Social Banking and Social Growth

The original purpose of this proposal was to understand the international presence of social banks, i.e. why and how do they exist? It discusses some of foundational frictions between “finance & growth” literature and the new questions that we must ask to better understand why social banks are a growing industry. In short, finance theory taught me (under certain assumptions) that social banks should not exist. However, they do of course exist and they have global presence as well. Overall, it would be great to understand the type of welfare optimal growth paths such banks contribute to, given their existence. In the future, if enough data were available, i.e. real ESG metrics at the SME level and data on “distance to local social bank”, it would be great to test whether the supply of socially responsible credit is a significant contributor to the existence of socially responsible firms. If this were the case, the results would imply that the traditional (non-socially focused) banks would have never financed projects that were both NPV positive as well as well as able to address societal needs. As it stands, the Orbis ESG dataset is not detailed enough to conduct this research project. Ultimately, I hope such an exercise could help us imagine the firms we could have had today, if socially responsible finance were politically enabled in our foundational financial system design.

Proposal – Document