Banking on each other

 

It’s called collaborative consumption, (or the sharing economy) and it’s changing the way we work, play, and interact with each other. It’s fueled by the instant connection and communication of the Internet, yet it’s manifesting itself in interesting ways offline too.
The collaborative consumption movement empowers people to thrive despite economic climate. Instead of looking to the government or corporations to tell us what we want or create a solution for our problems, we take action to meet our own needs in a creative fashion.

The term collaborative finance is used to describe a specific category of financial transaction which occurs directly between individuals without the intermediation of a traditional financial institutions. This new way to manage informal financial transactions has been enabled by advances in social media and peer-to-peer on line platforms.
The concept has been championed by Don Tapscott and Anthony D. Williams, co-authors of the book “MacroWikinomics: rebooting business and the world”:
“A new movement is beginning, and it ‘s inspired by the public anger at a host of things, from the behavior of Wall Street and massive bank bonuses to the widening gap between the interest rate offered to savers and the rate charged to borrowers. It ‘s enabled now by the growth of mass collaboration via the Internet. And it ‘s an alternative to the whack-a-mole game that regulators are forced to play in the ever changing financial services landscape. Innovators such as Open Models, VenCorps, and the myriad P2P lenders are just the first sign of what’s to come. Opportunities for wikinomics-style collaborations abound. Financial regulators, investors, entrepreneurs, and banking customers arc increasingly seeing the benefits of transparency , openness, and sharing While financial innovation earned a bad name during the crisis, we feel that at the end of the day innovation will help the industry overcome its current challenges. As Gord Nixon puts it, “developing new products where you lend money to people who don‘t have income is not innovation, that‘s just bad risk management and faulty regulation. Developing new products to find better and less expensive ways to service your customers, that to me is innovation.”
Collaborative Finance is characterized by highly personalized loan transactions entailing peer-to-peer dealings with borrowers and flexibility in respect of loan purpose, interest rates, collateral requirements, maturity periods and debt rescheduling. Following are the features of Collaborative Finance that make it attractive to low income households:
• It does not require a license – most informal suppliers work without an operating license to supply money.
• It facilitates very small savings – small amounts that can be saved daily.
• It is non-profit motivated – profit, if any, is ploughed back into the community and its members.
• It has strong organizational structures – community initiatives are usually part of the well setup people’s organization.
• It has multiple proprietorship – proprietorship lies not with one or two persons, but the group as a whole.
It is not regulated by the central bank – with respect to limits and restrictions, reporting requirements etc.
• It encourages community participation in other fields of development – the participatory approach of informal initiatives is easily replicable to a wide range of other community development issues.
• It is not regulated by the central bank – with respect to limits and restrictions, reporting requirements etc.
• It encourages community participation in other fields of development – the participatory approach of informal initiatives is easily replicable to a wide range of other community development issues.

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