DEFINITION OF “ETHICS”

(Webster says) Ethic(s) is the “discipline dealing with what is good and bad and with moral

duty and obligation.” “A set of moral principles or values, the principles of conduct

governing an individual or a group.” “Ethical” is defined as “of or relating to ethics, and

conforming to accepted professional standards of conduct.”

What are business ethics?

Ethics are moral guidelines  which govern  good behaviour

So behaving ethically is doing what is morally right

Behaving ethically in business is widely regarded as good business practice.  To provide you

with a couple of quotes:

Ethical principles and standards in business:

Define acceptable conduct in business

Should underpin how management make decisions

An important distinction to remember is that behaving ethically is not quite the same thing as

behaving lawfully:

Ethics are about what is right and what is wrong

Law is about what is lawful and what is unlawful

An ethical decision is one that is both legal and meets the shared ethical standards of the

community

Businesses face ethical issues and decisions almost every day – in some industries the issues

are very significant.  For example:

Should businesses profit from problem gambling?

Should supermarkets sell lager cheaper than bottled water?

Is ethical shopping a luxury we can’t afford?

You will probably note the link between business ethics and corporate social responsibility

(CSR).  The two concepts are closely linked:

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A socially responsible firm should be an ethical firm

An ethical firm should be socially responsible

However there is also a distinction between the two:

CSR is about responsibility to all stakeholders and not just shareholders

Ethics is about morally correct behaviour

How do businesses ensure that its directors, managers and employees act ethically?

A common approach is to implement a code of practice. Ethical codes are increasingly

popular – particularly with larger businesses and cover areas such as:

Corporate social responsibility

Dealings with customers and supply chain

Environmental policy & actions

Rules for personal and corporate integrity

In simple words, ethics can be defined as 'moral values and principals'.It is a decision of

choosing right among wrong and right. Business ethics are that functions which leads to

choosing right decision at right time which leads for the welfare of not only business owners

but also society, consumers, stakeholders and its employees. Business ethics now days have

become so important that no business can survive in market without following them.

The importance of business ethics in a business world is increasing day by day. Following

points helps to explain the reason for it in a brief form:-

Today's market is consumer market. Consumer buys only that product which gives them

maximum satisfaction. So it is necessary for a business to follow business ethics which

makes business works in such way which satisfy more and more consumers. Business ethics

leads to make employees satisfy which helps to reduce turnover and absenteeism of

employees. Further it also helps to increase the productivity of business and quality of goods

manufactured. So it becomes necessary to follow the business ethics for productive results.

Every business is a creditor of society. As the resources used by business belongs to society.

So there is some responsibility that lies on every business towards society. To fulfill that

responsibility the code of conduct which is to be followed are business ethics. It is noted that

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the concerns which are following business ethics always are the successful on as the better

productivity and consumers satisfaction leads to improved goodwill in market. It is also

helpful to increase market share i.e. sales. Stakeholders always want better returns and good

results. This aim of business can only fulfilled by the way of following business ethics. Better

productivity results better sale for business which leads to better returns to the stakeholders.

Now it is to be noted that by following business ethics organization not only satisfy others but

the ultimate goal of earning profit can also be achieved. So the importance of business ethics

is increasing day by day in today’s market. The efficiency of business in productivity is also

increased. Better the products better would be sale. So it can be said that business ethics now

become the blood life of a business concern.

Most of us would agree that it is ethics in practice that makes sense; just having it carefully

drafted and redrafted in books may not serve the purpose. Of course all of us want businesses

to be fair, clean and beneficial to the society. For that to happen, organizations need to abide

by ethics or rule of law, engage themselves in fair practices and competition; all of which will

benefit the consumer, the society and organization.

Primarily it is the individual, the consumer, the employee or the human social unit of the

society who benefits from ethics. In addition ethics is important because of the following:

Satisfying Basic Human Needs: Being fair, honest and ethical is one the basic human needs.

Every employee desires to be such himself and to work for an organization that is fair and

ethical in its practices.

Creating Credibility: An organization that is believed to be driven by moral values is

respected in the society even by those who may have no information about the working and

the businesses or an organization. Infosys, for example is perceived as an organization for

good corporate governance and social responsibility initiatives. This perception is held far

and wide even by those who do not even know what business the organization is into.

