The day-to-day financial management of Radical Routes is in the hands of the Finance Group. The group is empowered to make day-to-day decisions on its own, such as decisions on when to release loans that have already been approved by the gathering, or decisions on investment to obtain best return. However, wherever possible, any financial decisions that are wider in scope and/or controversial should be brought before the wider membership of Radical Routes in the form of a proposal at a gathering. It should be noted that the boundaries of the Finance Group decision-making powers are not clearly defined*, but in any cases of doubt the matter should be brought to the gathering.
The group is composed of individuals who are members of RR co-ops. Those who commit to at least a 12 month period of attending all meetings and contributing to the work of the group are considered core members. The group will typically have a membership of between 6 and 10 individuals.
* apart from variations from a model loan application which have strictly defined limits i.e. we have the discretion to approve a loan if the loan hasn't increased more than five thousand pounds over the agreed model loan application and the purchase price of the property hasn't increased more than 10% above that agreed in the model loan application.
The Finance Worker is a RR member co-op that has agreed to perform the day to day financial administration work for RR in return for a fee. One or more named individuals in this co-op will perform the work, but the Finance Worker is the co-op, not the individual or individuals.
The Finance Work contract is awarded through a tendering process with the decision being made by Radical Routes as a whole. The scope of the work is defined in the contract agreed through the tendering process between the Finance Worker and RR. A current signed copy of this contract should be held by the RR Treasurer.
The Finance Work contract need not be opened up for re-tendering each year. However, if major changes in the scope of the work are proposed, then re-tendering should occur. As good practice, the contract should be opened up for re-tendering at least every three years.
What follows is a summary of the Finance Worker duties as set out in the contract for 2009/10:
For full contract see appendix
The group meets quarterly in person at Radical Routes gathering, and will arrange additional meetings as necessary. If there are loans to assess a face to face meeting will be held, other wise a phone conference will usually be adequate.
The Radical Routes Finance Group email list is the means of communication between meetings, all members and prospective members should be subscribed to it. Finance Group documents are currently shared using a dropbox, please ask a current core member to join the email list and for access to this dropbox.
[Standard agenda used to go here]
Radical Routes lends money to member co-ops, and this money is repaid with interest through regular payments in exactly the same way as a mortgage is repaid. Historically this the most common type of loan Radical Routes has made.
Loan applications are submitted as agenda items to gatherings and are agreed by the RR consensus model, this is explained at the Introduction to RR workshops that happen at each gathering. If an agreed loan is not taken up within 9 months it is seen to have expired, the loan application must be resubmitted and reviewed if the co-op still wants the loan.
Finance group does not have decision making powers about whether a loan is released, but makes recommendations which are taken seriously by the member co-ops, which do have decision making powers.
The general meeting (a gathering) can agree to make a loan based on a model {hypothetical} property, and the Finance Group can later agree that a given actual property fits the specification and authorise the loan, subject to the following conditions:
A model spreadsheet has been developed to help co-ops write financially viable business plans for their projects. It is easier for the Finance Group to help develop and assess loans if they are presented in the standard format. The latest version of the model spreadsheet is kept on the dropbox.
Each loan application is assessed by finance group at a meeting held in person before the gathering to which the co-op is applying. Below is a list of things we consider when assessing a loan.
Note: We will often recommend a loan to the gathering with certain changes made to the submitted business plan.
Dropbox procedure when this is done - move the whole folder for that co-op to a different file, “_RECOMMENDED” and label the actual recommended loan with the suffix RRFG YYYYMMDD.
Member co-ops considering borrowing from Radical Routes are allocated a liaison person from the core members of finance group. As well as keeping finance group informed, this person will work with the co-op on developing the numbers side of their business plan (based on the model spreadsheet). Once the figures start looking promising its circulated round the whole finance group for fine tuning.
Money available to lend is calculated each quarter as money in the bank less £15,000, less any loans already agreed. The £15,000 figure was chosen because the largest regular outgoing we have is a £10,000 payment which goes out once a year (to an investor) and £5000 is an amount we can be confident will cover our outgoing expenses.
