Banking that matters: Erste Group measures impact of its Social Banking activities

Social Banking activities helped to create and preserve almost 45.000 jobs across CEE

Since its launch, 30,000 clients were supported with financing, education and/or mentoring

Erste Social Banking supports starting entrepreneurs, microfinance businesses, social organisations and people in financial difficulties

Financing efforts are combined with financial education to ensure sustainable financial well-being

Erste Group is systematically growing its comprehensible Social Banking programme in Central and Eastern Europe (CEE): The 2nd impact assessment of social banking activities, based on methodology developed in cooperation with the Vienna University of Economics and Business, measures the impact of the social banking efforts on local communities. More than 19,000 people in financial difficulties, 7,000 small farmers, 3,100 entrepreneurs starting their micro-businesses in areas with high unemployment and poverty and 600 social organizations across CEE accessed offerings of Erste’s Social Banking. Overall, Erste dispersed a total of EUR 235 million in loans across CEE, with EUR 65 million provided in 2018/2019 alone

Thus, Erste lives up to its believe that growth must be inclusive. While the overall poverty rate in CEE has decreased by 6% since last year, 14 million people in Erste’s core markets Austria, Croatia, Czechia, Hungary, Romania, Serbia, and Slovakia are still at risk of poverty. A majority of these can barely make ends meet, cannot cover unexpected expenses or lack basic household amenities such as heating or proper sanitation.

Job creation in local communities through supporting small businesses, entrepreneurs and NGO

Erste’s Social Banking programme collaborates closely with a broad variety of local partners – offering a set of measures ranging from access to finance up to mentoring and training. This collaboration ensures that funding translates into sustainable and measurable social impact – such as the creation of 15,000 new jobs and the preservation of 30,000 jobs across the region. 

Since its start, Erste’s Social Banking financed 3,100 starting entrepreneurs and almost 7,000 microfinance businesses in order to fight unemployment in rural areas across CEE. For a third of entrepreneurial clients, a start-up loan meant a path from unemployment to their own business – not only for themselves but also for others: On average, every starting entrepreneur creates two further jobs in a local community. 50% of these entrepreneurs report that starting or expanding their business without Erste’s support would have been impossible. In addition, Erste disbursed to these clients more than EUR 160 million in loans

“One of the most difficult tasks for micro-businesses is raising finances to get their ideas up and running. For women entrepreneurs the hurdle is even higher, as they need to battle against gender bias, too. With our help, they can start and successfully expand a generation café in Vienna, a sheep farm in Romania or organic baby clothing business in Croatia”, explains Peter Surek, Head of Social Banking Department.

An additional growth of social banking impact was achieved by services provided to social organizations across CEE. The number of financed organizations grew by 50% y-o-y, from 400 in 2017/2018 to more than 600 in 2018/2019. Overall volume of loans increased from 41 to 72 EUR million. More financing led to preservation of 10,500 and creation of 2,300 new jobs in social sector, 60% of which were created for socially excluded.

“Many NGOs and social entrepreneurs have poor access to financing as their business models are per definition not profit-oriented and thus unattractive to mainstream banks. They have scant support from the state and difficulties in accessing EU subsidies. The development of the civil society is limited when NGOs and social entrepreneurs, who deal with some of the most challenging issues in our society, lack adequate funding. To meet their needs, we provide working capital loans, bridging loans and investment facility loans”, states Peter Surek.

Financial education to ensure sustainable financial well-being

As the level of financial literacy remains generally low across CEE, Erste’s education programmes help clients to achieve sustainable, long term improvements in their financial health. Erste’s efforts for financial inclusion started with Zweite Sparkasse, a volunteer-run “bank for the unbanked” founded in Austria by Erste Group and ERSTE Foundation in 2006. The 2nd impact assessment shows that financial inclusion programmes in Austria and Slovakia helped over 19,000 people in financial difficulties in partnership with local NGOs. 76% of low-income clients report that they can now pay regular expenses on time.

Business skills and financial advisory are crucial also for Erste’s entrepreneurial clients: 8,500 participated in training and mentoring programmes using various formats from online tools to individual support. In, 2,600 social organizations participants benefited from business training and capacity building. 9 out of 10 supported social organizations reported that they can now better fulfil their social mission, serving over 123,300 socially excluded beneficiaries across CEE.

SOCIAL BANKING: WHAT'S IT ALL ABOUT?

Giving mortgages to recent grads and swapping overdraft charges for low-rate loans isn't what you’d expect from a financial institution, yet that’s exactly what many tech-savvy start-ups like San Francisco-based lender SoFi and London’s Mondo are all about. Offering tailored services to suit individual users – or 'members' as some outfits term their customers – positions 'FinTech' companies at the centre of a banking revolution. Are we getting a glimpse into the future of finance?

WHAT IS SOCIAL BANKING?

The term 'social banking' has been around since the 1950s, and traditionally referred to sustainable investment. Now, however, the term is more likely to mean banking through social media, peer-to-peer (P2P) lending or the development of online financial communities. These types of lending are seen as a democratisation of finance, and are often presented as solutions to problems that the traditional banking system can't or won't address.

BANKING WITH BENEFITS

Convenience and communication are central to many social banking offerings. Clever use of technology has meant that borrowing, balance checks and international money transfers have become as easy as sending an email; some firms even provide smartphone-based solutions for on-the-go financial management. 

