Radical Routes emerged in 1986 from a network of people in London and Hull who wanted to develop workers' co-operatives. The organisation is now a registered industrial and provident society, supervised by the Registry of Friendly Societies.
It has raised pounds 65,000 since last year, when it started issuing loan stock, and a further 500 people have expressed interest in making loans.
Roger Hallam, a founder member of Radical Routes, said: 'Our experience is that the homeless or unemployed and co-ops have difficulty in getting loans from banks because of the social prejudice they encounter. One of the main motivations was in taking control of our own finances. We are cutting out the middleman, and can cut out about 8 or 10 per cent for the borrowers. It's about supporting alternative living options, which combine work and housing.'
Radical Routes has loaned pounds 12,000, with another six applications agreed. It advertises itself as offering 'a good rate of interest', but this actually ranges from nothing to a maximum of 4 per cent - the investor chooses the rate.
Borrowers are given favourable terms. Clare Whitfield is a member of People's Trading Company, a shop in Hull where the workers are taking no wages while setting up the business.
'We borrowed pounds 1,000 which allowed us to stock up. Interest was just 5 per cent, which was pretty damned good,' she said. The Yorkshire Bank lent a further pounds 5,000, and provided a pounds 3,000 overdraft facility.
Radical Routes is controlled by its members, and only members may apply for loans. This means that they ultimately decide on loans to themselves. Mr Hallam says this is not a problem as, with 20 members, no one person could unduly influence a meeting.
Applicants must be solvent as well as radical and ecological. As security, a charge is taken over assets.
There are a number of other ethical investments which act as loan intermediaries, but potential beneficiaries of these are not involved in decisions.
Shared Interest raises money that it lends to not-for-profit businesses in the Third World in conjunction with the Ecumenical Development Co-operative Society.
Mark Hayes, managing director of Shared Interest, said that the problem of conflict of interest was one that his organisation had gone to lengths to avoid. 'We are very conscious of it as an issue,' he said.
'We do lend money to Traidcraft, who were very helpful in getting us going, but we have no directors on each other's boards. It could be a problem if we allowed it to be.'
Mr Hayes added that applicants must be financially viable, and capable of repaying loans. Shared Interest operates through the issue of shares, and since April 1990 has raised pounds 3.1m. At present, it is issuing pounds 2m in shares each year, despite paying interest of only 1.5 per cent gross. Shared Interest does not generally raise charges on assets, as it is not practical to do this in Third World countries.
Industrial Common Ownership Finance (ICOF), which lends to workers' co-operatives, raised pounds 575,000 in its share issue in 1987 but has not paid dividends since 1990. Several co-ops collapsed during the recession, with one business folding owing pounds 45,000.
Borrowers are charged the comparatively high rate of 12.5 per cent interest, but this is likely to be cut soon. ICOF is to make a second share issue in the spring of next year, which will lend not only to co-operatives but also to community and environmental businesses.
They hope that the next share issue will be able to pay a dividend of at least half a per cent over inflation.
Mercury Provident Bank advises ethical investors to be wary when investing in intermediaries. Richard Masters, a credit controller, said: 'Check that an institution is taking good security, especially in view of the fall in property prices. We only use 50 per cent of property value, for safety.'
Ethical Investment Research Services (Eiris) has publicised several of the intermediary schemes, including Radical Routes, in its newsletter but says that investors should run their own checks.
Cathy Debenham, promotions manager at Eiris, said: 'We do have broad criteria; we check they are issuing either loan stock or a bond issue, but we don't look into them ourselves. We suggest investors should be careful and consult an adviser. We do say these are risky investments, and you may lose money.'
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