Continuation

Third ENIL Seminar
Stockholm, Sweden
June 1991

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Alternative forms of fundraising

Ulf Andersson, Statskontoret, Stockholm, Sweden

Women's World Bank

The large conference in Mexico, 1975, which marked the beginning of the United Nations Decade for Women, highlighted a few simple facts: That women do 65 per cent of all the work in the world, but receive only 10 per cent of all income in the world, and they own less than 1 per cent of the world's property.

A small group of women delegates at the conference decided to do something about this. They wanted do make a global support network for women's businesses and called their foundation WWB. The WWB defines businesses rather broadly - it could be conventional small businesses, family businesses, self employed women or cooperatives.

The strategic goals for WWB are to build in different countries local support bases which can serve the specific needs in each country; to establish a global network of women leaders in banking, finance and business; and, in general, to give women equal access to the modern economy.

The local leadership group, which is called the WWB affiliate, seeks out women who might be given loans. The affiliates may be seen as local members of the WWB.

A Loan Guarantee Scheme makes it possible for WWB to help the affiliate finance a particular woman's business. For each loan that the local group sponsors, the WWB guarantees 50 per cent of the amount, the affiliate guarantees 25 per cent and the risk of the remaining 25 per cent is borne by some local bank. The loan-taking women must be willing to use some resources as a collateral.

The initial funds for an affiliate's capital base and start-up costs are either donated by their members or come from other sources in the local economy.

A very important aspect of the WWB is the Capital Fund. This gives financial stability for the WWB network, and gives WWB credibility as a financial intermediary with local banks and financial institutions all around the world. All money in the Capital Fund is invested in low-risk, socially responsible projects which have a reasonable rate of return. By leveraging the capital use, the effect of credit-giving is increased, and makes it possible for the WWB to use a smaller fraction of its capital as a collateral for its guarantee liability. In this way more loans can be supported for less capital.

Today there are 90 local groups, who have given over 56,000 loans (3,200 were lent to new borrowers by local banks). The Capital Fund now exceeds $7 million. The organization has started 25 new loan programs for women, and developed a Management Institute for women. The Women's World Bank has made technical assistance programs for the needs of women, in such areas as health care, family planning, education and housing.

Contact: Michaela Walsh, President, Women's World Bank, 104 East 40th Street, Suite 607-A, New York, NY 10016, U.S.A.

The Briarpatch & Honest Business

On the West Coast of the United States a number of small enterprises grew up, as a response to new social movements: ecologists, feminists, the peace movement, spiritual groups and new-agers. A number of these small firms formed the Briarpatch network. Most of these people tended to conform to what is called "honest business". The basic principles underlying this concept are outlined in the book "Honest Business" by Michael Phillips and Salli Rasberry.

Some of these principles make sense in any kind of business, even ordinary profit-oriented firms with no particular social purpose. Those with experience in ordinary new-started small businesses know that the reasons for failure and bankruptcy is that common sense advice is not always acted upon.

But the other basic principles in the concept of honest business are more shocking to the followers of conventional wisdom in business practice. Let us review them one by one:

Small Capital
or undercapitalization is often stated as a reason for failure by many small business consultants. On the contrary, Phillips and Rasberry argue that small capital makes it absolutely necessary to really get in touch with the needs of your clients; and the market. Small capital also automatically keeps overhead costs down. Another important side-effect is that it is easier to attract voluntary labour or donations if you are poor (and have a good cause) than rich.

Go Slow
means to make changes - any changes, even of seemingly unimportant details - slowly and one at a time. The reason for this is that if you make several changes at once, you can't really be sure which one caused the result.

Open Books
is the most significant difference between honest businesses and other businesses. "Open books" is letting anyone - customers, suppliers, employees and the general public - see all your business records. Openness generates trust - and this helps the enterprise: by making fundraising easier, by finding financial support from persons that like your line of business and know that you don't make an indecent profit out of it, and by getting valuable advice on financing, taxation etc.

