Why it’s important and what it should look like
In the last month or so, we’ve been featuring banks and credit unions across the country which are members of the Global Alliance for Banking on Values (GABV), an international collective of financial institutions which hope to influence and inspire change in the banking industry. According to their website, their mission is “to use finance to deliver sustainable economic, social and environmental development, with a focus on helping individuals fulfil their potential and build stronger communities.” But what does this actually look like in practice? And is this kind of banking realistic in our current economic landscape?
Because of the way that many megabanks have operated over the last few decades, and particularly since the financial collapse of 2008, there is a growing distrust of banks, and rightfully so. However, the reality is that banking is still an essential service, and there are many needs that traditional banking practices are simply not meeting. The estimated financing gap for small and medium-sized business (SMEs) totals $2.1 trillion according to a report from FSG, a social impact consulting firm, and there are still 2.5 billion people in the world who are underbanked or unbanked. This number doesn’t even account for those looking for unconventional financing for non-profits, community projects, or green energy.
Instead of only looking to artificially increase their profit margin, values-based banks look to identify ways they can simultaneous be profitable and truly uplift the economies they operate in. While there’s a myth that is simply unsustainable in our extremely competitive corporate culture, studies indicate that banking institutions based in the real economy perform just as well as, if not better than, profit-driven institutions.
Banks should not exist outside of or above other parts of the society they operate in. FSG states there is an opportunity for values-based financial institutions to not only increase their own value, but to increase the value of the communities they work in. They can do this by supporting the long-term financial health of their clients, investing capital that will contribute to their local economy, and by prioritizing the social and environmental needs of the greater community.
Overall, banks should be working directly and closely with individuals and communities to better understand their financial needs. These needs will be different depending on the people in these communities and their current resources. When banks effectively meet these needs by getting capital into the right hands through lending, they not only uplift their communities, but they create a better financial landscape to make more loans and more profit. This is what values-based banks and credit unions look like.
We should look for banks which practice values-based banking, because they will create sustainable and healthy local economies, contributing to the overall well-being of our neighborhoods, cities, and world.