Magic happens when your community invests in itself: when the money it borrows to pay for civic goods — like schools, bike lanes, and parks — comes from you and your neighbors. Instead of Wall Street.
We call this magic regenerative finance. Because it creates a positive feedback loop, one that leads to greater and greater local enrichment over time. Imagine the place you call home becoming exponentially more awesome the longer you live there. That’s why we’re building Neighborly, to enable regenerative finance loops.
Unfortunately, our nation’s communities currently rely on an extractive finance system to build and maintain civic projects. Global banks and institutions, with little or no footprint in your community, are handed your community’s prime investment opportunities on a silver platter, usually at a discount.
Worse, those banks and institutions will take your community’s prime opportunities, chop them up, bundle them together with other nifty inventions like mortgage-backed securities, then resell them back to you and your neighbors at a steep (and mostly hidden) premium.
This engine of civic finance is known as the municipal bond market. Through it, our nation’s communities collectively borrow around $1 billion every single day. Put another way, in the five minutes you’ll spend reading this note, more than $3 million will be borrowed for civic projects.
“Efficient” isn’t necessarily “Good”
If you ask nearly anyone involved in operating the civic finance engine, they will tell you that it’s a well-oiled machine. And from each of their individual perspectives, it is. But when you zoom out, and look at how the system operates as a whole — how a local civic project in your neighborhood goes from idea to fully funded reality — there is something most definitely not right about the way the engine currently runs.
Let’s look at some of the differences between regenerative and extractive finance.
Regenerative finance rewards your community. Both directly, by way of the project being financed, and indirectly, by way of the interest that accrues locally in your neighborhood.
Extractive finance rewards Wall Street. Today’s entire system runs in a way that maximizes profit for global banks and institutions with little or no connection to the place you love.
Over time, regenerative finance exponentially increases the accrued value in your community. Financed projects like parks, bike lanes, and charter schools get built, plus much of the interest people earn from loaning money to their community gets spent locally, resulting in a positive feedback loop.
Over time, extractive finance drains life from your community. The financed project gets built, but the middlemen extract their fees, and the financial reward (interest) flows elsewhere.
Regenerative finance seeks to make your investment tangible. There is no more tangible investing than in one’s community, in projects like playgrounds and parks and bike lanes. Things that directly make people (including you) healthier and happier. You can reach out and touch the project your money helped build.
Extractive finance tries to make your investment as intangible as possible. Derivatives, funds, and other products that have passed through some kind of synthetic process are nearly always extractive in nature. Most of the value is captured elsewhere, much of it ending up in fees, commissions, and banker bonuses.
Regenerative finance happens when opportunities for enrichment are open to all. Young people starting out with only a few hundreds dollars to invest are given access to opportunities to build their financial base by building their community.
Extractive finance is reserved for the already well off. Access is limited to a handful of wealthy households and faceless global banks. People with a few hundred dollars to invest don’t even know the opportunity exists in the first place. So people who might not need any more enrichment absorb value from your community, while people who could use a financial leg up to the future they desire are given no opportunity to participate.
The extractive finance system is crippling our nation and our economy, by draining vitality from our cities, enriching a global handful who hardly need it at the expense of the common good.
Regenerative finance cultivates stronger, healthier places. Those places in turn cultivate stronger, healthier people. Who together build a stronger, healthier America.
At Neighborly.com we’re building a modern public finance platform for folks like you, who want to invest locally, who want to right this hidden wrong.