Week 2: Where Does Your Money Sleep at Night? > Overview > Intro to Week 2
- Welcome to Week 2, Where Does Your Money Sleep At Night? This week you’ll learn about what Just Banks are and how they operate.
- I will introduce a definition and a distinction of Just Banking that distincts Just Banking from conventional banks.
- Conventional banks that are mainly focused on profit and Just Banking that have a broader impact.
- What we’ve seen in the last 10 years is how this tool actually changed and became a standardized conventional tool, that in some cases increased in-debtedness of the client and decreased the well-being of the client instead of empowering the client.
- Just as the microfinance example shows, a loan from a bank can either be something that is empowering or liberating for a client and helpful in realizing their goals, or it can be something that undermines a client and drowns them in a sea of debt.
- Just Banks are banks that don’t follow standardized procedures and scripts based on financial profitability, but banks that actually take the time to understand the client’s purposes and dreams, their operating capacities, and the context, the communities, the situations in which the clients have to work in and prosper in.
- What are Just Banks? Why do they exist? And why do we need them? Welcome to Week 2.
Week 2: Where Does Your Money Sleep at Night? > Voices From the Street > Voices from the Street
- So they take my money and then they can use it to invest in other things.
- The banks, what do they do with my money? I suppose they invest them in all kinds of products and funds, and all kinds of schemes to try and make money for themselves.
- They invest it and make more money off of it, which in return, does not come back to us.
- Do you know where they invest it or what types of projects they invest in? I really don’t know where they invest it.
- I know some places are good and other’s not, but no I really don’t know where they invest it.
Week 2: Where Does Your Money Sleep at Night? > What are Just Banks? > What are Just Banks?
- What about banking? Most conventional banks have a primary responsibility to increase value for their shareholders.
- This means their primary intention is to be profitable and that the financial return on investments drives the decision making of these banks.
- These banks tend to standardize financial products to lower costs and to focus on short-term profitability rather than long-term sustainability.
- Can banks really lift up our global societies? Today there is a small but growing community of banks that seek to use finance to address the social and environmental challenges facing our society.
- Just banks use their unique position as intermediaries in the economy to funnel money and invest in people, organizations, businesses, and communities that work to build a more just, equitable, and sustainable society.
- Ultimately this mission is enabled by the shareholders of the bank and requires the bank to not only be deeply embedded in the communities and movements it serves, but also to be very transparent about what it does and does not finance.
- Banks decide the future of our society because they decide which projects, businesses, or initiatives get financed, and which ones do not.
Week 2: Where Does Your Money Sleep at Night? > Banking in the Real Economy > Banking in the Real Economy
- In our definition of just banking, we refer to the real economy and that just banks operate in the real economy.
- Throughout this course we will mention the distinction between the real economy and the financial economy again and again.
- So we felt it would be helpful if we double-click on this concept, because real economy and financial economies is not just a black and white distinction.
- So there are investments in the real economy that are really problematic and there are investments in the financial economy that are really helpful.
- Throughout this course, and especially at the end of the course, we will also talk about balancing the real economy and the financial economy.
- So David distinguished between the two poles: the financial and the real economy, and gives several examples.
- We felt this is a very helpful distinction to get a little bit of better understanding of what is this field of the real economy and the financial economy.
Week 2: Where Does Your Money Sleep at Night? > Transparency > Transparency and Responsibility
- In our definition of just banking, we refer to the real economy and that just banks operate in the real economy.
- Throughout this course we will mention the distinction between the real economy and the financial economy again and again.
- So we felt it would be helpful if we double-click on this concept, because real economy and financial economies is not just a black and white distinction.
- So there are investments in the real economy that are really problematic and there are investments in the financial economy that are really helpful.
- Throughout this course, and especially at the end of the course, we will also talk about balancing the real economy and the financial economy.
- So David distinguished between the two poles: the financial and the real economy, and gives several examples.
- We felt this is a very helpful distinction to get a little bit of better understanding of what is this field of the real economy and the financial economy.
Week 2: Where Does Your Money Sleep at Night? > Transparency > Voices From the Field: Amy Domini
- We continue to try to remove these barriers at the top, whatever they are, whenever they come.
- So I have had a campaign that I’ve been a little less successful at to have a much more full conversation on fiduciary obligation being to the whole person.
