JAK Bank

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JAK Bank = interest-free banking that offers financial security while being internally balanced

URL = http://www.jak.se/



"JAK Medlemsbank is a member-owned bank in Skovde, Sweden that has operated an interest-free savings and loan system since 1970. JAK stands for Jord Arbete Kapital in Swedish, meaning “Land Labor Capital.” The bank traces its philosophical and operational roots back to the Jord Arbejde Kapital co-operative system in Denmark, which ran similar banking experiments during the Great Depression and the 1940s." (http://solari.com/blog/?p=5437)


"The Swedish JAK Bank is based on a Danish concept from 1931. It started in 1965 and obtained a banking licence in 1997. It’s a cooperative bank owned by its members, of which there are about 38,000. JAK stands for Jord Arbete Kapital, which is Swedish for Land, Labor and Capital, the factors of production. Its main goal is to provide its members with interest free loans." (http://realcurrencies.wordpress.com/2012/11/03/the-jak-bank-interest-free-full-reserve-banking/)


"It operates under four basic principles:

   Charging interest is inimical to a stable economy
   Interest causes unemployment, inflation, and environmental destruction
   Interest moves money from the poor to the rich
   Interest favours projects which yield high profits in the short term"



Commentary by Gaian economist Molly Scott Cato at http://www.gaianeconomics.org/jak-bank.htm

"From Sweden, that utopian source of solutions to so many of our social and economic problems, comes an approach to banking that wraps up both these dilemmas: interest-free banking that offers financial security while being internally balanced and so not requiring to trespass on the planet’s resources.

JAK bank represents a mutual approach to the need to borrow money that is reminiscent of the early building societies and to savings schemes that people in poor communities continue to use to this day, whether we think of the Tontines of West Africa or Christmas clubs in the poorer areas of the UK. All these systems rely on the principle that there is strength in numbers. One person may never be able to afford to raise the capital to buy a house or even a car, but by pooling their resources they can ensure that each person can raise such a large lump sum in turn. These schemes have the enormous advantage that no money is lost from the system. In contrast, interest-based systems rely on the lure of a certain percentage per year to attract depositors, who are people who have spare money. This interest must be paid by the borrowers, and often amounts to more than the value of the initial loan. Hence, any interest-based system results in the transfer of resources from poor to rich; this is the reason that, until about 400 years ago, Christians considered the charging of interest morally unacceptable, a position still officially held by the Islamic community.

In the JAK system saving and borrowing is seen as a way of balancing your needs across your own life, with support from other members. This is illustrated in the figure, which centres around a single person’s lifetime income generation, illustrated as a U-shaped curve. As a child you are below the self-sufficiency line, reliant on others’ earnings, and you return to this state in old age. During the middle phase, when you are healthy and productive, you have more income than you need and this needs to be saved for later use. In the JAK system the other curves become important too, since these represent people at other stages of their lives who can supplement your income, and whose income you supplement during your middle years.

This is where the scheme begins to relate to the modified version of such a savings scheme could be used as a response to the current pensions crisis. The plea by the government for us to invest our earnings for our future needs is based on just such an understanding of life-cycle earnings. The problem is that we have learned to our cost the insecurity of investing in the interest-driven investment market. As well as our well-founded fears of losing a significant portion of our hard-earned cash, we also feel it is wrong that our very basic needs can be subject to fluctuations in the global casino the international financial market has become. There is no surprise that people are ignoring the threats and entreaties and spending their money while they have the chance.

A savings bank without interest but with after-savings building up a nest-egg for retirement, JAK bank would make saving for one’s retirement considerably more attractive for three main reasons: there are would be no leakages of value from the system to shareholders; savings are would not be invested in the international market and hence subject to speculative fluctuations; the system of borrowing results would result in a lump sum payment once the loan is repaid because of a clever system of after-saving. It is the after-savings that keep the system in balance and remove the need to use interest to attract depositors. Members of the bank are effectively borrowing each other’s money. Those who have a need first borrow first but they must ensure that there is money in the fund to meet others’ needs to borrow by paying back extra money as they pay back their loan. Without these after-savings the fund would very soon find itself over-extended and have to refuse future loans.

Basic to any mutual loan system is the need to save before you can borrow and in the JAK system this is began by being organised by according to a complex system of points, to ensure that there were sufficient funds in the bank. You can then borrow only a maximum of sixteen times the number of savings points you have accumulated. The borrowing limit was sixteen times the number of accumulated savings points. However, such large amounts of money are now with the bank that this requirement is being abolished. However the balance between prior savings and after-savings will continue. The more you save before you borrow the less you need to contribute in after-savings. The system in Sweden is frequently used by students for paying their fees. If they face a problem with accumulating savings points these can be contributed by grandparents or a group of family members and friends. Such a group could also transfer savings points to support the borrowing of money by a young couple with children. In this way the savings system itself encourages a feeling of self-help and community spirit, in direct contrast to the bad feelings and competitive ethos generated by the interest-based banking system.

