Global Alliance for Banking on Values (GABV) bankers, profit is important but it should not be an overarching goal in itself

NMB bank, a member of the Global Alliance for Banking on Values (GABV) will be hosting the ninth GABV annual meeting in Nepal from March 7-9. GABV is a network of banking leaders from around the world committed to advancing positive change in the banking industry. Their collective goal is to change the banking system so that it is more transparent and supports economic, social and environmental sustainability. GABV was founded in 2009, and is a growing network of banks, banking cooperatives and credit unions, microfinance institutions and community development banks from many parts of the world. Dr. Marcos Eguiguren is the Executive Director, GABV and is tasked with building the values-based banking movement and growing GABV’s work with members, partners, experts and policy makers to influence the banking system so that it is more transparent, ethical, robust and real-economy focused. Excerpts from an online interview with Dr. Marcos Eguiguren:

When GABV talks about accelerating the growth of a positive, viable alternative to the current financial system, what do you really mean?

We want to ensure that banking is a healthy and productive system of society and develop a positive, viable alternative to the current banking system. We know that only by changing finance are we able to finance change. Increasingly, people are becoming aware of the interdependence of the real economy, social cohesion and our natural eco-system, something values-based bankers have long understood, and which is at the heart of the business model. Knowing that people want to support positive change in society, we have an opportunity to demonstrate a healthy transformation of our sector, contribute to societal solutions, and become a reference point for others along the way.

What are the challenges that GABV wants to address through a new model of banking?

The Global Alliance for Banking on Values (GABV) is a network of banking leaders from around the world committed to advancing positive change in the banking sector. Our collective goal is to change the banking system so that it is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy. Our members have one thing in common: a shared mission to use finance to deliver sustainable economic, social and environmental development, with a focus on helping individuals fulfil their potential and build stronger communities.

In your eight years, what has been the greatest success for GABV?

The greatest success we had in the past eight years is that we managed to stay loyal to our mission – putting people before profit. All our members are deeply connected to the people and the communities they serve and are accountable for the risks they both take and create for the people who use their products and services. Our focus on inclusion puts basic banking products in service of a greater number of people, rather than highly sophisticated products in the hands of a few. We are also highly aware of the externalities produced by our banking activities by the projects and clients we finance.

In countries like Nepal, banks are not seen as the most enabling or supportive institution for people to approach and instead a huge informal economy and borrowing and lending exists, how does a bank with an affiliation to GABV change this?

The GABV is built on the Principles of Sustainable Banking, which also represent the fundamental pillars of values-based banking:

• Triple bottom line approach at the heart of the business model
• Grounded in communities, serving the real economy and enabling new business models to meet the needs of both
• Long-term relationships with clients and a direct understanding of their economic activities and the risks involved
• Long-term, self-sustaining, and resilient to outside disruptions
• Transparent and inclusive governance
• All of these principles embedded in the culture of the bank

All our member banks have to operate under these principles and they serve as a local advocacy body for the principles as well. We work closely together with all our members, supporting them to enable a change in their local communities. We support them to exchange knowledge globally in order to do things better. Believing in people and their potentials, supporting their development will in the end result in a positive change in the society. Furthermore, NMB Bank in Nepal can slowly help provoke this change. By banking the way we bank, our banks are also contributing to educate society from a financial perspective, helping people recognize the long-term value of slowly going into the formal economy.

How do investors of banks view your approach? Does this limit your network?

This really depends on what kind of investors you are talking about. If you talk about investors who only consider the classical triple approach of Liquidity, Risk and Profitability, some might have question marks since they can have the prejudice that Values-based banks are less profitable than mainstream banks but this is just not true. We have demonstrated during years that our banks are, at least as profitable and less risky than mainstream banks. You can download from our website (www.gabv.org) a full research report that we conduct every year and that compares Values-Based banks with the Globally Systemically Important Financial Institutions. This research shows the comparison between the values-based banks and other financial institutions and how they compare to each other. The research shows that the values-based banks do achieve better performance compared to other financial institutions. For those reasons, even mainstream investors are starting to consider investing in values-based banking, however we deeply prefer investors that are also looking for social and environmental impact and not only to profitability. The GABV initiated in 2015, SFRE, an independent investment vehicle that can invest in equity of Values-Based banks and similar financial institutions. SFRE is open to any impact investors to strengthen its capital position and to be able to support more Values-Based banks all over the world.

