The fact that the term "ethical banking" had to be invented for a new type of lending institution shows you that moral principles are the last thing most people think of when the subject of banks comes up. Yet, some financial institutions are challenging this stereotype and redefining what it means to be a bank today.
A great example is Banca Etica. As Italy’s first ethical finance bank, it aims to drive a little revolution in the banking sector. With its latest project, Banca Etica wants to lift up those most vulnerable to financial exclusion. The initiative targets women, refugees, and businesses in Italy’s less-developed regions.
“We champion the idea that putting ‘ethical’ before ‘bank’ is not an oxymoron—it is a real possibility, and a business opportunity,” says Tommaso Rondinella, who is responsible for impact models and socio-environmental assessment at Banca Etica. “For us, it is our past, present, and future.”
Banca Etica's new project is expected to stimulate €168 million of investment and create a positive ripple effect in society. The European Investment Bank is supporting Banca Etica with a €60 million loan, signed in July 2024.
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Putting society before banking
Refugee reception centres play a key role in facilitating social integration. But they often struggle to secure the working capital they need. In Italy, these centres can seek government reimbursements for expenses linked to reception activities, but the waiting time is often long—up to 36 months. This delay intensifies day to day management of the reception centres and the social services they offer which in turn impacts a refugee’s social and financial stress, emphasizing the need for quicker funding options.
With its new initiative, Banca Etica will provide at least 30% of the allocated funds to keep widespread reception centres for asylum seekers and refugees operational. More finance for these centres means better social services, helping the refugees integrate and enter the labour market.
“We are trying to support a solid welcome and integration framework,” says Rondinella. “Projects financed under this framework could include language courses and professional training to integrate refugees in the local communities.”
This financing will also support fair employment and entrepreneurship of refugees, helping with their integration to labour markets in conditions of freedom, equity, security and human dignity.
"We have set up specific criteria that require final beneficiaries creating employment and vocational training opportunities for refugees, involving them in management roles, or their entrepreneurial activities,” says Aysen Isaoglu, an economist at the European Investment Bank who worked on the deal.
Standing up for women and businesses
Women entrepreneurs frequently face more hurdles than men, when trying to secure financing to start or grow a business. When they do obtain funding, they usually receive less money, pay higher interest rates, and are required to provide more collateral than men.
That is why at least 30% of the financing provided by Banca Etica will go to women-led small and medium-sized enterprises and activities that support job opportunities and services for women. The operation aims to narrow the gender gap, making it easier for women to access finance and grow their businesses.
"There is no better feeling than moving forward with initiatives that are truly transformative and innovative, and that address sectors that are typically excluded,” adds Rondinella.
Reducing regional disparities
Small and medium-sized enterprises in less-developed regions face similar challenges in accessing finance. So, the final third of the Banca Etica funds will be directed towards such businesses. The aim is to strengthen the economy, create jobs and opportunities, and reduce regional disparities.
"This project underscores how the European Investment Bank can utilise intermediated lending to promote small projects with significant impact,” says Guido Vezzani, a loan officer at the European Investment Bank who worked on the project. “This operation will attract the attention of other banking groups interested in supporting gender equality, social inclusion for refugees, and economic development in southern Italy.”
Partnering with a local bank is a great way to make lending more impactful, especially if the bank cares about ethical finance and social responsibility. That's why the European Investment Bank chose to work with Banca Etica. Together, they're paving the way to create stronger communities where vulnerable people are supported and included.
Banca Etica
The European Investment Bank will also offer technical support through its Social Inclusive Finance Technical Assistance programme to help Banca Etica use its resources more effectively. Funded by the InvestEU Advisory Hub, this programme has assisted around 60 microfinance and credit institutions in over 20 EU countries, focusing on high social impact investments and offering help with investment planning and project development.
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Helping social enterprises
Social enterprises play a crucial role in job creation and generating social impact, yet they continue to be underrepresented and lack adequate support. To address this issue, in August 2024, the European Investment Fund, a subsidiary of the EIB Group that focuses on small businesses, entered into a €200 million guarantee agreement with Banca Etica. Done under the InvestEU programme, this initiative aims to support social enterprises in Italy and Spain that struggle to secure finance from traditional lenders.
"Our collaboration helps ensure greater availability of resources for viable projects in the social sector," says Simone Petrillo, a European Investment Fund structured finance analyst who worked on the transaction.
The guarantee will enable Banca Etica to expand its lending activities to green businesses intending to invest in a green and sustainable transition, enterprises active in cultural and creative sectors, and different sectors, such as students, learners, and enterprises active in providing education services.
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