Over the past four years, a string of bank bail-outs, mis-selling scandals, billion dollar losses by ‘rogue’ traders, and most recently the manipulation of a key interest rate, LIBOR, have left consumers searching for an alternative to the major high-street banks.
Groups such as ‘Move Your Money’ have emerged with the goal of guiding concerned consumers to alternative financial institutions aiming to serve the consumer, not the shareholder. These institutions also often have stringent environmental and social standards, all too often absent from the banks dominating our financial system.
One such institution, described as the ‘building society for the 21st century’ is Abundance Generation. It is just one of a number of financial institutions evolving to offer another option to the big shareholder-owned commercial banks. For those that want to make sure their hard earned cash works for causes they want to support, such initiatives are very attractive.
Abundance Generation describes itself as a ‘community finance platform’ linking small investors with UK renewable energy projects. The returns they claim are extremely competitive reaching an average 5%-9%, depending on the type of scheme the money is invested in. Speaking to the Guardian last year, Bruce Davis, co-founder, explained how it works: ‘We are enabling small investors to produce a regular return from the generation and sale of 100% green electricity from wind, solar, hydro and other renewable energy sources.’
It is worth noting that potential investors should always be aware of possible risks before entering into any scheme. While Abundance Generation is authorised and regulated by the Financial Services Authority, financial journalist Miles Brignall says: ‘In the (probably unlikely) event that the operating body went bust, investors could lose some or all of their money.’
Abundance Generation is similar to ‘peer-to-peer’ lending websites such as Zopa, Funding Circle and RateSetter. In fact, Bruce Davis was one of brains behind Zopa, the world’s first peer-to-peer lending business. Zopa, quite simply, connects people who want to save money and allows them to lend it to people who want to borrow.
‘Peer-to-peer, as a whole, probably represents 1.5% of consumer lending,’ says Zopa co-founder, Giles Andrews. This has essentially been achieved without multi-million pound advertising budgets. Instead, they have relied on word of mouth. In fact, Giles believes there is no reason why alternative financial institutions like Zopa and Abundance Generation couldn’t take a significant share from major banks.
In late January this year, the Parliamentary Commission on Banking Standards, a Joint Select Committee of both Houses of Parliament, held an evidence session looking at alternative financial institutions. One of those asked to present evidence was ex-City banker, now Head of Finance and Business at independent think-thank nef (new economics foundation), Tony Greenham. He described research that not only identified a growing number of banking choices, such as crowd-funding, peer-to-peer lending, cooperative banks, credit unions and public savings banks, but also argued that the more diverse the banking system is, the healthier it is for consumers and the economy.
While technology may have enabled unconventional financial institutions to reach a wider number of consumers, they are not new. Germany’s enviable renewable energy revolution was largely started by community owned projects, particularly by groups of farmers in the south of the country. There are now more than 600 renewable energy projects owned by cooperatives, with over 80,000 citizens holding shares in one or more schemes.
In the meantime, the UK government continues to drag its feet on future energy policy, appearing to favour large-scale projects such as nuclear. Yet the German experience suggests that renewable energy projects funded by small investors can, over time, have a significant impact on the transition to a low-carbon economy.
A list of alternative funding institutions can be found in this useful article by Which?