Local financing in rural areas
[ Summary ]
Current funding provision
2.3 Alternative financing sector
The aim of alternative financing is not to bridge the gap between
the provision of commercial banks and demand for finance, but to
provide an alternative offering suited to the specific needs of
applicants, especially those that are most atypical. It includes
all those organizations that seek to offer financial services to
match the needs of people with no access to commercial banking
services and at the same time to play an important role in terms of
local, social, environmental and other types of development (e.g.
small projects, welfare projects and environmental projects).
“Financial alternatives” are all guided - at different levels - by
“ethical” or “mutual aid” principles aimed at introducing:
- Mutual aid practices by supporting projects that are of
social and environmental interest, generate jobs, or emanate from
vulnerable groups in the community, etc.
- Transparency regarding the use of savings and the gains from
certain stock market investments.
The movement towards ethical and mutual aid financing, which began
in the eighties, has today taken on significant proportions. In
France, for example, more than EUR 500 million is invested each
year in ethical or mutual aid projects and 4% of France’s
businesses have been created using mutual saving funds. The various
mutual aid financial operators grouped under the “FINANSOL” label
have been responsible for creating 25,000 new jobs .
There are three types of initiative in the alternative-funding
- those initiated by civil society aimed at supporting welfare
or public interest initiatives, such as projects created by groups
in difficulty. These structures, which often take the form of
associations or cooperatives, raise the funding required to plug
the gap left by traditional banks;
- ethical banks: although these are proper banking
organizations, they are built around an ethical and non-commercial
objective. They therefore have a specific objective of mutual aid
that runs right through all of their operations. They have either
developed from civil society initiatives that were already at an
advanced stage of development, or were created at the initiative of
political or trade union movements;
- ethical products offered by conventional financial
institutions - to cater for the growing demand from private
individuals and businesses for alternative ethical finance
products, investment trusts and certain traditional financial
institutions, including commercial banks, have started to offer
products of this type. This has led to a branch of the alternative
sector emerging within the very heart of the traditional commercial
2.3.1 Alternative finance structures and products initiated by
Alternative initiatives initiated by civil society began to develop
in the 1980s, when the first mutual saving funds began to be
collected locally, especially in European countries like France and
In France in 1983, for example, the “Cigale Clubs” (investment
clubs for the alternative local management of savings) emerged in
the sector of local mutual aid venture capital. In Italy, the
movement “monetary objection to the banking system”, which led to
the creation of the “MAG” (self-managed mutual funds), also emerged
in the 1980s to support sectors with insufficient capital, project
promoters needing bank guarantees and projects of community
In the majority of cases, such initiatives have been created
locally, because it is at local level that the signs of the growing
divide between the actual economy and the financial economy are
most apparent. It is therefore at local level, which has the
advantages of proximity including mutual knowledge between the
parties and social relations, that a “social objective” can be
developed for using local savings. Social relations in the
community can serve as a basis for developing a strategy to
facilitate access to finance for project promoters rejected by the
However, over time, such initiatives develop beyond the local level
into far wider-ranging structures.
In 1981, France’s Basque Country set up a venture capital company
devoted to business creation: “Herrikoa” (meaning “home-grown “ in
the Basque language). In 1999, the company had 3,500 shareholders.
A total of 11 million francs was collected from the population,
creating an estimated 1,561 net jobs. Herrikoa, a financial
instrument, works in partnership with other local economic
structures, including ADIE (Association pour le Droit à
l’Initiative Economique), Accea Lann Berri (Atelier-conseil en
création d’entreprises ou d’activités) and Hemen (meaning “here” in
the Basque language), an association to support and assist economic
initiatives). Hemen receives around 200 project proposals per
The objectives of alternative initiatives initiated by civil
society are generally mutual aid, economic support for the
emergence of projects and long-term financial management:
- objective of mutual aid - to use local savings for supporting
initiatives put forward by disadvantaged social groups (including
the unemployed) who have no access to conventional credit, by
innovation-promoters or by sectors of the social economy;
- objective of support for the emergence of projects - to
create mechanisms for coordinating and identifying projects that
should receive support to foster the transparent self-management of
savings and their utilisation;
- objective of autonomy and management control - to develop
project support services during the design, start-up and
consolidation stages, in order to support access to credit.
