In September 2015, 193 number states of the United Nations adopted a Declaration containing 17 goals designated as sustainable development goals (SDGs). Embedded in these goals are 169 targets. (See the list of the goals in the box). The Declaration is considered to be "a historic decision on a comprehensive, far-reaching and people-centered set of universal and transformative goals and targets". The member countries also resolved "to create conditions for sustainable, inclusive and sustained economic growth, shared prosperity and decent work for all, taking into account different levels of national development and capacities".
There are many areas in which the banking system can promote the achievement of SDGs both positively by way of encouraging certain activities and negatively by way of discouraging certain activities. Given the sheer number of goals and associated targets as well as their multi-dimensional nature, this paper cannot be comprehensive and only selected elements will be highlighted.
FUNCTIONS OF THE BANKING SYSTEM: Banks perform four principal conventional functions. The first relates to intermediation. Banks serve as intermediaries between savers and investors. They mobilise savings from the members of the public in the form of deposits and make these savings available to those who are willing and able to make investment in the real sectors of the economy or to engage in trade which serves as the conduit for distribution of the produced goods and services to consumers and users of these goods and services.
The second function involves maturity transformation. The banks accept deposits a large part of which have to be returned immediately on demand or at short notice. But they use these deposits for giving loans and advances for investments which have longer gestation periods. The third function has to do with credit allocation. In granting loans and advances, banks determine allocation of credit by sectors, regions and groups of population. The fourth function relates to facilitating payments flows, for example, between exporters and importers as well as between buyers and sellers of goods and services that are produced and consumed domestically. It is obvious that a modern and increasingly globalised economy could not operate if there were no banks to provide these services.
In addition to these conventional functions, there has been a phenomenal growth of new products and services offered by banks. These involve, inter alia, complicated derivatives and underwriting foreign debt. Furthermore, the banks have been increasingly undertaking activities which fall in the realm of corporate social responsibility (CSR).
AREAS OF POSITIVE CONTRIBUTION BY THE BANKING SYSTEM: The following paragraphs identify the indicators and the relevant goals to which the banks can make a positive contribution. In the interest of brevity no detailed explanation is provided. However, the readers can easily link the indicators to the functions of the banks noted above.
* Ensuring access of all men and women, in particular the poor and the vulnerable, to financial services (Indicator 1.4 under Goal 1 relating to poverty)
* Mobilisation of resources to implement programmes and policies to end poverty in all its dimensions (Indicator 1.6)
* Doubling by 2030 agricultural productivity and increases of small-scale food producers through, among others, ensuring financial services (Indicator 2.3 under Goal 2 relating to ending hunger and achieving food security and sustainable agriculture).
* Increasing investment in rural infrastructure and other activities in order to enhance agricultural productive capacity in developing countries ( Indicator 2.6 under Goal 2)
* Ensuring equal rights for women to economic resources including financial services (Indicator 5.6 under Goal 5 relating to gender equality and empowerment of women and girls).
* Finance investment to increase substantially the share of renewable energy in the energy mix (Indicator 7.2 under Goal 7 relating to energy).
* Sustain per capita economic growth, achieve higher level of productivity through diversification, technological upgrading (including through focus on high value added and labour-intensive sectors), encourage the growth of micro and small and medium enterprises, including through access to financial services (Indicators 8.1, 8.2 and 8.3 under Goal 8 relating to growth and employment).
* Increase the access of small-scale and other enterprises to financial services (Indicator 9.3 under Goal 9 relating to inclusive and sustainable industrialisation).
* Reduce to less than 3.0 per cent the transaction costs of migrant remittances (indicator 10.10 under Goal 10 relating to reduction of inequality).
* Provide universal access to safe, inclusive and accessible green and public spaces (Indicator 11.7 under Goal 11 relating to cities and human settlements).
* Mobilise increased financial resources to conserve and sustainably use biodiversity and ecosystems and assist sustainable forest management (Indicators 15.10 and 15.11 under Goal 15 relating to ecosystems)
* Significantly reduce illicit financial flows and strengthen the recovery and return of stolen asset. (Indicator 16.4 under Goal 16, relating, inter alia, to justice for all)
* Strengthen domestic resource mobilisation (Indicator 17.1 under Goal 17 relating to global partnership)
* Mobilise additional financial resources for developing countries from multiple sources (Indicator 17.3 under Goal 17)
* Implement investment promotion regimes for least developed countries (Indicator 17.5 under Goal 17)
* Significantly increase the exports of developing countries in particular with a view to doubling the least developed countries' share of global exports by 2020 (Indicator 17.11 under Goal 17).
ACTIVITIES TO BE DISCOURAGED: As mentioned above, the contribution of banks to achievement of SDGs also involves discouraging certain activities. These are listed below:
* Should not finance tobacco cultivation in order to strengthen the implementation of WHO framework Convention on tobacco control (Indicator 3.10 under Goal 3 relating to ensuring healthy lives)
* Should not finance activities which involve dumping and release of hazardous chemical and materials into water bodies (Indicator 6.3 under Goal 6 relating to availability and sustainable management of water and sanitation for all).
* Should not finance enterprises which use forced labour or worst forms of child labour and do not ensure safe and secure working environment for all workers (Indicator 8.7 and 8.8 under Goal 8).
* Should not finance activities which cause deforestation (Indicator 15.2 under Goal 15)
CONCLUDING OBSERVATIONS: The above paragraphs provide a taxonomy of what the banks can/should or should not do to contribute to achievement of SDGs. However, there are many challenges. From the borrower's perspective, the challenges may have to do with the high interest premium, long processing time, burdensome documentation requirements, and collateral/ guarantee requirements. From the banks' perspective, the challenges have to do with ensuring some desired level of dividend for shareholders, potential default risk, compliance with both domestic and global regulatory requirements, ensuring balance between directed credit allocation and market- based lending operation, balance between the need for reasonable return to savers while minimising lending interest rates.The challenges notwithstanding, all concerned - governments, regulators of the banking system, and the clients of banks - should act unitedly to enable the banks to play their due role in achieving SDGs in formulating which many actors devoted massive efforts.
Dr. Mirza Azizul Islam is a Visiting Professor in BRAC University and formerly an Adviser to the Caretaker Government, Ministries of Finance and Planning.
 maislam@bracu.ac.bd
The role of the banking system in achieving SDGs
Mirza Azizul Islam | Published: October 05, 2016 00:00:00 | Updated: October 04, 2016 19:34:50
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