Back to the Future - Filene Research Institute

Transcription

ISBN 978-1-932795-36-3
PO Box 2998
Madison, WI 53701-2998
Phone (608) 231-8550
PUBLICATION #155 (04/08)
www.filene.org
ISBN 978-1-932795-36-3
Back to the Future:
Integrating Sustainability into Credit Union Strategy
ideas grow here
Back to the Future:
Integrating Sustainability
into Credit Union Strategy
Stuart L. Hart, PhD
Samuel C. Johnson Chair in Sustainable Global Enterprise
Johnson School of Management
Cornell University
Monica Touesnard
Managing Director, Learning Labs
Center for Sustainable Global Enterprise
Cornell University
Back to the Future:
Stuart L. Hart, PhD
Cornell University
Monica Touesnard
Cornell University
Copyright © 2008 by Filene Research Institute. All rights reserved.
ISBN 978-1-932795-36-3
Printed in U.S.A.
ii
Filene Research Institute
Deeply embedded in the credit union tradition is an ongoing
search for better ways to understand and serve credit union
members. Open inquiry, the free flow of ideas, and debate are
essential parts of the true democratic process.
The Filene Research Institute is a 501(c)(3) not-for-profit
research organization dedicated to scientific and thoughtful
analysis about issues affecting the future of consumer finance.
Through independent research and innovation programs the
Institute examines issues vital to the future of credit unions.
Ideas grow through thoughtful and scientific analysis of toppriority consumer, public policy, and credit union competitive
issues. Researchers are given considerable latitude in their
exploration and studies of these high-priority issues.
The Institute is governed by an Administrative Board made up
of the credit union industry’s top leaders. Research topics and
priorities are set by the Research Council, a select group of
credit union CEOs, and the Filene Research Fellows, a blue
ribbon panel of academic experts. Innovation programs are
Progress is the constant developed in part by Filene i3, an assembly of credit union
replacing of the best there is
executives screened for entrepreneurial competencies.
with something still better!
— Edward A. Filene
The name of the Institute honors Edward A. Filene, the “father
of the U.S. credit union movement.” Filene was an innovative
leader who relied on insightful research and analysis when
encouraging credit union development.
Since its founding in 1989, the Institute has worked with over
one hundred academic institutions and published hundreds of
research studies. The entire research library is available online at
www.filene.org.
iii
Acknowledgments
We wish to thank George Hofheimer and Josey Siegenthaler of the
Filene Research Institute for their generous support and assistance
in doing the research for this report. Jaren Hart has also been of
invaluable assistance in the editing and preparation of this report.
Her background research and writing on the evolution of credit
unions in the United States was critical to the preparation of the
first chapter. We also wish to thank the many credit union representatives who volunteered their time in personal interviews and
telephone conversations to provide us with the information and data
contained in this report.
v
Table of Contents
ix
Executive Summary and Commentary
xiii
About the Authors
Chapter 1
Background and Context
1
Chapter 2
The Road to Sustainable Enterprise
9
Chapter 3
The Sustainable Value Framework
13
Chapter 4
The Cases
19
Chapter 5
Conclusions and Recommendations
55
Appendix 1
63
Appendix 2
65
Appendix 3
67
Appendix 4
69
vii
Executive Summary and Commentary
By George A. Hofheimer,
Chief Research Officer
Unless you’ve been living in some sort of quasi-dream state for the
past few years, you’ve inevitably heard of people, companies, cities,
and even countries “going green.” Today, politicians are trumpeting
their plans for creating “green-collar jobs,” San Francisco and China
are banning the use of plastic shopping bags, universities are minting
“green MBAs,”1 and companies as disparate as ExxonMobil and Nike
trumpet their “green initiatives.” This greening trend is large and
important, and it is emerging as a significant shift in thinking about
our business, civic, and personal lives.
The Filene Research Institute was curious to know how this greening
trend could be leveraged by credit unions, so we tapped the expertise
of Professor Stuart Hart, who holds the Samuel C. Johnson Chair in
Sustainable Global Enterprise at Cornell University, and his colleague
Monica Touesnard, who is the managing director of Learning Labs at
the Center for Sustainable Global Enterprise at Cornell University. Hart
and Touesnard basically told us we had it all wrong, and that the opportunity for credit unions was much broader than just greening strategies.
I recall them saying, “By moving beyond greening, credit unions can
not only address mounting social and environmental concerns, but also
build the foundation for innovation and growth in the coming decades.
In so doing, credit unions could outperform their competitors in today’s
business and, even more important, outrun them in tomorrow’s technologies and markets.” This sounded like an interesting thesis, especially
considering some of the growth challenges facing credit unions.
So, what started as an attempt to find out whether credit unions
should offer such incrementally innovative products as hybrid car
loans or solar panel financing turned into a larger research question
about how credit unions can integrate the concept of sustainability
into their core strategy.
What Did the Researchers Discover?
Banks and credit unions compete in much the same market space
with much the same value proposition and product set. Some consumers, for instance, cannot differentiate a credit union loan from
a bank loan. Rather than competing directly with banks, Hart and
Touesnard conclude it may make more sense for credit unions to go
“back to the future” by using their unique historical and organizational characteristics (e.g., tax-exempt status, cooperative ownership,
community lending, and focus on the underserved) to offer a set of
products and services that differentiate them from banks and other
financial services providers. The broad domain of “sustainability”
1
Sorry for the pun.
ix
(social and environmental performance) offers such a landscape of
opportunity. The definition and classification of sustainability used
for the purposes of this report are shown in Figure 1. This sustainable value framework classifies various initiatives as belonging to one
of four categories: pollution prevention, product stewardship, clean
technology, and base of the pyramid (BoP).2
Hart and Touesnard identify the handful of credit unions and other
financial services providers that have created innovative products
such as green building mortgages; special loans for fuel-efficient
or hybrid vehicles; financing and arranging energy conservation
upgrades; low-income mortgage products; and microlending. Hart
and Touesnard analyze these best practices in sustainability within
existing financial institutions. Based on this analysis, they then
Figure 1: The Sustainable Value Framework
Tomorrow
Strategy:
Clean technology
Develop the sustainable
competencies of the future
Strategy:
Base of the pyramid
Create a shared road map
for meeting unmet needs
Corporate payoff:
Innovation and repositioning
Corporate payoff:
Growth and trajectory
Sample credit union application:
• Financing green products
• Investment in clean technologies
• REAL Solutions initiatives (e.g., payday
lending, special savings products)
Sustainable
value
Internal
External
Strategy:
Product stewardship
Integrate stakeholder views
into business processes
Strategy:
Pollution prevention
Minimize waste and
emissions from operations
Corporate payoff:
Cost and risk reduction
Corporate payoff:
Reputation and legitimacy
• Green building initiatives
• Paperless services (e.g., bill pay
and/or online banking)
• Sustainability reporting initiative
• In-house sustainability
consulting services
Today
Source: Adapted from S. Hart and M. Milstein, “Creating Sustainable Value,” Academy of Management Executive 17, no. 2 (2003): 56–69.
2
“Base of the pyramid” refers to the largest and poorest socioeconomic class in a society.
x
recommend potential avenues for credit unions to integrate sustainability more effectively into their strategies.
Implications for Credit Unions
The report’s results suggest that the vast majority of financial institutions are just beginning to experiment with a wide range of programs
and initiatives related to sustainability and, as a result, have yet to realize
the challenge—and opportunity—implicit in sustainability strategies.
Additionally, many of today’s sustainability initiatives involve profitspending—e.g., grants to community groups or expensive hightouch services and educational programs for underserved families.
Such programs are often considered loss leaders for the institutions
involved. While they fail to cover their costs, such programs are justified to the extent that they serve to bolster reputation and establish
productive relationships with other nonprofit or public partners.
With their tax-exempt status, credit unions are clearly in a position
to offer such programs, given their lower cost position relative to
banks. Indeed, credit unions create value for their members by providing important services, increasing dividend payments on savings,
and lowering rates on loans. However, providing these benefits cannot be achieved in the long run without at least covering the costs of
the programs. Ultimately, truly integrating sustainability into credit
union strategy requires shattering the presumed trade-off between
social and financial performance; this can only be achieved by devising new strategies that simultaneously benefit members, their communities, and credit unions’ bottom lines. A few of the sustainability
initiatives documented in this report truly do shatter the trade-off
described above. Such initiatives represent the sustainability “sweet
spot” for credit unions looking forward.
At the very minimum, this report will provide your organization
with a reliable working definition of sustainability by one of the
world’s leading experts on the subject. It is our hope that this report
goes beyond these minimum benefits and provides your organization
with a variety of models to consider as you integrate sustainability
into your credit union’s strategic plan.
xi
About the Authors
Dr. Stuart L. Hart
Dr. Stuart L. Hart is the Samuel C. Johnson Chair in Sustainable
Global Enterprise at the Johnson School of Management at Cornell University. He was previously the Hans Zulliger Distinguished
Professor of Sustainable Enterprise at the Kenan-Flagler Business
School and codirector of the Center for Sustainable Enterprise at the
University of North Carolina. He also founded the Corporate Environmental Management Program at the School of Business Administration and the School of Natural Resources and the Environment
at the University of Michigan. His institution building, research,
consulting, and writing reflect a passion for a new brand of capitalism that treats the citizens of the world with compassion and fairness, and the environment as our most critical long-term asset. His
1997 article, “Beyond Greening: Strategies for a Sustainable World,”
won the McKinsey Award for best article in the Harvard Business
Review that year and helped to launch the movement for green business and corporate sustainability. With C. K. Prahalad, Dr. Hart
wrote the 2002 article, “The Fortune at the Bottom of the Pyramid,”
which provided the first articulation of how business could profitably
serve the needs of the four billion poor in the developing world. His
groundbreaking book, Capitalism at the Crossroads: The Unlimited
Business Opportunities for Solving the World’s Most Difficult Problems
(Wharton School Publishing), was published in March 2005.
Monica Touesnard
Monica Touesnard is the managing director of Learning Labs at the
Center for Sustainable Global Enterprise at the Johnson Graduate
School of Management, Cornell University. She is responsible for
planning and supervising two innovative forums, the Base of the
Pyramid (BoP) Learning Lab and the Sustainable Innovation Learning Lab (SILL), which are each comprised of member companies,
non-governmental organizations, entrepreneurs, and government
agencies. Prior to her current position, Ms. Touesnard was the
founding executive director for the Center for Sustainable Enterprise
at the University of North Carolina’s Kenan-Flagler Business School
from 2001 to 2004, an internationally recognized program that was
ranked by the World Resources Institute and the Aspen Institute as
a global leader among business schools in sustainability education in
their Beyond Grey Pinstripes Report 2003. Ms. Touesnard has additional experience in project management, teaching, and consulting
work both locally and internationally. She earned her MBA from the
University of North Carolina’s Kenan-Flagler Business School with
a focus on sustainable enterprise and has a BA in East Asian studies
from McGill University in Canada.
xiii
CHAPTER 1
Background and Context
Credit unions were originally conceived
to serve the average American, a segment
largely ignored by commercial banks until
credit unions emerged. Through regulatory
and marketplace evolution, credit unions
became somewhat stuck between banks and
microfinance institutions.
The credit union movement evolved from the changing political
landscape in Europe during the 1800s. As the industrial revolution
gradually eroded feudalism, peasant farmers were freed from their
obligations to feudal lords, enabling them to take responsibility
for their own fates and, in some cases, their own land. This freedom, however, did not come with the institutional support farmers
required to thrive in this stark new reality. No security systems were
in place to protect them should they fall on hard times, nor were
there systems in place to enable increased productivity—to escape
the poverty trap of subsistence farming.
Indeed, most peasant farmers were ill-equipped to take advantage of
this newfound independence. They lacked access to financial capital to purchase the basic farming supplies—such as seeds, fertilizer,
livestock, and equipment—necessary to eke out a meager existence,
much less to improve their productivity. In addition, the latter part
of the nineteenth century saw dramatic technological progress, making factory production more efficient and much cheaper. As manual
labor was replaced by machinery, craftsmen and artisans lost the
protection of their guilds, leading to the use of more unskilled labor
with low pay and poor working conditions. Over time, the political
power and influence of skilled craftsmen were lost to the capitalists.3
Although banking had been around for many centuries, it had historically only served the rich, large merchants, and producers. Thus,
the newly established working class—peasant farmers, factory workers, and obsolete craftsmen—did not have access to these services.
Food shortages and other hardships often forced the working class to
turn to moneylenders who charged extraordinarily high interest rates
and service fees. Failure to repay in full and on time resulted in the
loss of property or other assets that had been used as collateral.
3
Perhaps the best treatment of the upheaval associated with the Industrial Revolution can be found in Karl Polanyi’s Great Transformation:
The Political and Economic Origins of Our Time (Boston, MA: Beacon Press, 1944).
2
It was under these conditions that the concept of cooperative societies was born in Europe.4 Beginning with Robert Owen’s “Villages
of Cooperation” in the 1820s, there were many experiments with
cooperative societies in the latter part of the nineteenth century,
most having similar guiding principles. The ultimate objective of
these self-help groups was to improve the lives of people with modest
means and enhance their self-respect by providing credit at reasonable rates to members of the cooperative.
While anyone could typically join these cooperatives, regardless of social status or level of income, the possession of tangible
assets—such as land, livestock, or machinery—was necessary. To
participate, members bought shares for a small fee. These cooperatives operated under democratic principles, where each member
had one vote regardless of the number of shares owned. Members
could borrow from the group’s
pooled resources for producThe ultimate objective of these self-help groups was to
tive uses, but not for charity or
improve the lives of people with modest means and enhance
gifts. Loans were granted based
their self-respect by providing credit at reasonable rates to
on the character and “good
members of the cooperative.
standing” of individuals, with
a preference for those lacking
outstanding debts. The repayment of a loan became the responsibility of the entire cooperative or a subset of its members. Cooperative
societies created a sense of community based on common geographic
location or employment, thereby increasing the productivity of the
newly established working class.5
The cooperative model proved successful and spread throughout
Europe. It eventually reached Canada at the turn of the century, and
the United States shortly thereafter. In 1908, the first State Credit
Union Act was passed in Massachusetts with the active support
of Edward Filene, the progressive thinker and prominent Boston
merchant who pioneered the “bargain basement” idea in department
store operations.
Economic conditions during the “roaring” 1920s further shaped the
model’s evolution in the United States into what is now considered
the modern credit union movement. The unprecedented economic
growth during this period meant that average Americans had more
money to spend and save than ever before. The widespread increase
in disposable income enabled larger, more expensive purchases (like
washing machines and cars), but necessitated consumer access to
4
Self-help groups and other forms of microfinance also emerged independently in India and other European colonies during the nineteenth
century.
5
For a detailed history of the origins of the credit union, see The Credit Union Movement by J. Carroll Moody and Gilbert C. Fite (University of
Nebraska Press, 1971).
Chapter 1
3
credit. Americans’ rising prosperity, coupled with traditional banks’
exclusive focus on corporations and the wealthy, led to the emergence
of American credit unions focused on serving the underserved.6
It is important to note that this growing group of consumers did
not lack access to credit because they could not afford it, but rather
because standardized banking was simply not yet widely available to
the common man. Today’s credit unions, then, grew by addressing an
unmet need: providing financial
services to previously underToday’s credit unions, then, grew by addressing an unmet
served working Americans. The
need: providing financial services to previously underserved
Great Depression in the 1930s
working Americans.
served only to amplify the
importance of financial services
for the working poor and modest of means. Indeed, in 1934, the
National Credit Union Act was passed, enabling new credit unions
to incorporate under either state or federal law.
These events help to explain banks’ current stance that the historical intent of American credit unions was to serve the so-called poor.
Compared to their traditional clients (rich merchants and corporations),
small borrowers and savers would have likely been considered by early
commercial banks to be comparatively poor and unappealing. But as
credit unions offered their services to this large, ignored segment of the
population—thereby realizing substantial profits—commercial banks
began to follow suit. Thus, until the rise of American credit unions,
banks neglected to see the average American, let alone the working poor,
as potential customers. Traditional banks subsequently modified and
expanded their services to profit from this previously disregarded market.
The Banking Backlash
As early as 1917, state-chartered credit unions were deemed tax-exempt,
and in 1937 the same privilege was extended to federally chartered credit
unions.7 The next several decades witnessed state and federal legislation
designed to enable credit unions to expand their services through the
provision of federal deposit insurance; the issuance of secured loans and
checking accounts; and increased savings, lending, and investing capabilities.8 Credit unions’ tax-exempt status was reaffirmed in 1998 with
the passage of the Credit Union Membership Access Act (CUMAA):
Credit Unions, unlike many other participants in the financial services
market, are exempt from Federal and most State taxes because credit
6
National Credit Union Administration, “History of Credit Unions,” www.ncua.gov/AboutNcua/historyCU.html.
