Networked Clearing Union
Description
Proposed by Chris Cook as forms of bankless and credit-union-less funding:
"There are essentially two financing requirements which credit unions and banks currently address.
(a) Credit - short term and unsecured credit - which is essentially "time to pay". This is often known as "Working Capital", and all businesses need the ability to finance the credit they typically extend to customers.
(b) "Investment" - Medium and long term credit - typically secured by a "charge" or a mortgage - which is used to finance productive assets, such as property and machinery. This is often known as Fixed Capital.
I have been working in Scotland with a Scottish charity/social enterprise - the Nordic Enterprise Trust (part financed by the Norwegian government)- to develop partnership based mechanisms to allow "micro" enterprises to obtain both types of financing, which they are finding increasingly difficult, if not impossible, to obtain. Of course, the problem of restricted access to financing is not - post "CreditCrunch" - limited to "micro" businesses - it's just more acute for them.
These partnership mechanisms are based upon using legal forms like the US LLC and the UK LLP (very different from US LLP's) as "frameworks" for risk and revenue sharing as follows:
(a) "Guarantee Societies" - risk sharing "communities of interest" with a "Common bond" (as with a Credit Union) which offer mutual guarantees of bilateral "Trade" credit extended from seller to buyer.
The guarantee is backed by provisions made into a "Default Fund" in collective ownership, and the system (ie Guarantee Limits, accounting system, defaults) is managed by a service provider aka a Bank or Credit Union.
So no "interest" is charged for credit per se, but an amount is charged for system costs and shared default costs. The result is "Not for Profit" (but also "Not for Loss" !) and dis-intermediated banking. The banks are happy, since they no longer have to risk their capital by creating credit based upon it, and may become pure service providers instead.
(b) "Capital Partnerships" - allow any enterprise (Public or Private; charitable, social or commercial in aims; whatever legal structure) to enter into a partnership within an LLC or LLP framework and simply to share gross revenues - or even production eg kilowatt hours - with investors.
Using Capital Partnerships, new asset classes become possible:
(i) non-redeemable (but tradable) proportional % age shares ("n'ths") in production or revenues;
(ii) Units redeemable against a specific amount of production (and carrying no income) eg the right to 10 Kilowatt Hours, or the right to use an acre of land for a year.
So a wind turbine may be funded simply by selling Redeemable Units to the value of maybe 30 to 40% (depending on location) of its production to investors, who (as with gold) would receive no income but would have the chance of a profit if energy prices increase, but also have the option to actually use the energy. (gold not being much use to heat your house).
These mechanisms make redundant both conventional shares (in - say - a Corporation) and also secured loans, by superseding them with two simple but radical new types of financial asset.
The role of banks and credit unions in such investment financing is once again "dis-intermediated" since they need not risk capital by creating credit based upon it, but may instead act as:
- system operators
- advisers/appraisers
- introducers, bringing together investors with investment; and
- "market-makers" providing liquidity.
In summary,I am saying that these "emergent" (LLP's are in pretty pervasive use in the UK now) mechanisms will allow us to achieve banking without banks or credit unions as credit middlemen, and with institutions formerly known as banks and credit unions as service providers.
The enabling tools are the partnership-based protocols - legal XML if you will - that allow us to link disparate individuals and enterprises together across borders in legal and financial terms.
The outcome could be a networked "Clearing Union" upon which fungible Units of Value change hands facilitated by credit = "time to pay" which is itself supported by a mutual guarantee and backed by a pool of assets in common ownership." (http://www.eurotrib.com/?op=displaystory;sid=2008/7/2/4515/79009)