If elite capture is such a serious threat, how was it dealt with during the microfinance revolution in Europe? F.W. Raiffeisen addressed this risk directly: he asked village elites to play leadership roles in the cooperatives – but to derive no material benefit from them.
In speeches he emphasized religious duties of charity and responsibility to community, and encouraged the villagers to elect leading individuals to the board, conditional on their character. Board positions received no compensation. Raiffeisen also emphasized unlimited liability of all members for cooperative debts — a burden that fell primarily on elite members, especially if the cooperative borrowed externally.
Clearly, if members of the village elite are liable, they have a strong incentive to protect their cooperative from threats. Furthermore, they can protect it, as they are well informed and powerful. Raiffeisen’s approach worked: by 1910 there were 1.2 million members organized in 12,797 cooperatives in the mostly rural ‘Imperial Federation’. With an average of 95 members each, the typical cooperative had a part-time (paid) treasurer, and a (volunteer) board of mostly-elite directors.
Raiffeisen was a liberal who believed strongly in the energy and autonomy of the private sector. Although Akhter Hameed Khan claimed to have modelled his movement on Raiffeisen’s, the Comilla credit unions were designed partly as instruments for maintaining public infrastructure, and to be dependent on delivery of government extension services and credit. This was a sharp departure both from Raiffeisen’s model, and the later Cooperative Principles. It is also the most plausible explanation for their failure.