7
American Bankers Association, “The Changing Face of Credit Unions,” www.aba.com/NR/rdonlyres/89635B44-3A9A-407C-A9211731DDAF595C/23881/Resource9999999996.pdf.
8
American Bankers Association, “Timeline of Credit Union Expansion,” www.aba.com/Industry+Issues/Timeline+of+Credit+Union+Expansion.htm.
4
unions are member-owned, democratically elected, not-for-profit
organizations generally managed by voluntary boards of directors and
because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.9
In all likelihood, this type of legislation was intended to buffer and
protect the credit union industry from the much larger banking
sector, which had come to target increasingly the average working
American as a core customer. Not surprisingly, then, we are now
witnessing the beginnings of a banking backlash against credit unions.
Banks claim that many credit unions are indistinguishable from other
financial services organizations—particularly community banks—and
should therefore no longer qualify for tax-exemption. They argue
that credit unions are no longer niche financial players, but rather
have become full-service financial providers working without regard
to common bond membership. Banking associations like the American Bankers Association (ABA) are putting pressure on Congress to
rescind tax-exemption for credit unions. Indeed, in 2004 an initiative
among bankers—called Operation Credit Unions—was launched to
gain the industry’s support for and commitment to this change.10
Although banks attempt to make a strong case against credit
unions—that they have increasingly begun to look and act like traditional banks—examining the industry’s growth since its American
inception illustrates the opposite: that actually, banks have begun to
look and act like traditional credit unions.
The Rise of Microfinance
In addition to growing competition from the formal banking sector, microfinance institutions (MFIs) are also encroaching on credit
unions’ territory. According to a recent study, more than 1,500 MFIs
exist today, with more than 46,000 branches in Asia, Africa, and
Latin America reaching more than 54 million people.11 Microfinance
has become a real phenomenon, enjoying significant visibility and
media coverage. In 2006, for example, the Nobel Peace Prize was
awarded to Muhammad Yunus, the well-known Bangladesh microfinance pioneer and founder of the Grameen Bank.
Indeed, microfinance is now gaining the interest of diverse players,
including the mainstream financial services industry, global development agencies, and nonprofits focused on poverty alleviation. It can
be argued that MFIs—offering small-scale loans and credit services
9
NCUA Letter to Federal Credit Unions, May 2003; Subject: Credit Union Development Initiatives.
10
American Bankers Association, “Credit Union Historical Information,” www.aba.com/Industry+Issues/Credit+Union+Historical+Information.htm.
11
C. Lapenu and M. Zeller, “Distribution, Growth, and Performance of Microfinance Institutions in Africa, Asia, and Latin America,” Discussion
Paper No. 114 (Washington, DC: Food Consumption and Nutrition Division [FCND], 2001), 1.
Chapter 1
5
to the unbanked in the developing world—are today’s version of the
nineteenth-century European cooperative societies (see Figure 2).12
While various forms of microlending exist, most are characterized
by a distinctive organizational form: Individuals united by a common bond (such as family, industry, or community) self-assemble
into “peer” groups. Like their European counterparts, these groups
pool their meager financial resources for intermember lending and
collective gain, analogous to early cooperative societies.
As microfinance has gained momentum in poor countries, there is now growing interest in
offering similar services in the developed world. Indeed, the working poor in developed countries experience similar challenges to those in the developing world when trying to access financial services at affordable rates.
As microfinance has gained momentum in poor countries, there is
now growing interest in offering similar services in the developed
world. Indeed, the working poor in developed countries experience
similar challenges to those in the developing world when trying to
access financial services at affordable rates. Internationally recognized
MFIs such as the Grameen Foundation and ACCION Network are
now expanding their services to the United States. Even traditional
financial institutions such as Citigroup, ABN AMRO, and Morgan
Stanley are beginning to experiment with microfinance initiatives.
Ironically, then, as the direct descendents of European cooperative
societies, most credit unions today have lost touch with their ancestry. With a few notable exceptions, credit unions no longer serve selfhelp groups through small-scale loans and financial services. Indeed,
it is now unusual for credit unions to even be part of the dialogue in
current microfinance circles.
Figure 2: Similarities Between Early European Cooperatives
and MFIs
Feature
Cooperative
societies
MFIs
Individuals make a financial contribution to the group
X
X
Small loans issued to group members for productive purposes
X
X
Common bond
X
X
Affordable loans to people in poverty
X
X
Loans granted based on character, not collateral
X
X
Must be a member in good standing to receive a loan
X
X
12 B. Sample, “How RESULTS Activists Collaborated with Microcredit Leaders and High Government Officials to Build the Microfinance Movement,” RESULTS (2006), www.results.org/website/download.asp?id=2388.
6
The Big Squeeze
With banks threatening from above and MFIs encroaching from
below, credit unions are caught in the proverbial “big squeeze” (see
Figure 3). In fact, without a distinctive value
proposition, the credit union industry appears to
be stuck in the middle, with serious implications
Figure 3: Credit Unions Are Stuck in the
for long-term growth. From 2003 to the present,
Middle
for example, membership in credit unions has been
stagnant at 29% of the U.S. population. To make
matters worse, the industry has an aging memberBanks
ship base with an average age of 47. Only 6% of
Loans, savings, checking, credit cards
credit union members are between the ages of 18
and 24, and 17% between the ages of 25 and 34.13
Indeed, the highest membership penetration is
Credit unions
among people aged 34–64, while the lowest penetration level is found among people aged 18–34.14
Microfinance institutions
Not surprisingly, the Credit Union National Association (CUNA) recently recommended making
the attraction of young adults to credit unions a
strategic priority. Typical credit union members
today (aged 25–44) seek loans (auto, education,
home, etc.). Older members, in contrast, tend
to focus more on savings products.15 Attracting younger members
will clearly require creative new product offerings. Leveraging young
Microcredit, microinsurance, microenterprise
13 CUNA, 2006–2007 National Member Survey, p. 17.
GEN Y: UNDERSERVED AND SOCIALLY CONSCIOUS
Perhaps the most underserved segment
suggests the survey of 1,800 young
of the population, young adults, is also
people. It says 81% have volunteered in
the most receptive to organizations that
the past year, 69% consider a company’s
integrate sustainability into their core
social and environmental commitment
strategies. According to an online study
when deciding where to shop, and 83%
by two Boston-based companies—Cone
trust a company more if it is socially or
Inc. and AMP Insights—“millennials,” or
environmentally responsible.
Gen Y, are “the most socially conscious
consumers to date.” Among 13- to
25-year-olds, 61% feel personally respon-
Source: Sharon Jayson, “Generation Y Gets
Involved,” USA TODAY, October 23, 2006.
sible for making a difference in the world,
Chapter 1
7
people’s interest in the environment and sustainability through products and services that address these concerns might provide one such
avenue. Moreover, tax exemption gives credit unions a cost advantage
over for-profit players.
If credit unions are to overcome this “big squeeze,” they must revive
the same innovative spirit that triggered their initial growth and
development: They must go “back to the future” by engaging today’s
underserved, in order to uncover tomorrow’s untapped opportunity.
By returning to their roots—serving the underserved—and incorporating environmental concerns into new product offerings, credit
unions may be able to carve out a unique position in the financial
services market attractive to the younger demographic.
Indeed, by integrating sustainability into their core strategies, credit
unions might simultaneously differentiate themselves from banks
(thereby lessening litigation
pressures) and MFIs (since few
If credit unions are to overcome this “big squeeze,” they
MFIs have addressed environmust revive the same innovative spirit that triggered their
mental concerns). Given credit
initial growth and development: They must go “back to the
unions’ reputation for honesty,
future” by engaging today’s underserved, in order to uncover
the “back to the future” strattomorrow’s untapped opportunity.
egy may also deal a significant
blow to existing players in the
subprime lending market, many of whom are mired in ethical and
legal controversy.
In the chapters that follow, we identify best practices in sustainability
within existing credit unions and other financial institutions. Before
examining specific sustainability initiatives, however, we first provide
some background on the meaning of the term “sustainability.” The
next chapter gives a brief sketch of the historical evolution of this
idea. We then introduce the Sustainable Value Framework, which
will serve as the organizing framework for our presentation of best
practice cases.
8
CHAPTER 2
The Road to Sustainable Enterprise
The Industrial Revolution brought about
factories and pollution. In the 1980s and early
1990s, corporations began to see the benefits of
pollution prevention and product stewardship.
Currently, companies are not only addressing
mounting social and environmental concerns,
but also building the foundation for future
innovation and growth.
Parts of this section are excerpted from Stuart L. Hart, Capitalism at the Crossroads: The
Unlimited Business Opportunities for Solving the World’s Most Difficult Problems (Upper
Saddle River, NJ: Wharton School Publishing, 2005).
Following decades of depression, fascism, and world war, industrial
capitalism came roaring back in the 1950s, with the United States as
the clear world leader. High-volume, standardized mass production
was the watchword. Waste, emissions, and pollution were considered
necessary by-products of economic progress. They represented, as
the saying goes, “the smell of money.” Figure 4 summarizes the path,
taken over the past 50 years, toward a more inclusive—and sustainable—form of enterprise.
By the late 1960s, pollution levels reached a breaking point in the
United States as large corporations had, for the most part, been
unresponsive to environmental issues. It appeared that the only way
to deal with this problem was by forcing companies to clean up the
mess they were making. The Environmental Protection Agency, and
other regulatory agencies, were created precisely for this purpose. A
mountain of “command and control” regulation was passed throughout the 1970s, aimed at forcing companies to mitigate their negative
environmental impacts.
Regulatory response to the situation shaped a generation of businessmen and women. Not surprisingly, the managers and executives who
rose to prominence during the postwar years were predisposed to
think of environmental and social issues as negatives for business. A
socially minded executive or company might give back to the community through philanthropy or volunteering, but such concerns
would certainly never be part of the company’s core activities! The
social responsibility of business was to maximize profits, as Milton
Friedman advocated, and it seemed clear that social or environmental
concerns could only serve to reduce them.
The decade of the 1980s brought with it a growing sense of unease
with command and control regulation. Despite enormous expenditures, it was not at all clear that the end-of-the-pipe approach to
pollution control and regulation was working. “Greening,” which
first appeared in the mid-1980s, was an important breakthrough. It
10
Figure 4: The Road to Sustainable Enterprise
1945–1960s
Pollution
denial
Smell of money
(oblivious)
Late 1990s–present
Beyond greening
• Clean technology
• BoP
Eco-effectiveness
(positive force)
Obligation
Reorientation
1970–1980s
End-of-pipe
regulation
Pay to reduce
negative impact
(trade-off)
Opportunity
Mid 1980s–1990s
Greening
• Pollution prevention
• Product stewardship
Eco-efficiency
(win–win)
eliminated, once and for all, the myth that a trade-off exists between
a firm’s financial and societal performance. Driven by realizations
that pollution is waste, and that dialogue with stakeholders is superior to court battles, greening opened the door for companies to
take a proactive stance on social and environmental issues. Pollution
prevention and product stewardship have succeeded in reducing
waste, emissions, and pollution, while simultaneously reducing cost,
risk, and stakeholder resistance. For instance, companies like 3M
and DuPont have saved literally billions of dollars over the past two
decades through greening initiatives. The World Business Council for
Sustainable Development, with its mantra of eco-efficiency, helped
erase the false dichotomy between business and environmental
performance.
The greening revolution was indeed an important first step onto the
path toward sustainable enterprise; it shattered the myth that societal
issues are expensive obligations. However, greening alone fell short
of truly effective social and
environmental performance:
The greening revolution was indeed an important first step
Improvements to existing
onto the path toward sustainable enterprise; it shattered the
product systems and producmyth societal issues are expensive obligations.
tion processes served only to
slow the rate of environmental
damage, rather than to stop or reverse the effects. Furthermore, most
corporations continued to exploit the developing world’s abundant
resources and cheap labor, only to serve existing, higher-income consumers. It became increasingly apparent that a more inclusive—and
Chapter 2
11
sustainable—form of capitalism would instead create corporate and
competitive strategies that simultaneously deliver global economic,
social, and environmental benefits. By the late 1990s, it was clear
that the corporate sustainability agenda encompassed more than
greening—and that substantial business opportunities existed as well.
Today, corporations are being challenged to move beyond greening by
pursuing new technologies that have the potential to be inherently
clean (e.g., solar power, wind energy, biofuels, biomaterials, nanotechnology, wireless IT), and by bringing the benefits of capitalism
to the entire human community of 6.5 billion people (rather than
just the 800 million at the top of the economic pyramid). By moving
beyond greening, companies address mounting social and environmental concerns while building the foundation for future innovation and growth. Adoption of this new business approach not only
enables implementers to outperform competitors today, but, more
importantly, it positions them to penetrate the technologies and
markets of tomorrow. In short, sustainable enterprise creates competitively superior strategies, simultaneously moving us more rapidly
toward a sustainable world.
Adoption of this new business approach not only enables implementers to outperform competitors today, but, more importantly, it positions them to penetrate the technologies and markets
of tomorrow. In short, sustainable enterprise creates competitively superior strategies, simultaneously moving us more rapidly toward a sustainable world.
Driven by an accelerating rate of technological evolution, as well as
the growing need for fundamental change if we are to accommodate
a human population of 8–10 billion, “beyond greening” motivates
companies to think in terms of reorientation rather than merely
minor adjustment. Leapfrogging to inherently clean technologies and
disruptive business models aimed at serving the base of the economic
pyramid enables companies to confront the two biggest problems
facing humanity today: poverty and global-scale environmental degradation. These strategies also provide the basis for the repositioning
and growth required for companies to thrive in the future.
12
CHAPTER 3
The Sustainable Value Framework
The Sustainable Value Framework strategies
include clean technology, BoP, pollution
prevention, and product stewardship. Turning
the concepts of greening and beyond greening
into actionable strategies can be challenging for
businesses, particularly for financial services
providers percieved as embedded in a “clean”
industry. We therefore use this framework as
a vehicle for categorizing and assessing the
sustainability-related products, initiatives, and
strategies launched by credit unions.
The Sustainable Value Framework16 is based on a two-by-two matrix
composed of two key dimensions crucial to business performance
and effectiveness (see Figure 5). The vertical axis of this framework
reflects the firm’s need to manage today’s business while simultaneously creating tomorrow’s technologies and markets. This dimension
captures the tension created by the need to realize short-term results
while also fulfilling expectations for future growth. The horizontal
axis reflects the firm’s need to nurture and protect internal organizational skills, technologies, and capabilities while simultaneously
infusing itself with new perspectives and knowledge from outside
stakeholders. This dimension reflects the tension created by the need
to buffer operations so that they may operate without distraction,
while at the same time remaining open to fresh perspectives and new,
disruptive business models and technologies.
Juxtaposing these two dimensions produces a matrix with four
distinct dimensions of performance crucial to generating shareholder
(or member) value—and to understanding sustainability in terms
relevant to the business. The lower-left quadrant focuses on those
aspects of performance that are primarily internal and near-term
in nature—cost and risk reduction. Quarterly earnings growth, as
well as reduced exposure to liabilities and other potential losses, are
important drivers of wealth creation. Clearly, unless the firm can
operate efficiently and reduce its risk commensurate with returns,
value will be eroded.
The lower-right quadrant also focuses on performance dimensions
that are near-term in nature, but it includes salient stakeholders
external to the firm: suppliers and customers in the immediate value
chain, as well as regulators, communities, non-governmental organi-
16 The Sustainable Value Framework was originally created by Stuart Hart in “Beyond Greening: Strategies for a Sustainable World,” Harvard
Business Review January–February 1997: 66–76. It was further elaborated by Stuart Hart and Mark Milstein in “Creating Sustainable
Value,” Academy of Management Executive 17, no. 2 (2003): 56–69.
14
Figure 5: Dimensions of Shareholder Value
Buidling tomorrow’s opportunity
Innovation
Growth path trajectory
Repositioning
Nurturing
internal
capabilites
Engaging
external
constituencies
Shareholder
value
Reputation
Legitimacy
Managing today’s business
zations (NGOs), and the media. Unless it respects these stakeholders’ interests, the firm’s right to operate may be questioned. But if
it uses creativity to include such interests, the firm can differentiate
itself, enhance its reputation, and establish the legitimacy it needs to
preserve and increase value.
