Banks are under huge political and social pressure to demonstrate their role in the wider economic progress of nations and their citizens. Unless banks adopt active policies to rebalance the negative economic and social consequences for the segments they currently exclude from their normal course of business, governments will intervene still further in the financial services industry. And they will do so by public demand.
Around the world, there is a clear message to banks: “Help me fulfill my dreams”.
But what can be done to motivate banks to change and to address neglected economic segments? Is there a way to involve banks in delivering both a social good and a profit? And how do the low income and other ‘marginalised’ segments of the world population move away from relying solely on charitable intervention and towards accessible banking provision?
There is a mechanism that lies outside the traditional bank parameters. One which collaborates with multi-national companies to link in a newly ‘bankable’ group of customers, connected to commercial sources of credit and funding? Let’s call this mechanism a Hybrid Value Chain. Social Enterprises ensure this mechanism makes it easy for banks to be partners in this social change. Who would benefit?
Everybody would benefit. Banks would acquire a sales and distribution channel to originate volume for lending on sound commercial and operational grounds. Cost and technical complexity would be minimal because the Social Enterprise has evolved its own, very low-cost, business model. Nor do banks need to significantly re-engineer their business processes to accommodate their new partners.
It is refreshing to know that such partnerships already exist. For example, proven branchless banking is already being extended to communities who access banking services simply through a mobile phone. Customers open accounts through fully trained field agents, who were previously unemployed and who now earn commission. Unproductive days spent walking from rural villages to a banking branch to pay bills or collect wages are avoided and millions of Economic Citizens - who were previously excluded from affordable access to financial services - are created.
Let’s hope that by 2020 new business models such as this will be globally the norm. Banks co-creating solutions to address and include today’s economically excluded citizens. Return on Equity continuing to be delivered - but in a more equitable world.
Comments
I Agree William.
Hi Nelson,
Let me reassure you I have great faith in the American people, it is their institutions that seem to be failing them.
Also while various "social" responsibilities have been given to the FED, it is still a privately run institution,
and it only allows scrutiny of those areas it chooses. It also has the ability to print money, independent of what the US Government may think. So when the US dollar was made the world's reserve currency, the FED was put largely into control of the world's money supply. NOT THE USA. Accountability and transparency are lacking. There is also an issue about equity, while many have talked about currency wars, the issue of equity for the world's growing economies has not been really discussed. The old powers of Europe have clung onto their grand ideas of still running the world, however after the WW2 having to relinquish some of that to the USA. Just there was change then, there will be change over the next 20 to 30 years, as China emerges as the major world economy. Unless the USA can pull it's finger out and start behavouring like the world leader it pretends to be, such as have a consensus Congress instead of one in total turmoil, with an equitable vision for it's own citizens and it's various partners around the world. I found it laughable that the US President was telling Iran to have a consensus approach when his own country cannot use that process. The world is in turmoil, the 2008 GFC producing a reckoning unseen before, and Europe has not yet recovered, so again I believe we are in for interesting times. Domestic Mortgage is only one small slice of the total pie.
William, you have brought out some interesting points which I am sure that both the U.S. Government and the Federal Reserve is well aware of but doesn't talk about publicly. Along with the other major world banking powers. I did caution that IF the USA looses it's power of having the US dollar being the reserve currency of the World, that we as American's will indeed be in for many more challenges then those we currently face. The US earned the right to hold such a position after World War II and since it had higher moral principles, the world as a whole, was in agreement with having the US fill that role. In my proposal which mainly dealt with the Financial Housing Market crisis back in 08, one obviously had to deal with the banking system so as to propose the changes needed to solve the problem for then and to put a system in place which would work best for all citizens. That included Investors, Home Owners, and society as a whole. My plan also would have not allowed any future occurrences to have any big impact on the US Housing Markets. The corruption was only briefly referred to, but the main jest was to put Freddie and Fannie under a Covered Bond Banking system which would offer Straight Line Simple Interest mortgages within the design of a NAP mortgage, shown in www.theFHMsolution.com site. A very flexible, honest, fair, program which would have been best for the United States if implemented as suggested. I also trust that some of the current changes being made to Freddie and Fannie will not be as beneficial as those stated on my website. Either way, there maybe an improvement compared to how things are currently done, but we still have a long way to go before we reach the programs you have available in Australia. If I may add, it is indeed a form of a war against the USA which Russia, China, Brazil, and some of the Middle Eastern countries like Iran, are doing to debunk the US dollar. Even though things seem to be getting out of control, and the US Government appears to have lost it's way, the people themselves still mainly hold to the higher moral values this Nation had been known for, so don't give up on the American People yet.
