The Old-Fashioned Way To Borrow
Metroland Online - Chet Hardin - Susan Witt says that the collapse of global financial institutions might have changed some people’s views of banking and economies, but not hers. “It just so happens,” she says, “that it has brought us a lot more attention.”
Witt is the executive director of the E. F. Schumacher Society, which was founded in 1980 “to promote the building of strong local economies that link people, land, and community.” In 2006, Witt founded the Society’s most famous program, BerkShares, a currency that can be used in place of federal dollars at hundreds of businesses throughout Berkshire County in Massachusetts. The goal is to keep wealth local and, to that end, there is a built-in advantage to using them: Ninety federal dollars buys you 100 BerkShares. If you can and do use them instead of dollars, you are basically giving yourself a 10-percent discount on whatever you buy.
BerkShares is a sophisticated tool for encouraging citizens to shop locally, Witt says. “It is to keep money recirculating in the region.”
But now, she and her organization are looking to expand their rare local-currency initiative into the realm of lending. “To act as a full-fledged local currency, the goal would be to begin making loans for productive businesses,” she says. “This is BerkShares’ next step, to actually make loans for new import-replacement businesses. What are we now importing into this region that we might produce locally and in a centralized way?”
What kinds of local businesses could replace imports? For instance, she says, the Berkshires region is flush with hardwood, but there are no furniture manufacturers. There are a number of apple orchards, but there are no apple-sauce canneries. “It would take that kind of investigation into what would be the appropriate import-replacement business, and not your normal economic development pattern, which is to try to lure a branch of a big corporation. Instead, create an inventory of what is sourced locally, and what we might source locally if that business were there. And then through lending create the financing for it.”
The loans would focus on productive businesses, with the criteria being import-replacement focusing on the necessities of food, clothing, shelter and energy. The loans could be a blend of federal dollars and BerkShares, she says, depending on what needs to be purchased. And they would entertain the microlending opportunities that banks tend to avoid.
Yet, like the BerkShares currency, the lending program would work in concert with the banks and not in opposition. “We’re extremely fortunate here in the Northeast to still have a network of community banks,” Witt says. “Those are the ones that are working with us on the current application of the BerkShares program, so we wouldn’t be stepping outside and creating a new banking structure. We don’t need to. We need to work with our existing banks.”
BerkShares likely will make loans to people who the banks would consider “high risk.” But “high risk might be high risk when crunched into a computer at a bank,” Witt says. “Community notions of risk are different.” She points to an example from the early days of the Schumacher Society, when they were operating a microcredit program called Share.
Essentially a microloan and collatorization program, Share allowed people to invest their money in specific savings accounts at a local bank. These savings accounts were then pooled to collateralize small loans that banks wouldn’t normally make.
This was in the early ’80s, when interest rates were topping at 17 percent for small loans. “We could offer 10 percent loans through the banks,” she says.
It was an extremely useful model for small business people, to help them secure funds and build their credit. She points to one woman in particular. “She would knit sweaters in her home. She would order wool, knit her sweaters, order another bunch of skeins of wool, and that wasn’t giving her the best price on wool because she wasn’t buying in bulk.” So she borrowed $500. “That got her credit with the bulk wool supplier, who then began selling her yarn at a better price.” Her business grew and she needed a new knitting machine. The bank wouldn’t take a knitting machine as collateral, “but we would,” Witt says. Eventually her credit was so bolstered by this program, the bank began to give her loans directly, for the first time in her life.
As interest rates dropped and banks began to see that small business loans were good investments, Share began to become less a necessity. “We didn’t want to compete with the bank; we wanted to augment.”
“The economic diversity of this country was created on a system of diversified currencies,” Witt points out. “In the 1800s, every commercial bank issued its own currency, and every region had available to it the appropriate financial vehicle for developing the resources—labor skills, natural resources—that were unique to that region. We gave it up for the convenience of a centralized system, and now we are paying the price of going that route and not keeping the local diversified system vibrant.”
“People are looking for what they can do without waiting for government, without waiting for reform, without going to big banks. For what can they do as citizens,” Witt says.
They are currently doing interviews for pilot loans. “Certainly by the end of the year we will have a loan or a couple loans in place, and then see about reaching out more broadly.”