- If you run a pension fund, you can have an obligation to the pension fund, and that pension fund will make more money.
- If that individual retiring is afraid to walk out in the evening and pick the child up at the school bus because of the neighborhood they live in, then you have failed your fiduciary duty.
- You’ve created such an unsafe structure that your beneficiary is worse off.
- So we need to have much broader conversations around what we mean by fiduciary.
- I feel that this is the beginning of the trend toward mainstream in every sense of the word.
- There will always be people out there who discover that they can lie, cheat, and steal, and they’ll find a new way to lie, cheat, and steal.
- I do think that mainstream investment houses are increasingly understanding that it is going to be up to private industry, including their own industry, to address some of the universal issues that are out there.
- You’re starting to see it in things like lending.
- So you’re starting to see standards by which banks make decisions about to whom they will lend money and avoiding environmental catastrophes as a lending opportunity.
- That area is slow, but this is a very important shift that’s taken place.
- So when you ask, what do I see the future- I see it as being far more universal.
- We’ll be able to creep into more of these ex-financial things that are out there, these transactions that really don’t have anything to do with getting me a meal or an article of clothing or something I desire.
- They’re just floating around, bets being floating around out there.
Week 2: Where Does Your Money Sleep at Night? > Transparency > Transparency in Just Banking
- The question here is how do just banks put these ideas into practice? So for the less transparent of just banks or just credit unions, you may just know that your money is being spent in a particular community or amongst the other members of the bank.
- So this is common with credit unions, and it’s common with community banks that focus on particular geographic areas and particular member groups.
- On the higher end of the transparency spectrum, there is both negative and positive criteria for what a bank will and will not finance.
- So GLS Bank in Germany, for example, has a set of negative criteria that they use to determine where they won’t spend their money.
- So these for GLS Bank include the military, nuclear energy, and weapons.
- So while there’s not total one-to-one relationship between where they allocate their money and how the bank spends the money because of liquidity constraints, it allows the bank to allocate their overall resources based on the wishes of their account holders.
Week 2: Where Does Your Money Sleep at Night? > Transparency > Voices From the Field: Jean Louis Bancel
- The Liveret Agir is a type of saving product that the Credit Cooperatif is presenting to its customers that can tell them where their money is driven to.
- OK, that means- usually when you put into your saving account, your money in a classical bank or a classical product- even for the Credit Cooperatif, we just get the money at the bank.
- What we do with the Liveret Agir, you can decide in different sectors- not precisely to which type of enterprise, but to which sectors your money is designed to be used for.
- ” In French, agir is the word for acting- acting for the planet, for example, acting for solidarity, or acting for a new type of enterprise.
- In a way, innovative because it’s up to you, as a depositor, for your saving accounts to be part of the banking process, what your money is used for.
- So it is a product that a credit cooperative designed for regions, French regions, which is the north region around Lille.
- This part of France has been, in the past, a very powerful industrial region with coal mines, with heavy steel plants, and so on.
- This region has been affected by decentralization, because most of the activities have been stopped for many reasons.
- This region wanted and decided to reindustrialize.
- So they have been working, and decide we want to do this and this and this.
- Would be interesting that their money would do two things- of course- be turned in the new sectors for the future industry, and secondly, they’re in their region.
- Many other regions came to us and said, this is wonderful.
- All they want is the money of people living there or paying interest for these regions to be invested, to be turning to loans for their projects.
- So the next step will be the the saving product for your regions and your projects.
- So it works tremendously, because it pushes people to be active, to be proactive, and to make in a better way, in a more active way, the classical bankers’ job- business- which is find project.
- Because the drive for a bank is not to gather the money.
- It is important for the Credit Cooperatif to draw and to drive itself on this path of creating new types of products for two main reasons.
- So it is important that the people who make the deposits are, and feel they are, the bankers.
- We say- and that’s the motto we have for the bank- all cooperators, all bankers.
- It might be provocative, because for some people they don’t want to be bankers.
- They can decide where they want their money to be put on for deposits.
- So either you decide to put it on a negative way- and that’s what we do in Credit Cooperatif, for example.
- I want useful to my community for social meanings and so on.
- What we do, for example, with Liveret Agir, we propose in regions, at least once a year or in the third industrial revolution.
