In these times of banking crisis where the little remaining trust towards banks have vanished, what alternatives are to be expected from the collaborative economy in this field? What initiatives can enable us to leave aside traditional banking and be more conscious with the way we use our money?Every time we spend and/or invest money, we’re favoring the type of world we wish to promote.
When we choose traditional banking products that yield high rentability in most cases we do it without even wondering where our money is being invested. To keep up with its promises, the bank moves the money and invests it here and there, with no ethical principles whatsoever and maximizing its benefits (and consequently ours). Without going in depth into any of these sections (most of which could have whole articles written about them) here’s a summary of the options that have slowly appeared and that are available in Spain to give a more conscious use to your money, whether it be with banks or without them in P2P mode. As Quevedo once said "Mr. Money is a powerful knight", so our first piece of advice is to invest some time into understanding the value and functionality of money, for which we recommend the lecture of "Six things you should know about money in our capitalist system" that we published last week on Ouishare.net.
If we are to keep talking about banks...
Ethical banking
There’s already a lot written about ethical banking in Spain and we recommend as a web reference Solidarity and Ethical Banking(Fets). The main difference in this alternative to "traditional banking" is that it strives to finance social projects and to invest in companies of ethical nature, and especially that its general movements are absolutely transparent. Unlike traditional banks, offering the same or similar products, they are in search of social rentability, on top of economic gain. It has to be said that, in the case of Spain, ethical banking is regulated by the Bank of Spain just as every other banking entity is, and thus complies with the same rules. The most renown are:
- Triodos Bank, of Dutch origin, operates at an international level since 1980 (in Spain since 2004). Its main focus is to finance renewable energy and ecology related projects. You can learn more by taking a look at this conference (1:50h) by Joan Melé, general subdirector of Triodos Bank
- Fiare, a credit cooperative oriented towards economical activities that have a positive social impact and that allow projects to become economically viable so they can grow and be reinvested in. it is associated with Banca Popolare Etica and other entities with the aspiration a European Ethical Bank. “Within the past year, the Fiare Project has effectively completed its implantation fase at a state level, obtaining ample presence with nine terrirorial networks, and two more on their way" says Fiare’s President, Peru Saisa, in this interview.
In France, the NEF and Crédit coopératif are the main ethical banking players. There customers numbers are growing since the beginning of the crisis.
Interest-free banking
There are institutions that grant ethical loans or investment funds. Such is the case of cooperatives Oikocredit or Coop57. They finance feasible projects that have a benefitial repercussion in the whole community, respecting equality and the environment. They have extensive experience with projects, but are not an ethical bank per se (they’re not regulated by the Bank of Spain). Another new initiative that’s trying to see the light in Spain (with more success in Sweden) is Jak. It’s a model of interest-free banking. Its operations are based in the premise that we all need a credit at a given point in time, while we save at another. With the help of a curious formula, you can return your credit month by month while you still save some money, so that as you cancel your credit you help others benefit from more credits through the money that you save. Once you’ve finished paying your credit you can recover what you’ve been saving. Better than having the bank keep it as interest, isn’t it? Also growing since a few years back is the Islamic Bank, based in the prohibition of payment y and interest reception.Ethical banking has increased 54% in deposits throughout 2011
, reaching 575 million euros, according to the ethical banking barometer realised by FETS. Meanwhile, the amount of loans granted has increased 24 per cent, surpassing the 600 million euro mark, which consolidates an accumulative growth of 1.760 per cent in deposits and 1.150 in loans since 2005. Correspondingly, arrears remain noticeably inferior than those of the Spanish financial system, as they stand at a 2 per cent versus a 7.6, according to the results of that same barometer.
Banking without banks
Of the most interesting collaborative consumption initiatives, many use the power of distributed networks to organize a community with common interests. As that also happens in the financial side of things, banks become obsolete. Even Bill Gates once said: "the world needs banking but it does not need banks".
