Tri SH Morrow Alternative Financial Systems

E9846 ASSIGNMENT 1
Photograph 1: From its humble branch offices in Bangladeshi towns and villages, the Grameen Bank is orchestrating a revolution in the
lives of the poor rural women, farmers and artisans who form its clientele. In direct contrast to the prevailing economic wisdom, it loans
only to borrowers who have no collateral, most of its borrowers are women, and it loans only to members of groups, thus encouraging
community development. (Source: Bornstein, 1998)
ALTERNATIVE FINANCIAL SYSTEMS: ARE

THEY EFFECTIVE IN PROMOTING
SUSTAINABLE DEVELOPMENT?
DOCUMENT INFORMATION
Student’s Name: Patricia Morrow
Student Number: 110178-848
Course: Postgraduate Diploma in Environmental Management -
Cleaner Production Technology
Subject: Theoretical Foundations of Sustainable Development
Lecturer: Professor Tor Hundloe
Date: 19 February, 1999
This assignment has been printed on 100% recycled paper

E9846 ASSIGNMENT 1
Figure 1: Traditional economic investments have been directed at the exploitation of natural resources rather than sustainable use .
ABSTRACT
In this paper, a number of different financial systems which aim to promote
sustainable development are discussed. These financial systems present an
alternative to the dominant economic paradigm by investing in increasing social and
environmental capital, rather than annihilation of natural resources and exploitation
of people for a quick profit. Alternative financial systems seek to promote
development in harmony with ecosystems, and they encourage personal and
community development, and co-operative relationships. Some, such as the
Grameen Bank’s microcredit schemes, seek to address the issue of
intragenerational equity by providing funds for the disadvantaged.
Are the alternative financial systems effective in achieving their goals? What have
been their successes and failures, to date? This paper describes some of the
alternative financial systems which have emerged in recent decades, and discusses
whether they are making an impact in creating a new, sustainable economy. Some
recommendations for further increasing effectiveness are made.
This assignment has been printed on 100% recycled paper

Alternative financial systems: are they effective in promoting sustainable development? P. Morrow
TABLE OF CONTENTS
Abstract
Page
1.0 Introduction 1
2.0 Why our current economic systems are unsustainable 2
3.0 Descriptions of Alternative Financial Systems 6
3.1 Ethical Investment 7

3.2 Shareholder Action 11
3.3 LETS System 12
3.4 Ithaca Alternative Trading System 15
3.5 Alternative Credit Unions 18
3.6 Grameen Bank and Other Microcredit Schemes 20
3.7 Islamic Banks 26
3.8 Worker-owned Co-operatives 27
3.9 Other Alternatives 28
4.0 Effectiveness of Alternative Financial Systems 30
4.1 Ethical Investment 30

4.2 Shareholder Action 35
4.3 LETS System 37
4.4 Ithaca Alternative Trading System 40
4.5 Alternative Credit Unions 41
4.6 Grameen Bank and Other Microcredit Schemes 42
4.7 Islamic Banks 48
4.8 Worker-owned Co-operatives 49
5.0 Conclusions and Recommendations 52
6.0 Bibliography 53
6.1 Internet References 54
ACKNOWLEDGEMENTS
The assistance of Shan Ali, who provided information about the Grameen Bank, and Barbara
Ford, who provided information from Permaculture Journals, is gratefully acknowledged.
19/02/99 This assignment has been printed on 100% recycled paper 1

1.0 INTRODUCTION
In the conventional economic system firms maximise profits and individual

consumers maximise their utility. This occurs at the expense of other
consumers and the natural environment. The state’s role is to clean up the
environmental mess and provide a safety net for those whose “utility” is zero
due to the selfishness of businesses and other consumers.
Ecological economics sees the human economy as part of a larger entity, the
economy of nature. Its goal is sustainability of the combined
ecological/economic system. Our current economic systems do not inherently
guarantee the sustainability of the natural environment which is our life
support system. Costanza, Daly and Bartholomew (1991) claim that to
achieve sustainability we must incorporate goods and services provided by
ecosystems into our national accounting. They also discuss the protection of
critical levels of natural capital, rather than conversion into manmade capital.
This approach assumes that if the environment was properly valued in
economic terms, and the use of natural capital and production of wastes were
charged or taxed accordingly, then sustainable development would be
achieved.
Ethical investment schemes take a different approach. They seek to invest in

the preservation and sustainable use of natural resources, and increasing
social capital. Other financial alternatives such as microcredit schemes in
third world countries seek to alleviate the human poverty which is this planet’s
worst environmental problem. Malnourished, poor subsistence farmers
cannot afford to preserve the natural environment as the conventional
economic system is stacked against them. Without fundamental changes to
our current economic system, the environment of many third world countries
will continue to be degraded and destroyed, no matter how many brilliant
economists have valued and taxed the natural environment’s ecosystem
services by the most rigorous econometric calculations.
No doubt ecological economic costing and pricing systems are extremely

useful in the developed countries, where taxation is an accepted part of
economic life and middle class consumers can afford to pay higher prices for
conserving ecological values. In developed countries, policy instruments such
as regulation, property rights, marketable permits, fees, subsidies and bonds,
as described by Costanza et al, are useful as a means of promoting
sustainability. However in the developing countries a different approach is
needed. Microcredit schemes such as the Grameen Bank are taking this
different approach, by loaning funds only to the poorest and most
disadvantaged, especially women, rather than leaving them at the mercy of
market forces in the form of extortionist moneylenders.

2.0 WHY OUR CURRENT ECONOMIC SYSTEMS ARE UNSUSTAINABLE
So what’s wrong with our current economic systems anyway? Why are they in
need of improvement?
In our conventional economic systems, efficiency is often the only criterion

which must be met, or at least the principal criterion. Economic efficiency
must be maximised regardless of the cost to the biosphere, to other non-
human species and the enormous cost in human suffering for the poor and
for future generations of humans, as yet unborn.
Daly (1991) discusses the three goals of economic optimization: efficient

allocation, just distribution and appropriate scale of the economy within the
global ecosystem. He notes that the three values of allocation (efficiency),
distribution (justice) and scale (sustainability) are often in conflict. Daly also
comments that
historical conditions of property ownership are major determinants of income

distribution and have little to do with either efficiency or justice.
Our current economic system is unsustainable because it does not address

the issues of distribution and scale, or in other words, intragenerational equity
and intergenerational equity. The current economic system tends to widen the
gap between the haves and the have-nots, worsening the poverty which
causes this planet’s worst environmental problems. To cite a few examples:
• During 1998, the S&P 500 (a group of 500 large companies) had returned
an average of 29% per year to their investors for the fourth year in a row.
Experts say that the economy is booming, that this is a period of sustained
economic growth without inflation, and that the unemployment rate has
come down dramatically. However, in spite of this, the number of
Americans living in poverty is where it was in 1990. (Clark, 1998)
• While Michael Eisner, chairman of Walt Disney company, received a salary

of $471.5 million for his year’s labour, Eckhard Peiffer, chairman of
Compaq, earned $192.5 million and Summerfield Johnston Jr., chairman of
Coca Cola, received $132.4 million; the median US family income (after
adjusting for inflation) was $37,005 in 1997, similar to the figure for 1989.
(Clark, 1998)
• Approximately 1 billion of the world’s people live on less than $1 per day, in
Africa, Asia and Latin America.(Korten, 1996)
• While millions of Brazilians go to bed hungry each night, in the Netherlands

millions of pigs and cows are fattened with soybeans from pesticides-
doused expanses in the south of Brazil to provide European consumers
with a high-fat diet of meat and milk. (Durning, 1992) Our current economic
system favours these cash crops, whereas the Brazilians need food rather
than money. (The money goes to debt servicing not buying food).

• The median family income has only risen by $1260 since 1973, an average
increase of only 0.14% per year. In the 1960’s it was common for each
family to have only one wage earner, not two or three, and working hours
were generally shorter than they are today. (Clark, 1998)
• While the US Federal budget deficit has become a surplus, private

consumers’ debt has risen to record levels, with 5% of US households filing
for bankruptcy protection during the last five years. (Clark, 1998)
Evidence of the social stress resulting from the widening gap between the rich
and the poor, and the lack of economic security for the majority of the world’s
population includes:
• Violent crime which is increasing at an alarming rate in every country of the

world. On an average day in the United States, 100,000 American school
children carry guns with them to school, and forty of them are wounded or
killed. (Korten, 1996)
• Young children forced to earn a living for their families, deprived of

education and a normal childhood. In Thailand, Sri Lanka and the
Philippines alone, there are 500,000 child prostitutes. (Korten, 1996)
• Migration resulting from lack of economic security. In addition to 25 or 30

million worldwide who are legally working overseas, an estimated 20 to 40
million economic refugees are illegal immigrants. (Korten, 1996)
Our current economic systems claim to redistribute wealth through

government interventions such as progressive taxation and social security or
welfare payments. However, even in the developed countries where social
security exists, these mechanisms are failing to redress the growing
imbalance in income distribution. Christopher Skase and Alan Bond serve as
glaring examples of how little tax the rich actually pay.
Ethics is largely excluded from consideration in our current economic system.

The system is based on “rational” individuals or firms operating purely out of
self-interest. Reilly and Kyj (1990) comment that in a typical firm, welfare of
the employees, health of the community and loyalty to suppliers, customers
and the nation itself are taken into consideration only as a means for
maximising the corporation’s wealth. The core values of American business
are wealth maximisation and individual self-interest.
The corporation contributes to society only to the extent that it maximises its own
efficiency and wealth. ... Modern apologists...believe the only social responsibility of
business is to use its resources efficiently and engage in activities that increase profits
while staying within the explicit rules of the law. Their article of faith is that open and
free markets without deception or fraud will best bring this about.
The strength of our economic system and its “Parito optimal” ethics is that it
affirms the freedom of the individual. However it fails to recognise the fact that
individuals operating within the economic system are unequal in terms of their

political and economic power. An unemployed single mother does not have
the same power to control her destiny as the managing director of a large
corporation. Current economic systems fail to address this issue.
Relying as it does on individual selfishness, our economic system is not

conducive to community development, co-operation and social integration.
While it has become fashionable to have “team-building” exercises among the
staff of many large organisations, these attributes are only encouraged
insofar as they increase the wealth of the corporation, and hence contribute
to production and consumption, not as ends in themselves.
Our dependency on our current economic system is also cause for concern.
What will happen to us if the stock market crashes, like the previous Wall
street crash, only worse this time? On 1 January 2000, will all the
computerised money in the banks suddenly evaporate because of the Y2K
bug? When the Asian currency crisis suddenly broke out without warning,
overnight thousands of citizens were thrown into destitution, although
throughout the preceding months and for months afterwards their factories
produced exactly the same outputs, the landowners owned exactly the same
land, etc. The real economy of land, labour and goods did not change, it was
an aberration of the system itself that caused the poverty. The lack of
robustness of our system is cause for concern for all of us.
An unstable system cannot remain in operation for long. Glanzberg (1993)

comments that in a natural ecosystem, bees take pollen from a pollen-rich
male flower to a pollen -poor female flower, and fungi take nitrogen from the
soil to help fallen trees rot, thus acting to stabilise the system. In the same
way we already witness illegal immigrants working in the US taking surplus
wealth to the poor in Mexico, and burglars transferring resources from the
houses of the rich to the slums. It is only a matter of time before the
developing nations resort to war and violence to seize from the rich nations
the power and wealth which is rightfully theirs, which our unstable economic
system has concentrated in the hands of the rich nations.
While in the early days of our capitalist economy central banks and
governments were able to exert some measure of control of the system,
Korten (1996) notes that speculative activity (eg. hedge funds) may now be
more responsible for foreign exchange and interest-rate movements than the
influence of central banks. The failure of a large institution heavily invested in
derivatives could reverberate throughout the entire international financial
system, causing serious problems.
Mollison (1988) comments on the effects of our economic system on people

and on the environment.
Fiscal (moneybased) societies give a false impression of security, which quickly falls
apart every 40 or so years when inflation - which is itself due to greed - makes
currency valueless. The final “inflation” is caused by the misuse of money, and is now
upon us. It is seen in the collapse of the environmental system. No amount of gold or

diamonds can avert, reduce, or soften the blows that nature is raining on us, and in
the final accounting, a cabbage can be worth a king’s castle (or more) if it saves your
life. For the last 40 years or so, money has been made by destruction of real wealth
(soils and forests) and the debts are now being called in by nature herself.
Boyle (1998) comments on our international exchange system, and predicts

increasing problems for the European Community following the adoption of a
single European currency. He says that without being able to fluctuate the
value of currencies against competitors, some countries will be economically
disadvantaged. In Boyle’s opinion, it is unlikely that a single fixed rate of
interest will suit every sector of the economy and every community in all of
Europe. Some regions or industries will thus be worse off than before, and
the inequitable distribution of wealth will be worsened.
The banks of our capitalist economy encourage unhealthy investment during

booms and depression is the result of this unhealthy investment.
In a healthy economy, most investment is productive and adds to the net well-
being of society. However, our current global economy is not healthy, and it
tends to encourage what Korten (1996) describes as extractive investors.
These investors acquire assets, such as timber, land or a corporation and
harvest the land unsustainably, bleed the soil dry, or strip the corporation of
its assets and close it down, to extract value from it. While this returns a huge
profit to the individual, society as a whole is impoverished. Korten also
highlights the fact that when an investment simply creates money or buying
power, such as through the inflation of land or stock values, without creating
anything of value, this is another form of extractive investment. The investor
has created nothing, however their share of society’s buying power is
increased.
Money is no longer pinned by gold or any item of relatively constant value. A

great deal of money has “disappeared” in the form of the huge foreign debt
and budget deficits which can never be repaid.
With so many problems caused by our economic system, is there any way we
can hope to achieve a sustainable economy and a sustainable society?
Around the world a number of radical alternatives are being implemented,
with a view to reinventing our economic system to cope with the social and
environmental challenges facing us as we look towards the new millenium.
3.0 DESCRIPTION OF ALTERNATIVE FINANCIAL SYSTEMS
Given the problems with our current economic systems, what are the
alternatives? Do we need to do away with capitalism or are there some other
solutions?
Trainer (1998) claims that we do need to get rid of an economic system

based on market forces, growth and the profit motive. Capitalism and the

growth economy must be scrapped. However, he claims that the creation of a

sustainable society involves much more than merely getting rid of a capitalist
economy, it means developing an economy in which there is no economic
growth, no interest is earned on savings (because this creates a growth
economy), most economic activity takes place outside the cash economy and
there are many free goods from the local commons.
Some alternative systems currently in existence provide practical examples

that Trainer’s proposals can be achieved and in fact are being achieved,
albeit in a limited manner. Other alternatives are less radical and do not
involve the complete abolition of economic growth.
Ethical investment is an example of one alternative to our current system

which does not involve the complete abolition of the growth economy, rather
it works within the current framework. However ethical investment is
significant because rather than considering the economy to be “value-free” or
simply promoting greed, it places ethics where it belongs, as an essential
component of business decision-making.
Shareholder action is similar to ethical investment. Whereas ethical

investment tries to discourage socially undesirable companies by boycotting
investment in these companies, shareholder activists seek to reform the
system from within, by buying shares in these undesirable companies and
exerting a positive influence on their management, as a shareholder.
Other financial alternatives include the LETS system, a no-growth system

involving electronic currency, only one step removed from a barter system.
The Ithaca Alternative Trading system and others like it, take the idea of
LETS one step further again by printing their own currency. Loans are
permitted in the Ithaca Alternative Trading System, however both LETS and
the Ithaca Alternative Trading System are interest-free.
Credit unions provide a viable alternative for many of the poorer members of
our society, whose financial needs are regarded as “uneconomic” (and
therefore unworthy of consideration) by the commercial banks. Though their
value is often unrecognised, they are a powerful force for sustainable
development, and the promotion of intragenerational equity. Related to the
credit unions are microcredit schemes, with the Grameen Bank providing a
glowing example of just how easy it would be to eradicate or at least reduce
poverty, if only we actually wanted to.
Islamic banks are often regarded as an academic curiosity by those who do

not subscribe to the Islamic faith. However, they attempt to put into practice a
principle which Trainer (1997), Mollison (1988) and Kennedy (1987) claim is
fundamental to the abolition of environmentally-destructive economic growth.
They do not charge interest on loans. (Yes, that’s right, interest-free banking!)
Thus they may also make a significant contribution to poverty alleviation and
sustainable development.

