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Values-based Banking Movement – Global Initiative Directed Towards Supporting Real Economy – by Upendra Poudyal, GABV Regional Representative for Asia-Pacific

We know banking is the backbone of the economy and touches the lives of all citizens of the country in a way or other. We have experienced that banking system, though considered as one of the better organized and regulated sectors of the economy remain vulnerable. Being in Banking for little over three decades and having retired last year, and reflecting on the evolution of banking in Nepal during the period and also on myself, I question myself:

  • Does our banking system think of people, community, and environment while making its decisions?
  • Do we focus on contributing to the real economy?
  • Do we give needed priority to a long-term relationship with our stakeholders, most importantly our customers?
  • Do we care about understanding the business environment and risks of our customers?
  • Are we concerned with long-term resiliency and sustainability of our banks, banking system and our customers?
  • Do we maintain inclusiveness in our governance and transparency in our reporting?
  • Have we identified value for ourselves and practice it in our real life?

The system is undergoing a serious challenge in terms of managing their liquidity which is one of the major concerns of banking. In the past, the government had to initiate financial sector reform program which cost dearly to the tax payer’s money. Central Bank had to intervene and take serious action in many of the Banks and Financial Institutions due to serious governance issue. We have time and again failed to take lessons from past mistakes, whether it be our own system or from global trends; and ultimately fall prey to the profitability pressures and compromise on the prudential norms.  We cannot afford to continue like this in a system which is the custodian of the public deposits.

I believe I got closer to a solution to a greater extent on this issue when I attended a conference of Global Alliance for Banking on Values in March 2016 in the Netherlands with the theme “It is Banking but not as We Know it”.

I was very much impressed with the Principles of the Alliance and commitments of the Banks and Banking Leaders representing the Member Banks all over the world.

Let me, therefore, discuss briefly with regard to the Global Alliance for Banking on Values (GABV) and its Principles.

 

About GABV and its Principles

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. The collective goal of the Alliance is to promote the banking system that is more transparent, supports economic, social and environmental sustainability, and is composed of a diverse range of banking institutions serving the real economy. Thus, it is a global movement of banking change makers operating and built primarily on the principles of values-based banking.

We know for majority of banking institutions the primary and exclusive driver of business decision is based on the profitability of the services provided even if the by-products of those decisions do not deliver sustainable economic, social and environmental development. For GABV members, business decisions start by identifying human needs to be met and then establish how to meet the need in a way that is sustainable from an environmental, social and economic perspective, including sustainable profitability for the Bank. As such, GABV members try to ensure that their finance is invested in ways that aspire, as a first priority, to improve quality of life and well being of people everywhere on earth. They have a Triple bottom-line approach of People, Planet, and Profit at the heart of their business models.

Founded in 2009, GABV is a growing network of banks, banking cooperatives and credit unions, microfinance institutions and community development banks joining from many parts of the world.

The Global Alliance comprises of 53 Banks and financial institutions and seven strategic partners operating in countries across Asia, Africa, Australia, Latin America, North America and Europe.

Its 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 fulfill their potential and build stronger communities.

The GABV 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. Its 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.

The Alliance wants to ensure that banking is a healthy and productive system of society. Its members strongly believe 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, GABV has an opportunity to demonstrate a healthy transformation of the sector, contribute to societal solutions, and become a reference point for others along the way.

At its heart, the GABV is a Chief Executive Officer network providing a unique space for collaboration for leaders who are committed to values-based banking. It also provides learning and development opportunities for senior executives, experts and banking professionals at member banks through its Communities of Practice (CofP). The GABV takes a leading role in the debate about how to build a sustainable financial future by managing joint projects among members, experts, and partners to help deliver it and by advocating for change.

Principles

Principle 1.  Triple bottom line approach at the heart of the business model. Values-based banks integrate this approach by focusing simultaneously on people, planet and prosperity. Products and services are designed and developed to meet the needs of people and safeguard the environment. Generating reasonable profit is recognized as an essential requirement of values-based banking but is not a stand-alone objective. Importantly, values-based banks embrace an intentional approach to triple-bottom-line business – they don’t just avoid doing harm, they actively use finance to do good.

Principle 2Grounded in communities,  serving the real economy and enabling new business models to meet the needs of both. Values-based banks serve the communities in which they work. They meet the financial needs of these geographic and sector-based communities by financing enterprises and individuals in productive and sustainable economies.

Principle 3.  Long-term relationships with clients and a direct understanding of their economic activities and the risks involved. Values-based banks establish strong relationships with their clients and are directly involved in understanding and analyzing their economic activities and assisting them to become more values- based themselves. Proper risk analysis is used at product origination so that indirect risk management tools are neither adopted as a substitute for fundamental analysis nor traded for their own sake.

