One way I’m opting out out of the debt-based Wall Street banking system, is by joining a local interest-free savings pool. A group of neighbors is investing their savings in a savings pool – rather than a bank – and to use the savings pool to loan money to one another. We’re using a model designed by the (New Zealand-based) Living Economies Trust. The model is based on the Swedish JAK members’ Bank, founded in 1965. The Jord Arbete Kapital (Land Labor Capital) Bank doesn’t charge or pay interest on its loans. With its loans financed solely by members’ savings, it operates outside of the Wall Street capital market.
As of November 2011, the JAK Bank had a membership of 38,000 and accumulated savings of 131 million euros. Of this 98% had been loaned out to members.
How Savings Pools Differ from JAK Bank
Savings pools maintain the JAK Bank’s tradition of interest-free transactions but differ from the Bank’s model in several respects:
• Savings pools are private arrangements between members with regular personal contact.
• Executive decisions are made by pool members themselves rather than a paid management team.
• Pool costs and charges are virtually zero.
• Each member’s savings are held in trust for that member – they don’t become joint property and can only be spent if the member agrees.
Our local savings pool meets monthly, and all savings pool decisions are consensus-based. Individual members may abstain on special loan proposal they disagree with by declaring their own balance unavailable for that specific purpose.
Tracking Savings as Dollar-Months
Savings are tracked as dollar-months rather than balances. In other words, pool statements reflect both the amount a member has contributed and the length of time they have made the funds available.
A member wishing to borrow other members’ money proposes a payment schedule and offers something of value as security to make sure the debt is covered. If the group agrees, the pool transfers to the borrower the loan amount and any balance the borrower may have saved. One month later, the borrower begins a series of installment payments, with half going to repay the loan and half going to reciprocate the pool’s contribution
When borrowers ask the pool to accept interest-free installment payments, it’s not enough to merely repay the loan. They must also make their own savings available for long enough to match the consideration other members have accorded them. This is called reciprocity.
The Advantage of Reciprocity Over Interest
Despite this reciprocity contribution, the amount repaid to a savings pool is always far less than the compound interest charged on a bank loan. With a mortgage, for example, the interest paid is usually more than the original loan. Although the borrower ends up with a house, they have nothing to show for all their interest payments.
In contrast, a savings pool borrower ends up with the purchased asset and savings, which may be withdrawn as soon as the loan agreement is complete.
Supported borrowing is also encouraged. Pool members may gift their reciprocity points to ease a borrowers reciprocity contribution