Worker-owned co-operatives provide an alternative means of financing large

companies, without concentrating wealth in the hands of a few. They do not
necessarily lead to minimised environmental impacts, however they do
address the issue of intragenerational equity.
Each of these alternatives to our current economic and financial systems is

described in further detail below.
3.1 ETHICAL INVESTMENT
Ethical investment aims to encourage industries or activities which contribute

to human wellbeing, social harmony and environmental preservation or
enhancement. Ethical investors seek to boycott investment in industries which
are causing environmental destruction, health problems or social problems, or
which conflict with their religious or moral beliefs. Rather than investing funds
in companies which are unethical, the socially responsible investor funds
projects which have a neutral or positive impact on human society and the
environment, while increasing his/her wealth by earning interest or profit.
Whereas prescriptive regulatory approaches to environmental management
may tend to suppress innovation, ethical investment encourages it by
investing in new research and development of promising new technologies
with reduced environmental impacts.
Often ethical investment refers to buying shares in companies, however it can

also refer to ethical superannuation funds, unit trusts, ethical insurance funds,
or even holding an ordinary savings account in a bank or credit union which
does not give loans for unethical purposes.
Most ethical investors do not buy shares themselves, they engage a

professional investment manager or financial adviser who invests on their
behalf. (Sparkes, 1995). They may invest in one or two specific companies,
however it is more common to invest in a diversified portfolio of companies
(perhaps 50-80) through a unit trust. The unit trust has the advantage of
decreased financial risk to the investor, and allows many individual investors
to join forces in supporting ethical companies.
The field of ethical investment is wide as it depends on the moral views of the
individual. The Greenpeace member who invests in the production of fuel
alcohol, as a substitute for non-renewable fossil fuels, is as much an ethical
investor as the Muslim who deliberately boycotts investments in alcohol
production.
Industries and practices avoided by ethical investors include the arms trade,
uranium mining, tobacco production, animal exploitation, oppressive
dictatorships, clearfelling of tropical rainforests, ozone-depleting industries
and even pornography and the media. Ethical investors lend their support to
energy conservation projects, fair trading schemes for third world artisans,
employment creation for disabled people, recycling, education, water
conservation projects, natural products, ecotourism, the construction of
schools and hospitals, solar energy, permaculture and housing loans. While

some companies boycott certain sectors of the economy entirely (eg. mining)
others invest in the most environmentally or socially responsible company
within each sector.
The field of ethical investment covers not only environmentally-sound

investment but also social investment. There are two types of social
investment: socially-responsible investment which tries to maximise financial
returns within a portfolio of investment in socially acceptable companies, and
socially-directed investment which aims to build social capital by developing
the capacities of people or businesses. (Gonella and Evans, 1997)
Participants in ethical investment schemes do not necessarily have to make

sacrifices to uphold their principles. Sparkes (1995) notes that in the US, over
a four-year period, socially responsible investment funds outperformed the
conventional funds by 1.5%. However, the UK funds Friends Provident
Stewardship and CIS Environ Trust, which boycott about 40% of UK
companies, generally perform better than NPI Global Care, which excludes
up to 90% of UK companies through more stringent ethical criteria.
The ethical investment industry relies heavily on the work of researchers such
as the UK organisation EIRIS - Ethical Investment Research Service. These
organisations carry out detailed investigations of prospective “ethical”
companies. They scrutinise every aspect of the companies from their
management and accounting practices to their political ties to their energy
and water consumption to worker health and safety, not forgetting the
products and services themselves. Researchers such as EIRIS compile and
analyse as much data as possible, in as objective a manner as possible.
In addition to ethical investment trusts, there are other ethical alternatives

including banks. In the UK, the Co-operative Bank is one example of an
ordinary savings bank which guarantees that funds are not used for weapons
manufacture, factory farming, tobacco, drug trafficking etc. The Bank seeks to
encourage investment in environmentally-sound activities, and it also donates
part of its profit to charities, as well as supporting education and sport in the
community.
While most of the modern building societies have become virtually

indistinguishable from commercial banks, in the UK the Catholic Building
Society and the Ecology Building Society endeavour to continue to maintain
their focus on mutual aid and ethical principles. The Catholic Building Society
loans more of its funds to women and people on lower incomes than most
other building societies, ensuring that the loans it makes are within the means
of the borrowers. The Ecology Building Society lends mainly to small-scale
community projects or to companies with a proven ecological record. The
Ecology Building Society’s philosophy is to remain small in size, however the
incredible demand from green investors to deposit funds has lead to it
growing to over 4,000 members, and over £10M in assets.
In Australia, fixed interest ethical investments can be made with the Macauley
Community Local Investment Fund, or the Community Aid Abroad Ethical

Deposit Fund. Friends Provident can supply ethical superannuation, and

managed trusts include Friends Provident Ethical Growth Fund and the
YWCA Ethical Investment Trust (Butman, 1991)
Here in Queensland, the ANA Friendly Society provides a range of services

including ethical superannuation, a financial distress fund, an eco fund,
ethical bonds and a community investment service. For members of the
Catholic Church, the Archdiocesan Development Fund operates like a bank,
with savings accounts and term deposits available. Funds deposited are
loaned to church organisations and are used to finance the construction of
schools, hospitals, churches and homes for the aged.
Australian Ethical Investment, based in the ACT, invest in 70 different

enterprises and provide superannuation services. The company has been
operating since 1986. Australian Ethical Investment (formerly known as
August Financial Management) offer two types of trust investment: Australian
Ethical Investment Trust (cash and securities) and Australian Ethical Equities
Trust (shares listed on the stock exchange and in unlisted companies). They
support activities such as recycling, energy efficiency, and preservation of
endangered species (Permaculture International Journal, 1996b). Energy
Equity (power from waste), the Perth Solar Energy Centre and Steiner
Schools have all benefitted from Australian Ethical Investment Trusts. The
company tries to invest mainly in Australia, and occasionally funds projects
involving our near neighbours.
Australian Ethical Investment donates 10% of its profits each year to

community organisations. In 1998 the organisation recorded its maiden profit
and declared a dividend of 5% per share. Its donations, totalling $9300 were
distributed among 16 different organisations, including well-known
organisations such as Amnesty International and the Wilderness Society, and
also small and struggling groups such as Friends of the Helmeted Honeyeater
and Youth Off the Streets. Some of these groups have very limited access to
financial resources, and are able to greatly increase their effectiveness as a
result of the support which they have received from Australian Ethical
Investment. (Permaculture International Journal, 1998b)
Other ethical investment schemes include Shared Interest and Community

Aid Abroad’s Ethical Investment Fund. Shared Interest is a co-operative
lending society which lends money to groups of artesans in the Third World.
These groups use the loans to pay for labour, materials and equipment until
those costs can be recouped from sales of handicrafts. Shared Interest has
about 6000 members who have over £10 million invested. (Permaculture
International Journal, 1997)
Community Aid Abroad’s Ethical Investment Fund funds handicraft purchases

for CAA Trading, who purchase handicrafts for later sale to the public in its
shops. Deposits in the Fair Trade Fund are loaned to CAA Trading at the
same interest rate paid to the depositor (it is a non-profit fund). Community
Aid Abroad also has a for-profit Project Support Fund. Funds are invested in
socially and environmentally beneficial projects, and any surplus earned from

this fund is directed towards Community Aid Abroad’s development work. The
funds may be invested in government, semi-government and securities
guaranteed by a government; bank securities and debentures, promissory
notes and deposits with authorised dealers in the short term money market.
Because of its possible involvement with the short term money market, this
fund may not appeal to all of Community Aid Abroad’s supporters. Investors
can elect to earn 0%, 2.5%, or 5% interest, or the current top variable rate.
In 1996, ethically invested funds in Australia exceeded $100 million, whereas

overseas they are measured in billions of dollars. (Mollison claims that ethical
investment schemes handle in excess of 160 billion dollars annually in the
USA alone.) There are 28 ethical investment organisations operating in
Australia and New Zealand.
Figure 2: The criteria used by companies who claim to be ethical must be carefully examined. (Source: Sparkes, 1995)
3.2 SHAREHOLDER ACTION
Related to ethical investment, but with a shift in focus, is the idea of shareholder
action. Rather than investing only in companies which are ethical, the investor seeks
to influence companies which are unethical by buying shares in them and attending
board meetings or annual general meetings at which policies are set. When a group
of investors is involved, rather than a lone activist, the potential for results is
increased.
Whereas withdrawing invested funds from a company and boycotting that company
is an action which can only be undertaken once, shareholder activists seek to have
an ongoing positive influence on a company.
Sparkes (1995) quotes an example of the World Development Movement which

forced the Brooke Bond Tea Company to give better pay and conditions to the
workers on its tea plantations. In 1970, Ralph Nader forced General Motors to
discuss workers’ rights and consumer issues at its 1970 general meeting, resulting in
significant changes.
A recent Australian example of shareholder action occurred at BHP’s Annual

General Meeting on 26 September 1995, when shareholders presented the
Chairman of the Board, Mr John Prescott, with a large dead fish. This was a striking

symbol of their opposition to BHP’s operations at the Ok Tedi River site. Alex Maun,
a landowner and villager from Ok Tedi, was able to gain entry to the shareholders’
meeting by attending as a proxy for an absent member of Community Aid Abroad.
Figure 3: Alex Maun of Ok Tedi presents BHP chairman Mr John Prescott with a dead fish, symbolising shareholders’ concern about
the 58 million tonnes of mine tailings dumped each year in the Ok Tedi river. Maun gained entry to the meeting as a proxy for a
shareholder who was a member of Community Aid Abroad, an agency which seeks to promote sustainable development. (Source:
Hobbs, 1996)
In the foyer of the World Trade Centre, Maun handed out leaflets explaining
the plight of the villagers. He asked BHP why they were denying the Ok Tedi
villagers compensation for destroying their natural environment, which they
depend upon for their livelihoods. In Australia it would be unacceptable to
dump 58 million tonnes of tailings in a river in which people fish.
The shareholder activists were successful in gaining media publicity for their
cause, with Alex Maun and his dead fish appearing in several television news
broadcasts. This type of action is designed to embarass companies who rely
on good publicity to sell their products.
Apart from influencing corporations through participation in management

meetings, shareholder activists can achieve results simply by informing the
public on issues relating to corporations policies and practices. In 1985
Social Audit published a list of charities and medical organisations which held
shares in tobacco companies. Sparkes notes that many of the medical
associations felt so embarrassed that they sold their tobacco shares
immediately, causing a significant decline in tobacco shares on the stock
market.

Consumer boycott can also be used to force corporations and governments to

move towards ecological sustainability. Worldwide boycotts of French
products may have been a significant factor in persuading the French to cut
short their program of nuclear testing in the Pacific.
3.3 LETS SYSTEM
The LETS system (“Local Employment Trading System”) is an example of an

advanced barter system. No money in the form of dollars, pounds, notes or
coins is used in the LETS system, however members of the system trade with
each other just as they would in the normal economy. Instead of trading in
notes and coins, an electronic form of currency is used to keep track of
accounts.
Michael Linton, a Canadian, is the founder of the original LETS system, which
commenced in 1983. (Lang, 1994) Since those days the idea of LETS has
appealed to more and more people with new systems forming in the UK at the
rate of one per week.
The way the system works is this: interested members decide on a name for
their unit of currency and offer goods and services to each other by publishing
them in a directory. To trade, the buyer contacts the seller and they negotiate
a price. The appropriate number of currency units is deducted from the
buyer’s computer account and recorded in the seller’s account. This is
equivalent to the buyer making a commitment that he or she will provide a
service to some other LETS member at some later date, or will sell some item
of value.
One difference between LETS and conventional national currencies is that

you don’t need to have accumulated wealth to start buying or trading. If your
account has a balance of zero or is in the red, you are simply promising that
at some later date you will provide your labour, a good or a service, to be
used by others in the community.
Whereas in the national economy money is used for all sorts of purposes, the
LETS currency is simply a record of work done: of the time taken to do a job
and the knowledge, skill and experience needed to do it successfully. In the
national and global economies money can be won or lost on the stock
markets, acquired by interest on loans or pocketed by speculators trading one
currency against another, without any work being done at all. In the LETS
system, these types of activities do not exist, and loaning LETS currency for
interest is not permitted (Lang, 1994). The value of money in the global
economy fluctuates wildly as it is affected by all of the other uses money is
put to, apart from its primary function as a medium of exchange. In the LETS
system, there is no interest to cause inflation, no speculation etc. so the value
of the LETS currency remains relatively stable from one day to the next.
Money is considered in the global markets to be a commodity in itself, and is

increasingly used for speculative activities rather than being used for
productive purposes. While there is no real shortage of wealth in many

countries, somehow there is not enough money in their local areas for people
to fulfil their basic needs.
The LETSystem was partly designed to address the issue of wealth tending to
accumulate in cities, the coffers of large transnational corporations or banks
supporting large investors. The system tends to encourage trading primarily in
the local area, thus avoiding this flight of capital. Currency used in the
LETSystem carries no interest. Administration costs are charged, however
these are kept to a minimum and are usually not excessive. Currency is not
issued, it exists purely in electronic form. The units of trading may be “green
dollars” or “units” or “Strouds” or “Acorns” or....whatever the locals want to call
their currency.
When goods or services are provided, units are earned, and when they are
purchased, units are spent. The traders’ accounts are adjusted accordingly, at
a central admin office. The price for a transaction is agreed upon by the
individuals involved, and this personal negotiation helps to ensure fairness in
trading. Some items traded in LETS eg. car repairs, involve a component in
national currency (dollars, pounds, francs) for parts, with the labour
component only being in LETS.
Daly (1991) notes that the traditional solution to unemployment is growth in

production. Rather than increasing production, an ecologically sustainable
solution to unemployment is a redistribution of the available jobs between the
haves and the have-nots. The LETS system presents a viable solution to the
problem of unemployment. An advantage of the LETS system is that anyone
who wants work can offer services, they do not need to wait for jobs to be
advertised by an employer. LETS promotes self-employment rather than
wage employment.
LETS is not only a means of creating employment for the unemployed, and
encouraging trade in the local area, it is also a very valuable means for
people to get to know others in their local area, thus building up social capital.
Whereas in the national economy consumers buy and sell from anonymous
individuals or companies, in LETS, the provision of necessities and luxuries
provides a means of building a sense of community and getting to know one’s
neighbours.
Advantages of the LETSystem even extend to environmental preservation,

with LETS encouraging the use of local goods and services and reducing the
need for fossil-fuelled powered vehicles to bring exotic items from distant
lands. It creates a market for small businesses, such as organic hobby
farmers, or artesans using traditional labour (not energy) intensive methods of
production.
While the character of a LETSystem is affected to some extent by the local

culture or the wishes of its members, to be a LETSystem it must have five
non-negotiable characteristics (Lang, 1994):
• it is non-profit making

