Money

Beyond the returns of lending

The social value of banks cannot be ignored – they provide the fuel on which entire communities are built and sustained.

We have all had a painful lesson in what happens when banks restrict lending – businesses stagnate, homes are not built, wages are cut or frozen and local communities suffer.

The experience of the last six years has put a new onus on banks to be open and transparent about what they do and how they do it. All sorts of questions are being asked: from how much they pay in taxes and bonuses to the geographical and sectoral breakdowns of their portfolios.

Just because a bank is producing commercial returns, doesn’t necessarily mean it is operating in a way that delivers the right returns to the communities in which it operates. For example, some banks provide commercial finance to payday lenders enabling them to on-lend to vulnerable consumers that generate huge profits.

Few people would suggest such high cost lending delivers a social value and yet the bank’s corporate social responsibility (CSR) report is likely to highlight the support it provides to credit unions and free money advice agencies. Can the CSR activity really cancel out the impacts of the commercial loan?

This is why we committed to reporting on the social impact of our lending. We believe that customers – existing and potential – should be able to see who we lend to and what value this lending is creating.

Our second Social Impact report, published in May 2014, answers the questions we’re increasingly being asked by our customers. It outlines who we lend to in the social economy, where we lend it, and what our lending has enabled our customers to achieve.

We have learned that in order to understand the social impact of our lending we need to ask our customers a different set of questions. So while we thoroughly test the viability of all lending propositions we also want to understand the social impacts of our customers’ activity.

In 2013, Unity invested over £39 million in a diverse range of third sector organisations including social housing providers, registered charities and community development finance institutions. This helped create over 600 bed spaces, 2,000 jobs and leverage over £26 million of additional finance.

As a socially motivated bank we have found that we are able to have more and more meaningful conversations with customers who feel that our values are aligned with theirs. Being the first bank in the UK to be accredited for paying the Living Wage is a good example.

By offering a discounted lending fee to those customers that are similarly accredited or who pledge to become accredited we are able to promote the bank’s social values and have the sort of conversations with customers that we would never have had before. I believe that this is helping to set us apart as a very different type of bank and one that the social economy is increasingly looking towards.

In the USA, of course, legislation has been in place since the 1970s to enshrine a bank’s community obligations into the terms of its banking license. This was introduced to prevent banks from marginalising certain sections of society from the benefits of accessing financial products and services.

Whilst the UK does not currently benefit from Community Reinvestment Act legislation, the pressure for banks to be transparent about their social value is being brought to bear from an increasingly demanding and knowledgeable public.

It will be the customers who ultimately decide whether there is a disconnect between what a bank says in its various annual reports and what it achieves in reality. Finding ways to report on the social impact of lending can only be good for business.

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