Thinking about banking in this way is liberating. After recovering from the initial disorientation of imagining a world without interest, you begin to see that relying on one another feels considerably safer than relying on the international money system. You also begin to see how the system of interest itself creates the insecurity of that system as surely as it is driving the planet towards destruction." (http://www.gaianeconomics.org/jak-bank.htm)

How does it work?

by Anthony Migchels:

"The Jak bank basically works as we expect a bank to function: it takes in deposits from its members and lends these out to other members.

Loans are backed by either collateral or guarantors. The JAK has very low default rate, for which there are several reasons. Interest free loans are obviously much easier to repay. Members are far more committed than ‘customers’. And JAK requires its members to save to obtain the right to borrow. Savers are known to be good debtors.

How can it be interest free? Well, very simple: instead of interest savers are rewarded with interest free loans for themselves.

Most people would rather have interest free loans than interest on savings, especially if they actually did the math.

To obtain the right to a loan, new members must have saved for at least six months. During this time savers acquire ‘saving points’. Saving points are a product of savings and the Savings Factor. JAK members can choose from 6, 12 and 24-month deposit accounts which represent the advance notice required to make a withdrawal. The longer term deposits are associated with a higher ‘Savings Factor’: 0,7 for a six month deposit, 0,9 for a 24 month deposit.

Saving 1 Krona for 1 month is 1 ‘Saving Point’ times the Saving Factor. 1 Saving Point is the right to borrow 1 Krona for one month.

This is the simple mechanism of the JAK bank. In this way people are basically organized to provide themselves with loans based on their future savings and income. Exactly as it should be.

The main problem with the JAK bank is that it has problems financing itself. Members are not willing to pay high fees. New members pay 200 Kronor (about 22 euro) and yearly membership fees are 200 Kronor also. This is only just about enough to pay for its operations." (http://realcurrencies.wordpress.com/2012/11/03/the-jak-bank-interest-free-full-reserve-banking/)

Feasta reports in more detail:

Savings Points

JAK's primary objective is to provide its members with interest-free loans. In order to accomplish this, it must attract interest-free savings. JAK uses a system of "Savings Points" in order to balance saving and borrowing.

Given the choice of borrowing without interest or saving without interest, most of us would gladly choose borrowing. While people are generally willing to save temporary surpluses of money in current accounts that don't pay interest, few are willing or able to save more significant amounts over a long period of time with no compensation. JAK cannot, of course, lend money without having savings on deposit and so, using an imaginative system of Savings Points, each member who wishes to take out a loan must save money first and, over a lifetime with JAK, every member will have saved roughly as much money and for the same period of time as they will have borrowed. You could almost imagine JAK as allowing its members to borrow (interest-free) from their future selves.

For a new JAK member, the first step towards an interest-free loan is to save and thereby earn Savings Points. These are calculated as the amount saved, multiplied by the number of months for which it is saved, multiplied by a Savings Factor. This factor varies according to the type of savings account the member has selected and is lower (about 0.7) for a demand account from which savings can be withdrawn at any time. For example, assuming a Savings Factor of 0.9, we have1 :

€100 1 Month 0.9 = 90 Savings Points

The Savings Factor varies with the type of deposit account and is lowest for demand accounts where savings can be withdrawn at any time (about 0.7).

After saving for a minimum of six months, a member may apply for a loan. In order to borrow €1 for one month, one Savings Point must be redeemed. The amount borrowed and the time taken to repay are entirely up to the member, provided that the appropriate Savings Points are available. For example, borrowing €90 (or €9,000) over 1 year uses as many savings points as borrowing €45 (or €4,500) with repayments spread over 2 years.

In addition to a Basic Loan that uses Savings Points already earned, members may apply for an Additional Loan using Savings Points that will be earned in the future. An "Allocation Factor" (currently 14) is multiplied by the member's current Savings Points to determine the number of points available for an Additional Loan.

Each loan repayment includes a savings instalment, and the payments are structured so that when the loan is fully repaid, all necessary Savings Points have been earned. A consequence of this is that upon full repayment of an Additional Loan, the member has built up significant savings. Savings made during the course of repaying a loan are known as Post-Savings, while those that precede the loan are Pre-Savings. Once the loan has been repaid, the balance of the post-savings is available to the member to be withdrawn or, as frequently happens, to be used as the start of saving for a new loan.

There is no interest charged on a loan, of course, but members must place 6% of the value of the loan on deposit for the duration of the loan, and additionally pay a loan fee to cover administration costs. Members also pay 200 SEK (about €22) when they first join JAK and 200 SEK per year as a membership fee.

JAK is a virtual bank in the sense that it has no branches and business cannot be transacted in person. A necessary and prudent decision since the membership of JAK is quite spread out over a large country, and also resulting in no bias against rural members who would have to travel much farther to their nearest branch. A result of this "virtual" status is that JAK members must have an account with another bank with which to conduct their day-to-day financial affairs. Members transfer money into or out of their JAK basic account via post giro, bank giro or Internet into their other accounts. With improvements in technology and the changing financial infrastructure, JAK hopes in the near future to offer direct deposit of paycheques and credit/debit card facilities to its members. For some members, this might negate the need to bank elsewhere.

