Director,
T.E.(Terry)
Manning,
Schoener 50,
1771 ED
Wieringerwerf,
The Netherlands.
Tel:
0031-227-604128
Homepage:
http://www.flowman.nl
E-mail:
(nameatendofline)@xs4all.nl : bakensverzet
and
"Money is not
the key that opens the gates of the market but the bolt that bars them"
Gesell, Silvio The
Natural Economic Order
Revised English
edition, Peter Owen,
“Poverty is created scarcity”
Wahu Kaara, point 8 of the Global Call to Action Against Poverty, 58th
annual NGO Conference, United Nations,
This
project sets up a user friendly interest-free financial environment based on
the constructive recycling of a ten year interest-free loan and the creation of
local exchange trading systems.
Users
repay the interest-free loan after ten years. At that point of time they will
have been repaying the loan at the rate of approximately 6 EURO per extended
family of ten per month for the first 36 months, and Euro 7,50 per extended
family of ten per month for the next following period of 84 months. Their
repayments are, however, made in the local Kenyan shillings. Should the local
(formal) currency through inflation or exchange measures have devalued against
the EURO, the amount in local currency collected by the users will not be
sufficient to pay the original loan back . This situation is beyond the control
of the parties to the project, and in particular of the users.
A
decision on how this risk is to be covered will therefore need to be made when
the project is being financed according to whether the interest-free seed loan
is expressed in Kenya Shillings, or in Euro.
(LOAN
EXPRESSED IN
If
the loan is expressed in
The
following are four possibilities:
1)
Financing parties formally accept they are willing to run this risk and write
off the eventual difference as a gift.
2)
Financing parties agree to extend repayment time until the total amount
collected in the fund is sufficient to repay the whole loan expressed in EURO.
This can lead to a "win-win" situation in that the amount available
for recycled micro-loans would remain at a high level. In return for the extra
monthly payments, users have more money to recycle in micro-loans than would
otherwise have been the case.
3)
Financing parties require payment of the available funds on expiry, and that
the difference be collected using the next following monthly payments, until
such time as the original amount expressed in EURO is balanced. This solution
is negative for users in that for a shorter or a longer period (depending on
the inflation which has taken place) users will not be able to benefit from
re-cycled micro-loans and on-going local development will slow down and could,
in some cases, even stop.
4)
Financing parties require repayment of the available funds on expiry but
reinvest any difference for a further cycle of ten years. This will reduce
users' funds for renewing capital goods or extending services at the end of the
second period of ten years, but will not negatively affect recycling of
micro-loans for on-going local development under the project. )
(LOAN EXPRESSED IN EURO)
If the loan were to be
expressed in EURO, would users' monthly repayments be indexed to the EURO? If
so, how would the monthly rate expressing the amount payable in EURO be
determined, and by whom? How would the users be advised?
Were repayments to be
indexed to the EURO, the total amount collected by users over the ten year
period could, when converted into EURO, still be (considerably) less than the
total amount in EURO. This is because the indexing of the local payments to the
EURO is progressive over ten years while the exchange rate applicable on
repayment of the loan after the ten years' loan period is the one applicable at
the moment of the repayment. The difference would normally be less than where
the loan is expressed in the local currency, but one of the four options
mentioned above would have to be applied to it. )
Next file :
04.17
Project insurance and forfeit in the form of gift in the case of loss of capital structures.
Back to:
04.15
How a local money (LETS) system works.