Shifting to the upper-left quadrant of the model, the firm must not
only perform efficiently in today’s businesses, but it should also be
constantly mindful of generating options for tomorrow. This means
developing or acquiring the skills, competencies, and technologies
that reposition the firm for
future growth. Without such a
Without such a focus on innovation, it will be difficult for
focus on innovation, it will be
the firm to create the new product and service flow necessary
difficult for the firm to create
to ensure that it prospers well into the future.
the new product and service
flow necessary to ensure that it
prospers well into the future. The creation of value thus depends on
the firm’s ability to creatively destroy its current capabilities in favor
of the innovations of tomorrow.
Finally, the upper-right quadrant focuses on identifying the needs
that will define future growth markets. Growth requires that the firm
either offer new products to existing customers or tap into previously
Chapter 3
15
underserved markets. A convincing articulation of how and where
the firm plans to grow in the future is crucial to the generation of
shareholder value. The growth trajectory therefore provides guidance
and direction for new technology and product development.
Firms must perform well in all four quadrants of the model if they
are to continuously generate shareholder value over time. Operating
within only one or two quadrants is a prescription for suboptimal
performance and even failure. Just as the creation of shareholder
value requires performance on multiple dimensions, the societal
challenges associated with sustainable development are also multidimensional. Accordingly, we can use the same framework described
above to illustrate four complementary strategies for sustainability
corresponding to each of the four quadrants of the model (see Figure 6). Each captures a conceptually distinct aspect of sustainability
and connects to firm performance and shareholder value in a distinct
manner.
Figure 6: The Sustainable Value Framework
Tomorrow
Strategy:
Clean technology
Develop the sustainable
competencies of the future
Strategy:
Base of the pyramid
Create a shared road map
for meeting unmet needs
Corporate payoff:
Innovation and repositioning
Corporate payoff:
Growth and trajectory
Sustainable
value
Internal
External
Strategy:
Product stewardship
Integrate stakeholder views
into business processes
Strategy:
Minimize waste and
emissions from operations
Corporate payoff:
Corporate payoff:
Reputation and legitimacy
Today
16
The lower-left quadrant focuses on pollution prevention: doing more
with less. Pollution prevention strategies enable the firm to squeeze
more saleable product out of each unit of energy and raw material
that it buys. Recognizing that material consumption, pollution, and
waste generation are key sustainability drivers, this strategy emphasizes the reduction of the waste and emissions associated with a firm’s
current operations. Credit unions are already taking steps to address
this quadrant. Many have introduced internal recycling and energy
efficiency initiatives, and an
increasing number are incorpoCredit unions are already taking steps to address this quadrating green building principles
rant. Many have introduced internal recycling and energy
into new facilities or major conefficiency initiatives, and an increasing number are incorpostruction projects. Some have
rating green building principles into new facilities or major
even built structures according
construction projects.
to LEED (Leadership in Energy
and Environmental Design)
building standards. These activities help credit unions reduce their
long-term operating costs and minimize their impact on the environment. They do not, however, impact the core products or services
they offer their members. That is the focus of the next quadrant.
The lower-right quadrant focuses on product stewardship. These strategies challenge companies to access voices from beyond their immediate operational control, taking the full life cycle of their products
and services into account. This means more effective stakeholder
engagement, new forms of governance, and a proactive approach
to corporate social responsibility. Many credit unions are already
building community goodwill through activities such as community
workdays and philanthropic giving. Sustainability reports and green
buildings are also used to build rapport in the community. A few
credit unions have begun offering financial products encouraging
home energy conservation, green building, and the purchase of high
fuel-efficiency vehicles by members. All of these initiatives enhance
credit unions’ standing in the community, making them good corporate citizens and differentiating them from their competitors.
The upper-left quadrant focuses on the development of new, inherently clean technologies. Specifically, this quadrant focuses on the
adoption of new technologies—such as solar power, wind energy,
biofuels, biomaterials, sustainable construction, and wireless telecommunications—that could render many of today’s energy- and
material-intensive products obsolete. For credit unions this means
providing unique financial services and access to capital, which
enable this type of technological innovation. To date, only a handful
of financial institutions have ventured into this territory.
Finally, the upper-right quadrant focuses on the base of the pyramid
(BoP). Whether dealing with investment in urban cores, brownfield
Chapter 3
17
redevelopment, or the four billion poor at the base of the economic
pyramid, this quadrant focuses on those who have been underserved
or even exploited by industrial capitalism to date. For many companies this quadrant is the most challenging, since their products or
services are either inappropriate for or beyond the means of those
living in poverty. Credit unions, however, are well suited to adopt
this strategy. In fact, this quadrant helps credit unions return to their
roots of serving people of modest means. Some credit unions already
offer innovative services such as individual development accounts
(IDAs), payday lending alternatives, immigrant services, and microfinance solutions.
In sum, global sustainability is a complex, multidimensional concept
that cannot be addressed by any single strategy. Creating sustainable
value requires that firms—including credit unions—address each
of the four quadrants and be clear about how the strategies associated with each will increase
shareholder and member value.
Some credit unions already offer innovative services such as
First, credit unions can create
individual development accounts (IDAs), payday lending
sustainable value by reducing
alternatives, immigrant services, and microfinance solutions.
the level of waste and pollution
associated with their operations.
Second, they can operate at greater levels of transparency and responsiveness, taking the entire product life cycle into account. Third,
they can create sustainable value though the facilitation of new,
inherently clean technologies that hold the potential to dramatically
reduce humanity’s environmental footprint. Finally, credit unions
can serve the needs of those at the base of the income pyramid in a
way that facilitates inclusive wealth creation and distribution. In the
next chapter, we examine specific cases illustrating each of these four
strategies for sustainability.
18
CHAPTER 4
The Cases
Over a 10-month period, between October
2006 and July 2007, more than 35 financial
institutions were identified and examined
by the researchers and 24 interviews were
conducted; 27 institutions with innovative
programs and services are highlighted in this
report.
To develop a clearer idea of current best practices in sustainability in
the financial services sector, a short list of innovative credit unions
and banks worldwide was generated in consultation with the Filene
Research Institute.17 Using this list, semi-structured interviews were
conducted via telephone and in person to identify and understand
the participating institutions’ respective sustainability products and
initiatives. Archival research was also conducted for each of the institutions and initiatives.
We used a snowball sampling technique to identify additional
sustainability initiatives for study: Respondents were asked to name
other credit unions, banks, or sustainability initiatives worthy of
further attention. This snowball process continued until we reached
saturation—the point at which no new suggestions were made. Over
a 10-month period, between October 2006 and July 2007, more
than 35 institutions were identified and examined and 24 interviews
were conducted; 27 institutions with innovative programs and services are highlighted in this report.
Each interview lasted approximately 60 minutes, and where necessary, a follow-up interview ensued. The interview protocol included
the following questions:
• Please provide a brief background of your institution and the
reason for its creation. Whom do you currently serve? What is the
size of your institution? What are your most important products
and services?
• Do you have any programs that specifically target low-income or
underserved clients? Please describe.
• Do you have any programs that address particular environmental
or social issues? Please provide details.
17 Our thanks to George Hofheimer and Josey Siegenthaler at Filene Research Institute for their generous advice and assistance in this
process.
20
• Do you have an explicit sustainability program or strategy? Please
provide details.
• Do you have any other unique programs or services that you feel
differentiate your organization from other financial institutions?
• Do you know of any other financial institutions we should talk to
that offer sustainability-focused products or services?
• Are there any hard-copy or Web resources that we can access for
further detail?
In the sections that follow, we present the results of this research for
the 27 programs and institutions identified. We use the four quadrants
of the Sustainable Value Framework to categorize each initiative as pollution prevention, product stewardship, clean technology, or BoP.
Reducing Waste Through Pollution
Prevention
What does it mean for financial services organizations—which do
not appear to have a visible impact on the environment—to undertake pollution prevention? While many have been lulled into thinking they have no significant impact, some financial institutions are
taking the “reduce, reuse, recycle” mantra to heart. Through efforts
to minimize their environmental footprint, several of the interviewed
companies have instituted programs focused on limiting paper usage,
encouraging alternative travel and transportation, reducing energy
consumption, decreasing garbage output, and implementing green
building design.
Our research finds eight particularly noteworthy financial institutions launching a variety of initiatives addressing pollution prevention. In this section, we focus on a selection of financial institutions
whose pollution prevention programs are of special interest. See
Appendix 1 for information on programs and initiatives not discussed in this section.
Paper Usage
One of the larger impacts financial services have on the environment is paper consumption. Initial steps taken to lessen paper usage
include purchasing recycled and/or chlorine-free paper, duplex printing, using vegetable-based inks, and recycling used paper. Increasingly, credit unions are also encouraging members to use electronic
banking for monthly statements, transactions, and communications.
In 2003, the federal government passed the Check 21 bill making it
legal to transfer funds electronically, negating the need for hard-copy
checks. Since then, HSBC, like other financial institutions, has introduced a new product called Remote Deposit Capture. In short, HSBC
provides a scanner—small enough to sit on a desk—that enables
Chapter 4
21
company employees to scan in deposits they receive. After checks are
scanned they are destroyed. In addition to accelerating the accessibility of funds, Remote Deposit Capture reduces environmental
impacts: It lowers CO2 emissions by reducing the transport necessary
for check deposition, and it eliminates the need for envelopes required
to send the checks, thereby significantly reducing paper usage.
ShoreBank Pacific created the EcoCash checking account, which
encourages paperless transactions by providing online banking with
optional bill-paying capability, and by replacing checks with a Visa
check card. The account allows five free paper checks per month,
beyond which a $3 check fee is applied. A portion of these proceeds
is used to offset its environmental impact through The Climate Trust.
Alternative Travel and Transportation
Commuting and travel is an area emphasized by many in the financial services sector when reducing environmental impact. Some credit
unions are experimenting with initiatives that encourage employees
to use alternative modes of transportation to get to work.
Canada’s largest credit union, Vancity—boasting more than 50
branches, more than 34,000 members, and $10.5 (CAD) billion in
assets—has announced its goal to become carbon neutral by 2010.
The company is aggressively reducing CO2 emissions through a
number of alternative transportation programs. Incentives
Canada’s largest credit union, Vancity—boasting more than
for employees range from a
50 branches, more than 34,000 members, and $10.5 (CAD)
discounted public transportabillion in assets—has announced its goal to become carbon
tion pass program and a “guarneutral by 2010.
anteed ride home” program to
providing showers and bicycle
racks encouraging employees to bike to work. Additionally, two tiny,
two-seater “smart” cars purchased by the credit union are available
for use by employees at any time. These vehicles can be accessed
through a system similar to borrowing books from a library. Employees who must drive as part of their job are given a discount loan for
purchasing low-emission vehicles. Finally, unavoidable emissions are
offset through Vancity’s carbon offset program.18
Energy
With rising energy costs and an increased awareness of carbon emissions, many financial institutions are taking steps to minimize their
energy consumption. For instance, replacing incandescent lights with
compact fluorescents; updating lighting systems to include automatic
18 Vancity, “How We’re Reducing Our CO2 Emissions,” www.vancity.com/MyCommunity/WhereWeFocus/Climate/ReducingCO2/.
22
light sensors; and turning off lights and powering down idle computers represent straightforward energy reduction strategies. When
building renovations are done, credit unions can easily upgrade heating and cooling systems, which in some instances can improve day
lighting.
In order to effectively address environmental concerns, Australia’s
mecu determined that staff participation is necessary within the
organization. An internal sustainability consulting team was created,
in which eight employees act as change leaders to explore opportunities for reducing mecu’s environmental footprint. The group seeks
constructive criticism of minimization strategies, which is reflected in
its monthly report and available to all employees.
For example, one proposed strategy involved the purchase and use of
renewable energy, a significant challenge since Australia relies heavily
on coal for its energy needs. Indeed, the country’s vast coal reserves
are easily and cheaply accessible. Although wind is the fastest growing form of renewable energy
in the country, it is comparably
An internal sustainability consulting team was created, in which
pricey. In order for mecu to
eight employees act as change leaders to explore opportunities
justify the purchase of the more
for reducing mecu’s environmental footprint.
expensive green energy, it has
to find the equivalent in energy
savings. The team determined that if 7% of current energy consumption were cut, the company could purchase 10% renewable energy.
The team’s plan exceeded initial targets and reduced overall energy
consumption by 17%. This was achieved primarily by turning off
electronic equipment at its power source when not in use. As a result,
mecu is now able to purchase 25% of its energy from renewable
sources without incurring any added cost.
Garbage
In addition to reducing energy consumption, financial institutions
have become focused on decreasing their garbage output. Recycling
paper, cardboard, glass, plastic, aluminum, and toner cartridges has
become standard procedure. In addition, many now donate office
equipment and furniture they no longer need to nonprofits rather
than sending it to landfills. However, mecu has become even more
specialized in garbage reduction by composting organic materials at
its headquarters. To encourage this behavior, the sustainability team
replaced personal garbage bins with one communal receptacle on
each floor. Employees receive bags for their food scraps, which are
later composted. This system reduces mecu’s garbage output from
eight bins every other week to one.
Chapter 4
23
Green Buildings
Across North America, financial institutions are committing to the
use of green materials and construction practices for both new buildings and renovations. In fact, at least nine credit unions have registered construction projects with the U.S. Green Building Council
and seek LEED certification; many others are incorporating these
specifications but are not currently seeking certification.19
Navy Federal Credit Union is setting the standard for green buildings. Its LEED-certified call center—the first LEED-certified building
in the Pensacola area—features carpet made from recycled materials; light sensors that decrease or increase artificial light depending
on the availability of natural light; manually controlled heating and
cooling accessible to employees; flat-screen computer monitors that
use 60% less energy than regular CRT screens; and low-maintenance
landscaping featuring native plants that do not require irrigation
or mowing. The call center is virtually 100% free of allergens and
particulates as a result of special filters on the heating and cooling
units. To create a workplace that is aesthetically pleasing, the openspace work area is divided by large partitions imprinted with wooded
scenes, shrimp boats, Pensacola architecture, and beach vistas.20
Assiniboine Credit Union opened its first green branch in 2006,
exceeding Canadian environmental sustainability standards. The
building showcases more than 30 environmentally friendly attributes, including counters made from straw, skylights, and recycled,
nontoxic paint. The combined efficiency of geothermal cooling,
insulation created from spun rock, and strategically placed windows
reduces heating costs by 75%.21
Enhancing Reputation Through
Product Stewardship
The financial services sector has a considerable influence on its
external stakeholders—clients, investors, and business partners—
through its external activities, products, and services. In an effort to
give back to the communities in which they operate, many financial
institutions are launching programs in corporate social responsibility
(CSR). Only a handful, however, have initiated true product stewardship activities designed to reduce their impact on the environment and promote sustainability through their products and services.
19 CUNA, “CUs Are LEEDers in Green Building,” www.cuna.org/newsnow/07/system072507-6.html.
20 Carlton Proctor, Navy Federal Staying “Green,” Pensacola Business Journal (June 25, 2006).
21 Assiniboine Credit Union, “Sound Environmental Practices,” www.assiniboine.mb.ca/My-Community/Building-Sustainable-Commun/GoingGreen/Rivergrove-Branch.aspx.
24
Our research finds 8 institutions launching substantial CSR initiatives, and 11 companies with serious product stewardship programs.
In the sections that follow, we will focus on a subset of these CSR
and product stewardship programs that are of special interest. For
information on company activities for CSR not discussed in this
section, reference Appendix 2; for product stewardship, reference
Appendix 3.
Corporate Social Responsibility Initiatives
Most credit unions and other financial institutions recognize the
importance of being good corporate citizens. A few have built this
attribute into their charters; they recognize that strong communities are good for business, and
they structure their products
In an effort to give back to the communities in which they
and services with this in mind.
operate, many financial institutions are launching programs
However, most financial instituin corporate social responsibility (CSR). Only a handful,
tions demonstrate this quality
however, have initiated true product stewardship activities
through corporate social respondesigned to reduce their impact on the environment and
sibility initiatives. These activipromote sustainability.
ties range from sponsoring local
sports teams, festivals, fundraising, and cultural events, to giving to local charities and hosting community workdays. Such efforts increase visibility within communities
and enhance corporate image and reputation, but have little to do
with core products or services. In this section, we highlight current
CSR initiatives pertaining to grants and giving, socially responsible
investing (SRI), and SRI reporting.
