A Proposal for the District Community Jury Style Bank:
A Jury Style Bank would be a wholly innovative form of banking and community development which can expand the formal banking system while also increasing the community’s financial literacy and human capital. Furthermore, economic development funds are recycled, and actual funds injected into the community would far exceed the seed money. Establishing such an institution in Chinatown would result in a vast inflow of capital from China if the institution is also structured in a way to help facilitate EB-5 visas for High Net Worth foreign investors.
Table of Contents:
1) Institutional Structure
2) Board of Directors
3) Jury Selection, Responsibilities, and Restrictions:
4) Loan Disbursement:
5) Repayment Schedules:
6) Training and lending discipline:
7) Professional Staff:
8) Eligible loan applicants:
9) Return Discipline:
12) Cost/Benefit Analysis of the Jury Style Lending Economic Development Model:
13) Advantages compared to lump sum grants:
14) Disadvantages vs. lump sum grants:
15) Assurances against political Patronage:
16) Types of financing:
17) Interest rates:
18) Operating Budget:
Lower Manhattan is a perfect place to create a small experiment in implementing a new form of banking which can potentially expand the formal banking system to include underserved and underprivileged individuals for a variety of purposes. Lower Manhattan has both the high concentration of financial expertise to make an initial start up work of this concept work, as well as some of the highest levels of poverty in New York State demonstrating a need for this type of financial system. Further, the civic associations in this community are incredible and should serve as a model for regenerating the civic associations of old which have secured our democracy from extremism on both sides in the past and assured a civic dialogue. Finally, interest in EB-5 Entrepreneur Visas, is high among the Overseas Chinese Community who have accumulated large stores of wealth; these High Net Worth (HNW) individuals are actively seeking high quality investment opportunities which provide them a means to gain admittance as permanent residents in the United States by investing $1 million dollars or more in the local economy.
By creating such an experiment in this district, a successful outcome could generate large tax revenues for the state, while also serving the purpose of enhanced social insurance, and human resource development as well as improving community cohesion and increasing voter registration and participation. It would not increase the budgetary outlays, if some economic development funds are shifted to these types of institutions. It also does not require legislative changes to the banking system, and operates within the existing set of state and federal banking regulations, while also simultaneously expanding the formal banking system to reach those without financial means and giving the Federal Reserve Bank a new lever of monetary policy to inject funds into the economy from the bottom up rather than top down. Additionally, it encourages capital accumulation and development of human capital in the real economy, and focuses its benefits on small businesses and individual entrepreneurs. Creating such a state-sponsored development bank, which is also open to private, foreign investment, would also establish a conduit to reclaim the capital exported to China over the last 20 years.
Credit unions and lending cooperatives are not new ideas, and have helped immigrants and those without access to bank capital, but with strong ties to the community, to be successful in building a sustainable small business and financially stable community. Modern microfinance is said to be first founded by Dr. Mohammad Yunus, who lent to poor women in the village of Jobra, Bangladesh and built on this success to found Grameen Bank in 1983 (http://globalenvision.org). The success of his microfinance venture proved profitable both for his organization as well as the individuals his organization lent to, despite the high interest rates needed to recover defaulted loans.
Microfinance is one of the seeds of jury style banking. However, the personnel and information costs of making such small loans by professionals ensures that high interest rates are unavoidable, since professionals must make expensive inquiries into the credit-worthiness of the individuals to whom they lend. One possible reason for this is the lack of lending discipline, and the high information costs involved in making small loans to unknown and poor rural residents who have no previous interaction with the financial system. Unfortunately, despite the high rates of poverty in some urban areas and the rising levels of poverty in New York City, as shown in figure 1, the current community based banking solutions still do not reach down to those in the lowest income and highest risk pool of individuals because of insufficient capacity to make loans:
Ironically, the penetration of microfinance in the United States, where poverty rates are growing, and access to formal bank capital has become severely limited for a large proportion of the population, the very institutions which may be used to alleviate this has the lowest levels in the world, with less than 2% penetration as shown in figure 2.
