Inter-Co-Operative Trading & Community Credit

1. Inter-Co-Operative Trading & Community Credit Prepared and presented by XO Limited www.barter-software.com Email: sale@barter-software.com

2. Problems Faced By Small & Medium Sized Businesses • COMPETITION • There is no longer market protection for locally owned businesses • Many customers are no longer loyal to businesses if there are “cheaper” or “newer” alternatives • The competitor may be a larger business which is better funded and/or has better marketing and/or is entrenched in the market • Some businesses can afford to make a “loss” in order to acquire customers, leaving other businesses unable to compete • Competitors cost of production may be less or they may receive subsidies from outside organizations in order to compete • Competitors may have a more diverse range of products or services • Consumers are price / range sensitive

3. Problems Faced By Small & Medium Sized Businesses • THE INABILITY TO CAPITALIZE ON ECONOMIES OF SCALE • Larger businesses have a lower production costs and sell their products at a lower rate due to a number of factors: • Centralized administration • Consolidated storage and transport • Purchasing supplies in bulk • Purchasing at a negotiated discount • Small to medium sized businesses may be unable to achieve the same economies of scale – even when grouped together as they will still be responsible for their own accounting, storage, small item purchases and other expenses unique to themselves.

4. Problems Faced By Small & Medium Sized Businesses • LOCAL MARKET PRODUCTION COSTS MAY BE UNCOMPETITIVE • Staff and materials/supplies costs may be higher in the local market than outside it (cheaper overseas labor, subsidized labor, cheaper materials etc) • Regulations may exist which outside competition may not have to comply with • Compliance might involve the same amount of paperwork for a large business as a small/medium sized business – however a smaller business will have less staff and resources

5. Problems Faced By Small & Medium Sized Businesses • BUSINESS SALES AND INCOME MAY BE SEASONAL • Many small to medium sized businesses are seasonal in nature resulting in periods of lower income. Some types of these businesses are: • Tourism • Food Production • Manufacturing (demand and raw materials production related) • Service Industries (during peak holiday periods etc) • Larger business may be able to diversify their product or service offerings to allow for seasonality causes. They may also be able to borrow funds to cover “off season” expenses at a lower cost than the lower market might be able to obtain (due to their size, risk profile, offshore lending capabilities, greater market reach etc). • One bad season may result in the failure of the entire business

6. Problems Faced By Small & Medium Sized Businesses • INABILITY TO HEDGE AGAINST MARKET DOWN-TURNS • Local producers are often unable to fully insure against local market down-turns. These could be caused by a variety of factors: • Natural disaster (flood, fire, drought etc) • Inability to acquire needed supplies (sold elsewhere for a better profit, out of stock, price-rise) • Poor seasonal returns (lower price received than usual because of a glut on the market, less product produced resulting in less income, market protections for competitors, fickle customers, more market exposure for the competitors) • Lack of cash available in the local economy (recession)

7. Problems Faced By Small & Medium Sized Businesses • SURPLUS STOCK/CAPACITY • In areas of high or unfair competition, or where there is a market down-turn or seasonal low, the result is a surplus of capacity. Historically surpluses are dealt with by one of two ways: • Marking down the product or service • This may lower future price expectations from the market • May require the overall reduction in price for non-surplus stock of the same type – thereby lowering total income • Binning / Destroying / Wasting the product or service • Artificially keeps prices high • Looses all of the value of the surplus • May be dealt with through less production (and wasted capacity)

8. Problems Faced By Small & Medium Sized Businesses • LACK OF CAPITAL TO EXPAND THE BUSINESS • In order to compete against subsidized producers, or new competitors in the market a small business must expand in one of several ways: • produce or acquire more product at a lower cost • diversify the product range and offering • change market strategy / target market • In order to do this the business must get additional capital. However: • Bank loans come with high interest rates which a business may be unable to afford • Loans are only given based on the businesses current production capacity and profitability – in a market with a new competitor profitability may have dropped so loans may be unattainable • Third party investment into small business means the owner has the potential to loose control and returns may be siphoned off by other shareholders

9. Problems Faced By Small & Medium Sized Businesses • LACK OF INCENTIVE TO EXPAND THE BUSINESS • In order to compete businesses must expand. With expansion comes: • Greater risk (financial risk, stress, risk of loosing market share) • Less free time • Reduction in available capital (borrowed funds must be repaid with additional interest, new shareholder capital requires sharing of resulting products) • More work for the business owners • Potential for less income (confusing the market, lack of focus, requirements for output exceeding available resources) • It is often easier to sell the business and “cash out” than it is to compete head-on against new entrants.

