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Some thoughts on informal finance

I know many practical people doing amazing work but who hold and are held in disdain by the world of finance because of their small size and inconventional approaches. Conversely folk who accumulate a thousand Euros here or there have no standard ways to invest it in small projects in a way that is fair to both saver and producer. A different kind of finance is needed - so what would it look like?

I've never been involved with formal investing, so this is just me jotting down some thoughts here about how to solve this impasse.

As a small project, producing, say, food, I need investment to help increase my customer base, improve my product, maybe to widen my delivery network, buy equipment to reduce costs. I can identify specific investments and anticipate their recouperation, but there are also many things I can't anticipate. There's no way I can borrow money and give a hard guarantee of returning it. I can maybe take on debt if I can pay back in produce, but if I have to pay back money, then I need to share the risk with the investor.

An a progressive person with money to park for a few years, I don't actually need or want a large return. I don't want to extract value from businesses and I might understand that the current deflationary environment works in my favour even without high returns on investment. In fact I'm super-confident in the future of money itself, and would like to hedge my investments by building relationships with skilled and productive people. In short, I want to invest close to home, and if my return comes in the form of high quality, organic food, that's a bonus. Because of the risk of these small projects, I would like to spread my investment over several of them, perhaps receiving many kinds of nutritional benefits rather than just one.

There are any number of ways that producers and investors can cooperate to create and share wealth. If debt, what is a reasonable interest rate? If Equity, how are profits/losses calculated? Other tools are possible like financing production with prepayment, crowdfunding, voucher-issuance; investors could buy equipment so they have it as security and rent it out to producers. All investors should be committed to consuming the fruits of their investments, because in so doing they contribute to success. But financial instruments are also about managing risk and shouldering losses.

If producers have bad luck, investors needs to be sure that luck was genuine and not fraudulently reported, and very clear how much of the loss they bear.

Or if investors want out for any reason, could be very ugly for producers having to selling equipment or find new money in a hurry.

On this scale, nobody wants a law suit. Many of the actors are even looking to save money by keeping things informal. Collectively we need to be able to broker such deals, to write and arbitrate contracts, and to ensure everybody understands and accepts the risks and rewards of their shared ventures.

This is something that interests me.

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