header3.png

Résumés des communications > Cornée et al.

The Business Model of Social Banks:

Evidence from Europe*

 

Simon Cornée

Université de Rennes 1 / CREM UMR CNRS 6211

Faculté des Sciences Economiques
 7, place Hoche CS 86514
35065 Rennes cedex

FRANCE
simon.cornee@univ-rennes1.fr

 Panu Kalmi

University of Vaasa

Faculty of Business Studies

PO Box 700

65101 Vaasa

FINLAND

panu.kalmi@uwasa.fi

Ariane Szafarz

Université Libre de Bruxelles (ULB), SBS-EM, CEB, and CERMi

50, av. F.D. Roosevelt, CP114/03

1050 Brussels

BELGIUM

aszafarz@ulb.ac.be

 

July 2016

Keywords: Social banks, Social enterprises, Social mission, European banks.

JEL Codes:G20, L33, M14, L31, D63, D82, G21

 

* The authors thank Jacques Defourny, Marek Hudon, Marc Jegers, Marc Labie, Mathias Schmit, and Paul Verdin for their helpful comments and suggestions. This research has been carried out in the framework of an "Interuniversity Attraction Pole" on social enterprise, funded by the Belgian Science Policy Office.

 

Résumé

Social banks (SBs) typically supply credit to social enterprises (SEs), which put the emphasis not only on financial returns, but also—and often as a priority—on social aims (Borzaga and Defourny, 2001; Defourny and Nyssens, 2008). However, social lending alone is insufficient to capture the business model of SBs. The involvement of socially-minded owners/investors and deposit holders plays a key role. This paper theorizes that these motivated agents accept below-market remunerations because SBs invest in projects that correspond to their values. As a result, SBs channel their financial sacrifices to SEs by offering them favorable credit conditions. The specificities of social banking are thus present in both sides of simple intermediation services (Cornée et al., 2016). Our theoretical approach relies on the integrity of social values through the intermediation chain. We speculate that this structure is the DNA of social banking and subsequently derives testable predictions on balance-sheet characteristics that would make SBs different from their standard counterparts. Next, we bring our theoretical hypotheses to the data by exploiting a rich dataset on West European banks.

The foundational principles of SBs entrench three dimensions (Benedikter, 2011; Weber and Remer, 2011). First, the so-called “double bottom-line” concept states that both social impact and business sustainability matter. Profit maximization is not an objective per se, but it is rather a means for achieving economic sustainability. Accordingly, profits should be fairly distributed among stakeholders through appropriate governance mechanisms. Second, SBs focus on the financing of the real economy—as opposed to speculative financial markets. More specifically, SBs support their communities through transparent, prudent, and simple intermediation principles. They systematically reject speculative transactions. Third, SBs are meeting points of socially-minded investors and SEs. For instance, some SBs offer deposit accounts associated with an option to waive interests completely or partially (Merkur 2016). By matching these two sides of impact-based financial intermediation, they promote the underlying social values.

Social orientation can make a difference in banking activities (Barigozzi and Tedeschi, 2015). According to Akerlof and Kranton (2005), shared social values help mitigating moral hazard problems, which are known to be serious in credit granting. Evidence from Cornée et al. (2012) and Cornée and Szafarz (2014) suggests that SBs are able to mitigate moral hazard problems by generating reciprocity from their borrowers. The underlying mechanism goes as follows. The SBs charge below-market interest rates to social borrowers, who return the favor by lowering their probability of default. However, Cornée and Szafarz (2014) indicate that despite the SB’s gain derived from its borrowers’ good repayment conduct, the cost associated with social screening can make the final balance unfavorable. Overall, whether the business activity of SBs is more costly than that of their mainstream counterparts is still an open question.

