Introduction
The aim of the article is to explain the agricultural credit system and its benefits to the rural area in the Ottoman Empire era. The Ottoman Empire was the longest-lasting and geographically largest empire to rule in the Mediterranean Basin since Antiquity. Its rule of more than six hundred years across the Middle East, North Africa and south-eastern Europe both continued and created precedents for nearly all modern states in these regions. The Empire first emerged around the turn of the fourteenth century in the context of centuries of steady migrations by nomadic Turkic people through Central Asia, the Mongol invasions of Anatolia and internal crises in the Byzantine Empire. Through a series of military victories, Osman, the leader of one of the many Turkish tribal groups who came to settle in what was then still Byzantine northwestern Anatolia, was able to carve out for himself an area of autonomy from which to extend his power. Osman's son Orhan captured the city of Bursa from the Byzantines in 1326 making it the first capital of the rising polity that would come to be known as the Ottoman Empire.Footnote 1
The necessity of cooperation in agriculture and the development of cooperatives
Cooperation and mutual assistance is an ancient sociological movement that has appeared in every culture. It has become organised over time, and some new types of organisations have developed from it. Farmers have practiced some form of cooperative since the pioneer days, primarily due to difficulties encountered in agriculture. Early settlers frequently exchanged labour with neighbours, and entire communities helped newcomers to get established. Many difficult farming tasks such as barn-raising, logrolling, stump-pulling, and cornhusking were accomplished through neighbourly cooperation.Footnote 2
Cooperatives follow principles and practices common to mutual associations worldwide. In cooperatives, people work together in an organised manner and transact business according to accepted standards.Footnote 3 Robert Owen is credited as the father of cooperation because of reforms traceable to his influence during the first half of the nineteenth century in England.Footnote 4 However, the Rochdale Pioneers serve as the prototype of modern cooperative societies as founders of the Co-operative Movement in 1844.Footnote 5 Great Britain is home of the cooperative movement, and other nations borrowed from its experiences when founding cooperative associations. Cooperative spirit spawned from twenty-eight Rochdale weavers, with cooperatives found in nearly every nation.
Growth of agricultural credit cooperatives has been in response to urgent, unmet needs of farmers. When they have been unable to get adequate credit, farmers have formed farm-loan associations.Footnote 6 Spontaneous and indigenous cooperative developments have appeared in credit industries, of which Shulze-Delitzsch and Raiffeisen are the founders of contemporary German agricultural credit cooperatives.Footnote 7
Cooperation and agriculture in the Ottoman Empire
Ahi Unions were the first examples of the cooperation in Anatolia, taking the form of associations of craftsmen in the region between the thirteenth and twentieth centuries. They were founded during the Seljuk Empire, becoming widespread in the subsequent Ottoman era. Although they were principally an organisation of craftsmen based on Ahi philosophy, a mixture of Islamic values and pre-Islamic Turkish traditions, their effects on society extended far beyond this.Footnote 8 Ahi Unions had some funds such as common, mutual assistance, and social assistance funds, used to provide social security to members, protect members against loan sharks, provide credit, and facilitate acquisition of raw materials.Footnote 9 Unions influenced social and economic institutions tremendously, in addition to politics. Ahi Unions limitedly affected creation of work ethics and institutions such as social security organisations, trade organisations, and labour unions in contemporary Turkey.Footnote 10 Although these unions were unrelated to agricultural industries, some leading statesmen were inspired by the movement and created new ones.
During the Midhat Pasha era, the idea of joint actions moved from craftsmen to farmers. No agricultural credit cooperative or organisation gave credit to farmers in the Ottoman Empire until initiatives from Midhat Pasha, one of the empire's leading statesmen. Midhat Pasha was born in Istanbul in October 1822. After various successful works in several areas, he was twice assigned as Grand Vizier. His first Grand Vizier duty was in 1872 during the period of Sultan Abdülaziz, and the second was in 1876 in the Sultan II, Abdülhamit period. Midhat Pasha travelled to Europe for six months in 1858Footnote 11 to improve his French, the then contemporary language of bureaucracy, and to learn more about the European administration system. During this short period, he visited Paris, London, Vienna, and Brussels,Footnote 12 where cooperation movements were newly widespread. He died in May 1883 in Taif Prison (Saudi Arabia).
