Ethical Banking Practices

The Ethics of Treasury Management: Balancing Profit and Responsibility Bank treasury management has traditionally been focused on financial metrics such as profitability, liquidity, and risk management. However, as the financial industry becomes increasingly scrutinised for its social and environmental impact, ethical considerations have started to take centre stage. For bank treasuries, balancing the drive for profit with social responsibility is no longer a supplementary consideration, but an essential component of strategy. In the competitive banking landscape, the imperative to maximise returns is a constant pressure. Yet, achieving high profitability through means that are not socially responsible can be both ethically and legally problematic. The advent of ESG (Environmental, Social, and Governance) criteria has made it more apparent that sustainable operations are not just altruistic pursuits but necessary for long-term success. Investor sentiment is increasingly aligning with these ethical dimensions. A well-structured ESG framework can make a bank more appealing to investors who prioritise responsible investment. This can be particularly beneficial in the context of raising capital, where ethically-driven financial instruments such as green bonds have become increasingly prevalent. However, implementing ethical practices is easier said than done. The challenge lies in translating broad ethical principles into specific policies and procedures. This requires an intricate understanding of how ethical considerations can be integrated into daily treasury operations. For example, should a bank decline a potentially profitable investment opportunity because it involves an industry with questionable environmental practices? Such decisions are complex and require careful evaluation. It’s prudent to start by setting ethical guidelines that are aligned with the organisation's core values. A transparent and effective framework for ethical decision-making can serve as a guide for treasury operations. This may include third-party audits of ESG compliance, or perhaps the creation of an ethics committee to oversee decision-making. Either way, clear governance structures should be put in place to uphold ethical standards. Transparency is also a key component in the ethical treasury management framework. Clear reporting of ethical initiatives not only fosters trust among stakeholders but can also provide a competitive advantage. Transparency involves detailed documentation and reporting of not only what ethical practices are being followed but also the impact of those practices on financial performance and societal wellbeing. In essence, the ethics of treasury management has become an unavoidable facet of modern banking. By proactively integrating ethical considerations into their strategies, bank treasuries are not only fulfilling a social obligation but are also positioning themselves for sustainable, long-term success. #BankTreasury #ESG

Many of us assume that the money in our bank accounts sits idly – with little return and no harm. But more often than not, it’s silently contributing to greenhouse gas emissions. As Dan Sherrard-Smith points out, Barclays invested £19 billion into oil and gas projects last year. This means that for every £10,000 you hold with them, you’re indirectly contributing over 2 tonnes of CO2 per year. That’s significant, considering Barclays has earned the title of Europe’s worst financier of fossil fuels. Even more concerning, their shareholders voted against phasing out fossil fuel investments. And they’re not alone. Major UK banks like Santander, HSBC, Lloyds, and Natwest collectively poured £29 billion into oil and gas just last year. These banks' unsustainable investment strategies often remain hidden, but the impact is clear: more emissions, more climate damage. Even when major banks aren’t directly funding emissions, many are stuck in a sustainability model that’s primarily about compliance and reporting. While they may meet regulatory requirements, they often fail to see green finance as a business opportunity and as a way to influence the economy toward positive change. Rather than leveraging their capital to drive the transition to a low-carbon future, they remain focused on ticking boxes rather than driving impactful, lasting transformation. Consumers have better options, fortunately. helios.do in France** is setting a powerful example by focusing exclusively on ethical, sustainable investments. Helios doesn’t finance the fossil fuel industry and instead channels funds into renewable energy, green projects, and companies building a better, greener future. Similarly, Tomorrow in Germany is making waves by ensuring that your money supports projects aligned with sustainability and climate protection. These digital banks are part of a growing movement of ethical banks that avoid investments in fossil fuels and instead focus on renewable energy, environmental projects, and companies contributing to a greener economy. By switching to institutions like these, you can ensure your money is working for the planet, not against it.

