Social and community enterprises have important and valuable roles in Irish society. At times they can struggle to fund projects and activities, with high dependency on grants, but they may also need bank financing to support their activities from time to time. The Irish Banking Culture Board has received feedback from some community groups that they consider banks are retreating from local communities, towards more streamlined, centralised, and automated operating models. Some believe that banks are less active in local communities since the financial crisis.
The UNEP Finance Initiative Principles for Responsible Banking, recently endorsed by the Irish banking industry through the Banking and Payments Federation Ireland on 4th November 2020, in addition to individual bank’s collaboration, highlight the need for banks’ business strategies to be consistent with and contribute to individuals’ needs and society’s goals. This perspective differs fundamentally from that expressed by the famous economist, Milton Friedman who famously wrote in the New York Times in 1970 that the ‘social responsibility of business is to increase its profits’. There has been a sea-change in perspectives on business ethics in recent times, with an increased emphasis on the importance of a business’s social purpose. The UNEP principles can be found at https://www.unepfi.org/banking/bankingprinciples/. All five retail banks in Ireland have also achieved the ‘Business Working Responsibly’ mark from Business In The Community Ireland.
The link between business ethics and the importance of contributing to the ‘common good’ has been highlighted in much of the research undertaken by the IBCB since its establishment. Members of the public believe that banks have an important role to play in supporting communities and society, but many are unclear on how banks are currently doing this.
The role of the IBCB is to be an independent voice advocating for cultural change in the Irish banking industry, working with all the stakeholders in the industry – the banks, their customers, and wider Irish Society. The IBCB promotes ethical behaviour, advocates for positive change, and aims to highlight concerns we hear from stakeholders in the sector but to also highlight the positive initiatives that banks have in place and to assist with awareness raising of these initiatives and supports.
Community organisations and social enterprises can pose challenges for traditional bank lending – banks typically look at how to manage the risks associated with the activities or enterprise and therefore lending requests may not fit with the traditional credit risk models used by banks. Additionally, commercial banks may not be set up to provide the specialist support to this type of customer. It is important to recognise that whilst this type of lending may not look attractive initially for commercial lenders, with the right, specialist support and structure of finance, they can produce good returns (for the lender and the customer).
The five IBCB member banks recognise these issues and have demonstrated their support for community and social finance via a range of their own initiatives, through direct community investment, providing direct investment into local community initiatives, through staff fundraising and volunteering initiatives, sponsorship for sports, charities, arts, and community activities. The banks also provide direct funding support for communities, through Social Finance Ireland since its establishment in 2007. Social Finance Ireland (SFF) was established to provide loan funding to community groups and social enterprises, who experienced difficulties in borrowing from mainstream lenders. SFF has been funded by the Irish banks, (AIB, Bank of Ireland, Permanent TSB, and Ulster Bank), by way of a €25m non-repayable grant in 2007, and by low interest rate loan funding. In 2019, an additional €46m in loan funding was provided by the Irish banks, again at low interest rates, for the period 2021 to 2025. Without such support, many of the projects and initiatives which bring significant economic and social benefit to local communities throughout the country would not happen. Bank funding has enabled SFF to lend €130m to over 1,300 organisations since it was set up to end 2019, via Social Lending Organisations, (specialist partners in this area), Clann Credo and Community Finance Ireland.
Separately, Microfinance Ireland, which is a subsidiary of SFF, also benefits in part from loan funding from the Irish Banks, through SFF. MFI helps micro-businesses in Ireland access vital funds and support to their businesses. Given that micro-businesses with less than 10 employees comprise over 90% of businesses in Ireland, support for micro-businesses is crucial for the economy. The four participating banks can make loan referrals to MFI to provide loan funding to small businesses in the case that they are unable to do so.
The IBCB is working with member banks to address feedback received from community groups and advocacy groups, who feel the banking industry does not support their needs. As these plans develop, the IBCB will share updates on these activities via our website and communication channels. We will also highlight and acknowledge where member banks have existing supports for communities. In the case of social finance, the participating banks have made a significant investment to provide vital funding, which is delivered through specialist organisations, to communities in Ireland.
The IBCB can be contacted at firstname.lastname@example.org