Prospective innovation at ethical banking and finance leaflet

Taadler Publisher House

Presents the Special Issue

edited by

Prof Dr LEIRE SAN-JOSE University o f Basque Country UPV/EHU,

ECRI Research Group at University of the Basque Country, Bilbao, Spain

University of Huddersfield, United Kingdom

Prof Dr JOSE LUIS RETOLAZA AURKILAN Business Ethics Research Institute, Institute of Applied Business Economics (IEAE),

(UPV/EHU), Spain

Preface

This Special Issue provides key innovative elements and concepts related to ethical banks in a short, easy-to-use format divided in high quality scientific papers. They contain important papers that relate to those significant aspects relate to ethical banks: situation of ethical banks in Europe, the innovative forms to measure the social impact in banking, comparison of ethical banks before and after the financial crisis, the ethical banks understanding as a sustainable business model, the impact of ethical codes in banking and the future pathway for ethical banking. Each paper entry is written by a scholar.

Olaf WeberSchool for Environment, Enterprise and Development - University of

Waterloo,Canada

Social banking is conducted by social, ethical or alternative banks, financial cooperatives, and credit unions. In contrast to conventional banks, social banks conduct their business to create a positive social, environmental, or sustainability benefit. This study analyses both, the missions of social banks and their financial figures. Based on data of the members of the

Global Alliance for Banking on Values, a global association of social banks and microfinance institutions, we conducted a qualitative analysis of the missions of the member institutes. Furthermore we explored whether their loans and investments follow their mission and whether this business strategy is able to achieve attractive financial return. The results suggest that the banks follow the mission of social finance and prefer social impacts over financial returns without neglecting financial sustainability. With respect to financial indicators social banks are, though being still small, especially in the years

2007 to 2012 more profitable than conventional banks or credit unions and presented stronger growth than their conventional counterparts. Regarding their financial health all institutes in the sample meet the Bank for International Settlements (BIS) capital ratio. We conclude that it is possible to follow the concept of social finance and to be financially sustainable, if social banks provide the tangible and intangible resources. Key Words: Social banking, ethical banking, blended return, shared value, credit union, financial return, resource-based theory,capital ratio.

Prospective Innovation at Ethical Banking and Finance

Social Banks and their Profitability: Is Social Banking in line with Business Success?

http://taadler.com/a29


Blanca Fernandez MilanLand use, Infrastructure and

Transport - Mercator Research Institute on Global Commons and Climate Change (MCC) gGmbH,

Germany

Sustainable development is an ongoing process based on a set of principles that have to continue to spread throughout all economic activities. Looking at the current economic scenario, the transformation of the financial sector appears crucial. I define a common understanding of sustainable finances through the identification of those

characteristics appearing repeatedly in the literature, stressing the dynamism of the concept. Powerful drivers towards sustainable practices in strong profit-oriented markets are sustainable consumer behaviour and social expectations. Mixed methodology is used to analyse the current and future scenarios of sustainable finances from the consumer perspective. The study focuses on the potential to foster sustainability and on the long-term competitiveness. Although there are strengths and opportunities for further development, there are also threats that need immediate solutions. As a

consequence of the financial crisis, society is seeking new alternatives and sustainable finances should be considered as an indispensable one. Nevertheless, public mistrust leads to the necessity of supporting and protecting those truly sustainable initiatives within the financial sector. This research concludes with the idea of a third party certification system as a tool to protect and enhance the adequate development of sustainable finances.

Key Words: Investor rationality, Financial Institution, Financial Service, Standard.