During the nineteenth century, agriculture was the primary sector that provided growth to the Ottoman economy, but the health of the sector was failing at the beginning of the century. Small family farms were the dominant farm type of the empire; mechanisation was sparse and irrigation depended on natural rains. Security was a problem in some rural areas, and there was an excessive tax burden on farmers.Footnote 13 A large portion of Ottoman society was employed in agriculture, and a large number of them lived in villages. The empire owned all lands (that is, miri lands). Under the Timar system, peasants had the right to use lands, but they were not owners. Peasants could use the lands during their lives, and could transfer them to a son when they died, with the conditions that the son operate a farm (therefore, not allow it to sit fallow), and that he paid its taxes. Peasants generally grew cereals. In the Anatolia region, cereals comprised 90 per cent of all production (that is, mono-culture). Taxes were determined by law (Kanunname), and the basis for paying taxes for a peasant family was production. Timariot (the Timar holder or Timarli Siphai) and authorised people of the empire strictly controlled whether lands were idle, and production yields were monitored carefully. Peasants needed credit to continue production and ensure high yields.Footnote 14 Providing agricultural credit was impossible from any public organisation, and farmers were forced to resort to loan sharks. Some farmers lost land and assets as a result. Agricultural production techniques were primitive. Property rights of farmers were not secured, and most farmers lived at a subsistence level. In combination, these conditions resulted in low productivity, income, and capital accumulation in the sector. Low capital accumulation resulted in low savings and investment, becoming a circle of poverty, as Ragnar Nurkse explained in 1950s.
The agricultural structure began to change in the 1940s, due primarily to free trade agreements and agricultural policies during the Ottoman Reform (Tanzimat). Targets included modernisation of agricultural machines and production methods, increased production, tax allowances, establishment of credit organisations, melioration, and farmer training.Footnote 15 Although the Ottoman Empire's economy depended greatly on agriculture, no institutions existed like those in Europe that offered loans to farmers and met farmers’ needs such as seed and livestock. Loan sharks and gospodars (landowners) benefited from lack of such institutions by lending money with high interest rates to peasants. The peasants, who depended on these loan sharks and landowners, had no chance to advance their agricultural activities.
Spread of Homeland Coffers and its operating principles
Midhat Pasha was aware of agricultural problems, having observed examples of European agricultural organisations. As governor of Nish (south-eastern Serbia) in 1863, he established an experimental agricultural credit cooperative called Memleket Sandığı (Homeland Coffers – Funds) in Pirot Town (Şarköy or Şehirköy) to provide credit with low interest rates, seed, and livestock to farmers to create cooperation among them and promote expanded agricultural production independent of the gospodars.Footnote 16 This began during the reign of Sultan Abdülaziz, the 32nd Ottoman Sultan. Midhat Pasha's agricultural credit organisation model was different from other credit cooperatives in terms of capital accumulation. Capital requirements of Homeland Coffers were provided by common efforts and contributions from peasants. Farmers gave 5 per cent of their production to the Coffers, determined to include wheat, barley, rye, and maize by Midhat Pasha at the beginning of implementation. However, the crops were insufficient for capital accumulation, and he thus decided to use fallow and unowned agricultural lands as other capital sources. Crops that offered the highest yields were determined for the joint cultivation. Fallow and unowned lands, and household farms, were used for joint cultivation in every village. The total land to be cultivated was calculated jointly based on half-acres of land per household in each village. If there were no fallow or unowned lands in a village, the same calculation was applied, and the necessary lands were rented. Crop rotation was also implemented, and thus a sufficient amount of land was calculated according to these rotations.Footnote 17 Lands were cultivated jointly (imece)Footnote 18 by the peasants, especially during holidays, including Fridays for Muslim and Sundays for Christian villages. During harvests, the agricultural products were sold in markets through auctions controlled by authorised personnel from the government and village elders.Footnote 19
Capital accumulation varied across regions. Some Coffers continued to operate without need for additional capital, excepting cultivation of fallow lands temporarily. However, after a short time, revenue was insufficient for Coffers in some regions due to increased credit demand from farmers, and thus 15 kg of wheat began to be collected from farmers who had at least a pair of steer.Footnote 20 The type and amount of products collected for the Fund changed according to the agricultural production patterns of the region. For example, olives and acorns were the primary agricultural products of Lesbos Island, and one tenth of olive oil and acorn production was delivered to Homeland Coffers as a capital source.Footnote 21 The products were also sold in the market, and their incomes were included into the Homeland Coffers.Footnote 22 Fund members were also paid a dues fee to Homeland Coffers's administration.