10. Solutions

11. Partial Solutions • CO-OPERATIVES • Shared marketing costs • Shared transport costs • Some shared administration • Bulk buying power • FUTURES (COMMODITY) EXCHANGES • Receive a fixed price and income now for future sales • May help to alleviate “off-season” cash problems • Cash could be used for business improvement

12. Partial Solutions • MICRO-CREDIT • Small loans often made by members within the same network • Based on future potential of the business • Lower cost of interest than standard loans • More readily available than commercial lending • Less paperwork required than a standard commercial loan • Less security required

13. Partial Solutions • BARTER, RECIPROCAL TRADE & COUNTER-TRADE • BARTER • The direct trading of things between two parties for products/services that that they each need • Both parties may be required to sign two separate contracts that specify the goods and services to be exchanged between them at different times • Allows for trade to take place without the need for cash • RECIPROCAL & COUNTER-TRADE • Seller may still receive payment but has to agree to purchase goods worth the same amount from the buyer • One party agrees to supply technology or equipment that enables the other party to produce goods and the seller agrees to accept as payment a portion of the output or buy it back • Keeps money in the local community – even if bartering is not local the asset value in the community is not depleted

14. Co-Operatives - Issues • Eliminates some fixed costs but not all • Each business still has its own administrative and production overheads • Diversification generally not possible as most co-operatives are specialized • Marketing is usually outside the control of the business • Individual businesses production capacity may be limited by the co-operative so the market is not ‘flooded’ with surplus product, thus driving down the price • May cause delay in receiving payment (retailers pay Co-op, then Co-op head office pays member) • May be slow-moving to meet market changes • There is a lack of co-operatives for most industries

15. Futures Exchanges - Issues • Generally not available to small to medium businesses • Not available to all types of industries • Futures/Commodity traders receive the benefit of raises in prices if the value of the goods goes higher than usual • Quantity of product to be sold is pre-established and does not take into account any surplus • Short-falls have to be met by the producer – meaning a potential for greater risk

16. Micro-Credit - Issues • Often not available to larger businesses • Maximum loan size is very small (generally less than $1,000) • Attracts interest • Money may be borrowed from outside the community with the principle PLUS interest leaving the community • Lack of surety that then loan will result in a long-term stimulation of local trade • Some societies prohibit all forms of interest/usury (eg. Islam)

17. Barter - Issues • Requires a co-incidence of needs and wants (You have fish, I have milk. I want fish. You want milk. Let’s trade!) • Trades need to be of a similar value between participants • Bartering outside the local community does not increase the asset value of the community • Trade is conducted in an ad-hoc manner with no central registry of those wanting/needing trade • Does not allow for finance (buy now, repay later with own goods) unless there is a reciprocal need from the seller for the purchasers own goods • Is administratively difficult

18. The Complete Solution • A combined, synergistic, approach designed to: • Improve the amount and availability of capital for small to medium sized businesses • Work with business owners in a co-operative manner to increase and realize the value of their local assets • Eliminate the need for micro-credit, direct barter & high-cost finance • Enable the trade of products and services even in periods when cash may be hard to come by • Promote and foster local trade and enterprise • Ensure the majority of assets stay within the local community • Promote local entrepreneurship • Improve the competitiveness of local business

19. Inter-Co-Operative Trading & Community Credit • Is asset backed and recession proof • Ensures local market protection and asset growth • Loans are made by participants to one another without the need for any cash • Involves a range of co-operates • Is profit generating • Trades and funding are democratically allocated • Is community controlled • Is self-adjusting • Allows for an unlimited amount of asset trading without the need for cash

20. Components of the Solution

21. General Requirements • Groups of complimentary businesses of a similar size • Regional commonality of the participants • The issuing of credit to participants • Trade balancing to ensure no individual business “lends” or “borrows” outside their production or repayment capacities • Trade Clearing • An organizing body - Independent auditing and management of the business • A centralized trading platform to record the value of all transactions / trades taking place and to recording of the needs and offers of all participants

22. Complimentary Businesses • The Co-Operative Trade system is designed to meet the needs of all participants and thus requires diversity of members • Complimentary businesses are those which will utilize each others services - thereby ensuring that trade occurs regularly • Having a good mix of complimentary businesses allows members to meet their own buying needs and set up regular “buying patterns” between one another

