July, 2012

Revenue Sharing

In my last blog entry I talked about the perils and evils of debt for both the lender and debtor.  Here I’d like to discuss an alternative which I believe could replace the entire concept of debt.

Revenue sharing, sometimes referred to revenue-based finance and income-contingent loans, is just recently starting to take off. The White House is making a big push for income-based repayment of student loans.*  And at least two private (and highly capitalized) startups are launching soon to provide revenue-based financing options for individuals who agree to pay a portion of their future income in exchange for cash upfront.

With U.S. consumer debt topping $2.5 Trillion and student loans now totaling over $1 Trillion, it’s no wonder that there’s a lot of interest in revenue-based finance. Let’s look at several common debt scenarios and see how they could be different — and better for all parties — if they were based on revenue-sharing instead.

There are many ways to structure a revenue-share …

[email protected], D*bt and Other Four-Letter Words

Prior to the mid-19th century, those who could not pay their debts were routinely tossed into prison.  Actually, you can still go to debtor’s prison in Germany, Greece, China and Dubai.  In the United States, two of the signatories to the Declaration of Independence (James Wilson and Robert Morris) were incarcerated for their unpaid debts.  In theory, the U.S. abolished such practices in the 1830s.  But six states still allow you to be arrested and detained indefinitely until you “work it out” with your creditors.

And while we humans seem to have a visceral negative reaction to welshers, our disdain for bad faith lenders goes deeper.  Condemnation of usury dates back to the Vedic texts in ancient India, and is condemned as well in all the other major religious texts in the world.  Islamic law (Sharia) prohibits the charging of interest at all, and considers the practice to be one of the seven heinous sins, right up there with murder and “unlawfully taking an orphan’s …