Fun
and enjoyment are used by the Briarpatch enterprises in new creative ways to support their businesses - and making the whole effort worthwhile. To enjoy what you are doing is absolutely essential if you want to keep staff who are working voluntarily.

These are a few of the basic principles for honest business. Directly or indirectly, most of them are related to financing. Honest businesses seem to have a higher survival rate than conventional firms. Of the over 450 businesses the authors have worked with in a period of over 8 years, only 5 per cent have failed. 85 per cent were still in business in time of the writing of the book. The failure rate for ordinary businesses are much higher.

Mondragon

Mondragon is a well-known name for all those in Europe who are interested in employee ownership and workers' cooperatives.

Mondragon is a small city in the Basque provinces in northern Spain. In February, 1941 the Roman Catholic priest Jose Maria Arizmendi Arrieta founded a Technical Training School. In the 1950's five of the students started the first cooperative ULGOR in order to put into practice their ideas on labour as the most important among the factors of production.

The starting capital of 11 million pesetas came from 96 friends, relatives and people sympathizing with the founder's ideals. The production of cooking stoves started in 1956. In the same period a few other cooperatives for industrial production started. Close ties develop among the cooperatives. An important milestone in the development of the Mondragon system was the founding of Caja Laboral Popular (CLF) "People's Savings Bank" in 1959. It was formed by the industrial cooperatives Ulgor, Arrasata and Funcor and the consumer cooperative San Jose - as their support organization. The CLP began to operate in 1960 as both a source of additional investment funding and as a professional service organization for technical, financial and social support to the member cooperatives.

In the Contract of Association each new cooperative member accepts basic principles concerning democratic organization, capital ownership, wage differences, surplus distribution and creation of employment.

The relations between the cooperatives and CLP are different from ordinary businesses.For instance, the capital from a cooperative shall be made available to CLP (the exact amount to be determined by the Bank's General Assembly). Every cooperative has to give CLP budgets and other financial information in a standard format every month. As a reward for this, CLP gives periodical budgetary planning Reports, together with general information on the technical-economical-political environment. Such a mutual exchange gives support to the management in the whole system and to the single member cooperative, guaranteeing professional standards, a consistent reporting system and a constant monitoring of performance. General audits are made covering "economic, social and business development" - n.b., not only conventional economic performance.

The ratio of gross earnings between the highest and lowest paid persons in the cooperatives is not to exceed 3 to 1. The initial capital contributions of individual cooperatives is adjusted for inflation. This capital cannot be cashed or withdrawn, but interest is paid.

A minimum of 30 per cent of any surplus is allocated to the Reserve and Social Funds (10 per cent minimum to the Social Fund). The rest is allocated to the individual capital accounts. Thus 90 per cent of net profits remain within the cooperatives, on an individual and collective basis. Losses are born in the same way.

Grameen Bank

The landless poor in Third World countries are a large part of all people living today. They can't borrow from ordinary commercial banks, because they have no assets as collateral. Instead they have to buy from local money-lenders, who may charge an interest over 100 per cent a year. Just before harvest, the interest can be as high as 10 per cent a day.

In Bangladesh, Muhammed Yunus, professor of economics at Chittagong University decided to change all this and help the poor landless help themselves. He was active in the founding of Grameen Bank /Countryside Bank/ in 1982.

Grameen Bank is not just an unconventional bank, but also an organization for social change. The basic tool for this change is credit. The long-term goals for social change concerns active measures for health, good basic nutrition, mutual help, and abolishing the social institution of giving a dowry for marrying daughters. The members can get cheap seeds, education in reading, writing and birth control and medical help.

The basic unit of Grameen Bank's organizational structure is the group. People wanting to become bank members are encouraged to form a group of five persons. Only landless people with half an acre of land or less can join a group. The members of a group must come from the same village, but not from the same household. Men form their own groups, as do the women.

