Loaning Local Currency

Many people have heard the success stories of local currencies, the most preeminent of which in the U.S. is the Ithaca Hour, instituted in Ithaca New York in 1991. The concept is fantastic, local currency that CAN'T leave the community and forces reinvestment. This model for local economic development seems very innovative, however it has really been going on for hundreds of years. The concept is really just a monetarization of a traditional barter system, but most likely is more inclusive because most people today are not very comfortable with bartering and would prefer some form of currency. Having recently participated in the Washington Barter Faire in Tonasket, WA I can attest to the power of a barter system. I brought some t-shirts that I had screen printed and returned with a huge box of veggies, smoked salmon, pear sauce, goat cheese, soaps, candles, and more.

I'm curious why this kind of local currency isn't more prevalent. Is it because people are not comfortable with a currency not tied to the national system? It would be interesting to study the relative risks between a national and community currencies. I am wondering if there is a business proposition for a consultancy who could take the best practices from all the community currency models out there and sell their services to other cities or regions...

Once the system is in place there are additional options for furthering local economic development through offering loans in the currency. Ithaca has loaned out hours to 31 businesses, the biggest loan awarded recently to Alternatives Federal Credit Union/CUSO. The credit union is using the $30,000 (or 3,000 hour) loan to build/improve their building. All in all I feel that this is a simple and exciting tool for catalyzing local investment and local economic development.

Peer to Peer lending legal battles

Recently I have educated myself on the very interesting and recently politically hot industry of peer to peer (P2P) lending. I have to say that I owe much of my knowledge to Zachary Tillman's research for our entrepreneurship project.

P2P lending is simply individuals loaning money to each other without the intermediation by a financial institution. This has been going on for a very long time, but has recently experienced a large growth due to the social web (approx. $647 million in 2007). Sites have sprung up to facilitate these financial relationships and they mostly charge a service fee or percentage. In the last year however, these sites have had a lot of pressure from the SEC come down on them and one, Prosper.com is currently in litigation over the issue of trading unregistered securities.

This legal crackdown and authoritarian rule over securities by the federal government is a setback for the industry, however I'm certain that the players in this field will rebound and evolve to stay in business. They will do this because there is a real need that they are filling. In many ways P2P lending is riding the same wave as the global microfinance movement. The point being that people can do great things and better their lives when given access even to a little bit of capital. The main indicator of this is the repayment rate on loans in these industries. While the repayment rates on the P2P industry's loans are not as impressive as those that the microfinance industry touts, they still outstrip traditional bank loans.

My outlook for this industry is that it will continue to grow and thrive. Investors are realizing that they need to connect more intimately with their investments, and banks just aren't cutting it. What I would like to see from P2P lending is the ability to drill down a search to your community and find people and projects happening locally.

Welcome and Prospectus

To: The Blogosphere

From: Ryan Brown

I welcome you to my new blog on the topic of innovations in investments. This satisfies my requirement for a class I am taking called "Using the Social Web for Social Change," however I sincerely plan on maintaining this long after this term.

I settled on the topic of "Innovative Investments" because it encompasses many areas of research I have been doing for other projects. I plan on discussing existing and conceptual tools for catalyzing local and responsible investing. The discussion will likely include debt and equity investments in the traditional sense, however I plan on defining investing broadly to include the support of local living economies as well.

Thanks for reading!