Community Funding Enterprise
= a business which uses its profit to stimulate a given local economy
Description
"The CFE distributes no dividends to shareholders, investing instead in stimulating the local economy by investing at least 50% of surplus revenue in a CDFI retaining the remainder for scaling operations.
Creating an enterprise for community funding will work for enriching a community just as well as it will work for enriching a few people. The profit motive remains intact. The enterprise is sustainable as long as it makes a profit, just as with any other business. The main limitation is the time it will take to grow enough to provide the money needed by the community. A credit union or bank, by comparison, can make sufficient money for a community available more quickly. These can be funded immediately with sufficient money to service entrepreneurs in a community. In turn, businesses and jobs are created quickly, reducing the overall financial needs of the community. The limitation of a bank or credit union is making enough money in the process of lending money to sustain itself. This money is made by charging interest rates, which must be high for micro loans. It requires much more time, work and therefore cost to lend one million dollars among a thousand different people than lending the same amount to one person, for example. As a result, the interest rates for micro loans need to be high in order to cover the operating costs of making these loans. Even with high interest rates – up to 35% in the present case – it remains difficult to earn sufficient profits to be able to make loans across a wide region where potential borrowers are spread out in remote areas across the region. The cost of outreach, training and multiple visits in that process can exceed 35% interest ultimately earned on micro-loans to remote areas.
By combining a community-funding enterprise (CFE) with a micro-credit union, the limitations inherent in each one is greatly diminished. The CFE provides sufficient funding to ensure the operating costs of the credit union, reducing the risk that the credit union will have any need to use its capital to sustain itself. The credit union immediately makes available sufficient loan money to match the needs of the community, thereby eliminating the time needed for the CFE to generate the same amounts of money. Additionally, CFE profits over and above what is needed to help with the operating costs of the credit union can be put directly into the credit union. Over time, the amount of money used to originally fund the creation of the CFE is offset by CFE contributions to the credit union. The credit union is increased so that larger amounts of money become available either to make larger loans or to service more borrowers. Together, the CFE and credit union create an enterprise where the original funding not only remains but also increases with time. They complement and balance each other by addressing the economic goals both have in common and offsetting each other’s limitations." (http://www.p-ced.com/1/node/33)