Grants and Giving Programs
mecu has established a Community Partnership Program to which it
dedicates up to 4% of annual after-tax profits. Upon consultation with
its members, mecu has identified four areas it supports: social capability,
science, education, and the environment. Through a partnership with
Landcare and Trust for Nature they will create the mecu Conservation
Landbank to purchase environmentally significant land, such as virgin
bush or failed farms. The company will restore the acquired properties
by removing nonnative plant and animal species. The land will then
be used for educational and research-based purposes. In addition, the
program will be utilized as a marketing tool to improve the company’s
visibility and standing within the community. The mecu board has an
ongoing commitment of $750,000 (AUD) to this endeavor.
Vancity collaborated with the Real Estate Foundation of British
Columbia in 2001 to create the Green Building Grant Program,
which supports climate change solutions within the community. The
objective of the program is to minimize the impact new construction
has on climate change. The shared vision is to reduce greenhouse gas
Chapter 4
25
emissions and improve sustainable land-use practices by supporting
green building initiatives in British Columbia. Each year grants of
up to $50,000 (CAD) are provided to fund building renovations or
retrofits to existing buildings; regulatory changes that will advance
green building development and practice; and education to increase
the understanding and use of practical green building strategies.
Several credit unions have created philanthropic programs centered
around their Visa cards. Santa Cruz Community Credit Union,
for example, has established a Community Visa Donation Fund.
Through this initiative, the credit union donates five cents to the
fund—regardless of the amount charged—when members use the
Santa Cruz CCU Visa card. Each year the fund raises between
$10,000 and $12,000; credit union members nominate and
select five nonprofit award recipients from the Santa Cruz CCU
membership.
Partnership Certificates represent philanthropic endeavors that
support local nonprofits. Both Santa Cruz CCU and ShoreBank
Pacific have developed this one-year certificate of deposit (CD),
in which depositors support member nonprofits. Interest earned
from the investment in the Partnership Certificate is donated to the
designated nonprofit when the certificate matures. To promote the
program, Santa Cruz CCU encourages members to open two CDs
simultaneously: a standard CD and a Partnership Certificate. Both
accounts receive a 0.25% increase in interest, thereby benefiting both
the account holder and the nonprofit.
Lower-income communities are becoming increasingly discerning
about the nature of development in their neighborhoods. Since dark
storefronts are deemed undesirable, there is a growing reluctance to
permit businesses that are not open in the evening. To enter this type
of neighborhood, Wainwright Bank and Trust Company created
the first community room in 1995 at its Coolidge Corner branch in
Brookline, Massachusetts. Using the distinctive features of the building, the company takes advantage of an interior garage door that is
lowered in the evenings. This configuration creates a space that can
be utilized by the community, in which computer terminals and
a fireplace are accessible. Keypad access from the street makes the
space available to nonprofit clients after hours. Clients reserve the
room through the bank at no charge and are given a unique access
code that is reset for each meeting. By creating a new atmosphere,
this cyber branch has become a community gathering place, connecting Wainwright more closely to the community and attracting
new customers. There are now seven such community rooms at other
Wainwright branches, and other banks in the Boston area are beginning to incorporate this concept as well.
26
Indeed, through its innovative programs, Wainwright Bank succeeds in creating mutual value: The community gains access to
needed products and services, while Wainwright realizes an increase
in clientele and transactions. Through the creation of cybercafés, the
company has reinvigorated traditional banking services with modern
technology. At its Coolidge branch, for example, the café combines
environmentally friendly components like sun tubes in the ceiling
and bamboo flooring with colorful LED lights 16 feet high. Coffee
and large plasma TV monitors accompany high-speed Internet and
e-mail access. The company’s cybercafés create a pleasant waiting area
for clients as well as an opportunity to attract a younger, tech-savvy
clientele.
Socially Responsible Investing
As interest in socially responsible investing (SRI) grows,22 many are
realizing that community-based credit unions, banks, and community development financial institutions (CDFIs) are themselves
“responsible” investment options. In fact, it could be argued that
they represent the most direct type of socially responsible investment to date. Banking with these institutions enables critical lending
options, which reinvigorate regional economies and strengthen local
communities.
As interest in socially responsible investing (SRI) grows, many are realizing that communitybased credit unions, banks, and community development financial institutions (CDFIs) are
themselves “responsible” investment options.
Headquartered in the Netherlands, Triodos Bank guarantees that
all deposits made will be used to finance socially responsible businesses and nonprofits. Depositors can open either a general savings
account or a charity account. The Triodos Saver account supports
the overall activities and investments of the bank, such as organic
farms, fair trade companies, and nonprofit organizations. The Triodos
Charity Saver account allows depositors to support a specific cause.
Participants in this savings program choose from lending areas such
as environment, organic farming, fair trade, and sustainable housing.
The company annually donates the equivalent of 0.25% of the average balance of funds held in these accounts for that year, and depositors receive returns on investment. Depositors can donate a greater
percentage of their interest, if desired.23
22 SRI is a way for individuals, nonprofits, and businesses to invest money in a way that reflects their values. This investment strategy takes
into consideration social and/or environmental impacts. Investors can feel comfortable knowing their investment is having a more positive
impact on society.
23 Triodos Bank, “Triodos Charity Saver,” www.triodos.co.uk/uk/personal_banking/savings/our_accounts/?lang=).
Chapter 4
27
Wainwright Bank and Trust Company acquired a 33% share in
Trillium Asset Management, becoming the largest shareholder in the
otherwise employee-owned company. Founded in 1982, Trillium
Asset Management is an independent investment firm focused on
socially responsible investing and advocacy. With Trillium Asset
Management acting as its proxy, Wainwright is able to file shareholder resolutions against companies neglecting to honor basic civil
rights. This facilitates action against companies to ensure due process,
diversity in the workplace, the prevention of gender and racial discrimination, compliance with child labor laws, and the cessation of
sweatshop labor and other workplace negligence. For example, in the
late 1990s when Chrysler Corporation policies discriminated against
gays and lesbians, Trillium Asset Management was able to file a
shareholder resolution that influenced Chrysler’s policies and actions.
As a result, DaimlerChrysler announced the implementation of
sexual orientation nondisclosure policies. According to Steven Young,
senior vice president of Consumer Banking, Wainwright is interested
in changing corporate behavior through shareholder proposals to create a more just, tolerant, and sustainable society.
SRI Reporting
While SRI reporting traditionally focuses on highlighting the good
deeds of organizations, it has more recently evolved into a sophisticated form of nonfinancial reporting. Reports that follow the Global
Reporting Initiative (GRI) guidelines enable comparative analysis
among compliant companies. Credit unions like mecu and Vancity
receive accolades for outstanding sustainability reporting; in 2006 their
reports were ranked in the top 50 by SustainAbility’s Global Reporters
program. Effective SRI reporting illustrates the ability of credit unions
to paint compelling pictures of economic, social, and environmental
stewardship in local communities and to influence public behavior.
Product Stewardship Initiatives
While many financial institutions implement programs demonstrating corporate social responsibility, few actually address sustainability through their core product and service offerings. This section
describes several contemporary product stewardship initiatives,
involving fuel-efficient vehicle loans, alternative energy loans, and
broader efforts to gauge the impact of sustainable lending programs.
Fuel-Efficient Vehicle Loans
Permaculture Credit Union is a small, innovative financial institution
located in New Mexico. It is dedicated to sustaining the earth and its
inhabitants by reinvesting surplus resources for the benefit of both. Permaculture CU offers its members simple, straightforward discounts on
large purchases that minimize impact on the natural environment. These
discounts apply to all of the company’s products and services, including
28
loan discounts for fuel-efficient automobiles. Highway mileage, as listed
on the Environmental Protection Agency’s Web site, is used to determine
the vehicle sustainability discount (see Figure 7). Approximately 75% of
the car loans in Permaculture CU’s portfolio qualify for this discount.
Figure 7: Vehicle Sustainability Discounts at Permaculture CU
Mileage
Discount
35 mpg
0.75%
45 mpg
1.5%
Alternative fuel
1%
Electric vehicle
2%
mecu offers a slightly different product through its goGreen car loan.
Not only are tiered interest rates offered for all low-emission vehicles
(depending on their emission levels), but carbon emissions are also
completely offset for all car loans serviced. mecu secures offsets for
clients through collaboration with Greenfleet. An Australian NGO
offering carbon-offset programs, Greenfleet sequesters carbon by
planting native trees in environmentally challenged areas throughout Australia. Each year, for every car loan mecu manages, 17 trees
are purchased from Greenfleet—thereby absorbing the equivalent
amount of greenhouse gases an average car emits annually. Additionally, Greenfleet’s use of native tree species helps address issues
of salinity, improve water quality, and provide essential habitat for
endangered species. Over the four-year term of the goGreen car loan,
a total of 68 trees are planted.
Alternative Energy Loans
Permaculture CU also extends discounts for second mortgage loans
encouraging solar heating, photovoltaic energy systems, building
weatherization, rainwater collection, natural resource conservation,
and organic farming and gardening (see Figure 8). Many off-the-grid
structures that would not normally qualify for a home equity loan—
such as a yurt—can qualify for a land loan at Permaculture CU, as
long as there is equity in the land.
Figure 8: Permaculture CU’s Sustainable Building Loans
Sustainable building activity
Discount
Installing solar panels
0.75% discount on a home equity loan
Building any “green” home, including straw
bale homes
0.75% discount on a mortgage loan
Performing renovations that incorporate
recyclable or renewable resources
0.75% discount on a home equity loan
Chapter 4
29
Vancity offers two loan alternatives to residential clients financing
energy-efficient home improvement projects: the Bright Ideas Loan and
Bright Ideas Cashback. To qualify, renovations must abide by EnerGuide’s guidelines and achieve at least a five-point improvement in the
home’s EnerGuide efficiency rating. The Bright Ideas Loan is a personal
loan of $3,500–$20,000 (CAD) at prime rate for up to seven years.
Savings are realized in the low interest rate. Bright Ideas Cashback is a
re-advance on a home mortgage, a line of credit, or a Vancity Visa card.
The renovations must cost at least $3,500 (CAD) and be paid for with
a Vancity product. Since the estimated cost for the EnerGuide home
evaluation is $170 (CAD), Vancity reimburses its members this amount
once renovations are paid for.24
Perhaps most interestingly, California-based New Resource Bank is
lowering the barriers to purchasing solar panels through the development of an innovative financing system for its residential clients. New
Resource Bank determines financing by using old electric bills as a proxy.
As expected, once the solar panels are installed, electric bills decline. The
difference in monthly electric bills—before and after solar panel installation—determines the monthly repayment amount for the solar loan.
This way, monthly out-of-pocket expenses for electricity remain constant.
Customers are not burdened by additional costs for the initial purchase
and installation of the solar panels, and they will eventually own their
solar equipment. Once the loan is repaid, clients realize the savings.
Sustainable Lending
A unique aspect of ShoreBank Pacific is its Science Group. This consulting service utilizes the expertise of its specialized personnel to evaluate
the environmental concerns of its loan portfolio. It includes experts in
real estate, the food sector, and the scientific community who understand environmental issues and how they relate to financial and business impacts. The Science Group works with organizations committed
to minimizing their environmental footprint in tandem with financial
performance. To monitor and identify environmental concerns, the
Science Group uses an internally developed scorecard to annually review
the impacts of its loan clients. The scorecard is heavily influenced by the
principles of the Natural Step and the concept of the triple bottom line.
The scorecard is divided into three sectors: conservation, community,
and economy. Each sector is further divided into three elements:
• Conservation—energy, material/resources, and land and water
capacity.
• Community—work, necessities, and stability/quality of life.
• Economy—risk assessment and management, local business connectivity, and scalability.
24 Vancity, “Bright Ideas Home Financing,” www.vancity.com/MyMoney/ProductsandServices/Borrowing/EnvironmentalOptions/BrightIdeas/.
30
Each element is graded from zero to three, with zero being conventional
and three being truly sustainable. Scores thus range from 0 to 27. The
Science Group provides appropriate recommendations, both financial
and environmental, for each loan client based on its evaluation.
Loans perceived as high-risk from a sustainability point of view
receive additional scrutiny. ShoreBank Pacific is willing to make
these loans only if clients are willing to improve their practices. For
example, casinos are capable of paying back loans quickly, so financially they are a low-risk investment. However, their impact on the
environment and on the local community is high. Environmentally,
they consume large amounts of energy and generate considerable
waste. In addition, the community often suffers because although
most local casinos are tribally managed, little of the money actually
stays within the community. ShoreBank Pacific has made loans to
casinos in the past, but few have made significant changes, so casinos
are no longer included in the loan portfolio.
GREEN LIVING KIT
HSBC’s Green Living Kits* are incentives
toward a Road or Home TerraPass, or
for customers to open paperless accounts.
both, to offset environmental impact;
The basic kit contains educational mate-
and a Flight TerraPass with luggage
rials and environmentally friendly items,
tag to support 20,000 miles of carbon-
including energy-efficient light bulbs, re-
balanced flying.
usable shopping bags, vouchers for eco-
•
A Solar Charging Station—a solar-
friendly products, a subscription to National
powered, portable battery-charging
Geographic’s The GreenGuide, and a
device for mobile phones, BlackBerrys,
TerraPass certificate for 1,000 pounds of
MP3 players, and other small electronic
greenhouse gas reductions. HSBC Premier
devices.
clients also choose an additional ecofriendly gift:
Green Business Kits for business customers offer the Carbonfree compact fluores-
•
•
Two floral arrangements from Organic
cent floodlight bulb, vouchers, and a $50
Bouquet.
Staples Gift Card.** These kits demonstrate
TerraPass certificate for 12,000 pounds
the positive impact that small lifestyle
of greenhouse gas reductions, applied
changes can have on the environment.
* The Green Living Kit promotion has ended by time of publication.
** HSBC, www.us.hsbc.com/1/2/3/personal/prom/theres-no-small-change?code=CGN00027D9&WT.mc_id=HBUS_CGN00027D9#g1.
Chapter 4
31
Impact Assessment Initiatives
Although CDFIs have traditionally considered the social equity and economic impact of their lending strategies, they have paid relatively little
attention to their environmental impact. In an effort to help CDFIs pursue environmentally friendly investment strategies, ShoreBank Enterprise Cascadia (formerly ShoreBank Enterprise Pacific) and Coastal
Enterprises, Inc. have established a Triple Bottom Line (TBL) Collaborative. Through this initiative, seven CDFIs were recruited to explore strategies for incorporating environmental issues into their lending strategies.
Funding from the Ford Foundation enabled Collaborative members to
invest in model projects and promote best practices. Collaborative affiliates established a common language to discuss sustainability and created
a scorecard to evaluate the TBL impacts of CDFI loan transactions. Participating CDFIs have discovered new market opportunities involving
investment in green buildings, renewable energy, energy conservation,
lean manufacturing, and access to new sources of capital.
Financial institutions are beginning to develop creative approaches
to reducing the environmental impact of their products and services
through product stewardship programs. Although significant emphasis is on internal operations and CSR initiatives, companies are gradually focusing on both the need for and desire of members to reduce
their environmental footprint. As cooperatives, credit unions can play
a significant role in influencing member purchasing decisions by differentiating loans based on environmental impact and allowing member benefits to reflect these differences. Through product stewardship
initiatives, credit unions can minimize the environmental impact of
their core offerings while enhancing reputation and financial value.
Accelerating Innovation Through Clean
Technology
Initiatives in the clean technology quadrant are significantly fewer
than in the pollution prevention and product stewardship quadrants.
Initiatives in this area require creative financing solutions, and since
few cookie-cutter solutions exist, few credit unions seem willing to
undertake the effort. However, a few financial institutions challenge
this mind-set and develop initiatives spurring real sustainable innovation. Our research finds three credit unions investing in noticeable
clean technology programs.
New Resource Bank, recently established in San Francisco, is the first
U.S. commercial bank focused solely on the needs of green businesses.
Many investors are attracted by the bank’s business proposition, which is
to offer financial products and services that help grow environmentally
sustainable businesses. New Resource Bank targets businesses developing clean technologies, entrepreneurs specializing in ecologically friendly
industries, and consumers concerned about the environment. It is also
32
a full-service community bank, in which all deposits are used to finance
loans for environmentally conscious projects pertaining to alternative
energy, clean technology, organic farming, and sustainable home and
office construction. A special lending program enables green builders
to secure lower interest rates and allows homeowners to finance solarpowered installations at a cost comparable to their current monthly electric bills. According to founder and Vice Chairman Peter Liu, the bank’s
in-depth knowledge of green industries enables it to accurately assess risk
and underwrite loans, differentiating it from competitors. In addition,
clients benefit from a network of investors with shared business values.