Midhat Pasha placed different importance on the first implementation of the Homeland Coffers. He integrated investments so that one helped the other. He constructed 3,000 km of roads and 1,420 bridges in 3.5 years in his Tuna Governorship period. He founded a ferry company that operated on the Tuna River, and rehabilitated Ruscuk Port, the purpose of which was to connect rural and urban areas. He made it easier to reach other markets, changing the agricultural structure from subsistence to commercial. Transportation modernisation was facilitated not only to reach markets, but also to decrease transportation cost and time. These improvements revived the economy and stopped migration to Serbia due to economic reasons. In just a few years, Tuna Province achieved an updated look with its new roads and public buildings, and modern farms that had new agricultural machines imported from Europe, made possible especially by capital sources from Homeland Coffers.
Income in Tuna Province increased from 26,000 to 300,000 akçe,Footnote 23 and income in the Treasury increased by 50 per cent in two years.Footnote 24 Although the total amount of money in Homeland Coffers was more than 300,000 akçe just three years after their establishment, it reached to 500,000 akçe a few years later.Footnote 25
After the success of the first Homeland Coffers, Midhat Pasha prepared a Homeland Coffers Law, which laid out general rules to regulate the Coffers. Successful results appreciated by the Palace and Homeland Coffers Law came into force in 1865.Footnote 26 The Coffers were officially established by the Sultan's will, and were widespread throughout the Ottoman Empire beginning in 1867,Footnote 27 with governors assigned to oversee them. Homeland Coffers Law was accepted as the first legal arrangement regarding cooperatives in Turkey.Footnote 28 The law consisted of twenty-nine articles in two parts, the first of which related to capital accumulation, management, lending conditions, and profit sharing, and the second to accounting.Footnote 29
Homeland Coffers included rules for using the fund for agricultural credit purposes. Administrative bodies for the Coffers were elected by the public, and they operated under guarantees of two Muslim and two non-Muslim trustworthy merchants who were called Sandik Eminleri (Coffer Trustworthies), and two clerks, one Muslim and one non-Muslim. If a community doubted a Coffer Trustworthy, he was investigated immediately, and another Trustworthy was elected if necessary. Every Coffer Trustworthy worked voluntarily; only clerks drew a salary.Footnote 30 Clerk fees were paid from money collected in a single transaction from farmers (a type of admissions fee), and interest revenue from the Coffers.Footnote 31 The government appointed an inspector to these cooperatives to audit their accounts once or twice a year. Their salaries were calculated based on working hours, paid from Coffer revenues.
The Coffers were stored inside police stations, but if no police station was available, a new building was constructed for this purposeFootnote 32 and opened once during the beginning of each week. Due to high demand for loans, they began operating twice a week, and more when needed.Footnote 33 At least 200 akçe had to be accumulated in a Coffer to begin giving agricultural credit, which were short- and middle-term loans. The maximum credit limit was 20 akçe per farmer. Interest on a short-term loan was 1 per cent monthly (three-month minimum), and middle-term loans carried 12 per cent interest (one-year maximum).Footnote 34 Only farmers could use credit from the Fund, and when a farmer needed credit, he applied to village elders. If the elders determined a genuine need of a loan, they arranged and approved a document, and the farmer could then apply for the credit.Footnote 35 When a farmer attained the right to apply, he had to produce a guarantor or pledge for the money. A few provisions to be a guarantor were needed. A guarantor must have owned real estate in the town or village, and had to have the ability to repay the loan. If there was more than one guarantor, each had to prove the same conditions. If a farmer wanted to pledge against the credit, two methods were allowed. A pledge could be movable property (for example, jewellery) or real estate, but if the pledge was moveable property, its value must have been higher than the value of the loan. If the pledge was real estate such as land, a vineyard, an orchard, an office, or a house, its annual return must have been two times greater than the interest on the loan. If a farmer pledged moveable property, the Coffer's administrators appraised its value, and if the property met the provisions, they recorded the type, quantity, and value of the pledge on a bond, and kept it in the Coffer with the bond. If it was real estate, the administrators also appraised its value, and if it met the provisions, they took the title deed, arranged a bond, and kept documents in the Coffer.