However, the flip side of this is the story of immigrant
loan pools, commonly referred to in the literature as rotating credit
associations (RCAs). Immigrant loan pools have helped Latino and Asian
immigrants start successful businesses while also helping their compatriots
forge a sustainable path into the community by educating participants in the
loan pools about how to start a business, as well as providing contacts with
potential mentors who form successful businesses. Furthermore, because
immigrant loan pools are so tightly knit, each participant in the loan
pool is closely tied socially to the other members of the pool, and the
repayment rates on these loans are extraordinarily high. One economic model
showed that RCAs performed better than formal banking systems when loans were
randomly assigned to members (Besley, Coate, Loury 1990). The key factors
which influence higher repayment rates in RCAs are described by Besley and
Coate (1995) as "joint liability," where each member of the loan
association is dependent upon others within the same association for both
financial and social success. The
repayment discipline of joint liability is so strong that "Hossein (1988) reports that the Grameen Bank
has a repayment rate in excess of 95%. Adams and Vogel (1986) and Braverman and
Guasch (1984) suggest that repayment rates less than 25% are not uncommon in
many government sponsored credit programs for the poor."
These schemes differ from the internet based microlending models discussed in this recent New York Times article: http://www.nytimes.com/2011/02/05/your-money/05money.html?ref=business because these lending schemes continue to rely on standard credit scores, as well as an Ebay like grading system, which only work after individuals have established a reputation of good credit, exactly the opposite group of people who need this sort of lending scheme. Furthermore, an internet portal tends to undermine the social capital aspect of the jury banks, despite the fact that the sites attempt to build social capital with rating systems. This sort of capital may be built for that one big loan that the borrower will default upon. Since no one actually knows anything about the borrower -- where the borrower lives, who the borrower associates with, whether the borrower has children -- the actual information provided by the site is mostly self selected and not worth much more than a credit score and a standard loan application filled out at formal banking institutions. These formal applications cannot provide the information which a neighbor or a long time resident of the community could provide about that same individual. The average return on these types of microlending schemes fails at a 4.85% rate.
However, this scheme, which is made to work on a nationwide scale with a single coordinating body, does provide instructive lessons on how a jury style banking system would work. The coordinating body would be the professional class of financial "judges" whose job, like the legal judges in our court system, is to instruct a jury on important points upon which to base a loan decision. Furthermore, these judges may weed out blatantly unqualified applications, as credit scores, and past borrowing histories with the bank would still be on public record as useful information for making loan decisions. However, instead of making individual lenders make decisions on borrowers who they know nothing about, a small group of individuals drawn from the community would theoretically be able to ferret out information about the borrower, which formal, professional lenders could not. These individuals make decisions about other individuals in the community and may spend nominal amounts of time through word of mouth information, gathering both positive and negative information on borrowers. Jury lenders would be incentivized to perform well by increasing their loan power for each loan which is successfully repaid. Furthermore, jury lenders also benefit from the returns the community bank would either reinvest in the community at lower interest rates, or the community projects profits could finance for non-profit organizations. Finally, Jury Lenders would gain significant financial and business experience, which they otherwise would not have ever had access to. This would augment the financial literacy demonstrated by the population.
1) Institutional Structure:
The structure of the institution would work within the current banking system and would not require any changes in the laws regulating the financial system. This is one additional benefit of this new banking system. Rather than risking unforeseen consequences by tinkering with the current set of regulations, and also further risking captured legislation inserted by lobbyists from skewing the incentives it keeps the current structure of regulation in place and does not compete with private institutions.
At the state level, a banking authority may be
required to administer a new public/private partnership institutions which can
administer the lending program while also taking in private and foreign
investors in a LLC structure that is amenable to EB-5 immigration applications.
The bank would be a state chartered bank holding company. This
organization will be seeded with initial capital of $25 million in loanable
funds, with an additional five year operating budget. This state
chartered holding company would eventually act as the centralized clearing
house of expertise for the local community jury lending branches. The
state chartered banks receive a small percentage of the community profits to
add to its own operating budgets. Community banks would then be chartered
as state banks and owned by the holding company which is ultimately owned by
the community. Each of these banks must then apply for FDIC coverage in
order to gain access to the Federal Reserve discount window as well as further
giving them access to interbank capital markets.
