Ethical banking promotes an economy for the common good.
Ethical banking is a concept that refers to those financial entities whose operation is not governed by the search for profit maximization, but rather aims to generate social utility . This banking system, therefore, goes beyond profit and aims to promote the economic and social development of the community through sustainable finance.
It should be noted that the idea of banking can refer both to all banks and to the activity that these institutions carry out. The term ethics , meanwhile, is used as an adjective to describe what is done according to moral standards.
Emergence of ethical banking
Ethical banking emerged in the United States during the 19th century . Its origins are associated with the intention of religious communities to invest in ventures in line with their values.
These groups, as well as citizens in general, became aware of the link between savings and credit, which was completely controlled by banking entities. Many groups and individuals, within this framework, began to raise their intention to decide how their savings would be invested: that is, to whom loans would be granted with those funds.
In this way, a new concept of banking was forged, aimed at conscious and responsible management of capital . Ethical banking was born to promote an alternative economy in which resources are allocated to the satisfaction of social needs and not to speculation or the development of immoral businesses.
In parallel to what happened in the United States , in underdeveloped countries with inhabitants unable to access the traditional banking ecosystem, new entities and networks were appearing that established novel financing mechanisms (such as so-called microcredits ).
Positive social impact investment funds are part of the products offered by ethical banking.
Its characteristics
Ethical banking aims to finance initiatives in the real economy : therefore, it does not work with speculative activities or the trading market. The projects it finances, therefore, have to produce services or goods directly.
Such production, in turn, must generate a positive impact on the community . This causes ethical banking to prioritize certain ventures and discard others. Due to its characteristics, it is also common for it to grant loans to sectors that are usually left aside by commercial banks since they carry out activities with low profitability or lack formal guarantees.
When establishing the criteria that define access to financing, ethical banking can resort to two approaches:
- Positive : Determines which projects will be financed, such as those linked to environmental care, fair trade, education or the dissemination of culture, for example.
- Negative : Points out the activities that will not be financed, among which may be those related to alcohol, tobacco, unsustainable extraction of natural resources or weapons.
To ensure that the criteria are met, institutions can request sustainability reports and good corporate practices. It is understood, therefore, that ethical lending decisions associated with finance for sustainable development are executed. Among the recipients of the credits there may even be non-governmental organizations (NGOs) and associations that work towards diversity and inclusion .
Ethical banking entities do not finance projects that violate human rights or that have a high environmental risk, for example.
Ethical banking products
Social or ethical banking offers different types of financial products. One of the most important are microcredits : short-term loans of small amounts, with flexible repayment terms and a low interest rate.
Solidarity loans , meanwhile, are intended for projects of social interest, as we already indicated. There is also talk of solidarity bonds (to finance NGO users), solidarity investment funds (which finance socially responsible companies) and solidarity credit cards (they contemplate the donation of a percentage of the purchases made by clients to community programs). .
As can be seen, they are products similar to those offered by traditional banking, although granted with different criteria and intended for specific purposes. These may be microfinance that contributes to financial inclusion, ethical investment funds, soft loans, etc.
Some examples
The best-known example of ethical banking is Bangladesh 's Grameen Bank . This entity was founded by the university professor and economist Muhammad Yunus , who in 1974 set out to fight poverty through a microcredit system.
Grameen Bank grants small loans to people without resources so that they can develop a micro-business. The success of the initiative led the idea to spread throughout the world and today there are replicas of the entity in more than a hundred countries. Yunus , for his part, was recognized with the Nobel Peace Prize in 2006 .
In Spain , an example of ethical banking is MicroBank , CaixaBank 's social bank. According to its own figures, it has more than one million active microcredits throughout the Spanish territory, financing entrepreneurs, projects with positive social impact , students and families.
Triodos Bank , for its part, is a bank that emerged in the Netherlands that allocates its resources to initiatives that promote positive environmental, cultural and social change. This entity has more than 740,000 clients in five European nations.