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## MODEL FOR SUSTAINABLE SELF-FINANCING INTEGRATED RURAL AND POOR URBAN DEVELOPMENT FOR THE WORLD'S POOR

Incorporating innovative social, financial, economic, local administrative and productive structures, numerous renewable energy applications, with an important role for women in poverty alleviation in rural and poor urban environments.

"Money is not the key that opens the gates of the market but the bolt that bars them"

Gesell, Silvio The Natural Economic Order

Revised English edition, Peter Owen, London 1958, page 228

Edition 11: 02 October 2006

(EN FRANÇAIS)

#### 04.18 RECYCLING OF FUNDS AND IMPORTATION OF CAPITAL GOODS

Purchases in formal money of capital goods for production purposes will normally need to be imported into the country where the project area is situated.

The first series of such purchases is usually made with the original loan funds. Since the original loan funds are made available in Euro or other leading international currency, and converted into the local currency for the purposes of the project, their re-conversion where necessary from the local currency into the international currency should not pose a problem.

The amount of capital goods needed for local productivity increase under recycled micro-loans could, however, amount to several times (5 or 6 times or more) the amount of the original interest-free loan expressed in foreign currency.

A condition for the granting of an interest-free loan under the Model is, normally, that the beneficiary be able initially to sell some of the goods or services in question outside the project area for formal money to enable him to repay the loan. The beneficiary therefore exports the goods or services outside the project area for formal local currency, but not necessarily outside the national borders. Since capital goods may often need to be imported into the country where the project area is situated, a situation of financial leakage of formal national currency occurs for the purpose of buying the foreign currency necessary for the purchase of new capital goods for production purposes. This financial leakage is not desirable but it may in part be offset by the increase of local production tending towards a reduction in the need for imported goods. The leakage can only be completely avoided where the project area succeeds with time to export directly outside national boundaries enough of its production to earn enough foreign currency to cover the costs of the imported goods. It is unlikely this be possible at least in the early phases of a project application. The local government must therefore when it approves a project application under the Model accept that this (temporary) financial leakage is going to take place during the initial stages of the project. Its Finance Ministry must ensure flexibility in granting leave to convert local formal money into the foreign currency necessary for the purchase of the capital goods. Failure of the Ministry to do so would in practice lead to serious delays in project execution. The more often the project funds are recycled the more rapidly the project area will develop. The Project Coordinator, on the other hand, is bound to endeavour to reduce the financial leakage of formal currency in question by purchasing capital equipment, where available, which has already been imported and is available on the local market.

The following schedule will produce a zero national import/export balance for the project during its execution and a long-term ongoing credit balance:
First two (executive) years : zero franchise
Third year, at least 35% of imported value exported
Fourth year, at least 50% of imported value exported
Fifth year, at least 75% of imported value exported
Sixth year, at least 100% of imported value exported
Seventh year, at least 125% of imported value exported
Eight and following years, at least 150% of imported value exported

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