A Simple Interest Bank Loan to the Borrower is Better than an Interest-Free Loan.

Kevin Cox
5 min readMay 15, 2024


An Equitable Climate Change

The government can ensure that we have an equitable Climate Change where everyone in society can benefit, and the shift does not depend on government grants and subsidies.

This proposal shows how to change how we fund the Rewiring of Canberra Suburbs by modifying the existing zero-interest loans scheme. The modification will save the government the cost of the existing scheme while allowing every occupier of every home in Canberra to participate.

Modifying the zero-interest loans scheme

The ACT Government has a scheme where they subsidise solar panels by paying the interest on the loan used to buy them. The scheme has resulted in many households installing solar panels. The administrative and interest costs are high, but the scheme is, at best, available to 50% of households. Other households have other schemes of direct subsidies, but these are expensive.

A more straightforward arrangement would be for the ACT government to negotiate with banks to offer simple interest loans to reduce the household’s electricity cost. If the drop in electricity costs does not cover the interest, the ACT government will pay the interest to the household.

The occupiers and owners of houses will have shares in the panels through a community-owned company, which will be responsible for administering the loans and the assets the community members purchase.

Simple Interest Loans

A simple interest loan means that all interest payments come off the loan. A Compound-interest loan is one where the interest does not come off the loan, and the borrower pays the interest twice and pays interest on the interest.

With bank loans, the bank does not pay for the Capital as the government licenses the bank to bring new money into existence. The bank has other costs, including paying depositor interest and the risk of unpaid loans. The bank removes funds with each payment using an accounting entry. With a simple interest loan, the bank treats the interest as repayment and reduces the amount owed.

Simple Interest loans benefit both Banks and borrowers and should only be used for loans where the government (because it is the government money being lent) agrees. The government can specify the criteria for the loan, such as the savings from the loan being verifiable and easily checked and the loan is in the broader public interest.

The Savings

Assume an interest rate of 8% over twenty years on $10,000 worth of solar panels that last for 20 years will cost $20,370, while a Simple Interest Loan will cost $10,000 or half. The government will save on interest and administrative costs when operating the system. The bank will receive about the same profit but with no risk.

Total Benefit to the Community of a $10,000 loan over 20 years

Bank Loans for Transferring Assets

Bank loans, in which new money is created, are wasted when used to transfer existing assets. We should not use new money to transfer assets. Instead, we use methods other than bank loans, such as Permanent Asset Markets. We should limit simple interest loans to investments that reduce costs. The reason is that it is guaranteed to be a productive investment, and it helps limit frivolous loans.


Introducing verifiable money savings loans is a productivity improvement for the ACT. The banks can charge higher interest rates to cover their costs and make higher profits in a shorter time, which is a further productivity improvement. The higher interest rates are justified if there are high savings.

There is an incentive for the government and borrowers to invest wisely for productivity improvements. The benefits of productivity improvements go to the people who pay for them, namely the households. It will reduce the wealth gaps in society and create a just transition. Every household can increase its wealth as the household occupiers can own the solar panels.

Modern Monetary Theory and Simple Interest Bank Loans

Simple Interest Bank Loans allow the ACT government to introduce MMT’s benefits without going through the Federal Government or the Reserve Bank. The ACT government should consult with both parties as they may find it helpful.

Simple Interest Bank Loans address the following issues with MMT.

  1. There are no inflationary risks as loans are only for investments to reduce costs. The government can use it to target and achieve zero inflation.
  2. There is no fiscal risk to the country.
  3. It does not crowd out private investment but instead enhances it.
  4. It will not lead to exchange rate volatility but stabilise it.
  5. The people who cannot obtain loans or capital today will have equal access to the loans.
  6. The approach should appeal to all sides of politics as everyone in society benefits equally.

Future Developments

The approach can apply to all capital expenditures. It can be used by civil society to fund companies to operate and administer the system at no cost to the government, with further savings to the government.

Extending the system to include community funding is easy once the system is operational with loans. Investment money can come from community members as depositors in the bank, super funds, other household investors, or professional investors.

The approach will drop the finance cost by removing the interest cost for all capital works. The details will vary with each capital expenditure, but the principle of eliminating the cost of compound interest applies to all. An important emergent property of the system is that Capital moves each time there is a payment, which means the same Capital is reinvested without selling the assets. As a result, it reduces the cost of all capital works.

Complexity Economics

Complexity Economics is a robust and effective approach, as the example above demonstrates. The system is modelled and operated at the individual household level, with groups of houses volunteering to join. The system’s model is run to demonstrate economic viability and then implemented with households. Real-life operations are compared against the model, and changes are tested and implemented if necessary. This continual monitoring ensures the system works as expected, providing a reliable and effective solution for various economic challenges.



Kevin Cox

Kevin works on empowering individuals within local communities to rid the economy of unearned income.