Bolivian Studies Journal

By the late 20th and early 21st century, credit institutions in Bolivia had become more complex, resilient and popular that at any time previously in its history. Traditional economics analyses emphasize incentives created by laws such as those promulgated by the Kemmerer mission in Bolivia in the 1920s and 30s, or material factors, such as transportation costs. Yet neither of these explanations offers a compelling explanation for the magnitude of the flourishing of popular and complex credit institutions in Bolivia after the 1960s. Cultural changes, however, might offer a compelling complement to legal and material explanations of credit development. Vatican II represented an important mass change in Bolivian culture, and institutions associated with these reforms ushered in a new era of credit institution development in the country.

By the late 20 th and early 21 st century, complex banking institutions had reached more of Bolivia than at any other historical period.Analysts began to write about a microfinance revolution in the country."As recently as the late 1980s, the banks and financial institutions of Bolivia regarded the country's majority low-income and indigenous people with disdain, if they thought of them at all …[but a decade later], in cities and larger towns across the country virtually anyone with an ongoing economic activity could get a loan" (Rhyne 1).In 2005, the distinguished London newspaper The Economist described the newly-created microfinance institutions as vibrant, even as the larger Bolivian financial sector experienced turmoil (Easton).
Evidence supports these practitioner and journalist accounts.The Asociación de Entidades Financieras Especializadas en Micro Finanzas de Bolivia (ASOFIN), an association of 7 non-governmental organizations (NGOs), estimated that in 2008 up to 27% of the economically-active population (EAP) of Bolivia had a loan from a bank and up to 86% of the EAP, or about 3.4 million people, had a deposit in such an institution (See Annex 1; Norris 2011, 216).The number of Bolivians with a savings account in a formal bank grew by a factor of about 18 between 2001 and 2009, a time when the Bolivian population grew by a factor of only 1.15 (See Annex 2).Finally, whereas banks were used only by a small and exclusive urban minority a scant 20 years ago, these institutions have expanded to new sectors of society.For instance, in 2007 Alejandro Lima, a loan officer in a Bolivian bank created in 1986, proudly described how he once took the savings of an indigent shoe-shine boy and deposited them in an interest-bearing account.After several years, the boy had enough to launch a new business by buying a cart that he used to transport goods to the market.The Villa Fatima bank office that loan officer Lima used as his home base was abuzz with activity the day I visited. 1 One today is likely to see Bolivians from varying social backgrounds entering banks or taking out money from ATMs on the country's bustling city streets (fig.1).Broader historical analysis supports this interpretation.Bolivian credit institutions in the early 21 st century were more numerous than in previous periods.By one count there were 299 bank branches in Bolivia in 2007 (ASOFIN  2007).This number was more than 10 times greater than the 27 bank branches that Ballivián counted in the country in 1920 (Ballivián, various pages) and the Bolivian Studies Journal /Revista de Estudios Bolivianos http://bsj.pitt.edu29 that Schurz counted in 1921 (Schurz, various pages).Even controlling for population growth, the number of banks per capita in 2007 was 2.4 times greater than in 1920. 2 The new Bolivian credit institutions were more robust as well.Bolivian history is littered with failed attempts to establish liberal credit institutions.For instance, "El Ahorro del Hogar", a household savings and loan founded in 1900 in La Paz, lasted only 10 years before it collapsed, even though it passed its short lifecycle during a period of exceptional political and economic stability.The institution likely served only upper middle class individuals (Norris 2011,  211-212). 3In contrast, Catholic Credit Cooperatives in the Cancha market area of Cochabamba founded in the 1960s survived the hyperinflation of the 1980s.Something clearly changed between 1900 and 2007 to make Bolivian credit institutions more robust, more popular and more complex.

What Gives Rise to Credit Institutions?
What has led to the explosion of credit institutions encompassed by the microfinance revolution of the late 20 th and early 21 st century in Bolivia?New credit institutions are not created from whole cloth, but rather emerge from predecessor institutions, demographic features, and changing ideas.An understanding of the new microfinance institutions must be based on an appreciation of what came before and how this status quo became dynamic.
Three broad interpretive schools have emphasized different factors giving rise to credit institutions.The first emphasizes legal codes and the incentives such codes can provide for rational, self-interested actors.The second, sometimes called the political economy approach, emphasizes material factors and power relationships.The third, highlighted in this article, emphasizes the impact of culture on the development of credit institutions.
Economic historians have explained the development of credit institutions as a function of individual incentives created by legal or other structures (Greif; Acemoglu, et al).For instance, in an influential multi-year research project, Peruvian economist Hernando de Soto argued that formal property rights in Latin America can give entrepreneurs incentive to invest because these individuals know that they will be able to reap the benefits of their efforts (Soto 1989 and 2000).Bolivian analysts also emphasize the importance of institutions in spurring development by giving incentives to investors (Laserna 2011).
