Breaking the Bank:
Alternative Pathways To Lebanon's Broken Banking Sector

As Lebanon’s capital recovers from the August 4 explosion, an opportunity presents itself to imagine and construct a fairer and more resilient system—not least in the financial sector, which lies at the heart of the current crisis. With their life savings in tatters, the Lebanese people need alternative options for storing value and running Lebanon’s finances. Financial cooperatives, coexisting alongside a reformed commercial banking sector, may be exactly what they are looking for. But how could these member-owned institutions help the Lebanese, and why have they never existed?

The explosion that ripped through the heart of Beirut in early August took with it more than lives, dreams, and property. This calamity, caused by gross state negligence, also destroyed any remaining hope that Lebanon has a future without fundamentally reshaping its current institutions.

As the nation’s capital recovers, an opportunity presents itself to imagine and construct a fairer and more resilient system—not least in the financial sector, which lies at the heart of the current crisis. With their life savings in tatters, the Lebanese people need alternative options for storing value and running Lebanon’s finances.

Although the battle to preserve the wealth of small and medium depositors has not started well, a brighter and more equitable future for Lebanese banking could be around the corner. With enough economic vision, Lebanon’s financial meltdown may have created a critical mass of angry depositors, which can forcefully advocate for an alternative model for saving and lending. Financial cooperatives, coexisting alongside a reformed commercial banking sector, may be exactly what they are looking for.

Credit unions and other types of financial cooperatives have the power to diversify Lebanon’s homogeneous banking sector. This would serve Lebanon well in the rocky years ahead; research shows that when banks do poorly, credit unions often do much better. Credit unions are also better than banks at providing marginalised groups with financial services. Lebanon suffers from poor financial inclusion, with a mere 45 percent of adults in Lebanon owning bank accounts. However, despite the obvious need, credit unions have never existed in Lebanon.

Due to calculated disinterest, state and political elites never allowed financial cooperatives to appear in Lebanon’s economic ecosystem. This retrograde attitude defies trends in other corners of the world, from the United States to Senegal, where cooperative banks have brought much-needed accountability, democratic principles, and resilience to financial shocks. Instead, faced with a crumbling national currency, the Lebanese are desperately searching for new stores of value—but they are met by obstacles at every turn.

Investing in physical assets can be unsustainable; vulnerable to theft and unexpected market collapse, the trend for luxury cars and real estate is likely to be short-lived. Optimists argue that the increased trade in cryptocurrencies such as Bitcoin, for example, could herald an equitable exit from Lebanon’s nightmarish currency.

But cryptocurrency is only an option for a group of Lebanese who are practically on the verge of extinction: those fortunate enough to have expendable income in foreign currency. Without extensive reform to the Electronic Money Transfer (EMT) sector, cryptocurrency cannot hope to offer the Lebanese the kind of respite it did during other financial meltdowns, such as in Venezuela.

Only breaking with tradition will allow the country to end the current economic crisis. It is now up to depositors to campaign for a more equitable path for finance in Lebanon.