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Social finance

Giving banks a good name

Is it possible for banks to devote themselves to the financial welfare of workers and still survive financial crises? The ILO looks at the Rokin Bank, a union-led cooperative in Japan.

Analysis | 19 September 2012
GENEVA (ILO News) – The bankruptcies, rogue trading, massive bailouts and other banking scandals that fuelled the global crisis in recent years, sparked widespread criticism of financial institutions.

Such controversies underlined the need for socially responsible financial institutions, whose main role is to provide banking services to clients rather than just profits to shareholders.

In this context, the ILO has highlighted the role played by Japan’s Rokin Bank – trade union-led financial cooperatives, whose stated aim is to promote the welfare of workers, while sticking to the principles of “sincerity, fairness and openness”.

“With a fast growing need for financial institutions to take on more social responsibilities, Rokin Bank, with its 60 years of experience, may serve as inspiration for the institutionalization of social finance for workers – ensuring their financial inclusion and welfare,” says Craig Churchill, who heads the ILO’s Social Finance Programme.

Similar to credit unions, Rokin banks have a unique status under the Japanese Labour Bank Law, which stipulates they should not engage in profit-making but should promote the welfare of their members.

According to a 2011 ILO study entitled: “ROKIN Bank: The story of workers’ organizations that successfully promote financial inclusion," these goals have been key to Rokin’s survival, and enabled the banks to remain solvent in the late 1980s, when the collapse of the Japanese asset bubble bankrupted financial institutions that had heavily invested in real estate loans.

Banking with a social conscience

More recently, when the global financial crisis unfolded in 2008, Rokin agreed to a government request to set up a programme to support workers struggling to repay their loans.

They were given financial advice and, in some cases, a reduction of instalment amounts and an extension of the repayment period.

Rokin banks have also offered low-interest loans to people who lost their homes after being laid-off as a result of the crisis. The government compensates the banks in case of default. Rokin also has a loan programme to assist community-based, non-profit and social welfare organizations.

Rokin says its members also appreciate the low-interest, emergency financing the banks extend to workers and their families when disaster – such as an earthquake or a typhoon – strikes.

The history of the Rokin banks goes back to the post-World War II era, when workers struggled to make ends meet and often had to resort to loan sharks for badly needed credit.

In 1950, two banks – the precursors of the Rokin – were set up to supply fair loans to workers and to support consumer-livelihood cooperatives.

Today, there are 13 Rokin banks, 642 branch offices and a membership made up of about 10 million constituents, most of them from trade unions, consumer-livelihood cooperatives and mutual aid organizations. The deposit balance of Rokin Bank is ¥ 17.5 trillion ($ 225 billion), which represents 2 per cent of the total deposit balance in Japan.