Uniting People and Leadership: An organization driven by values is revered by its employees

also. They are the common thread that brings the employees and the decision makers on a

common platform. This goes a long way in aligning behaviors within the organization

towards achievement of one common goal or mission.

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Improving Decision Making: A man’s destiny is the sum total of all the decisions that he/she

takes in course of his life. The same holds true for organizations. Decisions are driven by

values. For example an organization that does not value competition will be fierce in its

operations aiming to wipe out its competitors and establish a monopoly in the market.

Long Term Gains: Organizations guided by ethics and values are profitable in the long run,

though in the short run they may seem to lose money. Tata group, one of the largest business

conglomerates in India was seen on the verge of decline at the beginning of 1990’s, which

soon turned out to be otherwise. The same company’s Tata NANO car was predicted as a

failure, and failed to do well but the same is picking up fast now.

Securing the Society: Often ethics succeeds law in safeguarding the society. The law

machinery is often found acting as a mute spectator, unable to save the society and the

environment. Technology, for example is growing at such a fast pace that the by the time law

comes up with a regulation we have a newer technology with new threats replacing the older

one. Lawyers and public interest litigations may not help a great deal but ethics can.

Ethics tries to create a sense of right and wrong in the organizations and often when the law

fails, it is the ethics that may stop organizations from harming the society or environment.

What are Ethics in Banking?

Banking ethics are the moral or ethical principles that certain banks chose to abide by. There

isn’t an ethics ombudsman or a universal code of ethical conduct, but the banks that vaunt

their ethical credentials vet the ethical standing of potential investors and partners and also

choose the companies that they in turn invest in with their ethical policy in mind. This means

that a typical ethical bank will require potential investors to complete an Ethical Policy

questionnaire. Should the nature of the investor’s business run counter or in some way

compromise the bank’s ethical policy, they will refuse to accept the investment. Similarly, an

ethical bank will often seek out investment opportunities that encourage environmental or

social enterprises.

The number of ethical questions that the banking industry faces are many and multifaceted,

but in broad brush strokes an ethical bank must have a policy that takes into consideration

those questions that twenty first century globalization and the social and environmental issues

attendant thereon pose. For example, the banking ethics that the Co-operative bank (UK)

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adopted in 1992 mean that it refuses to invest in companies involved in the arms trade,

companies contributing to climate change, animal testing, genetic engineering and those

companies who exploit sweat shop labor.

Banking ethics and profitability are not mutually exclusive, but being an ethical bank does

sometimes mean that they maintain their moral rigor at the cost of profitability. This was the

case with the Co-operative bank who in 2005, turned away investments totaling $20 million

US Dollars (USD) because the investors were involved in what they considered unethical

enterprises. These included a company who made traditional Scottish sporrans from fox pelts

and a shoe-making company that decorated its footwear with sable.

In the United States ethical banks such as ShoreBank, Wainwright and RSF have sought out

investment opportunities in those under developed areas and communities that are perhaps

unattractive to banks with fewer ethical imperatives. ShoreBank has prospered within this

moral framework and has seen its assets grow to $2.1 billion (USD). Equally, RSF has loaned

in excess of $100 million (USD) and has reaped profits of over $50 million (USD), with an

annual growth rate of 60%.

Banks that are known to have functioning ethical policies are found all over the world, and

include the following: Triodos Bank (UK), the Co-operative Bank (UK), ShoreBank (USA),

RSF Social Finance (San Francisco and New York, USA), Shared Interest (UK) based in the

United Kingdom, Wainwright Bank (USA), La Nef (France), GLS Bank (Germany), Banca

Popolare Etica (Italy and Spain).

Ethics in banking

Banking and finance as a profession have an intrinsic value chain which is interwoven with

the cycle of providing adequate financial products and services. As long as there are no bank

guidelines or criteria on ethical, social and sustainability aspects, the individual co-worker or

the lending committee are generally applying the ‘neutrality rule’, excluding ethical, social

and environmental considerations from the bankers´ decision making. In reality however,

money is not neutral and it involves responsibilities from its inception and along the

distribution chain where it has to do with value creation, not only pure financial value but

also human, social and environmental added values. Money, capital, intelligently and wisely

invested as an instrument for improving quality of life, can have a major impact on human

development. Because of this impact, a neutral attitude to investment and lending is