• there is no compulsion to trade

• information about balances is available to all members
• the LETS unit is equal in value to the national currency and
• no interest is charged or paid.
LETS does not seek to replace banks as it does not share their objective of
earning a profit from lending money and charging interest. It is more like a
club or a co-operative.
The use of computerised currencies is not uncommon in today’s society, and

is not unique to LETS. Boyle (1998) notes that in the modern economy,
money has become inextricably linked to information systems. Supermarkets
and airlines issue their own computerised “currencies” in the form of frequent
flier points or “fly buys”. The use of these computerised currencies allows
them to track exactly what each customer is buying. Where the LETS system
differs is that the use of its electronic currency units is not designed to
concentrate wealth in the hands of one or two retailers and airline companies.
Rather it aims to create social capital and an even distribution of wealth in the
local area in which it is used.
There is nothing in the official rules of the LETS system which prevents a
lawyer from charging more for an hour’s work than a babysitter. However,
some interesting phenomena have been observed:
• In some LETS groups the difference in price per hour between a

“skilled” worker’s labour and an “unskilled” worker’s labour is much less
pronounced than it is in the national economy.
• A group in Manchester (UK), calling themselves the “Bob a
Jobbers” pay each other one Bobbin for any work done no matter how
much skill was involved in the job or how many hours the job took.
They say that this is to emphasise that economic considerations are
secondary to LETS’ primary function of building up community
networks.
• Essential domestic tasks which traditionally involve women’s labour
and are usually devalued (such as ironing and babysitting) are often
able to command a higher price in the LETSystem relative to other
forms of labour. Perhaps LETS encourages the recognition of the
essential function of such tasks in the local economy. (Lang, 1994)
LETS is the most common example of an advanced barter system based on

electronic currency, however other barter systems also exist.
One example of an informal labour-based barter system is the Bendigo Home

Builder’s Club in Victoria (Mollison, 1988). This group of 35 members are
involved in building individual homes. Each member is at various times a
recipient and a donor of labour. The units of exchange are hours of labour,
and all labour is considered equal. The recipient is debited and the donor is

credited for every hour that he or she works. The only financial cost incurred
is a nominal fee of $5 per year per family to cover the cost of printing and
distribution of the club’s newsletter.
Informal barter arrangements can be formalised by the introduction of

Brokerage houses or newsletters, such as “Exchange and Mart” in the UK,
advertising items for barter. These services are paid for in trading units or
credits for bartered items. (Mollison, 1988). Here in Australia, Barter Card can
be used to provide bartering services for businesses.
Apart from LETS in Canada, Australia and the UK, computerised community
barter systems include banco del tempo in Italy and SEL in France (Boyle,
1998).
3.4 ITHACA ALTERNATIVE TRADING SYSTEM
In New York State, a group of concerned citizens have decided to issue their
own currency and start their own economic system (Boyle, 1998). The Ithaca
alternative trading system is similar to a LETS system, but involves the use of
paper currency rather than computerised currency.
Ithaca‘s citizens find that their earnings and spending money are increasingly
leaving the area as these citizens become more dependent on distant big
business rather than local small traders. Large corporations such as Wal-Mart
tend to transfer funds to their headquarters, rather than spending them in the
local community where their stores are located. Local campaigners
successfully prevented the opening of a Wal-Mart store in Ithaca, but this was
not enough. They decided to print their own money, to be circulated locally,
building up the local economy.
Boyle (1998) notes that a dependent local economy is not just a social
problem, it is an environmental problem also, as a local area with too little
cash is unable to support the production of food and other goods locally.
When it is no longer economically viable to produce goods locally, it becomes
necessary to transport these goods over long distances, unnecessarily
consuming fossil fuels and producing greenhouse gases.
Funds circulating in the local area create employment for local people. By
creating their own currency which is only recognised and accepted in the local
area, the system’s instigator Paul Glover and his supporters have ensured
that funds stay circulating in the local area.
The fundamental difference between the Ithaca alternative financial system

and similar community barter systems such as LETS is this: while barter
systems rely on computerised currency and complex accounting is needed to
keep track of all transactions, the Ithaca system has paper banknotes hence
it is not necessary for a centralised “bank” to keep track of each and every
transaction, they can occur informally.

The banknotes, “Ithaca Hours” are printed on watermarked cattail paper or

handmade hemp paper, (some with special thermal ink), and are reputedly
more difficult to counterfeit than a US banknote. Each hour is equivalent to
$10. Ithaca banknotes are emblazoned with the slogan, “In Ithaca we Trust”,
an appropriate indication of the community’s confidence in the value of the
new currency.
Figure 4: Ithaca’s distinctive banknotes are used to promote trading in the local area, creating employment and building up social
capital. (Source: Glover, 1996)
Community participation in the scheme is high, with three hundred local

businesses participating, including a bank which pays some of its staff partly
in Hours, and accepts them as payment for bank charges. At present there
are approximately 6600 hours in circulation, and since 1991, approximately
US $1.5 million in transactions have been made using hours instead of
dollars. Over $55,000 in local paper money has been issued to over 1000
participants since 1991. (Glover, 1996)
The way the system works is as follows: Services are advertised in a

directory, the Hour Town. Every advertiser agrees to accept hours, and in
return they are issued with one or two hours. After eight months, they can
apply for another hour as a reward for their continued participation in the
scheme. Some currency is given to community groups and some is owned
interest free. All loans are published in the Hour Town, and this helps to
ensure repayment.
Ithaca money’s listing of 1300 traders functions like a Yellow Pages. Hour
loans to small businesses are made without interest charges.The Ithaca credit
union accepts Hours for mortgage and loan fees. The Ithaca Hour sets a
standard for a minimum wage, raising the income level of the poorer
members of society, however it does not insist on knocking down the income
of the richer members of society. Dentists, massage therapists and lawyers
are permitted to collect several Hours hourly. However, increasingly there are
cases where more equitable wages are evidenced.
While Hours could be easily integrated into a LETS system, transactions are
easier and administration costs are low as there is no need to record every
transaction in a central computer. Whereas with a LETS system there are no
limits on the number of Units or Green Dollars in circulation, in the Ithaca
Alternative Trading System a finite number of notes is in circulation, and this

can be controlled. After the system’s initial setup, hours can be traded with
anyone for anything without needing to refer to a member’s directory. (Glover,
1996).
Ithaca has published an information kit for other community groups who want
to replicate their success, and has received requests from over 400
communities so far.
Boyle notes that the Ithaca alternative trading system is not an isolated
example. Unofficial printed money (scrip) systems are springing up all over
the world: australs in Argentina, SOCS in Scotland, and tlalocs in Mexico. In
the United States alone there are at least 30 other local currencies - from
Valley dollars in Massachusetts to Ka’u Hours in Hawaii. Mollison (1988)
notes that many small towns funded their public works in the 1930’s using
local currency. The currencies were collapsed when the communities’ needs
were being adequately met and they were no longer required.
The Permaculture International Journal (1998a) reports that the world’s first
national alternative currency has recently been set up in Scotland. The
Scottish Organisational Currency System (SOCS) is based on the LETS and
Ithaca models and individuals can take part by participating in their local
LETS group, whereas businesses, county councils, local authorities and
community groups can trade directly in the new currency. The project was
initiated by Rural Forum Scotland. By using the national currency through the
LETS system, interregional funds transfers are kept to a minimum, but are
still possible.
Figure 5: The Ithaca Alternative Trading System is one example of an alternative financial system that creates employment and
benefits the environment by encouraging local and regional self-sufficiency. (Source: Glover, 1996)
3.5 ALTERNATIVE CREDIT UNIONS

Credit unions can legally be formed by any identifiable group of 30 or more
people. They are formed as a co-operative or self-help group - for the
members to loan funds to each other, encouraging local self-reliance and

preventing capital flight from the local area. (Much like LETS and the Ithaca
Alternative Trading System). Some credit unions have a cheque account
service and friendly societies may have insurance services. A credit union
may loan members’ funds for gardens, fuel conservation, or renewable
energy generation, at reasonable rates. In this way it can be used to promote
ecologically sustainable development.
Rimmer (1997) believes that credit unions are not such a new phenomenon,
they began in Germany in 1849. Since then, they have certainly grown in
importance. Albee (1996) comments that in 1994, there were 87,604 credit
unions around the world, and that thse organisations had assets of $650
billion and nearly 114 million members. In the USA, 54 million people belong
to credit unions and in Canada, one in four people is a credit union member
(Rimmer, 1997). Credit Unions are the fastest growing financial sector in
Australia.
Members of a credit union usually have a common bond, such as common

work, or living in the same area. When credit unions first start up, savings are
encouraged. Later, when a pool of loan funds has been established,
borrowers can borrow a certain percentage of what they have saved.
With most credit unions, there is no limit to the minimum amount that can be
saved. To save only 50 cents per week is not discouraged at all, regardless of
the high administration costs of processing such small deposits.
Credit Unions provide a valuable service for those who would otherwise have
no access to credit. Many of the larger banks in Australia have closed their
rural branches leaving farmers without access to any financial services. From
1993-1996, 670 bank branches were closed around Australia. This forces
many people to drive for hours to visit their nearest branch. Having made this
journey, they often conduct other business in the town where the bank is, thus
spending money which they would previously have spent in their local
community.
Credit unions have stepped in to fill the gap left by the banks’ withdrawal.
Recognising the need for rural financial services, the Australian Governement
has provided $1.7 million over two years for CreditCare, a co-operative joint
venture (Permaculture International Journal, 1996a). The balance of funding
required was to be provided by Credit Union Services Corporation, which
represents 250 credit unions throughout Australia.
In the NSW rural town of Werris Creek, when the local bank closed its doors,
one third of the bank’s population of 1600 deposited more than $1 million with
their new credit union branch, rather than having to drive 50km to the next
bank to carry out basic transactions.
The Maleny and District Community Credit Union Limited (MCU) is one of the
most famous local examples of a succesful credit union. Its Statement of
Ethics claims that it is committed to acting in ways that are socially just,
environmentally responsible, empowering to the local community and

individuals and based on a belief in people, honesty and goodwill. MCU does
not charge any transaction fees, has no minimum balance requirements and
does not invest in the short term money markets. There is no discrimination
between borrowers or between investors. Those whom other institutions
would class as posing a great financial risk may be able to borrow funds from
MCU. All investors receive the same return regardless of the amount of
money that they have invested.
Only members of the MCU are eligible for its financial services, as it is a co-
operative. To become a member, a prospective member must fulfil the MCU’s
criteria and pay $10 for 5 shares. Joint memberships and body corporate
memberships are available. MCU has over 3500 members and the capital
invested exceeds seven million dollars. It is run entirely by its local members.
Services offered by MCU include loan funds, fixed term deposits, savings
accounts, cheque accounts, a Christmas Club and insurance. The MCU also
aims to provide education in financial matters, provide budgetary advice and
help to de-mystify money and financial institutions.
All of MCU’s lending capital is spent in the Maleny bioregion only, thus
ensuring that it benefits the local community. The members’ funds create
employment and stimulate the local housing market and local small
businesses.
3.6 GRAMEEN BANK AND OTHER MICROCREDIT SCHEMES
The Grameen Bank had humble beginnings: it commenced operation in 1976

with a sum total of $27 US, contributed by the bank’s founder, Professor
Muhammad Yunus. With this sum, loans were given to 44 self-employed rural
women. Twenty years later, it had 12,000 employees, 157 branches, 2.1
million members, a turnover of US$400 million per annum and a default rate
of only 2.7%. (Conaty, quoted in Gonella and Evans, 1997).
Many Bangladeshi villagers are trapped in a spiral of debt and are effectively
bonded labourers. Yunus (1997) describes the example of a woman who
makes only 2 pennies per day because she cannot afford to buy the raw
materials for her small business of making bamboo stools. She has to borrow
the raw materials from the trader who purchases the finished product, who
charges an exorbitantly high interest. This situation is not uncommon in
Bangladesh. Driven by a vision of the abolition of poverty, Yunus began the
experiments which led to the creation of the Grameen Bank.
Whereas commercial banks require borrowers to prove that their income is

above a certain level, Grameen requires its borrowers to prove that their
income is below a certain level. The bank loans primarily to women. Most of
the loans are for short periods of time. Borrowers need no collateral, and do
not need a credit history or a guarantor. However, participation in the scheme
does require the fulfilment of certain conditions: the borrower must belong to
a group of five members, and attend weekly meetings. (Bornstein, 1998)

Each group of five members is part of a centre made up of eight groups (40
members). When a borrower takes out a loan, her group as a whole is
responsible for repayment. The group provides support to the borrower and
helps her to resolve any problems she may be having. When the first
borrower has repaid her loan, other members of the group then become
eligible for loans. One rule of group formation is that you can’t be in a group
with “someone who eats from the same cooking pot as you”. This is to
discourage favouritism among relatives and extended families.
Grameen Bank is a people’s bank with 90% of its shares being owned by its 2
million borrowers. The bank does not give no-interest loans. It seeks to cover
its costs, and while these are kept to a minimum the cost of administering
many small loans is always greater than that of administering a few larger
loans. In 1990, the interest rate was 16%, four points above the commercial
rate. (Bornstein, 1998). However, in spite of this, the loans are repaid and the
borrowers are taking out more loans, indicating that they must be deriving
some benefit from the loans in spite of the high interest rate.
The Grameen Bank expects a lot from its clients. While banks which loan to
the wealthy have very poor repayment rates, Grameen borrowers are not
allowed to miss even one repayment. The bank never ever forgives loans, not
even after a flood or a cyclone. (However, some loans can be restructured).
The bank’s greatest strength is that all of its activities are designed to
encourage self-sufficiency among its borrowers. It does not give handouts.
Even vegetable seeds or chemicals used for water purification attract a fee if
they are distributed by the bank.
Grameen bank transactions are carried out in the village itself, so that the
villagers are not put off by the imposing appearance and bureacracy of a
conventional bank. There is no secrecy or confidentiality, every member of a
centre knows the financial status of every other member in that centre.
After a few groups have been formed the villagers must begin to accumulate
funds to construct their own meeting house. This could be viewed as an
unnecessary financial burden, after all, the Westpac bank doesn’t insist that
its members build their own branch before they will allow them to open an
account. However, Yunus views this as an opportunity for villagers to engage
in a collective activity, thus encouraging community development.
Villagers tend to be put off by commercial banks where they don’t have the
right papers and don’t understand the rules of the game. Carrying out the
transactions in a village meeting house breaks down these barriers. Having
an unpretentious building makes the women feel at home. Yunus insists that
the meeting houses must not be too flash or too comfortable. If they are, then
the richer members of the village will take them over for other purposes, or
will try to infiltrate the ranks of the Grameen bank members, and the bank will
no longer be able to work effectively in that village.

