A Tale of Two Bankers
One of the cherished holiday traditions around my house is the annual screening of It’s a Wonderful Life, the classic 1946 Frank Capra film about a small-town banker. George Bailey abandons his dream of travelling the world as a newspaper reporter in order to run the savings and loan bank started by his father. It’s a job he performs reluctantly and resentfully until a Christmas-time crisis opens his eyes to the vital role that the bank plays in the life of his community. George Bailey comes to realize that his bank is the only thing that stands between the people of his town and Mr. Potter, the rich and
greedy rival banker who traps families in unscrupulous loans and then seizes their houses. When George Bailey is shown in a dream what his neighbors’ lives would be like in a world run totally by Mr. Potter, George embraces his life and the trust his customers place in him.
Every year, I come to appreciate this film more for its eerily prophetic power in presenting starkly different visions of the world: one in which the financial system is run entirely by the One Percent and the alternative one, where bankers know their customers and strive to serve their needs.
That guiding principle—to know your customers and serve their needs—is “social performance” in a nutshell. It’s been the guiding principle behind all of the Social Performance Task Force’s work since we were founded 11 years ago. And every year, we see its vital importance more clearly, never more starkly than in 2016 when events ranging from the Brexit vote to the United States presidential election have made unmistakably clear that the economic and financial system is not working for
ordinary people all over the world.
Those of us in the financial inclusion community have focused for years on expanding access to financial services—on reaching the billions of people who are currently shut out completely from formal financial services. But why would anyone imagine that the solution to financial exclusion would be to expand a profit-maximizing model that isn’t actually working well anywhere, including in our own economies? Muhammad Yunus made that point during a recent conference in London. As he noted, a 2016 report from Oxfam showed
that the wealth of the world's richest 62 people has risen by 44 percent since 2010, with almost half of the super-rich living in the United States, while the wealth of the poorest 3.5 billion fell 41 percent.
Stakeholders, Not Just Shareholders
Excerpts from the Universal Standards for Social Performance Management:
* The provider seeks information on clients’ needs, preferences, and experiences for product design and delivery and designs products based on this information.
* The provider takes adequate steps to ensure client understanding and support client decision making.
* The provider has clear policies, consistent with its social goals, on its desired level of returns and on how profits will be used.
* The provider engages with funders whose expectations for financial returns, timeframe, and exit strategies are aligned with the provider’s social goals.
* The provider’s pricing policy is aligned with the interest of clients.
* The provider ensures that compensation of the CEO/Managing Director and other senior staff is in line with the provider’s social goals.
* The provider calculates the difference between the average compensation of its top-level executives and its field employees, and analyzes whether this spread is consistent with the provider’s mission.
* The provider follows a written Human Resources policy that protects employees and creates a supportive working environment.
* The board holds the CEO/managing director accountable for making progress toward the provider’s social goals
In our own sector, microfinance banks often seem preoccupied with proving that they can compete with commercial banks. The more valid question is why they accept the rules of that game at all. Why don’t they instead commit to creating banks and systems where social and financial goals are in balance, and where profits are distributed among all stakeholders? After all, the notion that a company’s sole purpose is to maximize shareholder value is actually quite new, dating back just to the 1980s. The dominant view until then had been that corporations have responsibilities to all their stakeholders including customers,
employees, and local communities.
At SPTF, we have seen first hand that organizations with strong social performance management have very good risk management mechanisms, better client retention, and happier staff. We’ve seen how they weather external crises and downturns that doom their profit-maximizing competitors. And that’s true whether the organizations in question are explicitly mission-driven NGOs or not: the Universal Standards are equally applicable and practical for all financial services providers who serve working people and who
care about delivering value.
The Universal Standards, and social performance management generally, are not new, or theoretical. The SPTF codified the practical wisdom of the global industry into concrete, specific steps that can be, and have been, implemented in the real world. And they are useful not just for practitioners but for investors, regulators, and all stakeholders who grasp the importance of a financial system that works for the majority.
But for all of us, it ultimately comes down to a choice. It really is a choice between the visions represented by the George Baileys of this world versus the Mr. Potters, between a vision of financial services where profit is the only goal versus one where that is just one piece of a larger picture of positive outcomes for all stakeholders.
On behalf of all of us at the Social Performance Task Force, here is hoping that 2017 marks the beginning of a sea change in our industry—one where more and more stakeholders embrace the vision of benefit for all and the work it takes to get there.
With all best wishes,
SPTF Executive Director