Over the last two years, I was writing and editing the book, Social Banks and the Future of Sustainable Finance. The idea for the book came during my time as a member on the board of the Institute for Social Banking (ISB) in Germany, which offers a master’s degree in Social Banking. But while ISB has a master’s program, basic literature about social banks and sustainable finance was non-existent at the time and so students had no textbook to follow. Systematic analyses and research on social banking, sustainable finance and impact investment was still rare. However, with interest growing in this relatively new field, some literature on social banking is emerging and it seems that social finance is on its way to becoming a more established sector.

A sign of progress in social banking came with the founding of the Global Alliance for Banking on Values in 2008. The worldwide association of social banks includes microfinance organizations and has a Canadian member, the Vancouver-based Vancity. Having moved to Canada a year ago, it’s been exciting to watch how fast global networks are forming.

There has also been a growth in assets for social banks. Over the last few years, some have increased their assets by more than 40 per cent per year. There were times, especially during the financial crisis in 2008, when people lined up to become new clients of these banks. They wanted a bank that would use their savings for investments other than for speculative deals in financial derivatives. Investing in projects that benefit society and sustainable development seems to be a new trend. For those who are uncertain about the positive and negative role the financial sector plays, I recommend the Oscar-winning documentary on the financial crisis, Inside Job.

But while the future is exciting, it’s also important to look back back at the history of social banks. The first banks founded in Italy in the 15th century had a kind of social mission. Theirs was to be an intermediary between those who had money and those who needed money to do their business. These banks were, in fact, community banks. This was also the case for the first savings unions and cooperative banks in the 18th century. Thus, social banking and impact finance is not a new concept but is rather about going back to “the roots” of the banking business.

With opportunities come risks. Social banks and impact finance has to grow to increase its influence on the society but this same growth bears some risks as well. First, it has to be managed without diluting the mission and the ethics of social banking and finance. Clients of growing social banks should still be able to rely on their impact on society and sustainable development. Second, growth can only be managed by addressing new types of clients. European social banks have a client base that has been connected with them for many years. These clients are more or less experts in social banking and are willing to accept, for instance, a lower performance in service quality. Newer, mostly younger clients are used to top quality banking services and are not willing to accept anything less. Thus, social banks have to be innovative and use state-of-the-art technology as well.

Another issue connected with the growth of social banks is human resources and management. Many social banks were founded as a kind of grassroots movement without an organisational structure that can be compared with other business enterprises. However, banks with 70 or more employees are not able to discuss every business decision with employees. They have to introduce organisational structures and leadership to facilitate this process. In addition, social banks and impact finance institutions are subject to more and more strict and complex regulations concerning the financial sector. They have to develop structures and management abilities to deal with these regulations. Lowering transaction costs to compete with other banks and the development of new products and services in the field of social finance are new challenges for social banks and social finance institutions.

Much more about social banks and social finance, their history, their roles in our economy, their strengths and weaknesses, opportunities and challenges and their future can be found in the book Social Banks and the Future of Sustainable Finance by Olaf Weber & Sven Remer.

Photo credit: http://www.flickr.com/photos/quinnanya/3829316945/in/photostream/

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