Fri, 29 May 2009

Reconnecting values to banking: Princess Maxima addresses Global Alliance for Banking on Values

ZEIST (NNA) – Princess Maxima of the Netherlands has called for a return to basic values in the banking sector. Speaking at the establishment of the Global Alliance for Banking on Values earlier this year, the Princess, herself an economist and member of the UN Advisors Group on Inclusive Financial Sectors, said that core values of banking – trust, building sustainable and long-term relationships, and offering products that add real value – were more relevant than ever.

The Alliance - founded by Triodos Bank in the Netherlands, the BRAC Bank in Bangladesh, part of the BRAC Group, the globally largest microfinance institution in the world, and the ShoreBank from Chicago - includes banks from across the world, among them the German GLS Bank, XacBank from Mongolia, the Peruvian Mibanco and Banex in Nicaragua (for a full list see NNA report “Global alliance to promote sustainable banking”, 29 May 2009).

The Princess praised the establishment of the Global Alliance: “I understand the Global Alliance for Banking on Values has ambitious goals, to set inspiring examples of what banking can really do. Examples that will encourage the expansion of the boundaries of mainstream finance and contribute to social innovation in the financial sector.”

Over the last few months it had become clear how important it was to have and develop a sound inclusive financial system that not only promoted growth and reduced income inequality but also gave customers financial services they really needed and could afford: “Because with it we can safeguard our people’s savings and protect the financial system as a whole,” Princess Maxima said.

However, the Princess also highlighted the fact that over two billion people worldwide remained excluded from the financial services “we take for granted”. The possibility to save in a savings account had also been lagging. Only 20 percent of the world population had access to a savings account against more than 90 percent in the countries of the OECD (Organisation for Economic Cooperation and Development - the club of mostly rich economies).

The same two billion people did not have access to electricity, oil or gas to cook and for daily living either: “This perpetuates the poverty trap and undermines attempts to achieve the UN Millennium Development Goals while putting pressure on economically important ecosystems such as forest for fuel and charcoal.” It was a huge challenge, “but can also be a business opportunity to build alternative energy systems and healthy environments,” the Dutch Royal said.

Highlighting the role of the microfinance institutions, Princess Maxima said that this is where microfinance banks could play a huge role. To date BRAC in Bangladesh, for example, had successfully installed 37,000 solar panels bringing sustainable energy to 180,000 people living in remote areas.

There was also a strong business case for using microfinance for sanitation and waste management activities: SEWA in Gujarat in India had formed a for-profit company with women’s self-help groups by training them through an external agency to be “barefoot” engineers. The skills had enabled women not only to provide services for water and sanitation needs of the villagers but also to address the broader infrastructure needs they may have.

“I can quote similar examples of microfinance involved with water irrigation systems, healthy and efficient cooking stoves, water filtering systems, and so on,” the Princess said.

Financial institutions could be the catalyst for change: “In the past three years I have seen the power of microfinance banks to change people’s lives and to benefit communities and societies as a whole,” she added.

The UN advisor said she was delighted that some of the leading microfinance institutes were founding members of the Alliance.

However, Princess Maxima also saw lessons for the developed economies which are currently suffering serious economic downturns as a result of the financial crisis which is massively restricting access by business to finance, leading to company failures and rising unemployment.

“Banks in developed countries, too, have much to learn from microfinance banks about how to efficiently and effectively provide microfinance.” Financial development and improving access to finance accelerated economic growth, reduced poverty and income inequality, the Princess said.

The Dutch Royal also emphasised the importance of transparency in banking and the financial education of consumers: “While access to financial services is crucial, it requires informed consumers who understand the obligation they are undertaking and have the ability to fulfil it. If people are borrowing money, they depend on a lender treating them fairly, with clear and transparent loan terms.”

The current global financial crisis was in part due to the absence of these factors, and to overzealous marketing of inappropriate loan products to vulnerable consumers, many of whom did not fully understand what they were getting themselves into. There was an appropriate role for the government in establishing “light touch” but adequate, market regulation, and establishing and promoting effective programs that informed consumers about financial services. “And it is the role of banks and microfinance institutions to have consumer protection and transparency written into the DNA of their organisation,” Princess Maxima said.

As one example of responsible stewardship, the UN advisor cited the case of Banex in Nicaragua, another member of the Alliance. Banex had installed an ombudsman who dealt with client complaints as part of a programme for client protection.

The Princess also raised the role of governments and regulators. A subject which had come up consistently in her work for the UN Advisors Group on Inclusive Financial Sectors was whether there should be a ceiling on interest rates for micro-credits. “Our argument would be, and this has been proven in many countries, that market-forces like competition drive down interest rates over time. If governments chose to regulate interest rates and set ceilings, they limit commercial growth of microfinance institutions, stifle competition and increased efficiency and ultimately restrict access to finance for more people,” she said.

However, this argument was more difficult to make in the exceptional cases where microfinance institutions saw profit as an end in itself rather than a means to an end. It was hard to explain why shareholders of a microfinance institution should earn extraordinary profits at the expense of poor people paying extremely high interest rates.

“In the end this is about balance. Balance between all financial institutions’ stakeholders is essential - from clients and shareholders to co-workers and management,” the Princess said. “In the current climate, the roles of the banks in this Alliance could be to set an example for the financial industry as a whole to follow, to show how this balance between stakeholders and the balance between people, planet and profit can work as a successful business model.”

In conclusion, Princess Maxima told the Alliance: “We also need banks that drive the social and environmental change the world needs to meet the greatest challenges of our time. I hope this group of frontrunners will play a leading role in that task and that many will join you in your mission. I wish you all the wisdom and vision to make this Global Alliance into a starting point for connecting values to banking.”

Prinzessin Maxima has been married to the Dutch heir apparent, Willem-Alexander, since 2002. She comes from Argentina and before her marriage worked for various financial institutions and banks, including Deutsche Bank in New York and Brussels. Apart from her current UN advisor role on inclusive financial sectors, She was also involved in the Advisors Group to the International Year of Microcredit 2005. She has three daughters.

END/nna/cva

Item: 090529-02EN Date: 29 May 2009

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