What if there is a way that we could
1. Create Jobs?
2. Do it without seeking Government grants or subsidies?
3. Give people a chance to have a local say in their local future?
4. Allow people to invest and make tax free gains in the future?
5. Create funding for businesses that doesn’t rely upon banks? Thereby removing our reliance upon them for SME’s?
6. Develop businesses that are not indebted from the outset but instead, which have ‘equity partners’ on an even keel with the entrepreneur?
7. Turn Ireland into a genuine ‘Silicon Valley’ of Europe when it comes to start ups? And that would release millions in start up funding without an up front cost to the state?
One way to do this is via Local Investment Opportunity Networks (LIONs)
They are a combination of ‘Dragons Den’ style finance, MicroFinance , Group/Crowd Sourcing, and Islamic Finance , taking different positive aspects of each.
From Dragons Den you get the vetting process, MicroFinance and Group Sourcing are the funding approach, and Sharia’a compliant finance offers the investment method – which is an equity stake rather than the creation of debt (recent finance bill specifically supporting Islamic investment – it would also open this brand of investment to the 40,000 Muslims in Ireland).
A simple outline is as follows: Every parish or otherwise formed locality in Ireland will be given a chance to start an investment club that up to 500 people can join, the commitment in joining is that they will pay €101.00 per month in after tax money into the common fund. With all but €1 going toward the fund (the €1 goes towards the platform provision mentioned later)
Then, as a group they have a pool of up to €50,000 per month to invest in local businesses, people who want to start a company in that community can then apply to the group for funding. The group will determine what projects obtain funding and in turn they take an equity stake in the project.
The LION would choose an investment committee from amongst it’s own members, as elected representatives of the group fund they would vet applications and determine which applications to the fund should be underwritten.
The LION can also decide that their community needs (for instance) a crèche and thereby tender for an operator with the LION providing the start up funding.
Effectively, it gives local people a say in their own local future and allows business to form without needing government assistance or putting concentrated risk onto the person starting the company.
Equally, it removes banks from the funding process and if an entrepreneur fails they don’t do so ending up in debt that would prevent them from trying to start a company again in the future.
Irish people are saving aggressively, having tripled our savings rate in the last three years . Much of our investment ends up overseas via the stock and fixed income markets, this is acceptable, but at least some savings could remain and be invested in the country by people who want to see a real benefit in their own locality.
If the investment is made with post tax income there is no exchequer loss in the process, at the same time, using a tax break on profits approach (as they do with ROTH IRA’s in the USA), any future capital gains could be waived, and in that respect there is a future waiver for the investment rather than a tax deferral as with other expenditures.
People need hope, communities need businesses and jobs, bank funding is farcical and looking for government funding support could not come at a worse time, instead, Irish people need to take control of their own future and this facilitates this view.
The only work that would need to be done from a government perspective is to provide an online platform that facilitates the clubs/groups and keeps them in line with SI 60 (which covers MiFID – Markets in Financial Instruments Directive, a pan European law). The development of the platform need only cover reporting requirements, so the state need only act as a facilitator on the compliance aspects of the programme which would otherwise be too costly for single funds to run – due to requiring a full time compliance officer etc.
If we had a chance at fixing our own problems I believe we’d likely do a better job than the Government can do with a top down approach to create jobs, the unrealised potential in this country is huge, and we can turn savings into investment.