'Microcredit' to Serve the Sustainable Development
Since 2001, the Italian Banking Association has undertaken an in-depth study on the subject of Corporate Social Responsibility (CSR) and its strategic importance within the modern banking business model. Consequently, in recent years an increasing number of banks have set their strategic plans, integrating the CSR into their business models. In this context, the ABI Observatory Esg Benchmark observe that 96% of Italian banks promote a strong commitment to the development of CSR policies and the integration of ESG factors into their strategy (ABI, ESG Benchmark 2015).
The environmental management in the banking sector is included within the evaluation process of risk, adding environmental and social variables at the traditional economic and financial variables. This new assessment process generates a higher quality loan portfolio and increases the bank's value.
The primary responsibility of banks to sustainable development is linked to clients' activities. Banks develop new financial instruments that take into account environmental and social factors, also to satisfy the huge pressure of banks' clients on the social and environmental issues.
A financial instrument that has a huge possibility to promote the sustainable development is "microcredit". The term refers to loans granted to people who are in serious situations of social and economic hardship, and to people who want to start micro-entrepreneurial activities without any real guarantees to support their credit.
One of the main Italian players in the granting of microcredit is Banca Etica, which since 2001 has provided more than 23.6 million euro in microfinance. The resources to grant microloans are collected through Etica Sgr, the group's asset management company, which have set up a guarantee fund. The amount of the guarantee fund is determined by the voluntary choice of the subscriber customers of the mutual funds to devolve 0.1% of the invested capital.
The "microcredit" may generate different effects, depending on the level of analysis.
According to banks' internal perspective, it gives the possibility to increase banks' reputation, because they grant financial resources to people that are subject to financial exclusion and allow achieving the social equality. Moreover, banks create relations with people who are in serious social and economic hardship this increases bank’s legitimacy within the reference community. Through relations with different retail clients, which are presumably unknown previously, banks obtain new information that can be used to structure other new financial products that solve specific social or environmental problems.
According to bank’s external perspective, granting loans to people that do not have a good creditworthiness and who may be subjected to financial exclusion, banks promote social equality. In particular, "microcredit" gives the possibility to achieve a higher level of gender equality, when this kind of financing is reserved to the female borrowers.
On the other hand, microcredit policies support the growth of the real economy, because they may allow financing also young people that want to start activities without any guarantees.
Indeed increasing innovative initiatives that can have a significant impact on the growth of the real economy might give a higher contribution to sustainable development.
Author: Danilo Conte / PhD Student at LUM Jean Monnet University