Wikipedia tells us:
mass financingcrowdfunding, also known as crowd financing, equity funding or hyper funding, isa collective cooperation executed by individuals that form a network to obtain money or other resources,and that often times uses the internet to finance its efforts and initiatives. Crowdfunding can be used/put to many ends, from artists looking for support from their followers to political campaigns or the funding of start-ups.
These things are relatively recent, and there are still some doubts on how to classify the different types of crowdfunding. What I present here is not an academic classification, but it does strive to be in this article :
Private Loans (P2P)
Even though it is not directly associated with crowdfunding and is better known as "p2p lending" (peer to peer), this is the first collective funding form that appeared, around 2005.Zopa
(that recently celebrated its 7th anniversary) is recognized as the pioneer of this practice, which refers to loans supplied amongst particulars without the intervention of a traditional financial institution. The platform keeps a small commission for facilitating the technology, transfers to your frequent accounts, applicant research, etc.
Martin Varsavsky (founder of FON amongst others) talked about it in 2006, and Harvard Business Review included P2P loans in the list of the 20 most brilliant ideas of 2009. The most criticizable factor about the P2P model (as it is with many ethical banks) is still related to interest production (money that doesn’t exist and that can only be generated through other credits). In any case, the model has gained a lot of momentum in the past few years:
- Zopa, since it was founded in 2005, has loaned 185 million pounds sterling. 60 millon in 2011, and hopes to loan some 100 millon during 2012. The sector as a whole has reached the assembled total of 250 millon pounds
- At the end of May 2012 it was published that the two most important companies in the United States, LendingClub and Prosper, had reached the accumulated total of 1 billion USD (1000 millon for the rest of the world) in loans.
comunitae.com is the pioneer platform in Spain and it started to operate in 2009. Comunitae’s promoters are José Miguel Rotaeche and Arturo Cervera, two BBVA exmanagers, and they received a 2 million euro investment from Entrinnova to start up the project. In November 2011 they received another investment, of 1 millon euros from Cabiedes & Partners, Good Investments and Francois Derbaix.
In order to understand how Comunitae works we recommend you this post by one of its investors, Francois Derbaix.
Comunitae already counts with more than 1 M€ in formal loans, in full growth(more than €70 thousand loaned in May 2012, 7 times more than in 2011). - Francois Derbaix
As we previously noted, one of the keys to collaborative consumption is transparence. Comunitae is doing a great job with its blog its blog (very recommendable), its help page and its statistics page.
In France, Friendsclear helps small businesses to get funded by people. The startup was the first to enter the market in 2010 and runs in partnership with the bank Crédit Agricole. From a legal standpoint, there still isn’t a concrete normative in Spain (nor in France and many other countries) to regulate this kind of loans. Generally they are executed by means of a private contract in which conditions take shape and which also serves to acknowledge the existence of the loan, which results in a series of fiscal implications. In Spain the interests that derive from the investment realised with P2P are classified as capital gains. Up to €6.000 (inclusive) are taxed at 19% and from 6.000€ and at 21% onwards. To find out everything about this sector at an international level, you can follow the news at p2p-banking.com and Social Lending.
A special case and of Spanish origin, KANTOX, offers Foreign Exchange hedging between businesses (B2B). They have given a twist to peer to peer personal finance and they take it to the corporates field. KANTOX just completed the largest transaction in the history of peer-to-peer finance (worth 1.200.000€). The Wall Street Journal recently cited them as a strong alternative to the banks: “Sidestepping Banks, Companies Hedge FX With Each Other”. Days ago Kantox received an investment of 1 million € lead by Cabiedes & Partners with participation from Mola.com, Lanzame and Fxstreet.com. Kantox offers an innovative Web platform, which allows companies to directly find counterparties (others companies) to match and net their future cash flows in foreign currencies, at an agreed fixed exchange rate (mid-market), and thus hedge their foreign exchange risk. By netting cash-flows in foreign currencies without the intermediation of banks, Kantox is able to offer companies a fairly priced FX hedging solution which does not require any margin deposit nor credit line. As in other P2P businesses, transparency helps to trust the service, and apart from applying a mid-market rate, the commission charged is transparent and well below the one applied by banks. KANTOX affirms they are 2 to 8 times cheaper than banks! The following video illustrates how Kantox works.