This subject has so many different dimensions to it. Here in Australia we have multiple Banking operations. Those which operate for a shareholder base, those which are Co-operatively owned, operating for the client's benefit, and those who have branch networks established and operated on a franchise basis, one which returns prohits to the community, the other that operates for the benefit of the franchise owner. There are obviously different needs in different communities, and the residents also have different ideas as to how they wish to have those needs satisfied. The greater the level of transparency usually the lower the level of corruption, as public exposure brings many repercussions. Technological changes can obviously also assist to fulfilling the customer needs, and make facilities available for remote communities, etc.
However the most important factor is Political will to allow acceptable changes to take place, that the frame work, not only accommodates local communities but makes transactions on a global scale more accessable.
The recent example of the new BRICS International Bank being established in worth further study. I am surprised at the lack of commentary on this new venture. While the participating countries hold it up as a way for them to fund new developement projects within their countries, it takes no account of the continued dominance of the US currency in 90% of all major international transactions. This is the way that the FED has continued to control the flow of funds through out the world, as an instrument of Western values and political will. Various countries cannot receive the funding they need to rebuild or restore, or even just advance their social infrastructure. The BRICS Bank, does not have sway with the IMF, the World Bank, the various Reserve Banks around the Western world, or the Bank of International Settlements. All these structures can assist or inhibit the role the BRICS Bank wants to play. The IMF has for some time used a basket of currencies to facilitate international exchanges, however this has not happened fast enough, or in a totally transparent manner, to allow an equitable situation to develop with regard to the imbalance of currencies used in international transactions. Both Russia and China have set out to establish transfers between their trading partners in their currencies, so avoiding the USA Dollar, which becomes more and more toxic as they devalue through the FED's ongoing printing program, plus the huge debt owed by the USA Government.
Changes in both the Micro and Macro levels of Banking need to happen to create a better world. In the mean time Banks are here to stay, and how they change to meet the various needs around the world will be an interesting picture to follow, and how responsive they will be to both the local and international communities, to be adding value, as well as providing a service much needed. What is most needed in an interested, informed and vocally active public that expresses what it wants, and creates polical leverage to achieve that.
Funny that you have brought this subject up regarding banking since as of yesterday the FHFA is requesting public feed back on their new program which they are trying to phase in over the next few years, they have been at it for two already according to their own disclosures. My take on it is that they are attempting to have one universal security which is to eventually replace all the current Fannie Mae and Freddie Macs securities which are currently bundled and sold in Wall's Streets derivatives market. The FHFA (in my opinion) of course have lawyers, politicians which appear to hide what they are truly trying to accomplish. What I truly see here is that they are going to be changing Freddie and Fannie into operating like a covered bond type of operation with out truly disclosing that to the public. They are concerned about transitioning the current securities that are outstanding and allowing them to be transformed into their new offerings which they intend to offer to the public, utilizing some of the same framework currently being used. I find it distasteful that they just don't talk plainly with the America people of what they are really doing. Who stands to gain? The government has taken over these two private firms, rightfully so, and is now transforming them while trying to protect the current investors in them. I commend them for that, unlike GM investors. They have basically taken the proposal which had been submitted to Washington regarding the possible transformation of these two agencies into a new and better system, preferably as a covered bond banking system. That proposal was actually put forth to the current administration and submitted between 2009 - 2011. Unfortunately what I see is a hijack of an idea, which leaves behind the most fairest part which is fair to investors, homeowners, and the banking and public communities. That which was originally submitted for Washington's review is found at www.thefhmsolution.com I wish that those behind this new initiative would speak plain, and get honest with the American public. Their proposal heading in the right direction for the transformation of these two agencies, but I don't see the transparency from those behind this push for transforming the current system. Follow the money on this whole thing would be my suggestion and see who is directly connected to it and will be gaining from such a proposal, especially the gate keepers of the $$$ and paperwork associated with it.
The securing of phone banking transaction is going to need more attention.
Microfinance and crowd sourcing are going to develop more mature customers for banks as they transition from proving their business concept to normal operations. Making interfaces to hold and manage business accounts would seem logical in this area.
But, Banking Privacy is going to get more important. Disadvantaged groups are subject to distain and economic sabotage. If the identities of businesses are exposed to the wrong groups, then lack of privacy can actually harm business.