New Resource Bank focuses heavily on sustainable building projects. It provides financial incentives—such as lower interest rates and
higher loan-to-value (LTV)—to help developers and investors profit
from green building principles. The bank provides a loan discount of
one-eighth of a percent for projects meeting green leadership standards
as established by the U.S. Green Building Council. Because New
Resource Bank lends primarily to developers rather than individual
consumers, this could mean significant savings over the life of a loan
for both commercial and multiunit residential projects. To improve
financial returns, the bank has developed innovative approaches to
provide more financial coverage of green projects. For example, instead
of providing a typical construction loan of up to 75% of appraised
value, it will fund up to 80% LTV for projects meeting green leadership standards.25 Because the effectiveness of this financing method
remains uncertain, New Resource Bank will monitor these investments
to determine whether they justify further expansion.
ShoreBank Enterprise Cascadia, which serves coastal communities
in the Pacific Northwest, has created a Product Innovation Fund to help
entrepreneurs develop new specialty seafood products and to help generate new job opportunities in the local community. This is not a loan
product, but rather a venture capital fund. It allows ShoreBank Enterprise Cascadia to offer limited investments in seafood-based ventures utilizing sustainably managed and harvested fisheries. According to Adam
Zimmerman, director of consulting services, the same model could be
used for other royalty-based food products. Championed by Oregon
State University and the Kellogg Foundation, the fund will support up
to 50% of product development, or between $100,000 and $200,000.
Triodos Bank has a significant influence on the European financial
scene with its unique approach to financing social change. In order to
fund environmentally sensitive products, it has launched the first Green
Fund on the Amsterdam Stock Exchange. It has also initiated the
25 Building Design and Construction, “New Resource Bank Makes It Easier—and More Profitable—for ‘Green’ Developers,” www.bdcnetwork.
com/article/CA6413831.html.
Chapter 4
33
first life—and pension—insurance scheme in the Netherlands whose
investment guidelines include social and ecological criteria. Triodos
Bank is widely known for financing organic agriculture and sustainable
energy projects, and it was one of the first banks to become involved in
microcredit. Since 2001 Triodos Bank has raised three venture capital
funds totaling €75 million (M), two of which are fully invested; the
third, Triodos Innovation Fund BV, is actively seeking investments to
support innovative companies. Specifically, this fund considers investments between £250,000 and £2M, in sectors including renewable
energy, organic food, fair trade, healthcare, and clean technology
within its banking region (the Netherlands, Belgium, the United Kingdom, and Spain). The fund aims to build a portfolio of higher risk
investments, including early-stage ventures to expansion capital.26
To facilitate the expansion of clean energy projects in developing
countries, Triodos Bank has established the Renewable Energy for
Development Fund. This fund provides equity and mezzanine financing for new and existing local financial intermediaries that provide
financial services to projects of small and medium enterprises in the
clean energy sector. More than 55 clients in 20 countries had made
commitments to the fund by the end of 2005.27
As a response to its clients’ desire to address climate change, Triodos
Bank has also established an independent carbon registry and trading
platform called the Triodos Climate Clearing House. The program
simplifies the registration and trade of carbon credits among progressive member companies. This transparent process tracks carbon
credits resulting from carbon reduction and sequestration projects
involving afforestation, renewable energy, and energy efficiency.
Triodos Climate Clearing House requires credits to be audited and
certified by an independently recognized certification institute. Only
members of the Triodos Climate Clearing House can trade its certified carbon credits; organizations interested in membership undergo
a formal application process. Upon application approval, a carbon
account is opened, into which carbon units are deposited. Transaction costs are paid through a regular Triodos bank account. Buyers
and sellers receive confirmation of transactions and an updated carbon account statement within five days. This statement reflects transaction data, including the total number of credits deposited in the
account after the transfer. Triodos Climate Clearing House negates
double counting by preventing credits purchased to offset the buyer’s
emissions from being retraded.28 Refer to Figure 9 for a schematic
representation of Triodos Climate Clearing House activities.
26 UKEN Annual Review, 2005.
28 “Climate Clearing: How it works,” Triodos internal document, provided by Triodos.
34
Figure 9: Triodos Climate Clearing House
Triodos Climate Clearing House
pr
ov
al
at
co
irm
ion
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at
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sa
tu
ion
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ap
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Ap
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Ap
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Su
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at
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Approve applications
Create C02 account
Match applications
Conduct transactions
Ensure accountability
Seller
Carbon sequestration/reduction projects
Third-party certified
Buyer
Participants wanting carbon offsets
Crystallizing Growth at the Base of the
Pyramid (BoP)
While most credit unions have abandoned their heritage of serving
unbanked clients, several still maintain a strong focus on engaging
the underserved. The United States alone represents a substantial
market for credit unions wishing to differentiate on this dimension,
as an estimated 22 million households—one American family in
five—are unbanked.29 Because traditional banks are often ill-suited to
meet their unique needs, the working poor are increasingly exploited
by unreliable alternative financial services providers, including
payday lending operations, check-cashing outlets, pawnshops, title
lenders, rent-to-own businesses, and credit card companies. By
identifying the distinct financial services the working poor require, a
real opportunity exists for credit unions to grow and diversify. Of the
interviewed institutions, several are actively addressing the financial
29 National Community Investment Fund’s Retail Services Initiative, “From the Margins to the Mainstream: A Guide to Building Products and
Strategies for Under Banked Markets,” www.ncif.org/services.php?mainid=3&id=41.
Chapter 4
35
needs of low-income clients through initiatives involving immigrant
services, credit repair, peer-lending and microfinance, combating predatory lending, community partnership lending, individual
development accounts, financial education, voluntary income tax
assistance, and affordable housing.
Our research examines a number of financial institutions launching
a range of BoP initiatives. In the sections that follow, we focus on
those programs that are of special interest. For information on company activities not discussed in this section, reference Appendix 4.
Immigrant Services
Credit unions have an opportunity to differentiate themselves from
traditional banks by addressing the financial needs of immigrants.
In the United States, for example, most immigrants rely on cars for
commuting to work. As public transportation is often not available, vehicles are key in securing employment. In order to purchase
vehicles, immigrants frequently borrow from “finance companies”
charging interest rates of 25%–40%.30 To help Latino immigrants in
northwest Oregon and southwest Washington obtain affordable car
loans, ShoreBank Enterprise Cascadia has created the Vehicle Loan
Program. By participating in this program, Latino immigrants realize
monthly savings, attain positive credit histories, establish relationships with the bank, and develop a sense of financial pride.
Santa Cruz Community Credit Union has partnered with the
National Federation of Community Development Credit Unions
and the Ford Foundation to combat predatory, payday lending in a
nearby Latino community. A 400-square-foot branch office is conveniently located in El Pajaro Community Development Corporation’s
business-incubating shopping plaza—a plaza that promotes 16 retail
businesses owned and operated by low-income, Spanish-speaking
entrepreneurs. Although the office has only three Spanish-speaking
employees, it offers regular banking services to a community with no
other traditional banking options—only payday lending outfits. To
date, Santa Cruz CCU has opened 200 new accounts for previously
unbanked individuals, and nearly 2,000 people have attended its
workshops.
New Labor, a nonprofit immigrant worker organization in central
New Jersey, has introduced the SiGo stored value card. Launched in
September 2006, this card—whose name is a combination of the
words “yes” in Spanish and “go” in English—has benefits for both
New Labor and its members. Customers can open accounts for a
30 ShoreBank Enterprise Cascadia, “Vehicle Finance Program,” www.sbpac.com/bins/site/templates/subtemplate.
asp?objectid=CB9071E0%2D4&area_2=Hispanic+Programs%2FVehicle+Loan+Program&NC=767X.
36
minimal fee of $4.95. In addition, there is a $2.95 monthly fee,
which is divided evenly between New Labor and the card administrator, I.D.T. Corporation.31 New Labor determines and sets the transaction fees, ranging from 50 cents to $5 per transaction, which it
also retains. In the past, collecting member dues has been challenging
given the transient nature of its clientele, but the SiGo card facilitates
this process and provides stronger ties to members.
Despite the fees charged by New Labor, the SiGo card is still significantly cheaper for members than payday lending or check cashing
services. The card encourages asset building, as paychecks can be
deposited directly into accounts and cash deposits can be made at
the worker center or designated businesses. SiGo is similar to retail
gift cards, but it is adjustable, allowing money to be both added
and deducted from the account. Opening an account is simple. It
requires only one form of identification, such as a birth certificate
or passport, unlike the requirements for opening a traditional bank
account.
SiGo cards are affiliated with MasterCard and can be used wherever
MasterCard is accepted. The program also introduces immigrants to
additional financial products and services, including online purchasing, direct bill payment, money orders at the post office, and
debit purchases at stores. The card requires a PIN code to access the
account, making it a safer alternative than keeping large amounts
of cash at home, which can be easily stolen. If a card is stolen, the
cardholder faces a maximum liability of $50.32 Another advantage is
that cardholders can provide a second card to relatives in their home
country to whom they wish to remit. Family members can access the
account through their local ATM and pay only local ATM fees—a
much cheaper option than Western Union, whose fees can easily
reach $40 or more.
Credit Repair
Many low-income workers have difficulty establishing bank accounts
and securing loans due to poor track records of maintaining positive
accounts and meeting loan or credit payments.
Opportunities Credit Union has created the Tracker Loan to help
members who are not eligible for regular loans or have difficulty
saving; financial counselors or lenders frequently refer clients who
do not qualify for regular loans. Clients and loan officers jointly
determine the size of and time frame for loan payments, based on the
31 Melissa Payton, “Rutgers Professor Helps Immigrant Workers Build on Their Dreams,” Focus: The Faculty and Staff Publication of Rutgers
Feb. 21, 2007.
32 Steven Greenhouse, “Immigrants Wary of Banks Put Faith in New Card,” New York Times, December 30, 2006.
Chapter 4
37
client’s ability to repay it. The loan is deposited into the member’s
savings account and earns interest but is inaccessible until the end of
the loan term. As the borrower makes monthly principal payments,
Opportunities reports these on-time payments to credit bureaus, and
within 6 to 12 months, credit ratings can improve. This loan helps
members develop the discipline necessary to make payments on a
regular basis.
Legacy Bank has created the Liberty Checking Account, a free, noninterest-bearing checking account with direct deposit and an ATM
debit card available. It requires a minimum of $50 to open, after
which there is no minimum balance. Depositors can write up to 12
checks per month at no charge and can make six ATM withdrawals
at Legacy Bank ATMs. The only requirement is that Liberty Checking Account holders must take a Legacy Bank financial management
class. To help monitor these accounts for overdrafts and to identify
unusual banking patterns, Legacy Bank has made Liberty Checking
Accounts a separate operation; this allows the bank to intervene early
should there be an abuse of its services. By working with community
partners, such as social service agencies, Legacy Bank continues to
attract new account clients.33
Alternatives Federal Credit Union’s Fresh Start Account is available
to clients who do not qualify for regular savings accounts. It allows
members immediate access to a limited number of checks issued by
large, local employers without the standard five- to seven-day hold.
These checks include, but are not limited to, government checks,
Alternatives Credit Union checks, electronic deposits, bank checks,
and certified checks. The Alternatives Visa Debit Card is also available after maintaining a problem-free account for three months. If
the account is overdrawn during the initial six-month period, it may
be closed immediately and the member will not qualify for a subsequent account.34
Peer Lending and Microfinance
Microfinance and peer lending are innovative credit arrangements
that avoid the standard borrowing barriers of traditional financial
institutions, such as lack of collateral, fragmented work history, or
bad personal credit. Typical peer lending schemes involve establishing small groups of borrowers who guarantee loans in place of
standard collateral, enabling participants to develop positive credit
histories. These groups are built on a foundation of trust, so it is
important to have an established relationship with group members.
33 Legacy Bank, www.legacybancorp.com/LibertyChecking.aspx.
34 Alternatives Federal Credit Union, “Fresh Start Accounts,” www.alternatives.org/freshstartaccount.html.
38
Peer lending programs have high success rates in developing countries, but they are less frequently implemented in the developed
world. Credit unions have an opportunity to learn from the innovative financial players serving poor communities in developing
countries. In this section we will examine microfinance initiatives
launched by the Grameen Bank, followed by Vancity’s efforts to
undertake similar endeavors.
The world’s poor are often plagued by harsh, unpredictable conditions beyond their control. Despite this vulnerability, the Grameen
Bank has shown that money lent to the poor is repaid as soon as
their situations permit. In 1983, Muhammad Yunus set out to find
simple financing solutions that would help the poor gain access to
the capital needed to enable self-employment and improved quality
of life. The resulting innovative system of microcredit earned him the
Nobel Peace Prize in 2006.
The Grameen Bank’s acceptance of social capital as an alternative to
traditional collateral is the key to its success. By establishing small
lending groups of about five borrowers—primarily women—the
bank holds the group responsible for the repayment of loans. Group
members decide who receives loans, and, based on initial repayment
rates, any subsequent loans. To encourage savings, a percentage of
each loan goes toward a group savings fund, into which all members are required to make weekly deposits. This fund is managed by
the group and is used to provide small, interest-free loans to group
members. See Figure 10 for a schematic of this classic Grameen Bank
model.
This group-lending model not only ensures high repayment rates,
but also facilitates loan collection. Six to eight groups unite under
the umbrella of a “center.” These centers host weekly meetings and
provide a communal space for bank employees to collect weekly loan
repayments and savings deposits, as well as to approve additional
loans. Business is conducted publicly to enhance transparency and
prevent fraud. The groups also form support networks for borrowers. During weekly meetings, borrowers discuss any issues they face
relating to loans. Bank employees may also contribute, discussing
other social issues such as personal hygiene, family planning, and
immunizations.
From its inception, the Grameen Bank’s high repayment rates and
positive impact on families demonstrated the viability of microcredit
finance and the creditworthiness of the poor. But as the bank diversified and the program grew more robust, the need for more flexible financing became apparent. While the basic group structure is
maintained, changes to the lending model have been made and new
products developed (see Figure 11).
Chapter 4
39
Approves and
gives loans
Mandatory fixed
weekly savings
Savings deposits
Weekly loan
payments
Compulsory deposit
of 5% of loan
By modifying its loan structure, Grameen
Bank is no longer limited to a one-year
loan model with fixed weekly payments.
Loan structures have become more flexible. Basic loans range from three months
to three years, and repayment installments
vary based on the needs of borrowers. While
payments may be high during peak business
periods and low during off-peak periods,
a 1% payment minimum is always maintained. In addition, borrowers can choose to
pay every two to three months, and in some
cases partial payments are permitted.
Temporary interest-free loans
to group members
One of the most significant adjustments to the model is the provision of individual accounts within the group. Under this plan,
individuals can access personal savings accounts, as well as “special”
savings accounts that can be accessed after
three years with the bank. For every group
Figure 10: Classic Grameen Model
member, 2.5% of each loan is deposited
into a personal savings account with an
additional 2.5% deposited into the “special”
Bank
savings account. Borrowers must continue to make weekly savings deposits, as
determined by the size of each loan; under
Bank worker
comes to the community
the new plan, deposits are funneled into
individual accounts rather than into a group
account. Therefore, individual borrowers
can withdraw money from their personal
savings account when necessary. Finally,
this new model allows multiple members
to receive loans simultaneously, rather than
Borrowers
staggering loans one at a time.35
Group of five women
Group fund
Managed by members
Receives 8.5% interest
Another significant modification to the model is to allow application
for additional loans while payments on the first are still being made.
Borrowers are permitted to take out a second loan equivalent to the
amount repaid to the initial loan during the first six months. By
extending primary loan agreements, individuals needing more money
to expand their businesses can receive second loans.
In addition to loan structures, the peer group structure has also been
modified. The group, although still a valuable tool for collecting loan
repayments and providing support to its members, is no longer liable
35 For full a comparison of the classic Grameen Bank model and the Grameen II model, read A. Dowla and D. Barua, The Poor Always Pay
Back: The Grameen II Story (Bloomfield, CT: Kumarian Press, 2006).