RR has a very good rate of success in collecting its loans. This may well be in some part attributable to its high level of involvement with its borrowers. Finance Group liaise with Co-op Support Group to spot borrowing co-ops in difficulty and offer support before loan repayments are defaulted on. This is discussed with a member of co-op support at each gathering FG meeting.
This is a set period of time during which a borrower only makes interest payments on their loan. As the capital debt does not go down, this makes the overall length of the loan longer and their overall repayment higher. A borrowing co-op might be offered one of these to get them through a short term period when finances are unusually tight for example at the beginning of a project or time of crisis.
When a loan is made, RR needs some form of legal assurance that if the co-op fails (goes bankrupt), then RR will be able to recover its money. RR requires that 120% of the value of the loan from RR is covered by security. This is an extra safety margin to help RR be sure that it can recover all of its money in the unlikely event of a co-op failing.
Security can be in the form of a legal charge over the property of the co-op. This is a legally binding agreement that means that if the co-op goes bust and sells its property, RR has a right to take its share from the proceeds of that sale. Housing co-ops typically secure their loans on the property they are buying. If a housing co-op goes bust, it will have to sell its house/s and repay those who have lent it money. If there is another lender involved (e.g. Triodos Bank), they will typically insist on having the primary legal charge, which means that they are the first to be repaid. RR usually has a secondary legal charge, which means it gets its money back after the primary lender (providing there is enough left!).
Another form of security is in the form of guarantors. An individual (or a co-op or company) signs an agreement to repay an agreed amount of money to RR in the event of the co-op going bust. Co-ops may use guarantors to bridge the gap between what can be secured on property and the amount that RR requires to be secured. Guarantors may be members of the co-op, their friends, family or other supporters, or other co-ops. It is good practice for a co-op to have a range of guarantors, rather than just one or two big guarantors, in order to spread the risk. RR provides a standard guarantors form which must be completed by the co-op, the guarantor and a representative of RR. The guarantor is required to provide a credible explanation of where they would get the money from if required to do so. For instance “I will take it from my savings account which currently holds ￡1000” is credible, but “I will find it somewhere” is clearly not!
For amounts less than or equal to £1000: We would like to see the most recent available bank statement of the guarantor – to prove their existence.
Of more than £1000: We would like to see the last three months bank statement of the guarantor to show the money exists too. Or the most recent year end accounts, in the case of a business.
There are three ways of releasing the guarantors.
RR charges interest on loans, the standard rate is 6%, exceptions have previously been negotiated. This happens on a case by case basis as part of the loan assessment process.
When a new loan is issued a fee is charged to the borrowing co-op, this is made up of the ￡150 ICOF charge RR, any costs such as bank charges and ￡10 per hour for extra work the Finance Worker has done. Recently this has come in at between ￡250 and ￡350. While the ICOF fee is passed on to them the Finance worker fee stays in Radical Routes. (But that's not what policy says). This money should be deducted from the loan amount transferred.
Cooperative & Community finance (more commonly refereed to as ICOF) are subcontracted to collect loan repayments as Radical Routes is too small an organisation to be allowed to take Direct Debits1. This gives us security that co-ops payments will arrive when due and the ability to change repayment rates for example because of a capital repayment holiday starting/ending.
Agreed at Radical Routes Finance Group Meeting, 28th January 2012
Note: FG feel we should always forward any charges to borrowing co-ops.
1 Direct Debits are commonly confused with standing orders. The significant difference is that standing orders are controlled by the payer whereas Direct Debits can be changed by the payee.
Radical Routes will pay all reasonable travel expenses for core members to attend gatherings in order to participate in Finance Group meetings. Telephone conference expenses will also be paid. Travel expenses for other Finance Group work, such as co-op visits to assist with loan applications and business plans, will also normally be paid, but should be discussed and agreed in advance at Finance Group meetings, or, failing that, with other members of the group.
Radical routes has three main sources of income:
Service payments are paid by monthly direct debit by all member co-ops, associates and supporters. Income from service payments should be set at a level to cover the admin expenses of Radical Routes. Income from loans (loan interest, and bank interest) should cover all loan related activity and hopefully provide a surplus so that we don't go broke!
