Draft:Social Financial Union

Social Financial Unions (SFUs) are defined as financial institutions that have Social Investors as minority shareholders and account holders (SFU members) as majority shareholders. SFUs are led by Social Intrapreneurs and service wealthy and underprivileged customers as distinct profitable segments. They offer tailored retail, corporate and microfinance products, advisory & training services along with advantageous non-financial products and services for recurring essential expenditures. SFUs operate in a manner where profit is generated with the primary objective to enhance the overall social and financial wellbeing of members and their communities.

Summary:

A Social Financial Union (SFU) is a financial institution model that is a cross between Commercial Banks, Credit Unions, Microfinance Institutions (MFIs) and Social/Ethical Banking in terms of ownerships, management, offerings and clientele. SFUs offer tailored retail and corporate financial products and services such as deposits, loans, plastic cards, insurance, Prize Linked Savings (PLSA) programs. Uniquely, SFUs provide non-financial services & products, trainings, advisory services, and also, act as cost saving platforms that utilize their influence to negotiate discounted offers that alleviate their clients' burdens for recurring essential expenditures (mobile, internet, fuel, grocery bills etc.)

The SFU business model targets affluent, middle class and underserviced customers as distinct segments, treating them with an equal potential for profitability. As a For-Profit Corporation, SFUs are owned by Social Investors (49%) and members (51%) and are managed by Social Intrapreneurs, enabling them to lobby for, or innovate, socially driven initiatives that directly benefit the social and financial wellbeing of SFU members and their communities. The term Social Financial Union and its business model was developed by Dr. Carla Wakim-Hobeiche (2019–2023).

History:

The concept of a Social Financial Union was developed in 2019 by Dr. Carla Wakim-Hobeiche (CWH) and was officially published in a 2023 doctoral thesis "Intrapreneurship to enhance social inclusion: innovation in strategic approach of financial inclusion." According to Dr. Wakim-Hobeiche, SFUs are considered a potential solution for promoting social and economic development, especially in situations where social inclusion and financial inclusion levels remain low, more notably, when public trust in the financial sector is fragile.

The need for SFUs was developed while studying the impact of the banking sector on a country's social exclusion and financial inclusion levels, including the recent case of Lebanon. Lebanon's economic crisis erupted in 2019 ensuing to decades of corruption and reckless government spending that led to losses estimated at around $72 billion. Resulting in the collapse of the banking sector, banks then imposed restrictions on withdrawals and transfers, while private deposits had lost over 80% of their value, sparking anger against financial institutions. According to UN's 2021 Lebanon Economic Monitor report, the Lebanese financial crisis was likely to rank in the top three most severe crises since the mid-nineteenth century.

The difficulties of overcoming economic crises and wealth disparities that effect countries, such as Lebanon, necessitate the development of resilient financial institutions that are structured, managed and self-financed to be socially inclusive and community driven.

SFUs' Role:

In line with the global phenomenon of social inequality, stems the need for financial institutions with hybrid business models that engage privileged and underprivileged citizens with the same high-quality service standards, while varying their business offerings to secure profitable returns. The Oxford Committee for the Relief of Famine (OXFAM) 2020 report entitled " Time to Care " paints a disastrous picture, where 1% of the rich represent more than double the wealth of the rest of humanity. In its view, economic and social inequalities were spiraling out of control. OXFAM proposed to tackle the global inequality crisis through concert efforts to "build balanced economic systems that ensure the full participation of civil society."

By means of an SFU, the role of financial institutions extends beyond the norms of deposits, loans and Corporate Social Responsibility (CSR). One of the primary objectives of an SFU is to enhance social and financial inclusion by supporting members and their communities secure their financial and communal wellbeing. Among their doctrines, SFUs are required to re-invest a significant portion of earnings in funding, integrating, training and supporting less lucrative households, businesses or industries to enhance their living or performance standards. Contrasting from most financial institutions that are predominantly profit driven, the Key Performance Indicators (KPIs) of SFUs involve varying objectives for social and financial enhancements of communities. Below is a highlight of SFU initiatives applied within each of the larger customer segments.