However, formal banking laws creating incentives have not always ensured successful outcomes in the Andean region.For instance, Richard Fetter, the Princeton economist who accompanied Edwin Kemmerer to Bolivia to provide technical advice for the re-founding of the central bank in 1929, wrote that "pledging specific revenues [i.e., in a formal legal document] is not a guarantee of repayment.Some [countries I have advised] have done this and not paid back.Others have not done this, but taxed themselves to the hilt to make good on [an external] loan."4Similarly, in 1957, George Jackson Eder, a financial consultant advising the Bolivian government on how to end hyperinflation, complained that The Central Bank had ceased to exist.The building remained intact; the law creating the bank had not been repealed; but pressure from the government from above for forced loans, and from the union of bank employees from below, preventing any accounting controls or employee discipline, had crushed any vestige of independence of action… (46-47).Furthermore, the last major banking law in Bolivia, a law re-founding the Banco Central de Bolivia (BCB), was passed in 1928, and no analyst has discovered a resulting boom in financial institutions as a result.In contrast, there were no important legal changes corresponding to the microfinance revolution that began in the 1960s.Therefore, the weight of the evidence suggests that formal laws were a weak explanation for the late 20 th century advances in banking in Bolivia.
A second intellectual tradition has seen credit institution success as dependent on material factors and sometimes on power relationships (Kindleberger 41; Lopez  1979, 3, 7; Lopez 1971, viii, 73; Marx 15).Some analysts have emphasized material factors in the development of Bolivian credit institutions.Herbert Klein has argued that the decline in the percentage of national revenue coming from the Indian head tax in the 1860s could explain the timing of the 1870 liberal experiments with banking institutions (105).Eric Langer has documented the collapse of economic institutions in the Sucre region as a function of the decline of the world silver market in the late 19 th century (Langer 188).Similarly, low transportation costs -a subset of what economists call 'transaction costs'-can foment economic activity, including the growth of credit institutions.For instance, proximity to a waterway or presence of a railroad can provide cheap transportation for goods (Smith 8-9).Influential economic studies of Bolivia have therefore prescribed the construction of railroads or highways with the goal of lowering transaction costs (ECLA 243-248; Zondag 7;  Bohan 69, 72-73).
Ethnographic evidence exists to support such material arguments.For instance, until 1949 the town of Toro Toro in the second section of the Charcas Province of Potosí was not linked to Cochabamba, the closest and only major city it traded with, by a road that could accommodate trucks.Donkey trains could take up to 2-weeks to travel one-way through the Rio Caine Valley to Cochabamba.However, in 1949 the opening of a road between the population centers allowed a class of Cliza-based merchants to begin trading with the Laymi ayllus surrounding Toro Toro.One of the author's informants, Mario, was one such Cliza merchant, and he eventually opened a dry goods store in Toro Toro after first passing several years using donkey trains to barter with Laymi in their communities in the mountains above the town.By 1997, Mario's dry goods store had become a proto-banking institution by merit of his extending credit to the Laymis and other indigenous groups visiting Toro Toro on market days and during festivals such as that of Santiago, the town's patron saint.5 Mario's business would have been all but impossible without the construction of the physical road from Cochabamba to Toro Toro.
However, despite explanatory power in certain instances, lowered transaction costs are not a reliable indicator of the development of credit institutions.For instance, Bolivia's growing urban areas have long had (almost by definition) low transaction costs compared with those of rural regions.In densely populated neighborhoods such as Munaypata (La Paz), Final los Andes (El Alto), Valle Hermosa (Cochabamba), or Huayani (Cochabamba / Sacaba), individuals have access to hundreds or even thousands of potential business partners within walking distance.Nevertheless, cholos in these urban areas are sometimes more likely to build massive and unused additions to their houses to save excess earnings rather than to trust those resources to a bank (fig.2).6For example, in 2008 in the Final los Andes neighborhood of El Alto, María Arraníbar (pseudonym), owner of a street-level tienda in one such overbuilt housing complex, occasionally lent money to her neighbors.One loan was for $250 to a man whose car had been repossessed by the bank.María held the neighbor's phone landline, which was physically rerouted to her house, as collateral while the loan was outstanding.7 Physically retaining a borrower's collateral in this case is a sign of low trust and indicates a low level of institutional development.Transportation costs do not impede economic cooperation because Maria could simply walk across the street to interact with her debtor if need be.The impediment to institutional development lay elsewhere, perhaps in a low-trust dynamic.
By contrast, members of the Macha ayllu annually trek up to two weeks roundtrip through the Guadalupe River in northern Potosí to rendezvous at Kollpa, an uninhabited entrepôt, to barter between lowland groups and highland groups in March 2010.Others might object that cholos love to display wealth to compensate for discrimination, and this, not low trust explains the construction of vacant house floors.This might be true, and if so this dynamic is not mutually exclusive with the low-trust argument.This is not to say that transaction costs are not important for the development of credit institutions in Bolivia, but such evidence suggest that the relationship between transaction costs, themselves based on material factors, and the development of credit institutions is complex and can be mediated in important ways by culture, the third of our potential explanations.
Yet while the example of the ayllu is important, the interactions it comprises take place on a scale of about 10,000.This sociopolitical unit therefore is too small to encompass the millions of anonymous interactions conducted in credit institutions of the microfinance revolution (Norris 2011, 216).The account of the cultural underpinnings of credit institutions in Bolivia therefore must be dynamic.
