How Banks Can Increase Profits and Lower Repayments

Kevin Cox
2 min readFeb 11, 2024
Bank Loan of $1,000 for ten years

Consider a bank loan of $1000 over ten years with an interest rate of 6%, 8% and 10%. A bank can increase its productivity by sharing interest, as illustrated in the spreadsheet above, where it makes more profit, and the borrower pays less by changing the amount of interest it shares.

If banks share their profits with their borrowers, the bank can increase its profits by sharing more of the interest with the borrower. Sharing happens by taking a percentage of the interest off the capital owing.

By taking 25% of the 10% interest charge, the bank will make $212 more profit while the borrower pays $216 less in repayments than the bank taking 100% of 6% interest.

Sharing interest results in a productivity improvement of $428 spread over ten years.

Banks could do this tomorrow as it is an accounting change to the treatment of interest. The two changes above are

  • to increase the interest rate
  • and deduct a percentage of the interest paid from the Capital owing on each repayment.

Any bank could do this and improve its productivity.

An Explanation

Money is a technology invented to share the things we find and make. We invented banking systems to earn money by making money for the government. Banks make money by charging interest on money, but they do not share the interest.

Sharing interest by deducting some interest reduces the time to repay a loan with the same repayment. It decreases the total interest paid and improves productivity as borrowers need to earn less money to repay their loans.

Eliminating all interest means finding other ways to give investors a return on investment and lenders to cover their costs. Modern computing and communications technologies provide many ways to do this. Permanent Markets are one way.

A Simple Example

Imagine a simple economy of two producers. One produces butter and the other bread. They only sell to each other. Butter makes a profit of 4 and bread makes a profit of 2. They both start with the same amount of 16. On day 1, butter makes 4, and bread makes 2. At the end of the first day, butter has 16 + 4 -2 or 18, while bread has 16–4+2 or 14.

If they shared the profits, butter would have 16+2–1 or 17, and bread would have 16–2+1 or 15. Bread would be able to participate in the exchange for double the time, and the system as a whole would be twice as productive.

By sharing, we keep economic actors participating longer. As the discrepancy gets greater, the productivity decreases.

It is why productivity drops as the discrepancy in wealth increases.

This is why banks can increase productivity by sharing interest with borrowers.



Kevin Cox

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