainable solution.
Dutch credit cooperatives were relatively successful at first: by the early-1900s there were almost 20
independent institutions with over 60 branches spread across the Netherlands. Their total membership
exceeded 35,000, and they accounted for approximately 25% of Dutch bank loans. By the late-1910s
however their importance rapidly dwindled, and by the mid-1920s they all but disappeared.
Via a detailed historical analytical narrative, I show that this pattern of growth and decline can be
explained by so-called mission drift. As credit cooperatives grew in size they increasingly catered to
clients who were better off than their original target group. Due to this mission drift, credit cooperatives
became increasingly akin to universal banks. After World War I the largest cooperatives were taken
over by regular commercial banks; the smaller ones gradually disappeared. Credit cooperatives lost out
because they could no longer rely on the efficiency advantages usually associated with cooperatives
while at the same time, they lacked the economies of scale of universal banks. (Show less)

Small and micro-firms often face severe obstacles to debt and equity financing. Financial service providers consider them to be opaque, making small loans costly and impractical while firms usually lack the resources to tackle these problems. The situation was similar in the Netherlands during the first half of the twentieth century. To overcome this issue and better serve small firms, the Amsterdam shopkeeper association innovated and founded the first public loan guarantee fund in 1915, which guaranteed the losses on bank loans to small firms. In turn, the fund’s losses were guaranteed by the municipal government. This institution halted a few years later, but the idea was revived during the Great Depression to prevent firm failures. This paper researches the functioning of these institutions in the period between their start in 1936 and reorganization in 1978. Initially, the institutions were limited in size and scope. After the Second World War the number of applications and granted guarantees quickly rose with a peak in the early 1960s. From the mid-1960s onwards there was a steady decline, both in the number and the total sizes that were being guaranteed. This raises the question what the impact was of these funds in the different periods of time, and why this solution was not durable? Lastly, what can this experiment teach us concerning modern day small firm finance? (Show less)

In Holland, in the seventeenth century, orphan chambers were an ingrained part of urban
society. They provided financial care for orphans from middle class families by safeguarding the
child’s portion, and ensuring a profit on the inheritance, by either lending the money to private
parties (weesrenten), or investing in bonds Holland. When the Dutch East India Company (VOC)
conquered Batavia, they modeled the city to the motherland, and an orphan chamber was installed
within several years, when the need arose in the form of high mortality, many under-aged orphans
and absentee heirs. The orphan chamber of Batavia provides us with a natural experiment of
institutional transplant; while the mission and the legal basis of the orphan chamber were the
same, circumstances in Asia differed substantially, resulting in a different development of the
institution, and different results for its target group. This shows us that an institution should be
considered as an organic instead of a static entity, and cannot be understood without analyzing it’s
specific habitat and growing conditions. In the case of the orphan chamber, the growing conditions
in Batavia in terms of governance, demographics, and the financial market, were very different.
Within twenty years after its foundation the orphan chamber of Batavia was caught in the
middle. At first glance, it was a mutually beneficial relationship; the VOC had discovered the
orphan chamber as a source of cheap credit, and the orphan chamber used the VOC as a safe way
of generating interest. But, when the largest part of the orphan chambers capital was in the VOC
coffers, the VOC started to dictate the terms of the loans, thus creating access to cheap(er) credit.
The fundamental governance problem was that the VOC in Batavia was company and state, and it
shifted the two hats at will. In the regulations we can see how the conflicting interests of cheap
credit for the company, and generating a safe profit for the orphans kept coming back.
Through the development of the orphan chamber we can also see a reflection of the
financial market of Batavia. In Holland, by the second half of the seventeenth century, orphan
chambers experienced a significant slowdown in both supply and demand of their financial
services, due to, among other things, more attractive alternatives being available on the financial
market. In Batavia, however, orphan chamber business was booming, most likely because of a
lack of alternatives. Business was obviously booming outside the orphan chamber as well; both the
average inheritance coming in, and the average private loan (weesrente) provided, was ten times
as high as it was in Leiden.
The paper I intend to present at the workshop will offer an insight in the development of a
well-established institution, when it is transplanted, and subjected to totally different
circumstances. This offers the possibility to get a better understanding of what it takes to develop
into a successful financial service provider. (Show less)