Six groups will form what is called a center. In 1987 there where 8,850 active centers - 6,524 were female. All activities in the center are done in public, for all members to observe.

When a new group is started, two of the members are given their loans. The instalments are paid every week, because small sums are easier to pay back than large ones. If the payments are made regularly, then the next two members can get their loans.

A second set of loans are not approved until the individual accounts of each group member are settled. This makes the group members behave in a situation of mutual accountability which in turn makes it possible for Grameen Bank to give loans without demanding a collateral. The credibility of the group is in risk if one single member can't fulfil his obligations to the bank.

The loans are used for a wide variety of purposes: to buy cows, start fish ponds, fire-cracker production, buying trading goods etc. Recently, there has been a tendency to start more collective enterprises.

This organization is one of the reasons why Grameen Bank has a repayment rate of 98 per cent. In 1986 the bank had 250,000 borrowers. It loaned 33 million taka a month (approx. $1 million).

MEMO

In many countries in Western Europe and USA new kinds of small businesses are starting to grow. They are not founded primarily for making profit, but for producing socially and ecologically useful products and services. They also use unconventional practises for business operations and financing. Two interesting examples are MEMO in the Netherlands and Briarpatch in the USA.

MEMO is an acronym in Dutch for "Humane and Ecologically Sound Enterprises". The organization traces its past back to drop-out students in the late 60's. From the alternative farming in the beginning, the emphasis later shifted to artisanry, production and services. The MEMO Fair in 1970 had 14,000 visitors, and actualised the need for a stricter organization.

Alternative forms of financing were to be the cornerstone of the new organization. Persons interested in a particular line of production make an initial tentative plan and budget. Those plans are rewritten by MEMO's economic advisors, and are the basis for the organizations decision to fund the new product or not.

An important condition for loan-giving is that the new alternative entrepreneurs should have a network of guarantors instead of a collateral. "If you can't convince a number of your friends to support you with a small amount of money, then either your idea or your ability to make it happen has no confidence at all, and is probably totally unrealistic."

MEMO also gets loans from those in the general public who support the concept of alternative production. The loan-givers receive a very low interest or no interest at all. This makes it possible for the MEMO enterprises to get loans with low interest.

A MEMO enterprise has to conform to the following principles:

• no large-scale, hierarchical or centralized organizations
• the product and its production must not harm man or nature
• the enterprise must not maximize wages or profits (in practise this means that the wages are somewhere between the basic social security level and the average wage for industrial workers)
• open book-keeping
• the wages of the employees should be equal or the differences in wages should be very small

Most of the MEMO enterprises serve the local market. The MEMO organization is an umbrella organization for different enterprises in a particular area. Therefore there is a tendency among the MEMO enterprises to divide the market between themselves to avoid competition within the MEMO organization. Because the products often are unique, they don't have any real competition from ordinary businesses either.

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Alternative forms of fundraising (continued)

Jörn Hammarstrand, OMNIA Kompetensutveckling

JAK (Jord, Arbete, Kapital) = Land, Work, Capital

JAK is a non-profit organization, founded in 1970 in Sweden with today over 4,000 members, working for an economy without interest rate, serving the members' demand for investments at cost only.

JAK offers loans to members at a very low interest (1.7-4.4 per cent) compared to bank loans at 13-20 per cent.

Principles:

• Only member are entitled to loans.
• Members must save money, but will not receive any interest on their savings, only saving-points. Points are calculated as time twice money. Example: 12 months x 500 SEK = 6,000 SEK.
• The main principle is that every member must accomplish saving points corresponding to the loans they will receive. A great part of the savings can be carried out after the loan has been paid to the member.
• Minimum savings period = 6 months.
• Security is required for every loan (i.e. a guarantor).