Last night, flipping through archived issues of NEW HORIZON magazine, a 1994 article posed a question so fundamental, yet so overlooked The question wasn't about profit-sharing formulas or Shariah-compliant products. Instead, it asked something simpler: "Is there such a thing as an Islamic banking culture?" What caught my attention wasn't the question itself, but how it challenges our current approach to banking innovation. While we're racing to build ethical frameworks onto existing systems in 2024, these thinkers from 1994 were exploring something more fundamental: "What if a bank's culture is its most important product?" The more I read, the more a fascinating pattern emerged: 📍 When we talk about stakeholder capitalism today, Islamic finance already has a framework where profit naturally optimizes community benefit 📍 While we're struggling to add ethical layers to banking, here's a system that builds ethics into its operational DNA 📍 As we search for sustainable financial models, traditional profit-sharing approaches have been quietly offering tested solutions But here's what really shifted my perspective: These principles weren't designed just for religious compliance. They were solving universal banking challenges that feel surprisingly modern: - Building trust into the very architecture of banking, not just its marketing - Making profit serves a purpose, not the other way around - Using ethics as the operating system, not just another app The most revealing part? In 1994, while conventional banks were celebrating complex derivatives, Islamic banking professionals were pondering something profound: a banking system where values aren't a marketing strategy - they're the actual infrastructure. Reading this 30-year-old article made me wonder: What if the future of banking isn't about adding more layers of technology and regulation, but about rediscovering these timeless principles of human-centered finance? I'm curious: What would banking look like if we saw Islamic finance not as a specialized sector, but as a laboratory for universal banking innovations? What other time-tested principles might we overlook in our rush toward technological solutions? #IslamicFinance #EthicalBanking #ValueBasedFinance #islamicbanking

Why Islamic Banking is Considered as "Ethical Financial Solution" ================================== Islamic banking is often recognized as an "Ethical Financial Solution" due to its adherence to core principles that prioritize fairness, transparency, and social responsibility. Some of these fundamental principles include: 1. “Money Cannot Generate Money on Its Own”: In Islamic banking, wealth cannot be created simply by holding money. Instead, it must be actively used in trade or investment. The concept of the time value of money is not considered, making Riba (interest) is haram, or unlawful. 2. “Prohibition of Uncertainty and Speculation”: Islamic banking prohibits products that involve excessive uncertainty or speculation, which are seen as akin to gambling. This also applies to certain types of insurance products. 3. “Penalties Directed to Charity”: Any penalties imposed on customers for late payments cannot be counted as income for the bank. Instead, they must be allocated to charitable organizations. 4. “Equity Financing”: Products like Mudarabah and Musharakah are based on partnerships between banks and customers. In Musharakah, both parties share risks and profits, while in Mudarabah, only the capital provider assumes the risk but share profits; 5. “Debt Financing Without Interest”: Islamic banking offers various debt financing options such as Murabaha, Ijara, Istisna, and Salam, all of which operate on a markup basis rather than interest (Riba). 6. “Equal Monthly Installments (EMI)”: In Islamic banking, EMI is structured with equal allocation of markup and principal for the tenor of financing, unlike conventional loans where interest payments are front-loaded. 7. “Takaful Insurance”: Takaful insurance avoids uncertainty by ensuring that risks are shared among participants, unlike conventional insurance. Overall, I find the fairness, ethical standards, and logical foundation of Islamic banking impressive. However, I am curious as to why this business model hasn't gained significant traction in Ethiopia. Despite its potential, the growth of Islamic finance in the country has been slow. I believe the Association for IFB Experts in Ethiopia should increase efforts to raise awareness and educate the public on the viability and benefits of Islamic banking and insurance as an alternative option, either alongside or independent of conventional banking. This product is open or applicable to any individuals irrespective of his/ her religion. Many developed countries are already showing considerable interest in this ethical financial model, as demonstrated by recent developments in the sector. Note: The term Islamic Banking above is quite same with Interest Free Banking (IFB) being called here in Ethiopia. It is merely a naming.

