ISH conference platform, International Conference on Community and Complementary Currencies 2011

Font Size:  Small  Medium  Large

Complementarity between complementary currencies and microfinance

Marek Hudon

Last modified: 2010-10-15

Abstract


            Among the possible innovative products, complementary currency systems seem a promising tool, when combined with microfinance products. The number of experiences involving complementary currency systems has increased to over 4,000 systems currently operating around the world, according to Lietaer (2001, 2004). Complementary currency systems are used within a group of actors. They do not replace the legal tender but operate in parallel with it as a medium for a well-defined set of exchanges, most often at a local level. Those systems are not designed to play the three classical function of money (i.e. unit of account, medium of exchange and store of value), but a specific role. For instance, to enhance the development of the local economy, a system can be designed to facilitate exchanges, including a mechanism to decrease the value of the complementary currency with time, in order to avoid storage.

            As deficient monetary environment and high inflation constitute major obstacles to the development of microfinance, complementary currency systems could favourably modify the financial background and enhance microfinance activities. The first step of the research on this topic relates to the role complementary currency systems have taken in the past for improving monetary conditions (see Stodder, 2007). Then, the relevance and adequacy of such systems should be assessed, when used as additional tools by MFIs.

            In particular, complementary currency may help reaching the “poorest of the poor”. Indeed, microfinance products mostly reach the economically active poor, but fail to reach the inactive poor (Gonzalez-Vega et al., 1999). Complementary currency systems based on hours of service provided could for instance allow the inactive poor to get access to savings instruments despite their lack of official currencies. In this way, products based on complementary currency could help reaching populations with lower socio-economic status than current products do. Beyond this, complementary currency systems could also be designed to reach additional societal goals (for example, linked to environment and health).

            As far as complementarities are concerned, the paper will investigate to which extend including those innovative instruments in their range of products will generate not only benefits in terms of product and activities diversification, but also obstacles and adaptation costs for MFIs.