Alternative initiatives launched by social groups involve the
creation of private law organizations (cooperatives, associations
or limited liability companies) that have a limited scope of
intervention in the area and draw their financial resources from
the local savings of private individuals and business firms,
although they often receive support from public organizations. They
are characterized by the fact that:
- they are local instruments;
- they play an educational role;
- they often serve as relays for local development measures.
22.214.171.124 Characteristics of alternative finance structures and
products initiated by social groups
a) Local instruments
The scope of activity of these financial alternatives is localized
(the local area and/or for the sole benefit of their members) and
these alternatives are replicated from a single model. This is the
case with France’s Cigale clubs and Local Initiative Platforms, as
well as Italy’s MAGs. The legal frameworks adopted by such local
instruments justify their existence by limiting the field of
intervention. In Italy, for example, MAG-type financial
cooperatives must limit their interventions to a very specific
b) Educational instruments
Above and beyond the “transparent” management of the funds
entrusted to them for “mutual aid”, these structures have a strong
educational impact because they all supplement the provision of
credit with advisory or skill transfer services. They thereby
reinforce the autonomy and project-management ability of sectors of
the population cast aside by traditional banks .
For such structures, ethical credit is instrumental in fostering
solidarity, combating local unemployment and developing local
Created at the end of the 1970s at Inzago, a local district of
8,500 inhabitants in Lombardy, the ethical finance cooperative
“MAG2”  was set up to invest local savings to assist projects put
forward by economically vulnerable people or by non-profit-making
associations that find it difficult to access traditional financial
channels. In addition to this task, the cooperative has gradually
evolved towards providing integrated forms of support for
initiatives, becoming a real “one-stop shop” for local development.
In educational terms, MAG2 defines itself as an all-inclusive
service for supporting job-creating initiatives, primarily those
organized on an associative or mutual-aid basis. Such support may
cover all the phases in a project’s life:
- for self-employment activities, moving from the idea to the
project stage, by evaluating and launching new ideas;
- moving from the project to the start-up stage, by providing
technical support for producing feasibility studies, choosing the
most appropriate legal form and completing the diverse
administrative formalities involved in the start-up;
- the consolidation phase, by providing support for management
and for certain specialized fields, in order to enhance the
development of a firm’s internal dynamics and its contacts with the
outside world. The experience of MAG2 demonstrates that this latter
type of support is crucial to preventing the failure of new
initiatives. Paradoxically, however, no resources are available to
defray the costs of this type of support.
c) Local development relays
The development of this type of activity frequently relies on
public sector support and on forms of partnership with certain
The public authorities and certain banks (particularly savings
banks and ethical banks) have understood the importance of these
structures for providing direct support to innovative small
businesses, businesses of a social nature, project promoters from
vulnerable sectors of society, etc., and support their educational
and credit function by turning them into proper “local development
People’s awareness and involvement in the way their savings are
invested are important factors in sustainable endogenous
Alternative initiatives created by social groups are therefore
increasingly of interest to rural areas, although in Europe such
experiments are still more the province of urban players.
126.96.36.199 Typology of alternative finance structures and products
initiated by social groups 
Local venture capital companies
Private individuals and businesses invest in new business creations
and support business development within the framework of venture
capital companies. This system relies on people’s sense of
belonging to a region whose economic potential they wish to
safeguard. This is the case with Herrikoa mentioned earlier.
Mutual-aid venture capital companies
Venture capital companies and investment clubs combine local
savings with mutual aid, by taking an equity participation in new
or expanding businesses. The financial dividends from such
investments remain modest. The objective of the exercise is to
invest in job creation. France’s Cigale clubs provide an example of
this type of financial alternative.
The investment clubs for the alternative local management of
savings (“Cigale”) were created in 1983 in order to help develop
business firms that respect man’s role in the environment. Since
then, 200 clubs have been set up. Each Cigale club is a jointly
owned venture capital company. It is comprised of between five and
twenty members. Each member invests between EUR 10 and 600 in the
club. The club carries out its activities in the local area, mainly
by taking an equity participation in business firms that are either
being created or in the process of increasing their capital .
Financial cooperatives and self-managed mutual funds
This type of initiative has developed mainly in Northern Italy with
self-managed mutual funds (MAG). Currently there are six MAGs,
distributed in small towns throughout northern Italy.
MAG2 was created as an alternative to the conventional financial
system, which sets no ethical limits on the use of savings.
MAG2 financial support is therefore conditional upon the social
quality of projects, the relationship of trust between members
(ethical evaluation) and the financial solvency of the funding
applications submitted (technical and economic evaluation).
