Supporting the SME economy

Many community currencies are designed to counter the dominance of large corporations through supporting more diverse SME economics and educating consumers about the choices they can exercise.

Often part of a long term aim to support more jobs or livelihoods in a local area or particular sector, many of these currencies also seek to foster more sustainable business practices.

This symbol appears next to currency projects aimed at supporting SME enterprises to these ends through a range of methods - for example by strengthening networks between independent businesses, providing alternative sources of credit, or enabling businesses to tap into their spare capacity and free up cash flow for essential costs.

A diverse financial system catering to the unique needs of regional and local economies is essential for a healthy national economy. High streets containing a diverse mix of businesses form local economies more resilient to external changes and more rewarding for residents and visitors. Increasingly, these businesses are meeting the growing consumer preference for online shopping, forming what some have termed ‘virtual high streets’ of independent businesses to counter the current online big hitters such as Amazon and supermarkets’ websites.

This desired state of commercial diversity is threatened by the mainstream growth model of the retail sector, which tends to follow the logic of ‘bigger is better’. As well as putting local companies out of business, sprawling supermarkets and other large chains are most likely to leave an area in times of economic trouble, taking jobs and local amenities with them. However, with many large retailers recently suffering their worst sales figures in years, some are speculating that the bigger is better model could be coming to an end – increasing the chance for SMEs to regain their place in the market.

Currency systems can be designed to counter the dominance of large corporations through supporting the diversity of SME economies and educating consumers about the choices they can exercise. Some business-focused currencies assist businesses with operational aspects, such as purchasing supplies, incentivising sales and paying staff, helping them to improve productivity and become more resilient to changes in the wider economy. The target users of different models vary, with some business-to-business currencies aimed solely at SMEs and others extending to consumers.

Many European financial sectors, the UK’s being a prime example, are dominated by a handful of international commercial banks. Because of this, they are easily criticised for being out of touch with the productive industries and SMEs that power regional and local economies. Since the 2008 financial crisis, banks have generally reduced lending to SMEs, leaving many businesses and start-ups in need of alternative credit sources.

Complementary currency initiatives can help SMEs support each other financially by lending and receiving credit, goods and services within the currency network – reducing reliance on cash and banks.

For example, business-to-business (b2b) trade systems allow members to make purchases and sales using ‘trade credits’ or ‘points’, so they can reserve more of their regular cash flow for operational costs.

Complementary currency systems have historically emerged as substitutes for mainstream money when there is not enough of the latter circulating. This can come in the form of increasing business cash flow, as has been discussed, but also as a replacement transaction medium when the regular option, for example the national currency, has dried up.

Many currency schemes offer businesses an opportunity to form networks between themselves, providing a platform to publicise their work to the rest of the network.

This can generate incremental sales from buyers looking for trade opportunities from within the currency network. Businesses can identify with one another over the ethical dimension in the trade they perform, or simply recognise the commercial advantage of increasing mutual exchanges. Currency networks can connect businesses with new customers sharing values such as reducing carbon footprints, or keeping production local.

Furthermore, strong business networks encourage a self-help model of exchange and mutual support along supply chains. Through facilitating interactions between businesses, they encourage long- term relationships between SMEs in the same area or sector. This could be, for example, through building links between a service provider, such as a restaurant, and local suppliers, such as cash-and- carry or drinks companies.

Banco Palmas is a community bank in Fortaleza, Brazil. Since 2000, it has offered interest-free microcredit loans in the local currency, the Palmas. The bank’s objective is to localise production and consumption and, through the Palmas, retain more wealth within the area, generating both employment and income. Banco Palmas illustrates the benefits of a strong local banking sector for local economies, acting as a trusted backer of the community currency. The example has now spread to over 100 locations across Brazil, and is acknowledged by the central bank as a valuable initiative.

Most businesses do not operate at 100% of potential capacity. The commercial benefits of connecting underused assets with unmet needs – a primary goal of complementary currencies – are clear.

A reward currency scheme might enable businesses to exchange particular assets at reduced cost to loyal customers for points; or a trade network could provide otherwise underused services to other businesses in exchange for credit.

For instance, spare cinema seats could be offered as competition prize or staff bonuses to another business, in exchange for credits. These credits can then be spent elsewhere in the network.

Pumping money into an area is pointless if it flows straight back out again. Yet this is precisely what happens with national or (regarding the euro) international currency. This leakage occurs because, if high streets are dominated by multinational corporations with non-local supply chains and there is no geographical restriction on where the currency can be spent, profits will not remain within the locality.

“The SoNantes benefits those who produce and consume locally. It doesn’t replace the euro, but provides an intelligent complement. It promotes local trade and short production and supply chains, allowing member SMEs to pay less in euros – helping them conserve their cash reserves. It gives each of us a new way to act for our region, for its development and for our jobs. It is a tool that we share so that everyone benefits.”

Pascal Bolo, First Deputy Mayor of Nantes Local currencies that are specific to a particular geographical area offer ways to keep more of the money in that area. They can help to plug the leaks – reducing the level of profits flowing to headquarters of large corporations, rather than back to the people that work for them. Why does this matter? Because keeping money circulating within a locality or SME network, through wages or supply chains for example, increases opportunities to reinvest in that community and strengthens both economic and social local infrastructures.

If a certain critical mass of businesses and individuals using a community currency is reached, then a mutually reinforcing relationship between benefits to local buyers and sellers should develop. As more local SMEs accept the currency, more individuals are encouraged to shop with them; local businesses then recycle community currency profits back through, for example, exchanges with other SMEs and bonuses to staff – using money that can then only be spent once more back in the local economy. A virtuous circle of spending and reinvestment is thereby created.

With production and supply currently so globalised, this ideal state is unlikely to be realised immediately. Community currency practitioners therefore actively identify and fill gaps in the local economy. One way to do this is to use national currency surplus – built up as individuals and businesses buy the local currency without redeeming it later – to make interest-free loans to sustainable local businesses that meet supply and production needs and gradually build a local economy that is both commercially and environmentally sustainable – and avoids leakage.

Educate consumers and increase customer loyalty Currency projects can stimulate thinking and discussion about how money works and impacts a local economy. Raising people’s awareness of the socio-economic dimensions of their consumer behaviour can have direct benefits for local economies through increasing custom to participating businesses.

As customers chat to business owners about why they’re participating in a community currency scheme, and what advantages it brings to both parties, stronger connections between local people and businesses are forged.

This can create a more social high street, where business owners and customers get to know each other, as well as developing customer loyalty around the shared values represented by the currency. Both aspects can boost or stabilise the turnover of participating SMEs, as customers seek out participating businesses to spend their local money.

Local authorities, as major procurers of services and products, may be receptive to the benefits of community currencies. For instance, using a community currency to procure services is an active way to demonstrate support for independent businesses.

Currencies can provide businesses with point-of-sale options that they might not otherwise have been able to afford. A currency initiative incorporating digital systems, such as phone apps or pay-by-text options, allows participating traders to accept electronic payments – and offers customers new, often more convenient ways to purchase goods. Small businesses can thereby keep up with – or even move ahead of – the technology offered by large corporations, while the added convenience for customers can translate into a boost in sales.