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irresponsible. In the financial markets, money and money systems become mechanical and

develop uncontrollable dynamics. Financial regulators and authorities are only concerned

with the mechanics of the system in order to prevent major breakdowns. Is there an

organisational design for money as an instrument subservient to human development? What

are ethical impulses and human qualities that can be found in modern societies in both

developed and developing countries and that can be brought into the banking and finance

process? Three possible impulses are described below.

a. The impulse of brotherhood and sisterhood at interpersonal, local and global level Are we

interested in each other’s physical existence and well-being? Do we feel responsible for each

other? How do we deal with this question on a planetary level? In which way do we

experience and organise a global co-existence at a time of different development patterns in

different cultures and in different natural environments around the globe? Are we ready for

such a scope of social cohesion while self-interest and pure consumer orientation are taking

the lead in modern economy? Can a transparent money stream serve social cohesion and

stimulate the interest in each other by making money become available to those who are

talented to use it in value creation activities for the common good?

b. The impulse of recognition of human dignity as a precondition for human development

The impulse of recognition of human dignity as a precondition for human development

demonstrates a deep interest in the personality and the capacities of other human being(s),

including respect for a person’s inner life and active tolerance. How can the availability of

money, in its respective qualities through lending, investment or donation, contribute to a

valuable use of human capacities?

c. The impulse of searching for ‘meaning’ and ‘quality’ in life ‘Meaning’ refers to a constant

quest for understanding, including the spiritual level. ‘Quality’ has to do with the added value

that is the outcome of a search process where choices are being made in life. How can

investment and lending be directed to meaningful positive action and be diverted from

financing negative developments or negative aspects of an undertaking? Can ethical banking

be a method of constant search and reflection on the meaning of human and economic value

creation while putting its findings into practice? Standing in the middle of social and

economic developments, bankers are well positioned to have an overview and a feeling for

what matters, although they assess risk versus opportunities without considering social and

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environmental development. They generally use this position to grow their business. They do

not take this opportunity to transform the knowledge they have acquired into wisdom that

they could apply in developing ethical banking policies and making fundamental choices.

Bankers’ observations of the needs of their clients and of society in general can lead to inner

reflection and understanding of the degree of importance of some development questions.

Conscious bankers can transform feelings of powerlessness into an understanding that

something can be done. Transparency of ethical banking operations –

showing what is financed – is a prerequisite for open dialogue with clients and civil society.

This dialogue can lead to a deepening of understanding of the phenomena and to inspiration

for adequate action to be deployed. When this perpetual process of observation, reflection,

mutual exchange, taking responsibility, action and reporting is included in specific

organisational forms, ethically working bankers will have developed a valuable instrument

that is not only serving the needs of their clients but will also help to fulfill the needs of

society as a whole. This description of ethical banking does not refer to charitable action. It

starts from the observation that altruism, or looking after someone else, is part of economic

life where division of labor and interdependency of people are a basic principle of efficiency.

Human needs are an expression of a healthy egoism in an economic process dealing with the

fulfillment of needs. Altruism in an economic sense is not in contradiction with egoism but

tends to equilibrate the economic process.

3. Emergence of ethical banking and finance

Quite early in history gold, reflecting the spiritual world, served artistic, religious and

economic goals, and was directly linked with the gods and their servants, the priests, who

organised its flow. Throughout medieval times Christianity set its laws on usury, Islam set its

rules on interest, and monasteries organised economic life in their surroundings, working

with investments and charitable actions in a moral and religious perspective. In these times

humanity was strongly organised around three realities: the spiritual world, the world of

nature, and local social entities. Since the beginning of the 15th Century, natural sciences and

later enlightenment, gradually emancipated people from the world of the gods, nature and

their local social environment. The relationship between human beings changed with the

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growing predominance of individualism. This context and background of modern society are

fruitful to the emergence of modern ethical banking concepts and practices.

