|By Stephen DeMeulenaere, 1997
For nearly a decade, the rapid growth and spread of the microcredit lending concept has put it at the forefront of the agenda of economic development in the so-called 'third world'. Where banks traditionally deny loans to people without equity, collateral, or an existing credit rating, the microcredit concept has proven its ability to lend successfully and to provide families with the means of achieving their financial independence. This method of bringing about economic self-sufficiency has been so successful that it has now been replicated in many countries far away from its birthplace in Bangladesh.
In the so-called "developed world" during the last decade, the successes of community-based currencies has made it a subject of interest among Community Economic Development circles seeking to stimulate small business and provide employment for people who are increasingly marginalized by the mainstream economy. This experiment has also been replicated in many countries far away from its "birthplace" on Vancouver Island on the west coast of Canada.
In the developing world, microcredit helped communities discover they could lend themselves their own money. In the developed world, community currencies helped communities discover that they could issue themselves their own money. Considering how these two grassroots economic strategies are working so well, a marriage is being proposed to put these two strategies to work in one community to achieve even greater success in liberating people from oppressive financial situations, and helping communities to be more productive and meet their needs while supporting each other.
Imagine that you are a poor woman, working hard weaving a mat that takes five days to complete. At the end of the week, the mat sells for the equivalent of two dollars, which barely buys the next week's food and pays the local money lender who lent you the money to buy your materials. If your child gets sick, there is no money for medicine. How much would it change your life if you could buy your own stock of material, or even your own sewing machine at lending rates a fraction of those of the money lender, and nearly interest-free?
Then one day, a person comes to your home offering to lend you money at very low interest, to be repaid so that the next person has a chance to borrow. The members of the group agree to take collective responsibility for the loans, then support and encourage each other in the course of repaying the loan. As repayments are made, the money is lent to the next person, and then the next, and so on. As a lender and a borrower, you can be certain that the loan will be repaid.
Since 1993, the Grameen Bank, operating on these principles has lent to millions of borrowers and now similar banks operate in many countries.
Now, imagine that you are a mill worker and the factory is slowing down. You have taken a reduction in work hours to keep your job but the paycheque has been cut almost in half. The mill is the biggest employer in town and everyone is feeling the crunch, from the barber to the grocer.
Your wife reads in the paper that a new type of barter system with a "local currency", has just been introduced by some of the townspeople to help support the local economy. So you decide to go down to the first meeting at the town hall.
As you enter, you are asked to list on the blackboard the goods and services that you are able to offer and those that you would like to receive on the chalkboard. Soon, the chalkboard is full and the system is explained to you:
"You can cut firewood. Susan, the local potter, needs wood to fire her kiln but you don't want pottery, you want groceries instead. That's where a barter transaction would stop. But it says up on the blackboard that the local grocery store is accepting 20% of a purchase in the local currency on a particular day. So you call Susan up and arrange the trade for part trade dollars and part national dollars. When she gets her wood, she phones the Local Currency Network office and says "Hi, this is Susan, my account number is 263. Please credit John 100 trade dollars for providing me with firewood." John can now take those trade dollars to the grocery store on tuesdays. The owner of the store can buy vegetables from the local farmers for part trade dollars, and so on. If Susan doesn't have a telephone, she can write John a cheque in the local currency which he can get deposited to his account.
Since 1983, the Local Exchange Trading System (LETS), operating on these principles, has increased the cash volume, liquidity and employment and helped people to meet their needs while building community in more than a thousand communities worldwide.
Whereas the national currency flows out of town, the community currency flows within the community, and keeps the national currency flowing within the community along with it. When a community has its own currency, people have a way of meeting their needs other than first having to earn scarce money. It doesn't have to be the case (and it is very often the case) that skilled people aren't able to work due to a lack of money in the community.
This community currency system is very much like that of a Credit Union. In fact the Credit Union system started out not only by lending money at low-interest but also by issuing its own money which could be spent at member-owned businesses.
The members of the system lend themselves the local money interest-free, and trade this money with each other to replace the volume of money that normally drains out of the local economy, and also to keep the national currency circulating around the community. As the community wealth begins to grow, a new source of revenue exists for maintaining town facilities, employing young people, or making sure that all of the necessary social systems are well taken care of.
The microcredit and community currency systems thus form an interesting complementarity, both serving their communities simply by increasing the cooperation and interdependence between the members of the community. The microcredit strategy helps them to acquire the money needed to purchase materials or machines to increase their independence from money lenders. The local currency strategy helps them to meet their needs using this community currency, conserving their national currency expenses and creating cycles of community support.
Now, let's look at why the two strategies should join. What if you are the woman making mats to sell at the market and you discover that nobody has any money with which to buy your mats? What if you are the under-employed millworker and you want a loan to start a new business but the Bank is afraid of losing money from defaulted loans, so it raises its lending interest rate just to be sure? Here we may have the basis for a good working relationship between the two strategies for achieving financial independence while building a strong community through interdependence.
There are a number of ways this can be done to tailor the strategies to fit the local situation. In keeping with our situation examples, the woman making mats can conserve her "hard" currency income by acquiring what she needs by using a local currency, in which other members of her lending circle also participate. This "extra" money can then go towards paying off her loan more easily. The underemployed millworker can take a loan from the pool of lenders and with his new business offer to accept part of their purchase in local money. By combining the two strategies, a wide range of new opportunities in local and community economic development are created.
By Stephen DeMeulenaere
A Poverty Eradication Strategy That Works, by Joel Rubinstein
LETS: the Local Exchange Trading System, by Michael Linton and Thomas Greco.