GEOG 352: Day 5
Alternative Financial Systems
(Chapters 3 & 8)
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
Name
Reading
Week
Jen;
Jordan
Chapter 3; Chapter 8
Week 3
Melanie Chapter 4
Week 4
Sacia
Chapter 5
Week 5
Emman
uel
Chapter 6
Week 6
Amy;
Kyle
Chapter 7
Week 7; Ross & Usher
Jesse;
Maya
GDP link;
Wikipedia on ‘needs
and satisfiers’;
Jayme on GPI;
Zane on Gross
National Happiness
Week 8
Diego
Tomalty on sharing
economy
Week 11
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?).
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.
Compound Interest
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 Jord Arbete Kapital
(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?
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.
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.
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.
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 lowincome residents (see pp. 192-193).
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.
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, Caisse d’economie
solidaire Desjardin (Quebec), that have supported the
social economy and also influenced numerous nonprofits – Ecotrust, in the case of Shorebank.
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.fil
ms.com/PortalPlaylists.aspx?aid=8601&xtid=35
554 .
• 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.