Interestfree banking The case of JAK Bank 1

Interest-free banking: The case of JAK Bank 1

A Few Starting Considerations The money system has a great, but largely unknown, effect on society Our thoughts/actions are the result of ongoing conditioning Economic thinking dominates our culture and particularly our working lives (Does it make business sense? Is it profitable? ) Difficult to link our daily actions with the big picture (hard to perceive their impact on a large scale) Resistance to the change of established worldviews/habits Holistic approach: all forms of life on earth are interconnected. The well-being of our own self is dependent on the wellbeing of everything we are connected to 2

A Few Starting Considerations From custodians of our money, banks have become growing multinationals. They have lost touch with human society Speculation has become more powerful than trade. People running the system have more to gain from instability than stability The primary measure of how well society is doing has become that of economic growth rate. It has become the most important objective of the government We are implicitly given the message that growth is the most important aim for the welfare of our society One hidden problem: compound interest generates a need for perpetual, exponential growth 3

Simple vs Compound Interest Where: FV = Future Value ($) PV = Present Value ($) r = Interest Rate t = Time (Years) 4

Example of a Loan How does the interest grow for a £ 100, 000 loan at 12% for 25 years at simple vs compound interest? Simple Interest: £ 300, 000 Compound Interest: £ 1, 600, 000 5

Misconceptions about money Growth: “Money with interest can grow forever” Some different growth patterns: a. Natural b. Linear c. Exponential 6

Misconceptions about money Transparency: “Interest is paid only when we borrow money” Fairness: “Everybody is treated equally in the system” 7

Effects of interest Causes inflation, environmental destruction and unemployment Destabilises economy and society Transfers money from the poor to the rich Favours only projects that lead to profitability in the short term 8

JAK Members Bank Operating an interest-free savings and loan system in Sweden since 1970 No-profit cooperative bank owned and managed by 36, 000 members, each with one share Loan fees and equity deposit cover the operating costs and ensure a degree of liquidity Members’ deposits finance all loans Operates as close to break-even as possible, charging just enough in loan fees and membership fees to cover its operating costs Annual membership fee: € 20 Growth is 12% per year, 1% credit write-offs 9

JAK Members Bank Average length of a loan is 10 years Unique cooperative/solidarity aspect, educational role is key. A bank of reciprocity, everyone is treated the same Instead of competing with one another for money, they are better off sharing their savings to help members most in need Safer, relying on one another as opposed to relying on the volatile mainstream financial markets Blog/forum for open discussion among members Quarterly newsletter and workshops about personal finance and community well-being 10

Differences with conventional banks Traditional Bank JAK Members Bank Pays interest on deposits Charges interest on loans Administrative loan fee Shareholder ownership Members ownership Global for-profit enterprise Fractionary system Gives savings points on deposits No-profit local cooperative 100% reserve system 11

Savings and Loan System Savings-orientated system: “Members borrow from their future savings” Three type of loans Savings Points, Savings Factor Supplementary Savings Income streams: Membership fee Loan fees Treasury bonds 12

The simplest loan Equivalent to saving £ 2000 in two years, but that amount is already available after one year Pre-savings 13

Modern Loan Equivalent to saving £ 20000 in ten years, but £ 10000 are available to borrow immediately 14

Loan Comparison The JAK model does not automatically provide a financial benefit over what could be achieved with conventional financial products. Let's make a comparison between JAK and conventional loans, including £ 10, 000 savings. Let's assume a £ 10, 000 loan over 10 years: 15

Typical Loan Pre-savings Break-even point 16

Support Saving Loan Savings moved from members' individual accounts to a single Support Account No need for extra security or supplementary savings 17

Support Saving Loan: Example A group of people share their savings to provide capital (interest-free loan) to a local company that manufactures / installs photovoltaic cells, wind turbines, etc. increasing its competitiveness in the market Renewable energy will cost less This will spur innovation and healthy competition 18

Support Saving Loan: Example As a result, the community gets access to affordable, renewable energy 19

Benefits for Members have access to a lump sum of money at the end of the loan Savings Points can be donated to other members or local funds Many members find this an empowering form of charity 20

Criteria to Grant a Loan Available money Ability to repay (including supplementary savings) Collateral (security) 6% Loan Equity deposit 21

Final Thoughts Creating money out of nothing and charging interest on it may be the most important factor in driving humans beyond the means that Nature provides Money should not be the only measurement for the success of an individual/enterprise. Growth of the community, human development, funding of sustainable/ethical projects should be more important than the accumulation of wealth. We need economic reforms which encourage and reward cooperative and altruistic behaviour, which spread through reciprocity to achieve well-being for all As an increasing number of small companies go bankrupt as a result of their inability to repay their debts, people begin to understand the value of an interest-free world. Members can join forces and create companies free from the burden of compound interest. 22

Final Thoughts There is a growing demand for a more human way of dealing with money Individuals and society benefit from co-operative organisations Many people want their savings to be put to better use for society, without necessarily expecting a financial return Internet provides a great opportunity for bringing people together JAK UK should be run as a social business that operates as close to break-even as possible. At least initially, such initiative should be targeted at people already engaged in social, environmental and ethical causes Initial funding would help to achieve a critical mass where further growth can be self-sustained 23

Useful Resources Mark Anielski: An Assessment of Sweden’s No-Interest Bank (2004) Mark Burton: Unravelling Debt (2008) Ana Carrie: How Interest-free Banking Works: The Case of JAK (2001) Vladimir Z. Nuri: Fractional Reserve Banking as Economic Parasitism: A Scientific, Mathematical & Historical Expose, Critique, and Manifesto (2002) David Icke: I Want The Earth, Plus Five Percent Margrit Kennedy's website: http: //www. margritkennedy. de Jak Members Bank website: http: //www. jak. se Paul Grignon: Money as Debt (2006) The Money Masters (1994) 24

When do we start? 25