If a farmer defaulted on a loan, he could request an extension after paying the interest due. In this case, the guarantor or pledge had to be renewed. If a farmer could not repay the credit at the conclusion of the extension, the guarantor had to pay, or the pledge was sold at auction.Footnote 36 However, records suggest exceptions for repayment terms in later years. For example, in some regions, debt repayment varied depending on a farmer's wealth; rich farmers repaid debts as lump sums, and poor ones paid periodically.Footnote 37
Annual balance sheets for the Coffers were prepared each November. A commission was created to audit the accounts and calculate earnings and profit-sharing. A lawyer, district administrative council members, Coffer Trustworthies, and village elders were its members, and the most important administrative authorised person of the district was the president of the commission. General expenses of the Coffer were not to exceed 5 akçe annually, and such expenses were deducted from interest income and net profit.Footnote 38 The capital of the Coffers belonged to the community and net profits were distributed to the villages according to their contribution ratio of Coffer capital. Two-thirds was spent on infrastructure and social investments in the villages (for example, roads, drinking fountains, schools, etc.) by the common decisions of village communities. The remaining third was added to the principal of the Coffer.Footnote 39 Distribution of profits was similar to Rochdale's principle of ‘distribution of surplus in proportion to trade’. The government monitored the capital sources and operations of the Coffers, and asked Coffer administrators to report their accounts and a list of credit users, with the credit amounts.Footnote 40 , Footnote 41
Benefits to rural area except for providing agricultural credit
The Ottoman state paid particular attention to irrigation, especially in large and important food-producing provinces and areas such as Egypt. However, peasants could not repair irrigation in their communities without resources from the Ottoman state.Footnote 42 Bridges and irrigation canals were built and/or repaired from resources obtained from the Homeland Coffers.Footnote 43 The Coffers also provided money for farmers with damaged agricultural production due to pestsFootnote 44 (for example, grasshopper irruption) or droughts. Sometimes the Coffers did not lend money – they provided non-repayable aid to farmers affected badly by agricultural hazards.Footnote 45 Income from the Coffers was also used for agricultural disease control. For example, money used to prevent Phylloxera was provided by Coffers in the Mardin Province.Footnote 46
Revenue of Coffers also helped to improve the agricultural mechanisation. In 1868, three meadow- and grain-mowing machines that were pulled by horses were purchased from England using revenue from Coffers. One agronomist from every province was trained to operate the machines, which were transferred to other provinces with the operators if needed.Footnote 47 A private, large-scale farm owner bought six ploughs operated by steam power, and three harvesters from England, using credit from a Homeland Coffer in Adana province. He used the machines on his own farm, and also rented them to other farms in the province.Footnote 48
Coffers were not used solely for agricultural purposes; they also provided social and health needs to community. For example, in Hakkari Province, smallpox and typhoid fever were found in children, so a doctor and nurse were sent to the area, with salaries covered by the Coffer.Footnote 49 Some schools were repaired using Coffer resources,Footnote 50 , Footnote 51 and printing expenses of books, journals, and certificates for some Rushd Schools were paid by Coffers.Footnote 52 The Coffers also distributed grain to poor and homeless people who lived in the villages.Footnote 53
Some records suggest that per capita agricultural production and income increased between 1870 and 1914, resulting primarily from increases in cultivated land and productivity.Footnote 54 Homeland Coffers provided many benefits not only to agricultural development, but also social life. Common cultivation of fallow agricultural lands that belonged to the Ottoman Treasure led to production increases. Affordable credit, integration with markets, modernisation in agricultural mechanisation, and irrigation helped increase farmers’ income, and provided them with better living conditions. Mutual assistance strengthened the sense of community solidarity.