Privileged & Middle-Class Members:

• Incentivize local investments via preferential loans or interest rates.
• Advise on local market opportunities and help mitigate potential risks.
• Encourage local sponsorships or preferential pricing schemes for SFU members.
• Endorse the participation in CSR, community and fund-raising programs.
• Encourage the hiring of potential jobs or internships from SFU members.
• Provide networking opportunities.
• Communicate community concerns & lobby for their enhancement.

Underprivileged Members:

• Incentivize savings and retirement plans via prize-linked or special accounts.
• Educate debtors on budgeting or debt management techniques.
• Negotiate preferential pricing or discounts from local suppliers and vendors.
• Post potential job openings or internships.
• Organize community support programs.
• Advise on local market opportunities and help mitigate potential risks.
• Provide various skill trainings or certifications for individuals and SMEs.
• Provide networking opportunities.
• Survey community concerns and requirements.

SFUs' Differentiators:

Dr. Hobeiche found that there is a gap within the 9 types of Financial Institutions (FIs). Most conventional FIs are profit driven, Commercial Banks tend to target primarily affluent social segments, while those that support the underserviced, are mostly loan oriented, do not provide the full range of products and end up further contributing to their debt burdens. Despite instilling CSR programs or targeted financial programs for deprived groups or industries, the overall financial sector continues to expand the gap between the rich and the poor: bearing grave inequality consequences.

Innovating upon the concept of banking for the masses, SFUs combine the legal and strategic approaches in terms of ownership, management structure, business offerings and targeted clientele of Commercial Banks, Credit Unions and Microfinance Institutions.

Overview of the Characteristics of Social Financial Unions

SFU Differentiators Overview-Dr. Carla Wakim-Hobeiche

Social Financial Unions encompass many of the advantages of each of the three most popular types of Financial Institutions, while avoiding many of their associated drawbacks.

Unlike its banking counterparts, the strategic and the business models of a Social Financial Union are aligned to regard affluent, middle and underserviced customers as distinct profitable segments of the market. It uniquely reaps the benefits of a credit union under a profit-sharing scheme that remunerates shareholders and account holders; overcoming the global lack of trust and animosity that is invading the Commercial Banking sector. Social Financial Unions benefit from their managements' independence and qualifications to securely grow the business without the tactical bias associated with credit union members. Furthermore, part of the resources and profits generated from more lucrative SFU members enable Social Financial Unions to grow and invest in initiatives that support lower income SFU members' social and communal wellbeing; spreading the associated risks across more secure social levels and communities.

Ownership

Social Financial Unions have Social Entrepreneurs (private investors) as minority shareholders and board members as to ensure a qualified, dynamic and profitable management. To control the capitalistic ambitions of conventional private investors, investors selected should be prominent Social Entrepreneurs. The majority of the remaining shares will be allocated to SFU members, whereby each member holds one vote; securing the loyalty, trust and financial interests of all stakeholders. In essence the recommended balance of voting power should be set at: social entrepreneurs 49% vs SFU members 51%.

Services

Social Financial Unions offer conventional banking products and services including those dedicated to Micro and Nano finance, in addition to a long line of products and services that are catered and dedicated to the underserviced, rural and agricultural communities.

Social Financial Unions strive to leverage the size of their customer base to negotiate preferred pricing or discounts for costs that are considered recurring and essential expenditures such as mobile, fuel, internet and grocery expenses. Based on the concept of Economies of Scale, Social Financial Unions can approach main providers to pre-purchase at a discounted rate products or services that can be exclusively sold at a bargain price throughout the branches network to SFU members. The ultimate objective is to provide and support member households to reduce monthly spending and charges.

SFUs also have multiple programs that are geared towards saving, financial planning. SFUs offer a wide range of products that incentivize clients to save, either via prize linked accounts, preferential interest rates or secured investments. The purpose is to ensure that households or corporations can overcome short-term crises such as economic downturns, pandemics, injury or job loss, as well as to achieve longer-term goals, including buying assets (home, office, machinery), sending children to college and to plan their retirement.