Don’t love it, lend it

James Niven of Triodos Bank claims money back from the devil.

Despite some bad biblical press (‘The love of money is the root of all evil’,  Timothy 6:10), money can do a great deal of good. It could yet provide the solution to some of the most daunting social and environmental problems we face, according to a small number of increasingly influential social banks, the savers who deposit their money with them, and the entrepreneurs they finance.

But it’s not easy to make our hard earned cash deliver such unexpected results. It needs to be used in the right way, with the right incentives and the right people involved.

Imaginative ethical funds in the Netherlands, for instance, have mobilised millions of euros on the strength of an enlightened tax relief scheme. They invest in selected businesses - like green transport initiatives and cultural projects - delivering tangible social and environmental benefits. And their investors enjoy the prospect of decent financial returns - along with a chance to do something about issues they care about.

A similar UK initiative, the government’s Community Investment Tax Relief (CITR) scheme, has proved less successful - although not for any lack of investors. Launched in 2000 to help disadvantaged groups, the CITR has raised £38 million from the public, including almost £4 million deposited with Triodos Bank, which only lends to businesses and charities that benefit people or the environment. But Triodos was turning new CITR money away after only a fortnight - on the back of a single article in the Sunday Telegraph headlining the scheme’s attractive tax relief.

“The problem is not attracting money to lend,” says Gavin Smith, head of business banking at Triodos. “It’s finding qualifying businesses to lend it to, under the detailed rules of the scheme.” Some of those rules are quite legitimate measures to prevent the abuse of a tax-incentivised scheme, he says, but “not surprisingly, government rarely has a clear enough picture of the marketplace to be able to define tight criteria successfully - which means many organisations that could benefit, don’t.”

And there are other examples of well-meaning government initiatives - such as funds which offer subsidised loans that can unintentionally distort, rather than support, the market.

“The issue is one of missed opportunity,” says Smith. “Government has an enormous amount to contribute. It can bring real benefits at the policy level, for example, and guide savers’ money towards ‘more than profit’ enterprises with tax incentives. But by getting involved in greater detail, and creating more and more institutions, it can end up displacing funds that already serve a flourishing industry. The irony is that government ends up using our taxes to do this - money that we, as tax-payers, have little control over and whose results we rarely see. We can already choose to save money with social banks with strong track records, making exactly the same intended connection between our money and social and environmental enterprise.”

When this connection is made, extraordinary things can happen. Money deposited by Triodos Bank savers, for instance, has allowed the bank to lend to ‘Tapa’, a neighbourhood café and bakery in Glasgow’s east end. Tapa offers an organic diet for people living in an inner city area where male life expectancy is reportedly lower than in the Gaza Strip or North Korea. And similarly successful businesses, transforming the lives of people around the UK, are becoming increasingly common using finance from experienced specialist financial institutions.

More recently, a proposal has emerged for a new social investment bank, using billions of pounds of unclaimed assets lying dormant in the big banks. It could be a golden opportunity - but only if this pot of gold is used to complement the work of the existing providers of sustainable finance.

With the right kind of support from government and others, values-driven banks can harness the will of thousands of consumers who care about their saving as well as their spending decisions. Far from signalling inevitable damnation, money could prove to be our salvation.

9 November 2006