What is Ethical Banking? Definition of Ethical Banking, Ethical Banking Meaning and Concept

Ethical banking is called that which focuses on operating and offering products that create social value and are ethically responsible, in addition to investing in products classified as morally acceptable and not subject to social disapproval.

Ethical banking, which appeared in the 1980s in central and northern Europe, counts among its priorities in offering valuable services to the community and environment that surrounds them, beyond being interested in economic benefit.

In this sense, ethical banking tries to put savers and investors in contact, with the difference with respect to traditional banking that savers know that their money will go to finance socially responsible and ethically profitable projects ; While the agents in need of financing must allocate this money for the same purposes, such as green projects, social development, inclusion or generation of transparent wealth and creation and social value in their environment.

Characteristics of ethical banking

As a general rule, ethical banking has the following features:

  • Savers know how their money is being used, what projects they are going to and who they are financing.
  • Financing must go hand in hand with creating social utility, for example, clean energy, creating employment, social and labor insertion for marginalized people...
  • The entities must establish facilities and monitoring of the projects and even carry out support tasks for them.
  • The resources lent must be allocated to viable projects that do not harm the common of society, for example, discarding projects that are not very transparent, weapons, speculation, polluting waste...

The operation of ethical banking or clean banking is similar to that of traditional banking, with the vital criterion that savers and financed have a certain level of collaboration and participation, since the former lend their resources in exchange for knowing the destination and utility of their savings, while the debtors secure more competitive financing if they allocate that money to investments of social utility.