Essential characteristics of banking on values

Social, ethical, alternative, sustainable, development and solidarity banking and finance are

denominations that are currently used to express particular ways of working with money,

based on non-financial deliberations. A precise and unified definition of these types of

finance as such is not available and perhaps not possible because of the different traditions

from which ethical finance actors have emerged. While individual motivations from

founders, investors, savers, borrowers, social entrepreneurs, managers and co-workers of

these institutions vary greatly, there are some universal human values, practices and needs

that motivate all of them to develop positive action. Conscious handling of money is

considered to be an additional value in itself. Many of these values are part of internationally

recognised declarations or principles, such as the United Nations Universal Declaration of

Human Rights (1948) and the International Labour Organization’s Declaration on

Fundamental Principles and Rights at Work (1998), that identify basic rights such as:

• Freedom of thought, opinion and expression using reason and conscience are leading to

financing art and culture, education and research

• Equal rights at a political and juridical level, the freedom and right of association in a

democratic society and the right to work are a basis for financing civil society projects and

for participating in the public debate about the benefits and challenges of shared social

responsibility

• A spirit of brotherhood, based on understanding, tolerance and cooperation in economic life

leads to financing social entrepreneurs especially in the areas of high urgency like poverty

alleviation, fair trade, environmental production and preservation.

To practitioners of ethical banking, raising consciousness and responsibility are essential in

their missions and ambitions. They make the choice to only finance projects and

organisations that contribute to a more sustainable society and they define absolute criteria

about who they will not lend money to, for example non-sustainable products and/or services

and those involving unsustainable working or production processes. Their specific products

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and services reflect these values and intentions. While money is a catch-word of our age, to

ethical banking institutions and their shareholders, savers, investors and borrowers money

and ethical banking practices are instruments for human development. These characteristics

differ with those of mainstream finance, mainly driven by market forces, shareholder value

and financial return.

Socially responsible investment

In the 18th Century, the Quakers in the United Kingdom refrained from investing in

industries they were morally opposed such as tobacco, alcohol, gambling and the slave trade.

This was the first negative ethical screening of investments, later to become known as Social

Responsible Investment (SRI). It continued into the 1920’s with the Methodist Church of

North America screening out negative activities, or ‘sin stocks’ from their investment

portfolios. In the 1960’s and 70’s the conviction that investment funds could be used to

achieve social change give rise to the public demand for ethical investment vehicles such as

the Pax World Fund4. In the 1980’s investments supporting the South African apartheid

regime were avoided, and Friends Provident (UK) was the first financial institution to launch

an SRI fund. With its help, the Ethical Investment Research Service (EIRIS) was established

to provide critical research and information on stocklisted companies social, environmental

and ethical performance. In the United States, Amy Domini developed her ethical screening

advice services and the first ethical stock market index.

At the beginning of the 1990’s, a first attempt was made in The Netherlands to develop a

positive ethical screening to be used alongside the original negative ones. This positive

screening involves a best-in-class method, where company performances were compared

with those of competitors. This type of screening has since further been developed and

several ethical screening organisations have been established. Standards of screening have

been developed and screening services are now being widely provided to banks, insurance

companies, asset managers, private bankers, institutions and high net-worth individuals. Most

stock-listed companies have had some form of ethical screening of their social and ecological

behaviour so that ethical funds or asset managers can constitute diversified portfolios

primarily based on combined negative and positive ethical criteria. Some of these funds, such

as those of the Triodos Bank Group are also actively involved in (proxy) voting at

shareholder meetings. The ethical investment fund market is developing quickly and many

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mainstream banks are offering such products. Today there are more than 600 ethical

investment funds worldwide and their number is constantly increasing. However the ethical

quality of these products differs significantly in terms of quantity and content of positive and

negative criteria applied. As a quality label the generic denomination ethical fund, indicating

that some sort of ethical screening has been applied, is not appropriate. As corporations have

a tremendous impact on both people and planet, and as they are operating more globally than

ever, their corporate responsibility needs to be engaged. Its making its way to the boardroom

table as well as that of management and has begun to become integrated into internal

structures. However high-quality corporate responsibility is still an exception. Whether

responding to customers needs, preparing and positioning for the future, or as a result of

enlightened leadership, this development is likely to grow and so will the number of ethical

questions and dilemmas. By applying ethical screening to their investments, ethical funds,

institutional investors, and pension funds are exercising influence on management, and

gradually corporations are responding with improved transparency, reporting and

accountability. In the best circumstances ethical screening and investor pressure is

contributing to a process of intensified observation, questioning, reflection, measurement,

ethically amended business principles and consequently adapted decision-making. Better

reporting, external social and environmental auditing, the elaboration of social and

environmental guidelines in corporate governance codes, feedback by the screening analysts

and regulations could lead to a system of permanent upgrading of ethical conduct by

corporations. Socially responsible investment is of a totally different nature than ethical

banking since it relates to the ability to influence company behaviour through the provision of

capital to stock-listed companies. Ethical banking, as described below essentially relates to

direct financing and loans.