Week 2: Where Does Your Money Sleep at Night? > Banking in Context > Banking in Context
- In our interview with Thomas Jorberg, the CEO of GLS Bank in Germany, he described one of his first learnings as a banker when he started, and he said, one of the first things I really learned was a loan can destroy a life and a loan can rescue a life.
- It’s also cost effective for mainstream banks to give out large loans and avoid small loans, because you need smaller number of loan officers.
- So that means in practice, that a loan officer has to go into the market, into the area where the small business is situated and talk to the individual, open up drawers, and see what’s there in terms of assets.
- This is something that needs to be anchored in the organization and needs to be intentionally put into the loan process, otherwise the bank will automatically standardize and move out of the context.
Week 2: Where Does Your Money Sleep at Night? > Impact of Just Banking > XAC Bank: Home Energy Loans
- Basically, we’re responsible for developing and finding sustainable finance projects at the bank, as well as to attract funds from climate funding organizations.
- We actually worked together very closely when he was in Corporate Banking and I was in Eco Banking.
- Trying to find larger-scale, energy efficiency projects are more of the corporate side rather than the micro and small-scale, which is kind of where the Eco Banking- and Eco Banking projects are trending towards larger-scale projects.
- So in starting 2009, we had our first major project called the Energy Efficient Product Distribution Program, which basically was financed by the Millennium Challenge Accounts, the World Bank, and the Government of Mongolia Clean Air Fund.
- So it’s hard for them to afford these energy efficient products.
- So we were able to give them energy stoves, ger blankets, ger vestibules, and access to energy efficient housing at a much more affordable rate.
- Starting in 2012, we also started dispersing energy efficient housing and mortgage loans.
- Shortly after that, in 2013, we also started with the small and medium enterprises for energy efficient and renewable energy product producers, traders, service providers, and also end-users.
- Basically, the only the main requirement for this project was that they have a 20% reduction in emissions or in energy efficiency improvements.
- Basically, we’re working to upgrade factories in Mongolia, which are using very old equipment some from the Soviet Era, and try to make- replace them with more energy efficient equipment.
- So the requirement for that one is basically a 15% energy efficiency improvement.
- I think, along with what Anand was saying with the getting a car loan at a better than market rate, that applies to both the MonSEFF program- and the first program, the SME program that he was describing, GCPF. Both of these are financing energy efficiency improvements or renewable energy installations at a better than market rate.
- So we’re trying to provide an incentive for a business or an individual to install an energy efficient or renewable energy product.
- Yeah, I think it’s profitable enough for us that we can still carry it on and then support- receive support from the higher ups of the bank.
- I think- maybe one more thing to mention is that I think that the work we are doing here at the Eco Banking Department helps create a better awareness of energy and efficiency and renewable energy, because maybe five, six years ago not many people knew about the possibilities that are applicable in Ulaanbaatar, Mongolia in general- so that we are providing an awareness and maybe creating an example, that it’s actually possible, and that we can do even larger-scale projects in the future than we’re doing right now.
- Since so much of the financing in Mongolia happens from the banks- I think some of the numbers say 95%. When the banks really believe in these principles, sustainable banking, then I think that will trickle down through all of the businesses and households here.
Week 2: Where Does Your Money Sleep at Night? > Impact of Just Banking > Southern Bancorp: Rural Development
- The Rockefeller Foundation, a charitable organization that focuses on increasing capacity and doing great work in the state of Arkansas.
- He wondered, if this works in an urban economically depressed area, will this work in a rural economically depressed area? Probably the most persistently poor area in all of America, the Arkansas Delta.
- So with the help of folks from ShoreBank, with the founders and many of the visionary leaders that I just mentioned, came together and they formed Southern Bancorp in the mid ’80s. And Southern Bancorp really, at that time Southern Bancorp Development Corporation, really focused on the Delta.
- Over one billion dollars in assets and 42 branches in Arkansas and Mississippi.
- The thinking was if we could make investments, Investments of capital, human capital, and build capacity in these communities, that we could revitalize those communities.
- In Helena, Arkansas, which is in the heart of the Arkansas Delta.
- Phillips County is probably one of the poorest counties and in all of Arkansas.
- The president of the organization came to Southern and said they’d like to have an employee buyout and asked if we help facilitate that.
- Southern Bancorp, with this leadership, with the help of Arkansas Capital Corporation, got together and structured an employee buyout and saved that company.