Anecdotal evidence suggests that important cultural change happened in Bolivia between the 1940s and the beginning of the 21 st century, and this cultural change affected credit institutions.For instance, in 1942 after interviewing 490 families in Cochabamba and Santa Cruz over a period of 5 months, a researcher came to the conclusion that "an indolent worker could, and likely does, cost more than the farmer [a source of loans] gains from his labor…" (Leonard 1948b, 10;  Leonard 1948a).By contrast, in 2010 lower-middle class employees of a microfinance organization in La Paz would explain their philosophy of lending by continually invoking the phrase "culture of payback."8Yet for these suggestive vignettes of cultural change to be compelling, they must be linked to a mass social phenomenon, one of sufficient scale to plausibly explain the millions of Bolivians interacting in complex credit institutions.
This article argues that culture, along with legal incentives and material factors, has affected the development of credit institutions in Bolivia.Some sociologists and economic historians have argued that culture should be considered along with legal and material factors to explain the development of credit institutions (Weber 1978, 1:582-589; Heichelheim 1:135, 254-258; 3:17-18, 245,  313).This article makes the case that culture matters for credit institution development by two separate lines of argumentation.First, a 500-year interpretive history of the development of credit institutions is given, and the case is made that both analysts and actors have at times confounded legal incentives and material factors with what were truly cultural phenomena.9 Second, the article focuses on the cultural changes that Vatican II represented and the effects of these changes on credit institutions, particularly credit institutions associated with or precursors for the so-called microfinance revolution starting in the 1970s and 1980s.
Two caveats should be made before proceeding.First, the definition of credit institutions used here is "any exchange of goods presently possessed against the promise of a future transfer of disposal over utilities, no matter what these future utilities may be" (Weber 1978, 1:80-83).This expansive definition of credit potentially categorizes under the same heading social interactions as disparate as the alsa ritual redistribution practiced within the ayllu written about by Nathan Wachtel (Wachtel and Ciezar, 139) as traditional formal personal savings schemes for military personnel.The reader would have to grant at least for the sake of argument that these phenomena might be similar, whether one is a precursor of the other or a substitute for the other. 10cond, the question 'What gives rise to credit institutions?' guides this inquiry, but our attempts to know must necessarily be limited.Legal, material and cultural factors may cause the development of credit institutions, but the very nature of these complex social phenomena makes it impossible to argue with precision or certainty that this is the case in any given situation.So while this analysis is concerned with making judgments about causation, especially as revealed by the logic of longitudinal analysis, the argument often intentionally stops short of definitively stating that this or that factor led to the creation of credit institutions.There are not an infinite number of possibilities, and in some instances evidence suggests the prominence of cultural, legal or material factors.But as Aristotle in Nicomachean Ethics wrote, "It is the mark of an educated man to seek as much precision in things of a given genus as their nature allows" (1094b, 24-26).

History of Bolivian Credit Institutions
Professional banking in Bolivia originated in the state monopolies on the purchase of minerals, called rescue houses (casas de rescate), that began in the 16 th century.Colonial authorities permitted privately operating miners to sell the silver they extracted from the Potosí's Cerro Rico only to the state-sanctioned casas de rescate.The rescue houses would then sell the silver to the Casa de Moneda (the Royal Mint), which used the metal to manufacture coins.The Casa de Moneda would in turn use minted royal coins to pay the casas de rescate, which would then pay the miners.If the Mint's delivery of coins to the rescue houses was irregular, or if miners delivered an unexpectedly large amount of silver that could not be paid for with the coin on hand, the rescue house would pay the miners with paper IOUs, which people sometimes traded in commercial activities.This activity formed the basis of the emission of paper money, and other banking activities, from extending credit to safeguarding valuables, flowed from these beginnings.Casas de rescate began to be called bancos de rescate.The Banco de San Carlos (1779)  Mineral wealth continued to be a basis for founding banks in Bolivia well into the 20 th century.The Banco Francisco Argandoña (1892) was founded in Sucre to serve the needs of the eponymous family, who owned silver mines, and then expanded its banking services to other groups.After the collapse of world silver prices in the late 19 th century, Simón Patiño founded the Banco Mercantil in 1905 in Oruro with wealth from his tin operations.But as early as the 1860s, during the Mariano Melgarejo regime (1864-1870), institution builders attempted to create banks on purely liberal financial principles, without the crutch of mineral wealth.Most institutional histories of the Bolivian banking sector describe the private enterprise of the Banco Boliviano, founded in La Paz in 1867, as the first true bank in the country.Founded by Bolivian elites and the North American entrepreneur Henry Meiggs, the Banco Boliviano emitted paper money, accepted deposits, discounted notes (i.e., bought society's IOUs at a lower than face value to facilitate their economic dealings), and made loans.The Chilean Banco Cobija subsequently established the Banco Nacional de Bolivia, a private endeavor despite its name, in Sucre in 1872.
Mortgage banks were another important part of the institutional engineering of the 1860s.Meiggs founded the Banco Hipotecario in La Paz in 1869.The Banco Hipotecario Garantizador de Valores (Sucre, 1886) and the Banco Hipotecario Nacional (La Paz, 1889) quickly followed.The idea behind the mortgage banks was to let borrowers take out loans with their houses pledged as collateral.Presumably the borrowers would use the bank loans for productive purposes, particularly in the undercapitalized rural areas, and pay back the loans with interest.In this scheme, one sees the liberal emphasis on incentives created by laws or institutions.Thus, 120 years before Hernando de Soto argued in books such as The Other Path (1989)  and The Mystery of Capital (2000) that dormant wealth lay in the bricks and mortar of Latin America's real estate, Henry Meiggs and liberal institutional engineers were trying to unleash the power of the capital in Bolivian houses in La Paz, Sucre and other cities.
