APRIL/MAY 2009
Creating Community Prosperity
Crystal Arnold
Re-Localizing Capital
Jeff Golden
How Unlimited Interest Rates
Destroyed the Economy
Amy Goodman interviews
Thomas Geoghegan
Honoring the Duh-Design Principles
Shaktari Belew
Stimulating Local Agriculture
Jody Woodruf
Fresh Food From Small Spaces
R.J. Ruppenthal
Small Farm Renaissance
Chuck Burr
Where Are the Seed Growers?
Don Tipping
Try it On Everything!
The Healing Power of EFT
DVD Review by Jill V. Mangino
A Naturopathic Perspective
on Vaccination Choices
Michael H. Shuman
Safety and Protection
Peter Moore
Cosmic Calendar
Salina Rain
Re-Localizing Capital
A Key to Healthy Community
By Jeff Golden
Investing in local businesses which provide goods and services—and
in clusters of enterprises that do business with each other like farms,
produce vendors and restaurants—can have a tremendous
impact on the health of our community.
Let’s suppose two conditions are at work at the same time in the state of Jefferson, and across the country generally. The first is that large numbers of people who may never have felt fully comfortable with where they’ve parked their retirement savings and investment accounts are desperately wondering how to keep what’s left of them from vaporizing in the global meltdown. Over time some of these folks have been watching the relocalization movement—the cluster of efforts to streng-then and grow sustainable locally-owned enterprises so that resources circulate in the community instead of leaking to far off corporate headquarters—with more and more interest.
That’s condition number one. The second is that a growing number of creative local people want to start enterprises that would support their families (and other families as well, in some cases) and serve their community in healthy ways. What often holds them back is the absence of capital to start or expand their businesses.
So if you imagined those two things happening at the same time, what would you do? I called on Michael Shuman.
Michael Shuman wouldn’t describe himself as leader of the relocalization movement—he’d probably point out that it’s too decentralized to have a leader. But he’s seen that way by many, mostly because of his books Going Local: Creating Self-Reliant Communities in the Global Age (1998) and The Small-mart Revolution: How Local Businesses are Beating the Global Competition (2006). He blogs provocatively at www.smallmart.org and recently became Director of Research and Public Policy at the Business Alliance for Local Living Economies (BALLE, www.livingeconomies.org). I wrote Michael to learn about current opportunities for small investors to shift their portfolios from Wall Street to their local communities. Here’s how he his return e-mail began: “This would be, sadly, a very short conversation.”
But it wasn’t. It turned out Michael is less than happy about the progress of one of two main categories of community investment, equity investment, where shares or some fraction of the ownership of the business changes hands. That’s what we do when we buy and sell shares of General Electric or a Fidelity mutual fund, but the maze of regulation and licensing to set that up is too intense and expensive to make sense for community-scale ventures (though some clever people are at work to move local “stock exchanges” closer to viability). At the same time, Michael added, “There’s a fair amount people are doing on the micro lending side, with investors putting money into lending pools.” And with that he opened the gates to a world of quickly-evolving financial vehicles carrying capital from ordinary people into community ventures they want to support.
The first stop was RSF Social Financing (www.rsfsocialfinance.org), a 72 year-old investment fund whose modest goal “is not just to make money available to progressive and innovative projects; it’s to fundamentally change the way the world works with money.” That change didn’t begin with the collapse of 2008. There is a network of loan and redevelopment funds that have quietly offered community-building investments for more than twenty years, using a variety of models with solid track records. For an in-depth look at Community Development Banks, Community Development Loan Funds, Community Development Venture Capital Funds and Community Development Pooled Funds, visit the Community Investing Center at www.communityinvest.org.