🌟 𝐈𝐬𝐥𝐚𝐦𝐢𝐜 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐯𝐬. 𝐂𝐨𝐧𝐯𝐞𝐧𝐭𝐢𝐨𝐧𝐚𝐥 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 – 𝐀 𝐓𝐡𝐨𝐮𝐠𝐡𝐭𝐟𝐮𝐥 𝐂𝐨𝐦𝐩𝐚𝐫𝐢𝐬𝐨𝐧 🌟 Islamic banking rooted in ethical and Shariah-compliant values, offers a fresh perspective for those seeking fairness, transparency, and shared responsibility. 🔑 𝑲𝒆𝒚 𝑫𝒊𝒇𝒇𝒆𝒓𝒆𝒏𝒄𝒆𝒔 (𝑰𝑪𝑨𝑹𝑬 𝑭𝒓𝒂𝒎𝒆𝒘𝒐𝒓𝒌): 1️⃣ 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕-𝑭𝒓𝒆𝒆 (𝑹𝒊𝒃𝒂): Islamic banking prohibits interest, relying on trade, leasing, or partnerships for profits. Conventional banking, on the other hand, thrives on interest-based income. 2️⃣ 𝑪𝒐𝒏𝒕𝒓𝒂𝒄𝒕-𝑩𝒂𝒔𝒆𝒅: Shariah-compliant contracts like Murabaha and Mudarabah ensure fairness, unlike conventional loans, which often emphasize fixed interest. 3️⃣ 𝑨𝒔𝒔𝒆𝒕-𝑩𝒂𝒔𝒆𝒅 𝑻𝒓𝒂𝒏𝒔𝒂𝒄𝒕𝒊𝒐𝒏𝒔: Real economic activities drive Islamic banking, while conventional banking often engages in speculative instruments. 4️⃣ 𝑹𝒊𝒔𝒌 𝑺𝒉𝒂𝒓𝒊𝒏𝒈: Islamic finance emphasizes shared risk, fostering mutual responsibility, unlike the borrower-centric risk approach of conventional systems. 5️⃣ 𝑬𝒕𝒉𝒊𝒄𝒂𝒍 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕𝒔: Islamic banking avoids industries like gambling and alcohol, prioritizing societal well-being. 🚀 Why It Matters: Whether you choose Islamic or conventional banking, aligning your financial choices with your values can redefine your financial journey. Explore the system that resonates with your beliefs and priorities. #IslamicBanking #ConventionalBanking #EthicalFinance #FinanceWithValues #ShariahCompliance #RiskSharing

I am pleased to share my latest opinion article published in Prothom Alo, where I argue that the next stage of Islamic banking should move beyond merely replicating conventional banking in a Shariah-compliant form and instead embrace institutions rooted in the core values of Islamic economics. In the article, I propose the concept of a Qard Hasan Bank—a specialized, waqf-based, non-profit financial institution dedicated to providing interest-free consumer finance while promoting financial inclusion, social solidarity, and distributive justice. The proposed model seeks to: Expand access to interest-free financing for education, healthcare, emergency needs, housing, and productive micro-enterprises. Complement existing Islamic banks by focusing on areas where commercial banking models often fall short. Utilize waqf, cash waqf, charitable funds, and Qard Hasan deposits to create a sustainable financing ecosystem. Reduce the burden of household debt while encouraging responsible repayment through sound governance and modern risk management. Advance the Maqasid al-Shariah by integrating efficiency with equity, compassion, and social welfare. My argument is not that a Qard Hasan bank should replace the existing Islamic banking system. Rather, it should serve as a complementary institution that restores one of the most important yet underutilized traditions in Islamic finance and offers a practical pathway toward a more authentic and socially impactful financial architecture. As Islamic finance enters its second half-century, perhaps the most important question is not how closely it resembles conventional banking but how effectively it embodies the ethical and social objectives of Islam. I welcome your comments and thoughts on this proposal. Please read the full article (in Bangla): https://lnkd.in/eRRgyHxu