Ethical Banking

A range of banks and financial institutions are seeking to operate on different bases to that of solely profit maximization. One example is those linked with the Global Alliance for Banking on Values (GABV) which “is a foundation with an established charter, made up of the world’s leading sustainable banks, from Asia, Africa, Australia, Latin America to North America and Europe. Members include microfinance banks in emerging markets, credit unions, community banks and sustainable banks financing social, environmental and cultural enterprise” (http://www.gabv. org/). Another sector of growing significance would be that of Islamic banks and finance, which confines its financial activities to those which are Sharia compliant with respect to the payment of financial rewards (notably the prohibition on interest), the financial products which can be offered and the activities of businesses such as the production of alcohol, pornography or weapons.

Financial institutions operating along these lines at least offer the potential that savers can express their social values through the provision of funds to such institutions. They also offer possibilities for the channeling of funds in specific directions in line with the social objectives of the institution. The specific issues which arise are (as with microfinance) whether such institutions suffer from ‘mission creep’, and whether the pressures push them towards profits. Much may then depend on whether the activities into which these alternative financial institutions put funds are ones which yield an acceptable rate of profit—and hence that while the social returns to such investments may be high, are the private returns similarly so. But, if the private returns are indeed relatively high, then profit-seeking financial institutions would themselves be willing to lend. Thus it can be argued that alternative financial institutions would, in effect, require subsidies which can come in the form of direct government subsidy or through savers willingness to accept a lower rate of interest.

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