Cohong guild pooled funds to cover member bankruptcies

From 1720 the Qing state limited all foreign trade at Canton to a licensed guild of Chinese merchant houses, the Cohong — the only firms legally permitted to buy tea, silk and porcelain from Western traders and sell to them in return. Foreign merchants had no recourse under Chinese law if a hong went bankrupt owing them money, and hongs routinely traded on credit extended by those same foreign firms, so a single collapse was a real and recurring risk, not a hypothetical one.

The guild's entire value to foreign traders was the implicit promise that any licensed hong was safe to extend credit to. One uncompensated bankruptcy risked breaking that promise for the whole class of merchants at once — Western trading houses had no way to tell in advance which hong might fail next, so a single bad default could make all of them tighten credit across the board, choking trade for solvent and insolvent hongs alike.

Created a shared reserve, the Consoo Fund, funded by a levy on all transactions, to pay off any bankrupt member's debts before news could unsettle creditors.

The levy was small enough per member to be acceptable, yet large enough to cover typical bankruptcies.

Paying debts before news spread prevented foreign creditors from losing trust in all hongs.

The fund made the guild's implicit guarantee explicit and credible, so credit kept flowing.

Because the fund was shared, no single merchant bore the full cost, making it sustainable.

When your product is trust in a class of members, pool a small levy from all to cover any single default, so one failure doesn't poison confidence in the rest.

The arrangement, later called the Canton Guaranty System, ran from roughly 1780 until the Opium War and the 1842 Treaty of Nanjing ended the Cohong's trade monopoly.