Banking for Good: Where Profit Meets Purpose
As someone who has stood with a foot in two worlds - spending over two decades as a banking professional across Asia Pacific, and then founding a social enterprise that employed individuals with disabilities - I've gained a unique perspective on the intersection of finance and social impact.
My journey from the corridors of traditional banking to the front lines of social entrepreneurship has illuminated both the vast potential and the glaring gaps in how our financial systems address societal needs.
During my years in banking, I witnessed firsthand the immense power financial institutions wield in shaping economies and communities. Yet, I also saw opportunities missed - chances to drive meaningful change often overlooked in the pursuit of profit.
Later, as I built The Cookie Project, a social enterprise that provided employment to individuals with disabilities, I experienced the challenges of accessing finance and support for ventures that prioritised social good alongside financial sustainability.
This dual experience has convinced me that we stand at a critical juncture. The traditional model of banking, focused primarily on financial returns, is no longer sufficient in a world grappling with pressing social and environmental challenges. Yet, the resources, expertise, and influence of banks make them uniquely positioned to drive transformative change - if only they can reimagine their role in society.
In today's rapidly evolving financial landscape, banks face both an opportunity and a responsibility to bridge this gap - to become catalysts for social innovation while maintaining their financial strength. As we've seen in our previous discussion on Corporate Social Responsibility, businesses across all sectors are being called upon to play a more active role in addressing societal issues. The banking sector, with its vast reach and resources, has the potential to lead this charge.
In this article, we'll explore how banks can evolve from mere profit centers to powerful engines of social impact. We'll examine the challenges of traditional banking models, highlight inspiring examples of banks already making this shift, and offer practical strategies for financial institutions looking to balance purpose and profit. Drawing from my experiences in both the corporate and social sectors, we'll envision a future where banking becomes a force for creating more inclusive and sustainable economies.
The Problem: Why Traditional Banking Falls Short
Traditional banking models have long been criticised for their narrow focus on financial returns, often at the expense of social considerations. This approach has led to several issues:
The Opportunity: Driving Social Impact While Maintaining Profitability
Despite these challenges, forward-thinking banks are discovering that social impact and profitability are not mutually exclusive. In fact, McKinsey research shows that companies with strong Environmental, Social, and Governance (ESG) profiles often outperform their peers financially. For banks, this presents an opportunity to reimagine their role in society, creating value for shareholders while contributing to the greater good.
Case Studies: Banks Leading the Way
Several banks around the world are already demonstrating how financial institutions can successfully integrate social impact into their core business models:
1. Triodos Bank (Netherlands): This ethical bank exclusively finances sustainable and socially responsible initiatives, proving that a focus on positive impact can be financially viable.
2. Amalgamated Bank (USA): As America's socially responsible bank, Amalgamated focuses on supporting workers, their families, and progressive causes, showing how banks can align with specific social values.
3. Grameen Bank (Bangladesh): Founded by Nobel laureate Muhammad Yunus , Grameen Bank pioneered microfinance and continues to support social businesses, demonstrating the power of innovative financial models in addressing poverty.
Practical Strategies: Reimagining Banking for Social Impact
How can traditional banks start to shift towards a more purpose-driven model? Here are some practical strategies:
1. Developing Products that Address Social Needs
For example, a bank could offer specialised low-interest loans for social enterprises focused on inclusive employment. This not only supports social impact but also opens up new market opportunities.
2. Leveraging Technology for Financial Inclusion
Banks could partner with fintech startups to create accessible banking apps for people with disabilities. The World Bank estimates that fintech can help bring financial services to 1.7 billion unbanked adults worldwide.
3. Partnering with Social Enterprises and Community Organisations
Providing pro-bono financial advisory services to social enterprises in their early stages can help build a pipeline of future clients while supporting social innovation.
4. Rethinking Risk Assessment for Underserved Communities
Developing alternative credit scoring models that consider social impact alongside traditional financial metrics can open up new markets and support underserved communities. Research from the Aspen Institute highlights the need for more inclusive credit scoring systems.
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5. Measuring and Reporting on Social Impact
Implementing integrated reporting that showcases both financial returns and social impact metrics can help banks communicate their value to a broader range of stakeholders. The Global Reporting Initiative provides standards for such comprehensive reporting.
The Future of Banking: A Vision for Purpose-Driven Financial Institutions
As we look to the future, the most successful banks will likely be those that can effectively balance profit and purpose. This new paradigm of banking will be characterised by:
- A long-term perspective that considers the broader impacts of financial decisions
- Deep engagement with local communities and social enterprises
- Innovative financial products designed to address social and environmental challenges
- Transparent reporting on both financial and social performance
- A corporate culture that attracts employees motivated by purpose as well as profit
Final Thoughts
The transformation of banking from a purely profit-driven model to one that prioritises both financial returns and social impact is not just a moral imperative—it's a business opportunity. As banking professionals, we have the power to drive this change from within our organisations.
Here are some steps you can take:
1. Advocate for the integration of social impact considerations into your bank's strategic planning processes.
2. Propose pilot programs that test new, socially-focused financial products or services.
3. Champion the use of comprehensive impact measurement and reporting within your organisation.
4. Build partnerships with social enterprises and community organisations in your area.
5. Continuously educate yourself and your colleagues about the latest developments in social finance and impact investing.
The future of banking is purpose-driven. By reimagining our role in society, we can create a financial system that not only generates profits but also contributes to a more equitable and sustainable world. The question is not whether we can afford to make this shift, but whether we can afford not to.
What steps will you take to drive this transformation in your organisation? Share your thoughts and experiences in the comments below.
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About the author
Eric shows up every week to serve the LinkedIn community by sharing insights from his two-decade of leadership journey in banking, social impact and social entrepreneurship. As an advisor and consultant, Eric guides organisations in developing effective social enterprise strategies and employee wellness. Based in Ipoh, Malaysia, he also promotes mental health through his non-profit initiative.