Each community jury lending organization would be owned by the residents who are US citizens of the assembly district in which the bank is located. The jury for making loan decisions would be drawn from the registered voters in each assembly district, with election districts used to further localize the selection of jurors. Jurors would be selected at random by a secure program. Jurors would serve for terms of 1 year. Each Juror has the ability to loan out up to $10,000 dollars per term. This lending amount may increase or decrease depending upon the loan performance of the juror, as well as the performance of the election district to which the juror belongs. For each dollar of profit returned from the loan, jurors would receive 10%, 50% goes towards the operating costs, with the remaining 40% going towards reinvestment into the community.
The community banks would also be run by a small professional staff, who are in charge of administering jury selection, educating jurors and the community on the loan decision criteria, collecting data, and liasoning with the coordinating holding company that provides professional training and analysis of each bank, and also seeking further investors and funding to augment the funds provided by the state. This allows for successful communities to further leverage their expertise in making and repaying loans in t he private markets. Furthermore this executive committee would be responsible for compiling reports for review by the board of directors, who then publicize the loans made to the community, as well as the performance of such loans for the public to review. The board of directors would also be in charge of appointing the executive staff at the end of their terms
The executive committee is comprised of a Chief Executive Officer, a Chief Operating Officer, and a Chief Financial Officer, inspector General/Chief Legal Officer. The responsibility of the CEO is to represent the bank to the public as well as partner institutions. The CEO must also solicit investments in paid in capital from foreign and private investors. These capital investments will be structured as LLC partnerships in order to facilitate repatriation of capital through EB-5 statutes.
The Chief Operating Officer is responsible for the day
to day operations of the institution, including the selection of jurors, hiring
and firing of managerial oversight of the company. He would be in charge
of monitoring HR, and working with the general council to ensure the company is
following appropriate banking laws.
The CFO's job is to monitor the financial positions of the bank, and to inform the CEO of the financial situation of the institution. The CFO is also in charge of logging and maintaining records of loans and loan performances, as well as keeping detailed files on each juror and loan applicant to create an institutional memory which will improve the performance of the bank.
The Inspector General/Chief Legal officer's primary responsibility is to ensure that the bank complies with all relevant laws and to conduct any investigations into allegations of wrongdoing by members of the professional staff. Further, the responsibility of this officer is to provide legal counsel to staff members and oversee legal questions arising from loan applications raised by jurors.
All members of the executive staff serve terms of 6 years, which may be renewed. Furthermore, the board of directors may remove the executive staff by a 2/3rds majority vote for any reason, though the president of the board of directors has veto authority over the removal of the chief operating officer. Members of the executive staff are paid a salary of $99,999 and a private sector bonus, depending upon the amount of additional capital they are able to bring into the community.
2) Board of Directors
The board of directors will consist of 3 classes, each class votes as a class with an equal weight of voting powers based on the class of board members rather than individual voters.
Class A board members are community members at large selected by general election every 5 years from the first election after the inception of the bank. A total of 3 board members will be elected by the community at large during the general elections.
Three Class B board members are private investors who have made capital contributions of at least $5 million dollars, or who represent a consortium of investors who have contributed $5 million dollars.
There are a total of three Class C board members, appointed by elected officials in the district, as well as representative government bodies. The district’s representative to the assembly will be able to appoint one member to the board as will the city council representative. The district leaders in combination with the county committee members of the district will be able to collectively appoint one member to the board.
Board Emeritus: This class of board members will serve an advisory role and will represent the continuity and the community. They will serve as the agenda setting body of the board of representatives. These members are non-rotating and can be filled by a vote by three classes of board members. After the initial 5 year founding period, the original board members will be transitioned to board emeritus members.
Board members will be expected to meet with the executive once per quarter. Board members should expect to spend a maximum of 10 hours a quarter on evaluating reports from the executive staff and will receive $40,000 compensation for their service time.