Ethical banking

Ethical banking provides direct finance through lending and risk capital to fulfill the financial

needs of selected entrepreneurs, organisations and businesses. The cooperative movement

from the beginning of the 20th Century is an example of how essential needs can be fulfilled

through forms of collaboration and mutuality in membership organisations. Modern forms of

cooperation beyond focusing on membership needs such as the fair trade and microfinance

movements, combining economic with social values, are a step forward in the understanding

and practice of brotherhood and solidarity in a global economical context. Both the

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cooperative movement and the new social movements from the 1960’s have developed a

practice of ethical banking. Cooperative banks and new social banks co-exist, while some

mainstream banks have become aware of business opportunities in this sector. Microfinance

institutions focus their effort in parts of the world where there is a high need for poverty

alleviation. For a better understanding it is useful to distinguish these tendencies:

a. Cooperative banks and credit unions

Cooperative banks and credit unions have substantially contributed to the provision of

finance to their members, which at the beginning of the 20th Century was a social task. This

changed when commercial and savings banks started offering banking services on a broader

scale. Many cooperative banks expanded their activities into the mainstream and lost their

special social mission. Some of them have recently rediscovered their roots and are

redirecting some of their activities. Driven by a need to build a specific brand identity in a

financial world where there is much of the same, these banks manage to successfully

combine usual banking business (the bulk of their financial operations) with support to

specific areas such as community development, the not-for-profit sector and/or environmental

development. Examples of such banks include Rabobank in The Netherlands (having a major

green fund), Vancity in Canada (giving low-income and marginalised members access to

necessary financial services), Cooperative Bank in the United Kingdom (taking a stand

against the finance of armaments), and Crédit Coopératif in France (developing solidarity

products).

b. New social banks or private development banks

In the last 40 years, new social banks or private development banks have been created and

new banks are still being constituted. Impulses for their mission come from the recognition of

social and human development needs and of a need for quality of life including care for the

environment. They look to the processes of dealing with money, not only at the outcome.

They see cooperation not as a mutual aid process between members but as a shift of interest

towards the needs of other human beings in a local or global context. They want to stay true

to their values even as they grow and change, while growth is not a target on its own and

financial profitability is seen as a condition for further development. These impulses are

connected to those driving non-governmental organisations such as Amnesty International,

Greenpeace and Friends of the Earth, and they appeal to thosecitizens or cultural creatives

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who are convinced that they can play an active role in this global and personal development

process. The founders of GLS Bank in Germany, constituted in 1974, were the first to

concentrate on the qualities of loan money (to potentially stimulate human interest) and gift

money (the most productive seed capital). They also focused on the capacity building force of

bringing savers and borrowers, consumers and entrepreneurs together for investment, for

example in organic agriculture, school education and care for handicapped people. GLS sees

banking as a continuous and conscious process of directing the money flow to where it is

needed in societal and human development perspective. Individual responsibility and care for

the other human beings are seen as core drivers of these processes. Community building

through participation in these processes is stimulated through the creation of borrowing and

guarantor communities, dedicated savings instruments, and a choice for clients of the bank to

determine for themselves the height of interest rates on their deposits. This ethical approach

to banking, has been an inspiration for many of the European social banks which have

gradually developed over the last few decades. Notwithstanding cultural differences, variety

in size, accents (social, environmental), products and services, and stage of development, all

of them have ethical and sustainable development elements at the core of their mission,

ambitions and practices. All of them are making a good case for human and social

development while offering both generally and specifically designed products and services to

their respective markets. Whilst a few have failed, most of them have found their way of

continuity, with different models of functioning, whilst being in conformity with general

banking regulations. An overview of those successful institutions that have a banking statute

are:

• ShoreBank, (1973), USA

• GLS Bank, (1974), Germany

• Triodos Bank, (1980), The Netherlands with branches in Belgium, United Kingdom, Spain

and Germany

• Freie Gemeinschaftsbank in der Schweiz, (1984), Switzerland

• Merkur Bank, (1985), Denmark

• Wainwright Bank and Trust Cy, (1987), USA

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• Alternative Bank Schweiz, (1990), Switzerland

• Cultura Sparebank, (1997), Norway

• Ekobanken, (1998), Sweden

• Banca Popolare Etica, (1998), Italy

• Charity Bank, (2002), United Kingdom.

