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Definition: Morris Plan Bank
A Morris Plan Bank is a generic term for non-traditional banks in the US, which are focussed on a unique lending strategy geared toward individuals who are disadvantaged and hence face difficulty in obtaining loans. It is named after its founder, Virginia’s Arthur Morris. A loan by a Morris Plan Bank institution generally has a relatively high rate of interest. Consumer credit to the poor was championed by Morris Plan Bank institutions, which corresponded to the economic growth of the US economy in the twentieth century.
These kind of banks were first established in 1910, to lend money to persons who are unable to get loans from mainstream banks. Morris plan banks were most popular during the Great Depression and other recessionary times. Those who were denied access to credit from local banks, could opt for Morris Plan Banks instead of falling prey to loan sharks. Nowadays, commercial banks also offer similar kind of services as those of Morris Plan Banks.
Morris Plan banks did not require loan collateral, alternatively it considered parameters such as character, community standing of applicants. All applicants needed to be backed by 2 endorsers. Loan application to a Morris Plan Bank was via an application filled by all 3 individuals, which covered questions on character, financial history, wages/employment. These plans offered instalment credit to the borrowers.
In short lending to low and middle income individuals were based upon the 3 principles of a Morris Plan Bank:
1. Character and earning power of the individual
2. Credit-based loans have a repayment period as long as required to match the earning propensity of the borrower.
3. Borrowed money is meant to be used for constructive and useful purposes.
Morris plan banks combine the characteristics of a micro-credit institution and a private sector banking entity. The first Morris Plan bank was the Fidelity Savings & Trust co., and the number boomed to over 109 banks in 1931. Post the Great Depression, Morris Plan Banks, saw a decline as the practice of small consumer loans were incorporated into the commercial lending practices of the time.