Banking with a difference

Banking with a difference

Lars PehrsonCEO, Merkur Cooperative Bank

Vice President, INAISE 5th African Microfinance Conference, Addis Ababa, 20th September 2011

Under banked Over banked

• Poor people are un(der) bankedLack of access to adequate financial services

• Rich people are over banked Spend a lot of time on artificial financial products with no benefit to society

Sense of banks’ function in society diminished

• Shareholder value philosophy creates short term focus

• The bank is a business like any other business

• This business model promotes transactions instead of relations

Banking for society• Microfinance – banks and MFI’s

Banking to reduce poverty and create livelihoods.

• Community bankingFinance for the benefit of the local community. Financing of SME’s, farmers, housing etc.

• Social and ethical banks A value based banking model that takes environmental sustainability, social justice and cultural freedom and plurality into account.

Social and ethical banks

• Classical banking combined with a vision of a sustainable society.

• Exclusively linked to the real economy - no speculation.

• Maximizing sustainability and societal impact, not maximizing profits.

• The banks are profitable at a fair and stable level. Average target around 7% ROE.

• Transparency is key. Social banks publish their loan book!

Transparency works!

Some important social banksv

Name Country Asset Size 2010 (in USD millions) ABS Bank Switzerland 1,079 Banca Etica Italy 992 Banco Popular Costa Rica 2,646 BRAC Bank Bangladesh 1,478 Caisse Solidaire Desjardins Canada 617 Charity Bank United Kingdom 105 Cultura Bank Norway 72 Ekobanken Sweden 63 GLS Bank Germany 2,452 Merkur Bank Denmark 303 Mibanco Peru 1,587 Triodos Bank The Netherlands 4,641 VanCity Credit Union Canada 14,474 TOTAL 30,509

What do we finance?

• Organic farming and food processing• Renewable energy and energy savings• Cleantech production• Housing and work places for marginalized groups.• Culture, healthcare and education institutions• Several banks have strong links to microfinance,

including Triodos Bank, GLS Bank, Banca Etica, or are microfinance/SME banks themselves, like BRAC Bank and Mibanco

An example – sustainable production

Thise Dairy, Denmark• organic dairy, founded 1988 by 8 farmers• difficult market in the beginning• today leading organic dairy in Denmark• 65 farmers and a turnover of 95 m USD• created > 150 jobs in a region of Denmark

with low employment rates

An example – social initiative

Hertha Village Community, Denmark• community integrating mentally handi-

capped and ”normal” people, from 1996• workplaces for handicapped adults, incl.

organic farm, small dairy, workshops etc. • Living communities for handicapped and

individual houses and flats for others. • Today > 120 people live in the village

Important networks

• INAISE – www.inaise.org – Global financial network, banks and non-banks

• Global Alliance for Banking on Values – www.gabv.org – 13 value based banks– Combined balance sheet exceeds $26 billion – 7 million customers in 20 countries

• FEBEA – www.febea.org – European network for alternative banks

Triple bottom line in microfinance?

• MFI’s already work with double bottom line: Social objective – access to finance + more – and financial sustainability

• Developing towards SME finance and generally up-scaling poses the question: How to differentiate from conventional banking?

• Environmental and climate challenges are obvious new target areas

Fields to consider • Organic farming

Improves yields and protects the soil against erosion

• Biogas Utilizes local resources for energy, improves energy efficiency

• Renewable energy - solar and windAccess to energy is a major factor of development. Supply independent from expensive external sources (fossil energy).

• Efficient stoves Save wood, reduce deforestation and improve air quality in rural homes.

Challenges

• These types of project often require longer term loans. Need to be funded and managed.

• Technical partners and capacity building needed.

Examples (1)

• Solar home systems for rural villages in Senegal

• Cooperation between local microfinance, SIDI and local NGO’s

• Capacities built: Local technicians set up and repair installations. Capacity building is supported by a donation from Merkur Bank

• The objective for the next 3 years: To reach 1,500 new customers

Examples (2)• Microfinance and SME bank MiBanco

(Peru) promotes organic farming actively• Triodos Microfinance Fund explore

possibilities to link Tanzanian organic farmers with local MFI’s

• Biogas projects, eg. Kenya Women Finance Trust (KWFT) and Prasac in Cambodia. The latter reached 4,000 clients with this product in 2010.

• KixiCredito in Angola is working on a small scale solar energy project with the consultancy Triodos Facet

Examples (3)Mrs. Soam Savien, Cambodian farmer:

• Decided to get a 500 USD loan from Prasac

• Invested in a 6 m3 biogas plant• From the few cattle in the household she

produces gas for cooking and light• Can still use the manure for fertilizing• Saves firewood and work• Loan paid back within 20 months

Questions?

Lars Pehrson, CEO

www.inaise.orgwww.merkur.dk