Tom Blomfield, CEO of Mondo, hopes this “new type of bank” will give users an alternative to the rigid, one-size-fits-all deals that are sometimes offered by centralised outlets. The appeal of flexible arrangements isn't hard to understand, but comes into sharp relief when marginal users such as the 'unbanked' are taken into consideration.

LINGERING CONCERNS

Many commentators are excited by the possibilities associated with avant-garde banking, but others argue that new systems are vulnerable by nature. While it's true that some social banking firms aren't as strictly regulated as conventional institutions, this isn't a universal law – it simply indicates that you should research any company you're thinking of using thoroughly before taking the plunge. Moreover, If social banking does turn out to be the next big thing, an increase in investment will probably be accompanied by increased regulation.

What does the rise of new banks tell us about society? First and foremost, the surge confirms that consumers are open to change when it comes to controlling their finances. What isn't clear, however, is whether social banks are the change that people want.

If you're interested in forward-thinking financial solutions and want to know more about how money transfer is changing, check out our blogs and we'll make sure that you're ahead of the curve.

FINTECH FOR SOCIAL IMPACT

NATHAN SMALE

The banking and not-for-profit sectors may initially seem at odds, but they’re uniting to bring about financial inclusion to the Philippines’ poorest communities through FinTech.

The FinTech for Impact joint initiative between ING and UNICEF is funding startups that can benefit the most financially excluded, by providing up to six equity-free investments of up to $US 100,000 in for-profit technology, focusing on social impact through FinTech development.

The initiative will focus on FinTech startups using blockchain, virtual and augmented reality, machine learning, data science, and artificial intelligence technologies.

Filipino FinTech entrepreneur, Jove Tapiador is applying for the program, which he hopes will drive significant social change.

“It’s important to the Philippines' future innovation culture to see banks taking action now to deliver financial literacy and financial inclusion initiatives out to the provinces, where it will make the biggest difference to people living life at the edge,” he says.

In the Philippines more than 52 million adults or 77.4 per cent of the total adult population remain unbanked, according to UNICEF, while more than 10 million children live below the poverty line. 

FinTech for Impact organisers say without services like savings and insurance, families are vulnerable to economic insecurity - which limits their ability to plan, adapt to unexpected events, and provide the best nutrition, health, and education for their children.

The central bank of the Philippines’ Managing Director Pia Bernadette Tayag says it’s vital tech entrepreneurs don’t just innovate for innovation's sake, but deliver real world value.

“Our FinTechs are indeed innovating every step of the financial services value chain,” she says.

“However, there is a need to look past the hype and promise.

“We must see whether these FinTechs have the real connection to solve real financial inclusion problems and the real pain points of exclusion.”

“Even this year, in the midst of all these developments and innovations, more than two-thirds of the Philippines remain on the fringes of the formal financial system.”

ING Philippines Country Manager, Hans Sicat says financial exclusion is a global issue that must be solved.

“There are 1.2 billion adolescents, aged 10 to 19, worldwide left behind,” he says.

“Nearly 90 per cent of the adolescents live in developing countries and they need support to become socially and financially independent.

“ING and UNICEF believe the time to invest in this generation is not when they find themselves unemployed and without prospects, but at an earlier stage when their critical thinking and problem solving skills can be developed and exercised.”

For more information about FinTech for Impact 

FINTECH FOR IMPACT

ING and UNICEF are building on a 14-year partnership focused on growing opportunity and empowerment through this pilot initiative.

Recognizing that real social change entails group efforts across the private and public sector, longtime collaborators ING and UNICEF are conducting an investment pilot that seeks to leverage emerging technologies into opportunities for children, young people and families.

The joint call for fintech solutions is a new approach to unlock ways to empower youth; by identifying inclusive fintech solutions and supporting them to scale, with ING’s finance and business expertise and UNICEF’s context knowledge and convening power, we can innovate to close service gaps, reduce financial barriers to skills training and opportunities, and help youth and families rise out of poverty.

ING is a global financial institution with a strong European base, offering banking services through its operating company ING Bank.

The purpose of ING Bank is empowering people to stay a step ahead in life and in business. ING Bank’s more than 53,000 employees offer retail and wholesale banking services to customers in over 40 countries.

ING Group shares are listed on the exchanges of Amsterdam (INGA AS, INGA.AS), Brussels and on the New York Stock Exchange (ADRs: ING US, ING.N).

Sustainability forms an integral part of ING’s strategy, evidenced by ING’s ranking as Leader in the banks industry group by Sustainalytics and ‘A’ rating in MSCI’s ratings universe. ING Group shares are included in major sustainability and Environmental, Social and governance (ESG) index products of leading providers STOXX, Morningstar and FTSE Russell.

UNICEF works in over 190 countries and territories to save children’s lives, to defend their rights, and to help them fulfill their potential, from early childhood through adolescence. At UNICEF, innovation is about taking emerging approaches and tools, and testing how they can be applied across contexts. If successful, they can be scaled to positively impact children and young people around the world. 

The widening gulf between rich and poor, rapid urbanization, climate change, and the rapid pace of technological change requires us to adapt and create new solutions to confront the challenges facing children today. UNICEF believes that new approaches, partnerships, and technologies that support realizing children’s rights are critical to improving their lives.

With the support of Arm through the UNICEF and Arm partnership

Since 2015, UNICEF and Arm have been seeking to unlock the life-saving potential of technology by discovering and inspiring new technology to solve the most complex problem facing the world’s children, now and in the future.

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