NGO Another Way (Stichting Bakens Verzet), 1018 AM
SELF-FINANCING, ECOLOGICAL, SUSTAINABLE, LOCAL INTEGRATED DEVELOPMENT PROJECTS FOR THE WORLD’S POOR
Edition 12: 02 November 2006.
Edition 13 : 06 October, 2011.
This project sets up a user friendly interest-free financial environment based on the constructive recycling of a ten year interest-free loan and the creation of local exchange trading systems.
Users repay the interest-free loan after ten years. At that point of time they will have been repaying the loan at the rate of approximately 3 EURO per family per month for 120 months. Their repayments are, however, made in the local (formal) currency. Should the local (formal) currency through inflation or exchange measures have devalued against the EURO, the amount in local currency collected by the users will not be sufficient to pay the original loan back . This situation is beyond the control of the parties to the project, and in particular of the users.
A decision on how this risk is to be covered will therefore need to be made when the project is being financed.
the interest-free seed loan is expressed in (the local (formal) currency, or in Euro, or in US$)
(LOAN EXPRESSED IN LOCAL CURRENCY
If the loan is expressed in the local (formal) currency, then the external bank (working together with the local bank) will need to obtain the acceptance of the lenders that the amount repaid, when reconverted into EURO, may be lower than the original EURO loan.
The following are four possibilities:
1) The lenders or their governments formally accept they are willing to run this risk and write off the eventual difference as a gift.
2) The lenders agree to extend repayment time until the total amount collected in the fund is sufficient to repay the whole loan expressed in EURO. This can lead to a "win-win" situation in that the amount available for recycled micro-loans would remain at a high level. In return for the extra monthly payments, users have more money to recycle in micro-loans than would otherwise have been the case.
3) The lenders require payment of the available funds on expiry, and that the difference be collected using the next following monthly payments, until such time as the original amount expressed in EURO is balanced. This solution is negative for users in that for a shorter or a longer period (depending on the inflation which has taken place) users will not be able to benefit from re-cycled micro-loans and on-going local development will slow down and could, in some cases, even stop.
4) The lenders require repayment of the available funds on expiry but reinvest any difference for a further cycle of ten years. This will reduce users' funds for renewing capital goods or extending services at the end of the second period of ten years, but will not negatively affect recycling of micro-loans for on-going local development under the project. )
(LOAN EXPRESSED IN EURO OR IN US$
If the loan were to be expressed in EURO, would users' monthly repayments be indexed to the EURO? If so, how would the monthly rate expressing the amount payable in EURO be determined, and by whom? How would the users be advised?
Were repayments to be indexed to the EURO, the total amount collected by users over the ten year period could, when converted into EURO, still be (considerably) less than the total amount in EURO. This is because the indexing of the local payments to the EURO is progressive over ten years while the exchange rate applicable on repayment of the loan after the ten years' loan period is the one applicable at the moment of the repayment. The difference would normally be less than where the loan is expressed in the local currency, but one of the four options mentioned above would have to be applied to it. )
Money is not the key that opens the gates of the market but the bolt that bars them.
Gesell, Silvio, The Natural Economic Order,
revised English edition, Peter Owen,
“Poverty is created scarcity”
Wahu Kaara, point 8 of the Global Call to Action Against Poverty, 58th annual NGO Conference,
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