Some social banks have been constituted by trade unions and have developed based on social

and ethical criteria:

• ASN Bank (1960), The Netherlands

• Caisse d´Economie solidaire Desjardins (1971), Canada

• Unity Trust Bank (1984), United Kingdom. Other social banks are focusing on some

specific market segments:

• Health and social economy – Bank für Sozialwirtschaft, created in 1923 on behalf of the

UN High Commissioner for Refugees and originally serving as the central administration for

UN funding in Germany

• Environment – Umweltbank (1995) in Germany, and the New Resource Bank (2006) in the

USA These banks are quite different as to the volume of their operations – balance sheet

totals vary from EUR 30 million to several billions, and their financing capacity from EUR

50,000 to EUR 25 million per project. All together they are currently financing tens of

thousands of projects with added social value mobilising the savings of more than one million

people and institutions. Being still relatively small, these banking on values institutions, have

substantial growth rates, are professionalising and consider themselves to be catalysts for

social change. With these banks also succeeding in applying outstanding internal organisation

and staffing practices, and in developing specific methodologies to properly deal with the

ethical aspects of this type, they have a potential for further qualitative development.

c. Microfinance banks

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Microfinance is a methodology of banking for the unbankables (people without access to

finance), contributing to poverty alleviation through micro lending for income generating

activities of the poor themselves. Although this methodology is not new nor comparable to

the movement that was launched in Germany by Friedrich Wilhelm Raiffeisen at the end of

the 19th Century (and later developed by credit unions), microfinance in its present form

received a tremendous boost from the Grameen approach in Bangladesh, designed by the

2006 Nobel Price winner Professor Muhammad Yunus. In 2007 there are approximately

10,000 microfinance institutions worldwide. Apart from their contribution to economic

development of millions of poor entrepreneurs, their families and their communities, they are

often providing basic education and methods of community building. Some of these

institutions have the potential to develop into full social banks and are helped with support

structures from the north such as Oikocredit, launched in 1975 by the World Council of

Churches, the Triodos Microfinance Funds (1994 and 2002), ShoreBank and Shorecap

International (1988 and 2003) and many other institutions. Apart from Grameen Bank some

of the most advanced microfinance institutions are Brac Bank (Bangladesh and Afghanistan),

Basix (India), Acleda Bank (Cambodia), Mibanco (Peru), Findesa (Nicaragua), Compartamos

(Mexico), Equity Bank and K-Rep Bank (Kenya) and Centenary Bank (Uganda). The

financing of poor people’s entrepreneurship in the north requires different methods compared

to traditional banking due to the different social structures and the predominance of

individualism. Adie (Association pour le droit à l´initiative économique) created in 1989 by

Maria Nowak in France, is a good example of collaboration between mainstream banks,

government and non-governmental organisations. So long as microfinance institutions are

able to integrate basic ethical values, going beyond the mission of fighting poverty, and are

able to connect local savings to local borrowing and continue to get the support from northern

development money, they have potential for high quality development. New challenges

however, such as the effects of climate change, especially in the south, will require huge

investments from the world community pointing at the necessity of further social and

environmental globalisation on the planet.

Role of Ethics in Banking

• Principle of mutual trust is of special importance for successful functioning of the business

system. Important and valuable deals are very often contracted over the phone, in the absence

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of witnesses, while the relationship between the participants is dominated by the inviolable

principle of mutual trust.