Principle 4.  Long-term, self-sustaining, and resilient to outside disruptions. Values-based banks adopt a long-term perspective to make sure they can maintain their operations and be resilient in the face of external disruptions. At the same time,  they recognize that no bank, or its clients,  is entirely immune to such disruptions.

Principle 5.  Transparent and inclusive governance. Values-based banks maintain a high degree of transparency and inclusiveness in governance and reporting. In this context, inclusiveness means an active relationship with a bank’s extended stakeholder community, and not only its shareholders or management.

Principle 6.  All of these principles embedded in the culture of the bank. Values-based banks seek to embed these principles in the culture of their institutions so that they are routinely used in decision making at all levels. Recognizing that the process of embedding these values requires deliberate effort, these banks develop human resources policies that reflect their values-based approach (including innovative incentive and evaluation systems for staff) and develop stakeholder-oriented practices to encourage values-based business models. These banks also have specific reporting frameworks to demonstrate their financial and non-financial impact.

Global Conference in Nepal

My strong belief in the underlying philosophy of the GABV and deliberations during the Conference in Amsterdam encouraged me to propose to hold the 2017 conference in Nepal. The leadership had already planned to hold the conference elsewhere, however, considering my insistence they assured to reconsider and explore the possibility. My assertion to hold the conference in Nepal was primarily guided by the following:

  1. I had planned to take retirement from NMB Bank wherein I ultimately served for 17 years. My conviction that I must endeavor to bring the topic of Values-based Banking as a matter of discussion in Nepal which, in my opinion, is the key to the development of the real sector. I strongly believe that the extent of impact a business venture can make on real sector determines the economic growth of the country. This should undoubtedly be given a priority by the state as well as the banking system.
  2. As a Banker, I have witnessed growing focus of the Nepalese banking system chiefly in its business volume driven primarily by profits which, in my opinion, is damaging to system’s sustainability; and its credibility as an important agent for development. Sooner we come out of profit and volume driven banking philosophy and embrace a responsible banking also giving due priority to long-term sustainability and positive impact on the real economy, the better.

GABV leadership after several rounds of deliberations including the on-site visit of Kathmandu decided to hold the conference in Nepal. I remain indebted to GABV for allowing NMB Bank to host the conference wherein I was serving then as CEO.

The Conference of the Global Banking fraternity with a values-based approach in Nepal kick-started with the theme “Shifting the Financial Paradigm – Courage to Act Together” by an unprecedented public event. The event was inaugurated by the then Prime Minister Pushpa Kamal Dahal, who delivered a powerful message in which he commended the values-based banks for their work. He also called for action on building a banking environment that puts people before profit to generate employment and help communities to become self-reliant.

He called on the banking leaders and other stakeholders in Nepal to focus on investing in the productive sector of the economy which has greater relevance to banking principles of the Alliance members. He added that the government urges all other sectors to adopt a values system at the core of their business, not only in the banking sector.

The opening ceremony was also addressed by the Governor of Nepal Rastra Bank Dr. Chiranjibi Nepal, who highlighted the importance of the work that members of the Alliance and the GABV itself have undertaken in recent years. He rightly related the GABV principles to some of the provisions that Nepal Rastra Bank has put forward to ensure that the Nepali financial system works for the well-being of the population, especially vulnerable people and those living in rural areas. He sent a clear message to banks and financial institutions of the country to focus more on the well-being of the people […] not just on profit. These policies include the expansion of banking and financial services in rural areas; promotion of mobile banking and branchless banking; continuation of government-led programs such as Rural Self Reliance Fund (RSRF), Poverty Alleviation Fund (PAF), Youth and Small Entrepreneur Self-employment Fund, and the implementation of a subsidized agricultural lending program.

Peter Blom, Chair of the GABV and CEO of Triodos Bank stressed the significance of having Kathmandu as the setting for this annual event. He asserted “We have to change finance to finance change”.

My basic intent of holding the conference in Nepal was to pitch such an important concept in order that we make values-based banking a topic for wider discussion throughout the country.

Finally

Sustainability-focused banks including the members of the GABV have demonstrated that a focus on the real economy with a dedication to supporting economic, social and environmental impact delivers steady financial returns. While these banks operate in numerous markets, serve diverse needs, use distinct business models but share a common foundation; the Principles of Sustainable Banking. They provide economically viable banking alternatives focused on the needs of society thereby creating a more diverse financial ecosystem.

Undoubtedly, countries like Nepal require the banking system to focus on the real economy. The Banking system must all strive to meet the needs of individuals and enterprises in the local communities. We can’t use our scarce resources in speculative and unproductive activities. The banks and banking institutions must give serious thought to use its finance for well directed towards supporting economic, social and environmental impact using specific business models driven by the Principles of Sustainable Banking.  I consider this to be the step ahead in strengthening the banking ecosystem in the country.

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