40
Figure 11: Revised Grameen Model
Bank
Bank worker
Weekly loan
payments
Approves and
gives loans
comes to the community
Individual
or
uls
mp
.5%
f2
it o
of
n
loa
Interest rate is 8.5%
os
Open access
personal savings account
ep
yd
Compulsory deposit of 2.5% of loan
Individual
Co
Grameen pension scheme
Interest rate is 10% for 5-year plan
Interest rate is 12% for 10-year plan
Individual
Mandatory fixed weekly savings
based on size of loan
Individual
Co
gr mpu
ea
ter lsor
tha y d
n 8 epo
,00 sit
0 t for
ak loa
a
ns
Individual
Savings deposits
Group of five borrowers
Special savings account
Interest rate is 8.5%
Accessible after three years
Modified from A. Dowla and D. Barua, The Poor Always Pay Back: The Grameen II Story (Bloomfield, CT: Kumarian Press, 2006).
for individual loans. Grameen Bank now rewards borrowers for the
success of both groups and their centers by increasing loan ceilings
for high repayment rates. If individual repayments are on time, that
individual’s loan ceiling will increase, even if group and center repayments are not high. Members still benefit from the group network
and weekly center meetings through information sharing, expanding social and information networks, promoting good behavior, and
building trust beyond immediate family members. The loan and
savings deposit collection process remains transparent and publicly
recorded to ensure the safekeeping of all transactions.
In 2000, a new product was launched called the Grameen Pension
Scheme. This is a tax-free account that requires borrowers of 8,000
taka (the Bangladeshi currency) or greater to deposit a fixed amount
into a pension account for either 5 or 10 years. The 5-year scheme
Chapter 4
41
earns interest of 10% and the 10-year option earns 12%—significantly higher than the 8.5% the regular savings account collects.
Upon maturity, borrowers receive the accumulated principle and
interest as one lump sum or in monthly installments.
Vancity is one of the few credit unions offering peer-lending services
in the developed world. Like the Grameen model, Vancity’s Canadian Peer Lending Program engages entrepreneurs and small business
owners. To participate, small business owners must assemble a group
of three to six like-minded entrepreneurs wanting to borrow money
for their businesses. Initial loans are $1,000 (CAD) with terms from
3–24 months and rates at 3% above prime. Group members assess
and approve peer loan requests, as the group is collectively accountable for the repayment of all loans; therefore, group members must
be confident in their fellow members’ commitment and ability to
repay loans. Vancity allows individuals to miss one month’s payment
without incurring significant penalties. Members can apply for subsequent loans once initial loans are repaid. Loans need not be repaid
at the same time, but all group members must be in good standing
to be eligible for subsequent loans. The loans grow in increments
of $1,000 up to $5,000 and can be used to purchase equipment or
inventory, advertise, fill orders, or cover other business expenses.
The group holds monthly meetings to evaluate progress, share ideas,
make recommendations, and give general support to one another.
Borrowers are permitted to take out a second loan equivalent to the amount repaid to the initial
loan during the first six months. By extending primary loan agreements, individuals needing
more money to expand their businesses can receive second loans.
To help ensure the success of the program, Vancity has developed a
comprehensive, step-by-step program for participants establishing
peer groups.36 This “workbook” helps participants assess each group
member’s character, commitment, and ability to repay his or her
loans; upon completion of the workbook, the group is ready to apply
for a loan. Vancity personnel review both the workbook and a copy
of the minutes from the last group meeting. If approved, appropriate
accounts will be opened and loans issued. Once loans are approved,
the group becomes accountable for their repayment; it is important
that members take an active interest in their peers’ initiatives.
Vancity’s Peer Lending Program lends to four categories of people:
newcomers and refugees, marginalized individuals, newcomers seeking
retraining, and aboriginals. Newcomers and refugees frequently seek
36 The Peer Lending workbook and other worksheets are available on the Vancity Web site at www.vancity.com/MyBusiness/
BusinessFinancing/PeerLending/Toolkit/.
42
loans for gray market activities, and in many cases they do not speak
English or French. Peer groups often consist of members from the same
country with similar interests. For instance, Vancity has lent to a group
of refugees from Darfur wishing to start a catering business, and to a
group of Sudanese women who started a sewing group. These businesses are often small retail enterprises; in many cases groups sell products native to their home countries, such as native food items prepared
in members’ kitchens, or imported handicrafts and jewelry. Groups
comprised of newcomers and refugees often use loans to purchase products or supplies, buy displays, or pay for stall fees at local markets. These
products are frequently marketed to the local ex-pat community.
In most cases, participants do not have aspirations to grow these
businesses; rather, they are looking to pay their bills. Participants
may not comprehend business concepts like cash flow, resulting in
decisions that do not make business sense. For instance, revenues
may be spent completely on loan repayments, instead of acquiring
more inventory once all products have been sold.
Unlike newcomers and refugees, marginalized individuals have some
training from self-employment programs or are referred by social service agencies. These individuals yearn to start their own home-based
businesses or commercialize their crafts. For instance, loans given to
these members may finance a home-repair service or jewelry-making
endeavor. In effect, these products and services target a broader market, as participants hope to grow the asset base.
Newcomers seeking retraining are foreign professionals who need
to either obtain Canadian credentials or meet minimum standards
to practice professional trades like dentistry and medicine. In many
cases these individuals are not proficient in English or French.
Finally, Vancity also lends to aboriginals living in the inner city who typically have not developed savings habits. For example, Sunni Hunt is a
58-year-old aboriginal living in Vancouver. Leveraging her experience as
a family counselor, Hunt is using her Vancity loan to finance a business
that assists aboriginals traveling to Vancouver for extended medical visits.
Her company offers a variety of services to aid in less stressful and more
comfortable hospital stays, including transportation from the airport
to hotels, help navigating the city, and family counseling. The loan has
helped Hunt secure a laptop and business cards, enabling greater visibility and efficiency. Hunt’s vision is to grow the business and open a small
hotel with an aboriginal staff to serve the First Nations community.37
Currently, Vancity has a portfolio of peer lending worth nearly
$150,000 (CAD) with approximately 100 borrowers (25–30
37 From “A Feeling of Hope,” Vancity brochure, provided by Vancity.
Chapter 4
43
groups). By Vancity standards, this portfolio’s performance is
excellent, with a 96% or better repayment rate. However, by
traditional criteria, up to 25% of the portfolio appears to be
delinquent at any given time. Borrowers may miss payments due
to a misread statement, a family tragedy, a month of poor business
performance, or a temporary return to their native country. While
the commitment to repay loans is high among borrowers, reality
frequently conflicts with a conventional monthly payment schedule. Vancity recognizes this conflict, as one executive describes: “It
is analogous to sailing. You must continuously tack to get to your
target, and if you plot this on a map it is not a straight line. If you
draw a line through all the points, no one may be on the line, but
most reach the target—they are not like motorboats that can drive
in a straight line to the target.”
Currently, Vancity has a portfolio of peer lending worth nearly $150,000 (CAD) with approximately 100 borrowers (25–30 groups). By Vancity standards, this portfolio’s performance is
excellent, with a 96% or better repayment rate. However, by traditional criteria, up to 25% of
the portfolio appears to be delinquent at any given time.
Peer lending for Vancity is not without its challenges. For example, establishing effective groups is a constant struggle. To facilitate
group formation, Vancity assists with matching and works with
community organizations to identify peer-lending groups. But
because the most effective groups are those that self-organize, Vancity encourages participants to recruit like-minded acquaintances
from local community groups, service organizations, or religious
institutions. Additionally, many participants in the program have
little or no experience with banking and contractual agreements.
As a response, Vancity has created financial literacy workbooks,
with the intent of developing more entry-level educational materials in the future.
Vancity’s Microcredit Program focuses on individuals who have successfully completed the Peer Lending Program but do not qualify for
traditional loans. The maximum term is five years at a rate of prime
plus 4%, and loans range from $5,000 to $35,000 (CAD). Participants must establish positive credit histories, and their businesses
must have profitable records. Unlike traditional small business loans
based on collateral, Vancity’s microloans are based on the character of
the business owner and the viability of the business concept. Vancity
shares these loan risks with the Western Economic Diversification
Canada. This federal government agency provides capital for a loan
loss reserve program, helping financial institutions like Vancity offset
the risk in lending to small businesses. Vancity’s microlending pro44
gram assists more than 800 entrepreneurs in the greater Vancouver
region, with over $13M (CAD) in small business financing.38
Combating Predatory Lending
Payday lending is a growing industry in the United States that now
exceeds $28 billion (B) per year. Unfortunately, it forces many
people into debt due to high interest rates and exorbitant fees. Across
the nation, payday borrowers are paying annual rates upwards of
400%—which means the typical payday borrower pays back $793
for a $325 loan—while lenders collect 90% of their revenue from
borrowers unable to repay loans when due.39 Accordingly, some
financial institutions are combating predatory lending through
affordable programs that compete with payday lending and help
individuals establish positive credit histories.
The Community Financial Services Center (CFSC) offers reasonably
priced financial services to underserved clients in the north end of
Winnipeg, Manitoba. It is a collaborative effort of more than 12 organizations, including Alternative Financial Services Coalition (AFSC),
North End Community Renewal Corporation (NECRC), and
Assiniboine Credit Union. The CFSC is a community-based financial organization that requires referrals from partner organizations—it
currently works with four well-established organizations in the community.40 Partner referrals must reflect that candidates are a good fit
for the program and have been clients for at least six months.
Having two appropriate forms of identification can be an obstacle for
individuals wanting to open a bank account. Most underserved clients
can present one piece of official ID but frequently cannot afford a
second. CFSC ID cards are issued once clients secure a referral, a
CFSC interview, and one government-issued ID such as a health card,
a social security card, or a status card. At Assiniboine, the CFSC ID
is a recognized identification card that can be used to establish an
account. See Figure 12 for a schematic of the AFSC process.
The goal of the CFSC is to help clients establish relationships with
mainstream financial institutions. It offers a number of different services, including check depositing services, one-on-one financial counseling, and financial literacy classes. In August 2007, the CFSC began
offering microloans ranging from $20 to $100 (CAD). These loans
target individuals who would otherwise turn to payday lenders in
38 Vancity, “Micro-Loans,” www.vancity.com/MyBusiness/BusinessFinancing/MicroLoans/MicroLoanProgram/.
39 Uriah King, Leslie Parrish, and Ozlem Tanik, “Financial Quicksand” (Durham, NC: Center for Responsible Lending, Nov. 30, 2006): 2.
40 The four organizations are the Mt. Carmel Clinic (a community health clinic that houses the temporary CFSC offices), the Elizabeth Fry
Society (which works with women coming out of prison), the North End Women’s Resource Center, and the North End Community Renewal
Corporation.
Chapter 4
45
Figure 12: AFSC Process
Alternative Financial Services Coalition
Research and business case
Community Financial Services Center
(A project of North End Community Renewal Corporation)
SEED Winnipeg
rra
ts
fe
ien
st
Tru
rs
st
s
sit
po
De
Tru
be
Cl
ls
em
rra
fe
M
Re
• Money
management
workshops
(beginning Fall 2007)
Re
ls
• Know clients’ needs
• Issue CFSC ID card (with photo)
• Financial counseling
• Assist with direct deposit applications
• Assist clients with ACU applications
• Check depositing services (no holds)
• Microloans (beginning Aug. 2007)
• Established community
agencies and enterprises in
the north end of Winnipeg
• Link to the community
• Know clients
• Refer/sponsor clients
Community referral partners
• Trusted institution
• Technology infrastructure
• Account coding/analysis/monitoring
• Waive $5 membership share
• Open ACU accounts with CFSC ID
card as one acceptable ID
• Special check-cashing/depositing
arrangements (no holds)
• Banking services
Assiniboine Credit Union (ACU)
emergency situations. Rates are below those of payday lenders, with a
one- to two-month payback period. The CFSC also strongly encourages direct deposit for social assistance, paychecks, old age security,
etc. Assiniboine provides training so that CFSC staff can help clients
fill out Assiniboine membership applications (Assiniboine waives its
membership fees). As a result, two-thirds of CFSC clients now use
direct deposit, no longer needing check-cashing services.
To help combat the reliance on expensive check-cashing services, the
CFSC offers check-depositing services. This option enables clients to
deposit government-issued checks or checks from community partners
into Assiniboine accounts. After checks are endorsed, the CFSC imme46
diately transfers the money, via the Internet, from CFSC’s Assiniboine
account to the client’s Assiniboine account. The traditional five-day
waiting period is unnecessary, allowing clients to immediately access
their money through an ATM. The CFSC holds money in an Assiniboine account, which is earmarked for these transfers and check deposition. On the back end, Assiniboine codes the accounts so that the
CFSC can easily transfer funds. The referral process, coupled with the
CFSC’s relationships with clients, helps minimize Assiniboine’s risk.
The goal of the CFSC is to help clients establish relationships with mainstream financial institutions. It offers a number of different services, including check depositing services, one-on-one
financial counseling, and financial literacy classes.
North Side Community Federal Credit Union, a small credit union
in Chicago, offers a Payday Alternative Loan. This is an unsecured
loan of up to $500 that must be paid off in six months. The loan rate
is 10.5%, or the equivalent of $26 per loan plus a $30 application
fee. The loan application is simple and requires ID, employment and
income verification, a credit score of 600 or higher, and a description
of the loan’s intended purpose. If an applicant’s credit score is lower
than 600, the applicant can take a four-week financial education
workshop at North Side to qualify. The member must be in good
standing with no current loans at North Side.41 In addition to combating predatory lending, this simple loan represents one way North
Side members can build or repair credit histories, which transitions
members to more mainstream banking services.
Community Partnership Lending
Community Partnership Lending is an innovative partnership between
financial institutions and community-based organizations (CBOs) providing small loans to CBO clients who might otherwise be ineligible.
This partnership leverages the strength of each institution: the financial
institution’s expertise in making and managing loans, and the CBO’s
relationship with its clients. The size of the program depends on the
CBO’s ability to raise sufficient funds, frequently from grants, which
act as a loan loss reserve for approved loans. These funds are deposited
at the financial institution, which agrees to fund loans up to double the
amount deposited by the community-based organization. For example,
if a CBO deposits $10,000, the financial institution will provide
loans of up to $20,000, in effect matching the organization’s deposit.
The partnership enables both the CBO and the financial institution
to serve more people than either could working independently. The
41 North Side Community Federal Credit Union, “Payday Alternative Loan (PAL),” www.northsidecommunityfcu.org/other_loan_products_
servic.html.
Chapter 4
47
CBO, in consultation with the financial institution, determines the
loan policy and screens and approves applicants. The financial institution provides the approved loans; it monitors and services them, ensuring payment collection and reporting. If a loan is not repaid, the CBO
deposit account is charged. Typically, relationships between borrowers
and CBOs tend to be very strong, resulting in high repayment rates.
Community Partnership Lending is an innovative partnership between financial institutions
and community-based organizations (CBOs) providing small loans to CBO clients who might
otherwise be ineligible. This partnership leverages the strength of each institution: the financial
institution’s expertise in making and managing loans, and the CBO’s relationship with its clients.
These loans are designed to meet the goals of the CBOs. The partnership of Alternatives Federal Credit Union and the Ithaca Housing
Authority (IHA) in the late 1990s provides a good example. IHA
found that many single mothers living in its facilities could not buy
homes because they defaulted on student loans and could not secure
mortgages. Many of these women used predatory lending services and
were unable to pay off debts. They remained in IHA facilities for long
periods of time, preventing others from using its services. As a response,
IHA secured $20,000 from a foundation, which was deposited with
Alternatives and matched two-to-one. IHA defined the terms of the
loan (to repair student loans) and determined who received loans.
Alternatives helped develop the policies, service the loan, and collect the
money, and reported back to IHA. If any loans defaulted, IHA’s money
was the first at risk, creating a strong incentive to ensure that loans were
repaid. To cover Alternative’s administrative costs, the loans were priced
at 6% above the deposit rate. IHA (as with most nonprofits participating in such programs) put the deposit in at a 0% interest rate so that
clients received loans at 6%. Alternatives reported to the credit bureaus
as payments were made. Thus, clients benefited from improved credit
scores, achieved greater financial security, and moved out of public
housing. IHA also benefited when clients achieved financial security
and left public housing, as space was created for others in need. Finally,
Alternatives benefited from increased membership.
Individual Development Accounts
Individual Development Accounts (IDAs) are matched savings
accounts that encourage individuals to save money for financing certain goals. These programs depend on grants or government funding,
and they often require community partners.
IDAs can be managed in three possible ways:
• IDAs are run by nonprofit organizations, while credit unions
simply hold the accounts and provide financial services.
48
• Nonprofit organizations recruit participants while credit unions
deal with financial matters, ranging from eligibility to withdrawals and use of the money.
• Credit unions run the programs and receive referrals from nonprofit organizations.
Typical IDAs last between 10 and 30 months. Applicants must
provide current financial information—such as tax returns and pay
stubs—and an explanation of financial intent. Enrollment means
saving money for a specified goal. The monetary match is not
reflected in the client’s account balance, but is actually put toward
the specified goal. For example, money is put directly in the bank
for home payments, or for covering tuition costs. Because traditional
banks may be too far removed from the community or lack institutional support, these programs can be difficult to implement. Many
of the interviewed credit unions offer IDAs.
Alternatives Federal Credit Union offers several asset IDAs, including a home ownership IDA called First Home Club. Federal Home
Loan banks provide the match, but not the financial assistance needed
to run the program. The credit union must cover administrative costs.
Match levels differ from region to region: In New York state, it is a
3:1 match up to $5,000, while in San Francisco, it is a 3:1 match up
to $15,000. Participating credit unions must be members of regional
home loan banks. To ensure success, Alternatives offers home ownership counseling and helps participants create monthly savings goals.
Three meetings are typically held before opening an IDA. The first
determines whether an individual qualifies and has the ability to save.
Eligible applicants meet with mortgage loan officers in a second meeting to discuss desired residential areas and appropriate price ranges. In
the final meeting, a savings goal is determined.
Credit unions must offer an appropriate mortgage program for First
Home Club savers. If necessary, mortgages can be coupled with additional loan products, such as State of New York Mortgage Assistance
(SONYMA). Program participants do not receive the monetary
match until a home is purchased. Alternatives has about 120 IDAs,
which are managed by an IDA coordinator. About 70%–75% of
IDA participants are successful in achieving savings goals. In some
cases participants achieve their savings goals but no longer need the
money for the specified purposes. As stand-alone products, IDAs
are expensive; but as a program, it helps recruit members and build
member loyalty.
Financial Education
Many financial services organizations recognize the difficulty clients
may have understanding the financial world. Many financial instituChapter 4
49
tions offer financial literacy classes—either independently or through
partnerships with nonprofit organizations—to familiarize individuals with basic budgeting, savings, and credit concepts. Most financial classes offer workbooks with worksheets outlining how to save
money, different banking options, and general information about
gaining financial self-sufficiency.
Alternatives Federal Credit Union, however, has realized that filling
out worksheets does not always lead to changed habits or improved
personal finance. As a response, Alternatives has created MoneyWise,
a seven-week class that emphasizes the tracking of expenses
Alternatives has created MoneyWise, a seven-week class that
so that participants assess their
emphasizes the tracking of expenses so that participants
financial situations, ultimately
assess their financial situations, ultimately inducing a change
inducing a change in behavin behavior.
ior. A basic manual providing
resources, charts, and evaluations is distributed as a reference for use outside the classroom. To
familiarize students with financial issues, the MoneyWise class invites
guest speakers to discuss a variety of topics, including workers rights,
credit unions, how to shop wisely, and socially responsible investing.
Instructors facilitate mutual learning among classmates, as opposed
to giving traditional lectures; the objective is to initiate dialogue
among students concerning financial behaviors and how to modify
them. Tracking personal expenses—including small purchases like
meals or coffee—is the only homework, as progress and experiences
are discussed weekly.
Voluntary Income Tax Assistance
The IRS’ Volunteer Income Tax Assistance (VITA) program offers free
help to low- and moderate-income ($39,000 and below) individuals unable to prepare their own tax returns. VITA sites are generally
accessible in convenient locations—such as community and neighborhood centers, libraries, schools, and shopping malls—and are
coordinated by certified volunteers.42 The IRS provides resources like
workbooks, laptops, printers, and software for the program as well as
a toll-free number for basic help. A number of credit unions participate in VITA, and they face the challenge of making the program
effective while simultaneously growing their membership.
Alternatives Federal Credit Union has six years of experience
with the VITA program and has developed a number of methods
to increase its impact. The process is referred to as Refund to Assets
Program, and it involves several simple steps. An intake coordinator/
greeter meets clients entering the credit union and quickly reviews the
42 Internal Revenue Service, “Free Tax Return Preparation for You by Volunteers,” www.irs.gov/individuals/article/0,,id=107626,00.html.
50
paperwork to determine eligibility. The greeter asks clients to make
“wish lists” of financial goals and aspirations and offers information
regarding associated Alternatives services. Clients who qualify for the
VITA program are given folders for documentation, including wish
lists, and are taken to the preparer. The preparer works with clients to
fill out their tax returns, which are proofed by volunteers. On average, the process takes about one hour. After tax season, clients receive
follow-up calls from Alternatives employees regarding their wish lists;
staff members tell VITA participants about products and services they
offer that might help clients achieve their financial goals.
Many credit unions offer the VITA service off-site, but Alternatives
has found on-site service more effective in recruiting new members.
However, due to limited space, walk-ins are only permitted one day
a week, and the program is run by appointment for the remainder
of the week. Approximately 6% of participants in the Alternatives
VITA program are unbanked and the direct deposit rate for returns
is 90%. As stipulated by VITA guidelines, Alternatives cannot take
donations or require participants to open accounts. However, fees
can be charged and accounts required to be opened with any other
services offered to complement the VITA program.
Alternatives has also created a supplemental service called the Refund
Express Loan—a cheaper alternative to the Refund Anticipation
Loan offered at payday lending services. This loan allows taxpayers to obtain a quick loan against their federal tax refund. Alternatives charges a $20 fee and a low interest rate of 11.5% on the loan
(which is equivalent to the client’s tax refund). The refund is direct
deposited, usually within two weeks, so the average loan costs less
than $25. This is only available to members who have had their tax
returns prepared through the Alternatives VITA program.
The VITA program faces several significant challenges involving volunteer recruitment and funding. To attract more volunteers, Alternatives is partnering with a local college that runs a similar program
on its campus that is managed by accounting students. Training
takes about six hours and usually results in more than 60 volunteers.
Funding comes from grants and the New York Department of Social
Services.
Affordable Housing
Self-Help Credit Union and Venture Fund plays a unique
role in the secondary market for home loans made to low- and
moderate-income borrowers. Although the Federal Community
Reinvestment Act (CRA) encourages banks to make “nonconforming” loans for the underserved market, it fails to provide incentives
for creating a market in which to sell them. Only by selling such
loans can financial institutions free up capital to provide additional
Chapter 4
51
loans to borrowers. Recognizing this problem, Self-Help began purchasing these higher-risk loans in 1994 from institutions across the
nation. In 1998, it succeeded in securing $50M from the Ford Foundation to create a loan reserve; in the same year Fannie Mae made a
$2B commitment to purchasing Self-Help loans, thereby creating a
secondary market for affordable home loans.43 As a result, Self-Help’s
Secondary Market Program provides over $4.3B in financing for more
than 48,000 affordable home loans nationwide.44 See Figure 13 for a
schematic of Self-Help’s program. Through collaboration with other
CDFIs and affordable housing leaders, Self-Help is making a larger
impact on policy issues and business models in the industry.
Unlike other financial institutions, Self-Help considers rent and
utility payments as indicators that applicants can take on loans, and
it accepts downpayments of 20% or less (even from applicants with
past credit problems); however, its default rates are still comparable
to those of traditional loans. It provides approximately 300–400
affordable home loans every year. Self-Help is one of the few lenders accepting Individual Tax Identification Numbers (ITINs) as an
alternative to social security numbers. As a result, most of its lending
is to North Carolina’s rapidly growing Latino population.
Figure 13: Self-Help’s Secondary Market Program
Ford Foundation
provides Self-Help with
$50M to use as a loan
loss reserve
Low-income home buyers
obtain affordable home loans
from a local lender such as a
bank, credit union, or
housing partnership
Participating lenders
sell high-risk, uninsured
mortgages to Self-Help
Self-Help
sells the loans to
Fannie Mae
Investors
receive monthly
payments
Fannie Mae
pools loans and sells
mortage-backed
securities to investors
Modified from www.self-help.org/secondary-market/SECM%20portfolio%20and%20flow.pdf.
43 Lisa E. Davis, “A Self-Helping Hand,” Delta Sky Magazine, March 2004.
44 Self-Help, www.self-help.org/about-us and “Self-Help’s Secondary Market Program,” www.self-help.org/secondary-market.
52
Owning a home is a key means of creating wealth for individuals
and families. Across the United States, however, affordable housing
is difficult to find. Opportunities Credit Union in Vermont has
noticed that manufactured/mobile homes have become the most
affordable form of housing and as a result has created the Manufactured Housing Lending Program. This initiative offers loans requiring
a minimum down payment of only 5% with terms of up to 30 years.
Although manufactured homes represent a realistic option for many
low-income wage earners, they are not formally recognized as affordable housing by traditional financial institutions. Opportunities
CU failed at its first attempt to sell these mortgages because—at the
time—no secondary market for mobile home loans existed. Consequently, Opportunities CU has enlisted the help of CDFIs that are
certified by the U.S. Treasury as providers of loan loss reserves for
these mortgages; they are now part of a national initiative, along with
the U.S. Department of Housing and Urban Development (HUD),
the Ford Foundation, Fannie Mae, and Self-Help, to reclassify manufactured homes as affordable housing.
Chapter 4
53
CHAPTER 5
Conclusions and Recommendations
Credit unions are beginning to experiment
with sustainability, but a vast majority of
financial institutions have yet to realize the
challenge and opportunities that exist in the
marketplace. Credit unions are in a prime
position to offer innovative new products and
services in the areas of clean technology and
BoP—products and services that would be
difficult for banks to currently justify.
As the preceding chapter makes clear, credit unions and other
financial institutions are beginning to experiment with a wide range
of programs and initiatives related to sustainability. However, these
efforts are still restricted to a small number of innovators, such as
mecu, Vancity, ShoreBank Pacific, Assiniboine Credit Union, Alternatives Federal Credit Union, and Triodos Bank. Indeed, with only
a handful of institutions identified as active in this space, the vast
majority of financial institutions have yet to realize the challenge—
and opportunity—implicit in sustainability. This space represents an
enormous opportunity for the credit union system moving forward.
Figure 14 shows the breakdown of these initiatives using the Sustainable Value Framework. While a substantial number of initiatives
addressing pollution prevention are under way, the right-hand side of
the portfolio—those customer-facing initiatives in the areas of product
stewardship and BoP—is where the bulk of experimentation is taking
place. There is little, if any, activity in the clean technology space, suggesting a substantial opportunity for credit unions willing and able to
develop the new capabilities required to leapfrog to clean technology.
Many of the sustainability initiatives identified and documented
involve profit-spending—e.g., grants to community groups or expensive high-touch services and educational programs for underserved
families. Such programs are often considered loss leaders for the
institutions involved. While they fail to cover their costs, such programs are justified to the extent that they serve to bolster reputation,
attract donor capital, and establish productive relationships with
other nonprofit or public partners.
With their tax-exempt status, credit unions are clearly in a position
to offer such programs, given their lower cost position relative to
banks. Indeed, credit unions create value for their “shareholders”
(i.e., members) by providing important services, increasing dividend
payments on savings, and lowering rates on loans. However, providing these benefits cannot be achieved in the long run without at least
56
Figure 14: The Credit Union Sustainable Value Portfolio
Tomorrow
Strategy:
Clean technology
Strategy:
Base of the pyramid
Number of financial institutions: 3
Number of programs: 8
Sustainable
value
Internal
External
Strategy:
Strategy:
Product stewardship
Today
covering the costs of the programs. Ultimately, truly integrating sustainability into credit union strategy requires shattering the presumed
trade-off between social and financial performance; this can only
be achieved by devising new strategies that simultaneously benefit
members, their communities, and credit unions’ bottom lines. A
few of the sustainability initiatives documented in this report truly
do shatter the trade-off described above. Such initiatives represent
the sustainability “sweet spot” for credit unions looking forward. We
highlight a few such initiatives below.
Pollution Prevention
Credit unions can clearly take simple steps to minimize their waste,
emissions, and environmental footprint (e.g., double-sided copying,
paperless transactions, energy conservation, and solid waste reduction). Indeed, pollution prevention strategies focused on energy efficiency and waste reduction simultaneously reduce waste, decrease the
environmental footprint, and save money. Contrast these strategies
Chapter 5
57
to profit-spending initiatives—such as the purchase of higher-cost
recycled paper or expensive green building retrofits—the cost of
which can never be recovered. Accordingly, we recommend that credit
unions focus on those initiatives that truly represent a win–win.
In fact, as mecu has shown, it is possible to reap substantial environmental, as well as financial, rewards by acting aggressively on the pollution prevention front. Their internal sustainability task force, comprised
of motivated and knowledgeable employees, has successfully identified
and implemented numerous win–win programs, reducing waste and
driving down cost. When constructing new buildings or making significant renovations to existing structures, it is also possible to identify
and engage architects and builders capable of producing dramatic
reductions in energy use and waste (and hence operating costs) without
any substantial increase in capital investment or first cost. In contrast
to profit-spending initiatives—which are justified primarily by appeals
to ethics and social responsibility—these win–win projects increase the
interest of organizations in engaging in such efforts.
Product Stewardship
In the area of product stewardship, most of the so-called corporate
social responsibility initiatives also involve profit spending (e.g.,
grants and giving programs and social responsibility reporting). And,
as the issue of climate change gathers momentum, carbon offset initiatives are also growing (e.g., the purchase of offset credits via treeplanting projects, renewable energy initiatives, etc.). Unfortunately,
most of these programs simply add cost without any direct customer
benefit, save the ethical payoff of doing the right thing.
Contrast these profit-spending examples with new product and
service initiatives that incorporate sustainability into their DNA.
Consider New Resource Bank’s program, which finances customers’
solar installations based on the savings realized from clients’ monthly
electricity bills. Properly structured, such programs can be profitable for the credit union, champion the environment, and generate
consumer surplus for the customer (member). Indeed, by leveraging
their tax-advantaged position, credit unions can offer financial incentives to members wanting to make environmentally smart purchases,
which would be difficult—if not impossible—for banks to match. We
recommend that credit unions explore not only programs for alternative energy installation, but also fuel-efficient and hybrid car loans.
Creating an in-house sustainability consulting arm, as ShoreBank
Pacific has done, represents the next step in product stewardship
strategy. Recognizing that such an undertaking is beyond the means
of many credit unions, perhaps this role could be filled by the Credit
Union Leagues or CUNA. Creating sustainability “centers of excellence” at the national or regional level would enable smaller, local play58
ers to access the expertise of the sustainability group on a fee-for-service
basis. Such an initiative could be catalytic in spawning creative new
product stewardship strategies in a much wider range of credit unions.
Clean Technology
Whereas pollution prevention and product stewardship strategies can
be implemented with a relatively small departure from current business models, moving into the clean technology space requires new
capabilities and a higher degree of creativity: Understanding emerging technologies and clean technology venturing is different than
learning to invest wisely in immediate communities. Even in this
emerging area of interest, however, credit unions have often relied on
the profit-spending approach by simply offering discounts on loans
for sustainable construction, green projects, etc.
Whereas pollution prevention and product stewardship strategies can be implemented with a
relatively small departure from current business models, moving into the clean technology space
requires new capabilities and a higher degree of creativity.
A few, however, have sought to shatter the trade-off: ShoreBank
Enterprise Cascadia’s Product Innovation Fund and Triodos Bank’s
Green Fund and Climate Clearing House represent two such innovative initiatives. Larger credit unions with the requisite depth of
membership—and management—to support such strategies may be
better suited to launch these types of programs. Again, there may be
an important role for the Credit Union Leagues to play in stimulating credit union investment in inherently clean technologies and
industries. Indeed, credit unions could benefit by using the League as
an avenue to pool their resources and invest in funds like the Triodos
Innovation Fund. The League could manage this fund, but the individual credit unions would benefit from both a healthy return and
a growing knowledge of the emerging clean technology space. Such
experience would better position credit unions to both identify and
invest in local clean technology entrepreneurs and companies, and to
accelerate the pace of sustainable innovation.
Base of the Pyramid
Finally, while some credit unions continue their heritage of serving the
underserved, it is surprising that few clearly incorporate this focus into
their core business mission and strategy. Credit unions’ tax-exempt
status provides a structural cost advantage unavailable to banks, making
entry into the BoP space both less risky and potentially more profitable.
Despite this advantage (or perhaps because of it), most credit unions
have adopted a profit-spending mentality when it comes to their BoP
programs. Indeed, our analysis reveals many elaborate and expensive
high-touch programs for credit repair, community partnership lending,
Chapter 5
59
financial education, and voluntary income tax assistance. Many of these
programs involve complex partnerships with community organizations
and other nonprofit groups, few of which cover their costs.
Given the rising (and increasingly visible) level of exploitation of the
working poor by predatory vendors, payday lenders, and subprime
mortgage brokers, it is perplexing that more credit unions have not
seized the large and potentially lucrative opportunities to better serve
the underserved through secure, safe, and affordable financial products.
As we have seen, the payday lending business now exceeds $28B per
year in the United States alone. How difficult should it be to compete
with those who charge the equivalent of 400% interest per year, when
10% interest represents a substantial return for credit unions? The
REAL SOLUTIONS: A BoP STRATEGY
The REAL Solutions initiative (“REAL” stands
buyers, future homeowners, and future
for “Relevant, Effective, Asset-building,
generations of credit union members.*
Loyalty-producing”) illustrates the type of
strategy credit unions could adopt to successfully engage the underserved financial
market. REAL Solutions grew out of a 2004
Filene Research Institute pilot project, which
was focused on furthering credit unions’
tradition of serving those of modest means.
It was adopted by the National Credit Union
Foundation (NCUF) in 2007, and it remains
the organization’s self-proclaimed signature
program today, as NCUF Executive Director
Steve Delfin describes:
Many of the program’s outreach plans align
with BoP strategies and protocols for effectively understanding—and subsequently
serving—the unmet needs of underserved
markets. Through new partnerships
(between leagues, state credit union associations, and individual credit unions), NCUF
will make field visits to low-wealth communities to identify and develop products
and services customized for these emerging customers. A REAL Solutions Learning
Center will document and share this new
research and knowledge through a data-
REAL Solutions is designed to help
base accessible to credit unions nation-
credit unions effectively reach low-
wide. National workshops and payday lend-
wealth households and create a
ing alternatives represent additional plans
new generation of loyal credit union
to be implemented by the program. In this
members. This is important because
way, REAL Solutions helps credit unions to
underserved households—while at the
develop products, services, and strategies
bottom of the economic pyramid now—
that offer comprehensive financial services
represent future savers, future car-
for underserved potential clients.
* National Credit Union Foundation, “REAL Solutions™,” www.ncuf.coop/home/programs/realsolutions/realsolutions.aspx.
60
fact that the poor and unbanked are so poorly served opens a strategic
window for credit unions. We strongly recommend that credit unions
continue to explore transaction-based products and services for the
poor, such as payday lending, immigrant, and remittance services.
Substantial opportunities also exist in the microlending space. The
success of microfinance institutions in the developing world—such as
Grameen Bank—reflects the feasibility of serving the poor profitably,
with financial services ranging from microcredit to microinsurance. The
model must be adapted, however, to address the particular idiosyncrasies of immigrants and the working poor in the United States, Canada,
and other developed countries where credit unions predominate. In the
slums and rural areas of developing countries, for example, failure to
pay regularly does not harm one’s credit rating. Rather, creditworthiness
is determined by family history, reputation, and peer evaluation.
The North American credit rating system, in contrast, is impersonal and offers little flexibility, making it difficult to deliver on the
intent of peer-lending programs. At Vancity, for example, even small
financial obstacles can set back borrowers, as these clients lack the
financial support system available to the middle class and wealthy. To
succeed in microlending in developed countries, it has been necessary to evaluate people on a more individualized basis, and to couple
microcredit services with savings programs and health insurance.
We recommend that credit unions begin by competing directly
with predatory lenders by offering reduced (but still profitable) rates
for transaction-based products, such as payday lending and remittances. The next step is to establish a more significant presence with
programmatic initiatives in microfinance, perhaps culminating in
affordable housing mortgage products. Major players in the credit
union system can continue to play an important catalytic role in
spearheading such programs; they can garner greater visibility and
recognition of the initiatives already under way, thereby strengthening the industry’s image as an important partner for companies and
other actors seeking to engage BoP strategies.
Conclusion
Our research indicates that the emerging challenges associated with
sustainability do indeed offer substantial opportunities for credit
unions to leverage their unique heritage in the financial services
sector by going “back to the future.” Given their tax-exempt status,
credit unions are in a prime position to offer innovative new products and services in the clean technology and BoP spaces—products
that would be difficult for banks to justify in the near term. Credit
unions can also benefit greatly from the experiences of microfinance
institutions from the developing world in adapting strategies to serve
the working poor and the unbanked in the developed world setting.
Chapter 5
61
Appendix 1
Pollution Prevention Initiatives
paper
Assiniboine Credit Union
• Discontinued use of paper statements marketed as “save a tree”
option for banking.
alternative travel and transportation
• Participates in the EcoPass project, which encourages the use of
public transportation in Winnipeg, Manitoba. Assiniboine subsidizes monthly bus passes for employees who opt to leave their
cars at home.
mecu
• Implemented a purchasing policy mandating a three-star or
higher rating for all company cars.
green buildings
Michigan State University Credit Union
• Invested in LEED certification for organization’s new home.
President and CEO Patrick McPharlin commented: “We felt this
would pay dividends in the long run in many ways: reduce energy
costs, prove that we are a corporate citizen friendly to the environment, and doing the right thing.”45
Triodos Bank
• Implemented an Environmental Management System (EMS) in
2000, accredited with the ISO 14001 environmental certificate.46
45 Heather Buck, “Workstage Continues Its Commitment to Building Green,” Michigan State University Credit Union press release, June 9,
2006.
46 UKEN annual accounts, 2005.
Appendix 1
63
Appendix 2
Corporate Social Responsibility Initiatives
grants and giving
• Offers community grants to support projects and programs helping
to foster sustainable communities and neighborhoods. All community grants must address one of four guiding principles: social
inclusion, economic self-reliance, ecological responsibility, and
community building.
Vancity
• Contributes 5% of its Visa profits to enviroFund, which supports
community initiatives addressing local environmental concerns.
Individuals can also contribute to the fund. enviroFund Visa
cardholders select three issue areas each year. Nonprofits with
projects relating to issue areas apply to receive funds. Projects
must be action-oriented and demonstrate the potential to generate significant environmental improvements in the region.
Nonprofits that are members of Vancity (or other credit unions)
are preferred. Application committees review and award grants
ranging from $15,000 to $40,000 (CAD).
Wainwright Bank and Trust Company
• Launched a virtual community room to help nonprofit clients
have a presence on the Internet by providing a free Web site
hosting service; participating nonprofits maintain their own
Web sites. A key component of this service is the ability to
safely accept donations online and deposit them directly into
their accounts; the standard processing fee is charged for each
transaction. About one-third of Wainwright’s nonprofit clients
use this interface.
socially responsible investing (sri)
• A full-time SRI Specialist familiarizes investment officers with SRI
principles and investing opportunities. This dissemination enables
officers to discuss SRI products with members and—using a
unique, codeveloped worksheet—to ensure that member investments match personal values.
Appendix 2
65
• Pools the funds from Jubilee Investment Certificates (a minimum
investment of $500 [CAD] for 3–5 years) to provide loan guarantees and/or equity for community economic development projects that would not be eligible for traditional loans.47 Interest rates
are 2% below general interest charge rates; the difference from the
market rate assists with operating expenses.
Vancity
• Recently announced its intent to offer Vancity Circadian Funds—
its own socially responsible mutual fund. Working with its SRI
subsidiary, this fund will invest in a diverse portfolio of companies using progressive social, environmental, and governance
practices in their businesses.48
Wainwright Bank and Trust Company
• Collaborated with Equal Exchange in 2006 to create a branded
certificate of deposit (CD). As a leader in the fair trade movement, Equal Exchange needed a line of credit in order to expand
its fair trade coffee, cocoa, and chocolate import business. A line
of credit was secured by Wainwright customers through the Equal
Exchange CD—a 3-year CD with a regular market rate of return
on a minimum $1,000 investment. Wainwright’s initial goal was
to raise $1M. At the time of the interview, it had already raised
$300,000.
47 Jubilee Fund, “Jubilee Investment Certificates,” www.jubileefund.ca/financialsupport/02_investments.html.
48 Vancity, “Vancity Circadian Mutual Funds,” www.vancity.com/MyMoney/ProductsandServices/Investing/MutualFunds/
VancityCircadianMutualFunds/.
66
Appendix 3
Product Stewardship Initiatives
fuel-efficient vehicle loans
Santa Cruz Community Credit Union
• Provides clean air loans for hybrids, electric vehicles, and
low-emission vehicles (as determined by Driveclean, an emission guide provided by the California Air Resources Board). It is
a straightforward, one-half-percent rate reduction for qualifying
vehicles.
Vancity
• Offers members preferential loan rates on fuel-efficient vehicles
through its Clean Air Auto Loan. Rates are based on rankings
determined by the Natural Resources Canada annual report on
carbon emissions. Two loan rates for eligible vehicles have been
developed:
1. Prime rate for vehicles emitting at least 50% less CO2 than
average.
2. Prime + 1% for vehicles emitting at least 33% less CO2 than
average.49
alternative energy loans
Alternatives Federal Credit Union
• Facilitates access to rebates and after-tax deductions on installation of solar hot water systems, windmills, and photovoltaic systems through a new loan product for the New York State Energy
Research and Development Agency (NYSERDA) Program.
Members qualify for a fixed 8% home equity loan, but because
loan qualifiers receive an additional 4% rebate from NYSERDA,
Alternatives charges borrowers 4% and receives the 4% rebate.
mecu
• goGreen Home Improvement Loan discounts the standard variable loan rate for the purchase and installation of environmentally friendly home features, including energy- and water-saving
devices (such as heat pumps and reverse cycle air conditioning),
high-efficiency gas heaters, solar electricity systems, wind turbines, solar hot water, gray water recycling systems, waterless
49 Vancity, “Clean Air Auto Loan,” www.vancity.com/MyMoney/ProductsandServices/Borrowing/EnvironmentalOptions/CleanAirAuto.
Appendix 3
67
composting toilets, rainwater tank insulation, and five-star
energy-efficient glazing and awnings.
Santa Barbara Federal Credit Union
• Created the solar power loan—a home equity line of credit that
does not require an appraisal. No discounts or financial savings
are offered, but rather the differentiating factor is a simplified
application process with a shorter processing time. In two years,
only one has been funded.
Vancity
• Helps business and nonprofit members increase the energy efficiency of facilities and operations through Community Business
Banking: provides free energy audits and recommendations on
implementation of energy upgrades, helps clients realize available
rebates and tax incentives, and provides loans to finance upgrades
in energy efficiency.
impact assessment initiatives
Nedbank Group
• Investigates environmental risks in its credit policies and risk
management frameworks; follows the Equator Principles regardless of the host country’s standards.
68
Appendix 4
BoP Initiatives
immigrant services
• Created a simple, inexpensive remittance program through a partnership with VIAMERICAS. Members send money overseas for
a flat fee of $9 per transaction to selected countries. Transaction
forms are easy to use and available in Spanish.50
Microfinance International Corporation (MFIC)
• Developed ARIAS, a licensable remittance processing platform.
Easy to implement, the system only requires institutions to have a
basic computer and Internet connection.51
• Established Alante Financial—U.S.-based financial service centers
designed meet the needs of immigrant clients; starter loans rely
on a client’s remittance history to determine their creditworthiness. Loan payments are reported to the credit bureau so that
customers can start to build their credit.52
credit repair
Bethex Federal Credit Union
• Offers Goal-Saver Loans at 5% APR to help members build and
repair credit histories and develop savings habits. Loans require
minimal paperwork with no credit report; they are deposited into
member accounts but remain frozen until completely repaid.53
mecu
• Created a No More Marketing Guarantee card. The card is issued
with a 100% guarantee that no marketing initiatives will be
launched to encourage members to increase spending or approved
credit levels. To support reducing financial burdens on members,
this Visa card was created as a low-interest card at a rate of 8.49%
and is made from recycled plastic.54
50 Alternatives Federal Credit Union, “International Remittances,” www.alternatives.org/remittances.html.
51 MFI, “ARIAS—Remittance Settlement Platform,” www.mfi-corp.com/inter.asp?id_seccion=15&idioma=ing.
52 MFI, “Alante Financial,” www.mfi-corp.com/inter.asp?id_seccion=17&idioma=ing.
53 bethexfcu.org/loans.htm.
54 “Socially Responsible Credit Card Awarded,” MECU Media Release, March 2007.
Appendix 4
69
• Created the Starter Visa Card to help members repair and build positive credit histories. The card has a $250 limit with no annual fee.
• Provides free check cashing and checking services through Essential
Checking, a special checking account for underserved members. No
fee is charged on the first seven checks. This account is also linked to
a bank card, enabling access to more sophisticated financial services.
peer lending and microfinance
Triodos Bank
• Triodos microfinance funds provide finance to small banks and
financial institutions in developing countries, as well as Central
and Eastern Europe.
• Is a shareholder in 10 of the world’s leading microfinance banks.
It issues loans to 56 microfinance institutions, active in 26 countries, ranging from $100,000 to $1,500,000, to provide trade
finance for fair-trade products such as coffee, organic vegetables,
and herbs.55 Interested organizations must be registered with the
Fairtrade Labeling Organization International (FLO International) or be engaged in certified organic production.
combating predatory lending
• Created a Payday Credit Plan for members of at least one year.
This loan product, designed to meet immediate cash needs in
emergency situations, is structured like an ordinary line of credit
with a $40 annual fee and 18% interest rate. Five percent of the
loan is deposited into the borrower’s savings account. This loan
must be paid off in the next pay or benefit check period and can
be renewed with no additional fee.56
Bethex Federal Credit Union
• Innovative partnerships with more than 130 check cashing sites
throughout New York City enable members to make direct electronic
deposits to and withdrawals from their Bethex accounts using ATM
cards. Members can also cash credit union checks for free (Bethex
pays the $1.50 fee) and other checks at a discount equal to 1.1%.57
56 Alternatives Federal Credit Union, “Consumer Loans,” www.alternatives.org/consumer_loans.html.
57 National Community Investment Fund’s Retail Financial Services Initiative, “From the Margins to the Mainstream: A Guide to Building
Products and Strategies for Underbanked Markets,” www.ncif.org/services.php?mainid=3&id=41.
70
• Emergency Loans are provided to members with APR between
16.5% and 18%; individuals can have an equivalent of 15% of
their loan direct-deposited into their account, up to $500, the
same day, with no credit report. Members lacking direct deposit
capability can qualify for up to $300.
SSA Baltimore Federal Credit Union
• Established Our Money Place, a financial service center collaborative
with A & B Check Cashing. A & B provides typical check-cashing
services while SSA Baltimore handles all noncash transactions such
as opening new accounts, deposits, transfers, and loans; SSA members have access to emergency loans of up to $300.58
individual development accounts (idas)
• IDA programs match client deposits (up to $5,000) at a two-toone rate. To be eligible, applicants must earn less than 150% of
the area’s poverty line, and must be referred by one of 22 community partners. All matching and operational funds come from
foundation, government, and individual donations.59
affordable housing
St. John Community Loan Fund
• Loans to Secure Housing help underserved individuals in New
Brunswick secure housing through microloans of up to $1,000
(CAD). This can be used for security deposits, first month’s rent,
and moving expenses. Qualifiers receive loans interest-free after
providing three nonfamily references, demonstrating their ability
to make monthly payments, and completing a basic course in
money management.60
Vancity
• Mixer Mortgage is a nontraditional approach to home ownership;
a group of people (family, friends, coworkers) partner to share
down payments and mortgage payments to purchase a home. All
partner names appear on property titles with flexibility in determining how costs are divided. Purchasers receive a 10% discount
on home insurance.61
58 Neil Carlson. “Five New Ways to Serve America’s Unbanked,” Ford Foundation Report, 2004.
59 Santa Cruz Community Credit Union, “Community Development Programs,” www.scruzccu.org/community/index-english.shtml.
60 St. John Community Loan Fund, “About Our Loans,” www.loanfund.ca/loans.html.
61 “Vancity’s New Mixer Mortgage Provides a Non-Traditional Approach to Home Ownership,” Vancity Media Release, August 10, 2006.
Appendix 4
71
term deposits
Vancity
• Money from Shared World Fixed Term Deposits is invested in
organizations providing affordable credit to members of developing world communities; $100 (CAD) minimum investment is
required for a one-year term, after which investors receive investment plus interest.
• Shared Growth Term Deposits require a $100 or $500 (CAD)
investment for a one-year minimum term, which is invested in
projects that improve the social and environmental well-being of
local Vancouver communities.
72
ISBN 978-1-932795-36-3
PO Box 2998
Madison, WI 53701-2998
Phone (608) 231-8550
PUBLICATION #155 (04/08)
www.filene.org
ISBN 978-1-932795-36-3
Back to the Future:
Integrating Sustainability into Credit Union Strategy
ideas grow here
Back to the Future:
Stuart L. Hart, PhD
Cornell University
Monica Touesnard
Cornell University

Back to the Future - Filene Research Institute

Transcription

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