• Principle of mutual benefit and interest means that none of the partners in a business

relationship should feel cheated;

• Principle of good intentions is very important for business ethics and moral behaviour. This

principle means that there is no intention to treat the business partner in an immoral way,

whether it refers to deception, theft or some other undesirable way of treating a business

partner;

• Principle of business compromise and business tolerance refers to the harmonization of the

conflicting interests of participants in the business process;

• Principle of ethical improvement of business behaviour represents the business partner's

readiness to accept the mistake that has been made as a result of his own actions. He should

admit the mistakes and respond in an appropriate way;

• Principle of demonopolization of one's own position, because monopolistic behaviour on

the market does not contain any ethical market value and

• Principle of conflict between one's own interests refers to the inability to relate common to

personal interests, with simultaneous adherence to the same ethical values. The violation of

ethical principles in banking occurs when the lenders take too much risk, trying to find a

loophole that allows them to approve more loans. Strict adherence to the law and regulations

in the field of banking makes it possible to grant loans to all the qualified clients in a fair

way. When it comes to general standards, the bank must take into account the following

• The bank must avoid a high concentration of loans in one industrial branch, sector or field,

with the exception of specialized institutions that have this as their core activity;

• Clients who want to obtain a loan should maintain a certain amount of financial resources as

a precondition for loan security;

• Loan approval refers to a strictly formal procedure in terms of purpose, source, price, terms

and the method of payment;

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• All loan applications must be accompanied by financial reports of the debtor for the

previous year and

• Loans are granted with an amortization payment schedule.

Bankers' role is one of stewardship based on trust. We are trusted by those who ask us to look

after their money and we have a duty to lend that money responsibly.

Banking is about rewards reflecting real risks and ethical considerations form an important

part of our risk-taking activities. The welfare of our borrowing customers, in good times and

bad, is of major concern in any business proposition. Sometimes commercial considerations

can be at odds where ethics and politics combine, for example, on the LDC debt question.

Banks depend on people to run our business and to reflect our ethical standards. We have to

let our people know what is expected of them and help them to avoid pressures and

temptations.

A bank's responsibility extends to Government, customers, shareholders, staff and the

community. In the future, as we face increasingly complex and conflicting issues, our resolve

and commitment to ethical behaviour will be tested.

Ethics in Insurance

In the past the insurance industry as a whole has enjoyed unparalleled trust in our society.

Many consumers had come to rely on their life insurance and health coverages as a basic

foundation for their economic security. Many business owners would praise their whole life

policies as "sinking fund" policies that came in handy during times of business slowdowns.

Individuals would not feel fully protected without health insurance with low deductibles also.

Protection from numerous perils with property damage insurance has given individuals a

sense of peach about their property insurance. Finally, casualty insurance has provided

needed protection against possible lawsuits, Yes, insurance and its huge industry enjoyed a

stellar reputation.

Then, things began to change during the mid 1970's. Low paying interest whole life was

attacked and gaps in the health insurance programs became scrutinized. Health maintenance

organizations and universal life products appeared on the horizon. For the first time, the

PURCITM, MOHALIPage 16

insurance industry was been questioned on their business acumen. It did not become too

difficult to predict that the industry's agents would next become the focal point of evaluation.

The person who provides the valuable protection of both life & health and property &

casualty insurance becomes a trusted advisor. The insurance professional becomes the

individual who is suppose to evaluate the clients needs and thus, match those needs with the

various products available in the marketplace. Of course, the ultimate goal is to be sure the

clients objectives are met.

Millions of clients rely on the professionalism of such agents. Successful execution by the

insurance professional also aides society. Society benefits as families receive funds to cover

the basic needs of survival. Also, society as a whole benefits as funds are received to cover

more than basic needs. Needs such as educational funds or the preservation of a business are

also imperative in today’s world. Obviously, the recognition of such benefits has permitted

the insurance industry to prosper. However, because of such growth, increased demands for

professionalism by those who engage in the sale of insurance has risen tremendously.

Some people feel the moral and ethical fiber of our society is deteriorating rapidly. Others see

both positive signs and disturbing signs, but feel optimistic. While there is room for a

difference of opinion on this issue, most people agree on the importance of maintaining a

high ethical standard in a society that is to survive and prosper.

Some would argue that it is even more important to maintain a high ethical standard in the

insurance industry. What is there about the insurance transaction that makes a high ethical

standard so important? Some of the unique aspects of the insurance industry combine to

create this necessity.

Insurance is an Essential Product

In our society, both individuals and businesses depend on the insurance product to provide

essential services and protect them from financial disaster:

Health insurance provides access to quality medical care.

Life insurance proceeds support families, educate children, and assist in the

perpetuation of a business.

Property coverage is an integral part of every mortgage contract.

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Some casualty contracts (automobile and workers’ compensation, for example) are

required by law.

In modern society, insurance has become a necessity.

