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RURAL BANK OFFERS INTEREST-FREE LOANS

"We started our bank here in this room in January 1975 and took the first deposits across this table" Inger Marie Ebbesen, told me in the plant-filled living room of her dormer-bungalow in Grølsted, a tiny village near Fârvang, halfway between Åarhus and Viborg in Jutland. Outside, on three sides of the yard, are the brick-built outbuildings where her husband, Jorgen, raises pigs. "Ellen Clausen, my sister-in-law, and our two husbands were the first directors and we started with just three or four accounts."

Mrs. Ebbesen had had no experience of running a bank when they began. "But I had worked in the accounts department of a bacon factory, and that's about the best commercial training you can get in Denmark" she says. Another thing which helped was a wave of anger some of her neighbours felt when the JAK Co-operative Bank, where some had kept accounts since the 1930s and which charged no interest on certain categories of its loans, was taken over in 1972 by an ordinary commercial bank, Bikuben, after running into liquidity problems. "The introduction of pay-as-you-earn income tax in 1969 had affected deposits from the JAK bank's salaried customers and it lost some big municipal accounts as a result of a local government re-organisation" she explains.

The merged bank had been part of the wider JAK movement whose members were not prepared to see the no-interest principle for which it had stood forgotten. Many of them, like Mrs Ebbesen's team at Grølsted, helped set up at least twenty other local co-operative savings banks - Faelleskasse - to replace it, mostly in rural areas. All these micro-banks were legally barred from accepting deposits or making loans to people who did not live in the parish in which they were situated and the parishes immediately adjoining them. All were - and are - independent, controlled by their own boards of directors who set the terms on which loans are made.

"The JAK movement was set up in 1931 by a great Danish thinker, Kristian Englebrecht Kristiansen, who had seen as a child the difficulties his parents had faced in paying interest after they had been forced to farm very poor, heather-covered heathland after moving out of Holstein during the German take-over. He believed that real capital was created when barren, worthless land was made fertile, just as his parents had done, and that money was merely a means of exchange and a standard of value, which in itself produced no return. The charging of interest therefore led to the concentration of wealth, the increase of indebtedness and the growth of unemployment. One of JAK's first projects was to issue its own currency, backed by the capital represented by its members' land, in order to reduce indebtedness. This circulated widely in this part of Denmark until the government prohibited it in 1932 " Ebbesen explains. "The initials JAK stand for Jord (land), Arbejde (labour) and Kapital."

All the new faelleskasse had similar rules: loans could only be made to members and members had to be shareholders. Each share at Grølsted cost 1,000 Dkr (approximately 100), paid no interest and could not be cashed in although it could be sold to other members. These shares represented the capital which was at risk if the bank ever failed and their total amount determined how much the bank could lend since the law prohibited it from increasing its total loan book to more than twelve times its share capital. No matter how many shares they held, each member had only one vote but members who risked their capital in this way could borrow 1.5 times the face value of the their shares for up to 20 years, depending on the additional security they provided, and they could top up these loans whenever half of them had been repaid, subject only to a setting-up fee and 4% per annum service charge to cover the cost of administration.

Alternatively, members operating current accounts at the Grølsted bank could get an interest-free 'turnover loan' on the basis of their average balance, subject to setting-up fee and an administrative fee of 1% a quarter. Thus if one had maintained an account with an average balance of 10,000 Dkr for a year, one could borrow 10,000 Dkr to be repaid by quarterly instalments over two years, or 20,000 Dkr if one could pay off the loan in a year.14 One-year time deposits entitled members to consideration for longer-term loans, such as mortgages, for up to thirty years, with a service charge of only 2% a year, but the board naturally varied the number of these they approved according to the level of available funds. They also demanded suitable security.

Essentially, then, the Grølsted bank either loaned you as much of someone else's money for as long as you had placed a similar sum in your current account for it to loan to other members, or, with its time deposits, operated a queuing system rather like that once used by those British and Irish building societies which required members to build up a substantial sum over the years before they could be even considered for a house-loan. It would also lend you back the money you had put at risk to in buying your shares provided that you put up additional security.

