Local Loans
My friend needs some heavy dental surgery, to the tune of $6,000. He has looked into his options and the best he has found is a secured loan through WECU, whereby he engages the help of his friends and family for the $6,000, which is placed in a WECU savings account at 0.50% interest and frozen. The money is then loaned to my friend at 4-5%. As he pays off the loan the money is released to the savings account holder (it has to be just one account, making it difficult for more than one party to contribute) and the interest accrues quarterly.
To my mind, this is an acceptable strategy to the borrower and to the bank, but the actual lenders get the short end of the stick, making only 0.5% while the bank profits 3.5-4.5% for doing the paperwork. In my vision, the loan is direct, from me and you out there in the community, to my friend, and WE get the 4-5%, or whatever terms we negotiate. In order to fulfill this vision we would need to create the proper documents to ensure timely repayment and to make sure it's done fairly and legally.
Right now in our community, people are facing difficulties financially. They may have reduced income and high interest on credit cards. We have the ability to really help people by offering a better solution than credit cards, better than a secured loan. People around Whatcom county could be encouraged to break up with their megabanks, transferring part of their debts to low-interest local loans. This would shift money to our local economy, help cripple large banks, help people get back on their feet, AND reward the lender with honest interest earnings. If we created an organization like Kiva (see www.kiva.org) we could have community members invest small amounts of money (on Kiva the minimum is $25) that are pooled to fund loan requests. Considerations include whether/how to limit requests to Whatcom County residents only, and how to screen loan requests for validity and ability to repay.
A thought on security. One way that microfinance institutions around the world have created security with collateral-free loans is through creation of borrowing collectives where groups of people apply for a loan together and admit mutual responsibility for repayment of the loan. It works, and it could work here. Another idea is the incorporation of debt management training with the loan, which would help our neighbors become more self-reliant in the future.
I have contacted the Your Money or Your Life group, asking whether Vicki Robin or any of her cohort have advice or expertise in this matter. I'm not quite sure how to proceed, but I think this is a powerful idea that would help reduce debt in the household and make our community more resilient.
To my mind, this is an acceptable strategy to the borrower and to the bank, but the actual lenders get the short end of the stick, making only 0.5% while the bank profits 3.5-4.5% for doing the paperwork. In my vision, the loan is direct, from me and you out there in the community, to my friend, and WE get the 4-5%, or whatever terms we negotiate. In order to fulfill this vision we would need to create the proper documents to ensure timely repayment and to make sure it's done fairly and legally.
Right now in our community, people are facing difficulties financially. They may have reduced income and high interest on credit cards. We have the ability to really help people by offering a better solution than credit cards, better than a secured loan. People around Whatcom county could be encouraged to break up with their megabanks, transferring part of their debts to low-interest local loans. This would shift money to our local economy, help cripple large banks, help people get back on their feet, AND reward the lender with honest interest earnings. If we created an organization like Kiva (see www.kiva.org) we could have community members invest small amounts of money (on Kiva the minimum is $25) that are pooled to fund loan requests. Considerations include whether/how to limit requests to Whatcom County residents only, and how to screen loan requests for validity and ability to repay.
A thought on security. One way that microfinance institutions around the world have created security with collateral-free loans is through creation of borrowing collectives where groups of people apply for a loan together and admit mutual responsibility for repayment of the loan. It works, and it could work here. Another idea is the incorporation of debt management training with the loan, which would help our neighbors become more self-reliant in the future.
I have contacted the Your Money or Your Life group, asking whether Vicki Robin or any of her cohort have advice or expertise in this matter. I'm not quite sure how to proceed, but I think this is a powerful idea that would help reduce debt in the household and make our community more resilient.
Replies to This Discussion
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Permalink Reply by Judith Culver on
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Laura, thanks for the excellent description of local loans. I am really serious about investing in helping our friends and neighbors with our resources. We all need to let people know we are working on this and somewhere in our network we will find the ideas we need. I hope we can extend this to small farmers and very small businesses.
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Permalink Reply by Heather K on
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These ideas on local loans are worth presenting in either a personal blog format, or as a broader TW Discussion format to share them with the wider TW audience.
If you do, you might provide a link to the finance group if you want more folks to join in the visioning & work. -
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Permalink Reply by Shirley Jacobson on
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Loans for Auto Repair: Another local loan option I learned about today from a KGMI radio interview with a local Industrial Credit Union loan officer. Apparently it is unique to ICU. They will loan members (anyone living, working , schooling or worshiping in Whatcom County is eligible for membership) up to 80% of the value of your car after repair at a floating scale interest rate. The lowest rate currently is 4.99%. Interest rate is set based on the borrower's credit score.
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Permalink Reply by Laura J Sellens on
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I did see that loan offer at ICU.
I'm not clear on the history of it, but at one time there were usury laws, which stated that interest charged on a loan could not be more than a certain amount, I think it was 10%. I think the rates that credit cards are allowed to charge today are barbaric, absolute thievery. I think part of resilience is coming down a notch-not trying to eek every last drop of profit out of every situation, at any cost. It's about doing with a little (or a lot) less-- I get by, you get by. That's why this local personal loan idea is important to me. I haven't heard back yet from the Your Money or your Lifers, and I'm thinking now of trying to contact the Kiva organization to see if they'll talk with me about how to set it up, or why they haven't set up something in the U.S. yet.
Partly as a practice, learning to put my money where my mouth is, I agreed to help my friend with his WECU secured loan. But it would be so much better if I saw a little return on it. -
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I heard back from Vicki Robin and she said she would talk with me later this month--she said she has long thought this was an idea worth pursuing. She also cc'd to a gal from Transition Whidbey, by the name of Bev Rose, who had the idea of starting a Whidbey Island Credit Union. So we may get together or just have separate phone conversations about the idea of creating a local lending network for Whatcom County. If any of y'all are interested in participating, let me know and I'll schedule with you, otherwise I'll keep you posted as I make progress.
