The Role of Morris Plan Lending Institutions in Expanding Consumer Micro-Credit in the United States

Abstract

This paper examines the rise of the Morris Plan banks, in the early part of the twentieth century, in providing consumer credit. Morris Plan banks emerged at a time when formal consumer credit markets were virtually non-existent. Credit unions also appeared in the United States at the same time. Within twenty years of their appearance, Morris Plan banks dominated consumer lending. The demise of Morris Plan banks begins with the full recovery of banking after the Great Depression. This paper analyzes the structure of Morris Plan lending in light of the recent literature concerning joint liability credit institutions. Our analysis suggests that the success of the Morris Plan lending structure may be attributed partly to it alleviating informational asymmetries and costs associated with lending. The analysis also suggests that the Morris Plan structure grew faster than credit unions because it imposed less joint liability on borrowers than did credit unions. Ultimately, the emergence of Morris Plan banks during this period is an interesting historical example of an institution arising organically within the private sector to meet a credit need and disappearing after alternative institutional forms, which were less costly to borrowers, emerged as consumer credit markets matured.

Keywords: microcredit; lending; banks; Morris Plan

JEL Classification: G21, N22, O16