The theme for your meeting in Nepal is ‘Shifting the Financial Paradigm – Courage to Act Together’ also cited as putting people before profit. Could you elaborate?

Values-based banking, also known as ethical, regenerative, just or sustainable banking puts people before profit, and puts banking back in service of the people, organisations and communities that make it possible. The approach is practiced by a growing number of banks and banking cooperatives worldwide. These banks have diverse business models, products and services but one common banking model that commits to using all of the resources, people and capital to create positive economic, social and environmental impact. This is a different kind of banking The theme of the Meeting in Nepal “Shifting the Financial Paradigm – Courage to Act Together” captures the work of the Global Alliance aimed at changing the world of finances to put people before profit. The members of GABV are putting their efforts in the strengthening of the local communities and supporting local entrepreneurs to become self-reliant. With this meeting, we hope to show the existence of banks who are working for the local communities, who are not driven by profit and who are #BankingOnValues. Cooperation between Values-based banks, entrepreneurs, SMEs and even public administrations can contribute to create a better society but, in order to do it, all economic players need to put people before profit. I know that this might look like quite a strange sentence but it has a lot of sense. Profit is of course very important but it is a matter of priorities. What is more important for a bank, for any company, to serve people or to make profit? For GABV bankers, profit is important but it should not be an overarching goal in itself. We must be and we are profitable, but our priority is to serve communities and the environment in a profitable way. In our banks, profit is just a consequence of doing the right things and doing them the right way.

What is an ideal financial ecosystem according to the values of GABV?

It would be the one based on the GABV 2013 Berlin Declaration that highlights the three pillars of an ideal financial ecosystem.

1. Transparency.  Only with transparency can trust be restored and people be aligned with the financial system and how it can serve them. All banks must provide full transparency on their business models and use of client funds using common standards to be set by independent experts such as the Global Reporting Initiative.
2. Sustainability. Banks play a critical role in the transition towards a more sustainable economy. Therefore, social and ecological criteria must play a critical role in the creation and use of financial products. All banks must use indicators to report social and ecological impact which should also be used within the regulatory framework.
3. Diversity. The diversity of economies, cultures and community needs a diverse network of banks. Governments and regulators must include a diversity of banks as an important goal in the process of reframing regulations for the financial sector.

When the CEO of a bank that is in your network changes, does the approach of the bank change?

This is, of course, a possibility. That’s the reason why, when we accept a potential member, we analyse in depth its governance model and its core values to make sure than, even if there is a replacement at the top, the main values of the bank and the orientation of the mission, will remain stable. We monitor each one of our members annually and we would obviously start a dialogue with a member bank if we see that its direction is changing substantially.

How intrinsic is politics and policy frameworks to the work you do? Does the changing landscape of political transition in especially big economies affect what you do?

Not really, generally speaking. However, we are affected by regulations in all countries and, when the political approach to regulation changes, it affects us as well as it affects the banking industry as a whole. The real point today is that regulations are basically focused on preventing situations like the ones we experienced during the financial crisis. Those situations were not provoked by Values-based banks, but by other kind of big giants. However now we also have to comply with a very tight regulation in spite of having been more solvent and more reliable during the financial crisis.

What will be the key highlights of the annual meeting in Nepal?

The Global Alliance is enthusiastic to gather the CEOs of member banks and other invited institutions in Kathmandu and discuss and advance the shared mission of using finance to deliver sustainable economic, social and environmental development. We will focus on the way we all create and support new systemic realities by practising values-based banking. We will hear stories of our bankers on how they foster these new realities in South East Asia: Nepal, Bangladesh, and elsewhere. We will think together on how we can strengthen our individual and collective capacities as “systemic changers”, and how values-based banking and the Global Alliance family can become a relevant instrument to achieve a more sustainable economy.