3) Jury Selection, Responsibilities, and Restrictions:
The jurors will serve one-year terms. They will be randomly selected from eligible voters who are residents in the district, with equal representation for each election district within the assembly district. A selected juror will be required to register to vote before being able to become a juror for the program. Furthermore, an equal number of jurors will be selected from each election district. This will be necessary to ensure that regions with low registration still receive the benefits of the program. Jurors will each have the ability to make a loan of up to $10,000 dollars per person. Assuming a minimum reserve requirement of 10%, a $25 million dollar seed can be leveraged into $250,000,000 of loanable capital. Up to 10,000 jurors or 10% of the eligible voting age population will be randomly selected from the 100,000 eligible voting age residents in the district. They will not receive any fixed compensation for their service, although they do receive profit sharing for their services. Jurors may solicit applications for loans. They must find at least two other jurors from the same election district to sponsor the loan, and attest to the good character of the applicant. Furthermore, jurors in the assembly district at large may "black ball" a loan application after the loan applicant's name and loan amount is posted for public review.
Jurors may not apply for loans during their term of service. Jurors who refuse service will not be allowed to participate in the system for a term of 5 years. Jurors receive compensation based upon the profitability of the loans they make and can take home a total of 10% of the profits on the loans they make. Jurors may make loans to friends and non-nuclear family members who are also residents of the community. While this may have hints of corruption or patronage, it also reduces information costs for collecting information on high risk individuals or individuals with a history of being delinquent in private and personal loans. Furthermore, because of the limited funds available for one individual to loan to another individual, the total amount of economic inefficiency introduced by non-economic loan decisions are limited. Jurors may make loans to any legal resident of the district.
Jurors may not take kickbacks or gifts from applicants. If a juror is caught taking a kickback or another other corrupt payment from their applicants, both the juror and the applicant will be banned from the system, as well as the applicant. Furthermore, both will be charged under any relevant criminal statutes for political and economic corruption. Jurors may not have an ownership or financial stake in organizations or individuals to whom they originate loans.
The top 10% of high performing jurors will automatically be given the option to serve another term. Jurors may serve a total of 10 terms in this manner. The remaining open jury seats will be chosen at random on the date of the general election every year. Jurors will take their new seats on January 20th of each year.
Jurors may expect to spend as much or as little time investigating and documenting loan applications. All documentation will be deposited with the coordinating executive staff, and made available to the public in electronic format. This will ensure that questionable loans will be easily discovered, and particularly poor performing loan applicants or jurors may be removed from further service.
A juror may be removed from service if their loans produce losses of more than 40% in their term. Jurors found to be making criminal or corrupt loans will suspended until their charges are investigated by a executive staff, or by a court of competent jurisdiction. If they are cleared of their charges, they may serve the time remaining from the date of their suspension of their 1 year term Other jurors who make large amounts of poorly performing loans will have their future loan portfolios reduced by a proportional amount. Furthermore, a juror's loan performance will be evaluated monthly, and their total loanable funds may be cut. Interest rates on individual jurors will be adjusted to compensate for poor judgment and performance on a monthly basis, based on an algorithm which is formulated by the executive staff, and reviewed by the board on a two year basis.
4) Loan Disbursement:
Loans will be disbursed to individuals by direct
deposit into their bank accounts, or in the form of preloaded debit cards
issued by the bank. Disbursement will occur after 1) a loan originator
agrees to extend a loan to the applicant, 2) two other jurors in the same or
adjacent election districts agree to attest for the character for the
applicant, and 3) the loan is cleared by the professional staff of the bank,
through automated or manual systems.
For larger loans which exceed $10,000, loan applicants will have to find enough jurors to approve their loan. Up to $1,000,000 in loans may be made, but they require a total of at least 100 jurors to approve the loans and special manual review by the professional staff.
To prevent money laundering or illicit use of funds,
all disbursed funds may only be used for transactions which are recorded
electronically, or which have clear contracts, purchase orders, leases, or
other legal documentation of the flow of funds. This will also facilitate tax
collection on profits, while also ensuring that those granted loans who are
outside the formal banking system will establish a financial record.