The homepage of the Vermont Community Loan Fund (www.vclf.org) says “Vermonters stick to their roots and values, but have always embraced innovation—new ways to make life better. That’s the heart of the Loan Fund.” VCLF provides loans, grants and ongoing technical assistance for affordable housing, community facilities, local businesses, child care programs and other projects “that benefit lower-income Vermonters.” It pays any investor who wants to back those purposes an interest rate that supposedly lags behind mainstream investments (“Lower investment rates allow us to keep financing affordable to our borrowers, furthering our impact in Vermont communities”), though they look almost generous by current standards. Community Loan Funds are not FDIC-insured, but the Vermont Fund lists a series of safeguards that it credits for a twenty-year record of lending without loss of a single dollar. At the top of the list is “active lending,” which means they support their small business borrowers through the rough patches with technical and other non-financial services. They never forget that the ultimate goal—a healthy local economy—is only advanced when businesses succeed.
A small redevelopment project that began in Phil-adelphia’s inner city in 1985 has grown to become TRF (www.trfund.com), which now finances neighborhood revitalization across the mid-Atlantic states. The fund’s aim is to “identify the ‘point of impact’ where capital can deliver its greatest financial and social return. Our investments in homes, schools, and businesses reclaim and transform neighborhoods—driving economic growth and improving lives.” The website offers a couple of dozen success stories of how those loans hit the ground, from building neighborhood-scale solar and wind projects to introducing fresh-food markets for the first time in economically stressed parts of the inner city.
The appeal of investing in your own community isn’t new. If for some bizarre reason you’ve never seen the 1946 classic It’s a Wonderful Life, you’ve missed Jimmy Stewart’s heroic speech to stave off a panicked run on his tiny Savings & Loan (something like “I don’t have your money, George! It’s in Harry’s house! And Martha, your savings let the Wilsons build their house!”). And for the last few years you may have noticed Oregon banks competing with claims that they’re the most committed to keeping your funds in your community.
And what about credit unions, didn’t they arise f
om the impulse to keep the benefits of money closer to home? “Many credit unions exist,” Wikipedia points out, “to further community development.” But they do so within strict limits. “Virtually every dollar we take in,” says Gene Pelham, President and CEO of Rogue Federal Credit Union (www.roguefcu.ort), “stays in Southern Oregon. And we’re committed to keeping it that way.” He quickly adds that RFCU’s status as a federally-insured institution brings with it extensive regulations designed to protect every depositor. And, whatever else may be changing in the world of finance, that protection still includes qualifying requirements for borrowers that don’t tend to welcome young or first-time entrepreneurs with more determination and inspiration than economic track record. Pelham doesn’t apologize for his credit union’s rigor, but neither does he sound wholly satisfied. “All of us,” he said when asked what kind of change he’s expecting, “are going to have to take a little more risk in investing in each other.”
As the decision-makers at RFCU consider what that means, Pelham hopes that Southern Oregonians genuinely committed to community investment will think hard about where to put their own funds. “The threat I worry about,” he says, “is Internet banking. The INGs of the world can offer a higher interest rate, because they don’t have our cost of service to the community and individual depositors. In fact, we subsidize them, because they take in deposits through local institutions like us.” So choosing your money’s home on the basis of interest rate alone is still likely to clash with the goals of community investment.
RFCU isn’t the only conventionally-chartered institution looking for ways to take part in new community investment strategies. One of the innovative programs of the E.F. Schumacher Society (www.smallisbeautiful.org) is SHARE, the Self-Help Association for a Regional Economy. The program couples a bank’s administrative capacity with an individual depositor’s willingness to take a chance on a community enterprise s/he believes in. “Local SHARE members,” the website explains, “make interest-earning deposits in a local bank, which are used to collateralize loans for local businesses with a positive community impact … [bringing] a human face back into lending decisions. Members of SHARE pointed to Rawson Brook goat cheese or Jim’s draft horses, or Marty’s Washing Machine Repair Service, or Bonnie’s wool-knit tights and sweaters for children and knew where their savings were at work. They had a true picture of the social and environmental effect of their investments not available from an abstract bank statement merely showing a standard rate of return. SHARE members/depositors knew borrowers by name, worked with them on community projects, asked for their products at stores, or hobnobbed, for instance, with the goats at the farm while buying a weekend party supply of Monterey Chevre.”