Information about where the savings are invested plays a key role
in the decision-making process, since no asset-backed guarantees
By 1999, the cooperative had 940 members and had financed 200
projects (some a number of times). The amounts invested totalled
EUR 2 million.
Over the years a policy has developed of encouraging members to
help define the sectors of intervention and to self-manage savings.
For example, financing activities are organized by groups
(“comprensori”) that include a variable number of members who
organize themselves on a voluntary basis to develop activities for
promoting ethical finance on the basis of “Information Points”.
Shared investments enable financial returns to be made on savings
in the normal commercial market, with some of the earnings being
donated to associations operating in developing countries, to local
or social integration projects, etc. They are generally created by
associations working to combat social exclusion, trade unions, etc.
However, banking networks and management companies are also
interested in them and are also creating this type of investment,
as we see below.
Ethical banks created for a mutual aid objective
Ethical banks have either:
- developed from alternative initiatives initiated by civil
- been created on a piecemeal basis by political or trade union
Italy: “Banca Etica”,
a spin-off from the MAGs
In Italy, in order to overcome the territorial constraints imposed
by legislation on financial cooperatives, the six existing MAGs
supported the creation of the “Banca Etica” (Ethical Bank) in
Padua, whose purpose is to put together a range of ethical finance
Banca Etica was created following a massive collection of funds
(around EUR 8 million) to constitute the corporate capital demanded
by Italy’s banking legislation. This institution complements and
extends the activities of the MAGs by providing conventional
financial products: certificates of deposit, current accounts,
credit cards for buying ethical and mutual aid products, etc.
The launch of Banca Etica (January 1999) enabled the MAGs to direct
their energies away from providing financial services and focus on
promoting development projects for combating poverty (support for
new business initiatives put forward by the weakest social groups;
development of a local system of micro-credit, etc.). Note also
that, unlike the MAGs, the Ethical Bank is in competition with
Banca Etica is a credit instrument that helps to enhance the
competitiveness and management skills of non-profit-making
organizations and hence improve the quality of their products and
services. By 2000, Banca Etica had around 13,000 members, of which
170 are local councils, 20 are provincial administrations and five
are regions. In order to guarantee its members and customers clear
and complete information on the projects financed  and on the
criteria for evaluating funding applications, Banca Etica considers
that savers and members should be responsible for choosing them. It
has also appointed an “Ethics Committee”, comprised of important
figures known for their social and civil commitment, which has the
task of verifying the bank’s adherence to, and coherent application
of, the ethical criteria described in its statutes.
Experiments in other countries
Apart from the example of Italy’s Banca Etica, there are banks or
cooperative financial institutions in several European countries 
which offer exclusively ethical products allocated to combat
exclusion and support business creation.
- Netherlands and Belgium: Triodos Bank 
Triodos Bank, created in the Netherlands in 1980, was the first
bank in Europe to define itself as “different”, by making one of
its founding principles transparency in the use of financing.
Today, the bank has more than 12,000 shareholders in the
Netherlands (private individuals, associations and business firms).
This ethical bank was set up in Belgium in 1995. Like its Dutch
sister company, Triodos Belgium has chosen to finance projects
which, whilst financially viable, have added value in
environmental, social and/or cultural terms. With its 7,300
shareholders, Triodos Bank also considers itself to be a local
- United Kingdom: Cooperative Bank
The objective of the Cooperative Bank, the only major financial
institution in the United Kingdom involved in the social economy
sector, is to “make the banking system ethical”. Since 1992, it has
operated a very rigorous ethical policy, defined in a charter based
on a survey carried out among the bank’s customers keen to combine
ethical considerations with finance. The principal ethical criteria
contained in the charter including safeguarding civil rights, fair
trade and opposing the arms trade . With its 2,300 counters dotted
throughout the country, the Cooperative Bank has around one-and-a-
half million customers, which, as it name would indicate, include
- Germany: Ökobank 
Created in 1988, Ökobank (Ecobank) was an offshoot of Germany’s
ecologist and pacifist movement. Its first savings and loan
products were aimed primarily at the renewable energy sector.
Nowadays the bank has extended its fields of intervention,
particularly in the social sector.
