Financial Business Models with Social Impact: Potential Candidates for National Promotional Banks

Financial Business Models with Social Impact: Potential Candidates for National Promotional Banks

DOI: 10.4018/978-1-5225-1845-7.ch005
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Introduction

European organizations and decision makers are aware of the occurrence of a momentum for promotional banks’ development and more active involvement in mediating and channeling funding from EU sources to local communities or national benefit. Recent debates are discussing the opportunity to expand the coverage of the promotional banks’ main definition so as to include other types of non-banking financial institutions that could also exert a significant influence within the Investment Plan for Europe. In this respect, it can be mentioned the proposal advanced by the European Committee of the Regions (2016, p.3) which explains that, in practice, promotional institutions do not always take the form of banks but in some countries they act as investment agencies, companies or funds, often along the lines of venture capital funds.

This last chapter aims at elaborating several proposals regarding particular financial institutions that might act as potential candidates for performing a promotional bank activity. In other words, the chapter will investigate whether financial institutions that have already adopted and implemented a special business model, whose mission is subordinated to the active involvement in the local community’s needs, by mitigating social and financial exclusion, by contributing to the human development (education, health, culture) and by financing ecological projects (renewable energy, organic farms) might mimic promotional activity and play an increasing, more visible role in the context of the new EU funding mechanisms.

It has been performed a comprehensive radiography of the diverse, coexisting typology of financial intermediaries that depict the potential for being considered NPBs, due to their commitment for making a valuable contribution for pursuing and achieving medium and long-term economic and social goals. To ensure that the selection comprises only those financial institutions that fulfill the NPBs features, it has been followed the directions expressed in EC’s 2015 communication “Working together for jobs and growth: The role of National Promotional Banks (NPBs) in supporting the Investment Plan for Europe”, namely:

  • NPBs might be established in various forms and offer different products, but have to carry out development or promotional activities;

  • Provide financing to different key sectors where market failures have been identified and which are underserved by commercial banks.

It has been adopted an in-depth documentation and data collection strategy, meant to cover all EU countries and a broad range of financial institutions that fall under the scope of NPBs flexible definition.

During the last decade the European financial industry has witnessed the emergence or development of different business models, belonging to alternative finance institutions that operate complementary to mainstream banking. All of them have in common the declared mission to catalyze sustainable development, by bringing together economic, financial, social and environmental values in a bottom-up approach, as well as the awareness of dealing with customers’ money, to which they aim to exert a societal and environmental responsible dimension. Customer-centricity is a common feature of all these alternative business models. A socially-oriented business model is guided by “satisfying existing needs in the real economy and the society whilst simultaneously taking into account their social, cultural, ecological and economic sustainability. Furthering the common good by generating multiple returns with respect to these aspects is at its core” (Institute for Social Banking, 2011, p.1).

In spite of increased heterogeneity in terms of balance sheet size, their mission and focus (social, environmental or both), financial products and services, they all depict the same core mission, of putting people’s needs first, profitability being a necessary condition for further going concern but not a purpose per se.

The European socially responsible (sustainable) financial industry has become a diverse, multifaceted place, characterized by a wide range of actors and business practices. In the viewpoint of Carboni (2011), the exact perimeter of this industry is difficult to be accurately assessed, as it stands at the crossroads between traditional banking and alternative finance, between profit-seeking financial institutions and not-for-profit or charitable entities, or between privately owned and public institutions.

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