23. Why Group Businesses Together? • In order for businesses to meet each others needs they must share common traits • Businesses are generally grouped together (recruited) by the following: • Turn-over (revenue and profitability) • Excess capacity / surpluses • Cost to supply / meet additional capacity demands • i.e. Service based industries have less cash cost than those selling products • Geographic, business associations (links) and/or ethnic ties

24. Why Group Businesses Together? • Businesses with 1 employee can rarely supply all of the needs of a business with 100 employees as not all of the “production & manufacturing” cost to produce the items for sale may be met within the local trade community • Small to medium-sized businesses can co-exist with one another provided balanced trade levels are achieved until the volume of membership and trade allows for majority of all “production” costs for each business to be met by the system • Businesses need to be acquired in a manner which will promote maximum trade through every phase of the businesses growth: • 1. Acquire bigger businesses which all participants will utilize • 2. Medium-sized businesses used by most participants may be next • 3. Businesses used by some participants irregularly may be last

25. Healthy Groupings A healthy grouping is where the businesses will make regular purchases from one another, thereby reducing the need for outside assistance from the Trade Brokers Radio Station • EXAMPLE • HEALTHY MEDIA GROUPING • Service based industries • All have spare capacity • Spare capacity costs nothing • Purchasing requirements are large for each business • Each business needs more advertising to generate more sales • Each business is non- competing even though they are in the same industry $1,000 per month $1,000 per month Website Advertising Television Station $1,000 per month $1,000 per month • FIXED MANAGEMENT COSTS • Trade volume is regular • Regular trade = regular income • Spare capacity costs nothing Billboard Company

26. Healthy Groupings • A healthy grouping has the following traits: • Members can spend all community credits that they earn • They can spend regularly • They can earn regularly • If they do not spend regularly then they can save up for something that is available through the network • A healthy network may be comprised of a range of businesses with different types of offerings • A healthy grouping may be small or large

27. Unhealthy Groupings Unhealthy groupings are where there is not enough diversity of businesses. This results in not all members purchasing needs being met (members may earn more than they can spend OR spend more than they can earn) Hairdresser • EXAMPLE • UNHEALTHY GROUPING • There are two of the same type of business – even though one florist alone can not receive enough income to pay for purchases • All other participants have “low priced”, low cost to sell offers and the computer seller has a high-priced, high cost to sell, offer • There is no need to regularly trade unless each participant requires the services of the other often $3,000 spend $50 spend Computer Seller $1,500 spend Florist • IRREGULAR PURCHASING • Trade volume is irregular • More services than product • No regular buying patterns • Computer seller has $6,500 that they may not spend(this represents A LOT of haircuts and flowers) $2,000 spend Florist

28. Unhealthy Groupings • Unhealthy groupings may share some or all of the following traits: • Members may earn more than they can spend • There is too much of one type of business who needs Community Credit income but • If they do not spend regularly then they can save up for something that is available through the network

29. Types of Groupings • SERVICE INDUSTRIES • Low cost to make additional revenue – only cost is unsold/spare time • Very few service industries are at 100% capacity • Once a business has received enough income to cover its cash costs any revenue received through selling “unsellable” time is pure profit • Some types of service industries already barter (e.g. media) • Also includes capacity based businesses such as theatres, venues, airlines (may not include taxes which are levied on a per-person basis) etc • Examples include: media, accountants, lawyers, doctors etc • MAJORITY SERVICE / SMALL PRODUCT COST INDUSTRIES • Mixed businesses which involve a large amount of service and little product cost • Examples include mechanical servicing, hotels (extra room cleaning charge, mini-bar, phone calls, internet), pool cleaning, pest control, carpet cleaning, Internet access etc

30. Types of Groupings • PRODUCT INDUSTRIES – PRIMARY PRODUCERS • Low cost, high margin product sellers • Wholesalers, Manufacturers, Producers • Businesses with surplus stock which needs to be sold outside of existing markets • Liquidators, liquidation outlets • RETAIL (RESELLER) PRODUCT PROVIDERS • Medium to low profit margin on sales • High cost to meet additional sales