5) Repayment Schedules:
Repayment schedules will occur on a monthly
basis. Repayments will depend upon the term of the loan as well as the
type of loan. Repayment schedules will generally be skewed towards
shorter term loans because the bank will depend upon short term loans, and
jurors will only serve a single term. Furthermore, the small dollar
amounts tend towards making these loans more amenable to short term
loans. However, long term loans will also be made and repayment schedules
administered by the coordinating, professional staff.
6) Training and lending discipline:
Lending discipline depends upon the positive
incentives of cash flow for good performing loans, as well as the negative
discipline of publicly posting all loans and performance of individual
jurors. Jurors who are not comfortable with having their performance
publicly posted may choose not to participate in the jury system, though this
means they will lose access to the system. Centralized files will be kept on
all applicants, including any reports from jurors regarding their character, as
well as any objections from members of the community who believe the borrow to
be a particularly bad applicant. Members of the community may lobby a
juror to blackball a loan applicant. While the name of the blackballing
juror will be confidential, a report must be submitted by the blackballing
juror explaining why he or she made the objection, and from which election
districts such objections arose. Only jurors in originating or adjacent
election districts may blackball an applicant, though any member of the
community may raise objections with jurors in any election district.
Furthermore, basic publicly available financial information such as credit
histories and credit scores will be made available to jurors. Applicants
or jurors may also request proof of income or tax returns, or any other
information applicants are willing to provide. However, the system is completely
voluntary and incomplete applications may still be considered.
Lending discipline also depends on the training jurors receive from the professional staff of the jury bank from the date of their selection to the date of their inauguration. The precise amount of training will be determined by the board and staff, within economic restrictions. Training may occur online or in person to fit within the working schedules of jurors, as service as a juror should not cause undue obstruction of jurors' daily livelihoods. For jurors selected who can prove their daily jobs or responsibilities make it impossible for them to serve the limited hours as a juror and undergo juror training, these individuals may be exempt from service without losing the benefit of access to applying for loans.
Training programs will be developed by the executive staff and will teach jurors to decide loans based on a rubric. 1) Jurors will be trained to evaluate credit scores as well as the meaning of credit scores. 2) Jurors will also be trained in the basic information commonly used to determine loan eligibility. 3) Jurors will be trained in the basic types of loans available from the jury bank. 4) Jurors will be trained in different kinds of information about applicants to request in order to further determine eligibility. 5) Jurors will receive case studies on evaluating different needs for loans, from credit consolidation, to business start-up. This serves a dual purpose of business training for jurors, as well as teaching jurors financial literacy for their own financial planning. 6) Jurors will be taught case studies of individuals who are likely to default, and common reasons for defaulting.
7) Professional Staff:
The primary duty of the professional staff is to
provide training and guidance for lay-person juries. This includes the
training outlined above, as well as answering questions which may arise during
the loan process after the training sessions. Staff must be financial
professionals with both a master's degree in finance or economics, and a
minimum of 2 years of experience in making consumer or small business
loans. Professional staff will be paid a salary of $60,000 a year.
For a limited number of specialized positions, staff may serve at the
discretion of the executive committee and qualifications outlined above
waived. Professional staff may be augmented by jurors with relevant
financial experience who choose to serve on the staff as volunteers rather than
as loan decision jurors. Those jurors with relevant experience who opt to
serve on the professional staff will still be eligible for loans during their
term of service, since they are ineligible to originate loans.
Furthermore, they will receive special consideration when hiring new
professional staffers, depending on their terms of service during their time as
a volunteer juror.
8) Eligible loan applicants:
Eligible loan applicants are limited to legal residents of the district who can show their primary residence, as defined by election and tax laws, is within the district. Any individual person who falls under the geographical boundaries of the district may make a loan application. No individual with an outstanding loan to the community bank may apply for a new loan. Furthermore, small businesses based in the district, who have total revenue under $300,000 of any legal structure may apply for loans. S-corps, partnerships, sole proprietorship, or unincorporated entities with a physical location within the district are eligible for loans, without respect to the revenue ceiling previously delineated. Married or domestically partnered couples may make separate applications or may apply as a unit. However, they cannot do both concurrently. Only residents above 18 years old may make applications.