Currently, FX hedging is possible in 3 major currencies: Euro, Dollar and British Pound. Until September 2012, registering on Kantox Web platform is free. Thereafter the annual registration fee will be 295 €.
Project donations - Micropatronage
Due to the rapid expansion of this cathegory, micropatronage is what most people know as crowdfunding nowadays. At an international level, nobody shadows Kickstarter, founded in 2009 and manager of more then 50.000 projects and more than 200 millon USD since its creation (see graphics and/or this article). In these cases, the payment of the investment is appreciated with some sort of reward related to the project (credits, merchandising, signed copy, etc.). The projects usually are of cultural nature: audio-visual, musical, books, etc. If the project achieves the amount of money that was hoped for, then the crowdfunding platform keeps a percentage of what was obtained, normally between 5% and 10%. The projects have a certain amount of time to obtain a pre-established amount, and if it isn’t reached in time, the project is withdrawn and no money changes hands. It is interesting to compare this (if there is no demand, there is no production) with industrial production (false demands are generated in consumers so that they will buy something that has already been produced). I also think it’s important to understand that crowdfunding is not just about money. For an up-to-date list of Spanish crowdfunding initiatives ,or for those which are directed at the hispanic market, you can visit "Crowdfunding guide in Spanish". In Spain one of the pioneers was the funding for production of "El Cosmonauta". The company regonized as groundbreaker is Verkami. Also deserving mention, we have Goteo.org for being a crowdfunding platform solely dedicated to projects that do good for the community (and isolated case in the world, I think). One of the last projects is #CrowdfundPaRato (the first complaint of the people against banks) and it’s been so popular it once broke the server.
Also very interesting, Catarse.me, the first open source software for crowdfunding. As a critical counterpoint I recommend to read "Will greed kill the star of crowdfunding?". Yet another point to reflect upon is in what position does public investment in art and culture stand with all these platforms up and running.
Social microfinance
In this kind of collective funding moneylenders from developed countries are linked up with borrowers from developing countries, as Kiva has done with its message "Loans that change lives" since October 2005. It’s proved an effective alternative to traditional donation that further stimulates both parties without losing its social aspects.
Kiva has traditionally worked with local microcredit organizations, in different countries. The organization itself is the moneylender, helps the local entrepreneur get the process started and posts on Kiva the request, displaying the beneficiary and describing the project. To take a look at the data (who lends, who receives, how much, where, etc.) you can access the impressive Annual Report. In the 6 years since Kiva started 760,663 money lenders have loaned a total of $310,382,400 to 776,907 entrepreneurs in 59 different countries. Only in 2011 almost 90 million USD were borrowed. Wow!
The latest news is the Kiva Zip program (in trial run) that eliminates the local microcredit organizations and directly connects the moneylender and the person asking for a credit, "p2p microlending" style. During this trial period it’s using money in cell phones (with M-Pesa in Kenya) to minimize the transfer costs.
Crowdfunding oriented towards investing
With this kind of crowdfunding people receive, in exchange for their contribution, currency in the shape of shares, debt, or a percentage on the deposits. This kind of crowdfunding was illegal in the United States until the Jumpstart Our Business Startups Act (JOBS Act) was passed in April 2012. Such is the reason why the most influential companies are elsewhere: Crowdcube (UK), Symbid (Holand), and ASSOB (Australia). [caption id="attachment_1532" align="aligncenter" width="420"]
Credit: crowdfunder.com[/caption] In Spain, the closest thing is Partizipa, founded in 2007 by Juan José Martínez and currently immersed in a renovation process. A recent newcomer in this space that also needs to be follows is MegaFounder. So, how to reform finance ? In one sentence: give more room to the alternatives ! This post was originally published in spanish on ConsumoColaborativo.com and translated by Alba Seoane Credit pictures : CC Shehan Peruma ; courtesy crowdfunder.com