Off-Grid Finance

Description

John Fullerton:

"Don Shaffer, President of RSF Social Finance, recently used the term “off-grid finance” to describe their work reconnecting small business borrowers and lenders in relationship with each other. He explained how RSF convenes borrowers and lenders to discuss, among other issues, what the appropriate interest rate should be for the coming year, based on an understanding of the other’s perspective only possible when the creditor/borrower contract is rooted in direct relationship. They rejected Libor before it was disclosed to be a fraud, and created their own base rate. My reaction when I heard this (prior to the Libor scandal) was one of fond respect for the intention with a touch of amusement. It’s a nice idea, but how inefficient!

Well, now with our confidence in the Libor “grid” itself undermined and a lawsuit honeypot, the resiliency of such a relationship-driven, off-grid credit system and of numerous other off-grid finance initiatives such as community capital, crowd sourcing, peer to peer lending, and even complementary currencies are shining brighter, despite the associated challenges and comparative inefficiencies." (http://www.capitalinstitute.org/blog/grid-financing)