There are many reasons to be disillusioned with conventional banks. Take tar-sands for example, financed by consortiums of commercial banks lending money through direct loans, and investment banks facilitating bond issuance. Unconventional oils rely heavily on conventional finance, and indeed, major UK banks are often more than happy to lend to huge corporates regardless of their environmental and human rights records.
Major banks claim to serve the needs of small and medium sized enterprises (SMEs), but the financial crisis has demonstrated that most of their lending goes into speculative investment, creating bubbles in property and commodity prices, creating economic instability and negatively impacting poorer countries. Through these activities senior bankers have earned huge sums underwritten by taxpayer funded bailouts, and then, to top it all, have avoided paying tax using webs of tax havens.
The Occupy movement is one form of protest against this system, but there are other ways of expressing dissent. A banking oligopoly is in nobody’s best interest, so why not challenge it directly by delinking yourself from it. Here are four strategies to do that.
Strategy 1: Switching bank accounts
When you deposit money with major banks, you may be indirectly supporting negative activities. You are also providing them with a cheap source of funding that they can use to subsidise more risky aspects of their business, like investment banking trading.
Switching bank accounts to a socially responsible bank is a good first step. When it comes to social responsibility, there are two broad areas where banks might seek to distinguish themselves. Firstly, there are those like the Co-operative Bank that avoid lending to companies with dubious environmental or social records. Secondly, there are financial institutions with a localist bias, such as certain building societies, focused on serving the interests of their members rather than those of disconnected external shareholders.
An interesting new entrant to high-street banking is Metro Bank, currently operating in Greater London. Like the Co-op and building societies, it does not have an attached investment banking arm, maintaining a focus on straightforward banking services.
If you want to proactively steer your money into eco-friendly building projects, consider the Ecology Building Society, which specialises in providing sustainable mortgages. Triodos Bank does not provide current account facilities, but does offer savings accounts. They invest in projects with positive environmental, social or cultural outcomes, and provide a high degree of transparency about their lending by project.
Charity Bank provides financial services for charities and social enterprises, and their savings accounts are a good option for those who wish to directly support the social sector.
Credit unions are non-profit, localised clubs of individuals pooling money together through savings and current accounts. They charge membership fees, but offer affordable personal loans to those who otherwise might not get access to finance, boosting financial inclusion and breaking the power of loan-sharks.
Strategy 2: Investing directly in ethical alternatives
If you are looking to invest any spare cash you have, consider ethical investment funds (see the Ecologist's guide to ethical investments). Check any prospectus of an ethical fund to see what their investment philosophy is. Many of them operate on the (often shallow) principle of ‘negative screening’ – not investing in bad things. Others take a more proactive stance, deliberately investing in companies seen to have a positive environmental and social impact. A small minority are ‘activist funds’, which take ownership positions in companies in order to reform them or keep a watch on them.
For those looking for new approaches, check out Abundance Generation. It’s set to launch early next year with the aim of allowing individuals to invest directly in renewable energy. You can choose wind or solar farms and lend money to them in the form of debentures. Director Bruce Davis plans to allow a very low minimum investment (£5), allowing small retail investors into a space hitherto unavailable to them. The payout is directly linked to how well the renewable energy farms do, and the income earned can go into offsetting your normal energy bill.
If you are less interested in financial returns, consider alternative investments that are set up primarily to generate social benefit. Community shares are being piloted as a way of supporting local community projects, and charitable bonds are an interesting new mechanism that allows you to invest in social housing whilst supporting charities. Another one to keep a lookout for is Ethex, currently being set up to help steer money into social enterprises. It’s set for launch in early 2012.
Bear in mind that unconventional investments might be illiquid – meaning that once you invest in them, they might be hard to get out of. Also, like any investment, there is the risk that they might fail. Some schemes that claim to be ethical have the potential to be abusive or misleading – take for example dodgy ‘green fuel’ investments. Make sure to read the fine print and take advice before you invest.
Strategy 3: Don’t give them interest – Borrow from alternative sources
If you’re going to pay interest on a bank loan, you might as well pay it to a socially responsible bank, but what about leaving banks behind entirely? Next time you need a personal loan, consider experimenting with the emergent technologies of peer-to-peer (‘P2P’) finance. Zopa is a well-known example, allowing you to obtain personal loans directly from another individual without a bank taking a cut in the middle.
Need some start-up capital for a project you want to launch? Crowd-funding – the process of drawing on networks of individuals to fund you – offers great new possibilities. Check out platforms such as BuzzBnk for social enterprises, and Sponsume, WeFund and Indiegogo for creative projects such as film, music and fashion.
Strategy 4: The final frontier – Hitching up with alternative currencies
Perhaps the most subversive strategy is to delink from the mainstream currency system. Localised complementary currencies are already being piloted in several areas, including the Brixton Pound, Lewes Pound and Totnes Pound. These aim to keep money circulating within a local area, promoting small independent business. The Brixton pound team has recently added an innovative pay-by-text scheme, based on the Monea system. These need popular support to gain strength, so how about piloting a scheme in your own area?
Emergent online currencies such as Bitcoin are causing a big splash among tech-geeks and hackers worldwide, but online mutual credit systems such as Ripple are worth exploring for a more localised alternative. Ripple is a system allowing people to enter into IOUs with each other through trust networks. A similar concept is found in LETS, (local exchange trading system), a type of mutual credit system found in London and elsewhere, allowing communities to record and exchange services rendered to each other. Timebanking is an innovative attempt to codify units of time as a way to conduct exchange.
It’s been suggested that money emerged through attempts to measure systems of reciprocity, so one way to disrupt formalised money is to go back to basics and hook into the gift economy. Twitter is providing a platform for some fun experiments in this regard. Check out Twollars, a currency of appreciation, and #Punkmoney, a recent attempt to create a gift currency.
What’s next? You are
The landscape of sustainable finance is being created right here and right now, so why not get involved in creating it? Can you think of unique methods to finance energy efficiency projects? Can you work out ways to bypass banks whilst doing international currency transfer? If you’ve got ideas, think about approaching forums the Finance Innovation Lab, run jointly by WWF and ICAEW, where you can find like-minded people and support for your projects.
Brett Scott is a writer and independent consultant specialising in financial activism and innovative finance
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