This is a CTP of initiative: FEBEA/Merkur Cooperative Bank (Denmark)
The first critical turning point mentioned by the interviewee refers to the transformation of the Merkur civil association into a bank, dated in 1985. As Lars Pehrson explains:
Merkur started in Denmark in 1982 as a small saving and lons association with a few members, just to organise savings and loans among the members. So it was not a bank as such, only operating with the members. At that time it was possible to do that without any implications or legal restrictions
The conversion was mostly forced by a change in the European banking regulations that aimed to harmonize the diversity of financial institutions existing in Europe in those days. The first Banking Directive determined that all entities that received deposits and made loans should be under the banking laws of the respective countries. The Danish legislation which was the result of the European Directive protected financial entities that already existed (before 1983) allowing them to come under banking legislation (if they could raise kr. 500,000 as capital base).
This situation was perceived as an opportunity to increase their capacity of having social impact in Denmark as the interviewee explains in the following:
The first European banking harmonisation directive was the first kind of turning point because they wanted to integrate all the credit unions and other associations based on savings and loan operations under the umbrella of the banking legislation. That was implemented in 1985 throughout Europe, and because we were already an existence, we were simply given the offer from the Danish financial authorities to become a regulated cooperative bank on the basis of these transformative conditions. We didn't need to have the full capital for a new bank which was a very high amount so we could just start with what we had, which actually was very little and then grow the bank from there. It was a fantastic opportunity to get started with a real banking activity
This event is considered a critical turning point due to the fact that provokes a change in the dimension of the association. The new rules helped them to merge with a similar initiative in Zealand, which was created with the same intentions as Merkur but started later, and both formed together the Merkur Cooperative Bank. Becoming a bank involved to assume big changes within the initiative, expanding the structure and rethinking the challenges that the new initiative could achieve:
The main difference, as I have said, is that now we could go to the public, we didn't need to keep going as a members-only thing. It was possible to open an office and to be known to the general public. So, we could grow the small association slowly to a banking operation with deposits and loans etc. We started also to build up the technical infrastructure. It took us more or less 10 years to build up that step by step. We operated already from the beginning but to take steps to get the operations improved, etc. etc. - that was a long and complicated process. The turning point was the offer we were given to become a regulated bank instead of just staying as a saving...a loan association and since we were very small and coming from civil society without any big capital behind us, we had to earn our own money so to speak. We could only grow at the pace the income would allow us
The critical turning point is coproduced mostly due to external circumstances that changed the Danish banking laws which used to regulate the financial activity. In 1985, the first European Banking Harmonisation Directive was approved and Danish government encouraged small financial entities to become a cooperative bank in order to continue working in the country as a regular bank.
As the interviewee has explained above, the authorities facilitated the transformation of the Merkur civil association into a bank, in terms of not making a requirement of an enormous social capital as regular banks must do. However, the interviewee remarks that the position of the authorities was quite neutral, not acting as a barrier but neither helping them:
We were given the opportunity, that was a more legal thing and then, in the practical operations, we had to find out ourselves, how to do that. So the authorities’ position was quite neutral. They didn't actively help us and they didn't block us from anything
Merkur had only three years of existence when they became a financial cooperative, which was an enormous challenge that the leaders of Merkur had to deal with. The initiative was created in 1982 by appr. 15 social activists who aimed to provide loans and keep the savings of members. Most of pioneers were “part of the” 68 generation” that helped to start a wave of initiatives that came up last in the 70s and early 80s”. As Merkur pioneers described in a 25year special publication:
"It was grassroots era - Peace movement and anti-nuclear movement and many more (...) Many Schools and colleges were founded, including for example. The Organic Agricultural School, as part of the rapidly emerging organic farming movement. Renewable energy became popular and wind turbine cooperatives were formed in hundreds. Merkur was founded in the middle of all this and was part of this great movement towards sustainable community development" (Lars Pehrson & Henrik Platz, 2007)
Most of the Merkur pioneers had no background on economics or banking and they had to learn how to start a cooperative from the ground. They got inspired by existing similar initiatives in Europe:
We didn't have that in mind from the beginning because although we were inspired from other new social banks that existed in Europe at that time, mainly the German GLS bank, we did not have in mind that it might be possible to enhance the operations to a full licensed bank. We thought that we had a small association and we would just keep on with that helping each other with small projects, etc. So when this European regulation came up it was a fantastic opportunity
Merkur Cooperative Bank is not a unique experience in Europe. Moreover, In 80s, a new generation of credit unions and ethical banks emerges in the European Union context, mostly founded by pioneers related with social movements which aimed to provide grassroots ethical banking alternatives to wider society. Banca Popolare Etica in Italy, Credal in Belgium or Ökobank in Germany are examples of alternative banking which started in latest 80s and 90s.
