It is common knowledge that access to finance is the biggest barrier to establishing an enterprise and there are a lot of good income-generating ideas that never get implemented.
Prevalent commercial banking and finance institutions charge high interest rates to ensure they are profitable and this limits access to available financial capital. What if we had banking and finance institutions that did not charge interest on loans and yet ensured that loans could and would be paid?
JAK Members’ Bank, “the safest bank in Sweden”, charges no interest on its loans and has been successful for over 20 years. It has been able to attract interest-free savings and uses a “Savings Points” system to balance saving and borrowing. A new member must invest in the bank by saving which enables them to earn savings points and gain access to an interest-free loan. A member’s ability to repay the desired loan is assessed based on their income and expenses. Affordable and responsible finance.
Local Enterprise Banks have members who use their savings to provide interest-free loans to a local enterprise. This allows members to have a say in where their money is invested. Local finance for local projects. The members benefit economically and socially from improvements in their local economy and infrastructure.
There are also participatory banking institutions that engage in profit-sharing or joint venture agreements with their clients. In profit-sharing, one partner provides 100% of the financial capital and the other partner provides the knowledge, human capital, where to invest and managing the investment project. If there is a loss, one partner will lose their financial capital and the other their human capital.
Joint ventures involve two or more partners that contribute financial capital to a business and divide the profit in agreed ratios, while the loss is incurred by each partner in proportion to their respective financial capital contribution. All partners in a joint venture are entitled to participate in its management but are not required to do so.
As Business Incubators spread through all districts, more people can acquire the entrepreneurial skills required to start and sustain a profitable enterprise. This would make it easier for them to enter into profit-sharing projects with progressive banking institutions that are committed to community development. As partners in community development, participatory banking institutions could ensure that loans are granted to viable projects and enterprises. This could be done by audit teams that monitor corporate viability, profitability and responsibility.
Projects to invest in could be knowledge-based farming and pastoral projects, ideal seeds processing, natural fertiliser production, animal feed production, livestock-care products and natural pesticide production, and constructing a comprehensive storage and transportation network.
Participatory and progressive banking institutions invested in community enterprises and projects could assist more people to access interest-free loans and enhance their ability to be prosperous entrepreneurs.