Regression and closure period of Homeland Coffers
In 1883, some Coffers failed, requiring improvements to capital accumulation. Thus, tithe was increased from 10 per cent to 11 per cent, and the additional income was transferred to the Coffers. The additional income was called a ‘Menafi share’, and the name of the Homeland Coffers changed to ‘Menafi Coffers’. At the same time, Coffer administrators changed, and their responsibilities transferred from governors to the government.Footnote 55 Homeland Coffers were widespread over the Ottoman Empire, which had a very large area. Although many benefits of the Coffers transferred to farmers and communities, rapid expansion made them difficult to control. Several records demonstrate poor management and misuse. In 1885, money belonging to Coffers was used for individual purposes, and the government had to use legal measures.Footnote 56 Some Coffer managers demanded excessive interest rates on loans in various Sanjak administrations, forcing farmers to sell their assets and land to cover debts.Footnote 57 , Footnote 58 In addition to bad management, Coffers had to transfer money to the Treasury between 1886 and 1887 by order of the government due to cash shortages.Footnote 59 Thus, Coffer capital began to diminish, making it impossible to improve the deteriorating structure of the Homeland Coffers. Thus, a law proposal was offered to Bab-i AliFootnote 60 in 1888 to close all Homeland Coffers, establish a new bank, and transfer all capital to the bank.Footnote 61 The name of the bank was Ziraat Bankasi (Agricultural Bank), which remains the most important agricultural credit bank in Turkey. During the transfer, many farmers experienced difficulties due to closed Homeland Coffers and they returned to using loan sharks who offered only high-interest loans. This situation was reported to the government, and so the transfer was conducted more quickly.Footnote 62 According to records, transfer of the Coffers was estimated to take nearly two years.
According to some authors, these cooperatives were oderni on the network of rural credit unions that Friedrich Wilhelm Raiffeisen established in Prussia in the late 1840s. However, Midhat Pasha created an original agricultural institution that had not appeared even in Europe. After the 1880s and 1890s, such institutions began to emerge in Austria, Belgium, Italy, and Hungary.Footnote 63 The primary difference between Homeland Coffers and other credit cooperatives worldwide at the time was the capital provision method – capital accumulation was designed to be self-financing. Income for the Coffers was provided through common efforts of farmers, returning to those farmers as credit. Despite its name, a Coffer was not a cooperative during the Ottoman Empire; it was operated using a cooperative spirit and principles, including two cooperatives: production and credit. Assessing Homeland Coffers in terms of contemporary cooperative principles, as determined by the International Cooperative Alliance (ICA), most of the principles were applied during that era. Homeland Coffers operated based on cooperative values such as self-help, democracy, equality, equity, and solidarity. Voluntary and open membership was implemented; every farmer could use credit without consideration of religion or race. Management was also democratic, until increased control by the government. Members of the Coffers elected their administrative bodies, and capital in the Coffer was the common property of its members. Income distribution was also designed well, in comparison with conditions of the era. Distribution of net returns to credit users according to credit proportion on a village-by-village basis is still not implemented in contemporary credit cooperative systems in Turkey. Autonomy and independence were implemented until intervention by the government. Coffers were established throughout the empire, and members effectively helped each other mutually, especially when a disaster (that is, agricultural or natural) occurred. Although no horizontal integration among Coffers existed, one Fund could transfer money to another when needed. Education, training, and information principles were also implemented, especially training of farmers regarding operation of new machines and agricultural techniques. The Coffers had a social responsibility – a portion of their income was used for social purposes, supporting rural development in the Empire.
Two important reasons are attributed to closure of the Homeland Coffers. They were spread across a very large area, the control was weakening, and due to unregulated management, capital began to diminish. The second reason was the increasing debts of the Treasury under Sultan II, in the Abdülhamid period. When Homeland Coffers began to send money to the Treasury, it represented a turning point that could not be rehabilitated. Although the structure of the Coffers deteriorated, they offered many benefits in terms of agricultural and rural development for twenty-five years.