So-called agricultural banks attempted to address the same fundamental problem of an undercapitalized rural sector.Agricultural banks included the Banco Agrícola (1904), a private endeavor, and the Banco Agrícola (1942), an institution embedded in the Bolivian central bank.
Flores, La banca nacional; Rojas, Historia financiera; Crespo G., Bancos y sistemas bancarios; Beltrán Caballero and Guzmán Saldaña, eds., La creación del Banco Central; Morales, Historia monetaria contemporánea; and Baptista Gumucio, Banco Nacional de Bolivia; See also, Klein, Concise History, 70, 106, 137-138, 162-163, 166, 175.The focus on designing large-scale institutions to liberate capital and meet development goals continued in the 20 th century with the founding of Banco de la Nación Boliviana (1911), Bolivia's first central bank.In 1914, the bank achieved a monopoly on the emission of paper currency, displacing 14 private currencies, thus fulfilling the key function of a central bank.
The Kemmerer mission from the US re-founded Bolivia's central bank in 1928 and gave it its modern name, the Banco Central de Bolivia (BCB).Walter Kemmerer was a Princeton economist who helped create the Federal Reserve System in the United States in the first decades of the 20 th century and who helped found central banks in the 1920s in all of the countries of Latin America except Chile and Brazil.Some have argued that all of the essential elements of a central bank had been present in Bolivia since 1911 (or 1914), and that the Bolivian governing elites merely complied with Kemmerer's formal prescriptions to get US loans (Drake 17).Others have argued that the changes that the Kemmerer Mission implemented were substantive because they returned Bolivia to the gold standard and thoroughly rewrote the Bolivian legal code as it pertained to central bank lending to the government (Pacheco 48-49).
Whether one emphasizes the watershed dates of 1911, 1914 or 1928, all agree that by the early 20 th century, all of the modern legal institutions for banking were in place in Bolivia.

Credit and Culture
Culture is inherited ethical habit, that is, the norms that parents or role models convey to children at an early age (Fukuyama 34).While we have knowledge of the legal milestones in the development of credit institutions in Bolivia, we have relatively little information on the effects of culture on the country's popular credit institutions.This lack of knowledge of culture is in part a function of the historically low literacy in the country, which has limited Bolivians' ability to amass ethnographic information on their society (Norris 2011, 214)  12 , and in part a function of analytical norms that emphasize formal legal analysis.Such norms go back to the 19 th century if not earlier in Bolivia and were also common in the US until the advent of modern anthropology by Franz Boas in the early 20 th century and the 'behavioral revolution' in research in the 1950s.
By contrast, some ethnographical data on credit institutions exist in the US due to its higher literacy rates and exceptions to the legal analytical emphasis.For instance, in 1915 US researchers working with public funds from the Smith Lever Act interviewed 300 farmers in the rural south about their credit relations with dry goods merchants, landlords and banks.One rural farmer in Texas said to interviewers, "[I] made all payments promptly but starved myself and family to do it.For ten years I never handled any money; bought from credit merchants and rarely paid all I owed at the end of the year.Got out of debt by 'stingy living'" (Peteet  57-58).These types of sources do not as a general rule exist in Bolivia.
However, late 20 th century anthropology has given us some valuable information, such as descriptions of the northern Potosí rescataris, mineral purchasers.We can, with some caution, project the cultural dynamics of the 20 th century rescatari interactions backward to the interactions between 16 th century rescue banks and miners.Examining these informal interactions can help us better understand subsequent failures to create monopoly-based formal institutions for coca in the 1840s.
In 1990 Godoy described a typical rescatarista and her relationship with her clients.In 1980, JV (pseudonym) was a rescatarista born and raised in Llallagua near the Jukumani ayllu.This Bolivian merchant's relations with her clients were caring and were cemented not by laws, but by gift exchanges: Like most mestizos, JV stands aloof from the common farmers, though she is bound to them by friendship and compadrazgo [godparenting].With modest mineral deposits, she made a modest fortune during the bonanza years of the early 1970s.Unlike VA [a European rescatarista operating nearby], she only employs one rescatari [i.e., buying agent], a loyal Jukumani follower, EL, who receives a monthly salary rather than dividend payments.
In contrast to VA's major [buying agents], who are sedentary townsfolk, EL scoured the countryside regularly, visiting hamlets, rivers, and mines where [JV's] informants told her [that] peasants had stockpiled ore ready for sale.Because EL knew most Jukumanis from his service as a high-ranking [military] officer, he had the confidence to advance small credits to his countrymen, who pledged their finest textiles as a guarantee… At the end of each month, when JV came to pick up the mineral [from EL or the Jukumani], she offered hot coffee and bread to her customers and sold them coca cheaply (73-74). 13olivian Studies Journal /Revista de Estudios Bolivianos http://bsj.pitt.edu The informal 20 th century interactions described by Godoy are evocative of the interactions between miners and state-mandated monopolies in the 19 th century.For instance, General John Miller visited Potosí in 1829.He observed the operation of government rescue banks staffed by an administrador, a comptroller, a treasurer and nine clerks.Miller described interactions among the rescue banks, master miners, "labourers", merchants and "Indian families".The last group "took up their abodes in huts or caves near the mines of the Cerro, and descended to town only on Saturday night to receive their wages" and to celebrate afterward (278-281).Similar social dynamics were likely observable in the 16 th century state-monopoly rescue banks.
