Banks should not be driven only by the desire to be ever more profitable.
Last year, when Muhammad Yunus won the Nobel Peace Prize, millions of people around the world learned of the miracles that banks serving the poor could deliver. It was a well-deserved honour for Yunus, and a great reminder of what microloans and other slight tweaks to “business as usual” can mean to
hundreds of thousands of disenfranchised people. Yunus’ Grameen Bank is a marvelous example of the potential of community lending, the third leg of the stool for socially responsible investing. (The others are setting standards for what
shares we will buy and entering into dialogue with companies we own.) For large
populations around the globe, “the triumph of capitalism” has meant no improvement to personal well-being. Even in wealthy nations, large pockets of poverty are scattered throughout crowded and crumbling inner cities and hard-hit agricultural areas. Around the globe, many people are able and willing to work, but have little opportunity.
Access to capital is an essential component of building healthy communities. But capital is not always available to the poor. Banks are driven by the desire to be ever more profitable. Since a $600 loan and a $6 million loan take about as much effort from the bank, and have a vastly different impact on the bottom line, the bank opts for eliminating smaller customers.
In addition, poor people seeking a loan often appear suspicious or quirky to bankers. For example, let’s look at the case of a mobile-home park where an old couple running the operation wants to retire by selling the land. Between them, the owners of these mobile homes may have enough income to buy the land with a loan to be paid back over a reasonable period of time. But banks don’t lend to new co-operative ventures. They lend to a person or a corporation with good credit. Since no single person living in the mobile-home park can guarantee the payments, there can be no loan.
Community-oriented financial institutions have come about as an answer to this problem. Such institutions may be a bank (or a bank branch) dedicated to making loans that boost the community and alleviate poverty. It may be a credit union, created perhaps by a church or community group, that loans money only to its own members and only for the purpose of building healthier neighbourhoods. It may even be a non-profit group, set up to borrow from caring people and lend to those in need.
Support for these kinds of community-development financial institutions is one of the ways sustainable or socially responsible investing can be approached. At Domini Social Investments, we have a fund that purchases bonds, backing up community institutions that make microcredit loans globally; we purchase insured deposits that support poor populations; we even use activist tools to help the community-development world.
Community-development loans have an important place in socially responsible investment portfolios, allowing investors to participate directly in relieving poverty and—unlike philanthropy—enabling them to keep their money even after using it this way. Most important, such loans offer evidence that finance can be used to alleviate poverty and create universal human dignity. Nowhere is the connection stronger than it is when investors support these grassroots lending organizations, be they microcredit institutions like Grameen Bank in Bangladesh or community-building groups like
Latino Community Credit Union or the Self Help Credit Union, both in North Carolina.
Amy Domini is the founder and CEO of
Domini Social Investments, and author of several books on ethical investing.