NNA correspondent Cornelie Unger-Leistner looks at the issues surrounding inclusive finance, raised most recently at a symposium in Berlin earlier this month    

BOCHUM/BERLIN/BRUSSELS/THE HAGUE (NNA) - That banks should feel compelled to deal fairly with poorer clients is the aim of the UN Principles for Investors in Inclusive Finance (PIIF), a new set of worldwide guidelines which came into force earlier this year. The EU Commission is also demanding a fundamental right to financial services, as millions of EU citizens are being denied a bank account.

The 40 signatories who signed the Principles comprise a range of financial institutions from around the world specialising in microfinance, ethical banking and funding for social entrepreneurship, including Triodos Investment Management, Oikocredit, Caspian Advisors and one of the first signatories in Germany, GLS Bank.

The principles were authored by a member of the Dutch royal family, Princess Maxima, an expert in microfinance, and a group of non-profit organisations. Together their aim is for the provision of financial services to both poorer sections of the population and micro businesses, with the focus always on the customer and on protecting customers from exploitation. To this end the PIIF principles cover such areas as consideration of social and ecological standards, fair cooperation and complete transparency.

“We plan to enter into dialogue with the other signatories to clarify the criterion for responsible development”, explained GLS Bank spokesman Thomas Jorberg. The GLS Bank was looking forward to setting a good example in Germany, he said.

Marilou van Golstein Brouwers, Managing Director Triodos Investment Management BV, said at the time that the Principles were launched: “Inclusive finance has a fundamental impact on the lives of millions of people. Today a group of aligned investors sign up to principles that protect their interests. Together they are committing to the creation of inclusive financial sectors that improve lives by providing transparent, financial services in a responsible way. We hope many more will follow their lead.”

Since 2010, the GLS Bank has been developing a comprehensive range of microcredit products on behalf of the German government. This has been a great success. The demand for the products has exceeded all expectations. According to the bank, twice as many loans have been granted as were originally expected.

Over the last few years microfinance has developed and become an important instrument in international cooperation. Particularly in the fight against poverty, hopes have been high around the world for microfinance.

However, a strong commercialisation of the microfinance sector in countries such as India has led to excessive debts among borrowers, which has even resulted in suicide. This has in turn raised doubts about the morality of these microloans. Now an international set of standards are intended to curb such negative developments.

At the invitation of the German umbrella organisation for international development, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), a collection of experts met at a symposium in Berlin in early July to discuss this topic. “Microfinance’s ultimate aim is to help people to break free of poverty, but several of the actors seem to have forgotten this”, criticised Ben Simmes, the director of social impact management for the international development financier Oikocredit. He urged the financial industry to strike a better balance between financial and social profit. “We are committed to ensuring that an industry wide set of standards, such as customer protection guidelines and the UN Principles for Investors in Inclusive Finance are adopted everywhere,“ stressed Simmes.

Dr. Tilman Ehrbeck, chief executive of the independent policy and research institute CGAP in Washington put forward the thesis that microfinance will reduce poverty if the right finance product reaches the right customer in the right place. He pointed out that globally some 2.7 billion people have no access to formal financial services. A functioning financial system is also seen as being an important component of the infrastructure of a country.

But it is not only in developing countries that the dealings of the financial industry with the poor and the disadvantaged pose a problem. The EU Commission estimates that around 30 million EU citizens have no bank account, of which seven million have already unsuccessfully tried to open one.

The banks often deny accounts to those who have no regular income, no permanent residence or are in debt. The EU Commission is now calling for a basic right to banking services to be afforded to all citizens. The governments of the 27 EU member states have until July 2012 to inform Brussels about proposals regarding possible solutions to this problem, so that all EU citizens can have access to basic financial services, such as bank transfers and cash withdrawals.

In the case that no solution is found, EU Internal Market Commissioner Michael Barnier has threatened compulsory measures by Brussels. Consumer advocates in Germany have also shown disappointment that Brussels has not so far made any legislative proposals. They have demanded for a long time a commitment by banks to provide the opportunity for every citizen to have a bank account.

The refusal of a bank account cuts people off from participation in society, they argue. No employers are willing any longer to pay cash wages and salaries and most landlords are unwilling to accept cash.

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Item: 110724-01EN Date: 24 July 2011

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