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<br>
<font face="Courier">Continued from my posting under the "crime"
topic.<br>
<br>
<br>
<font face="Courier">How to s<font face="Courier">et<font
face="Courier"> up a microenterprise lending system<font
face="Courier"> and start a bank.<br>
<br>
<br>
<font face="Courier">1) Find a local credit union or
local bank whose management are willing to agree to the
project. </font><br>
<br>
<font face="Courier"><font face="Courier">2</font>) Set
up an account for this purpose<font face="Courier">.
This can be done by <font face="Courier">any legal
entity formed for the purpose<font face="Courier"><font
face="Courier">. <br>
<br>
<font face="Courier">3) Solicit f<font
face="Courier">unds from whoever. <font
face="Courier">All the money gets
deposited to the account.<font
face="Courier"><font face="Courier">
Bookkeeping <font face="Courier">keeps
track of who's in for how much, in
case someone wants to exit the
system and wi<font face="Courier">thdraw
their funds (with simple
savings-ac<font face="Courier">count
interest). </font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font><font
face="Courier"><font face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier">The
minimum to
shoot for
should be
$120,000.
Better, shoot
for $250,000
which is the
limit of a
single FDIC<font
face="Courier">-insured
deposit
account. The
targets can <font
face="Courier">go
higher as more
FDIC-insured
deposit
accounts are
opened.<br>
<br>
</font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font><font
face="Courier">4) When<font
face="Courier"> the target<font
face="Courier"> amount is
reached, it gets used to
tie down a secure<font
face="Courier">d line of
credit with the bank or
<font face="Courier">credit
union (or <font
face="Courier">more
than one as the case
may be)</font>. The
secured line of credit
will probably be
somewhere in the
neighborhood of <font
face="Courier">60%
to 80% of the funds
on deposit, but
that's OK because it
serves <font
face="Courier"><font
face="Courier">a
specific purpose
(per (12)
below).</font></font></font><br>
<br>
<font face="Courier">5)
At this point, <font
face="Courier">go
into the <font
face="Courier">'hood
and the schools
and work with
existing local
organizations to
seek out young
people who have
entrepreneurial
smarts and who
are seriously
at-r<font
face="Courier">isk
of opting into
crime-world.</font></font></font></font><br>
<br>
<font face="Courier"><font
face="Courier">6</font>)
The secured line of
credit is used for
lending to the
grassroots
microenterprise
startups. <br>
<br>
<font face="Courier"><font
face="Courier">7)
Work with groups
of kids to
develop viable
business ideas.
</font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font><font
face="Courier"><font face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier"><font
face="Courier">Do
the whole
business
planning
exercise with
them, teach
them how to do
it. </font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font>Ideal
case is that the
first round of
these won't
depend on
renting
storefronts<font
face="Courier">:
rent is a <font
face="Courier">huge
expense and a
business-killer
unless gross
sales can ramp<font
face="Courier">
up quickly.
Be<font
face="Courier">st
if the group
members can
continue to
live with
their parents
(to keep cost<font
face="Courier">s
down)</font>,
though this <font
face="Courier">can't
be taken for <font
face="Courier">granted,
and shared
housing
arrangements
may be needed<font
face="Courier">.</font></font></font></font><br>
<br>
<font
face="Courier">8)
Each group
that qualifies
<font
face="Courier">gets
signed for a
startup loan.
The loan is
actually taken
with the bank
or credit
union.
However, the
loan is
secured by the
funds in the
account un<font
face="Courier">der
(3) above.
This means
zero risk to
the local <font
face="Courier">financial
institution<font
face="Courier">,
and that's the
key to getting
their approval
for the whole
project. <br>
<br>
<font
face="Courier"><font
face="Courier">9)
The agreement
between the
organization
and the groups
it funds, is
that 20<font
face="Courier">%
of th<font
face="Courier">eir
net profits,
goes back to
the
organization
to grow its
pile of
capital. This
is in addition
to repaying
the loan to
the local
financial
institution.
(VC<font
face="Courier">s
are typically
looking for
30%, so this
is a better
deal <font
face="Courier">for
the new
startups.) In
addition, the
founders <font
face="Courier">of
these startups
are obligated
to he<font
face="Courier">lp
with<font
face="Courier">
outreach and
mentoring <font
face="Courier">of
others, after
they
themselves
succeed.</font></font></font></font><br>
<br>
<font
face="Courier"><font
face="Courier">10)
If a new
startup can't
make a loan
payment, the
money is paid
f<font
face="Courier">rom<font
face="Courier">
the secured
account. <font
face="Courier">The
risk is
distributed
proportionally
across all of
the contr<font
face="Courier">ibutors
to the
account. <br>
<br>
<font
face="Courier">11)
Stay actively
involved with
each new
startup<font
face="Courier">
through its
first five
years in bu<font
face="Courier">s<font
face="Courier">iness.
<font
face="Courier">If
it survives <font
face="Courier">its
first year, it
is most likely
to survive the
next fou<font
face="Courier">r
years<font
face="Courier">.
