GEOG 352: Day 5

1. GEOG 352: Day 5 Alternative Financial Systems (Chapters 3 & 8)

2. Housekeeping Items • A reminder that pizza welcome back event for Social Sciences is starting at noon. • Mike will be presenting on “The Politics of Selfishness” article, and I will start in on financial. alternatives

3. Chapters 3 & 8 • In societies where money exists, there is a strong historical tradition that interest on loans is immoral. • How many of you or your families have a mortgage? The word comes from the French – “grip of death.” One invariably pays far more interest than principal over the life of the mortgage. We put up with this situation because of the promise that, at the end of the road, we will be able to sell out properties for considerably more than we paid, at least in terms of face value. • If you have money it’s easy to make more. If you don’t have money, it’s easy to lose more (anyone here ever availed themselves of the services of MoneyMart?).

4. Chapters 3 & 8 • What if, instead of paying all this money to the already rich, individuals, businesses, and governments were able to borrow money without interest? How much more in the way of resources would be available? • Currently, Canadians owe $1.63 for every $1.00 they earn in a year. The federal government debt equals $1.2 trillion. • The financial sector’s profits have gone from 14% a few decades ago to 37% of all corporate profits. Much of this is the result of compound interest. • Ceilings on permissible interest rates have grown and, in the UK, there is no ceiling.

5. Compound Interest

6. The JAK Alternative • Originated in the 1930s as farmers faced repossession of their farms. Inspired by the interest-free systems experimented with in Germany, JAK is the acronym for JordArbeteKapital (Land Labour Capital) in Swedish. • The German model spread to Sweden, where it has 35,000 members, $163 million US in assets, and $147 million out on loan. • The system relies on community volunteers, offers training programs through a JAK school, and recruits through its own newspaper and educational events. • JAK believes that compound interest is unjust, favours larger over smaller projects, and contributes to unemployment, inflation, and environmental degradation. • Are these beliefs logical?

7. The JAK Alternative • Borrowers pay a fee for appraising their worthiness for a loan and the set-up process (about 3.2% of the total loan), and $37 annual membership. • They also have to make an equity deposit of 6% of the loan. When the loan is paid back, this is fully repaid. • Borrowers are encouraged to pre-save for a loan. Instead of earning interest, they earn loan points: 1 point per $1.00 saved. • One can get out a loan equal to what one has pre-saved or more if one agrees to keep saving while repaying the loan over a longer period. • The authors claim that, on a loan of $20,000 over 10 years, the borrower would save over $6500 over borrowing from a conventional bank.

8. The JAK Alternative • The details are explained on pp. 76-78. • Since 2000, JAK has been financing enterprises in addition to individuals. • The initiative comes from members and partners who want to serve community, animal welfare, cultural, and ecological goals. • Overall, JAK has low management overhead ($144 per member in 2002), loans are backed by assets, and it is member- and democratically-controlled. • From a resilience perspective, it promotes diversity, modularity, innovation, social capital, incorporates feedback loops, and overlapping functions.

9. Chapter 8: Other Alternatives • Many households in Britain are without savings or chequing accounts and pre-pay their utilities, paying extra in the process; • They are unable to buy in bulk; • They use cell phones instead of land lines, with the former being more expensive, because of hookup charges; • They rely on retailer credit for household goods, which makes them more expensive, and • They get ripped off by payday lenders. • In response, a system of Community Banking Partnerships (CBPs) were set up.

10. Chapter 8: Other Alternatives • The CBPs, which borrowed their ideas from Ireland and the U.S., provide lower income people with: • advice on money management • banking services • insurance services • deposit services, and • credit. • Clients get referred by municipal governments, housing associations, mainstream banks, and social services. • The Neighbourhood Trust in Washington Heights (NYC) is another example that has helped thousands of low-income residents (see pp. 192-193).

11. Chapter 8: Other Alternatives • While mainstream credit unions are rather conservative, they have 91 million members and $866 billion in assets in the U.S. • In Canada, VanCity is one of the more innovative credit unions, as is the Latino Community Credit Union in North Carolina. • Microcredit is another option, as pioneered by SEWA in India, Grameen Bank in Bangladesh, and on-line worldwide versions: Zopa and Kiva. • In addition to straight financial strategies, unions have been formed of self-employed people, and Mutual Aid Funds (MAFs) have been created to assist to provide loans and other collaborative services for members in similar business or self-employment niches.

12. Chapter 8: Other Alternatives • A variety of options (“community shares”) for investing in progressive and more ethical companies now exist that did not exist twenty years ago, including so-called ‘ethical funds’. • Co-operatively owned retail businesses are another strategy, such as the Natural Foods Store in Leeds, UK. • Loan funds for affordable housing and housing renovation are another innovation. • Social and ecological banks have grown up, such as Shorebank of Chicago, Triodos, Caissed’economiesolidaire Desjardin (Quebec), that have supported the social economy and also influenced numerous non-profits – Ecotrust, in the case of Shorebank.

13. Chapter 8: Other Alternatives • These are just a smattering, none of them presented in depth, but discussed much more throroughly in the textbook. • Here are some other examples: http://ezproxy.viu.ca/login?url=http://digital.films.com/PortalPlaylists.aspx?aid=8601&xtid=35554 . • A final note: because of the haste with which I write these lectures, I don’t credit my picture sources usually. Please do in your assignments.