Volume 73, Issue 2 p. 196-226
Original Article

The Business Model of Social Banks

First published: 20 December 2019
Citations: 7
Simon Cornée Faculté des Sciences Economiques 7, place Hoche CS 86514 35065 Rennes cedex France simon.cornee@univ-rennes1.fr. Panu Kalmi University of Vaasa Faculty of Business Studies PO Box 700 65101 Vaasa Finland panu.kalmi@uwasa.fi. Ariane Szafarz, corresponding author Université Libre de Bruxelles (ULB), SBS-EM, CEB, and CERMi 50, av. F.D. Roosevelt, CP114/03 1050 Brussels Belgium aszafarz@ulb.ac.be. This study was supported by an ‘Interuniversity Attraction Pole’ on social enterprises funded by the Belgian Science Policy Office, the Chair ‘New Challenges in Banks: Social Responsibility, Efficiency, and Risks’ sponsored by the ‘Fondation Rennes 1’, the Academy of Finland (grant #269130), and the OP Research Foundation. The authors are grateful to the editor David Stadelmann and to two anonymous reviewers as well as to Tony Bulger, Gilles Caire, Jacques Defourny, Bert D'Espallier, Benoit d'Udekem, Marek Hudon, Marc Jegers, Marc Labie, Gaëtan Nicodème, Marthe Nyssens, Anaïs Périlleux, Damien Rousselière, François Rycx, Mathias Schmit, Véronique Thelen, and Paul Verdin for their valuable comments, which helped us improve this paper.

SUMMARY

Based on an extensive literature review, this paper proposes to define social banks (SBs) as social enterprises that run banking activities with the social mission of supplying credit to other social enterprises, which are typically less profitable than for-profit businesses. This definition marks our starting point for developing a theoretical framework to explain how SBs survive without subsidies in the banking market. We build on a two-pillar business model of value-based financial intermediation, which comprises an ownership structure that limits residual ownership claims and preferential credit conditions associated with financial sacrifices from motivated depositors. We also clarify the link between SBs and stakeholder banks and weigh up the importance of market interest rates for facilitating the business of SBs. An empirical analysis based on panel regressions on 5,400 European banks over the 1998-2013 period attests to the relevance of our theoretical framework. It also confirms that a low interest rate environment raises concerns about the sustainability of the SB business model.

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