Community Bank Model in Australia

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= "a franchise arrangement where the community have the right to operate a branch in the local area and the Bendigo Bank provide all the central infrastructure".


Via Sharon Ede:

"'In mid-September 2017, the FORTUNE Annual "Change the World" List of Companies That Are Doing Well By Doing Good was released, with Bendigo and Adelaide Bank ranked as the top Australian company and second in the world for a commercial bank.

The model is a franchise arrangement where the community have the right to operate a branch in the local area and the Bendigo Bank provide all the central infrastructure. At its heart is a desire to optimise the use of available capital – a scarce resource for the community and the bank.

Communities are required to form a company that is broadly held in the community - usually around 400 individual shareholders - with no individual allowed to hold more than 10 percent of the stock on issue. The community’s responsibility is to aggregate the banking business of its members and pay the costs of running its branch. For undertaking that, it receives half the income that business generates; Bendigo collects the other half of the revenue for providing banking support and infrastructure. Local profits are split, with shareholders entitled to no more than 20 per cent and the rest being ploughed into community development.

Today, there are 320 of these Community Bank branches operating across Australia with as many in the suburbs of Melbourne, Sydney and our other capital cities as there are in country towns. Along the way the driver of that expansion changed from a lack of a local branch to facilitating community benefit. That’s what has attracted in excess of $34 billion in loans and deposits and more than 1 million customers. In 19 short years, they have returned $165 million in community grants and paid more than $20 million in shareholder dividends. They have created 1,500 jobs and each year now spend around $50 million in wages and services locally, which has a significant positive impact on these micro economies when you consider the multiplier effect of local spend.

Their profits have been responsible for building community centres and health services; they have bought fire trucks and community buses; funded nursing and student scholarships. Hundreds of sporting teams wear jumpers and uniforms bearing the name of the Community Bank branch that purchased them. And increasingly governments are lining up to co-fund projects with Community Bank companies because they know they'll get a bigger bang for their buck because of that sense of community ownership.

The return on equity of the leading Community Bank companies stand out in any Australian company cohort (including my bank) - as much as 41 per cent, and without any of the consumer backlash that would normally entail. Those community companies are opening new branches, servicing new communities, creating jobs, paying great dividends and funding an ever-expanding portfolio of local projects. Viewed through that prism, the Community Bank model looks rosy. It looks easy although I can assure you it is not. But as English novelist Arnold Bennett observed, change is always accompanied by drawbacks and discomforts, and Community Bank is no different. It is hard yakka for the largely volunteer Community Bank® directors who put in significant hours of work on behalf of their community and our business. Theirs is a difficult task, trying to amass the local banking business within the community for the benefit of community. It’s an odd concept and one that takes lots of explaining.

And in the early years, like any start-up company they wonder if they’ll ever turn a profit. Often in debt, little or no dividends, relatively modest community funding and seemingly little prospect of immediate improvement in their circumstances (although the experience of early underperforming sites suggests they will turn around given perseverance). In some cases, shareholders wanting to sell their shares are finding it difficult although Bendigo is always working to improve liquidity for them.

Critics of our model have invariably focused on those struggling companies while ignoring the successful ones. The truth, of course, is that both comparisons are distortions. The Community Bank model is not a wonder, nor a blunder. It is for the most part a successful new business model providing solid returns for all parties plus the bonus of great social outcomes.' (