h a l f b a k e r yWhy not imagine it in a way that works?
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Person to person investment
The value added by human communities to individual effort is really about investment in human potential. Most women do this when they marry a man (whereas the man traditionally invests his vanity in the tangible outcome of offspring).
By pooling the coin of individuals,
financial institutions trade on this human tendency to invest in the efforts of others. However, as the process becomes abstracted from person to person liability, the temptation for trustees to indulge in spending the public's money for self comfort and self agrandisement becomes almost irresistable. These 'institutional expenses' hugely diminish the value of pooled investments.
The individual small-time saver in affluent societies therefore has a serious problem about what to do with his funds for a decent return. For reasons of convenience and lack of obvious alternatives he almost always adds to the already bloated and indifferent coffers of large institutions like banks, or the spin-doctored lottery of company equities. His returns might be multiplied however, and ethically enhanced, if he knew of high potential 'human capital' to invest in directly. It would be much more satisfying to loan that capital to say, a poor but honest and capable businessman in a developing country where much can be achieved with relatively small amounts of money. If you geared such a man's earning capacity by, say 100%, would be be happy to yield you 20% of the gain? Yes, there are many problems with this, ranging from the low liquidity of the funds, to actually locating reliable candidates, to personal chemistry, to the vagaries of local laws. Still, it would be nice.
In clanless cultures of single households, or nuclear families, how can we find the knowledge, the trust and the guarantees to broker trans-human solutions like this?
Overview of Islamic Financing
http://www.microfin...org/static/1408.htm
[FloridaManatee, Oct 04 2004]
microlending
www.kiva.org
[JesusHChrist, Dec 29 2009]
[link]
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The small business man and employee-owned companies are alive and well in the U.S.. So are charities and credit unions. |
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If these aren't the institutions you want, I don't understand the idea. |
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As phoenix says, there's plenty of charities that specialise in giving loans and grants to people to start up businesses, for example the Prince's Trust in the UK. If you expect returns on this money, you can lend your money to a bank/credit union, who will lend (some of) it to a business. |
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If you wanted to lend money to an individual directly, you would have a hard job checking up on their past history, financial status, and future financial returns, as well as performing debt collection. Banks and other lending institutions are highly skilled at doing this, and therefore there seems no advantage in bypassing them. |
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Pro sports has this system sewn up. Therein are an alerting mechanism inside schools' atheletic departments, a standardised measure of progress led by statistics generated at the interschool level, and a validated record of adherance to the program which can be checked by you if you search for stats on the numbers of recruits that forgo an alternate degreed career once prospected for contracts in excess of their lifetime earning potential should a degree be selected. I understand that you are questioning if this process can be implemented under an assumption that workplace skill can be similarly developed. |
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IQ: 152, current income: 0. Where do I sign? |
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Brother, can you paradigm? |
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Good average word length, needlessly verbose, and I particularly like the subthesis on solving your problem with capitalism by perpetuating the capatilist system. |
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good idea...kinda like myrichuncle.com? they screen for "high potential earners" in their early education stages and get equity the candidate's future earnings. modern indentured-servitude... |
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I've been ripped off many a time by people who needed pesonal financial investment to start a business or break free from debt. In many cases, I have had no regrets. Others have paid off in both return and Karma. |
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My only real contributions to this idea: |
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(1) Invest only in specific projects where you can control what the money's spent on (like a fixed payment towards tuition fees) and establish ahead of time what the borrower must do to continue receiving funding (like minimum grades). The borrower must also agree to limit external borrowing and limit spending. |
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(2) I recommend an Islamic-style profit sharing agreement, because the goal is not to bankrupt your borrower. One solution is to contract to receive a small percentage of after-tax revenues with the percentage set in tiers, until the original principle (plus interest at a spread to the prime rate) has been repaid in full. Define revenues to include the value of company benefits and have a mechanism to deal with windfalls such as lottery wins, inheritance and such. |
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(3) Aim to recoup the money in a short time, because a 25-year loan will never get repaid, but don't overburden the borrower. That means you'll have to limit how much you lend and what you invest in (MBA course probably good, PhD probably bad). |
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(4) And finally, if you're sleeping with the borrower, try not to leave the money on the bedside table. |
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In rebuttal to [a_passmoore]'s comments, one doesn't need control, but then one can't expect to see one's money anytime soon. Managers who are investing on a commercial basis have a responsibility to protect the funds and constrain the non-performing loan portfolio. |
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I'm using the term "lending" interchangeably with "equity", because AFAIK, there's no country that legally endorses indenture (including India), even if only partial and well meant. The Islamic musharaka system is lending through equity participation, but intended for capital expansion of business, not skill enhancement of people. |
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Islamic financing is a common microfinancing model in Muslim countries, originally developed by the Prophet Mohammed (PBUH) as a practical and ethical alternative to usury and indenture. |
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My constant referral to Islamic financing is intentional; as [thormay] pointed out, many of those most in need of equity microfinancing are in the developing world, where a large proportion of the people (and their governments) are Muslim and will expect lenders to comply with Islamic law. |
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In legal terms, my spin on [thormay]'s excellent idea is a profit sharing contract, rather than an interest bearing loan and not unlike conventional agency contracts, where the agent invests in an artist's promotion in return for a fraction of the resultant earnings. |
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I believe this is baked. I read something a while back about investors who would pay for the education of a bright, young, up-and-comer. In return, the investment would give a portion of his/her yearly income to the investor over a fixed number of years as per contract. |
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Something like a student loan, but not. |
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