The Crown Agents Foundation Award for Small Businesses
The Winner: Shared Interest
Co-operatives of coffee growers in Mexico, small exporters in India, juteworkers in Bangladesh and beekeepers in Tabora have a lot to worry them. Many of the coffee growers have become refugees from paramilitary violence. Many of the export producers have suffered in a cyclone. But one worry has ended. They can now get an advance to pay for their work as soon as they book an order.
Shared Interest invests its members' savings in this sort of finance for people who have orders from fair-trade organisations but lack the collateral to borrow from a commercial bank to fulfil them. When the buyers receive and pay for the goods, Shared Interest gets its money back.
It is now becoming a clearing house for producer groups and buyers who are members of the International Federation for Alternative Trade. Instead of financing every order individually, it will make producers a monthly advance on all the new orders they have received from buyers in the IFAT pool. This system requires that producers do good work and that buyers do not reject it.
Shared Interest pays its members, scattered around Britain, a modest rate of interest (4 per cent below Base rate). Any profit goes, at present, to building up reserves. Shared Interest has had to overcome two trading problems. It had to take over a fair trade buyer which ran into difficulties. It also made a loss on coffee.
Fair trade prices are normally above market prices. But when the market price for coffee shoots up, growers can be tempted to sell to commercial buyers rather than fulfil fair-trade orders.
The number of Shared Interest members reached 8,315 in September 1998 and the sum they have invested passed £17 million.
One limitation of Shared Interest finance is that it is for producers of goods for export. It is the sale of these goods for hard currency which gives Shared Interest its money back. However, it has also raised £2 million, interest-free. Through the Ecumenical Development Co-operative Society, this finances microcredit loans to small traders whatever business they are engaged in.
Essentially, Shared Interest has tapped a new source of funds for overseas development, UK savers. If Shared Interest members can get their money back when they need it, they can invest sums they wouldn't simply give away. And because they are not seeking the maximum commercial gain on their money, they can lend it to people they want to help. Since Shared Interest's reserves cannot be paid out to investors, they will also not be tempted to turn their stakes into cash by selling the society to a takeover bidder.
Mark Hayes, Shared Interest's founder, spent years pondering how best to mobilise savings in support of worthwhile enterprises which weren't going to make a quick fortune and couldn't borrow from banks. After leaving Cambridge, he joined Investors in Industry which did this sort of job. While banks lent against collateral, 3i lent in exchange for a share of the company. Those who didn't want to give up a share of their company couldn't borrow to develop it.
Then in 1984 he came across Traidcraft which raised money by selling non-voting shares and used the spending power of ordinary Britons to create jobs for some of the world's poorest people. It set him thinking about voluntary associations which would see investment as a relationship between people rather than a chance to make some money.
Shared Interest, which he set up in 1990, is an association of this type. It is a co-operative lending society in which every member/shareholder has a vote. It exists to provide a service and set up successful relationships. Profits enable it to take on new risks rather than reward its members.
Shared Interest Society Ltd, 25 Collingwood Street, Newcastle upon Tyne NE1 1JE
Tel: 0191 233 9100 Fax: 0191 233 9110