Lately I've been thinking of designing a website like kiva or prosper.com to facilitate the matches between lender and borrower, but I'd really like to make it more personal than that, so that it builds community. Where folks would get together over dinner and talk about goals, trust, community, vision, etc while they negotiate the terms of the loan. Maybe it would be better to have a page here where people can identify themselves as a borrower or lender, and just exchange phone numbers? But ultimately I don't want to limit this activity to just T.W. members, although I'd feel safer starting with T.W. members. Any thoughts? -
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Keep me in the meeting loop, although for me it will need to be after May planting season of our edible summer crops.
If there is someone interested in starting a business that uses hand-powered tools to maintain lawns & gardens and using a bicycle for transportation, I know someone that would consider making them a loan towards tools to set their business up.
Laura J Sellens said:I heard back from Vicki Robin and she said she would talk with me later this month--she said she has long thought this was an idea worth pursuing. ...... So we may get together or just have separate phone conversations about the idea of creating a local lending network for Whatcom County. If any of y'all are interested in participating, let me know and I'll schedule with you, otherwise I'll keep you posted as I make progress........... Where folks would get together over dinner and talk about goals, trust, community, vision, etc while they negotiate the terms of the loan. ......... -
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Laura, I like your ideas about connecting borrowers and loaners. We have to be careful that we are not pretending to be a bank or offer securities. The SEC put pressure on the person-to-person websites to register as securities. I think Kiva gets around this by not giving interest. And I think I am correct to say that Prosper registered with the SEC. I sure I don't have time to check these facts right now.
I think the easiest way to loan is a personal loan, one loaner and one borrower, with whatever terms they agree on. You can get free contracts on the internet but they always say to check with a local attorney to be sure they meet the requirements of your state. This is why it is important to have the potlucks and opportunities to build trust.
Shirley and I belong to a Common Security Club (commonsecurityclub.org is the national website) which is a lot like what you described. We have been meeting since November and closed our membership so we could establish trust. We share information and ideas but have not made any loans that I know of.
PS. Does anyone know a lawyer who might advise us? -
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Laura, good job with Vicki Robins. Let me know if you are going to see them in person.
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I agree, and I didn't know about the SEC thing. The only thing is, it may come to pass where a person wants to borrow more than one persona can provide, which would make a leanding collective attractive, and on the other side of the coin, for higher risk loans with no collateral , it may be attractive to have borrowing collectives formed. But it gets confusing real fast! So to start I think we could just open the idea here to get contact information, try it a few times and see how to build it. For all we know it could travel by word of mouth. I also agree about talking to a lawyer.
Judith Culver said:Laura, I like your ideas about connecting borrowers and loaners. We have to be careful that we are not pretending to be a bank or offer securities. The SEC put pressure on the person-to-person websites to register as securities. I think Kiva gets around this by not giving interest. And I think I am correct to say that Prosper registered with the SEC. I sure I don't have time to check these facts right now.
I think the easiest way to loan is a personal loan, one loaner and one borrower, with whatever terms they agree on. You can get free contracts on the internet but they always say to check with a local attorney to be sure they meet the requirements of your state. This is why it is important to have the potlucks and opportunities to build trust.
Shirley and I belong to a Common Security Club (commonsecurityclub.org is the national website) which is a lot like what you described. We have been meeting since November and closed our membership so we could establish trust. We share information and ideas but have not made any loans that I know of.
PS. Does anyone know a lawyer who might advise us? -
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I agree, and I didn't know about the SEC thing. The only thing is, it may come to pass where a person wants to borrow more than one persona can provide, which would make a lending collective attractive, and on the other side of the coin, for higher risk loans with no collateral , it may be attractive to have borrowing collectives formed. But it gets confusing real fast! So to start I think we could just open the idea here to get contact information, try it a few times and see how to build it. For all we know it could travel by word of mouth. I also agree about talking to a lawyer.
Judith Culver said:Laura, I like your ideas about connecting borrowers and loaners. We have to be careful that we are not pretending to be a bank or offer securities. The SEC put pressure on the person-to-person websites to register as securities. I think Kiva gets around this by not giving interest. And I think I am correct to say that Prosper registered with the SEC. I sure I don't have time to check these facts right now.
I think the easiest way to loan is a personal loan, one loaner and one borrower, with whatever terms they agree on. You can get free contracts on the internet but they always say to check with a local attorney to be sure they meet the requirements of your state. This is why it is important to have the potlucks and opportunities to build trust.
Shirley and I belong to a Common Security Club (commonsecurityclub.org is the national website) which is a lot like what you described. We have been meeting since November and closed our membership so we could establish trust. We share information and ideas but have not made any loans that I know of.
PS. Does anyone know a lawyer who might advise us? -
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I posted references and some quotes about the SEC and the online loaning sites on our Personal Finance Resources discussion.
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Last night I read in Green America's Real Green newsletter about the National Federation of Community Development Credit Unions. It said this was one of the best options for banking. http://www.cdcu.coop/i4a/pages/index.cfm?pageid=1
Unfortunately we don't have one here, but there are 50 Community Development Credit Unions nationwide and the site has info about starting one. This might be of interest to Transition Whidbey. Also the printed Real Green article has suggestions for greening your own credit union and I will bring that to our next meeting.
Laura J Sellens said:I heard back from Vicki Robin and she said she would talk with me later this month--she said she has long thought this was an idea worth pursuing. She also cc'd to a gal from Transition Whidbey, by the name of Bev Rose, who had the idea of starting a Whidbey Island Credit Union. ... -
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