A</font>fter
five years,<font
face="Courier">
<font
face="Courier">it
is likely to
continue
successfully<font
face="Courier">.<br>
<br>
<font
face="Courier">12)
Per the
agreement with
the original
financial
institution(s),
once a startup
successfully
pa<font
face="Courier">ys
off its
starting loan,
it becomes eli<font
face="Courier">gible
for comparable
credit
directly from
the
institution.
This is the
step that
leverages the
star<font
face="Courier">tup
fund to obtain
indepen<font
face="Courier">dent
credit for the
startups after
their first
couple of
years. </font></font></font></font></font><br>
<br>
<font
face="Courier">1<font
face="Courier">3</font>)
<font
face="Courier">At
this level the
system run<font
face="Courier">s
<font
face="Courier">steady-st<font
face="Courier">ate:
it<font
face="Courier">s
ability to
fund new
startups is
limited by its
own funds.
But that will
change under
(16) below.<br>
<br>
<font
face="Courier">1<font
face="Courier">4</font>)
Once the s<font
face="Courier">tartups
start
succeeding,
their <font
face="Courier">contributions
of 20% of net
will gro<font
face="Courier">w
the funds and
enable more
startups.<br>
<br>
<font
face="Courier">1<font
face="Courier">5</font>)
Once there's a<font
face="Courier">n
asset pool of
a couple
million
dollars,
distributed
across a
number of FDIC<font
face="Courier">-insured
accounts,
possibly at a
number of
institutions,
then it's time
to consolidate
all of that
money into one
entity, and
start a new
financial
institution.
<br>
<br>
<font
face="Courier">This
is the point
at which the
community
organization
starts a b<font
face="Courier">ank.</font></font><br>
<br>
<font
face="Courier">1<font
face="Courier">6</font>)
The new
institut<font
face="Courier">ion
starts with <font
face="Courier">a
decent chunk
of capital<font
face="Courier">,
chartered for
small<font
face="Courier">
business and
startup
lending. And
then it
becomes
eligible <font
face="Courier">to
engage in</font>
"fractional
reserve"
lending<font
face="Courier">,
<font
face="Courier">which
multiplies the
effective use
of its money</font>.
<br>
<br>
<font
face="Courier">If
the reserve
rat<font
face="Courier">io<font
face="Courier">
<font
face="Courier">is
10% assets to
loans</font></font></font></font>,
that m<font
face="Courier">eans
</font>$2
million in
cash can <font
face="Courier">theoretically
<font
face="Courier">produce</font>
$20 million in
l<font
face="Courier">ending.
Note, 10% is
"conservative."
I<font
face="Courier">n
the US, the
actual number
is a<font
face="Courier">
bit below 5%,
which means $2
million in <font
face="Courier">deposits
can generate $<font
face="Courier">40
million in l<font
face="Courier">ending
capability,
assuming that
each borrower
uses the new
institution to
hold its own
deposits (this
can be written
into contracts
with new
startups). <font
face="Courier">Reality
is usually
substantially
below these
theoretical
maximums, but
<font
face="Courier">any
multiplier is
a good
multiplier. </font></font></font></font></font></font></font><br>
<br>
<font
face="Courier">1<font
face="Courier">7)
<font
face="Courier">Fractional
<font
face="Courier">reserve
lending</font>
is how banks
"print
money." It's
an enormous
engine for
economic
development.
But instead of
enriching a
small number
of investors,
plowing it all
ba<font
face="Courier">ck
into the
community en<font
face="Courier">riches
the
community. <br>
<br>
<font
face="Courier">1<font
face="Courier">8</font>)
Last but not
least, this
could be a
candidate for
a Kickstarter,
s<font
face="Courier">tarting
at step <font
face="Courier">(1)
above</font></font>.<font
face="Courier">
H<font
face="Courier">owever,
100% of fun<font
face="Courier">ds
raised should
go direct to
the initial
account and to
the lending
program: <font
face="Courier">this
is not <font
face="Courier">the
place <font
face="Courier">to
generate jobs
for the org<font
face="Courier">anizers
themselves<font
face="Courier">
(that <font
face="Courier">may
take five to
ten years or
longer).</font></font></font></font></font></font></font></font></font></font><br>
<font
face="Courier"><br>
And, to get
back to the
original
"crime" topic,
when at-risk
kids start to
see real
opportunity in
<font
face="Courier">starting
legitimate
businesses<font
face="Courier">
<font
face="Courier">or
getting </font>legitimate
jobs working
for their
buddies, they
aren't going
to <font
face="Courier">opt
in<font
face="Courier">to
crime-world.
But th<font
face="Courier">e
point of the e<font
face="Courier">xercise
isn't just to
<font
face="Courier">lower
the crime
rate. The
point of the <font
face="Courier">exercise
is to en<font
face="Courier">r<font
face="Courier">ich
the community
so people can
flourish
rather than<font
face="Courier">
<font
face="Courier">barely
survive</font>.
<br>
<br>
<font
face="Courier">-G.</font><br>
</font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font></font><br>
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