Despite the similarities between Godoy's case and that of General Miller, the 20 th century interactions described by Godoy took place in the absence of a binding law granting a state monopoly.In fact, in the area of northern Potosí described by Godoy, the Bolivian state was largely absent at the time of the study and was therefore unable to enforce formal laws, whatever their content.The Bolivian state had relatively little effect on the lives of rural northern Potosians until Gonzalo Sanchez de Lozada's Law of Popular Participation (1994) created a link between the central government and rural hinterlands through resource transfers to municipal governments.For instance, one campesino in Toro Toro, near the site of the Godoy study, told this researcher in 1997, "Before Popular Participation, we did not exist for the state."Social programs, such as the redistributive Impuesto Directo de Hidrocarburos (IDH) of Evo Morales, have deepened these links in subsequent years, but this only serves to emphasize the point that these links by and large had not existed before.
In this case, the mineral rescue house operated by JV functioned based on two principles, neither of which corresponded to a formal law.First, the rescue house acted as a link between the Jukumani producers of ore and larger outside groups that had items that the Jukumani wanted, but could not produce themselves because of the limited division of labor within their 8,000 person population.The ubiquitous transistor radios that this researcher has seen in even the remotest corners of Northern Potosí, such as Chicopocosuco in Charcas II, are an example of valuable trading items described by Godoy elsewhere in his narrative.Second, though the commercial transactions were carried out by relatively cosmopolitan individuals such as JV and EL, these individuals nonetheless could operate within the cultural norms of the Jukumani.
To summarize, culture and other factors, rather than laws, governed the Jukumani interactions.Such cultural norms were also likely important in underpin-ning Bolivia's historic rescue banks, although the coincidence of formal monopolies made it difficult to disentangle the relative contributions of laws versus culture in the functioning of the older rescue banks.

Government Attempts to Create Credit Institutions by Fiat
Given the historical existence of a government monopoly on the purchase of minerals and the relative success of the large rescue banks such as the Banco de San Carlos, Bolivian leaders at times arrived at the flawed belief that state laws were more effective than they actually were.In social science terms, they tended to confuse correlation with causation.
Such flawed interpretations are likely what led Bolivian leaders to try to emulate the success of the mineral rescue banks with coca by focusing on formal institutions such as state-declared monopolies.Benavides observed, "Inspired by the methods of fiscal monopoly established with success in the mineral sector, [similar schemes] were tried in the Yungas for coca" (23; see also, Rojas 161).In 1848, the government created the Banco de Coca by declaring a monopoly on the purchase of the commodity.The coca bank was to have seed capital of 250,000 Bolivianos, and in addition to being the sole purchaser of coca, would carry out lending and discounting functions, similar to the mineral rescue banks (Rojas 160-261, 201-203; Crespo 8).However, the initiative failed.The probable reason was that formal monopoly rules alone were not sufficient to overcome the more powerful impediments to institutional formation, such as lack of an external market of sufficient scale for coca or a low radius of trust among participants.
In another example, culture may have played an important role in the relative success of an 1844 military savings program compared with the low performance of its civilian analogue.Both the Caja de Ahorro Militar and its would-be emulator, the Caja de Ahorro Civil had virtually identical formal laws, but had different organizational outcomes.In 1844 the Bolivian military founded the Caja de Ahorro Militar (Military Savings and Loan) to promote thrift among its soldiers and provide assistance to widows and wounded soldiers.The fund began with 1,000 reales in 1844 and had grown to 200,000 reales by 1847.At its peak, the Caja enrolled about 3,000 soldiers (Rojas 157-158; Benavides 20-21).Documents in the Bolivian National Archives provide information on how the Caja de Ahorro Militar actually functioned.Program administrators automatically deducted a percentage of the wages of enrolled soldiers.Common soldiers paid 2 reales per month, and captains paid 4 reales, or about 11% of their salary.Higher officials paid up to 19% of their salary. 14Contributors earned 6% annual interest on their deposits.To put the size of the program in context in financial terms, in 1847 Colonel José Gabriel Tellez, a military officer and the program director, made 240 reales per month and his administrative assistant, José M. Valda, the Oficial auxiliar, his enlisted office assistant, made 44 reales per month. 15Another source estimated an average minimum expenditure of a city worker to be 27 reales per month in 1845: Thus, the Caja de Ahorro Militar at its highest known value equaled about 800 monthly officers' salaries, about 4,500 monthly soldiers' salaries, or about 7,400 monthly salaries of a worker.This was a substantive institution for its time.
The success of the Caja de Ahorro Militar led civilian leaders to attempt to emulate it by creating a Caja de Ahorros Civil in 1844.However, the civilians' savings scheme failed almost immediately because of "poor administration" (Benavides 25-6).While ultimately both endeavors failed, the Caja Militar was the more successful.