9) Return Discipline:
Applicants are subject to both formal and informal loan discipline.
Formal discipline occurs like regular banks. Approved collection agencies will be dispatched to collect on loans which are in arrears. Borrowers are legally required to return loans, and cannot escape repayment through bankruptcy. However, community loan pools may not seize applicant assets, except such assets which were put up as collateral during the application process. If the collateral turns out to be fraudulent, then criminal charges may be filed or applicants other assets may be seized, or future earnings garnished through the court systems. However, the reality is that most loans will be too small to be worth litigation. Defaulted loans will also be reported to credit bureaus.
Informal discipline occurs because of the social and peer pressure to return loans, coupled with the positive returns for the community and individual election districts when loans are successful. Thus, the performance of borrowers will be posted publicly, and jurors as well as residents are naturally incentivized to collect on bad loans through social pressure. Applicants who fall behind on payments may apply for a hearing with the professional staff, for a term of forbearance, if they can document that their loan was spent for the legitimate purpose stated on their application, and that they cannot currently repay the loan. The professional staff, along with the 3 jurors who approved the loans will determine if a forbearance will be granted. Forbearances will be noted in the public record as to let community members know that delinquent borrowers are making an effort to repay the loan, and so that community members have the opportunity to help the delinquent borrower repay his or her loan.
Interest rates will also rise and fall depending upon the risk profile which develops over time for each election district, as well as the loan histories within the institution of individual borrower and the performance histories of loans made by individual jurors. Thus, election districts will have a higher interest rate if loans are given out in an economically inefficient manner. Interest rates may rise as high as necessary to cover losses in that district. This will serve as a negative feedback mechanism, which prevents the complete loss of capital, as interest rates for the participating districts would rise or fall depending on the loan repayment rates as well as the general target overnight rate set by the Federal Reserve. Successful districts will be able to add to their reserve capital, or to spend the money on projects within the election district, or to pool their profits with other election districts to fund public works or local non-profits located within the district. Finally, profits from the district may be used to forgive loans to deserving individuals. Grants would be determined by the board of directors, subject to voter approval during the general elections of each year.
The bank will also take deposits from individuals in the community or any other individuals outside the community, augmenting the total capital reserve of the bank, allowing the community to increase its loan power by tapping the savings of individuals within the community. Deposit accounts will function like commercial banks, subject to the same documentation requirements of other depository institutions. Interest rates for depositors will depend upon market rates. Depositors will be protected under FDIC regulations.
11) Outside Investors:
The depository institution may solicit funds from
investors, subject to relevant statutes and regulations on investments.
The investments would be accounted separately from the seed fund through an LLC
structure, which is amenable to EB-5 Visa applications and profitable loans
made from these capital investments would be split evenly between the community
and the private investor. Foreign investors may also participate in this system,
which will be structured in such a way so that the foreign investor will
qualify for the EB-5 visa application with greater assurances for approval due
to the state-sponsored nature of the institution.
The bank may also create financial products subject to the 2/3rds approval of the board, and unanimous approval of the executive committee, as well as a 2/3rds approval of all active jurors, and a majority vote during the general election. Once a financial product is created, it may be revoked by a majority vote of any of the three bodies which originally approved it. These products can only be created from funds, which are not committed to jurors, or with funds received from foreign or outside investors. The products are also subject to approval by a simple up/down vote by the jurors.
Outside investors will be subject to full losses on
their capital. Their investments
will be subject to a lockup period of 5 years, after which they may sell their
shares in the open market to other private investors. They receive a board seat on the bank in order to facilitate
active engagement with their investments, which is required for them to qualify
for EB-5 Status.