The weekly centre meetings are the focus of Grameen bank’s activities.
Disbursements of loans and collection of repayments is carried out at the
weekly centre meetings.
As part of the conditions of being a member of Grameen, each borrower must

contribute to the Group fund. At first this involved depositing one taka per
week but now 5% of each loan is deposited in the Group fund. The Group
fund is a collective savings account from which members can borrow when
they need a short term loan only. This is in addition to the bank’s normal
loans which tend to be for a period of about a year.
The Group fund ensures that if some disaster happens such as a drought or a
flood, a poor villager does not have to resort to help from the local
moneylender who may charge more than 100% interest. (Bornstein, 1998)
It is also necessary for borrowers to contribute a fee to the Emergency fund at

the end of the year. The group can use this Emergency fund to cover thefts,
accidents or loan defaults. The Emergency Fund has now evolved into a
pseudo life-insurance fund also. If a Grameen borrower dies, her beneficiary
receives a payment from this fund. The payment can be up to 5000 takas,
which represents a year’s income for a poor villager.
To cite an example of how the Grameen Bank’s financial arrangements work:
Aleya borrowed 2000 takas...She received 1,900 takas in hand (5 percent was
deposited into the Group Fund). She bought a cow and sold milk, earning between 10
and 20 takas each day. Each week she paid her installment of 40 takas and deposited
a few takas in her savings...Over the next fifty weeks, Aleya set aside 163 takas for
her interest payment (The bank was then charging 16 percent interest calculated on a
declining balance.) An additional 41 takas had to be paid into the Emergency Fund
(25 percent of the interest). At the end of the year, the cow belonged to her.
(Bornstein, 1998)
Interest on Grameen Bank loans is payable in a lump sum at the end of the
year. After the paperwork for a loan has been completed the loan is usually
granted within a fortnight. The money must be invested by the borrower within
seven days of recieving the cash. Before joining the bank, all members must
learn to sign their names. This enables them to complete the minimal
paperwork involved in a loan.
Prior to lending money to borrowers, the bank may require borrowers to

undergo training. However, it does not tell the borrower what to spend the
loan money on. The borrower knows best what is the most productive use of
their loan.
Whereas other banks assume that their clients are potential cheats, Grameen
bank assumes that its clients are honest. To save time at centre meetings,
Grameen staff may assume that all accounts are in order and will only carry
out further investigations later, if any discrepancies are found. However, in
their branch offices all accounts must be kept to the highest standards of
auditability. (To ensure honesty of the staff and to satisfy foreign supporters,
more than anything).

Grameen borrowers don’t get something for nothing. In addition to expecting

regular loan repayments with interest, the bank expects that at each meeting
the members will salute each other, chant slogans, do exercises and recite
the bank’s manifesto: “The Sixteen Decisions”. (Bornstein, 1998) Imagine
having to do calisthenics for the branch manager of Westpac before he’d let
you take out a loan!
Many individuals believe that the bank’s rituals are coercive, saying that they
have been imposed on the borrowers. (Bornstein, 1998) The bank defends its
rituals claiming that they improve the women’s self-esteem. While
Bangladeshi women are traditionally told to speak softly so men can’t hear
them, and look down demurely while greeting someone, the bank workers tell
them to chant slogans boldly, and look people in the eye while saluting them
proudly. Whether the women like the rituals or find them a bit silly is irrelevant
really. The borrowers still go to the meetings and still take out loans.
Figure 6: The Grameen Bank’s manifesto, the “Sixteen Decisions” has generated a great deal of controversy. Has the mindless
chanting of the Grameen ideology been imposed on the borrowers against their wishes? If so, the borrowers are not putting up much of
a fight. (Source: Bornstein, 1998)
The bank does not concern itself only with lending money. Imagine the public
outcry if the Commonwealth Bank or the National Bank only loaned money to
people who controlled their family size by having two children or less! An
outrageous idea? It is a policy which the Grameen Bank has been trying to
introduce.

Grameen Bank has the highest growth rate of any bank in Bangladesh. Today
the bank operates in 36,000 villages in Bangladesh - almost every second
village of the country. The bank has more than 2.1 million borrowers and
1079 branches. In 1996, the bank loaned the equivalent of US $400 million in
taka, with a repayment rate of over 98%. Compare this with the repayment
rate for the Industrial Bank of Bangladesh, which is less than 10%! Yunus
describes the Industrial Bank as “a charity outfit for the rich”.
The bank attributes its phenomenally successful repayment rate to three

factors:
1. The repayments are made weekly, and are small. Larger, less frequent
repayments carry a greater risk of falling behind.
2. The bank keeps its promises to the borrowers. All meetings are held on
time, all loans are disbursed on the promised day, and are the correct
amount. The borrowers respond in kind.
3. Personal interest in the borrowers’ projects, constant supervision of and
support for the borrowers. When Suncorp gives a loan for a house they
don’t visit every week to check the progress of construction. But Grameen
Bank does.
Results achieved by the Grameen Bank have impressed even the World
Bank, which broke with its tradition of only funding large-scale projects, to
initiate a fundraising drive for Grameen-style projects. The United States (not
usually one to learn from developing countries) have been so impressed with
Grameen’s results that they have sought to replicate them in the States. Four
hundred members in the US and Canada have joined the Association for
Enterprise Opportunity, a network of microenterprise organisations modelled
on the Grameen Bank. In the US these microenterprise schemes are still in
their infancy with none coming close to covering their operational costs yet.
However, Bornstein notes that one banker has franchised his operation and is
working with over 1800 small businesses in Miami, New England and
Delaware.
In spite of any obstacles along the way, the Grameen Bank is, by most
accounts, an outstanding success. A recent World Bank study found that one
third of Grameen borrowers have moved out of a situation of poverty and
another third is about to cross over the poverty line.
Following success in microcredit, Grameen is assisting its borrowers to

market cotton and silk cloth overseas and is even setting up a cellular
telephone network, to be managed by the poor rural women who are
Grameen borrowers.
People in the first world who wish to support the activities of the Grameen
Bank, can establish a savings account with the Grameen Cash Management
Trust. In this way they can contribute to the lending base of the Grameen
Bank, while still earning a return on their investment. There is no minimum
balance, small deposits are accepted, and the current interest rate is 1% for
deposits up to $5000. Grameen Trust was established to allow the Grameen
Bank to be replicated in other developing countries, by funding training and

technical assistance and providing necessary seed capital for new revolving
loan funds.
There are over 200 replications of the Grameen Bank in 56 countries.

(Grameen Bank Support Group, 1997). One new Grameen Bank replication is
1
created somewhere on earth every week. Three recent examples of
replication projects in India are the Bharatha Swa-Mukti (BSS) bank, the
Society for Rural Improvement (SRI) and the Oriental Bank of Commerce
Grameen Project. (Cashpor, 1998)
The SRI trust was originally funded by an interest-free loan from its founder
Dr. Prabhakar Puthiyaveedu, and received additional funds from students at
the University of Maryland and US$50,000 from Grameen. Prior to the SRI
trust formation, families harvested only one rice crop per year and had to
borrow during the lean season from labour contractors. They had to repay this
debt by working far from home in conditions of semi-slavery.
SRI’s first loans are quite large in comparison with other Grameen projects,
as most borrowers have chosen to invest in cows. SRI has taken the unique
step of requiring the borrowers to insure their animals with a government fund
(supplementary loan funds cover the insurance costs).
The Oriental Bank of Commerce also has some unique aspects. Unlike most
Grameen projects, it started out as a commercial bank, which sought to turn
its non-performing loans to lower income earners into a more profitable
business. By adopting the Grameen Bank methodology of group formation
and small weekly payments, and targetting women rather than men, the bank
has disbursed US$50,000 in microcredit loans with 100% repayment. This is
in spite of charging 12.5% interest on loans, whereas the government’s
Integrated Rural Development Program charges a subsidised rate of only 4%.
OBGP made a small profit in 1998. Hooda, the program’s founder, partly
attributes his success to the training and support he provides to borrowers, in
a range of activities from beekeeping to knitting to pickling mangoes.
Apart from the very famous Grameen Bank, other examples of microcredit
schemes include the Banco Sol in Latin America and SEWA bank in India.
Some examples of revolving loan funds include the SHARE system and the
CELT system. The Self-Help Association for a Regional Economy (SHARE)
aims to encourage small businesses in the Berkshire area in Massachusetts,
USA. Members of the community can open a SHARE joint account with a
local bank. They receive 6% interest on this account and the funds are loaned
at 10% to small businesses. The business person receiving the loan must first
obtain references from people who know them to be responsible and
conscientious. The scheme aims to help borrowers and members to get to
know many people in their community, as well as helping to finance local
small business.
1
URL: http//www.rdc.com.au/grameen Beyond Bangladesh

The Community Enterprise Loans (CELT) trust is a charitable trust which

operates in New Zealand, to promote small businesses and co-operatives.
CELT finances its loans from donations, subscriptions from the public and
some limited government funding. Depositors who wish to receive interest can
do so, otherwise the interest is used to fund education and training sessions
for entrepreneurs to enhance their business skills.
Conaty, (quoted in Gonella and Evans, 1997) describes a microcredit scheme

which involves a partnership between seven community-based housing
organisations and the First Chicago Bank. In the US there are 46 examples of
this type of microcredit loan fund ( an NGO partnership with a commercial
bank) in total.
The Grameen Bank and all of the other microcredit and revolving loan
schemes are helping to improve intragenerational equity, by making credit
available to the poor, and thus reducing poverty.
3.7 ISLAMIC BANKS
In stark contrast to conventional western commercial banks, Islamic banks do

not pay interest on savings and do not charge a fixed interest rate on loans.
They seek to implement in practical terms the prophet Muhammad’s vision of
a just and equitable society. Though environmental preservation is not the
principal feature of the Islamic economic philosophy, nevertheless they seek
to promote sustainable development by addressing the issue of
intragenerational equity.
Margrit Kennedy (1987) comments on the effects of interest on economic

growth. If no interest is charged, wealth does not accumulate so rapidly, and
the demand for goods and services is relatively steady, avoiding the problem
of economic growth.
Most of the goods and services we take for granted contain hidden interest
charges: 12 % of garbage collection fees, 38% of drinking water charges, and
77% of social housing charges. The gains go to rich lenders and the losses
are paid by the poor or borrowers. Wealth obtained by unethical investment
strategies is transferred by global stock or money markets to where it can
most efficiently be used to exploit the poor. This concentration of wealth
tends to favour spending on large infrastructure projects, and funds become
so large that as a last resort, military spending is employed to make use of
the concentrated funds. (Kennedy, 1987).
Islamic banks seek to avoid these types of problems. In Islam money does
not in itself produce interest or profit and is not viewed as a commodity. It is
solely a medium of exchange. The relationship of the Islamic bank to its
clients is that of a partner, rather than a creditor or debtor. Riba, or interest, is
not allowed in Islam, however, Mudarabah, or profit-sharing joint ventures, is
permissible. (Mannan, 1986).

In a typical Mudarabah contract, a financier provides funds and a Mudareb

(labour partner) provides knowledge and skill, and the profits from the
undertaking is shared between the partners in an agreed proportion. This
system does not apply to consumption loans, which are more or less
unproductive in nature (though their influence on the productivity of the
community has indirect bearing insofar as it stimulates production and
supply.) Consumption loans are financed by other means such as hire-
purchase arrangements or rent-to-buy schemes (with an Islamic bank being
allowed to cover its administration costs but not make a profit).
Some skeptics would argue that if no interest is paid on deposits held with
Islamic banks, then the rich may be tempted to hoard their wealth as
unproductive assets. However, the payment of Zakat conveniently avoids this
problem for the devout Muslim. Unproductive assets are taxed in the Islamic
system, thus encouraging investment. (Profits from productive assets are also
taxed in Islam, through Zakat, but at a different rate). (Metwally, 1997)
The first interest-free Islamic bank was the Dubai Islamic Bank, which was
established in the United Arab Emirates in 1973 with a start-up capital of
US$14 million. In 1975, the Islamic Development Bank opened in Jeddah,
Saudi Arabia. From these humble beginnings, there are now more than 100
interest-free banks in 45 countries.
3.8 WORKER-OWNED CO-OPERATIVES
A co-operative aims to benefit its members. It is a legal entity which has

limited liability and cannot be dissolved for individual gain. It runs on
democratic principles and has open membership. Interest on share capital in
the co-operative is strictly limited, and any surpluses from the operation of the
co-operative are to be shared among the members. Co-operatives are often
involved in education of their members, and try to encourage collaboration
and mutual support, rather than competition.
Duncan Bowdler, of the Co-operative Wholesale Society in the UK, describes

how co-operatives differ from conventional businesses:
Co-operative societies have always claimed to have social objectives. They believed
they were different to normal capitalist businesses because of the democratic control
and because they were self-help organisations set up in communities. It would not be
logical for a co-operative society to set itself up in business, make profit from its
members and then decide to invest it in Japan.
Our social objective is service to the community and having a concern for the
community. (quoted in Gonella and Evans , 1997).
The Mondregon worker co-operatives, in the Basque country of Spain, are

perhaps the most famous example of the principles of co-operatives, in
action. (Mollison, 1988) In 1988, less than thirty years after the formation of
the first of these enterprises, 96 co-operatives, creating employment for
17,000 workers, had been formed.

Mondregon’s system works as follows: each worker invests approximately

$5000 at the time of joining the co-operative. 80% of this amount is for
purchase of an individual shareholding or capital account and 20% is a
contribution to collectively-owned funds. The individual account is normally
untouched except on retirement or death of the worker. A co-operatively run
bank oversees the functioning of all new co-operatives in the group, finances
new co-operatives up to 90%, and provides management skills.
Of the profits made by the co-operatives, 10% must be returned to the

community for public services, 20% are held as capital reserves, and 70% are
distributed to workers. Not all of this 70% can be accessed by the worker,
however, until the time of leaving the co-operative. When the worker leaves
the co-operative, they withdraw all their financial contribution to the company
and are paid any interest owing to them (a modest sum) as compensation for
‘loaning’ their funds to the co-operative.
The size of the co-operatives is kept small and manageable at 200-300

worker owners. There are no redundancies as any surplus workers are
retrained and redeployed in other co-operatives. The ratio of salaries of the
lowest to the highest paid person is never greater than 1:5. As management
is elected by the workers, and the workers are involved in directing their work,
strikes are not prevalent. The Mondregon co-operatives have tended to
specialise in appliance manufacturing, however the communities also have
schools, hospitals, housing, supermarkets etc., all of which are co-operatively
run.
3.9 OTHER ALTERNATIVES
The many financial alternatives discussed above do not provide an

exhaustive list of possibilities. For example, some forward thinking
environmental groups are tackling the issue of third world debt directly. Rather
than simply lobbying governments they are purchasing the debt themselves.
Mollison (1988) cites the example of conservation trusts who are purchasing
foreign debt and asking the debtors to repay the loan and interest, not in hard
currency, but in forests and wetlands in the donor country. The forest and
wildlife reserves so purchased can be developed for tourism and research.
This is more constructive than the current approach of destroying these
natural resources by unsustainable harvesting in a vain attempt to raise
capital to repay the debt to the banks. However, it does mean that the debtor
country loses ownership of some of its natural resources.
Mollison also notes that in the corporate world, company takeovers resulting
in “asset stripping” are often used to enrich certain individuals, regardless of
the costs to society. This same approach can be used by conservationists
who buy unsustainable industries such as forestry, mining and other
extractive industries, strip them of their assets, shut them down and
rehabilitate environmentally-degraded areas. Few examples of this type of
scheme exist in practice. Before implementing such a scheme, an
environmentalist of good conscience would have to carefully consider the

social impact of this asset stripping, and whether alternative livelihoods exist
for the loggers, miners etc. involved. It may be necessary to carry out
retraining or assist these individuals to find meaningful alternative
employment.
Apart from the very formal co-operatives such as the Co-operative Society in
the UK and the famous Mondragon co-operatives, there are many examples
of informal co-operatives. Mollison (1988) cites the example of Chile, where
people working together have been able to finance their own development
without recourse to the economic system. While Chile’s amassed a foreign
debt of $12 billion during 1985, $11 billion worth of housing was built by poor
slum dwellers, without loans, by using locally-available resources and relying
on each other’s co-operation.
Other examples of financial alternatives include the creation of a property

trust for environmental rehabilitation, eco-village development, purchase of
threatened wilderness areas for conservation, or simply for investment.
(Mollison, 1988). Many small investors who cannot afford large areas of land
pool their financial resources to purchase real estate for improvement, lease
or rental. This is an ethical alternative to investing in uranium mining or
unsustainable forestry. The management group floats a property trust on the
investment market, via a public prospectus. A low unit price (around $100)
allows some less-wealthy people to invest, in fact a single unit could be held
by a society or group of people, lowering the price of participation even
further. Unlike other property trusts, investors are given every opportunity to
be involved in the project, eg. supplying the tree nursery, consultancy to the
management group, leaseholds or controlled recreational access to the land.
The trusts can earn a return for their investors, while being involved in
environmental rehabilitation, bioregional development, or even productive
projects such as sustainable aquaculture or fisheries.