31. Grouping Strategy #1 • Generally media or a service industry already familiar with trade • Service industries are often easier to acquire as their production • cost is low and spare capacity is readily available • Media is a sought-after commodity for other businesses looking • to grow • Service industry should be one that most businesses will need/use PRIMARY SERVICE INDUSTRIES • Service based business needing Primary Service Industries • Needed by most participant businesses on a regular basis • Large enough to handle a reasonable volume of trade • Accounting practices, legal services etc Businesses increase in the number and diversity & range required SECONDARY SERVICE INDUSTRIES • Large businesses seeking additional advertising to: • To move product, increase market exposure or re- brand • Provide a new market for excess (quality) product rather than undertaking conventional discounting • Reduce existing cash costs or increase media spend • Ensure that advertising costs are paid for from • future sales LARGE PRODUCT SUPPLIERS MEDIUM SIZED PRODUCT & SERVICE SUPPLIERS • Businesses whose products or services are required often by other participants • A greater number of these businesses is required to meet the ad-hoc spending requirements of each participant SMALLER & IRREGULARLY USED PRODUCT & SERVICE SUPPLIERS

32. Grouping Strategy #2 • CO-OPERATIVE MEMBERSHIP • A number of different Co-operatives join • Each Co-Operative encourages their membership base to participate • Each individual business is provided with a credit limit and trading ability • Excess / unsold product is able to be re-sold “off market” between producers without affecting market prices • Co-operative members can inter-trade with members of other co-operatives • Members are encouraged to purchase from other Co-operative members Dairy Production Co-Operative Pip-Fruit Growers Co-Operative Trade and Credit Platform Stone-Fruit Growers Co-Operative Vegetable Growers Co-Operative Individual Businesses in Co-Operative

33. Why Issue Credit? • Community Credit provides an alternative means by which participants can make sales and purchases that is: • A merchandise / asset backed trading mechanism • Secure, with trades formally recorded • Interest-free • Locally created and controlled • Available in sufficient supply • Does not depend on Banks, the Reserve Bank or the Government • The issuing of credit: • Enables businesses the means to conduct purchases and sales even if cash is unavailable • Enables the sale of future and/or excess production capacity • Enables local businesses and entrepreneurs to employ or utilize more of the locally available labor, skills, and resources and pay for these with their own assets / output

34. Why Issue Credit? • Enough credit needs to be issued to allow trades to take place in an environment where no “outside” credits may be brought into the system • Credit is issued based on the ability of a business to accept future revenue • Credit is revolving • The amount of credit issued (if carefully managed) may be unlimited • Credit is not “used” unless it is spent (overdraft) Member A Spends $100 Member B Receives $100

35. Balancing Accounts • Ensure that participants can spend any credits received • Promote the participants who are in debt to the participants who are in credit • Issue credit based on a participants ability to accept trade from other members (e.g. a florist may be able to spend $100,000 per year however the demand for the florist may only be $10,000 per year) • Ensure that the amount of credit issued to a participant can be repaid within a reasonable time-frame • Help participants establish regular trading patterns • Different credit limits will be issued to different participants • Ensure that defaults are repaid through either a debt reserve fund or the introduction of additional commodities which are sold for trade and applied against any default account debt balances

36. How Does Clearing Work? • Trade Credits accounts are provided to all participants as an intermediary device to enable transactions to take place • When you sell something, your trade credit balance is credited (increased) • When you buy something, your trade credit balance is debited (decreased) • Trade Credit account balances and transactional records are maintained by the system • The system is fully balanced and assets may not leave the community – if one member is in debit (negative) there is always one or more members whose accounts are in credit (positive) to the same amount • Ultimately, goods and services pay for other goods and services

37. Advantages Closed Circulation • Currency credits can only be redeemed within the trading platform for products and services • For this reason they are captured within the local economy and • will not stray very far • Their re-circulation within the community provides a built-in • “buy local” bias, which stimulates entire clusters of local economies • affecting the National economy positively • They give multiple local sources of supply preference over • non local (external) sources

38. The Organizing Body

39. Overview • The Organizing Body must meet the following requirements: • Charge sufficient fees/charges to cover the costs of operation and • make the project self sustaining • Some fees will necessarily be cash fees needed to cover unavoidable • cash expenses • Compliance with local laws and taxation requirements • Administrative and personnel (facilitators or brokers) should be paid, • but a portion of their income may be paid via the Community Credit system • All salaries and related taxes where applicable should be paid out of • revenues generated from service fees • There should be no system account deficits • There should be provision for covering socioeconomic needs during • downturns and unforeseen circumstances

40. Structure • The Organizing Body is comprised of: • Senior Management • Trade Floor Managers / Trade Brokers • Accounting / Credit / Ledger Support • Marketing Support for Participants • The majority of responsibility for assisting the trades and ensuring the liquidity of the system lies with the trade floor managers