'Military culture' is the most likely explanation for this relative success.Military culture and discipline can, in very specific and often limited circumstances, make the organization useful in traditionally civilian functions.For instance, the military was used for municipal trash pick-up near Mizque in the late 1990s because of its greater organizational effectiveness compared with that of the local government. 16The relatively high levels of interpersonal trust among the military personnel participating in the Caja de Ahorros Militar led to the organization's modest success, as evidenced by the amount of time it operated and its superior record keeping.The organizers of the more fractious Caja de Ahorros Civil emulated Bolivian Studies Journal /Revista de Estudios Bolivianos http://bsj.pitt.edu the formal structure of the military savings scheme, but could not repeat its success, and probably failed to recognize how important the military's preexisting culture of discipline and trust were to the endeavor.Ultimately, the complexities of running a financial institution outstripped the capabilities of the military institution, but for a brief period its culture and discipline gave it an advantage. 17

Agricultural Banks
Creating an agricultural bank after the Revolt of 1898-1899 was an important liberal initiative.Aside from its exceptional mining activity, Bolivia has historically been an agricultural society.For instance, despite its clear importance for the Bolivian economy, mining directly touched relatively few Bolivians, even in its most influential periods.As late as 1955, only about 1.2% of the Bolivian population worked in the mining sector, even with inflated employment in the governmentowned COMIBOL mining company. 18e Revolt of 1898-1899 brought to power a new government and new commercial leaders, many of whom were committed to liberal principles.For these leaders, the deficiency in the rural production was self-evident, and they founded an agricultural bank in 1904 to channel investment into the sector.The bank would function as a private entity until about 1914, when its foundering operations were transferred to the newly-created Banco de la Nación Boliviana.According to one financial historian, the fact that the agricultural bank lasted 11 years illustrated that it was a relatively successful entity (Benavides 79-80).
We know little about the private Agricultural Bank founded in 1904, other than its very existence was a testament to the ideas of the Liberal Revolt.According to the bank's first report from July 1904, it had about 250 individual shareholders.The president of the shareholders' board apologized for the slow start to the endeavor, and made reference to the "disturbances of April 8."He also mentioned that the 17 Huntington notes that after a brief period in which the military successfully engages in traditionally civilian functions, "the more advanced [i.e., complex] a society becomes, the more conservative and reactionary becomes the role of the military" (221).The loans of the Banco Agrícola (the one re-founded in the BCB in 1940) had been similarly large and limited to the upper class.For instance, in November of 1941 the bank approved a loan for 80,000 Bs. to Luis and Raúl Patiño in La Paz for the purchase of cattle.The two brothers in turn provided a lien on a property they owned in the lower and more fertile regions of the La Paz Valley.The term of the loan was for 30 days, until their brother Julio could return from Argentina. 27José Pinto Hernández of Trinidad in Eastern Bolivia also received a loan of 18,000 bolivianos with the collateral of a property on the outskirts of the city, a house in the city and 100 head of cattle. 28These were not examples of proto-microfinance, but rather examples of intra-elite resource transfers.Thus the agricultural bank also failed to bridge the class divide.
Similarly, kinship or clan-based allegiances impeded broader cooperation.For instance, by 1942 the BCB committee on rural credit had received reports of abuses with loan funds.In one meeting, a committee member named Pereira read an editorial that the newspaper Última Hora had published about fraudulent use of funds loaned from the bank: [B]ank credit for increased agricultural production in the east [ern lowlands] is largely redirected toward other ends that yield more profit for the borrowers.This fraudulent activity deprives the country of the hope of being self-sufficient in agriculture.This editorial recommends modifying the modus operandi of the agricultural credit program that the BCB runs, proposing for example that the borrowers repay their loans in agricultural products, not in cash, in order to assure that the loan funds are used to increase agricultural production. 29reira located these failures in the bank's inability to overcome family-based loyalties.He read from another article from the La Paz newspaper, El Diario, that said, "the new Minister of Agriculture about to be appointed should be [someone]  with technical capacity and without outside interests."Actas 1233-1309, 27-MAY-1941[to] 13-FEB-1942," 261, ABC. 29 "Actas 1233-1309, 27-MAY-1941 [to] 13-FEB-1942," 336-337, ABC."Actas 1233-1309, 27-MAY-1941[to] 13-FEB-1942," 336-337, ABC.Finally, the BCB was too weak to address the urban/rural divide.For instance, a loan to Jorge M. Solares Camarona of Trinidad, Beni Department was considered but rejected because of the location of part of his pledged collateral in rural areas.The loan was to be for 25,000 Bs. with a house, a piece of land, and 1,010 cattle pledged as collateral.It was turned down because the land was too far from the nearest urban area, suggesting that urban-based bankers did not have substantive connections in rural areas. 31e forgoing begs the question whether any society with such poor transportation, sparse population and backward banking laws could be expected to bridge a fundamental divide such as the rural/urban divide.answer is yes.As early as the 1900s, the highly agricultural regions of the US South, which were plagued by the 'white scourge' of monoculture cotton production, nonetheless had vibrant correspondence partnerships between urban banks and rural 'community' banks (Economic Survey, 228-232).Subsistence farmers and cotton farmers would trek miles into town to deposit money in a bank.One study estimated that by 1914, only 4% of farmers in a still rural Texas had never received a loan from a modern bank (Norris forthcoming).