The SHARE site goes on to offer a cogent reminder of why the general movement it supports is often called relocalization:
“This ability to lend based on personal character rather than past credit performance, this ability to respond to a crisis with flexible terms and to rally community support, and this ability to service the small business loans that are so important to the economies of rural regions and inner city neighborhoods, used to be an intrinsic function of banking and of the role of the banker. The current tendency to consolidate small banks has imposed a uniformity in lending procedures and has drawn deposits out of the local area in a pool for investment in urban centers. Bankers find it easier to place one lump sum than bother with the many small local loans.
“The SHARE program makes an efficient human-scale approach possible again by separating banking functions. The community of depositors assumes the risk and decides who should receive collateral support based on environmental and social criteria, and the bank is hired on a fee-for-service basis to make the transaction.”
Another creative adaptation to new financial realities is coming to be known as “person-to-person” lending. Two internet services are expanding the reach of micro-credit by connecting individual borrowers and lenders who don’t feel well-served by mainstream financial institutions.
“Let’s bank on each other” is the slogan of PROSPER (www.prosper.com), which claims to be “America’s largest people-to-people lending marketplace. Con-necting people to people eliminates the need for borrowers to go through a bank for a loan—and fewer middlemen means Prosper lenders also benefit.” You can window shop this site for prospective borrowers until you find one who meets your own particular mix of financial and social criteria (the site is currently closed to new lenders, but plans to re-open with expanded offerings soon).
Will a particular Prosper loan support a community building or otherwise worthy social purpose? Individual lenders make that judgment on a case-by-case basis. That has considerable appeal for those easily frustrated by group process. On the other side of the ledger is the question of whether uncoordinated separate investments can have as much beneficial community impact as successful loan funds.
If you identify your community as the whole world, you may be more interested in KIVA (“Loans that Change Lives,” www.kiva.org), which claims to be “(T)he world’s first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs in the developing world. When you browse entrepreneurs’ profiles on the site, choose someone to lend to, and then make a loan, you are helping a real person make great strides towards economic independence and improve life for themselves, their family, and their community. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates and track repayments. Then, when you get your loan money back, you can re-lend to someone else in need … We are constantly working to make the system more transparent to show how money flows throughout the entire cycle, and what effect it has on the people and institutions lending it, borrowing it, and managing it along the way. To do this, we are using the power of the internet to facilitate one-to-one connections that were previously prohibitively expensive. Child sponsorship has always been a high overhead business. Kiva creates a similar interpersonal connection at much lower costs due to the instant, inexpensive nature of internet delivery. The individuals featured on our website are real people who need a loan and are waiting for socially-minded individuals like you to lend them money.”
While making loans to new community enterprises is easier than the costly and lengthy process of qualifying to buy and sell ownership shares, lending has its own limitations. “It’s easy for small start-up businesses to max out on loans,” says Emily Kaminsky, Director of Community Capital of Vermont (www.communitycapitalvt.org). “They may not have the track record, or a solid projection of future revenues, that will let them take on multiple creditors.” Because these small ventures usually can’t afford to set up public offerings of stock, a variety of “near-equity” instruments are emerging. Some of these use methods that give investors a share of future revenue for a certain amount of time or up to a specified dollar amount.
More innovative though are CSEs. No, not CSAs—CSEs. Many of us have come to understand Community Supported Agriculture, where consumers assume part of a local farm’s risk by paying the farmer at the beginning of the season for regular deliveries of vegetables, fruit and flowers throughout the growing season. Well, then, why not Community Supported Enterprise, where your up-front investment in a woodworking or tailor’s shop or a body-work clinic earns furniture or clothes or professional massages over a certain period of time?
The Preservation Trust of Vermont (www.ptvermont.org) has tracked or organized some of the first CSEs. One of several described on its website is the Bee’s Knees in Morrisville, Vermont. “Loyal customers saved a local restaurant from closure by loaning the owner $1,000 each, to be paid back in $90 restaurant coupons per quarter, because the local food, live music, and community atmosphere at the Bee’s Knees was important to them, a piece of their community worth investing in.”
This was one of many examples where successful local investment meant saving an existing business rather than starting a new one from scratch. It’s an opportunity that frequently comes about when business owners are ready to retire, with a financial statement that’s not likely to attract a conventional buyer. Its best asset just might be a loyal local clientele, ready to ante up to help the business’ existing employees, or someone else with the right blend of skills and interests, buy the business.
