Kickstarter is different because it is based on donations. Donors contribute to enterprises they have an emotional attachment to. This is similar to credit unions. The credit union capital structure largely relies on donations. It used to be that credit unions relied on churches and other mutual benefit institution donations for funds. Things have changed. The shoe is on a different foot. Churches can no longer afford to donate scarce funds to their credit unions. Now it is up to credit unions to use their member funds to support their faith communities.

 

Once again, the economic development and job creation success of enterprises will increasingly depend on their participation in the $85 trillion in global  trade flows the world is estimated to have by 2025. 

 

Credit unions and small banks will play an increasingly larger role in financing cross-border trade for several reasons. First, credit unions and small bank loans can be guarantied by SBA and Ex-Im Bank. U.S. Ex-Im Bank is coming back. Every major country has an Export Credit Agency, an U.S. Ex-Im Bank equivalent. These guaranties form the basis for provision of pre-export and post-export working capital guarantied facilities. Secondly, the small exporter can use working capital guaranty facilities to issue bid and performance bonds at much lower levels of cash collateral requirement. Thirdly, AAA-rated sovereign guaranties protect banks from risk and export credit insurance protects exporters from exposure to political and commercial risks. 

 

Finally, credit union and small bank financing of exporters will grow as these financial institutions are able to sell these loans to other credit unions, other banks and to individual investors.  The rate of return on the SBA-guarantied loans of credit unions to investors is substantially higher than what banks are paying for CDs at the moment.

Banks are able to sell U.S. Ex-Im Bank guarantied loans to PEFCO. Apple Bank for Savings has made numerous aircraft-related loans to finance U.S. aircraft manufacturers. Portions of these loans were sold to PEFCO. Needless to say, these loans supported the creation and maintenance of hundreds of U.S.-based jobs. For those affected by the psychological remnants of government guaranties, the housing bubble and the Great Recession of 2008, the ICC studied this business and determined that the default rate on mainly short-term trade finance transactions is .0002%.

 

I believe that this scenario represents the future of trade finance in the U.S. and provides a template that other nations can follow in developing their economies and creating jobs. There is no need for a highly developed capital market in order to engage in this form of financing. There is need however for a massive, affordable and accessible education program focused on international business and trade. This does not exist at present.