This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on Feb 15 - 21, 2016.
When the global financial crisis wreaked devastation on the world’s economy, a lot of it was blamed on the wrong kind of banking. Now, a growing number of banks are coming together to show that banking can be done another way, for the good of the community and environment, and still be profitable.
There is a growing movement of banks that are driven by values rather than profits and they are coming together to prove that banking can be done differently. Many of them have existed in their own markets for decades, but after the global financial crisis, they found each other and decided to form an alliance of banks that approached banking in a way that creates value rather than destroys it.
This culminated in the Global Alliance for Banking on Values (GABV) a year after the 2008 crisis wreaked economic devastation and people lost faith in the banking system.
“The alliance was created in 2009. The three founders worked for two to three years before the inception to make it happen and to really go through what banking meant for them from three different perspectives,” says GABV executive director Dr Marcos Eguiguren.
BRAC Bank brought the perspective of a bank which helped poor rural communities improve their quality of life through the use of, among others, microfinance. Triodos Bank brought the European perspective of trying to bank for the greater good — promoting a cleaner environment, social justice and prosperity in the community through financial services.
ShoreBank in Chicago was one of the original founder banks as well, and it brought the perspective of community development banking for the underbanked in poor urban areas in the US. But in 2009, its clients suffered disproportionately from the effects of the global financial crisis and it was forced to close a year later.
“Each of these banks had success stories in their own markets and they engaged in a dialogue to create the alliance. And they expanded this initial group by bringing another five or six banks to join them in this initiative,” says Eguiguren.
The inception of the GABV was a confluence of different ways of looking at how to use banking for good from several perspectives. “Yes, it was founded in 2009 because all those banks from different parts of the world were trying to bank in different ways, awakened by the impact of the financial crisis,” says Eguiguren.
“They said, ‘Hey guys, we have been doing this sort of banking in our own countries or communities but we are not so well known around the world. I think that now, with this financial crisis, with the incredible negative impact of what banks have been doing in the last two to three decades, we have to raise our voices, to say there is a different way.’”
The GABV started out with just nine banks. Today, seven years later, there are 28 banks from all over the world. “It is growing quickly and we are very optimistic in terms of new banks joining us,” says Eguiguren.
What sets these banks apart from the mainstream? “Believe me, lots of things,” chuckles Eguiguren. “In the global alliance, we have been bankers for quite a while and have worked in the big mainstream banks, and we know how they work and how banking is managed. And we know how in our banks, we have made an incredible difference.
“We put social value first, rather than profits. Of course, we must be profitable, otherwise we wouldn’t be financially stable. But there is a huge difference between having profitability as one of our goals and having it as a consequence of doing things properly.”
Eguiguren says it is rare to find a bank that doesn’t have “maximising shareholder value” as part of its mission statement. “That is pretty normal and I am not blaming them for that. But if we are assessing a possible candidate for membership and if maximising shareholder value or profit is embedded in the philosophy of the bank, it is a signal that they should not be a member.”
Eguiguren is quick to point out that this does not mean a bank shouldn’t be profitable. “But we are looking at banks that provide social value for their communities through our way of banking and as a consequence make a decent profit, rather than vice versa.”
The GABV has come up with six principles to define a values-based bank. “Firstly, our banks are committed to transparency. I am stressing this because this is actually at the core of banking. A bank is an intermediary of the economy. In fact, I would say banks are at the heart of the economy because we are taking money from the ones who have excess liquidity, who don’t have the time or the knowledge or the courage to invest it personally in businesses or other things, and try to identify where we can invest this money in an appropriate way so that it is meaningful and at the end, also pays some returns to the depositor,” he says.
“Most banks claim they are transparent, but do you know what your bank does with your money? No. Do you have any way of knowing? No. Even if you look at the annual accounts of the bank you are banking with, you would not be able to figure this out.”
What the GABV is calling for is “radical transparency”. “In the global alliance, we practise transparency in different ways. Some of us may give you very detailed accounts in our annual reports on which industries we are investing our money in, exactly. For instance, we tell you that we have 22% of the money in our balance sheet going to organic agriculture, and another 23% to social housing and so on,” says Eguiguren.
Other banks may sit with clients periodically (say twice a year) in every branch all over the country and have an open discussion, telling them exactly which companies and areas they are investing the money in. Still, others like Triodos Bank put that information on their website.
If you are a depositor in, say Triodos UK, the website shows you a map of the UK covered with a number of red dots. Click on the dots and it will tell you which companies or projects your money is going into.
“Transparency is important. We feel that we have to inform our depositors and obviously our shareholders, where their money is going. It is not so much about what we can do with the money. It is about being radically transparent about what we do with your money,” says Eguiguren.
He says the second principle is that the GABV members only do banking for the real economy. “This is of paramount importance. This means we do not bank, or the percentage is very insignificant, for the financial economy. We do not use depositors’ money for trading in derivatives and third-party funds and all those sorts of things. We take the depositors’ money and lend it to people who create real value, who manufacture furniture or run a store in town; people who do real things in the real economy.”
The third principle takes this one step further — it is not enough to lend money to people who are doing real things; what those real things are, is important. “We are proactively trying to help our clients go into projects or companies that are environmentally respectful, good for society or that are inclusive for those who have less,” says Eguiguren.
“We don’t only look for projects that will pay back the loan because they will, of course, make some returns on what they do, but projects that are also beneficial to the environment or give something to the community. It is about people, planet and prosperity. So companies that have that in their DNA, those are the ones we are looking to fund.”
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