Later, the European Federation of Ethical and Alternative Banks (FEBEA) was born (in 2001), when a new regulation will jeopardize the existence of these small credit cooperatives. In general, credit cooperatives and ethical finances are very susceptible to external hazards and the influence of game changers like the researchers pointed out in the study of European Credit Unions conducted in the TRANSIT Project (Dumitru et al, 2015).
References:
(1) Source: article written by L. Pehrson and H. Platz: From Grassroots to professional banking. In: Merkur 25 Aar (pp.10-15). Original version in the Danish language. Retrieved from: https://www.merkur.dk/media/1329/merkur-25-aar.pdf
(2) Dumitru, A., Lema-Blanco, I., García-Mira, R., Haxeltine, A. and Frances. A. (2015) WP4 : case study report : Credit Unions. TRANSIT: EU SSH.2013.3.2-1 Grant agreement no: 613169.
The first related event commented by the interviewee is the origin of Merkur in 1982. Fælleskassen Merkur is formed in the city of Hjørring as a savings and loan association. Previously, pioneers had opened a consumer-owned store with organic food and a wholesale bakery (inspired by German GLS Gemeinschaftsbank).
Merkur´s vision is based on inspiration from Rudolf Steiner´ anthroposophy, who engaged strongly in efforts to organize society in a way that took into account the different community institutions and a working each of them to the common good.
As it was explained by the CEO of Merkur, the initial legal form of Merkur was a credit and loan association which based its business on a vision of a sustainable society, considering lending transactions subject to contribute, individually and collectively, to society:
"We got in touch with GLS Gemeinschaftsbank in Germany that we some years earlier had become acquainted with through an inspiring lectures in Aarhus, where the German bank's founder, Wilhelm Ernst Barkhoff, had thrilled a large number of people the ability to start banks that were based on people and their ideas and willingness to implement projects, not just about the money and returns (…) We got into this way of banking, where it was the idea and purpose of the initiative and the circle of people behind, together with the financial circumstances, that was vital for lending decisions" (Lars Pehrson & Henrik Platz, 2007).
Three years later, in 1985 Merkur merged with another independent initiative from Zealand to form the Co-op Bank and received a banking license, as the respondent explains:
We were established in 82 as a small saving and loans association with a few members, just to organise savings and loans among the members, so it was not a bank as such, only operating with the members and without any legal or supervision implications, which was possible at that time
A third related event is dated in 1985, when Merkur opened its first office in the city of Aalborg:
It was in 85 when we transformed the association into a bank, we also merged with another association. It was from the North of Zealand so, already since 85, we had 2 offices, one in Aalborg and the other one in the North of Zealand, which we moved to Copenhagen in 1993. We stayed like that until 1999 when we opened the office in Aarhus which is the second city in Denmark and also some years later in Odense.. So it took a long time before we actively open the new branches because the 2 first, in Aalborg and Copenhagen were there from the beginning
The second branch of Merkur was opened in 1993 in Copenhagen, the capital of Demark. In 2004 Merkur established its headquarters in Copenhagen although the bank has offices in the four major cities of Denmark.
Another related event, which has been also considered a critical turning point, is the financial investment that a Danish foundation made in Merkur in 1993. The Gaia Trust invested approximately 4 million DKK. This foundation became a new shareholder of Merkur Bank. The investment provided Merkur with the opportunity to make a greater impact funding sustainable projects, allowing Merkur to gain visibility in the community.
