Most of us now get our news and media in a different way. Many are exploring a different way of getting an education. Why should banking not change? Why should we expect a new more social approach?
This new social approach to credit is in fact a very old one. The new rules are in fact going to be the very old rules.
So what will be some of the new rules for the new banking? You can find most of them in my new book You Don't Need a banker that will be out in November. But here is a quick overview.
In the new banking system - which is in fact based on the very old credit rules - no one is beholden to one entity. No one is beholden to one entity that does not care about you. No one is beholden to an entity that has much more power than you do.
But the new is not easy. It will depend on how you behave and how people trust you and whether you have a real network.
Let's look at 2 ideas to see how this works.
This is a typical CSA ( Communuty Supported Agriculture) Box. It symbolyzes much of the New/Old system. A small grower presells her summer production to a range of individuals. Many start with 10 - go to 50 and many max out at 100+. The system is always quite small.
You the buyer commit in the spring to buy an entire season of boxes. You and the others provide 2 vital things to the grower. She now has her working capital for the year and she has her sales all nailed down. The interest rate = 0. There is no single buyer that holds all the cards. She has taken a lot of the cost, the risk and fear off the table.
But to make this work year in year out - she has to perform. She has to meet the trust that has been placed in her.
She has to worry about doing a good job. Much of that is in now her control. The risk remains the weather and pests. She can reduce this risk by having a wide range of crops and by keeping her exposure to each crop low. That is why in the end she cannot scale too much.
The system demands that she prove the trust. The more each year that she proves the trust, the more wiggle room she will have if she has a problem that she cannot cope with.
For her customers stop being arms length over time and become a network of support.
They become a built-in marketing department. So long as she delivers on her promise and offers great veggies, her customers will tell their friends and her business will expand to her limit and also roll over every year. Most successful CSA's have close to 100% re commit the next year.
So her working capital gets easier to get as time passes not harder.
As her reputation grows she can also use her name to do other things that will expand her net bottom line. Such as offer classes to her customers. Or to hire apprentices. Or to seek professional help from her customers - ie help with her web or book keeping. Over time her network expands in its nature too. For its product too is trust. Other members can start to do things with each other.
Each CSA or business designed like this creates more social trust and cohesion in the community.
This brings us to Barn Building.
You get "Barn Building". Much of the costs and so needs to borrow cash go away for all legitimate members as the Community uses its store of Social Capital to get work done.
Traditionally in rural America and Canada, if you needed a new barn, you would pay for the materials, you would pay the skilled barn builder but you could expect to get the labour for free. At least free in cash terms.
There were 4 key conditions to accessing this store of social capital:
- There has to be a lot of trust in the system to start with where all expect to put in to take anything out
- You have to be trusted and be seen to be a contributer
- You don't ask the system too often
- You make the experience highly social (meals - party etc)
In this system, there is no big bank standing over us. But there is a powerful social obligation to be a valued part of a community.
My hope is that as more and more of us become part of these types of arrangements, that we will need th old top down banks less and less.
I will post in more detail about how much less this weekend
Until then - Try my introduction book in the series - You Don't Need a Job