Community benefit is not a foreign concept for banks. Since 1977, the Community Reinvestment Act (CRA) has required banks to demonstrate that they serve the communities where they take deposits. Banks also use community engagement strategies to gain customer insights and business development opportunities. But critics point out that banks’ capital, while a major force in shaping outcomes like displacement and the racial wealth gap, is often not coordinated with community objectives. Aligning a bank’s capital with community goals would help build power for grassroots movements and disadvantaged populations, but banks typically fall short of making this connection. So, how can they do it better?
The key is to practice Participatory Investment.
Our new guide, “Participatory Investment in Banking,” co-written with Transform Finance, outlines how banking institutions can truly commit to this power shift. Instead of perpetuating the same tired dynamics that make wealth-building exclusive, could banks shape a more inclusive economy? Instead of concentrating power in the hands of a few, could financial institutions redistribute decision-making power over investments to their many stakeholders?
This isn’t a typical priority for a bank, but it should be. Here’s why:
First, banks will create more good by taking a participatory approach. Community involvement not only builds trust, it creates ripple effects within banks by better informing product and service offerings. Second, this more informed and stakeholder-aligned approach is better for business. Though many factors impact profitability, Participatory Investment (PI) can definitely be profitable (see the vast literature making the business case for stakeholder capitalism, impact investing, and Environmental, Social, and Governance approaches more broadly). Third, PI can improve CRA and other exam performance, helping you to manage your risk; you are likely to be more compliant by being more connected. Finally, you’ll stay ahead of your customers’ needs, better equipped to serve them now and in the future.
Banks play a central but often unseen role in shaping our cities, towns, and lives. And how they do it matters. They can extend livelihood-saving business capital or unfairly burden people with unpayable debt. They receive low-cost capital from the public via deposits and use it to generate credit which fuels the economy and, in turn, produces value for the banks. Participatory Investment can support redistribution to align the depositor-banker relationship better—balancing the banker’s ability with the depositor’s ambition.
Being a true community partner may require a significant culture shift, and this guide aims to support banks in making it. We offer ideas and advice for banks interested in deepening community participation in the most appropriate ways for your organization. We suggest frameworks for tying your bank’s strategy to community goals and questions to ask as you determine your best entry points. Whether your institution is interested in community governance models, lending to PI projects, or working with funders from existing PI projects, our guide has concrete next steps for supporting your bank in achieving deeper community collaboration.
View or download the guide by clicking on the image below:
Have a great example of Participatory Investment in action? We’d love to hear from you.