How To Start A Bank

Part of my job description every day is to read and research numerous articles about crowd sourcing and crowd funding. We were sent this link from the BBC World Service on starting a new bank. It's a 25 minute audio broadcast on How To Start A Bank.

Spirits low? Is the Credit Crunch getting you down? It might just be a very good time to start a brand new bank ... unencumbered by the toxic loans and the government bailouts of most of the old ones. Peter Day finds out from the experts how to start a bank ... and also how not to do it

It is fascinating to hear the interview of various players from the world of alternative banking. The price of admission "free" is worth listening to these contributors who include: Andrew Hilton Director - Centre of the Study of Financial Innovation, Muhammad Yunus Founder - Grameen Bank, Brandon Davies Chief Executive Office - dRisk.biz Limited, Lindsay Mackie Consultant - New Economics Foundation, Antony Elliott - Fair Banking Charity, Ian Hatton Senior Regeneration Manager - Essex County Council and Giles Andrews Managing Director - Zopa. I checked out the website for Muhammad Yunus Founder - Grameen Bank and found this Grameen Bank methodology is almost the reverse of the conventional banking methodology. Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half the population of the world is deprived of the financial services of the conventional banks. Conventional banking is based on collateral, Grameen system is collateral- free.

Grameen Bank starts with the belief that credit should be accepted as a human right, and builds a system where one who does not possess anything gets the highest priority in getting a loan. Grameen methodology is not based on assessing the material possession of a person, it is based on the potential of a person. Grameen believes that all human beings, including the poorest, are endowed with endless potential.

Conventional banks look at what has already been acquired by a person. Grameen looks at the potential that is waiting to be unleashed in a person. I concur!
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Home economics: Upside-down banks are the future

In her new column, Caroline Mason, operations director at Investing for Good, tells some homespun truths.

The right language could move social finance out of its niche. Last weekend I struggled to decide how to approach my first column. That was until my teenage daughter made me listen to her favourite track of the moment, a song called Upside Down. I had been thinking about social finance and decided to flip the term around – and it’s meaning became much clearer. It means the act of financing our society, and I wondered how on earth, and when, this had become niche? Surely the role of government and the banking system is to ensure that all of society is well governed and appropriately financed?

To date, government has kick-started the social finance sector mainly in terms of linking policy with direct finance rather than through providing fiscal and legal incentives. Funds such as ACF, Future builders, SEIF and investment in organisations such as Bridges Community Ventures have worked well. But its commitment pales into insignificance when compared with the money spent on propping up mainstream banks.

And so to our banking sector. We know that mainstream financial organisations in the UK are gate keepers to over £3tn of investments under management and another £1.3tn in deposits. Unfortunately, this money is mostly invested without consideration for the impact it has and without any social and environmental context.

Yet it’s not all doom and gloom. During the past two years, social banks like the Co-op, Unity Bank, Charity Bank and Triodos have not had to rely on government bailouts – quite the contrary, their businesses have grown.

The issues that these banks face are those of most regulated mainstream banks – capital provision, the pricing of risk, capital raising, deal quality and liquidity. In addition they factor in thething that has been missing from mainstream banking and that has been largely considered un bankable – investing only in society and the environment.

We all need to take a role in ensuring that this story is clear and heard. That the connection between finance and society is not associated with free public money and the philanthropic largesse of the wealthy few. The Future of Banking Commission and the future government could do worse than taking a closer and more serious look at these banks and their ‘upside down’ model.
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Fund Raising Through Crowd and Peer-to-Peer Banking

Capital is the life blood of the free market economy. The future of capital will not be the conservative bankers and the over-paid investment bankers. The future of capital, I believe, is the crowd, i.e. crowd funding and peer-to-peer banking. Rather than counting on a few venture capitalists, crowd funding raises fund by appealing to a large, really large, number of ordinary people for small donations or investments. So far it has worked brilliantly for a number of cases in the media industry, film and music making, by attracting funding from the community of future customers.
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