This is also the start of strong growth of the Bank, which opens a new division in Copenhagen in 1993 and, in 1999, in the city of Aarhus:
That was in 92-93 so we have been an existence for about 10 years and at that time we got in contact with the foundation of an investment company that was funded by a person that had a strong interest in sustainable development and he got interested in our banking project
References:
(1) Source: article written by L. Pehrson and H. Platz: From Grassroots to professional banking. In: Merkur 25 Aar (pp.10-15). Original version in the Danish language. Retrieved from: https://www.merkur.dk/media/1329/merkur-25-aar.pdf
According to the respondent, there was not contestation or opposition concerning this critical turning point. Practitioners and shareholders who enrolled in Merkur association -before becoming a cooperative- agreed with the perception that they had the opportunity of increasing their capacity to contribute to the social economy without putting in risk or compromising their core values.
This consensus seems to have been facilitated by the reduced number of members that the initiative had in these days:
In the beginning, in 1982 we were only 10-15 people. When we were in 85, perhaps, I don't know, a few hundred people were involved in this... But I don't remember any resistance to that. It was seen as a good opportunity. We also had this feeling as entrepreneurs: this is a moment that would only come once; there will be no second chance. You could have all kind of reasons to say: We are not ready yet, we are still too small, and we need to develop this and that... But that was not an option, it was take it or leave it, and we never regretted
As mentioned above, most of the pioneers and members that, in 1985 were partners or shareholders of Merkur coincided in considering that the transformation of Merkur in a cooperative bank would be a good opportunity to increase their impact on Danish society. Merkur leaders anticipated that transforming into a bank could bring many positive outcomes for the initiative.
Despite several considerations that might recommend them to stay as a loan association, the interviewee does not remember any resistance to change the legal form of the initiative. The majority of practitioners shared the ambition of being bigger and agreed that this critical event was a “take or leave” opportunity. This was later supported by the members that participated in the general assembly in which they took the decision to become a bank:
When we dealt with the situation, that was in a board with relatively few persons, then there was an annual general meeting where the members were asked to confirm this and I don't remember that anyone was against this so that was a very smooth process
Being asked about what the bank learned from this critical turning point, the interviewee recognizes that pioneers did not have much knowledge about how to run a banking institution. They had the strong impulse to create an ethical bank but many things were not planned or thought out in advance. Each step was constantly consequence of meeting with reality and the emergent needs that leaders could observe. It was a true process of learning by doing:
We learnt how to run a bank. It was learning by doing process. We were in the middle of it, it was a learning by doing process in the sense that there was not a big detailed plan for everything. It was just solving one problem after the other. All the practical issues. And the same time of course also promoting the bank
Practitioners were aware, from the beginning, that their banking model could not be similar to mainstream banks that build their business around short-term transactions and finance property speculation, which benefits dependent on constantly creating new transactions, thus increasing risk.
Instead, Merkur aimed to forge long-term relationships with customers on assignments as well as with employees. Both practitioners and employees are proud to be involved in a cooperative that creates long-term value for society.
We would, of course try to get people as members as well because that increases our capital but it was mainly increasing the customer base. That was the main source of marketing, since we did not have any budget for making ads on newspapers, etc.
Learning also contributed to the engagement of shareholders and clients in the bank, pursuing them that despite having smaller profit, being a member of Merkur was better for them and for the common good. Merkur built a coherent discourse aiming to approach to conscious customers and, later, they took advantage of media coverage for increasing their reputation.
They, therefore, began to turn to a wider range of people, and Merkur got much public attention from media. The founders admit that people joined Merkur because people heard about it from family, friends or business associates (“mouth to mouth”). Besides, media coverage was completely important to customers began to flow:
From the first years we got some interest from the press because we were seen as a funny little initiative and they liked to write about us in a quite positive way so that also increased the awareness of our existence.
Also, technological advances helped them to reach to general public. Merkur had to make substantial efforts to adapt to new demands –like the issue of credit cards in the 80s or providing online banking services- to its clients. In the beginning, they had no access to IT technology but, step by step, they had managed to get closer to more professional solutions (e.g. credit cards, online bank, etc.).
Practitioners were confident in their capacity to become more than a closed union, to become a real bank, which could also help people solve their daily transactions. Even though we were quite small in the beginning, performing banking activity – providing business dimension to their initiative- was the goal to achieve in the first term.
Besides, learning involves developing the capacity to adaptation to new situations, such as the financial crisis that was quite dramatic in Denmark. The interviewee affirms that the company constantly:
need to have a vivid picture of the overall target, while being able to mobilize a sufficient organizational movement to respond to the challenges that time brings and which is constantly changing
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