41. Trade Floor Managers • Trade Floor Managers handle the day-to-day trading activities of the system including: • Conducting personalized matching services between participants based on their needs and offers • Actively seeking out new businesses to provide goods or services required by the existing participants • Print a membership directory of all members along with details of their products or services • Produce regular newsletters promoting specific members who have spare capacity, are in Community Credit dollar debt, or who wish to acquire new customers • Conduct networking events for member businesses

42. Trade Floor Managers • Being responsible for credit control within the exchange and ensuring sound fiscal policy and ensuring liquidity of the barter dollar (monetary flow between members, ensuring that no member is in credit or debt for any great period of time) • Ensuring that any unrecoverable deficit balances are accounted for and balanced out with new barter dollars brought into the system (usually through the exchange purchasing another members barter dollars for cash, or through the retailing of cash-purchased goods or services by the exchange to its members for barter dollars) and/or an increased speed of barter dollar flow between members

43. The Trade Platform

44. Overview • At a basic level the Trade Platform must: • Provide a mechanism to settle transactions between participants – • BASIC - Paper Vouchers, Script, Checks, Settlement Orders • ADVANCED – Plastic Transaction Cards, Phone Banking, Call Centre, Mobile Phone Banking • Record and store all transactions (buyer, seller and the amount of debits and credits) • Issue account statements

45. Overview • On a more detailed level the trading platform may undertake some other functions, thus helping to streamline the operations of the trading system: • Online marketplace showing all participants offers and wants • Allowing online buying, selling, RFP’s, quotes & questions • Automated notifications of purchase, sales & enquiries • Tracking buying and selling patters • Online Escrow and settlement of payments between participants • Purchase and sale history, packing slips and delivery information • Account statements and transactional details

46. An Example Of A Centralized Trading Platform • SEARCH • General, Advanced, Regional, Trade Status etc • CONSOLIDATED LISTINGS • Products and Services • Online Quoting • General Business Listings • Hierarchical Listing Structure • Listings can be sorted by rating • Listings can be sorted by “Trade Status” • GENERAL PLATFORM INFORMATION • Welcome, FAQ, Help • Terms and Conditions & Privacy Policy • Contact Information • Member Application Forms • FEATURED PRODUCTS • Randomly Selected • Administrator Selected • NEW LISTINGS • Latest Listings • Search By Date • STATISTICS • New Member Numbers • Last Logged In • Latest Searches / Wanted • Transaction Volumes • Market Size / Statistics • BROWSE BY • Latest, Category, New, All, Needed Trade

47. An Example Of A Centralized Trading Platform • ORDERED BROWSING • Categories • Sub-Categories • Component Sub-Categories • TYPES OF LISTINGS • Products (Stock / Unit Based Items) • Services (Time Based) • Listings (General Member Information) • TRADE STATUS • Variable Trade Status • Dependant on Participants Loan Status and/or desire to accept trade • May be altered by Administrators • Can be changed (if not in default) by participants

48. An Example Of A Centralized Trading Platform • SELLER INFORMATION • Ratings • Trade Status • Links to Other Information • PRODUCT LISTING • Product Description & Listing Date • Price • Multiple Photos • Pricing Information • Delivery and Delivery Cost • Units • Weight • Discounts & Price Breaks on Bulk Buy • Stock Quantity • Warranty • Brand • Manufacturer • Condition • Back-Orders • QUESTIONS / ANSWERS • Questions and Answers Online • Message History • Email and SMS alerts to questions

49. An Example Of A Centralized Trading Platform • SHOPPING CART • Participants can purchase online • Request quotes online • Multiple vendor – cart • Select method of delivery • Multiple delivery locations • Cost and Account Balance summaries • PURCHASE HISTORY • View purchase order history • Download transaction records • View status of orders • Search by date • FAVORITES • Maintain and view favorites • Favorite / regular purchases • Regular suppliers • Individual (user) and global (company) favorites • CLOSEST TRADING PARTNERS • Participants in nearby locations • View listings and products / services • Download list in EXCEL / CSV format

50. An Example Of A Centralized Trading Platform • MANAGE LISTINGS / OFFERS • Create, edit, delete • Upload in bulk from file • COMPLETE ORDERS • Accept or cancel orders • Print packing slips / delivery dockets • Provide online quotes • View order history • ANSWER QUESTIONS • Answer & Review questions