Rootstock is an investors’ co-op which was set up to raise money for Radical Routes. Rootstock is registered as an Industrial and Provident Society. Rootstock raises money by selling shares to investors, interest is paid on these shares and investors are able to choose whether to have the full interest due, or to waive half or all of the interest. Rootstock can then buy non voting shares in Radical Routes, allowing Radical Routes to use the money raised to lend to member co-ops. The interest rate that Radical Routes pays Rootstock is worked out to cover the interest that Rootstock has to pay its investors and the administration costs of running Rootstock.
Investors who buy shares in Rootstock become members of Rootstock and may vote to elect the committee who manage Rootstock on a day to day basis. The committee is usually elected at the Annual General Meeting. Each investor may hold up to 20 000 shares in Rootstock (each share is worth ￡1 and there is minimum holding of 50,) but any investor only has one vote no matter how many shares they hold. In order to ensure that Rootstock continues to invest in Radical Routes, all Radical Routes co-ops are expected to buy ￡50 of shares in Rootstock.
Because Rootstock raises money from investors, many of its members will not meet the Radical Routes policies on working for social change, limiting income and doing work for Radical Routes. For this reason Rootstock joined Radical Routes with special exceptions in these areas.
The Rootstock Committee manage the work of Rootstock. They have to publicise Rootstock to raise investment and plan and manage Rootstock’s investment so that there is always enough money to lend to Radical Routes co-ops and to repay investors who wish to sell their shares. The committee is elected by Rootstock’s members at the AGM each year and meet quarterly at Radical Routes gatherings.
The contract covers the more practical work of running Rootstock in a similar way to the finance work contract for Radical Routes finance. The work covered by the contract is supervised by the Rootstock committee.
When Rootstock has more money than they need for their running costs, Rootstock can buy shares in Radical routes. As the shares we sell to Rootstock are "non-voting" they do not carry any decision making powers. They money is transferred into RR's bank account and the secretary issues a share certificate. If they are short of money they will ask to redeem some of their shares. Interest on shares is paid annually at an annually set interest rate, while Radical Routes is fully in control of interest rate setting we work closely with Rootstock to ensure their needs are met.
While Rootstock has a maximum investment limit of £30,000, Radical Routes is sometimes lent larger sums of money directly and with a fixed repayment schedule. It is illegal for Radical Routes to advertise for lending unless we were to set a loanstock issue period for a specific purpose, something we have never done.
In the past Radical Routes raised investment directly by issuing loanstock, a system that allows supporters to lend money to co-ops for a fixed period at an agreed interest rate. While this system works well for many housing co-ops, because Radical Routes uses the money raised to make loans it would have to be regulated as a bank. It was for this reason that Rootstock was set up, shares are now only sold to member co-ops (of which Rootstock is one) and banking regulation is avoided.
Rootstock was also set up as a separate organisation to limit the power of investors in Radical Routes.
At each gathering introduction workshops are held to help familiarise new coops and new people from existing coops with the running of radical routes. One of these workshops is an introduction to how the finances of Radical Routes Ltd as a whole works and an introduction to the finances involved with setting up a housing coop or social centre. At the time of writing, provisions for workers coops ....???
Notes for facilitating – these are very skeleton notes only, they must only be used by someone who understands the process, they cannot replace that knowledge!
The cost of the house and renovations is covered by:
Other expenses in house buying include:
Mortgage
RR loan
Loanstock
Explain the purpose of the magic spread sheet!
These are the £1 shares that every member co-op has to buy when they join, any member may only have one voting share. Holding a voting share allows the co-op to take part in Radical Routes decision making. Voting shares cannot be sold, when a co-op resigns from Radical Routes its share is cancelled and Radical Routes is a pound richer.
Member co-ops of Radical Routes may also buy and sell shares in Radical Routes that do not give them any voting rights. This allows Radical Routes to raise money which it can then lend to its members. Radical Routes charges interest on any loans that it makes, currently at 6%, and uses some of this income to pay interest on non-voting shares at a lower rate.
Refers to the process of managing money so that it is available when it is needed, and that even when not needed it is used in a way compatible with the aims and ethics of the organisation. 19