4.0 EFFECTIVENESS OF ALTERNATIVE FINANCIAL SYSTEMS
There appear to be quite a few different alternative financial alternatives, but

most of them are recently-initiated and still small. Are they having a real effect
in helping to create a sustainable economy and a sustainable society? In the
words of Mollison (1988),
At any rate, the present system is in the process of collapse, and the new barter
systems are expanding; the only question we have is if the life support systems of
earth will still be intact, or whether sanity in fiscal affairs will be delayed until no human
survival is possible on a polluted earth.
The need for change is vitally urgent. Mollison, the founder of Permaculture,
believes that strategies for improvements in the economic and social
structures of society may be of more assistance to real change than the skills
of land management, because society has far more competent farmers and
engineers than it has ethical bankers or lawyers whose work relates to curing
or preventing (not just treating the symptons of ) social or environmental
problems. He states that earth restoration techniques come to naught while
we continue to invest in arms and destruction, poisoning of land and
unsustainable land use. Mollison says that
the very first strategies we need are those to put our own house in order, and at the
same time do not give credibility to distant power-centred or unethical systems. In our
present fiscal or money-run world, the primary responsibility that we need to take
charge of is our wealth, which is the product of our sweat and our region, not
represented by valueless currency.
Is Mollison right? Or should we focus our attention in other areas first, to

achieve the goal of ecologically sustainable development?
4.1 ETHICAL INVESTMENT
Ethical investment sounds great in theory, but does it promote sustainable

development in practice?
The phenomenon of ethical investment is comparatively new, commencing in

1971 with the Methodist Church’s Pax World Fund. Friends Provident
Stewardship Trust, the first ethical investment unit trust in the UK, was only
launched as recently as May 1984. Like any new system, ethical investment
schemes are not perfect and have had their share of teething problems.
In the UK, some of the smaller funds have suffered from the problem of not
being financially viable, due to insufficient investors, and have been subject to
mismanaged takeovers. On 9 October 1993, The Times reported:
Glynne Evans invested £500 in the Global Opportunities Fund when it was managed
by Target Unit Trust Managers...she chose the trust not only for its ethical investment
policy, but because a percentage of its management fees were to be donated to Save
the Children. But Target’s 13 trusts were sold to Edinburgh Fund Managers in January
this year.

The Edinburgh Fund Managers had no interest in ethical investment, and

discontinued the practice of supporting Save the Children. This was done
without consultation with the ethical investors.
The main criticism of ethical investment schemes is that they are not going far
enough, fast enough. Coates, quoted in Sparkes (1995) comments that
I am sceptical about how many of the ‘ethical funds’ really are looking at these ethical
issues in any kind of depth. A lot of them own the drug company Glaxo on the basis
that its products are ‘humanitarian’, but in fact it is on Greenpeace’s list of the ‘Filthy
Fifty’ biggest polluters in the UK, while it is believed to be still practising vivisection.
...As an adviser I find that many clients want ethical funds with clear guidelines, they
want to be sure that they do not hold any companies whose activities they do not
agree with. It may be all right for a church or charity fund with broad objectives to
have the ‘least bad’ company in a sector such as, say, food retailers with their
ecologically disastrous superstores, but my clients just don’t want to invest in these
areas at all.
Ethical investors believe that they are “doing their bit” but sometimes they are
blissfully unaware of just how ethical (or otherwise) the companies chosen by
funds managers actually are. This may be due to the sheer complexity of the
financial system and the companies involved and the enormous amount of
research needed to keep tabs on ethical/unethical activities. Stuart Bell of
PIRC, quoted in Sparkes (1995), comments that
the promotional images on which the ethical products are sold often give the false
view of the stringency of the detailed assessment policies pursued...compromises
occur because, although funds tend to use their ethical bias as their main marketing
point, they put relatively little effort into their ethical research. Research deficiencies
may cause funds to fail to fulfil their promises.
It is more expensive to run an ethical investment fund than a conventional

fund, due to the greater volume of research and reporting that is needed. As
ethical investors are still small in number at present these extra costs are
spread over a small group. Funds managers driven by the need to still make
a return for the investors may be tempted to take short cuts or settle for
companies which are “only a little bit ethical”.
In 1989, the committee members of the Ethical Investment Fund Committee

resigned on masse, as they felt that they were not able to fulfil the function
which the unitholders expected of them. (Sparkes, 1995) They felt that the
ethical fund was not living up to its public rhetoric. Friends Provident
Stewardship fund has been criticised for investing in Amersham International,
which uses radioactive isotopes for medical research, and CIS Environ has
been criticised over ownership of Huntingdon International, which tests some
drugs on animals.
Some critics claim that ethical investment takes a very negative approach,
focussing heavily on boycotting rather than making a positive contribution.
However groups such as the CIS Environ Fund seek first to work with
companies to help them achieve good environmental practice, and only
boycotts them if all else fails. (Sparkes, 1995).

Smith, 1996,2 criticises Ethical Investment fairly harshly, saying that while it
makes investors feel good, it is not effecting real change. He claims that
different ethical investment funds are pulling in different directions, and that
their efforts are fragmented rather than co-ordinated. The effectiveness of
boycotting certain companies or withdrawing funds by selling shares is also
questioned. When an investor withdraws funds for ethical reasons, they
usually do not even inform the company of their actions and the reasons
behind them.
A lesson which can be learned from Smith’s criticism is that investors need to
not only withdraw funds from companies, but they also need to inform the
companies of their decision, and inform the general public as well, so that
their efforts can be multiplied for more effectiveness.
A comprehensive study of ethical investment funds in Australia and New

Zealand was carried out in 1996. (Permaculture International Journal, 1996a).
The study found that the major impediment to growth in ethical investment in
Australia was simply that potential investors were not sufficiently informed
about the industry and its history. Many people do not think of themselves as
investors and are blissfully unaware of how their savings are used. However,
Butman (1991) points out that anyone with a superannuation policy is an
investor. In the UK, pension funds alone account for 35% of stocks (Gonella
and Evans , 1997).
Whereas in the USA ethical investment accounts for approximately 20% of all
money invested by individuals (investments totalling $160 billion), in Australia,
in 1991, less than 1% of investment funds were in ethical investment
schemes. (Butman, 1991) Not surprisingly, the Australian Consumers
Association (1991) believe that the influence of ethical investors in Australia
at present is fairly insignificant. They claim that
it would be a misapprehension to believe that the small percentage of people taking

part in ethical investment at present can use market mechanisms to influence
company behaviour. Australia’s $50 million ethical investment industry will need a
much larger capital base before it can wield a strong influence over corporate
behaviour.
In spite of this, they do concede that ethical investment schemes have

achieved some measure of success, if only in convincing consumers that
having principles need not be unprofitable. In Queensland the Maleny and
District Credit Union is able to offers higher interest rates than some banks,
and it has very few bad debts, in spite of lending to low income earners and
struggling small businesses. For the 1990/91 financial year, in terms of
financial performance August Investments (an ethical fund) ranked ninth in a
list of 35 trusts, and the YWCA Ethical Investment Fund ranked 11th.
Some ethical investment funds have been accused of mismanagement, in

spite of providing a healthy return to their investors. The Australian
Consumers Association cites the example of Directed Financial Management,
2
http://www.webactive.co.uk/ethical/investment/intro.htm The Efficacy of Ethical Investment

the management company for August Investment, stating that it was

significantly undercapitalised and it made an operating loss of $144 250 after
tax.
The YWCA is strongly criticised by the Australian Consumers’ Association for

investing in Westfield Property Trust (for megashopping complexes) and
invests in Coles Myer in spite of their marketing of alcohol and tobacco.
Friends Provident Life Assurance company claims that it will not invest in
companies which trade with oppressive regimes, nor in those which have
military contracts of > $10 million per annum. However Friends Provident had
shares in BHP since 1987, in spite of the fact that it was supplying steel for
submarine manufacture and had significant dealings with South Africa during
its worst days of apartheid.
Even the more benign Australian Conservation Foundation (ACF) Green

Bond faces the challenge of a legal requirement to keep a certain percentage
of funds in liquid form. This means that ACF will have to acquire commercial
bank bills. However, very few of the available bank bills benefit
environmentally-sound industries. (Australian Consumers’ Association, 1991).
One of the potential problems caused by green investment schemes is that,

in withdrawing funds from unsustainable industries in countries with poor
human rights records, emerging markets in developing countries are denied
the funds they need for development. The environment may be saved from
destructive logging of the tropical rainforests or large-scale flooding from dam
construction, but the impoverished indigenous people may be the losers who
miss valuable development opportunities. The challenge for ethical
investment schemes is to seek sustainable alternatives such as investing in
permaculture projects or artisans’ co-operatives in developing countries,
rather than withdrawing their funds altogether.
Glanzberg (1992) describes five types of investment:
• Degenerative (items which can wear out eg. buildings, roads)

• Generative (fall apart but can be used for repair eg. tools)
• Regenerative (forests, aquaculture, non-profit organisations)
• Conservative (not resources in themselves but conserve other resources
eg. dams, seed banks, insulation)
• Informational (libraries, songs, genetic material)
A sixth category, not listed by Glanzberg, is destructive investment,

ie.investment in weapons manufacture, polluting industries, uranium mining,
etc. Ethical investment schemes should seek to invest the bulk of their funds
into regenerative systems, with some investment in generative, conservative
and informational components. The least possible investment should be
made in degenerative resources and destructive investment definitely has no
place in any ethical investment scheme. While in our skewed capitalist
economy a road may give a better return than an orchard, this is never the
case in the economy of nature. Glanzberg claims that large degenerative

assets can only be maintained by slavery or some kind of labour exploitation,

or by stealing the resources of future generations.
How well are our ethical investment schemes living up to Glanzberg’s goal of
investing primarily in regenerative systems?
At present many of the ethical alternatives invest in conservative investment

and a limited number invest in regenerative investments. Many invest in
degenerative assets, such as the housing and construction industry.
On a more positive note, ethical investment has resulted in many significant

achievements. While governments may be failing to implement progressive
environmental policies, conservationists are taking matters into their own
hands and putting their money where their mouth is. Knowles (1997) believes
that one of the most positive benefits of ethical investment schemes is that
ethical investors feel personally empowered by taking control of their
finances.
The outcomes from ethical investment schemes can be far-reaching. The

investors influence not only the industries which they invest in and those
which they boycott, but increasingly they affect the wider community also.
Sparkes (1995) comments that the growing significance of ethical investment
funds in the UK means that workers rights and consumer issues will be put
on the agenda of the annual general meetings of large corporations. This
phenomenon is already observed in the United States, where private
investors have a larger percentage of shares than in the UK, where
institutions own most of company shares.
Ethical investment schemes is that they are helping to promote change in the
mainstream economy. Many mainstream businesses are starting to consider
social accounting as well as financial accounting and environmental reporting.
Even the World Bank is starting to consider the development of social capital.
The World Bank has just carried out some very interesting research on different
factors that determine national wealth in 192 companies. They found that on average
64% of national wealth is created by human capital and social capital rather than man-
made economic capital or natural capital. They then looked at where funding was
going and found that 64% was not going to human and social capital development.
They are now making a genuine commitment internally to change that. (Jane Nelson,
quoted in Gonella and Evans , 1997).
Sparkes comments that perhaps the greatest benefit of green investing is that
it funds the work of research units who monitor the environmental practices of
various companies, and publicise their findings. When members of the
general public and community groups become aware of the activities of
certain companies, they can apply pressure on these companies to lift their
game. Green investors force industry generally to consider environmental and
social matters. They encourage governments to tighten environmental laws
and they encourage environmental technologies.
One positive impact of ethical investment schemes is to encourage ordinary

not-particularly-ethical investors and funds managers to consider
environmental sustainability. For example, following the Exxon Valdez

disaster in March 1989, the New York City Pension Fund (Nypers), who
owned six million shares in Exxon met with the Exxon management and filed
a proxy resolution instructing them to adopt the CERES principles of
environmental management. CERES - the Coalition for Environmentally
Responsible Economies, encourage companies to protect the biosphere, use
resources sustainably, reduce waste, conserve energy etc. Nypers, though it
does not specialise in ethical investment, now encourages all prospective
investment companies to adopt the CERES principles. (Sparkes, 1995).
Considering the teething problems and criticisms of ethical investment

schemes, and the many positive results that they are achieving, it can be
concluded that the ethical investment movement has great potential, but if it is
to live up to its potential it requires a huge increase, an enormous increase, in
the number of people involved. The existing schemes are limited in number,
coverage and funds deployed because not enough people are aware of their
existence and their potential. Ethical investors need to take a more
“evangelical” approach, recruiting more investors from the ranks of their
friends, families and social clubs.
For the moment, ethical investors are few in number. This is no reason to
become disheartened, however, perhaps ethical investors have been
spreading themselves too thinly, and should focus on a few issues to start
with, co-ordinating their activities rather than trying to solve all the world’s
problem in one hit and barely making a dent. The spectacular results
achieved in ending apartheid are a graphic illustration of just what can be
achieved when concerned investors focus on a single but significant issue
and co-ordinate their activities to achieve this end.
Perhaps a global coalition of ethical investors is needed - a co-ordinated

worldwide movement to encourage discussion and debate, and focus
attention on the most important of the many hundreds of issues and
dilemmas facing today’s ethical investor. If ethical investors worldwide
decided as a group to boycott all fossil fuel production, research and use and
support no other projects but renewable energy, almost overnight there would
be a huge reduction in greenhouse gases. This would be achieved
independently of the Kyoto protocol, tradable permits and all of the other
government-based initiatives.
4.2 SHAREHOLDER ACTION
Is shareholder action making a real difference in promoting sustainable

development? Smith (1996)3 claims that shareholder action is far more
effective than ethical investment.
An example of effective shareholder action is that of the borough of

