Banking, Foreign Aid and Pensions.

OK you grubby little Englanders. It is Saturday night. Let us put the world to rights. Or at least, let us think about how to fix a few things that desperately need attention. So tonight....

Putting the world to rights involves doing three things:

1. Screwing over the disgustingly greedy bankers.
2. Ensuring foreign aid actually goes to decent people not tyrants and despots
3. Making sure that those who invest in a pension actually get one.

Here is a short discourse on the way it is, what needs fixing, and the way it could be.

The way it is:

Banking
The obscenity of the banking scandal continues. The banking wide boys reward themselves with outrageous bonuses while waving two fingers to the rest of us. The banks charge loan shark rates to borrowers while rewarding savers with a pittance. Businesses needing working capital can go to hell.

Foreign Aid
The governement grotesquely announces that it wants to be an aid "super-power". It shovels more and more money abroad in a grandiose attempt buy itself friends and importance on the world stage.  Massive amounts of the aid money ends up supporting the tyrants and bigots who brutalise much of the third world. The decent people of the third world who need a hand up (not a hand out) get the table scrapings, if they are lucky.

Pensions
The self same banks, also peddle dodgy pensions. Though they make their financial advisors and associates millions, they leave the suckers drawn into their schemes on a sure course to a poverty ridden old age.

So how can this be fixed?

Basically, as stated at the start, we need to:

1. Screw over the bankers.
2. Ensure that foreign aid goes to decent people not tyrants.
3. Ensure that people who invest in a pension actually get a decent return.

So here is a suggestion. Naive it may be. Even unworkable - maybe.

But I hope you find it interesting,

The way it could be.

Instead of trusting the untrustwothy bankers, pension savers would commit (say) a portion of their pension to micro-finance initiatives. This could include foreign aid initiatives like those run by Kiva. Through organisations like  Kiva, this money gets lent out directly to the ordinary decent people in the third world. Of course lending like this, although relatively safe, gives a poor or nil financial return.

This is where the foreign aid budget comes in. Instead of just funding ugly despots, the foreign aid budget could provide a return to the pension saver for the loan. This would amount to perhaps 5% of the loaned amount. It would ensure that foreign aid actually supported decent people rather than the ugly despots. It would mean individuals would take responsibility for helping the poor of the world, not some government quango. Meanwhile their government would take responsibility for ensuring that pension funds, honestly saved, get a decent return, At the same time, they could massively reduce the corrupt foreign aid budget.

But there are losers:

1. The ugly despots who find they cannot now affords a new golden 500 series Mercedes every six months. Or some new electric whips for their secret police.

2. The bankers who suddenly find out that their slush funds have vanished and their bonuses are in jeopardy.

Anyone grieving for the losers?

...Thought not.

p.s. If you are wondering "What about investing in UK industry?" ... see one of my next posts

A Business Banking Rebellion

Once upon a time us grubby little Englanders regarded our banks as respectable, honest institutions. Pillars of society. Bank managers were respected and viewed with awe. Meeting one was usually regarded with a level of trepidation. A bit like  being called to see the headmaster or waiting to see the dentist.

Your money was safe in banks. They paid interest on your savings and charged appropriate rates for loans. They made a respectable profit on the difference.  They were seen as the basis for fair dealing and financial honesty thoughout the country.

Small businesses could go to them assured that their situation would be given fair consideration, even if "the interview" was a bit like an interrogation by Special Branch. But if you had a good  history you could get the money to expand your business. You could trust the banks.

How things change.

At the moment the small businesses requiring short term loans are being crucified. Even if they are offered loans they are often at extortionate rates of interest.

This reluctance to lend becomes a self fulfilling propecy. No loans mean businesses cannot expand or modernise. No expansion or modernisation means they lose market share. They become less viable.  As they are less viable they are even less likely to attract a loan. Eventually they go under or are taken over. Hey Presto. The bankers were right all along.

But there is hope.

Lenders and borrowers are rebelling against the tyranny of the banks.

The new revolutionary concept of Peer to Peer banking is storming ahead. This is where the "banker" acts like a facilitator or intermediary and does not actually hold the purse strings itself. Real, actual people are the lenders and they decide the rates.

Most of the development so far has been with enabling peer to peer lending to individuals. The main player in this market has been the highly successful firm ZOPA. Now the model has been extended into the business sector by a new company called Funding Circle.

Funding Circle is soley concerned with facilitating loans to small and medium sized businesses. They are in their infancy at then moment but the concept looks good. It works by letting individuals directly loan money directly to small businesses. Funding Circle is simply the intermediary

Small businesses needing cash can register to borrow money.

A single lender will make many very small loans (£20) to many businesses. A single credit checked borrower will have their loan constructed from many small lenders.

The interest rate is decided in exactly the same way as done at ZOPA. The lender decides what rate he wants to achieve and then the loan offer is contructed from the lowest offers. So if you offer to loan money at a ridiculously high rate you will have no takers, while the borrower is classified according to a credit rating so he will only be offered a loan from borrowers who will have adjusted their rate to take into account the credit risk. On any one borrower, a lender is only risking a small amount of money.

The end result is that businesses can achieve loans at significantly lower rates than offered by the banks while lenders (i.e. savers) get a return (that takes into account potential bad debt) which is at least twice that offered by the banks. You can, by the way lend as little as £500. This is not a scheme simply for the rich.

Before you ask, I have no financial or work interest with Funding Circle. That is other than that I have bunged in £500.00 to see what happens. So far I am very impressed.

If your small company needs a fair loan, have a look at Funding Circle. If you have some savings and you want to get a good return (and actually use your money to do something useful) then I recommend you look to become a lender. As well as that, in a small way you also get to screw the greedy banks.

Next (or soon)  I will be looking at the third very interesting leg of Peer to Peer banking with KIVA and the charity sector.