Social Banks and the future of Sustainable Finance

H11073 H11082 H11095

Contents
1. Precursor
Sustainable Finance Social Banking

2. Post Crisis emergence of social banking for sustainable finance 3. Social Banks, Products and Services 4. Social Banking and sustainable finance in the Indian Context 5. Challenges for social banks as agents for financial sustainability 6. Future for sustainable finance 7. References

Sustainable Finance
1980 1996 1997 2006
Introduction of CERCLA and Superfund Environmental, sustainable, or socially responsible investment products and services began to penetrate the market Kyoto Protocol

Nobel Prize for Muhammad Yunus Micro Finance (Grameen Bank)

Historical overview

Milestones in sustainable finance

Sustainable finance is about using money to encourage socially responsible business and to create a sustainable society Ethical banking institutions focusing on sustainable finance Co-operative banks and credit unions Social banks Microfinance institutions Sustainable banking options Savings options: Deposit accounts, bonds Investment options: SRI funds, sector-specific listed funds, microfinance funds, fair trade funds, social venture capital funds, individual ethical businesses

Social Banking
Sustainability
Bank with a conscience Triple Bottom line
Social banks define themselves as Bank with a conscience Focus investing in community, opportunities to disadvantaged, supporting social, environmental & ethical agendas
Greater good instead of private profit just for a few.

Social and economic sustainability while taking final decisions.

Sustainable investments : Better quality of life for the greatest possible amount of people Effects endure over time and continue to produce positive effects long after investment

Mainstream banks are focused solely on profit maximization. Social Banking implements triple principle of profitpeople-planet

Post Crisis emergence of social banking for sustainable finance

2007-2010 Financial and economic crisis gripped the USA, Europe & the world 7 million Americans & 2 million Europeans lost jobs 10 million pushed below poverty line

Crisis

Emergence of European Social Banks

European banks emerged big winners of the crisis Grew more than 20% per year Assets doubled in the period (2007-2010)

Reason for the changed perception

Increased conviction of bank customers on social bank Perceived to be less speculative and more responsible , ethical and community oriented to deal with money

Social Banks
Combined assets of European social banks sits at 10.5 billion Euros

Expected growth rate for European social banks 13-15% compared to an expected growth rate for European main stream banks 1-3%

German Gemeinschaft fr Leihen und Schenken (GLS) Bank ($2.2 billion), the Dutch Triodos Bank ($6.7 billion), the Italian Banca Etica ($0.8 billion), the Swiss ABS bank ($0.7 billion) and the Danish Merkur Bank ($0.2 billion)

Products and Services for Sustainable Finance

Sustainable credit management Aimed at improving the financial risk for lenders sustainable loans and mortgages Interest rates depending on the sustainability performance of the debtor Sustainability of building connected with the mortgage interest rate Socially Responsible Investment Carbon Finance Includes financial risks, opportunities, and mechanisms resulting from a carbon constrained world Sustainability savings accounts and certificates of deposits Micro-finance

Social Banking and Sustainable Finance in the Indian context

There is no single Indian signatory in UNEP FI Only eight Indian signatory in CDP-India including HDFC Bank Ltd, IDBI Bank Ltd, Induslnd Bank Ltd ,IDFC, Reliance Capital, State Bank of India, Tata Capital Ltd ,Yes Bank Ltd Equator Principles (EPs) will be key to involvement in sustainable project finance lending and protect investors interests yet Indian banks are yet to commit to the Equator Principles

A very sluggish response compared to the multitude of international initiatives underway Barriers to adopting sustainability
Risk of failure Loss of business to peers Lack of RBI mandates Lack of policies required to altering the present systems

Social Banking and Sustainable Finance in the Indian context

In the Indian Scenario the focus is on financial inclusion for financial sustainability
It has been realized that the poor are bankable with the developments in technology, nancial inclusion has received a big boost in India The fact ,that developments in the nancial world can have severe spillover effects on the real sector, thereby materially impacting the lives of the masses has been the thought process behind these measures

Multi Agency Approach to Financial Inclusion

The Financial Stability and Development Council (FSDC) is mandated, inter alia, to focus on Financial Inclusion and Financial Literacy issues Financial Inclusion Advisory Committee to pave the way for developing a viable and sustainable banking services delivery model focusing on accessible and affordable nancial services Financial Sector Regulators including the Reserve Bank are fully committed to the Financial Inclusion Mission

Challenges for social banks as agents for financial sustainability

Social Banking still considered a niche in the shadow of conventional banking Eg. Countries like Germany, where it originated, serves less than 1% of adult population Many social banks still considered to be in the process of transforming from grass root project

Challenges

Limited range of activities in terms of Products, Services and Sectors served

Competition from conventional banks which are promising sustainability, at least for marketing purpose

Recommendations
Social banks need to be innovative in use of technology to woo the younger generation RBI needs to formulate policy guidelines for adoption of sustainability practices Establishment of an agency to promote awareness of and look at skill development of bank workforce through workshops and courses

Future for sustainable finance and social banks

Charting a path Social banks can help the global financial system develop from within by providing "best practice" examples: concrete success cases that other banks and policymakers can learn from. Much like the conservative approach of the Indian banking system largely shielded it from the recent crisis that beset the world. Size There is a well founded criticism doing the rounds that social banking as individual identities are still too small. We concur. The requirement now is to move away from specialized niche institutions , wholes within a system to a more broad level. Mainstream Systems The value based banking system that social banking hinges on should be taken and incorporated into mainstream banks, not only to play on the PPP bottom line policy. To focus on the broad community level keeping an eye on long term benefits. Impact Assessment What type of project, or borrower, does the bank invest in and what impact does this project or borrower create? In the case of renewable energy projects, the energy production per year should be assessed. For example in environmental projects, life cycle assessment databases may be used. Legal & Regulatory Requirements The impetus on social banking can be created through incorporating them as legal and regulatory requirements, this however would results in social banking being taken in a compliance perspective . And the unspoken repercussions stigma for the same.

References
Dr Ronald Benedikter, European Answers to Financial crisis: Social Banking and social Finance, Spice Digest, Spring 2011. Available from: http://spice.stanford.edu Session Keynote Address delivered by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India at the 2nd FTYES Bank International Banking Summit at Mumbai on October 15, 2012. Olaf Weber & Sven Remer, Social Banks and Future of Sustainable Finance, The World Financial review. Available form: http://www.worldfinancialreview.com/?p=441 Weber, O., & Remer, S. (Eds.). (2011). Social Banks and the Future of Sustainable Finance. London: Routledge Porter, M. E., & Kramer, M. R. (2011). Creating Shared Value. Harvard Business Review, 89(1/2), 62-77 Olaf Weber, Social Banks and the Future (and Past) of sustainable finance. Available from: http://socialfinance.ca/blog/post/social-banks-and-thefuture-and-past-of-sustainable-finance