Richmond in south-west London, which has attempted to represent the
wishes of its constituents by investigating companies in which their pension
fund invests. Councillors have met with the senior management of companies
3

in which the fund invests to discuss packaging and recycling, energy

efficiency and environmental matters. This is not only because of a concern
for sustainable development, but also because of a belief that companies with
higher environmental standards are less of a financial risk than those without
them.
Sparkes (1995) claims that the biggest impact of shareholder activists,

working together with socially responsible investors, was on decreasing US
investment in South Africa, during the apartheid years. Some of the biggest
investors in the US sold not only their direct investments in South Africa, but
also their investments in other American companies that supported apartheid
through strategic industries such as arms and computers. Large corporations
such as IBM and General Motors drastically reduced their activities in South
Africa, and Sparkes claims that this played a part in forcing the apartheid
regime to commence negotiations with the African National Congress in
1990-93.
The ANC, the Commonwealth Heads of Government, David Craine , Robert

Schwartz and Joan Bavaria (quoted in Sparkes, 1995) all agree that
economic sanctions were the driving force behind the end of apartheid in
South Africa. And the end of apartheid in South Africa has placed the idea of
ethical investment in the minds of citizens worldwide. In the words of the
Methodist Church Overseas Division (1993),
No other issue in our time has involved such a broad global consensus of people and
organisations, and the effect of their combined concerted action against apartheid has
been immense...The ethical responsibility of investors and investment policies is now
an accepted principle in the commercial world, largely pioneered by anti-apartheid
action.
Results achieved in South Africa are certainly impressive. However, economic

sanctions must be used with caution. They may cause no harm at all to
corrupt goverments of developing countries, while adversely affecting the
livelihoods of poor villagers whom the shareholder activist originally sought to
help.4 Cortright and Ahmed (1998)5 cite the example of the US ban on
foreign aid and investment and credit support to India and Pakistan. While
causing economic pain to the poor of these countries, it is unlikely to force
either government to cease developing nuclear weapons. When sanctions
are targeted at specific groups, are flexible and are imposed multilaterally
they are far more effective. In the India/Pakistani case, sanctions should not
be directed at the entire economy, rather they should be directed at
companies who supply the military or the nuclear research program. In this
way they would affect the elite decision makers who hold power rather than
the local villagers.
If these comments about the effectiveness of sanctions are taken on board,

then shareholder action has much to recommend it. Like ethical investment,
4
URL: http;//www.fourthfreedom.org/sanctions/sanctions.html About Sanctions
5
URL: http;//www.fourthfreedom.org/sanctions/modifyem.html Sanctions: Modify ‘em

shareholder action needs to be taken up by more people if it is to live up to its

potential and be truly effective.
4.3 LETS SYSTEM
LETS has been very useful in creating employment and in encouraging

people to consider what is happening in the economic system. It has led to
many friendships and even the odd romance. One exmple of a business
which is successfully trading in LETS is Mills Cafe in Stroud, UK. Since 1990,
this cafe has had a turnover of over 35,000 strouds. Mills Cafe pays a quarter
of its organic vegetable bill in Strouds, as well as its weekly bill for cleaning
table , and it has even used Strouds to pay for rewiring its building, installing a
burglar alarm and paying their accountant. The Cafe is approximately 6000
Strouds in credit.
The LETSystem has many enthusiastic members and supporters in different

towns and companies. Nevertheless, like all new and different financial
systems, it has had a few teething problems. It is worth considering these
problems. While they do not imply that LETS is ineffective, they provide
useful ideas on how the system can best be implemented, to make a bigger
contribution to sustainable development.
One issue which has arisen for the organisers of many LETS schemes is the
question of how much the unit of currency should be worth. Some systems
equate one LETS unit to one dollar or one pound or one franc etc, ie. it is
equivalent in value to one unit of the national currency. Others use a time
based system, with one LETS unit representing one hour’s labour. A third
option is to set a ballpark figure or benchmark at the time of setting up the
system, and allow consumers to adjust their prices to this accordingly.
The advantage of the first system are that it is easy for members to
understand and it facilitates trading for members who charge for spare parts
in the national currency and labour in LETS. Tying the LETS unit to the
national currency can create other problems, however. When the national
currency inflates, the LETS unit will unavoidably inflate also, and thus it will
cease to be an inflation-free alternative.
Giving LETS a time-based value also creates problems, albeit different ones.
It is designed for egalitarian systems where one hour of a babysitter’s time is
worth the same as one hour of an accountant’s time. Thus it does not allow
for those who would like to recognise the difference in expertise required, or
responsibility involved for a particular job. An hourly rate-based LETS may
cause difficulties with intersystem trading in LETS, as it may be difficult to
compare Strouds from Stroud with Bobbins from Manchester. The hourly rate
system causes difficulties for those businesses who have to record
employees’ salary details for income tax calculations. These details must
often be recorded in equivalent national currency.

With the third system it can be difficult for businesses who have to calculate
part of their prices or costs in national currency and need to easily convert
from one currency to another.
Apart from the issue of value of the currency, LETS has encountered another
problem. People who previously would have volunteered their time for free for
some charitable agency now seek to charge LETS units for the same job. The
charitable agencies feel hard done by! This problem is a bit difficult to solve,
apart from providing other opportunities for people to trade (outside of the
charities), so they don’t earn an income at the charities’ expense.
After LETS has been running for a while, the system can accumulate a lot of
inactive members who have not done any trading for years, moved overseas,
etc. Lang suggests “pruning” the membership directory every few years to
improve the efficiency of the system. The members should be contacted first
to determine whether they still wish to participate in LETS.
The LETSystem tends to encourage honesty and fairness, however

occasionally there may be the odd person who tries to take advantage of
others in the system. Existing LETSystems have not experienced this
problem often, and have responded to it by simply deleting the offending
individual’s name from the system. Though this is an unfortunate occurance,
the consequences are not as dramatic as bankrupcy in the traditional cash
economy. The people who have received LETS Units from the “defaulter” still
have those units credited to their account, there is no such thing as a
bounced cheque in LETS.
There are many advantages to businesses who wish to participate in the

LETsystem. These businesses can expand their customer base to include
customers who don’t have many dollars or pounds, but have some LETS
currency. Free advertising through the LETS newsletters is a benefit for
business, and it is good public relations to be seen as contributing to the local
community. In spite of these advantages, there are a few critics of LETS
among the business community. The Vice-chair of Exmouth Chamber of
Commerce criticises LETS, fearing that the type of non-commercial trading
promoted by LETS will adversely affect local businesses. The local
businesses who make up the membership of the Chamber of Commerce
have overheads such as insurance and rent or rates, which LETS members
do not have to pay. Local businesses also caution that consumers may be
adversely affected as LETS members believe that they don’t have to comply
with food hygiene regulations or health and safety provisions. LETS
membership allows “unprofessional” people to carry out work which would
normally be carried out by fully trained individuals. LETS is accused of being
a tax dodge, or a means for people to cheat social security, by earning LETS
currency while claiming to have no income.
Most of these claims are unfounded. In the UK at least, it is not possible to

cheat social security by participating in LETS. Peter Lilley, from the UK Social
Security Department states that, while each case will be considered on its
merits, anyone who works for more than 16 hours a week in LETS is likely to

lose their entitlement to a social security benefit. The UK Inland Revenue

Service state that all LETS units constitute income and must be declared on a
tax return, and an IRS spokeswoman adds
and we want tax in sterling. The chanceller will not appreciate having his lawn mowed.
While these examples dispute the arguments put forward by the

businesspeople, their concerns do indicate a need for LETS to improve its
public relations with the business community. Better communication will help
to achieve understanding and an improved working relationship.
To avoid problems with consumer affairs associations etc., LETS must

conform to the strictest standards of advertising. At present the legal status of
LETS is a little unclear, even in countries such as the UK and Canada, where
it has been operating for some time. Some organisations such as local
authorities are reluctant to participate in LETS while its legal status is still
undefined. For example, while Calderdale Council Communidy Development
Unit has joined Calderdale LETS it is reluctant to make from local businesses
in LETS currency, because of concerns about tendering issues, problems of
insurance not covering LETS purchases and possible labour relations
disputes. The Council has given LETS purchases £500.00, and has received
500 units of LETS currency. The council has recorded its £500.00 as a grant,
but is reluctant to record 500 LETS Units as expenditure, due to the unclear
legal status of LETS.
Finally, another challenge facing LETS as it increases in size is to negotiate

with trade unions and ensure that there is no animosity between union
members concerned about losing work to unemployed people on LETS, or
concerned about being paid in LETS which have limited spending
opportunities.
4.4 ITHACA ALTERNATIVE TRADING SYSTEM
The Ithaca Alternative Trading System, though limited in its effect due to its
small number of participants, appears to be functioning very successfully. It is
worth considering the factors which contribute to this success, and factors
which must be considered in replicating this project so that its effectiveness
can be enhanced.
Boyle (1998) draws on the experience to date of the Ithaca alternative traders
to recommend a number of factors which are important in ensuring its
continued success:
• being able to boost confidence in the new currency

• a source of outside funding for the scheme’s main organiser
• a bank, where hours can be exchanged for dollars as required
• control of the money supply, and
• making connections in the local economy and promoting the scheme
The bank referred to previously need not be an elaborate building - Ithaca’s

bank is in a second-hand bookshop. The system can start small and build up

gradually, however some resources are needed to initiate the use of a new
currency like the Ithaca system. Boyle notes that other similar schemes have
failed because the scheme’s organiser couldn’t make a living out of it initially,
and had no other means of support, while working full-time to establish the
system.
In Ithaca, at present there is more demand for Hours than supply. However,
there could be problems in future if the money supply has to be reduced, as
there are few methods of withdrawing it quickly.
In the United States, IRS and FED officials have agreed that there is no
prohibition of local currency, provided it is distinct from dollars in its
appearance, and it is regarded as taxable income, with tax paid as necessary.
However, the Ithaca system may be difficult to replicated in certain countries
where laws prohibit the creation of currency. In the UK, for example, currency
creation is expressly forbidden by the Bank Charter Act of 1844, section 10,
which states that
No person other than a banker who on the sixth day of May, one thousand eight
hundred and forty-four was lawfully issuing his own bank notes shall make or issue
any bank notes in any part of the United Kingdom.
Other organisations trying to emulate the Ithaca system may have problems
inspiring confidence in the new currency. (Ithaca does not have this problem).
Mollison (1988) claims that for any local currency to work it must be backed
up by an item of real value (the reserve) eg. a cord of timber or a fixed
quantity of bottled water. The value of currency printed must not exceed the
reserve by a factor of more than three. The bank or issuer of the currency
should not decide what the currency should be used for, this is for the
community to decide. To prevent hoarding, Mollison suggests that the notes
can be dated and a new issue made every 4-5 years. To avoid problems
replicating the Ithaca Alternative Trading System, it is suggested that
Mollison’s suggestions be implemented.
4.5 ALTERNATIVE CREDIT UNIONS
Credit unions are not new. They have a long history of providing an
alternative to the commercial banks. Thus we would expect them to have a
wider sphere of influence than either the LETsystem or the Ithaca Alternative
Trading System.
Are credit unions effective in improving the status of women? Rimmer (1997)
argues that they are, and that the social benefits of credit unions far outweigh
their economic advantages. Rimmer’s experience primarily relates to Britain,
where eighteen years of conservative government have resulted in a
reduction in wages, a rise in unemployment and cuts in social welfare
payments. Up to a quarter of the UK population is affected by poverty, with
women making up 59% of the welfare recipients.
In Britain there are no laws to prevent loan sharks charging up to 400 percent
interest, and people on low incomes have traditionally had access only to loan
sharks or pawnbrokers for credit. Conventional banks charge lower interest

rates but most unemployed Britons do not have a bank account. Conventional
banks ask for references, expect borrowers to be employed and also demand
a minimum deposit. Credit unions provide a better alternative. In the UK,
women form the bulk of credit union membership.
Rimmer describes a Credit Union project in Santon, where as a result of

joining the credit union, black women not only improved their economic status
but also began to be more involved in the community and make use of a food
co-operative, a toy library and other community facilities. The Santon Credit
Union is similar to the Grameen Bank in that the credit union service goes to
wherever the women are: to children’s nurseries, bingo sessions, even visiting
elderly and disabled women in their own homes. The women have increased
in self-confidence as a result of their participation in the credit union, with
some applying for work on the strength of work experience they have gained
through the credit union. Towards the end of the project, two black women
were elected to the credit union’s Board of Directors, a white woman became
the secretary and one black women was confident enough to nominate
herself for the assistant treasurer’s role.
Rimmer believes that this is just one example of how women’s financial and
organisational skills are enhanced by credit union involvement. However, she
is quick to point out that credit unions are not a panacea. Wider campaigns of
social action are necessary to supplement the work of increasing women’s
personal power. For example, some of the women involved in the credit union
project needed access to a refuge or haven from violent abusive partners who
became threatened and enraged by the women’s new found assertiveness.
By improving the status of disadvantaged persons from minority groups,

credit unions can make some contribution to achieving intragenerational
equity and ecologically sustainable development, provided that other (non-
economic) factors are also addressed.
4.6 GRAMEEN BANK AND OTHER MICROCREDIT SCHEMES
Has the Grameen Bank been successful? Prior to the Grameen Bank, a few
credit co-operatives had operated in Bangladesh, however, these loans were
almost never repaid. The Grameen Bank has a repayment rate of more than
97%, comparable with the Chase Manhattan Bank. In 1996, the repayment
rate exceeded 99.5%, outperforming all other Bangladeshi banks and most
banks worldwide. (Grameen Bank Support Group, 1996)
Noting that the earlier projects had been imposed on the villagers rather than
designed by the villagers themselves, Yunus asked the villagers how the
bank’s administration should be conducted. The villagers themselves
suggested the idea of the loans being administered by a group.
While the Grameen Bank is at present functioning admirably well, like all
other new organisations it has undergone a few teething problems and has
discarded some ideas and adopted others. At first the women’s groups were
organised according to their economic activities eg. bamboo-stool-weaver’s

groups, rickshaw drivers’ groups etc. However, the borrowers in these groups
did not know each other well. So this was changed, and now the women form
groups with friends whom they know well and can trust, and the members
provide support to each other.
Problems encountered by the bank include suspicion of its motives, especially

among fundamentalist Muslims. Some believed that it was run by Christian
missionaries, others thought that it was a way to implement socialism.
Rumours circulated that if you borrowed money and did not repay it, you
would be jailed. Some men were concerned about the effects on their wives
of being permitted to leave the house to trade in the marketplace. However,
as the Grameen bank continued to prosper without giving any Christian
sermons ever, and the men saw that the women were not harmed or
corrupted by leaving the house occasionally, the opposition to its activities
began to dissipate.
Evaluations of the bank’s work showed that loans to women rather than men
were the most effective in improving the economic situation of the whole
family. However attempts to increase the number of women borrowers were
at first resisted by the bank’s staff, who felt that it was too much extra hard
work to target women borrowers. Incentives such as salary bonuses and
other benefits were offered to the staff to persuade them to work with women.
(Yunus, 1998b)
In focussing on women, the bank has had to deal with a number of obstacles:
• resistance from men who don’t want their wives to get the loan rather than
themselves
• fear of threats to the Islamic traditions involving social customs and
relationships between women and men and even
• fears that Grameen bank was run by Christian missionaries who were
trying to undermine Islam (women were believed to be gullible and more
easily converted)
In its early days when the Grameen program relied on the commercial banks,
both borrowers and Grameen staff experienced endless frustration. This was
because the commercial bank employees were accustomed to having no
work, and were corrupt to boot. When the Grameen Bank opened their
workload increased ten times. They expressed their resentment by making
the borrowers wait for long periods of time for their loans, telling them to come
back another day, and creating unnecessary bureaucratic paperwork.
In those days the bank had some problems with the composition of its
groups. When villagers of unequal economic status were forming groups the
poorer members tended to be ignored. Another issue was that whole
communities of landless people who had lost their livelihood to erosion were
being left out of Grameen altogether, when these people, being the poorest,
were the ones most in need of help. Grameen now insists that groups are
made up of people who are more or less equally poor.