According to BALLE’s Michael Shuman, enabling that kind of natural transition would be a good strategic focus for a community investment fund. “My cautionary note to new funds or investors,” he says, “is to focus and specialize. You might want to focus on a particular business sector like food or energy, or a certain category of challenge, like marginally profitable businesses that are for sale, or losing their lease, or badly need to expand.” A particularly good strategy is to invest in a cluster of enterprises that do business with each other—like farms, produce vendors and restaurants—because each will provide demand for the others’ product or services. In any case, Shuman advises, start out with loans to expand or improve good existing businesses run by competent people, rather than spanking new start-ups. That’s the best way to learn the ropes and to attract more capital to the fund. If you don’t do it carefully from the outset, you probably won’t be able to do it for very long.
That might not be welcome advice for those wanting to help twenty- and thirty-somethings start their first business. Some experienced voices say that objective may have to wait. A fund that makes good loans with prompt repayment from the beginning might have the option of setting aside some of the proceeds for a New Entrepreneurs Program, complete with mentoring and technical support, that begins to assume higher levels of risk.
The experts’ advice to establish these funds cautiously can be hard for some to heed. There are would-be bor-rowers out there whose ideas energize our vision of what a great community would look and feel like. How do we give these ideas more open consideration than they’ve received in the past, while maintaining the rigor needed to keep a loan fund healthy and viable? What criteria would blend discipline and vision in just the right proportions?
The SHARE program described above takes a step in that direction by supplementing a fairly conventional list of financial requirements—a sound business plan, credible accounting practices, some solid collateral—with what they call “General Criteria” for their applicants:
• Loans should be for productive purposes to help you or your business provide goods or services more efficiently or economically to the community.
• The business receiving the loan should be regionally based, that is as much as possible the goods should be locally produced, using local materials, employing local people and selling to a local market.
• The goods or services offered should be needed by the regional community. Priority will be given to basic necessities such as food, clothing, shelter, alternative energy sources, and health and transportation services. The main intent here is to help encourage “import-replacing” business initiatives, that is, to find ways to foster production of needed goods and services within the region rather than importing such items from outside the region.
• Production methods should be environmentally sound, using appropriate scale technology when possible and including measures for energy conservation.
• The business should be socially responsible both in relationship to employees and consumers. Products and services should be of high quality and safe to the health and well-being of the community. Non-discriminatory hiring practices, fair employment terms and safe working conditions should be used at all times. Priority will be given to organizations structured as cooperatives in which workers have a significant participation in management and ownership.
The change these programs are trying to serve is not a small one. This section of RSF Social Finance’s mission statement captures what’s at stake: “Together, we’re creating a shift from financial transactions that are complex, opaque, and anonymous to those that are direct, transparent, and personal. Every decision we make is based on long-term relationships, not short-term outcomes.” The skepticism about whether that shift can succeed in a world of enormously powerful non-local economic interests brings to mind a suggestion that’s been credited to Joel Barker, Walter Lippmann, and half a dozen others: Those who say it can’t be done should get out of the way of those who are doing it.
Former Jackson County Oregon Commissioner and public radio host Jeff Golden is the author of Forest Blood, As If We Were Grownups, and the recently released novel Unafraid, with excerpts available at www.unafraidthebook.com. The quality of the programs highlighted in this article hinge on information too extensive to fit in this space. The web addresses are provided to make it easier to evaluate those details.
Jeff Golden will be producing and hosting a 5-part series for Southern Oregon Public TV that will focus on advancing sustainable practices in our homes, workplaces, and government and community institutions. There will be an interactive format that reflects the fact that progress depends on a collaborative commitment from the community, not top-down “solutions” that can cause as many problems as they solve. The first program at the end of April will draw together the highlights of the 3-hour Town Hall Forum held on January 15, then there will be a half-hour program each Wednesday night in May that combines short documentaries with interactive conversations. Please visit www/soptv.org/townhall for details.