12) Cost/Benefit Analysis of the Jury Style Lending Economic Development Model:
The major advantages of this form of community banking and economic development are twofold. The first is that funds are given directly to needy members in the community with good reputations. These funds may be used for any legitimate economic purpose from refinancing high interest loans, starting small businesses, funding inventory purchases and small business expansions onto the internet. All these funds are distributed without centralized administrators picking winners and losers and enhancing their personal political powers. Furthermore, financial and economic literacy, two subjects which are missing from the education of the majority of the population, will be increased, just as RCA allow immigrants with little or no preexisting skills in business administration to learn from their peers about the right way manage their finances and business interests. Furthermore, because of the interest among the private sector, and particularly foreign investors from China in making investments with a high PR value as well as the benefit of providing chances to gain EB-5 visa entry into the United States, this institution could potentially channel billions of dollars of foreign funds and investment into the US economy. Since the governing institution is state run, Chinese investors will feel more comfortable making direct investments into the economy on an equity basis. Finally, the amount of loanable funds would far exceed the initial grant and seed money.
13) Advantages compared to lump sum grants:
This scheme of economic development has significant
advantages when compared to lump sum grants, which are the current model of
economic development funds. The primary advantage is financial
accountability as well as an accountable financial return for funds
granted. While non-profits undoubtedly have a positive impact upon the
community, this scheme gives a quantitative measure of the success of grants
for the community and individual members of the community. A certain
amount of the budget for jury banks will go towards improving human capital, by
providing training which is relevant to job skills and economic productivity in
general. To some extent, this improvement in human capital serves a
similar purpose as many non-profits, except the training is immediately put
into practice to allow trained individuals to practice their skills.
Economic decision making for economic development funds is decentralized, and
administrative overhead is lowered because most of the activity funded is
performed by motivated individuals who benefit directly from any economic
return they generate from the loans. Profits are also garnered by the
jury bank which may be reloaned, or used to fund traditional non-profit
development models. Another major advantage is that money granted to
these economic development institutions does not simply disappear. This
money can continue to be circulated within the community, and the grant money
may grow with time. A year grant of money will continue to be compounded
rather than spent.
Disadvantages vs. lump sum grants:
These grants cannot be used to fund large projects
which span large geographical regions. Nor can these funds be used to
encourage large corporations to expand projects into areas of special interest
to the state. Finally, these grants cannot be used to fund economically
unproductive, but socially necessary projects, such as feeding the hungry,
protecting the mentally ill, treating addictions, housing the homeless, and
many infrastructure upkeep projects such as street cleaning and street sweeping.
Thus these essential services will have to continue being funded state or
private grants, or grants which come out of the profits of the community bank.
Assurances against political patronage:
This form of economic development prevents the public sector for picking winners and losers with their funds. Instead, it rewards economically productive individuals who have good social capital, but lack the documentation to access the formal banking system. Because loan amounts are miniscule compared to the formal system, as well as the economic development grant system, patronage will be limited when it does occur. In some ways, patronage is not eliminated, but simply spread out over a larger group of people. However, the interests of the community and individual social units are best served when loans are given for economically efficient projects rather than inefficient patronage projects which are dispensed not so much for the potential return they may bring the community as a whole, but the potential return to the incumbent politician -- though it should also be noted that the incumbent politicians interests are also best served when the community prospers economically. Because disbursement decisions are spread out among a large cohort of individuals, a monopolization of the political economy of a district by a few well connected individuals can be prevented, while the interests of the elected officials are still served, without having to resort to giving large block funds to influential individuals in the community.
Types of financing:
- Special/Limited time First Time Home Buyer Program
- Emergency Medical or Dental Procedures
- Basic Health Checkups
- Emergency short term loans
- Merchandise and inventory loans
- Tax Payment Loans
- Car Loans
- Small, first time credit lines to build credit histories
- Small, high interest credit lines to rebuild bad credit
- Building purchase and refinance
- Equipment and machinery purchase
- Working capital
- Business debt consolidation
- Consumer Debt Consolidation
- Credit line
- Government loan programs
- Disaster Loan Packaging
- Any other specialty loan or insurance product.
Interest Rates will be determined by the default rate of the
community as well as the default rate for that
particular type of loan.
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