In spite of any obstacles along the way, the Grameen Bank is, by most
accounts, an outstanding success. A recent World Bank study found that
one third of Grameen borrowers have moved out from a situation of
poverty and another third is about to cross over the poverty line.
The bank’s success is based on strict adherence to the following principles,

which have evolved over time as a result of trial and error:
• the bank only loans to those who have nothing to offer as collateral or
security.
• borrowers are not advised as to how to spend the money, they know best
how to manage their finances
• the bank will support its borrowers and help them to succeed
• all of the bank’s activities will be directed towards serving the poor only, the
bank will not engage in any other activities, and
• the bank will endeavour to meet all its costs from its interest income
Founding members of the Grameen Bank Support Group in Australia visited

Bangladesh after an ABC documentary painted a rosy picture of the bank’s
success. They wanted to find out if it could possibly be true. What the
members found was that Grameen bank borrowers had a much higher self-
esteem than the recipients of other aid projects, and that this was because
the bank operates as a business rather than a charity.The poor women are
shareholders in the business, not the recipients of handouts. 6
Although assisting one third of its borrowers to move out of poverty is a truly
outstanding result, the Grameen Bank has been harshly criticised, unjustly so,
over a number of different issues.
Some critics say that the bank does not help enough people. In spite of its
wide coverage, the Grameen Bank freely admits that it cannot cater to every
poor person in Bangladesh. To be accepted as a borrower, a woman must be
accepted into a group of five. The very poorest of the poor may miss out as
the other group members may not trust their ability to repay the loan. It is very
hard for the poorest of the poorest women to see their children go without
food so that they can meet the Grameen bank repayments, and other
potential group members know this.
Some of the bank’s members feel that it is unfair for Grameen to raise their
interest rate and to refuse to forgive loans, even after floods etc. In 1991, the
bank raised its interest rate from 16% to 20%, because the Bangladeshi
government had given its employees a pay rise. The Grameen bank workers’
salaries are tied to those of the Bangladeshi public service. Also in 1991 the
Bangladeshi government forgave all loans of under 5000 takas and waived
interest on loans of less than 10,000 takas. Those who had loans with
Grameen (rather than the government bank) still had to pay. Was this too
harsh?
6
URL: http//www.rdc.com.au/grameen The Grameen Bank Support Group Australia

Yunus justifies his position, insisting that the bank encourages self-sufficiency
not handouts and must insist on loan repayments no matter what. His
approach seems to be working, with such an impressive repayment rate.
Is Grameen’s interest rate exorbitant? Bornstein notes that a family can

borrow forty kilograms of rice before the harvest and they will have to repay
80 kilograms two months later: an effective annual interest rate of 600
percent. This figure make Grameen’s 20% interest rate seem like a dream
come true.
Bornstein questions whether helping people to stay in their villages rather

than migrating to larger towns and cities really represents economic
development. He cites Adam Smith who believed that the greatest
improvements in the productive powers of mankind are attributable to the
division of labour. This division of labour has led to industrialisation and
urbanisation. So is the Grameen Bank model really achieving economic
development?
Yunus believes that self-employment rather than wage-employment is the

best way to alleviate poverty. His opinion is that
Unless designed properly, wage employment may mean being condemned to a life in
squalid city slums or working for two meals a day for one’s life. Wage employment is
not a happy road to the reduction of poverty. The removal or reduction of poverty must
be a continuous process of creation of assets, so that the asset base of a poor person
becomes stronger at each economic cycle, enabling him or her to earn more and
more. (Bornstein, 1998)
By encouraging self-employment, Yunus’ project has achieved enormous

economic improvements. So there must be truth in Yunus’ words. How many
industrialisation projects can claim to have lifted one third of their
beneficiaries out of poverty?
Grameen’s influence does not stop at just improving the family’s income. It is
also achieving results in other areas. For example, the Grameen bank’s
manifesto, “The Sixteen Decisions” emphasises family planning. The
Grameen Bank’s influence in this regard appears to have achieved some
measure of success. Bornstein (1998) notes that a number of independent
studies have shown that Grameen bank borrowers are more likely to use birth
control than non-members. One study of 2000 women found almost 50%
more users of birth control among the Grameen Bank borrowers surveyed.
The bank attributes its success in family planning promotion to several

factors:
• Grameen borrowers have better access to family planning information.

• The position of Grameen women in the household (due to their economic
status) is such that they exert greater influence over their husbands.
• Grameen borrowers have greater financial security, and feel less of a need
for children to support them in their old age.

Considering all of the above information, it can be seen that the Grameen
Bank of Bangladesh has been successful in achieving economic
development, improved self-esteem and improved status of women, and
improved financial security.
What about Grameen Bank Replication Projects in other countries? How do

their successes and failures compare with those of the Grameen Bank of
Bangladesh?
Problems experienced by Dr Ramesh Bellamkonda in setting up the Bharatha

Swa-Mukti Samsthe bank in India are similar to those experienced in other
Grameen Bank Replication projects. Women were put off at first by the
weekly repayments, found it difficult to take responsibility for other group
members’ loan repayments and were impatient at having to endure the
training period before being able to access loan capital. Unlike the situation in
Bangladesh, villages in the Bangalore area are small and only about a third of
the population is really poor. This makes it difficult to apply the Grameen
model of forty-member centres without some local modifications.
How does Grameen bank compare with other microcredit schemes in

empowering women borrowers? Albee (1996) notes that the aim of most
microcredit schemes is to support the growth of sustainable small businesses,
improve women’s opportunities and provide alternatives to extortionist
moneylenders. However, not all microcredit schemes are equally effective in
achieving these goals. Their success depends on the type of credit
mechanism chosen.
Albee compares bank guarantee schemes, government credit schemes,

intermediary projects, NGOs’ direct lending projects, ‘banks for the poor’,
credit unions and village based banks.
A typical bank guarantee scheme is operated by a normal commercial bank

with guaranteed funding from an international donor to provide loan capital
and cover any cases of default. However, usually less than 20% of the
borrowers are women, profits are retained by the banks and seldom
reinvested locally and the borrowers have little control over the management
of the system.
Examples of government credit schemes include Malawi’s Ministry of

Agriculture’s fund and the Nepalese government’s Production Credit for Rural
Women. These schemes tend to have few female staff and providing credit to
women borrowers through male extension workers has met with limited
success. Some schemes have tried to promote village borrowers with
potential, giving them employment in the scheme. However this creates
problems with social dynamics, when women are suddenly elevated to an
influential position in their community.
While the Grameen Bank mostly employs men in positions of authority, many
of its workers at the grass roots level are women. In its earlier days Grameen
had these same problems with the social dynamics, and thus now tries to

employ women in a different region where they are not known and do not
have relatives who will try to take advantage of them. (ie. the worker is not
employed in her home village).
Some organisations have executed intermediary projects, where they provide

support to borrowers in the form of training, technical advice, assistance with
completing paperwork and acting as a guarantor. One such organisation is
INDESI in Peru, which in its first year of operation assisted 40,000 small
businesses, mostly run by women, to obtain loans from government banks.
Such projects assist women to obtain credit but are difficult to implement in
remote rural areas, encounter resistance from commercial banks and limit
opportunities for women to learn to deal with banks and for banks to learn to
relate to poor women.
Direct lending projects, usually run by NGOs, involve small loans with
frequent repayments, group guarantees and banking operations close to the
borrower’s home. Examples include the Self Employed Women’s Association
in Ahmedabad, India and the Janasakthi Bank in Sri Lanka. These projects
are more effective than other types of credit schemes, however they are
criticised for their small scale and the costs involved in setting up the scheme.
When a direct lending project grows to a significant size, it becomes a ‘bank

for the poor’, like the Grameen Bank. The Grameen bank has assisted large
numbers of rural women to improve their economic well-being, however Albee
still finds room for criticism: most of the staff are male and the institutional
structure is not directly controlled by the poor women themselves. Albee
quotes Keppetiyagama, an accountant with over 30 years’ involvement in
credit unions:
A careful review of the pattern of administration of the Grameen Bank reveals that it is
more a Bank of the elites by the elites for the poor rather than a Bank of the poor for
the poor by the poor. It still has a long way to go ... Grameen has been fortunate to
attract large amounts of foreign funds at negligible cost, but a careful review of the
financial structure reveals that this flow of foreign funds has been a blessing, not only
to the landless persons of Bangladesh but also to other commercial banks. About 30
per cent of Grameen Bank’s funds have gone to capitalists and entrpreneur classes
through the commercial banks. These are funds that could and should have been
utilised for the socio-political and economic upliftment of its target group.
Credit unions are financial co-operatives owned and controlled by their

members. Both credit unions and village banks emphasise savings, which are
used to fund loans to members. Savings may be supplemented by
international donors’ grants. Albee believes that their emphasis on local
ownership and management makes credit unions an improvement on ‘banks
for the poor’ which are not run by the women themselves. However, she fails
to consider whether the credit union model could possibly ever work in the
cultural context of a Muslim country such as Bangladesh, where the small
gains in the advancement of women made by the Grameen Bank represent a
quantum leap when the prevailing culture of Bangladesh is considered.
Albee is skeptical of some microcredit schemes which claim impressive

repayment rates but may in practice actually increase poor people’s debts.

She claims that repayment rates of 98% may indicate a dysfunctional project
design, such as overlapping loans. In some projects where the borrowers are
subject to a series of graduated loans, the second repayment for the first loan
may co-incide with the disbursement of a second loan. The repayment, which
the borrower cannot afford to repay, is simply deducted from the second loan,
however the borrower is still in debt. This may be repeated for a third and
fourth loan. Eventually, final repayment is due and the woman has got so far
behind that she is forced to sell an asset and is poorer than before.
This type of problem can be reduced by insisting on frequent (eg. weekly)

repayments as the Grameen Bank does. The temptation to reduce
administration costs by cutting back the frequency of repayments must be
strongly avoided.
Considering Albee’s comments, it can be concluded that the Grameen Bank

is quite effective when compared with other alternatives, however its
effectiveness will be even further enhanced in the future when it is able to
recruit more female workers. This does not in any way detract from the fact
that Grameen has lifted one third of its members out of poverty, a truly
outstanding result no matter what imperfect or unorthodox means it has used
to achieve this end.
4.7 ISLAMIC BANKS
In Islam money does not in itself produce interest or profit and is not viewed
as a commodity. The relationship of the Islamic bank to its clients is that of a
partner, rather than a creditor or debtor. Riba, or interest, is not allowed in
Islam, however, Mudarabah, a type of profit-sharing joint venture is
permissible.
In a typical Mudarabah contract, a financier provides funds and a Mudareb

(labour partner) provides knowledge and skill, and the profits from the
undertaking are shared between the partners in an agreed proportion.
Another service provided by Islamic banks to stimulate the economy without

charging interest is Murabaha (cost plus) contracts. The way these contracts
work is that banks purchase a certain commodity required by their clients and
give delivery of the commodity on the basis of a share of the profits accruing
to the business as a result of its use.
As the Islamic banks do not accept interest, they have the potential to
promote intragenerational equity, an important component of ecologically
sustainable development. But are they achieving this, in fact?
Mehmet (1990) is not convinced that Islamic economics, whether practiced by

Islamic banks or individual Muslim believers, makes any contribution to
sustainable development. Quite the opposite, in fact. Mehmet comments that,
in his opinion,

the practice of zero interest rate has had a disastrous consequence on economic
development in the Muslim world. It prevented the creation of Islamic banking until
very recently by which time the global supremacy of western banks and financial
institutions was a foregone conclusion. ..In addition, the zero interest injunction
contributed to capital flight, discouraged accumulation of savings and promoted
excessive depreciation...the British and the Chinese in Malaysia, and the Europeans
and ethnic minorities of Greeks, Armenians and Jews in the Ottoman Empire,
controlled and owned the financial and corporate assets. The Malays and Turks
viewed banking, saving and investment as un-Islamic.
He even goes so far as to state that
Islamic economics, contains too many inconsistencies to justify the claim that it would
be capable of delivering greater economic justice than alternative systems.
and that
A globally integrated financial system effectively precludes the creation of a separate

Islamic monetary and banking system.
Muslim economic systems include the payment of zakat by all believers. This
is an amount of at least 2.5% of one’s annual wealth. In theory, this is a type
of almsgiving, either to improve the situation of the poorer members of Islamic
society or to further the propagation of the Islamic faith. Zakat may be paid
into a charitable trust or endowment, known as a waqf. However, Mehmet
notes with some cynicism that waqfs have historically been abused in practice
with the benefits accumulating to ruling classes or leaders of religious orders,
with little actually going to the poor and needy.
The issues involved need to be examined in greater detail, however it

appears that the Islamic banks may not be living up to their promise.
4.8 WORKER-OWNED CO-OPERATIVES
Are worker-owned co-operatives making a real difference? What have been

their successes and failures, to date?
Not only have the Mondragon co-operatives been successful in empowering

employees, they have been an economic success also. George Benello
comments on the effectiveness of the Mondragon model of worker co-
operatives, noting that their efficiency (ratio of capital and labour to output) is
7
far higher than in comparable capitalist factories). While the Empresarial
Division of Mondragon has continued to develop four co-operatives a year on
average, only two have ever failed. Benello compares this with the initiation of
conventional capitalist businesses, of which over 90 percent fail within the first
five years.
From its humble beginnings, Mondragon has grown to 86 production co-

operatives, each with several hundred members, 44 educational institutions,
seven agricultural co-operatives and a bank/credit union with 32 branches.
7
URL: http://dftuz.unizar.es/externo/a/files/left-gen/96002.eng.html The Challenge of Mondragon

The credit union’s assets amount to over a billion dollars. The sum total of all
Mondragon co-operatives’ net present worth is measured in billions. 8
Mondragon’s 18000 workers account for 15% of all jobs in Spain’s Guipuzkoa
Province. It’s exports are over 1% of the Spainsh export market.
The Mondragon co-operatives have learnt something from the example of

other co-operatives which have failed. They do not practice job rotation, and
management is not elected directly from the shop floor because this doesn’t
work in practice. Whereas older co-operatives determined the membership
fee on the basis of dividing the net worth of the business into a number of
shares, Mondragon co-operatives have kept the fee at a reasonable level so
as not to exclude most people from membership.
The success of the Mondragon co-operatives is attributed to many factors.