As a result of a change in the law in the late 1980s, the bank was able to convert itself in the late 1980s to an Andelskasse, a full service bank offering cheque book services exactly like the mainstream banks. It boomed and had to convert a detached house about a hundred metres from the Ebbesen's farm into offices so that it could cope. "We were opening an average of five new accounts a day and seemed to be taking on a new member of staff every two months" Mrs. Ebbesen says. "Both costs and earnings grew rapidly. Too high costs can kill a business such as ours - operating accounts is expensive." To help spread these costs, the bank began accepting interest-bearing deposits, particularly pension funds, from members and lending them out at standard bank interest rates. And, since it was now legally permitted to do so, it began advertising membership to people living outside its local area. Most of these new shareholders either had family links with the Grølsted district or lived in places where there was no local JAK bank. The bank became one of the largest in the movement and Mrs. Ebbesen was elected president of the JAK National Association in its diamond jubilee year, 1991.

Naturally, the growth of the bank and the prominence of its manager attracted the attention of both its conventional competitors and of the Danish regulatory authorities. In 1990, its auditor recommended that someone with conventional banking experience should be brought in to run the business, and as a result, Jens Jensen joined in May 1991, succeeding Mrs Ebbesen at the end of that year. "We had had big losses in 1986 and 1987 because a builder to whom we had lent money could not sell his houses. A loan to a camping-goods warehouse also went bad. However, our reserves were adequate to cover the situation" she says. "Handing over the management suited me because I wanted more time to involve myself in promoting the movement generally."

But in September 1992, only nine months after Jensen had taken over, the bank was closed by government order. "We were expanding rapidly, and this meant that we were becoming a substantial threat to the established financial system. This, and the jealousy of some of the other JAK banks is the reason we were closed" Mrs Ebbesen says quietly. "The government inspectors claimed that more people were entitled to no-interest loans than our share capital allowed us to provide as a result of the losses and said that we needed to sell more shares to make things up. This was impossible, because the shares at the time were trading at less than their nominal value. So at a meeting in Copenhagen which only the manager attended, the bank was given an ultimatum - start charging interest on all new loans in order to rebuild the capital base."

An extraordinary general meeting of the 900 shareholders was called to discuss this demand and Mrs. Ebbesen is adamant that something could have been worked out given the level of goodwill and support which most depositors felt for their organisation. Capital injections from other banks in the JAK system were also a possibility. But the meeting was never held. The day beforehand, the bank was closed down. "Why? That's what I'd like to know! There were no discrepancies and everyone will get 100% of their money back" she told me nine months afterwards as we peered through the windows of the empty offices. "I've been made to feel like a criminal and they've been going through the books for technical infringements of the rules. It's been very difficult because most of my neighbours were depositors. Do you know, one inspector actually said that they could not permit a bank to operate in a ploughed field" she adds, pointing at the rich brown farmland that runs almost right up to the office door.

She agrees that if the bank had not paid interest to depositors and made conventional interest-bearing loans and had thus stayed small, it would not have been closed down. However, she has no regrets about trying to expand when she did. "The circumstances were right - salaries in Denmark had gone up and inflation had stayed low, so people could save a lot. You've got to take these chances when they come. After all, the bank had been trading for 15 years and the movement for sixty. If I'd have continued as manager everything would have been all right. Our deposits would have increased to 100m. Dkr and then grown more slowly."

When I spoke to her last at the end of 1995, 39 months after the closure, Mrs Ebbesen was determined about two things. One was that she would win her court battle to allow the bank to re-open. "My lawyer says we will get it back. It’s quite clear we should never have been closed because enough loans have been repaid by borrowers to allow the depositors to get all their money back." The other was to spread the JAK idea throughout the European Union. "Since 1988, any bank setting up anywhere in the EU has been required to have 5m. Ecus capital behind it. This means that it is now impossible to start a bank the way we did. However, a bank that is registered in one EU country is permitted to trade in them all, so my idea is to run training courses here on the farm so that people can set up banks in their own countries which are part of the JAK system. I've already started working with groups in Belgium and Holland."

2002 update by Caroline Whyte

Inger Marie Ebbesen's bank has been officially cleared of any financial problems. The creditors got back 98.59% of the funds they put into the bank . However, the fees for the lawyers and accountants she was forced to hire came to approximately 18 million kroner, which meant that the bank has been unable to open again . She is considering taking further legal action to try and recoup those funds.

Inger Marie Ebbesen, Thorsovej 92, Grølsted. 8882 Fârvang. Denmark.Tel 86-871095

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