Fostering Sustainable Finances: The consideration of a Third Party Certification Program



Teodora Cristina Barbu, Iustina Boitan

The Bucharest University of Economic Studies, Romania

The paper promotes the incorporation of sustainable development principles in the banking business, as an alternative to traditional banking activities, the more so in the context of global financial crisis, because an ethical business model has the ability to regenerate customer confidence in the financial system's institutions, can transform financial profits into social welfare and it is

sustainable over time.The first part of the paper proceeds to a review of the main sustainability frameworks, comprising international principles and standards that can be joined on a voluntary base by financial institutions and companies across the world. The second part provides delineation between the business model of ethical banks and the traditional one, emphasizing the particular mission and objectives of ethical banks. However, the common denominator of the two types of institutions consists in the additional risks, namely the environmental and social risks, arising indirectly, from their customers' operations. The

third part proposes an empirical investigation, with an heuristic and exploratory nature, called Cluster Analysis, in order to observe how the profitability (ROA, ROE), liquidity (the share of loans in deposits), exposure to risk credit (share of loans in total assets) and capital adequacy (BIS1 ratio) are characterized by homogeneity at the level of financial institutions that have implemented an ethical, sustainable business. Key Words: ethical banks, sustainability framework, sustainable business model, financial indicators,cluster analysis


The emergence of ethical banks – a way towards sustainable banking business



Igor Etxabe Iruretagoiena

School of Economics and Business Administration The University of the

Basque Country, Spain

Abstact

Nowadays, while the financial system appears to be more widespread than ever, we note that a significant portion of the population (not only in less economically developed countries, but also in Europe and the United States) cannot

access basic financial services offered by major banking providers, leaving these people out of the operating dynamic of their environment. As a result, we can deduce that financial exclusion is currently an issue of great interest worldwide, obviously for people involved in this situation, but also for the financial system, the enterprise network, public institutions and social organizations.The purpose of this paper is to contribute, through the exemplary case of FIARE, to strengthen alternatives with a high degree of social transformation like Ethical

Banking. A qualitative research is carried out to study a local banking project and see its implications to for social and solidarity economy. The analysis detects strong and weak points and leads to an approach of the suitability of this initiative to tackle financial exclusion in the post-crisis period. Key Words: financial exclusion, ethical banking, FIARE, social transformation.


Ethical Banking: an alternative to tackle financial exclusion? The case study of FIARE




Carlos M. MorenoUniversitat Ramon Llull , Spain

Abstract

The aim of this paper is to establish a theoretical comparison among Codes of Ethics in the three major banks in Spain: BSCH, BBVA and CaixaBank. We analyse the documents in their web corporate pages and establish a comparison

between both the formal aspects and the content of the ethics codes. Just to find out how these three banks “present” their Ethics Code to Society in order to know a scope of the situation of Ethics’ Codes, Conduct Codes nowadays in these three Spanish banks. Previous to establish the comparison we will consider “values” and “principles” of the three banks if any. The background of this paper is to find out how these three banks formally present their way to proceed as an element of their transparency.

Key Words: codes of ethics, Spanish banks and values


A theoretical comparison of Codes of Ethics among the three Mayor Banks in Spain: Grupo Santander, Grupo Bilbao Atlántico Vizcaya and

CaixaBank



Gregor KrämerAlanus University of Arts

and Social Sciences, Germany

Abstract. Socially Responsible Finance (SRF) and Socially Responsible Banks (SRBs) are relatively new phenomena which could be observed in the financial markets during the last years. SRBs registered an enormous increase in customers during the financial crisis, and on the financial

markets a wide range of new products originated – reaching from microfinance to sustainable investment funds through to peer-to-peer lending – some of which already have become established in financial markets. Best known is probably the concept of Socially Responsible Investment (SRI) which however covers only a small part of SRF. Until now, there is neither a uniform definition of the terms SRF and SRB nor does a theoretical foundation, explanation, or systematic classification of these phenomena exist. In contrast to the classic concepts which put an emphasis on profit maximisation, SRF and SRB can be characterised by the fact

that they consider ecological and social sustainability as at least equivalent to economic sustainability. In this paper, I will integrate these specific characteristics at different places into the traditional model of a financial system thus not only classifying these new occurrences but also trying to give an explanation for their existence.Key Words: Financial Products, Financial Intermediation, Financial Services, Financial System, Non-bank Financial Institutions, Regional Currencies, Socially Responsible Banking, Socially Responsible Finance, Islamic Finance, Micro-Finance, Banks


