Ethical Investment Produces Profits

Instead of letting depositors cash in on interest-earning balances, the Bochum-based bank has written off profits and uses a principled approach to finance loans that help the community.

Even after other bankers prophesized doom for the community bank, which is known according to its German acronym GLS, it booked double-digit growth in a number of important areas. Total assets are up 12.1 percent to €497 million ($632 million) last year with a transaction volume of €504 million and account of deposits increased nearly 11 percent to about €432 million.

Is that really ethical?

That's a considerable increase for a bank which specializes in handling money ethically, according to Stephan Rotthaus, a GLS spokesman. The GLS has its own particular definition of ethical investment: Unlike other institutions of a similar nature, the community bank does not limit itself to ecological investments or keep away from nuclear power or the arms industry.

"We do not think ethical investment means having a particular catalog of products," Rotthaus said. "For us it is crucial that individuals take responsibility for their actions, that as a bank we offer individuals the opportunity to take over responsibility for their investments."

Deposits don't accrue interest

When investors bring their money to the GLS, they agree not to collect the customary interest. Instead the GLS keeps the interest in a separate pot to be given out in the form of loans at conditions that make private banks' loan officers wake up in a sweat.

Though the bank does not give out interest-free loans, it keeps rates down by calculating the actual administrative costs and passing them on to borrowers.

"Since the community bank is not forced to make a profit, we were in a position to give out loans for 4.5 percent last year," Rotthaus said.

Loans for community projects

But not just anybody can walk in a get a loan. Financing is only granted to projects that fit the bank's social and ecological profile. Anyone who goes to the GLS looking for a loan to build a private house won't get a cent, but those who want to put up a communal living community or kindergarten can borrow sums that sometimes reach over €500,000.

"When you look at what the community bank finances, you can say that roughly a third of depositors' money goes to ecological projects, another third in the social field such as projects for the youth and elderly or handicapped, and a third goes to schools and kindergartens," Rotthaus said.

At the moment the bank is overseeing more two dozen foreign projects, mainly in South America, and more than 1,000 more in Germany, including the construction of organic farms and alternative energy initiatives.

As customer loans have gone up 16.5 percent and reached €297 million last year, awarding the loans isn't just a question of what the money will be used for, but includes some tough calculations.

"Of course there has to be some economic efficiency to a project," Rotthaus said.