In 1901 the Famine Commission recommended the establishment of Rural Agricultural Banks through the establishment of Mutual Credit Associations, and such steps as were taken by the Government of North Western provinces and Oudh. The underlying idea of a number of persons combining together was the voluntary creation of a new and valuable security.
A strong association competent to offer guarantees and advantages of lending to groups instead of individuals were major advantages. The Commission also suggested the principles underlying agricultural banks and land banks. Based on the recommendations of the Edward Law Committee, the Cooperative Credit Societies Act was passed in 1904. As its name suggests, the Cooperative Credit Societies Act was restricted to credit cooperatives.