New financial arrangements in the financial domain

These are examples of new, creative financial arrangements that help in efforts to scale up and anchor system innovations. The arrangements imply in a new approach to one or more of the following aspects of financing; time, actors (new parties or old parties with new roles) and methods of settlement or allocation of risk.

I Alternative currency systems

Complementary monetary systems are used in various parts of the world. They are often regional initiatives for programmes that participating parties (companies and consumers) accept as payment for services or goods. An example is the C3 system, which was developed by the international STRO group and introduced in Brazil and Uruguay. It supplements the regular payment system.

Solution for high interest rates

The currency systems are intended to provide a solution for the problems of high interest rates on loans (up to 300% in Brazil) and a lack of money (Uruguay) that disrupt the economies and slow the pace of economic development and growth of employment. In Brazil, it is a regional payment system; in Uruguay, it is a national system.

Mechanics of currency system

The C3 is used to redress the lack of purchasing power of debtors (customers). Under the C3 system, companies can allow customers to pay in instalments while they themselves receive the full selling price immediately. The system is modelled on a combination of various widely accepted financial products: bartering, factoring and holding payment structures. This combination of instruments makes it possible to finance companies when traditional financial institutions are unable to do so.

New initiatieve: Spend local

Through Spend Local STRO introduces an own digital local currency. Due to the rules that go with this currency purchasing power circulates for a longer period within the region: resulting in more jobs, more taxable income and the discount given to the first consumer is earned back. Spend local has been introduced in European countries, like UK and the Netherlands.

How does it work?

First of all, you make a deposit on the local Social Trade account. This amount, in addition to a Bonus, will be credited to your personal Social Trade account, with which you will be able to do your shopping at local businesses via SMS, debit card or Internet. Hereby, the local businesses ensure themselves additional sales and revenue, and for this benefit, are asked to cover a small transaction fee. This is how your Bonus is financed at the moment you make a deposit on your ‘Spend Local' account. In turn, the companies can use their Social Trade revenue for transactions with other regional companies. Money from Social Trade accounts can be converted into Euros whenever one wishes. However, in order to incentivize that the money circulates locally for the greatest amount of time, a small fee is charged when one wishes to convert. The longer one waits to convert, the lower these costs are. 

II Green investment

Green investment is a Dutch financial arrangement from the 1990s. It was initiated by the Triodos bank. While the bank's sustainable investment funds often performed well in the longer term, the return in the shorter term was low. Consequently, the number of participants in the funds was small. The bank felt, however, that there were opportunities to permanently expand the possibilities for financing sustainable companies. Triodos convinced the Dutch government, which then established the Green Investments Tax Facility. It provides some compensation for the lower return on loans to and investments in certified green funds by offering a tax exemption that gives private investors an additional return of 2.5%. Accordingly, a leverage of a factor of 40 is created. For every euro in tax income lost, at least 40 euro in private capital is generated for investments in programmes and projects approved by the government. The governemnt removes projects and programmes from the scheme as soon as the technologies have become the state-of-the-art. Accordingly, it promoted further advances in sustainability.

Sources

Alternative currencies: http://www.socialtrade.org/ and http://www.spendlocal.org/