Credit control

Like any bank, JAK must ensure that loans can and will be repaid. Unlike most banks, however, JAK's system of saving and borrowing has several unique features that combine to give it an enviably low default rate.

A member applying for a loan is given a range of options for the loan size and duration based upon their desired loan amount, desired repayments and available savings points. When they have made their selection, the loan department within JAK must assess the member's ability to repay the desired loan. The member's income and expenses are evaluated with the assistance of computer software that calculates average living expenses for individuals and families based upon age and gender.

Between 20 and 25 applications are processed per week, and 95% are approved. Most loans are secured, either against property or with a personal guarantor. Loans for up to 37,000 SEK (about €4,000) with 2-5 years' duration can be unsecured, but these are limited to 5% of JAK's turnover and so surplus applications must be held in a queue until funds are available. The most common reason for borrowing is to refinance a conventional bank loan obtained to buy a house followed by purchasing a car and making home improvements.

In general, people who can save regularly are good performers when it comes to loan repayments. The JAK system where saving must precede borrowing is therefore ideally suited to attracting these regular savers. In addition, around half-way through repayment of a loan there is a break-even point where the Post Savings on deposit are equal to the balance outstanding on the loan, and from this point forward the loan is fully secured by the member's savings.

Very few JAK loans end in default. Borrowers are decidedly involved "members" as opposed to disinterested "customers". Many feel quite strongly about the idea of interest-free banking and this common bond goes a long way towards encouraging good behaviour. Personal guarantors rarely need to be asked to make good on their guarantee.


At the simplest level, a bank takes one person's savings and lends them to someone else. Ideological arguments aside, this presents some practical difficulties. Firstly, what if a saver wants their money back before the borrower has finished with it? Secondly, what if there are not enough or too many borrowers relative to savers?

The first point is generally dealt with in the banking system by having a reasonably large number of savers and making sure that enough money is set aside to cope with those who, on any given day, want some of their money back. While individuals might withdraw their savings in a random manner, a large group of savers will tend to be stable and predictable.

It is JAK's policy to keep a minimum of 20% of pre-savings available in either a bank account or in government bonds, either of which can be made available almost immediately. Too much liquidity means that money is lying idle rather than being lent out to members, so it is not seen as desirable to have much more than 20% on reserve. Post-savings do not need to have a component on reserve since these can only be withdrawn at specified times.

JAK also encourages stability from its savers by offering a higher Savings Factor in long-term deposit accounts. JAK members can choose from 6, 12 and 24-month deposit accounts which represent the advance notice required to make a withdrawal.

With regard to the second point, JAK has a more difficult balancing act between saving and borrowing than other banks, due to the fact that the two are intimately linked by Savings Points. Most people save with the intention of borrowing in the future. An excess of saving today could indicate too much demand for borrowing next year.

The Allocation Factor has a central role in the relationship between supply of savings and demand for loans. In general, the JAK board sets the Allocation Factor to reflect the current level of liquidity within the bank. The greater the pool of excess savings, the higher the Allocation Factor to encourage members to take out loans and reduce the excess. Unfortunately for JAK, the relationship between the Allocation Factor and the demand for loans is not as simple as this. In the short term, increasing the Allocation Factor can actually make things worse, as members decide to increase their Savings Points with a view to taking out a larger loan in the future. Excess demand for loans would be particularly problematic for JAK. Reducing the Allocation Factor would likely lead to an outcry from members who had made financial plans based on a higher factor. The alternatives, however, would be to refuse more loans or to introduce a waiting list. The dynamics of this saving/borrowing relationship are likely to be a constant challenge to JAK's management as the membership grows and the range of banking services offered by JAK expands.

JAK culture

A significant amount of JAK's energy is devoted to communicating with its 21,000-strong membership. JAK is a co-operative, fully owned by its members. In addition to a quarterly newsletter, 24 regional offices staffed by trained volunteers keep in touch with members through study groups and exhibitions. While JAK's primary function is to provide interest-free banking, it is also viewed by the membership as a vehicle for economic reform.

A recent innovation in support of economic reform is the Local Enterprise Bank. Community members save in a special JAK account and, rather than earning points themselves, their savings are used to provide an interest-free loan for a local enterprise. Savings are fully guaranteed, so members are not exposed to any financial risk. The first two projects to be funded in this way are an ecological slaughterhouse and a replica Viking village. It is an interesting experiment in local finance for local projects, and so far has been very warmly received by local media and participants. While savers don't, of course, receive any interest on their savings, they benefit both economically and otherwise from the improvements in their local economy and infrastructure as a result of the projects.' (http://www.feasta.org/documents/review2/carrie2.htm)

More Information

Four part video documentary on the Swedish JAK Bank, featuring Margrit Kennedy: