Alternative banks throughout Europe have seen their customer base increase in the aftermath of the international banking crisis, Karol Sachs, president of the European Federation of Ethical and Alternative Banks since 2007, told The Sunday Times.
By reasserting their ethical values, these institutions have withstood the crisis well as they managed to attract customers of international banking networks who were becoming increasingly uneasy as financial turmoil spread across the continent.
"The banking crisis and the problems surrounding public finance such as what happened in Greece, led us to have many more customers than before," Mr Sachs said. "People transferred their deposits from big banking networks and entrusted them to banks they believed to be more transparent. Even in countries where there is no ethical finance component, customers put their money in co-operative, local banks."
Banks in this sector are suffering the effects of rising risk costs, including the fall-out from volatile employment as some of the continent's largest employers face crises of their own. Low interest rates on deposits compound the situation further as there is little spread between either side of the banking spectrum in this sector: Customers of ethical and alternative banks voluntarily place their savings on lower rates so that revenue is generated on the credit side of the business.
Despite these factors, some smaller banks in France were signing up over 350 new customers a month.
Mr Sachs was in Malta last week for Febea's annual general meeting which brought together 18 of its 24 member organisations. The meeting was hosted by APS Bank, a Febea member, as part of its centenary celebrations.
Brussels-based Febea is a non-profit organisation incorporated under Belgian law in 2001 by Crédit Coopératif of France, Caisse Solidaire du Nord Pas-de-Calais of France, Crédal and Hefboom of Belgium, Banca Etica of Italy, and TISE of Poland. Mr Sachs is one of its creators.
As at last June, its members, which include 11 banks, six savings and loan cooperatives, five investment companies and three foundations, accounted for a balance sheet of €21 billion, with some 528,000 clients and shareholders between them. Despite their varied set-ups, all Febea members share the same concern for transparency, and social and environmental efficacy.
Febea's primary role is to create financial tools to help existing European initiatives and encourage the growth of new ones through alternative finance.
The programme at the Malta meeting, held at the Radisson Blu Resort in St Julian's included a half-day seminar on microcredit as a tool for ethical financing for sustainable development, which was addressed by Central Bank governor Michael Bonello and Malta Financial Services Authority director Karol Gabaretta.
Microfinance, small-scale financial services including loans and savings products, has given less affluent customers around the world sorely needed access to banking services. The decades-old concept which has particularly come to the fore over the past 30 years was originally championed by Nobel laureate Muhammed Yunus.
"Microcredit in Europe is usually defined as a loan of €25,000 to businesses with up to 10 employees and a turnover of €200 million," Mr Sachs explained. "With this definition, most of the loans granted by traditional banks are microcredit loans. There is something fundamentally wrong with this model: the means used by the traditional banks are the same whether it is a microcredit or a larger credit: it is too costly and inappropriate. The challenge for banks is to grant it to people who are out of the banking market because they do not have enough collateral."
Mr Sachs cited two European leaders in microcredit doing a remarkable job. Crédal, the Belgian savings and credit co-operative bank, was the first to design consumer microcredit very successfully, offering small loans to a range of low-income customers - even the unemployed, if it helped them buy means so that they could travel to a new job several hundred miles away. Mr Sachs said Crédal's risk cost is 0.01 per cent.
Several other banks have attempted to copy its model with mixed results.
Crédal's experience has shown that throughout the crisis, the demand for professional microcredit has decreased while that for social micro-credit requested by individual customers, has risen, Mr Sachs added.
Italy's Banca Etica recently formed an asset management company charging just €1 for every €1,000 invested. The €1 'gift' was entrusted to a foundation granting guarantees for the microcredit. In one year alone, over 3,000 microcredit schemes were awarded to social organisations.
"Microcredit can work," Mr Sachs emphasised. "It will not kill banks."
The market for microcredit on the continent is considerable. Mr Sachs said European Investment Fund statistics show that 80 per cent of loans to small businesses are of less than €20,000. Crédit Coopératif, the alternative bank where Mr Sachs is head of alternative and solidarity-based financing, recently found three-quarters of loans granted to associations and enterprises - mostly in the housing and services sectors, and soft economy industries like consultancy - were of less than €20,000.
The interest rate discussion at the meeting was "emotional" but all seemed to agree that if small institutions were to provide micro-credit, it had to be provided responsibly. People who could not afford a repayment increase of €17 a month when interest rates begin to rise had better not be granted loans in the first place, Mr Sachs emphasised.
Febea has successfully developed several tools to help existing and encourage European initiatives in the alternative finance sphere. It has been particularly encouraged by CoopEst, a fund dedicated to sponsor microfinance institutions and co-operative banks in Eastern and Central Europe. The Malta meeting discussed the potential of a similar venture, CoopMed, aimed at the Mediterranean, with experts from the European Investment Fund and the World Bank's International Finance Corporation. Both organisations are CoopEst's main backers.
The federation also has other noble projects in hand: The Europe Active fund aims to fight unemployment and advocate social insertion through new economic activity; another fund is dedicated to finance smart energy technology to favour the underprivileged, fight climate change, and foster social and economic development.
Although it is not Febea's most foremost priority, Mr Sachs hoped to see new organisations join its fold over the next few months.
Microfinance projects in Greece and Hungary, and contacts with non-governmental organisations in Luxembourg with links to a bank, augured well.
Interest in CoopEst would also boost membership as would the creation of new credit movements in Lithuania, Romania and Bulgaria.
A larger Febea might have a louder voice on the continental banking circuit, where, Mr Sachs explained, it is too small to even get close to the decision-making and regulatory tables.