Let peer to peer aid be the new model driven by people not governments.

Why are governments involved anyway? Well that’s not about aid really, its about influence…ok let’s be brutal it’s about money and power. Yes it’s all about politics: quid pro quo, backhanders and the rest of it. We’ll give you money and you help us out, vote for us at the UN or give us some nice contracts for whatever.

That’s the good bit. Now let’s see it in action. Up the government chain on one side and down the other. Hands out all the way up, across and down. Let’s not even go there. Of course some governments take this seriously and see aid as a genuine redistribution of national income but the model has been sorely abused over the years.

Even locally we had the Niue government telling the NZ PM that if it didn’t receive aid quickly it would turn to China instead. It doesn’t get more blatant than that. More and more aid has become a strategic tool in the foreign office of wealthy nations.

Francis Fukuyama recently reviewed two books on the subject both with similar themes but differing opinions: “The Challenge for Africa” by Wangari Maathai and “Dead Aid” by Dambisa Moyo. What I like most is that these are books coming from Africans themselves and women as well. It’s a refreshing change to Western University academics. It’s also an area of quite passionate debate. Here’s a great debate with Dambisa Moyo, Hernando de Soto, Paul Collier and Stephen Lewis on whether foreign aid does more harm than good.

Some issues are clear: corrupt governments and a weakened civil society; years on the western government welfare teat; trade barriers and resource depletion. The West carries the guilt and assuages it with cash even if its straight into the Swiss bank account of the latest tyrant.

So if governments are the problem why not remove them from the picture?

Well perhaps that is what will happen. Today the UK Conservatives unveiled a new policy on aid. As part of that they proposed a Gbp40m fund called “My Aid” which would allow the people to vote on their favourite aid project. Ok this all sounds a bit like the next reality show but for me it signals a subtle change in direction.

What if governments simply dropped their Aid budgets and gave that money back in either tax cuts or tax credits for giving? What would happen?

- Microfinance would take off.

- Giving platforms would widen and internationalise.

- There would be more targeted and personal involvement.

- Social Media would drive this (TwitterAid?).

- This would lead to grassroots build up and development of localised civil society.

- It may lead to an increase in giving as government moves out of the way.

- And maybe less celebrity nonsense as well!

Above all this p2p Aid model would be people driven and . as with microfinance, be very empowering. The aid infrastructure will still be necessary but that too may require some modification or restructuring. The Kiva and Wokai models will be very useful for this as will giving and donating platforms.

Within the story lies another imperative: the desire to give. Giving has become my passion whether it’s time, money or stuff. Yes reforming the global financial system is interesting but nothing will ever surpass the desire to perform service to others in a direct way. It’s our most universal law.

To raise $42 for a boat would take a few seconds these days. It’s that low cost, diversified approach that makes the web network so powerful.

These Stories from the Field are wonderful to read. People want connections, they want to see they are making a difference and they want it to be real.

Well it doesn’t get any more real than this.

It’s always good to see footage from the field and here is a great video interview with Casey Wilson, the co-founder and CEO, shot by GrubbyLens. These personal stories help build the picture and make the connection more real.

Facebook for Farmers from grubbylens on Vimeo.

So when it comes to managing our money we are faced with the same questions: who am I and what is my intention?

It seems to me that we have 3 ways of using our money: Giving, Lending or Buying.

Giving is the simple act of directing one’s money to somone else with no expectation of financial return inclduing the original gift. But there is a clear intention that the gift should have some kind of impact. Simply this can be regarded as giving money to charity or a fundraising appeal. Your return is hopeful, that some positive outcome or impact will be achieved by way of your contribution. This is a powerful way of expressing your intention. Of course one can also give your time, goods and services for no financial return and this is a more hands on approach.

Lending, otherwise known as saving, is also a powerful tool. When you deposit your cash in the bank you are in effect lending to the bank. In legal terms you are an unsecured creditor of the bank. There is little intention here as we tend to see the process as the bank doing us a favour. But when it comes to peer to peer lending, microfinance or simply lending money directly to friends, the process takes on a deeper signifiance. There is a more direct energy involved and a desire to participate in an outcome. The personal connection to borrowers helps create this possibility. Another form of lending is to large business via corporate bonds. This is akin to saving in the bank except again there is a directness involved. A large business wants to raise $100m and I lend it $20,000. I’m a small piece of that but I’m essentialy helping to fund the business. But there is still some distance there as I’ve probably dealt through a boker or investment advisor. What I am keen to see is more peer to small business in developed countries. We’ve seen Kiva open up loans into the US now and soom we will see more acceptance in people lending larger sums to small businesses. Not so much microfinance as peer finance. What better way to create strong and trusted communities than people lending to businesses they buy from.

The third form of intentional money is the process of buying. This is two parts: buying for ownership in a business and buying for personal consumption. The latter is the world of ethical and values based purchasing. It’s a well developed market and I won’t got into that. But actually directing your money into businesses through ownership is another way to direct the flow of your financial intention. Whether it’s ethical investing at the macro level (buying into ethical funds) or at the micro level (investing in start ups that share your goals and values). The micro level is more interesting because the impact of your investment is greater. In the macro world of stock markets and large companies your investment is not so influential because of the way institutional investors control so much of the market.

We have many choices when it comes to dealing with our money. Each time we make a financial decision we have an opportunity to express our intention. Its a very powerful force. The more we align our choices with who we are, the more powerful our impact becomes. We become an efficient intentional system

As they say money talks.

Small businesses in NZ have seen no relief from high interest rates in the recent lowering of rates here. At the same time credit is hard to come by and many business owners have resorted to credit cards to keep their businesses going.