2.3.2 Alternative financial products created by investment trusts
or by traditional banks
This generally includes two types of product: either equity
participation in business firms evaluated according to ethical
criteria (job creation, respect for the environment, etc.), or
transferring some of the profits from stock market investments to
Ethical investments are administered by finance companies that buy
shares in business firms selected on the basis of ethical criteria,
respect for the environment, job creation, etc. Fund subscribers
are kept regularly informed about investment strategies.
Mutual aid and life insurance banking products
Mutual aid and life insurance bank products have been created by
cooperative banks and friendly societies. Their chief aim is to
combat exclusion by granting loans to new business creators. For
instance, when they open a mutual aid account providing entitlement
to all the traditional banking services, account holders authorize
the bank or credit cooperative offering the service to invest 70%
of the amount on deposit for use by associations supporting the
unemployed, new business creators, organic farmers, etc.
Since 1996, investment trusts and savings management companies in
Italy have created two types of ethical fund: funds that adopt
ethical management policies and those that support non-profit-
making activities. The former category includes funds belonging to
the “ethical system” created by the San Paolo Bank and the latter
category includes funds from the various management companies
(“Azimut”, “Gestnord”, etc.). In the former case, investments are
made in public sector projects or in companies that meet “positive
criteria” (safeguarding human rights, the environment, etc.). In
the latter case, profits from the funds are used to support non-
profit-making organizations. There is also the “Roma Caput Mundi”
fund, created jointly by the municipality of Rome and the
association Roma Caput Mundi, whose profits are used to develop the
artistic and cultural heritage of Italy’s capital city. This
public/private collaborative venture has resulted in the
restoration of some of Rome’s leading monuments .
 FINANSOL was founded by several associations
such as the Fondation pour le Progrès de l’Homme, the
“Cigale”, etc. They were joined by several banking
networks. Apart from administering the mutual aid savings
label, FINANSOL seeks to publicize the mutual aid
financing sector more widely and promotes its products
amongst local authorities.
FINANSOL, 4, rue Jean Lantier, 75001 Paris.
Tel: +33 1 448 28012.
See: TRANSRURAL Initiatives,
no. 125, 26 February 1999,
Feature article: Financer autrement les
projets ruraux (pp. I to VIII).
For information on these initiatives:
BIE Euskal Herri, Résidence L’Alliance,
Centre Jorlis, F-64600 Angelu.
Tel: +33 4 95311559.
 Granger op. cit. pp. 55-61
For more information about this
Dott. Giovanni Acquati, President -
Cooperativa MAG2 Finanze
Via Pacini 11 - 20131 Milan
Tel.: +39 02 2665474
Fax: +39 02 70637335
Alternatives Economiques et La Vie,
Les Placements Ethiques, l’épargne alternative
et solidaire en 65 fiches, Hors-Série
Pratique, no. 3, First quarter 1999. p. 13
This typology was drawn from ‘Alternatives
Economiques et La Vie’, op. cit.
For more information about this experiment, contact:
Fédération des Cigale,
61 rue Victor Hugo, F-93500 Pantin
Tel & Fax: +33 1 49 91 90 91.
According to the daily newspaper “Il Sole 24 Ore”
of 6 March 2000, only 12 months after its creation,
Banca Etica had financed 222 projects (41% in health
and welfare services, 32% in development cooperation
and 19% in improving the quality of life) and had
collected EUR 43 million.
Most of these structures are members of the INAISE
international network (International Association of
Investors in the Social Economy), created in 1989.
The role of INAISE is to use its power of promotion
to commit savers and banks to practising an innovative
loan policy, to ensuring greater transparency in the
way money is used and to lobby to change banking
legislation so that the way savings are collected
becomes more conducive to the development of the
social economy and small businesses.
The objectives and functions of these organizations
are described in the journal “Alternatives
Economiques”, op. cit. pp. 130-137.
For more information:
PO Box 55 NL-3 700 AB Zeist.
Tel: +31 30 693 65 00;
Fax: +31 30 693 65 55;
rue des Brasseurs 115, B-5000 Namur.
Tel: +32 81 22 22 09;
Fax: +32 81 22 22 67;
For more information:
Cooperative Bank, PO Box 101
Balloon Street, Manchester (UK).
Tel: +44 1618 295 797;
Fax: +44 1618 394 220;
For more information:
Ökobank EG. PO Box 166 06 51,
Tel: +49 69 256 10 163;
Fax: +49 69 256 10 219
 Source: La Reppublica, Affari e Finanza,
6 March 2000.