The Future of Banking?
- Published on Friday, 13 July 2012 12:02
- Written by James Niven
As some of high-street banks' most famous names have lurched from one scandal to another, a different kind of banking has quietly risen to prominence
The steady growth and profitability of sustainable banks, who base their financial decisions first and foremost on the needs of people and the environment, has proved resilient during the financial crisis.
These banks don't just avoid financing enterprises that do harm; they positively finance businesses that actively do good. Many have been growing steadily since before the crisis began but their popularity, in the northern hemisphere in particular, has been bolstered by widespread disillusionment with the big banks and the 'move your money' campaigns that have emerged from it.
Reports of the death of mainstream banking may be exaggerated. Reports of over 200% increases should be given some context. By and large, smaller organisations are more likely to report substantial percentage increases than larger ones.
But something important is happening. However powerful our high-street's retail banks may appear to be ultimately they can only succeed if large numbers of people choose to save, borrow and use their services. Despite the apathy usually associated with switching bank accounts – individuals are reportedly more likely to divorce than change their bank account - many thousands of individuals are choosing to take action and change their bank.
Part of the reason for this trend may be that the business case for sustainable banking is stronger now than ever before. It's increasingly clear that the myth that sustainable banking inevitably means a financial sacrifice is just that, a myth.
A new report shows that as well as doing good, sustainable banks are also doing well financially (http://www.gabv.org/news/report-shows-sustainable-banks-outperform-worlds-largest-banks). It shows that they outperform the world's biggest banks in a number of areas, lending proportionally much more from positions of greater capital strength, and offering comparable or better financial returns.
Co-financed by the Rockefeller Foundation (www.rockefellerfoundation.org) and commissioned by the Global Alliance for Banking on Values (GABV) (www.gabv.org), a growing network of 19 sustainable banks - from an SME bank in Bangladesh (www.bracbank.com) and Canada's largest community credit union (www.vancity.com) to Triodos Bank (www.triodos.co.uk), a European sustainable bank – the report compares sustainable banks performance with 29 of the world's largest and most influential banks between 2007 and 2010.
Critics point to the period of the analysis. The big banks have suffered most during the financial crisis, during the years the report covers. But the question remains as to whether research over a much longer time-frame, would not support an even more marked difference between the relative performance and volatility of returns of these types of bank. The GABV thinks so, and is undertaking further research to cover a longer duration.
Peter Blom, GABV Chair and CEO of Triodos Bank, believes the report cements a compelling business case for sustainable banking. "Doing good is beneficial for banks and society not just in a theoretical and ethical sense, but also financially, when measured against conventional benchmarks such as the financial bottom line. Knowing this large numbers of people are moving their money, demonstrating in a very clear way what kind of change they want to see in the financial industry."Individuals and businesses are exercising their power to choose a different, more sustainable kind of banking. If many more join them, we could yet witness a profoundly different future for banks and the people they serve.