This is a troublesome state of affairs given its the productive economy that has to earn the dollars to pay back the humungous debt necklace hanging around the necks of Kiwis.

So what’s the state of play with microfinance at the moment? Well Kiva is going great guns. It’s really tapped into people’s desire to help and be generous in giving but created this new joy of creating and empowering change for people. It connects people together and that personal touch pulls the punters in.

The more tradtional p2p lending services are not finding life so easy. Charis Palmer reports here on recent developments citing problems for Prosper in the US and some success for Zopa in the UK. Locally Peermint has fallen by the wayside, Nexx hasn’t really got going and Lending Hub has joined a busy Australian market.

So there’s no shortage of platforms but it’s proving harder than expected to deliver the business. But there seems to be no platform for small businesses to secure funding. This is certainly an opportunity as there is certainly a strong and established market on the borrowing side with appropriate forms of due diligence available.

The major stumbling block for p2p start ups has been compliance with various regulatory authorities. However there may be ways around this and with politicians supportive of the small business sector the time may have come for a serious attempt to create what would be a mini-corporate bond market funded by the retail investement market direct.

Now that sounds like a major step forward in building a more productive economy.

The catastrophic implosion of the US financial system in the last year has merely emphasised this change in the balance of monetary might.

So when Kiva, that beacon of social entreprenuership, decided to offer loans in the US itself, there was a huge intake of breath. The US needs microloans??!!!

Of course it does. How do small businesses get funded? Normally by people taking out second mortgages, borrowing from friends or ramping up credit cards. In fact I’m told many businesses fund cashflows problems using personal credit cards. Why?

Because banks have a model where they lend on housing as collateral…oh yeah that worked well…not.

The old fashioned approach to banking (one my father was involved in for 42 years) was lending to small business people and supporting them through the ups and downs of the business cycle. Investing in people and creating relationships of trust.

I think we are headed back to this and it’s peer to peer lending that is making this happen. The web itself has allowed these bonds to be built, that’s what networks are after all. Lots and lots of micro connections. Isn’t that the amazing thing about the web? It’s so huge and vast yet it’s simply a conglomeration of molecules connected together.

I know I’ve been bagning on about this for ages but banking, like media, will be forced to change. The micro world is causing new networks to be created, new bonds to be formed and new efficiencies to be found.

Harnessing the power of the web is allowing this to happen.

Microfinance has shaken up the banking world. I enjoyed reading Matt Flannery’s piece on the Kiva story.

Microjustice will no doubt change the legal world in due course.

We already have microrelationships, micromedicine surely on the way.

And the biggest prize of all………..microgovernment.

The change is coming, the inexorable march of system reorganisation is humming away in the background. It’s not top down, it’s an unseen mass movement with no control function. A pure chaotic system in action, free to develop and receive feedbacks in real time.

Who would have thought a lender from Domenica would be funding a borrower in the US.

Yes times are changing.

Buying a house used to be so simple. 2-3 times your income or 3-4 if you had joint ones. This was before the days of the grand pyramid scheme known as financial deregulation. The formula was fixed at a level that had been shown to be affordable.

So what happened to the simple model?

This quote may explain it.

It’s from a piece on the sub-prime web by Michael Lewis of Liars Poker fame,

“He called Standard & Poors and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. They were just assuming home prices would keep going up“, Eisman says

Nice one. This idea, that things keep going up, seems to have become instilled into our eco-social fabric. Buy houses, buy stocks….they always go up…..well at least in the long run.

The dreaded long run that usually ends in death, mercifully for some.

With a belief system like that it’s no wonder that the recent crash will go down in the annals of history alongside the South Sea bubble, Tulip Mania and the Great Depression.

But really it’s quite simple: learn to trust numbers. They never lie.

Wokai means “I start” in Chinese and represents the entreprenuerial spirit of microfinance. It looks an amazing undertaking. With over a sixth of the world’s population the potential for domestic economic activity is enormous.

With 300,000,000 living below the poverty line and the Rural Credit Bank only servicing 25% of demand, there is clearly a large market here for small, flexible lending which is the hallmark of microfinance.

It’s another exciting addition to the microfinance and P2P stable of companies. As long term readers will know I believe strongly that P2P financing will replace traditonal banking systems within 20 years.

Who knows it may be sooner with organisations like Wokai springing forth.

The global banking system has now been underwritten, guaranteed and in some cases nationalised completely. There is no surprise in that course of action as it was all they could do. Whether they take stakes in, takeover or buy preferred stock makes no difference. Now they have bought some time we will have to wait and see how it pans out. The underlying problem remains the same though.

They have not addressed the difference between money and credit.

Money is what the sovereign authority issues. This carries no interest burden which is a future claim on goods and services yet to be produced i.e. drives the growth imperative.

Credit is what banks issue based on deposits and “other types of capital” that are in the bank. This carries interest. Credit makes up 97% of the money supply. Credit is treated as money although laws are very clear that only sovereign authorities can create money.

Confused?

There is a strong argument to say that bank credit is fraudulent money. I digress.

Instead of supporting the credit creation system we need to support the money creation system. It’s that simple. Let me be clear: banks do not lend out your deposits. They use your deposits as collateral on new loans.

Take Kiva, my favorite microfinance outfit: I deposit $25, find a borrower and lend them the money. My $25 is gone and i have to wait for it to be repaid. That is true lending. Think of it as investment.

Bank lending is garbage.

The answer is to nationalise the supply of money and remove the interest burden at the point of creation. I think this is likely to happen at some point as governments run into difficulties with their guarantee schemes.

We will need a new monetary authority who will issue new money into the economy and monitor the supply of money in the economy at any given time.

Only then will we be able to build a genuinely productive and healthy society and economy.