Therefore the failures in Bolivian banking lead to the question of what factors eventually allowed Bolivians to bridge the deep and previously insurmountable divisions of class, clan and the rural/urban divide.No singular event or development offers a complete explanation, but cultural characteristics of the cooperating members of a financial institution must be included in the answer.The Catholic Church was one of the Bolivian institutions that best united classes, families, and the rural versus urban populations.In the rest of this article, I take one of the most striking cultural developments of the second half of the 20 th century, Vatican II, and explain how it helped spur the development of credit cooperatives, themselves important forerunners of the microfinance revolution, in Bolivia.

Turning the Corner: Vatican II
Because credit institutions often deal with asymmetrical power relationships, Bolivian leaders have tended to invoke ethical principles when considering credit.For instance, the private Aramayo & Hermanos quina rescue bank was taken over in 1851 by the government and recreated as the Banco de Rescate del Dominio Privado del Estado.One analyst argued that this was done out of charity because the government often favored debtors, in this case the poor quina producers."The government, always inclined to favor debtors, demonstrated its magnanimity by permitting the cancellation of the borrowers' debts by accepting deliveries of quina, a product that due to its overabundance, was of little or no value" (Crespo 10, author trans.).Similarly, the word 'usury' implies an abusive relationship.One technical manual for banking from 1961 under the entry word "Usury" states that a 1961 Bolivian law named the "Repression of Usury" defined the term as any loan of money or other goods in which the interest exceeds 4% per month (Fernández and  Flores, 266). 32hical principles affecting credit institutions can be either secular or religious in origin.For instance, proponents of free-market principles were critical of Christian doctrines in Bolivia.Jorje Mallo in 1858 argued that Christian attitudes came from a time when "laws gave creditors the ability to reduce their debtors to the fearful [tr?] and unnatural state of SLAVERY [original emphasis maintained]" and thus could be excessive in their protections of debtors.He further argued that this religious skepticism of credit institutions did not serve the needs of Bolivian society to have increasingly complex credit institutions. 33d yet, viewing Christian doctrine in Bolivia as economically irrational was not correct in any simple way.For instance, it was arguably Vatican II that initiated Bolivia's microfinance revolution.The Catholic credit cooperative movement began in Bolivia in the late 1950s and early 1960s.These cooperatives grew rapidly, survived economic turmoil in the 1980s, and still operate today in a complex microfinance sector (Rhyne 56).
There are four truths about the Catholic cooperative movement: doctrines associated with Vatican II were essential to the movement; the institutions spawned were both local and durable, that is, they were not created by outsiders; these institutions were middle-class and urban, suggesting inclusiveness not previously found in popular credit institutions in Bolivia; and finally, no important legal changes coincided with their creation.
First, the credit cooperative movement grew out of the CELAM, the Latin American Council of Bishops, which met in the 1950s.Church leaders created CELAM to develop policies to respond to the growth of Protestantism in Latin America, the increasing influence of Marxism, the perception of an increase of secularism, and the perception of increased poverty as urbanization spread.The 32 Consulted in the ABC. 33  (Norris 2011, 217-218; Téllez).
Second, the cooperatives were local and highly institutionalized.At their founding in the 1960s, some cooperatives did benefit from subsidies from USAID.However, when the hyperinflation of 1985 drastically reduced the number of cooperatives, the entities that remained recovered with virtually no outside help.One consultant for the World Council of Credit Unions argued that both NGOs (nongovernmental organizations) and banks received government and/or international aid to recover after the hyperinflation, while the credit cooperatives in Bolivia were left on their own to recover or fail (Superintendencia de Bancos 5; Rhyne, 57).
For instance, the San Roque Credit Cooperative in Sucre began with thirty founding members in Sucre in 1963.By 2010 it had approximately 10,000 members, five locations and had passed through 10-12 leaders, all indicators of a high level of institutionalization. 34 Its members did receive technical training from the Supervised Credit and Agricultural Extension office within the Bolivian Central Bank and from the regional professional organization of the credit cooperatives, but it had no external subsidy upon founding and virtually none throughout its institutional life.San Roque also received funds from FONDESIF, a government entity, and from an international donor, but cooperative organizers were quick to point out that these funds were themselves loans, not donations.The cooperative lent out the funds, compelled borrowers to repay, and subsequently repaid the loan to the lending entities. 35Similarly, San Carlos Borromeo began with 86 founding members who provided their own capital.By 2010, San Carlos had 5,800 members and had had four leaders over its institutional life. 36hird, members tended to be middle class or lower middle class: they were neither elites nor peasants.This suggests that these institutions bridged important social divides in Bolivian society.The middle and lower middle class nature of San Roque is seen in the modest sums that the institution managed initially.Upon its founding, San Roque sold 126 shares at 25 Bolivianos per share to 30 members for a total of 3,150 Bs. of starting capital (2,670 Bs. paid-in, i.e., paid in cash vs. owed to the cooperative).To put these amounts in perspective, the average monthly expenditure of the members was 470 Bs. with expenses allocated in the following manner: The relatively low average number of children per family (three), and the fact that 20 of the 30 had a regular source of income are other indicators of the middle class nature of these organizations.
