An ‘ethical bank’ for Greece?

The president of the Italian ‘Banca Etica’, Mr. Fabio Salviato, explains the ingredients of an ‘ethical’ banking system
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Is it possible to found an ‘ethical bank’ in Greece? What odds would a project like this have of succeeding? And what are the secrets behind the sustainability of the Italian ‘Banca Etica’, which has managed to increase its revenue by 30% during a time of financial crisis? Mr. Fabio Salviato, president of ‘Banca Etica’, speaks to ‘tvxs.gr’ about the creation of an ethical banking system across Europe.

What exactly is an ‘ethical bank’? It aims to be a financial institution based on ethical values; it also claims to function on terms of social consciousness and through providing funding to projects that demonstrate social and environmental goals. Simply put, an ethical bank runs on the same principles as any other bank in terms of the basic function of credit: it lends amounts of money which are then returned with interest. The primary differentiating factor is that “In order to secure a loan, conventional banks require either immediately available collateral or a mortgage.  We on the other hand, focus on the project proposal that is seeking financing solutions,” explains Mr. Salviato. He adds that enterprises funded by ‘Banca Etica’ are required to have some kind of social purpose, develop local communities, and create jobs or aim to protect natural resources.

“An opportunity, not charity”

‘Banca Etica’s’ founding principle is that while people don’t need charity they do need “an opportunity”; in financial terms that means credit.  “Everything began ten years ago in Italy, when a network of non-profit organizations, local institutions, and cooperatives all in need of credit and financing were unable to secure loans from traditional banks. They all needed the same thing: a bank that would issue a loan to those being excluded by the conventional financial system,” explains Mr. Salviato. That is the market niche that ‘Banca Etica’ has been able to fill.
Today, ‘Banca Etica’ is celebrating its tenth year of operation. It now boasts quite a few branches all over Italy which are showing remarkable success even in this difficult financial climate. Last year revenue was up by 30% while the default rate was reported at a mere 0.5%, this at a time when conventional Italian banks have been reporting default rates of 3-10%!

The secret of success

So what is the secret of success? “When our borrowers face trouble making a return payment they contact the bank and we work out a solution together in order to find a way for them to pay off the loan,” explains Mr. Salviato. He points out that conventional banks force the borrower to ‘hide’ from the bank instead of working on a joint compromise. The system makes sense when one considers that what is most important to traditional banks facing loan defaults is that they are able to foreclose on the mortgaged property in order to repay the loan issued. “We are not interested in the collateral or the mortgage that our clients secure to apply for a loan. Our goal is to have our loans repaid through the successful realization of the projects we have financed,” clarifies Mr. Salviato.

That may be exactly the strategy that has secured the success of ‘Banca Etica’ at a time when the majority of the banking system has been sounding alarm bells worldwide. “I have two photographs in my office that were taken on the same day about a year and a half ago. The first is of Northern Rock bank in England shutting its doors for good, shortly after the onset of the financial crisis. The second is on one of our new branches opening in Palermo, a line of clients waiting to make deposits stretching out the door,” remembers Mr. Salviato, proving the saying “a picture is worth a thousand words”.

Is it feasible for Greece?

Taking all this into consideration, the final question is whether something like this could succeed in Greece? According to Mr. Salviato, the most basic ingredient in his ‘recipe for success’ is the democratic structure of the bank: “We rely on a national network of shareholders who are members of local community groups, cooperatives, non-profit organizations and other institutions. None of our shareholders is allowed to own over 0.5% of our share capital and our managing directors are elected by majority vote. Decisions are made on the ‘one person, one vote’ principle regardless of the percentage of shares that a voter owns,” he explains.
After a series of meetings with local organizations and non-profit groups Mr. Salviato is confident that the network of organizations that could make up the basis of tomorrow’s shareholders in a Greek ‘Ethical Bank’ already exists. So what are we missing? Initiative! It’s definitely not easy; it requires a lot of time and persistence. The resources do exist, all it takes is organization and making the commitment,” he says.

Founding a bank is a risky process, I remind him. How can we dare to take a risk like this during a time of economic crisis? “And yet, you should be looking at the financial crisis as an opportunity,” he rebuts. “The crisis has shown us that the current financial system, as it stands now, has come to an end. The alternative to that door shutting is the ethical banking system,” he concludes. According to Mr. Salviato, an ‘Ethical Bank’ can become a reality in Greece not despite the financial crisis, but thanks to it – thanks to everything the crisis has taught us about the inadequacies and weaknesses of the current financial system.

Ellie Ismailidou, Published January 19th, 2010, ‘Tvxs’ 
Camera: Alexandros Aristopoulos / Editor: Vasilis Geordamilis
See publication in Greek here