- A tremendous benefit to that community and an asset.
- So Southern had to creatively put together that financing package to make that work.
- That’s a business example where we really have touched lives and made a difference.
- In individual basis, they’re are just countless examples of where we have going in and started counseling clients and moved them through the economic- and move them up the economic ladder.
- He started visiting Southern Bancorp Community Partners, which is our not-for-profit loan fund that is part of the Southern Bancorp family.
- He started visiting one of our credit counselors there for his own personal credit issues.
- We wanted to increase his credit score to make him more bankable.
- He worked with our organization and really enjoyed it.
- So we start teaching credit counseling to a number of members of his church.
- They took a dilapidated home that needed assistance and he refurbished that home and now it’s an asset.
- So a gentleman in our West Region, small business owner for years, I think 12 years.
- Can we help? He had very bad credit or really no credit at that time.
- He had a location, a piece of property that he- right across the street from where he had been working for some 11, 12 years.
- Though he had not the finances to show that he could maintain a loan, we knew that for 11 or 12 years he had been paying his rent on time and building a business with two employees.
- Long story short, after several- two years really of working with this individual, we helped him and connected him with a small business and technical assistance center in Arkansas so he could get the assistance to draft a business plan to put the steps in place to operate this business.
- Rented the house providing housing and providing income.
- So he went from having very poor credit quality and not much of credit score to increasing his credit score.
Week 2: Where Does Your Money Sleep at Night? > Impact of Just Banking > Banca Etica: Social and Environmental Evaluation
- So in week two of the course, we’re talking about the impact that values-based banks have, and also talking about the process for how this impact happens.
- So we wanted to highlight the social and environmental evaluations at Banca Etica, because not only do they have an impact on the loans the bank gives, but they also are impactful as a process, so the way that you engage your members.
- So it would be great if you could start out by just giving an explanation of where the idea for this came from, and also how it works.
- So this kind of process that we have to the economic evaluation, is called a Social and Environmental Evaluation, that we set for the organization, that ask us a loan.
- Why we do this? Why we ask not just economic information, but also social environmental information from our clients? For us, it’s really important.
- It’s one of the most powerful schemes to understand if our clients, the social environmental profile our clients, are compliant with our values and with our way to be a bank, to act as a bank.
- It’s really important also to evaluate our clients also by social and environmental point of view, also in order to strengthen the CSR profile of our client.
- In particular, since a few years we are seeing that always more clients tell us that we want to thank you for the question that you made to us.
- Because we have started to, for example, integrate more CSR values in our business.
- We try to be more responsible and active with our clients, with our employees.
- So it’s really a useful tool that makes our clients more responsible.
- The loan social environmental analyses of our bank is mainly divided in three main steps.
- The first step is the social environmental questionnaire.
- It’s a list of questions, a list of indicators that the clients have to answer.
- It’s a list of indicators that are set for any specific kind of client that ask us a loan.
- We have set six mini questionnaire models, specific one for the NGOs, one for the association, one for the foundation, one of the for-profit companies.
- In order to understand which are the main indicators, the main issues that would be important for us.
- So every time that an organization ask a loan to our bank, it has to send a questionnaire with all this kind of indicators.
- We set up other two step of the social evaluation.
- So our credit analysts are trained to evaluate our client, not just by financial point of view, but also by social environmental ones.
- So they try to understand if in the sustainability reporting, or in the annual reporting, on all the information that the clients give to our branch, to our colleagues, could they have something not clear, but the final step of the social environmental evaluation is run- and maybe this is the most characteristic part of our model that is run by a social evaluator.
- The social evaluators are member volunteers of our bank.
- What do the social evaluators do? Their activity is divided in some step.
- The most important step is that they go to meet, and go to visit our clients, our organization client, in order set up an interview.
- An interview about what? About what the client had inserted in the set of indicators and the question that we have asked before.
- They build, they develop a judgment, a social final judgment about this organization.
- At the end of 2015, the social evaluator of Banca Etica are 222.
- In the work here in the whole 2015, they have run 695 social evaluations.
- They helped us a lot, in order to really give a more integrated and a more complete profile of our evaluation.
- All the results that come from the social evaluation, integrate the financial one, that is set by our credit analyst.
- In the end of the process, we have an integrated evaluation of our client.
