Frankfurt Forum on Development Finance 2008: Responsible Finance
Date :
2008-02-22
Kind :
Conference
Description :
Investment decisions, in a purely commercial logic, are based on the respective risk-return profile. In the last years, however, a third dimension has gained importance in investment decisions: the level of responsibility of the investment. More and more, investors are asking for investments fulfilling responsibility criteria. Increasingly, financial institutions are including such criteria either pro-actively or in reaction to different incentives or pressures. Among the areas where responsible investments by donors as well as commercial investors have gained importance are microfinance, SME finance, municipal finance and energy efficiency. Donors and investors have to think about appropriate criteria for responsibility which they want to promote, as well as about the right incentives to do so. As empirical evidence shows, partnerships between donors and private investors can effectively promote principles of responsibility. Until recently, many microfinance institutions (MFIs) have not studied questions of responsible finance too deeply - rather, microlending has been traditionally viewed as being responsible by definition. Looking closer at the current development trends of many MFIs, e.g. to the recent introduction of consumer loans, this statement eventually has to be reconsidered. ‘Mission drift' is a key concern when discussing whether growth together with profit-making or the so-called "commercialization of microfinance" may harm the original social mission. Similarly, commercial banks have only recently started to consider social values as an important element in their business model. Being a "socially responsible bank" and a "good corporate citizen" has gained importance - be it for the sake of attracting customers or own employees or following pressures by investors, politicians or the society at large. Furthermore, animated by the success of many MFIs, some commercial banks have started to realise that providing financial services to poor clients can be profitable while doing good at the same time. By the same token, at the investors level, socially oriented investors have also blurred the divide between donors and truly commercial investors. Goal of the conference: The promoters of this conference have been motivated to organise a conference around the topic of responsible finance due to the following compelling and provocative questions: With the growing diversity of the microfinance universe and despite the overall acknowledgement of the double bottom-line, combining a social mission with commercial principles, what kind of perverted microfinance examples can be found at present? What are today's criteria that distinguish "good" from "bad" microfinance practices? Is the social responsibility debate among commercial banks and private investors a true one or do commercial bankers only talk the talk and do not walk the walk? Are they profit-maximising wolves clothed in humble sheep dresses? Or are commercial banks and private investors genuinely motivated to incorporate a social value proposition in its business equation? In short, the goal of the conference is to explore to what extent there is a confluence between the two currents of responsible finance, being represented by the microfinance sector on the one side and commercial banks on the other. The focal point of the conference is therefore the overlap of progressive MFIs and responsible commercial banks and investors. The conference topics will be explored from different angles primarily from the perspective of practitioners, taking into account also the view of policy-makers, regulators and donors. While these groups may pursue different interests, the discussion will evolve at the intersection of responsibility in finance. The conference searches for answers to practical concerns which can be applied by practitioners immediately. By the same token, the conference also tackles the normative level, providing guidelines for the development of responsible financial markets. To address these issues, the conference is built on three pillars: Pillar I: Delivering Products responsibly Pillar 2: Mobilising Capital Responsible Pillar 3: Creating Responsible Financial Systems Through these pillars responsible finance will be addressed from different perspectives. The discussion will be held together by the following three leading questions: What are responsible and irresponsible dimensions at the various levels of the financial system? How can the level of responsibility be measured and made transparent? What are appropriate incentives to instill responsible behaviour?