The co-operatives are deliberately kept small, at no more than 400 members.
Any new co-operative wishing to use the Mondragon model must elect a
leadership team who study for two years with the Empresarial Division before
being permitted to run their own show. Before setting up any new co-
operative, an extensive study is undertaken including market analysis,
product development, location studies, socio-economic studies and building
plans. The Empresarial Division continues to provide technical support to all
co-operatives throughout their entire life. New workers sign up initially for a
probationary period, to ensure that they are responsible enough to ensure the
success of the business. Workers’ salaries are fixed at similar levels as in
other local businesses, to avoid ill-feeling from other businesses. All of these
factors contribute to Mondragon’s success.
Mondragon is widely regarded as an alternative to both capitalism and

communism. While governments and citizens in many different countries of
the world have expressed interest in the Mondragon model and some have
attempted to replicate it, many of Mondragon’s members believe that their
success is partly dependent on the unique communitarian culture of the
Basque region. Nevertheless, Mondragon’s unique organisational structure
can easily be exported.
Mondragon-style co-operatives may not suit everyone. In practice, employees

may be reluctant to take on risks by becoming shareholders, when they have
been accustomed to the relative security of a fixed wage. 9 In the Mondragon
model, the success of the business depends entirely on the employees. They
are not guaranteed an income if the business is not doing well. As the
workers do not usually have as much capital as the shareholders of most
conventional corporations, in the Mondragon model new business
undertakings may need to be financed by debt rather than by equity and this
may affect the profitability of the business undertaking.
8
9
URL: http://www.stthomas.edu/cathstudies/cstm/antwerp/p7.htm The Contractual Theory of the Firm as a
Normative Business Ethic and its Relationship to Roman Catholic Social Teaching on Economic Life

Boatwright and Shuck10 assert that if shareholders are not directing

management decisions, then some other mechanisms must be put in place to
ensure that the management do not act purely in their own interests.
However, this is a false argument, as there is no guarantee that shareholders
represent the interests of the wider community any more than workers do.
Sharryn Kasmir questions whether an overly rosy picture has been painted of
11
the Mondragon co-operatives, obscuring any negative features of the reality.
She claims that the Mondragon model is being promoted as an ideal of labour
relations to discredit the experiences of working-class members of trade
unions. Kasmir claims that most studies of Mondragon have been undertaken
by social scientists who consider the issues from a management perspective.
When the situation is considered from a workers’ perspective it becomes
clear, says Kasmir, that there still exists conflict between workers and
management in Mondragon workplaces, and that because of their differing
circumstances they are unable to act together with other workers from non-
Mondragon workplaces, in the trade unions.
Some critics of Mondragon claim that it will too easily degenerate into
conventional capitalism. However it has not done so. Benello claims that
Mondragon shows that people can achieve complex tasks by democratic
organisation. While anarchists are horrified by Mondragons’s management
structure, the Mondragon system is significantly more egalitarian than your
average corporation.
While Mondragon co-operatives do not produce nuclear weapons or

carcinogenic pesticides, they are in many respects similar to other businesses
in their use of technology and in their production of standard appliances.
(They produce refrigerators and home appliances, machine tools and ferry
boats). Mollison (1988) comments that we are as much in danger of
destroying the world by producing excessive amounts of consumer goods
endlessly in Mondragon co-operatives as we are buy producing them as part
of the conventional capitalist system. Changing the ownership and
management structures of businesses will not necessarily of itself produce a
greater degree of environmental preservation, though it contributes to
intragenerational equity, an important component of sustainable
development.
5.0 CONCLUSIONS AND RECOMMENDATIONS
10
URL: http://www.stthomas.edu/cathstudies/cstm/antwerp/p7.htm The Contractual Theory of the Firm as a
Normative Business Ethic and its Relationship to Roman Catholic Social Teaching on Economic Life
11
URL:http://www.sunnypress.edu/sunnyp/backads/html/kashmirmyth.html The Myth of Mondragon

Alternative financial systems have great potential to achieve economic and

ecological sustainability. However, if they are to live up to their potential the
following recommendations need to be taken on board:
The effectiveness of ethical investment schemes is severely limited by their

small numbers of subscribers. Recruitment of more ethical investors by
providing the public with more information about ethical investment schemes
should be a major priority. Ethical investors need to also apply more pressure
on their trust managers, to ensure that their ethical criteria are truly in line with
the investors’ wishes.
Similarly, shareholder activists would be more effective if there were more of

them. They also need to apply boycotts and sanctions extremely carefully, to
ensure that they are not inadvertently harming those who are already poor
rather than those whose actions they wish to change.
The LETSystem can move to greater heights of success if it undertakes some

public relations exercises with business groups (eg. Chambers of Commerce,
Industry Associations) and trade unions. It may also need to lobby the
government for a recognition of its legal status and official rulings on
tax/social security, in countries where the LETSystem is not yet well-
established.
Ithaca Alternative Trading System suffers from few problems, apart from the
fairly fundamental impediment that minting your own currency is illegal in
some countries. Some lobbying is therefore needed to have these antiquated
laws modified.
Credit Unions are achieving a great deal. Some credit unions may wish to
incorporate ethical investment criteria in their loans to small business (if they
haven’t already done so), to further increase their effectiveness.
The Grameen Bank is an outstanding success, and there is really little room
for improvement, except to increase the number of women employees
(especially senior staff). This is indeed a challenge given the culture of
Bangladesh.
Islamic Banks are tending to hide their light under a bushel. Has the prophet
Muhammad forbidden advertising? Why has no-one heard of an interest-free
bank? Why isn’t there one in Brisbane? In addition to undertaking a bit more
marketing, perhaps Islamic banks need to direct more attention to financing
development projects, if Islamic economics really is impeding the economic
success of these countries.
Mondragon co-operatives have achieved a great deal of success in reducing

unemployment, restoring sanity to the workplace, encouraging collaboration
and co-operation, building up social capital and promoting intragenerational
equity. They may, in time, wish to direct their attention to the type of products
they are producing, and may decide to produce more energy efficient
appliances, or other more environmentally-sound technologies.

6.0 BIBLIOGRAPHY
Albee, Alana (1996) Beyond ‘banking for the poor”: Credit Mechanisms and Women’s Empowerment, Focus on
Gender, Vol 4, No.3, October 1996.
Boyle, David (1999) Funny Money: In Search of Alternative Cash, Harper Collins, London.
Boyle, David (1998) A Licence to Print Your Very Own Money Appropriate Technology, Vol 25 No.2, Intermediate
Technology Development Group, London.
Bornstein, David (1998) The Price of a Dream, Grameen Books and Educational Resources, Mount Colah.
Butman, George (1991) Ethical Investment. Put Your Money Where Your Principles Are, Australian Democrats
National Journal, June 1991.
Cashpor Inc. (1998) New Actors Trying Grameen Model in India, Credit for the Poor, No. 19, March 1998,
Philippines.
Clark, Rachel (1998) Changes that Hurt , Rachel’s Environment and Health Weekly, Environmental Research
Foundation, Annapolis, December 31, 1998.
Costanza, Robert, Daly, Herman E. and Bartholomew, Joy A. (1991) Goals, Agenda and Policy Recommendations
of Ecological Economics Ecological Economics. The Science and Management of Sustainability, Columbia
University Press, New York.
Daly, Herman E. (1991) Elements of Environmental Macroeconomics, Ecological Economics. The Science and
Management of Sustainability, Columbia University Press, New York.
Durning, Alan (1996) How Much is Enough? The Consumer Society and the Future of the Earth, Norton, New York.
Gonella, Claudia and Evans, Richard, (1997) AccountAbility Works, 6th Environment Foundation Consultation on
Corporate Social and Ethical Accounting, Auditing and Reporting: Summary of Proceedings, Institute of Social and
Ethical AccountAbility, London.
Glanzberg, Joel (1992) Enough is Enough, The Permaculture Edge, Vol 2, Issue 4.
Glover, Paul (1996) A People’s Economy: Creating Ecological Economics with Local Currency, Permaculture
International Journal, Issue 59, Jun-Aug 1996.
Grameen Bank Support Group (1996) Grameen Bank - Banking on the Poor (Information leaflet), Mount Colah,
November 1996.
Grameen Bank Support Group (1997) The Price of a Dream (Information leaflet: Book Review), Mount Colah.
Hobbs, Jeremy (1996) Give a Man a Fish, Horizons, Vol 4 No. 3, Summer 1996.
Kennedy, Margrit (1987) Towards an Ecological Economy: money, land and tax reforms, Ginsterweg 45, D3074,
Steyerberg, West Germany.
Korten, David C. (1996) When Corporations Rule the World, Kumarian Press, West Hartford.
Kupfer, David (1996) How to Stitch the World Back Together Again: An Interview with Hazel Henderson,
Permaculture International Journal, Issue 68, Sep-Nov 1996.
Lang, Peter (1994) Let’s Work: Rebuilding the Local Economy, Grover Books, Bristol.
Lynch, Damian (1998) 10 Years of Good Money, Permaculture International Journal, Issue 65, Dec-Feb 1998.
Mannan, Muhammad Abdul (1986) Islamic Economics: Theory and Practice, Hodder and Stoughton, Cambridge.
Mehmet, Ozay (1990), Islamic Identity and Development. Studies of the Islamic Periphery, Routledge, London.
Methodist Church Overseas Division and Methodist Church Division of Social Responsibility (1993), Responsible
Investment - The Fruit of Anti-apartheid Action, Joint Statement by Methodist Church Overseas Division and
Methodist Church Division of Social Responsibility, 1 October 1993.
Metwally, M.M. (1997) Economic Consequences of Applying Islamic Principles in Muslim Societies, International
Journal of Social Economics, Vol 24, No. 7/8/9, 1997.
Mollison, Bill (1988) Permaculture: A Designers Manual, Tagari, Tyalgum.
Norgaard, Richard B. and Howarth, Richard B. (1991) Sustainability and Discounting the Future, Ecological
Economics. The Science and Management of Sustainability, Columbia University Press, New York.

Permaculture International Journal (1998a) New Currency, Permaculture International Journal, Issue 68, Sep-Nov
1998.
Permaculture International Journal (1998b) Community Groups Profit, Permaculture International Journal, Issue 66,
Mar-May 1998.
Permaculture International Journal (1997) Shared Interest , Permaculture International Journal, Issue 64, Sep-Nov
1997.
Permaculture International Journal (1996a) Credit Unions Fill Moral Void, and Ethical Investment Reaches New High
Permaculture International Journal, Issue 60, Sep-Nov 1996.
Permaculture International Journal (1996b) Green Dollars Grow, Permaculture International Journal, Issue 58, Mar-
May 1996.
Reilly, B.J. and Kyj, M.J. (1990) Economics and Ethics, Journal of Business Ethics, 9: 691-698, 1990, Kluwer
Academic Publishers, Netherlands.
Rimmer, Annette (1997) Power and dignity: women, poverty and Credit Unions, Gender and Poverty in the North,
Oxfam, Oxford.
Sparkes, Russell (1995), The Ethical Investor, Harper Collins, London.
The Australian Consumers Association (1991), Ethical Investment Update, Choice, September 1991.
Trainer, Ted (1998) Can Permaculture Save the World?, Permaculture International Journal, Issue 68, Sep-Nov
1998.
Yunus, Muhammad (1998a) Grameen’s Action Plan 1998-2005, Grameen Dialogue , No. 36, Grameen Trust,
Dhaka.
Yunus, Muhammad (1998b) Barefoot Banking...the importance of women, Permaculture International Journal, Issue
65, Dec-Feb 1998.
Yunus, Muhammad (1997) Barefoot Banking, Permaculture International Journal , Issue 64, Sep-Nov 1997.
6.1 INTERNET REFERENCES

URL: http//www.rdc.com.au/grameen Beyond Bangladesh
URL: http//www.rdc.com.au/grameen The Grameen Bank Support Group Australia
URL: http://www.stthomas.edu/cathstudies/cstm/antwerp/p7.htm The Contractual Theory of the Firm as a Normative

Business Ethic and its Relationship to Roman Catholic Social Teaching on Economic Life
URL: http;//www.fourthfreedom.org/sanctions/sanctions.html About Sanctions
URL: http;//www.fourthfreedom.org/sanctions/modifyem.html Sanctions: Modify ‘em
URL: http://www.sunnypress.edu/sunnyp/backads/html/kashmirmyth.html The Myth of Mondragon

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E9846 ASSIGNMENT 1

ALTERNATIVE FINANCIAL SYSTEMS: ARE

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This assignment has been printed on 100% recycled paper

2.0 Why our current economic systems are unsustainable 2

3.0 Descriptions of Alternative Financial Systems 6

3.1 Ethical Investment 7

4.0 Effectiveness of Alternative Financial Systems 30

4.1 Ethical Investment 30

5.0 Conclusions and Recommendations 52

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In the conventional economic system firms maximise profits and individual

Ethical investment schemes take a different approach. They seek to invest in

No doubt ecological economic costing and pricing systems are extremely

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2.0 WHY OUR CURRENT ECONOMIC SYSTEMS ARE UNSUSTAINABLE

In our conventional economic systems, efficiency is often the only criterion

Daly (1991) discusses the three goals of economic optimization: efficient

historical conditions of property ownership are major determinants of income

Our current economic system is unsustainable because it does not address

• While Michael Eisner, chairman of Walt Disney company, received a salary

• While millions of Brazilians go to bed hungry each night, in the Netherlands

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• While the US Federal budget deficit has become a surplus, private

• Violent crime which is increasing at an alarming rate in every country of the

• Young children forced to earn a living for their families, deprived of

• Migration resulting from lack of economic security. In addition to 25 or 30

Our current economic systems claim to redistribute wealth through

Ethics is largely excluded from consideration in our current economic system.

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Relying as it does on individual selfishness, our economic system is not

An unstable system cannot remain in operation for long. Glanzberg (1993)

Mollison (1988) comments on the effects of our economic system on people

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Boyle (1998) comments on our international exchange system, and predicts

The banks of our capitalist economy encourage unhealthy investment during

Money is no longer pinned by gold or any item of relatively constant value. A

3.0 DESCRIPTION OF ALTERNATIVE FINANCIAL SYSTEMS

Trainer (1998) claims that we do need to get rid of an economic system

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growth economy must be scrapped. However, he claims that the creation of a

Some alternative systems currently in existence provide practical examples

Ethical investment is an example of one alternative to our current system

Shareholder action is similar to ethical investment. Whereas ethical

Other financial alternatives include the LETS system, a no-growth system

Islamic banks are often regarded as an academic curiosity by those who do

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Worker-owned co-operatives provide an alternative means of financing large

Each of these alternatives to our current economic and financial systems is

3.1 ETHICAL INVESTMENT

Ethical investment aims to encourage industries or activities which contribute

Often ethical investment refers to buying shares in companies, however it can

Most ethical investors do not buy shares themselves, they engage a

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The field of ethical investment covers not only environmentally-sound

Participants in ethical investment schemes do not necessarily have to make

In addition to ethical investment trusts, there are other ethical alternatives

While most of the modern building societies have become virtually

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Deposit Fund. Friends Provident can supply ethical superannuation, and

Here in Queensland, the ANA Friendly Society provides a range of services

Australian Ethical Investment, based in the ACT, invest in 70 different