- It’s really important that both evaluations are positive in order to give a loan.
- So that sort of member involvement is pretty unique, very unique, actually, and really, really interesting.
- It’s really strange, maybe to hear about that a bank as a volunteer, as a group of volunteers.
- More or less, 1,000 among these are volunteers of the bank.
- They set event in order promote the values of our bank.
- They set up events, and really many tools in order to share more our bank, and what we do, and how we do.
- A part of this 1,000 active member are social evaluators.
- They are the part of our active members that maybe are more integrated in the most important part of the banking activities, so the evaluation of the clients.
- So our social evaluators have the opportunity to be always more aware about how to evaluate the organization.
Week 2: Where Does Your Money Sleep at Night? > Impact of Just Banking > SAC Apoyo Integral: Small Business Loans
- When I was ten/twelve years old, we started thinking about what we could do, you know? And so we started with a workshop, to sell furniture and brushes, and that´s where we began.
- Why? Because we are working, and we are also trying to help other people with limited resources, such as single mothers and young people at risk.
- My family, we work with food too, and we get by with what we make here.
- We treat it in order to make brushes, molds… We try to work with it and we make brushes and furniture.
- We are giving work, like I told you before; we are employing single mothers and young people at risk as well.
- Well, the idea started like a dream… There was nothing we could do, but I thought about where I was going at the time, and I said to myself “I want to be independent; I want to have my own workshop”.
- We started then with a small loan of three hundred dollars, and that´s when I began to evolve: we bought this machine, which is the one we have at the back, and then others that are around as well… And that is how it kept growing.
- I used to work alone, and afterwards my brothers started working too.
- When the money is running low, then helps us to speed things up more than anything; and they come to my workshop, or my home, and they help me.
- If he can´t come right there and then, he calls us and he goes “Just wait a moment”, and he comes as soon as he can.
- Well, some banks, perhaps What we have with them is really high interest rates, and the level of attention is very low.
- Well… In relation to the community, how this small workshop, “Bendición” has impacted on the community? Through this workshop and also through Integral, we have been able to help the community; some people have learned, and they have now gotten their own small workshop, their own small business.
- It´s had an impact too because we have employed young people at risk, single mothers… And they obtain some earnings.
- We are in a workshop, learning something beneficial for our lives, like the human beings that we are.
- Well, what has inspired me is that, thanks to the earnings I get from here, I have my son studying as well.
Week 2: Where Does Your Money Sleep at Night? > Impact of Just Banking > Vancity Credit Union: Fair & Fast Loans
- In week 2, were talking about the impacts that values-based banks have in the world, and also, how they think about this impact, how they put what they do in a broader perspective.
- So we highlighted Fair & Fast loans, because we think it’s a really great example of what a bank or a credit union can do when they take a step back and try to talk to community and say what’s needed, really look at the context, and also think about this broader, longer-term perspective in terms of what a bank can be and what a bank can do.
- So when we look around, we try and really understand the economic and environmental and social forces affecting members and the people who live and work where we do business, some of which is positive and some of which is negative.
- When I say members, I mean 500,00 individuals, but also about 30,000 businesses and not-for-profits and organizational entities.
- So what we did- when people need money, we could see that about the same number or percentage of our members use payday lenders as the general public, which I think was humbling for us and frightening for us in that I think that if we- my own feeling was if we did our job properly, a smaller percentage of our members used payday lenders than the average population.
- So this just shows how pervasive and prevalent and convenient this option is.
- So we wanted to interrupt that cycle wherever we could and offer something that, A, would get people credit that would move them towards improving their credit bureau scores, that would come with financial literacies so they could make better choices.
- Through partnerships in community, how do we address some of the systemic effects or systemic issues affecting our communities? And so we have a number of areas of focus on the business side- so local organic food, affordable housing, indigenous businesses and partnerships.
- So what are the not-for-profits, social enterprises, private businesses that we could work with that could include these individuals, and giving them access to credit in ways that are a little bit more inventive, and address some of the downside.
- An influx of capital might actually- without financial literacy or the right supports in place for them, without understanding their context and being empathetic but a bit cautious- not conservative from a lending point of view, but cautious from the effects that this money might have on their lives, then if you’re taking all that into account, then you’re probably making some good choices.