Socially Responsible Finance and Socially Responsible Banking as New Phenomena in Financial Theory – A Systematic Classification and

Explanation




Leire San-Jose, Jose Luis Retolaza,

Dayli Bocanegra

University of the Basque Country, Bilbao, Spain

Abstract.The financial crisis has increased the importance of the transparency in banking because of the relevance to invest the money of savers and the effect of a risky

investment. There are some banks, called Ethical Banks that show in a transparent way the collocation of their money. Then, this research analyses the principal differences between ethical banking and the rest of funding organization: the information transparency and collocation of asset comparing before and during the crisis (2007 vs. 2011 data) and using the European Ethical Banks data. There is an index, RAI (Radical Affinity Index) that integrates this information; therefore, we have used a part

of the index, the RAI alpha to show the transparency and placement of assets as the most important factors of ethical banking to resist the negative effect of the actual financial crisis.

Key Words: ethical banking, index, transparency, quality of assets, financial crisis.


The ethical banks in Europe during the crisis: information transparency and placement of assets



Carlos Ballesteros, Lucia Herden

ICADE. Universidad Pontificia Comillas, Spain

Abstract The present work aims to promote the search for a valid method to measure the social impact of ethical banking using the case study as methodology. Rather than develop a method for measuring the social impact of the ethical banking it tries to analyse the existing methods and the current situation. The financial crisis of 2008 has

highlighted the weaknesses of the current financial system and has caused a great loss of confidence in the society. The ethical banks responds to these weaknesses and its great growth since the crisis points out that that is the alternative that many people are looking for. Yet it is still a small and little-studied sector, but the growing presence indicates that it is gaining influence in the financial market. The growth of the sector also brings new challenges that need to be overcome in order to be able to continue to grow.

One of these challenges is the justification and impact communication. Although the issue of measuring the social impact is highly topical in areas close to the ethical banking sector and, therefore, there is a wide variety of different approaches (as e.g. SROI) there is not enough research in the concrete case

of the ethic banks‘ social impact. The application of different approaches to

the case of the Spanish initiative FIARE does not have the pretension of projecting the social impact of this company, but the detection of the difficulties and facilitators in the measurement of the social impact of such a project. The concrete research questions this paper aims to answer are 1. To what extent can the existing

methods for measuring the social impact of the Ethical Bank used?

2. What other aspects should be considered in terms of measuring the social impact of banking ethics?

Key Words: Social Impact, ethical banking


Socially Responsible Finance and Socially Responsible Banking as New Phenomena in Financial Theory – A Systematic Classification and

Explanation



V.Rengarajan International Consultant, Micro-

Finance

India

Abstract. Socially Responsible Finance (SRF) and Socially Responsible Banks (SRBs) are relatively new phenomena which could be observed in the financial markets during the last years. SRBs registered an enormous increase in customers during the financial crisis, and on the financial

markets a wide range of new products originated – reaching from microfinance to sustainable investment funds through to peer-to-peer lending – some of which already have become established in financial markets. Best known is probably the concept of Socially Responsible Investment (SRI) which however covers only a small part of SRF. Until now, there is neither a uniform definition of the terms SRF and SRB nor does a theoretical foundation, explanation, or systematic classification of these phenomena exist. In contrast to the classic concepts which put an emphasis on profit

maximisation, SRF and SRB can be characterised by the fact that they consider ecological and social sustainability as at least equivalent to economic sustainability. In this paper, I will integrate these specific characteristics at different places into the traditional model of a financial system thus not only classifying these new occurrences but also trying to give an explanation for their existence. Key Words: Economic-ethics nexus, Microfinance industry, Amartya Sen, ethical banking, unethical financial practices, wealth and greed, Ten commandments


Future pathways for ethical banking, new changes in the post-crisis period:

A case for micro financing to the poor



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Prospective innovation at ethical banking and finance leaflet