Conclusion
The Agriculture Bank (present-day T. C. Ziraat Bank of Turkey), established from Homeland Coffer capital, also contributed to the economy and social life of the Turkish Republic. A part of Agriculture Bank's capital was used during the Independence War of Turkey, with direction from Atatürk. The bank was tasked with determining methods of aid distribution to families of soldiers, and distribution of agricultural equipment and seed under the direction of Mustafa Kemal Atatürk. At the beginning of the young republic, Agricultural Bank played a role in distributing quinine to the public to fight malaria in 1924.Footnote 64 However, despite social work by Agricultural Bank, its operations were disparate from the Homeland Coffers because it operated under traditional banking principles.
The initial cooperative development came in 1923 with establishment of the Turkish Republic under Atatürk, who considered cooperatives one way of modernising Turkish society by distributing economic benefits broadly and encouraging democratic participation. At that time, the country was largely rural. To promote cooperative thrust and assist with its establishment, a detailed regulation comprising ninety-seven statutes was passed by parliament, before the republic was announced, as the Production, Procurement, Buying, and Selling Partnership Cooperatives. Approximately forty cooperatives, operating mostly in the agricultural sector, were established in the western part of the country. A legal and social environment suitable for cooperative development was prepared during the formative years of the republic, between 1926 and 1935 when the Trade Law and other laws concerning agriculture cooperatives were enacted and embodied the ideas above. Cooperative unions based on agricultural commodities and regions proliferated, reflecting the proliferation of cooperatives. The Agricultural Credit Cooperatives Law was passed in 1929. Settlements (villages and towns) with more than 100 households and a population of at least 500 were allowed to establish cooperatives. For those servicing one or more villages, members had unlimited liability, and in towns and cities, liabilities up to five times their registered shares were mandated. Two additional laws enacted in 1935 regarding agricultural sales and credit cooperatives established economic unions for producers. At the time of Ataturk's death in 1938, the movement was established.
The first credit cooperative was established in 1935 as an independent entity and has since evolved into a multipurpose credit and general agricultural services agent. Until 1972, Agricultural Credit Cooperatives (ACCs) formally remained a government-sponsored entity, operating under the general auspices and funding provisions of the Agriculture Bank of Turkey. ACCs used to act as financial intermediaries for the state's Agricultural Bank, extending twenty-seven types of credit to farmers. Due to the scope of existing legislation becoming insufficient, the need for a new and more comprehensive law became apparent by 1972, which emulated German Raiffeisen Cooperatives.
Today, Turkish Agricultural Credit Cooperatives (ACC) operate under the Ministry of Food Agriculture and Livestock (MFAL). Based on a government decree issued in 2000, the Agricultural Bank began scrutinising the financial standing of the ACCs before extending credit. Many found financially weak were not supported. Over time, the financial relationship between these two agencies weakened and gradually faded. A new Law on Agricultural Credit Cooperatives and Unions was amended in 2005 to allow them to meet their financial needs using sources other than Agricultural Bank, including various national and international credit sources (for example, banks, and financing and credit agencies). The ACC system has a Central Union, 16 Regional Unions, and 1,767 primary cooperatives, with one million registered members. It has 13 corporations, of which the organisation is a partner or holds the majority of shares. In recent years, the Union of ACCs has made numerous investments using matching grant programmes of the MFAL, including grain silos, cold storage, seed cleaning and preparation units, milk collection centres, fruit grading, and packaging plants. The ACCs are in contact with international cooperative organisations. It is a member of the International Raiffeisen Union, ICA, General Confederation for Agricultural Cooperation in the EU (COGECA), and International Chamber of Commerce (ICC).Footnote 65 Despite the size of the ACCs, they largely extend credit in kind, their cash credit interest rates are higher than Agriculture Bank's, they operate under the government's control, and they do not distribute surplus to members. Many cooperatives are far from the cooperative spirit and principles in Turkey that Midhat Pasha achieved nearly 150 years ago.
Acknowledgements
I thank Necati Aktaş, Aysel Yazgı, and Durmuş Dönmez for their kind support in accessing the archives.
