What does ethical banking Mean: Ethical banking reflects the environmental and social impact of banking practices, including loans and investments. The monetary organisations that give stress on ethical banking practices look for profit like other economic institutions. However, they try to produce earnings without causing harm and sacrificing principles.
It is a broader term, which means that it covers an extended range of concepts and ideas within its parasol. It includes a wide range of things starting from the loans offered by banks along with the financial assistance, to environmentally friendly start-ups to those which help the struggling section of communities or help individuals searching for affordable housing.
The foundation of ethical banking is made up of strong beliefs and principles. These banks abide by the primary model of conduct, even if this generates zero profit.
Highlights of Ethical Banking
- Ethical banking is a broad term which is used to represent banks that work with the set of ideals and principles. These principles include the way they interact with their customers, their society and in general with the world.
- Every bank decides the principles that will lie at its core; most have some of the features in common. It includes customer screening, society involvement and consistency of external and internal ethics.
- Ethical banking contributes to building financially capable and firm societies. But the reality is the opposite of all the features mentioned above. These rigid set of ethics and principles often prove hard when it comes to implementation from a practical viewpoint.
- It is considered one of the forms of alternative banking. The banks sometimes work with narrow gain margins compared to conventional banks, and therefore may have fewer offices and work mostly by internet, mail or phone.
Essential Features of Ethical Banks
As ethical banking is an extended term, the banks enjoy many flexibilities when it comes to the precise way of how they work. It is said that there are a few primary features that usually all banks follow when we talk about ethical guidelines:
1. Screening customers
Every bank needs to check whether its customer is financially sound. It means that he is capable of repaying the debt obligations and granted loans. It is essential to practice because it ensures that the bank does not end up serving the individuals and firms which do not follow ethical practices.
2. Getting involved in society
Banks that follow the principles are generally ready to communicate with their local societies and promote a prosperous and healthy local environment. The things included in their guidelines are providing funding for inexpensive complexes and apartments, serving as a sponsor for society’s events, or establishing the scholarships for the talented or high school students.
3. Consistency of ethics
Banks need to balance both external ethics and internal ethics consistently. Whatever the bank believes the external ethical banking must be managed in-house also. Let take an example for this; an ethical bank refuses to work with a customer because the firm does not include physically disabled workers. It should consist of staff with various types of handicaps.
The Pros and The Cons
The ethical banking promotes transparency, helps in establishing a strong foundation in societies and works on the ideals and principles that direct to whom and how the finance or cash should flow. These types of banks are the last opportunity for the growing start-up to receive funding (loan) to carry forward their ideas.
But the reality is harsh; it is always challenging to abide by these strict rules and regulations. Refusing to take on work or customers with firms who somehow violate the set principles can lead to monetary disaster for both the bank and the clients.