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Ethical banking and Islamic banking: a comparison of Triodos Bank and Islami Bank Bangladesh Limited

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Date
2017
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Abstract
Ethical finance and Islamic finance are the two important topics in the post global financial crisis market environment and in the context of sustainable development goals and circular economy. If Islamic finance is inherently ethical finance, then what remains the difference between the two is an interesting theme for investigation. Islamic finance is governed by universal and divine legal and moral principles and standards related to economic transactions. Contemporary Islamic financial practices are however, strongly criticized for giving precedence to legal forms over ethical substance and for the rising gap between moral ideals and practical realities. Ethical finance is a conscious human effort to reform finance and it embraces environmentally, socially and morally conscious practices. In this paper we select two banks, namely Islami Bank Bangladesh Limited (IBBL) and Triodos Bank. We perceive that the first is an ideal Islamic Bank and the second is an ideal Ethical Bank. We undertake an analysis of the content of balance sheet disclosures of the two banks and try to gauge the similarities and divergences in their business principles and practices. The analysis uncovers that the current practices of IBBL may far exceed other Islamic banks in terms of financial inclusion, microfinance, gender balance, SME financing and green banking while still being financially stable and profitable. However, Triodos Bank has some significant lead over IBBL regarding ethical practices since it only promotes sustainable businesses. If Triodos Bank exceeds IBBL in ethical expectations as we conclude, then it is far ahead of other Islamic banks in such comparison. The implication of our conclusion is that Islamic banking needs ethical reform and this can be benchmarked with Triodos Bank's business model. For Islamic banks the correct approach would be to strike the right balance between ethics, moral standards, Shar'ah compliance and profitability. The Islamic banking model has in-built features to ensure Shari'ah compliance, and this can be enhanced through adopting sound ethical practices as well as dedicating efforts towards being environment friendly. The paper attempted to present some considerations which if present in Islamic banks would take them away from the criticism of being only for profit in motivation. Triodos has balanced its for-profit and not-for-profit motivations letting the later to lead the first.
Keywords
Ethics , Islamic finance , Islami Bank Bangladesh Limited , Triodos Bank
Citation
Khan, T., & Mohomed, A. R. N. (2017). Ethical banking and Islamic banking: a comparison of Triodos Bank and Islami Bank Bangladesh Limited. Islamic Economic Studies, 25(Special issue), 111-154.
Publisher
The Islamic Research and Training Institute
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