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Economy

Why peer-to-peer lending should be part of Mark Carney’s plans

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The governor of the Bank of England Mark Carney recently unveiled new plans to get banks lending to businesses again. But is turning to the same old suspects really the right approach to finance the real economy? Alternatives like peer-to-peer lending not only offer access to exciting new sources of money, but will help us avoid the mistakes of the past, too.

The flow of finance to small businesses in the UK is finally on the up, the Independent reported last week. But before the fanfare sounds, let’s put this in context. The reason for the rise, according to market research firm BDRC, is not that banks are lending more but because of increased use of other forms of finance like loans from company directors.

In other words, despite high profile government initiatives like the Funding for Lending scheme, our big financial institutions are still holding back from lending to the real economy.

This is the context for the Bank of England’s latest plan to tackle the issue, unveiled by Mark Carney earlier this month in his maiden speech as governor. The Bank estimates that by relaxing liquidity requirements for country’s biggest banks and building societies, up to £90 billion of lending potential could be unleashed.

A good thing, surely? Well, yes and no. Whilst few would contest the ends (an adequate flow of cash to businesses is a critical component of a healthy economy investing in its future), some big questions can be asked about the means. In particular, are banks and building societies really the right institutions to be targeting? And are there not alternative approaches which might better deliver credit to the real economy?

Carney’s business lending plan

The core of the Bank of England’s proposal is to increase the supply of money flowing to businesses from the UK’s eight big banks and building societies by easing the liquidity requirements that regulators imposed after the 2008 financial crisis.

Currently, banks like Barclays have ‘highly liquid assets’ – i.e. those that can very quickly be turned into cash – with a total value that exceeds 100% of their net cash outflows over a month. This buffer is intended to ensure the resilience of the banking system. It means that in the event of credit drying up, like it did during the credit crunch, bank operations could continue for long enough for other interventions to take effect. But this minimum liquidity ratio will now be reduced to 80% (for institutions that meet other capital requirements), with the difference available for lending.

Repeating past mistakes?

A problem with this plan, however, is that it ignores the systemic risk posed by an over reliance on a handful of large institutions. In this sense at least, it appears not to offer a substantially different approach to the one that led to the 2008 financial crisis.

Back then, it was over exposure to massive amounts of bad debt like US sub-prime mortgages that first got the banks into trouble. When the scale of the problem finally dawned, only government bailouts were able to save banks that were “too big to fail” and ensure the survival of the other socially essential functions they provided. In the meantime, lending to the real economy came to a grinding halt, turning a financial crisis into a full blown recession.

In the future, a comparable risk could exist should most lending continue to be funnelled through just a few banks and building societies. In this scenario, much of the fall out from large unforeseen default events would be focussed on these organisations. In other words, a lot of risk would be sitting in one place should things go wrong.

And whilst new capital requirements are designed to strengthen the ability of institutions to withstand such shocks, they will not be infallible. Indeed, the Basel III international agreement on these standards was watered down earlier this year.

Peer-to-peer alternatives

An alternative approach to rejuvenating business lending has already established itself in the form of peer-to-peer lending, which allows individuals to directly lend via online platforms. Examples include Funding Circle, and Zopa (which has only recently branched out into business lending), which have already raised hundreds of millions of pounds over the last few years.

By cutting out the middle man (the bank), peer-to-peer lending means that a potentially vast number of lenders each makes their own small ‘risk decisions’ about where to best place their money, rather than one large institution. Should borrowers default, individual lenders will be negatively affected, but the odds of a broader systemic problem requiring state intervention is reduced.

Of course this leads to the question of whether individual lenders are able to adequately assess the risk involved when making investment decisions for themselves, with some arguing that for all their faults, intermediaries such as banks are still better placed than individuals to fulfil this role.

But the reality is that many peer-to-peer platforms use the same (or better) credit scoring procedures as banks before publicising lending opportunities, and the evidence to date suggests that peer-to-peer lenders make as good if not better decisions than traditional institutions. Zopa, for example, has a rate of bad debt that runs at less than 0.2% of money lent, well below average.

In any case, for the near future at least it’s not a binary choice. We need our banks and building societies to step up to the mark and support small and medium sized businesses. But we also need fresh approaches like peer-to-peer lending which not only open up new sources of finance, but help reduce systemic risk too.

Sam Friggens is a writer for renewable energy funding platform Abundance Generation. You can follow him on Twitter: @Sam_Friggens. This article originally appeared on Abundance’s blog.

Further reading:

‘Growing confidence in alternative finance’ as ethical lending grows

Mark Carney: finance that becomes disconnected from the economy is ‘useless’

Banking regulator outlines massive shortfall at big banks

Bruce Davis, Abundance: ‘we can do something different with money’

Bank of England: interest rates to remain low until unemployment drops

Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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