Similarly, the founding 86 members of San Carlos Borromeo bought shares of 25 Bs. per share and had a total paid in capital of 9,250 Bs. (average 4.3 shares per member).For context, in 1968-1969 a lorry (commercial truck) cost 20,000-25,000 Bs., a taxi cost 12,000 Bs., a bicycle cost 700-800 Bs., and a refrigerator cost 800 Bs.San Carlos also directly addressed issues of special relevance to a growing urban class of cholo in ad hoc neighborhoods surrounding Bolivia's cities.For example, founding members of the cooperative mentioned "the poor street lighting" in the urban neighborhood that precluded meetings at night, forcing them to have meetings immediately after midday mass on Sunday. 37rthermore, inclusive credit cooperatives as a general rule did not distinguish among class, clan or status in making loan decisions.The director of San Roque in Borromeo Cooperative (hereafter SCB) in its Cochabamba headquarters, November 19, 2009.My thanks go to sub-director Edit Antezana for allowing me to review these documents; Edit Antezana, phone interview, April, 2010.
[in determining who gets to be a member.]"38Within the Bolivian context, the cooperatives' success at bridging traditional social divisions was exceptional.
Finally, a fourth observation must be added.No significant legal changes, like those under the Melgarejo Regime of the 1870s or the Kemmerer mission of the 1920s, occurred during the development of the Catholic credit cooperatives.

Conclusion
This article has presented an interpretive outline of the development of credit institutions in Bolivia during its 500-year history, one which highlights the role of culture in sustaining credit institutions.I argue that culture, along with material and legal factors, must be taken into account to explain the development of credit institutions at specific times in Bolivian history.To illustrate the dynamic nature of culture and its potential impact on credit institutions, I have given the example of Vatican II and its direct impact on the Catholic credit cooperative movement, an important forerunner of the celebrated micro-finance revolution of the 1970s and 1980s in Bolivia.Further research needs to be done: 1) to better understand the evolution of two competing models of microfinance, that of the "microfinance" or "financial systems approach" versus that of the "microcredit" or "Grameen Bank philosophy" from about 1980 to today (Rhyne 5-7); 2) to understand the impact of evangelical Protestantism on the development of credit institutions and economic activity more generally; 3) to understand the complex relationship between value changes -whether religious or secular in nature-and urbanization in Bolivia; and 4) to understand the impact of the massive linguistic homogenization Bolivia has experienced in the last 50 years, another form of cultural change, on a variety of institutions.

Figure 1 :
Figure 1: Bolivians and Banks, Sucre BancoSol, created in 1992, grew out of PRODEM, a philanthropy created in 1986 during the microfinance revolution Photo by author, 2009

Figure 2 :
Figure 2: Bolivians and Banks, Sucre Structures like this often double as both residences and as savings schemes in low-trust urban areas Photo by author, 2009

Figure 3 :
Figure 3: Riuni unpacks leña from a llama in Cachuyo, a hamlet of 9 families outside Ocurí Chayanta Province, 4 th Section, Potosí Photo by author, 2000 The two dynamics might independently complement each other in what social scientist call 'multiple causation.'John Murra called the vertical economy of the Andes (fig.3; Murra 59-115).In this case, a shared cultural tradition, or what social scientists call social capital (Coleman; Fukuyama; Putnam; Weber 2002), help ayllu members overcome daunting geographical impediments to cooperate with one another. what in Potosí was a rescue bank par excellence.Other examples included the Banco de Rescate de La Paz (1830), Banco de Rescate Potosí (1830), and Banco de Rescate Tupiza (1844).
11Bolivian Studies Journal /Revista de Estudios Bolivianos http://bsj.pitt.edu See Jorje Mallo, La usura, administración fiscal relativa al capital extranjero, i el empréstito… (1858), preserved at the Biblioteca "Casto Rojas" del Banco Central de Bolivia, La Paz.influential Vatican II conclave of 1962-1965 followed, and many credit cooperatives in Bolivia were founded as a direct result.Parish priests, such as Roberto Valda Palma, René Poveda Nova, and Alberto Rizzoli were elected to important positions such as treasurer and executive committees in small cooperatives.Father José Beauseleil helped found FENACRE (National Federation of Savings and Loan Cooperatives of Bolivia), in Cochabamba in 1963.Credit cooperatives such as San CarlosBorromeo (1964, Cochabamba)and San Roque (1964, Sucre) were founded as a direct result of Vatican II Number of Bolivians Participanting in the Financial Sector, 2008 Could be as low as 25% because ASOFIN has seven constituent members, and it does not guard against double-counting individuals who have loans from multiple associates or deposits in multiple associates.ASOFIN estimates that up to 6% of borrowers might be shared among members.Email correspondence, Fernando Prado, ASOFIN, April 8, 2010.*Could be as low as 84%.ASOFIN estimated that up to 15% of depositers might be shared among members.See above note.Data source: Fernando Prado, ASOFIN, phone conversation with author, July 17, 2009.These data are a more updated version of the data that ASOFIN reports in Fernando It is assumed that ASOFIN's growth is representative of the growth of the Bolivian credit institutions generally.There are two methodological problems with this analysis.First, ASOFIN might have captured a greater or lesser percentage of the **Bolivian Studies Journal /Revista de Estudios Bolivianos http://bsj.pitt.edu