For further information write to :

JAK
Fjällgatan 23 A
116 28 Stockholm, Sweden

Ethical, Idealistic - Alternative - Saving Funds

Alternative saving and financing methods do not attract the Swedish people in general. The situation is quite the opposite in the USA, Canada and in Great Britain. However, some 100 years ago most of the savings were idealistic even in Sweden. Within the consumer cooperatives, the savings bank movement, the many associations for social insurance most of the Swedes did save their money for very special goals. The tradition is now that society will deal (read "pay") for most of our problems from birth to death. That is why we are paying the highest taxes in the world. The current crisis in the Swedish economy is likely to change our way of life. We are certain that in the near future we will see more ethical and idealistic saving funds for environment purposes, for persons with disabilities, etc.

During our lectures you will learn more about some of these alternative saving funds. Several Swedish banks and insurance companies, as well as other idealistic associations (churches, the anthroposophic organization), are marketing alternative saving funds. In these funds a part of the profit (interest) is disposed for a special demand or group (i.e. persons with disabilities or people having cancer). A difficulty connected with idealistic savings is the problem of building up competence about ethical and idealistic projects. For instance, the anthroposophic "Triodosbank" in the Netherlands was forced to put its capital into ordinary private banks for six years until it could start on its own.

What is the difference between ethical and idealistic saving?

In an ethical savings fund there are stricter rules how the capital is to be used. For instance, it must not be used for investments in weapons or cars. In other funds, the capital must not be invested in companies polluting nature, etc. You will meet a representative shortly, from the cooperative bank, Föreningsbanken, explaining these kind of funds. The idealistic saver will donate a part of his savings to an organization or foundation built on a special idea.

Folksams Sociala Råd = Folksam's Social Council

Folksam was formed in 1925 and is a trade union/cooperative insurance company. Insurance policy holders are represented by 108 delegates at the General Meeting, Folksam's highest decision-making body. The consumer cooperatives appoint 36 of these, the Swedish Trade Union Confederation (LO): 18 from the white collar trade union organizations, and 18 from the housing and oil consumer cooperatives.

Folksam's has grown into one of Sweden's largest insurers. The share of the Swedish private property and group insurance market varies from 16 per cent to 63 per cent, depending on the category.

Folksam's Social Council was formed in 1970 for the following tasks:

· To promote information and opinion to prevent health damages.
· To arrange seminars, debates and discussion concerning people's health in general and to publish books in this field.
· To be a speaking ground for the consumers as well as researchers in the social field.

Folksam's Social Council has taken a great interest in the rehabilitation of persons with disabilities especially in creating computers fitted for persons with disabilities. Folksam's Social Council is also involved in environmental programs in which social issues are emphasized. Folksam's Social Council, together with Folksam's Research Foundation are financing projects mentioned above. Right now, rehabilitation centers are set up for people with different kinds of disabilities. For further information, write to:

Folksam
Attn: Stig Åhs or Britta Andersson
Folksams sociala råd
106 60 Stockholm

Netzwerk Selbsthilfe = Network for Self-Support

Netzwerk is a non-profit organization, founded in 1978 in Germany and now existing in more than 30 cities in Germany. The purpose is to support projects - mainly social projects - that cannot be financed by government grants or banks. For example, workers cooperatives for unemployed and employed persons with disabilities.

Netzwerk is financed by small but numerous and regular private contributions. The members dispose 1 per cent of their net income to the organization.

Netzwerk will grant loans or subventions to projects according to the following demands:

• Democratic self-management.
• Cooperation with similar organizations.
• Private interest in profit must not exist.
• Long-term survival (does not apply to social or artistic projects).

During 1978 -1984 over 3,000 members contributed 500,000 DEM per year and supported 250 projects with 2,000,000 DEM. Some years ago a bank was founded with a capital of 20,000 DEM.

Netzwerk is today also working as consultants for workers who want to take over their place of work and transform it to a cooperative. For further information write to:

Netzwerk Selbsthilfe
Gneisenaustraße 2
Berlin
Germany

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