Home economics: Upside-down banks are the future

In her new column, Caroline Mason, operations director at Investing for Good, tells some homespun truths.

The right language could move social finance out of its niche. Last weekend I struggled to decide how to approach my first column. That was until my teenage daughter made me listen to her favourite track of the moment, a song called Upside Down. I had been thinking about social finance and decided to flip the term around – and it’s meaning became much clearer. It means the act of financing our society, and I wondered how on earth, and when, this had become niche? Surely the role of government and the banking system is to ensure that all of society is well governed and appropriately financed?

To date, government has kick-started the social finance sector mainly in terms of linking policy with direct finance rather than through providing fiscal and legal incentives. Funds such as ACF, Future builders, SEIF and investment in organisations such as Bridges Community Ventures have worked well. But its commitment pales into insignificance when compared with the money spent on propping up mainstream banks.

And so to our banking sector. We know that mainstream financial organisations in the UK are gate keepers to over £3tn of investments under management and another £1.3tn in deposits. Unfortunately, this money is mostly invested without consideration for the impact it has and without any social and environmental context.

Yet it’s not all doom and gloom. During the past two years, social banks like the Co-op, Unity Bank, Charity Bank and Triodos have not had to rely on government bailouts – quite the contrary, their businesses have grown.

The issues that these banks face are those of most regulated mainstream banks – capital provision, the pricing of risk, capital raising, deal quality and liquidity. In addition they factor in thething that has been missing from mainstream banking and that has been largely considered un bankable – investing only in society and the environment.

We all need to take a role in ensuring that this story is clear and heard. That the connection between finance and society is not associated with free public money and the philanthropic largesse of the wealthy few. The Future of Banking Commission and the future government could do worse than taking a closer and more serious look at these banks and their ‘upside down’ model.
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