- So I’m curious what the challenges are as an organization and what the challenges are- or how you see that tradeoff between the return and the impact.
- So I think it’s a matter of returns from [INAUDIBLE] those returns for the long term.
- At some point, I’ve got to believe that Money Mart will have its business model jeopardized, because it isn’t sustainable for communities.
- The other thing I would say- and this is non measurable except anecdotally- when we launched Fair & Fast, there was a great story- and again, this is just one story- of a member in one of our branches in a suburb who came in and made an enormous deposit to Vancity.
- He said when we launched Fair & Fast and he heard about it, the lights came on for him about what Vancity was doing.
- People who apply for microloans, they don’t have access to the same kind of credit.
- So that person that we interrupt their payday loan cycle- and we make very small amounts of money off that one person- and again, in aggregate, if we bring Fair & Fast at scale, the program will earn a profit.
- What is their lifespan as Vancity members, and will enough of them be profitable over the long run that had they stayed at Money Mart and had we not intervened in this way, would they ever have been able to do that business? And if they had, would they have done it with Vancity? So the reciprocity and the reputation and the connection we have with these members is, and should be, pretty amazing.
- So then you’re really- you are putting it in this broader- you’re looking beyond the individual product or the individual investment, and you’re thinking about it in terms of your whole business, and in terms of the entire community, and what- almost like what goes out and then what can come back in because of that.
- If I’m motivated by shareholder value and there’s an invisible person looking over my shoulder thinking, how am I maximizing the value of this transaction and this transaction and this transaction, and I’m all about hitting a target so that we can return shareholder value to people who probably don’t even live within my community or maybe within my country, then yeah, your motivations are going to be very different.
- It’s looking at the lifelong service [INAUDIBLE], and in doing so, that they return a profit back to the organization so that we can do this for more and more people.
Week 2: Where Does Your Money Sleep at Night? > Impact of Just Banking > Credit Cooperatif: Lending to the Cultural Sector
- Yes, of course the Credit Cooperatif supports the cultural field because it’s a key sector for the Credit Cooperatif.
- We have been committed for 30 years, of course, with this sector.
- Each account manager is trained in order to be able to know the specificities of all these sectors and the actors of the sector.
- So these trainings allowed all the account managers to be able to answer to all the questions and the problems of these actors.
- We have strong links with the public entities like departments or city halls, which allows us to be aware of all the constraints and the problematics and the evolutions of the sector.
- We have designed products that are made to be able to answer to all the problematics of the cultural sector like the Dailly, for example.
- When the convention is signed, it takes six months to one year for the association to get the money.
- So the Dailly Loan allows us to continue their activities and not to be able to stop their activity because they wouldn’t be able to use the money that they will get one year later.
- So we are going to lend them the money by the Dailly Loan so they can do the tour because these 50,000 euros will be used to pay the plane tickets, the hotels, and all the accessories and the salaries of the artists.
- We decided to do it because, as I said, the sector of the culture is a key sector in the Credit Cooperatif.
- Most of all, our DNA is to help the sector of the social and ethical economy.
- It’s very important for the Credit Cooperatif to support the cultural sector because it’s a sector that not many take into account in the other banks.
Week 2: Where Does Your Money Sleep at Night? > Impact and Well Being > Impact and Well Being
- So they give out loans that help communities that invest in green energy and have a positive impact on where they live.
- How do you actually know your impact? And this is a challenge we see all over the world.
- So the quantifiable impact is profit and finance, and these are numbers that sit on your table and you can evaluate this.
- GLS Bank, for example, in Germany has as their main criteria, “this has to make sense.
- ” So as a loan officer, him or herself… is responsible for the decision.
- In another project we did was with the German Ministry for Development and the Presencing Institute, we looked into different concepts of well-being.
- So the first is does the quality of life of the person improve? The second is does the material conditions in which this person lives improve? And the third is does the well-being improve over time? And that includes not just the individual, but also the nature and the social situations of community.
- So I have facilitated a group of Just Bankers a while ago, And we were talking about these lending decisions, And then one woman from Microfinance Bank in Paraguay said: “You folks from Europe, you have an easy time.
- 100% of your loans are social and green and fulfill all these criteria.
- So I can’t be clean and 100%.” So I think this is a really good example that shows how different these decisions are in different parts of the world.
Week 2: Where Does Your Money Sleep at Night?