I learned a few things by reading this interesting article in the New York Times about green banks. These banks aim to help out green (eg. eco-friendly) causes by providing them more attractive banking incentives and loan rates. That is, people and companies that are labeled as environmentally friendly are given financial breaks by these banks.
The Challenges That Green Banks Face
While I think these banks support wonderful causes, they do face a lot of challenges as for-profit entities. Just like those socially conscious and environmental mutual funds, they are expected to encounter more obstacles than your typical run-of-the-mill bank. So what are some of these issues that green banks may have to deal with?
- Diversification matters. Green banks will be screening their customers and naturally, they’ll be limiting and restricting their business to those entities that qualify. With a smaller pool of customers, they’ll automatically have a smaller profit base to support them. If they focus their loans on certain industries, they open themselves up to being much more vulnerable to economic shifts.
- These banks are still startups. Apparently, it takes 3 to 4 years for a typical bank to start making money. Many green banks in business today are very new and are still in startup mode. It doesn’t help that these banks are trying to get their footing during a recession.
- Banks are “specialized”. Again, while the main goal of a green bank is to do good by supporting those who are taking care of the environment, the question here is — just how much money is there in these businesses and in the eco-friendly industry? Saving the environment does not necessarily equate to “making a profit”. Hopefully though, this premise is proven wrong in this case and that green banks prove that they can survive, even as they face restrictive requirements for doing business.
- Operating expenses and costs are higher. Green banks require specialized talent, skills and expertise as well, due to the kind of customers they are servicing. Employees, such as loan officers, need to have additional background and experience in dealing with green businesses and consumers. Plus, giving breaks to such clients via discounted loan rates can eat at their profit margins.
List of Green Banks
If you’re interested in checking out green banks that are in operation right now, here is a list!
- e3Bank in Philadelphia, Pennsylvania
- First Green Bank in Florida
- GreenChoice Bank in Chicago
- ShoreBank Pacific in Houston
- Green Bank in Houston
- New Resource Bank in San Francisco
I appreciate the highly specialized, noble missions that are espoused by these green banks, but are they viable businesses? We’ll have to see how this particular segment of the financial industry develops over time.