Credit Extension: With a little help from my friends

By Will Ruddick

Tags: trust, credit, baskets


Understandably we get very fixated on ‘currency’. Whenever we are working with a community or group of businesses developing a Community Inclusion Currency, people get very excited about ‘money’ and specifically making their own. So taking a humble approach putting the cart, firmly, behind the horse we must really start with credit if we want to have any glimmer of hope in creating generally accepted (local) media of exchange (money).

A long time ago - before there was ‘money’ in the form of national currencies, there was credit. Specifically promises, commitments, agreements, vouchers, IOUs, and in general trust. These older forms of credit are still all around us! We interact with credit in so many ways in our life – they might as well be the invisible air we are breathing. But once you start learning to spot credit you will seeeee it everywhere. Here are a few example of credit that come to mind:

How many ways do we extend credit?

  1. Buying a bus or train ticket – we are paying for a ticket that we will redeem for a ride later.
  2. Buying airtime credit – we are both extending credit (in cash) and holding a airtime credit issued by a telecom (communications service provider) which we will later redeem for those services (calling someone).
  3. Buying a membership to the gym – we are repurchasing access to the space and equipment of the gym and paying the cost for upkeep.
  4. Buying a subscription to your local farm (Community Supported Agriculture) – we are extending credit to the farmers who will later deliver us baskets of food.
  5. Giving a client a loyaly point from your shop – this is a credit extended to the client redeemable as payment for our goods and services in the future.
  6. When you let someone borrow your bicycle or loan them money – you are offering an asset on credit and expect to get it back.
  7. Paying school tuition – parents are extending credit to the school. We hold a subscription to the service of having our children cared for and educated.
  8. Giving a salary advance to an employee – we are paying in advance for services that will be rendered.

Can we extend more credit?

I know someone (Njeri) that buys baskets from a woman (Wochama) living in a village. Each month when Njeri arrives, Wochama lines up her few baskets. Njeri selects the ones she wants and pays for them in Kenyan shillings. Wochama often spends this money quickly (it all ends up back in Nairobi in a few days generally) and at the same time she is always looking for loans.

If Njeri could pre-order many more baskets, Wochama would have the capital on hand to do much more than sell a few baskets at a time.

Of course there is risk here, Wochama being in a hurry, may produce baskets of poor quality, or decide to not produce any at all. These risks are matters of clear standards on the contract (credit extension) and repercussions for breaking it (like no more purchases). There is also the risk that Wochama squanders the money and can’t handle lump-sums well. This is a matter of planning and education. While there is real risk there is also tremendous possible reward for Wochama and her family – having the capital to build a better home, buy more supplies, pay off debts, send kids to school and so on.

If Njeri can find a way to weather the risks and invest more (extend more credit/trust) into Wochama, there could be a dramatic and measurable change in well-being. What could give Njeri that confidence? What if she could buy a subscription in the form of basket vouchers from a larger groups of women making baskets? Njeri could buy basket vouchers that are mutual issued and backed by a association of basket weavers - hence if one individual in the group were to default, Njeri could choose from another. This also could protect Wochama, because she has a network of support to absorb risk.

There is of course another benefit - a mutual credit (voucher) created among a group of issuing service providers that is well trusted, can also turn into a local medium of exchange (currency). A currency is an outcome here - not an object being created. Trying to create a 'currency' - is a non-starter. Trying to create a good credit or voucher, based on real services and worthy of being extended to others and redeemed as payment is crucial.

The world in which we are comfortable extending credit to eachother - is a world where people have more trust in eachother and form Commons based relationships as co-investors and collaborators. Figuring out how to safley extend each other credit / trust could be the hardest thing we ever learn. Once we do learn how to trust eachother more - learning how to create a beautiful world among friends seems a lot more possible.

For more on this topic: listen to this rendition of With a little help from my friends then listen to some chapters of a great book from my favorite research group: MINTS 1. What is credit? 2. What is money?