Social banking has drawn a lot of attention in the aftermath of the financial sector turbulence in 2007-2008. In many cases, mainstream banks turned out to be insufficiently capitalized, were taking excessive risks, and had to be bailed out by taxpayers. This has prompted a search for alternative business models. Scholars have taken up this challenge and investigated the crisis performance of stakeholder banks (Coco and Ferri, 2010; Groeneveld and de Vries, 2009 ; Ferri et al. 2014, 2015), Islamic banks (Cihak and Hesse, 2010; Beck et al., 2013) and other religiously-oriented financial institutions (Mersland et al., 2013). Our study broadens this literature into social banking and examines whether and to which extent the “virtuous” principles of SBs translate themselves into actual deeds. Our investigation relies on a European dataset consisting of around 5,000 European banks and covering the 1998-2013 period. Of the large group of banks, we identify 29 banks as SBs. We aggregate micro-level bank balance sheet data (at unconsolidated level) from Bankscope provided by Bureau van Dijk. Bankscope is a standard source for institutional and cross-country comparisons (e.g. shareholder versus stakeholder banks) at the international level, especially with non-listed banks (Gambacorta, 2005; Ashcraft, 2006; Iannotta et al., 2007; Ferri et al., 2014). In line with our theoretical predictions, the empirical results suggest that SBs benefit from a lower cost of funding from both their owners/investors and their deposit holders, and charge below-market interest rates on their borrowers. They are consistent with the story of depositors and investors passing on their earnings to social borrowers at below market rates. In addition, our results reveal that SBs are not only different from shareholder banks, but to a certain extent also from stakeholder banks.

 

Bibliographie:

 

Akerlof, G.A. and R.E. Kranton (2005), “Identity and the Economics of Organizations,” Journal of Economic Perspective 19: 9-32. 

Ashcraft, A.B. (2006), “New Evidence on the Lending Channel,” Journal of Money, Credit and Banking 38: 751-776.

Barigozzi, F. and P. Tedeschi (2015), “Credit Markets with Ethical Banks and Motivated Borrowers”, Review of Finance 19: 1281-1313.

Becchetti, L., M. Garcia, and G. Trovato (2011), “Credit Rationing and Credit View: Empirical Evidence from Loan Data,” Journal of Money, Credit and Banking 43: 1217-1245.

Beck, T., A. Demirgüç-Kunt, A., and O. Merrouche (2013). Islamic vs. Conventional Banking: Business Model, Efficiency and Stability. Journal of Banking and Finance, 37: 433-447.

Benedikter, R. (2011), Social Banking and Social Finance, New York: Springer.

Borzaga, C. and J. Defourny (Eds.) (2001), The Emergence of Social Enterprise, London - New York: Routledge.

Čihák, M., and H. Hesse (2010), “Islamic Banks and Financial Stability: An Empirical Analysis,” Journal of Financial Services Research 38: 95-113.

Coco, G. and G. Ferri (2010), “From Shareholders to Stakeholders Finance: A more Sustainable Lending Model,” International Journal of Sustainable Economy 2: 352-364.

Cornée, S. P. Kalmi and A. Szafarz (2016), ‘Selectivity and Transparency in Social Banking: Evidence from Europe’, Journal of Economic Issues, 50(2): 494-502.

Cornée, S., D. Masclet, and G. Thenet (2012), “Credit Relationships: Evidence from Experiments with Real Bankers,” Journal of Money, Credit and Banking 44: 957-980.

Cornée S. and A. Szafarz (2014), “Vive la Différence: Social Banks and Reciprocity in the Credit Market,” Journal of Business Ethics 125: 361-380.

Defourny, J. and M. Nyssens (2008), “Social Enterprise in Europe: Recent Trends and Developments,” Social Enterprise Journal 4: 202-228.

Ferri, G., P. Kalmi, and E. Kerola (2014), “Does Bank Ownership Affect Lending Behavior? Evidence from the Euro Area,” Journal of Banking and Finance 48: 194-209.

Ferri, G., P. Kalmi, and E. Kerola (2015), “Organizational Structure and Performance in European Banking: A Reassessment,” Advances in the Economic Analysis of Participatory and Labor-Managed Firms, forthcoming

Gambacorta, L. (2005), “Inside the Bank Lending Channel,” European Economic Review 49: 1737-1759.

Groeneveld, H. and B. de Vries (2009): “European Cooperative Banks: First Lessons from Subprime Crisis,” The International Journal of Cooperative Management 4: 8-21.

Iannotta, G., G. Nocera, and A. Sironi (2007), “Ownership Structure, Risk and Performance in the European Banking Industry,” Journal of Banking and Finance 31: 2127-2149.

Merkur (2016): Annual Report of 2015. Copenhagen: Merkur Cooperative Bank.

Mersland, R., B. D’espallier, and M. Supphellen (2013), “The Effects of Religion on Development Efforts: Evidence from the Microfinance Industry and a Research Agenda,” World Development 41: 145-156.

Weber, O. and S. Remer (2011), Social Banks and the Future of Sustainable Finance, London - New York: Routledge.

Personnes connectées : 2