Insurance is a Financial Product

If your travel agent does not do a professional job planning your vacation, she may ruin a

week of your life. If an insurance agent does not do a professional job, you may never

recover financially . Insurance is at the very foundation of a sound financial plan. Inadequate

or inappropriate insurance products can have significant impact on an individual, a family, or

a business.

Insurance is Purchased Based on Trust

Although modern insurance contracts are easy-to-read, it does not follow that they are easy-

to-understand. Few insureds read their policies; those who do, seldom understand what they

are reading. Most people buy their coverage based on trust. They trust the agent to

recommend and procure appropriate coverage. They trust the insurance company to follow

through and pay a claim. Trust is an important factor in the purchase of insurance.

These are three of the primary reasons it is imperative that individuals, working in the

insurance industry, maintain a high ethical standard.

ETHICS IN THE INSURANCE INDUSTRY

Much is made of the poor image of the insurance industry; consumers normally do not think

of insurance in a positive light. In his analysis of the insurance industry, presented in the book

Let The Trumpet Resound, Lawrence G. Brandon, CPCU, identifies five weaknesses of the

industry that lead to such a poor reputation.

Lack of leadership allows insurance organizations to be driven by stockholder

expectations rather than long-term goals.

Poor communication about how the industry and its products are designed to work

leads to misunderstandings.

Lack of customer focus often leads to an adversarial position at a time the customer

needs the product the most.

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Burdensome bureaucracies create a negative image.

Unhealthy competition destroys the pricing integrity of the insurance product.

ETHICS IN THE AGENCY RANKS

The same polls that show the insurance industry is not to be trusted, usually show something

quite different about the insurance agency. Most people, questioned, will tell you their

particular agent is doing a good job in looking out for their best interests. The consuming

public trusts their local agent much more than they trust the industry as a whole.

Article on Ethics in Insurance

The 'long-term' will belong to the company which rigidly benchmarks ethics for itself and the

industry.

Mumbai: The momentum of the private insurance sector leaves no doubt in my mind that it is

amongst the foremost growth sectors of our country. A market share of 26.18 per cent in five

years is testimony to this. But even while we brace ourselves to avail of the numbers within

our sight, we need to realise that the 'long-term' will belong to that company which rigidly

benchmarks ethics for itself and for the industry. In a business such as ours, where the

customer entrusts us with his / her financial savings, ethics has a direct relation to sales. The

greater the trust, the more the sales.

There are many ways to build trust through ethics, the most fundamental being the way the

product is designed. It should offer complete clarity and transparency and the literature

supporting the product should not over-promise the benefits or understate the risks. At Birla

Sun Life, the use of the sales illustration, the inclusion of the policy proposal form, and the

free look period we offer have served to win our customers' trust. By giving customers the

option to track investments online and by publishing the performance of the funds against

benchmark indices, specifically prepared for us by CRISIL, we prove that we are an open and

reliable organisation.

Ethics is an attitude that needs to touch every aspect of the customer relationship. It entails

having great reverence for the customer's needs, being open to suggestions and insights that

might enhance his / her comfort levels, building in riders and flexibility options that address

these needs, providing assistance and clarity in documentation and upgrades, and settling

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claims on time. Ethics means being fully accountable, not just to the company and to its

customers, but to the industry we serve. The inspiration for ethics thus comes from the

highest source - from a need to impact the industry.

On the flip side, a lack of ethics can have serious consequences. Litigation and costs of

settlement, business losses, a reduction in ratings, and increased scrutiny are not half as

damaging as the loss to image and reputation. It's a fact that good ethics makes good business

sense. Of course, the mandate for good ethics always stems from the top. Which explains,

why at Birla Sun Life, we have introduced a system of checks and balances that guards

against concealment and why we follow norms of compliance and adhere to IRDA

regulations so scrupulously that our books and processes are open to audit at all times.

While top management can lay down a code of ethics and request adherence, its

implementation depends on the individual. As Albert Einstein said, "Ethics is an exclusive

human concern without any superhuman authority to back it." To this I add: Ethics is that

discipline, that momentum that challenges us to rise above ourselves and raise the bar each

time we interact. It is the means by which we measure ourselves, the strength by which we

progress, and the light by which we shall be remembered. It is the way ahead - for each of us

and for our industry.

Ethical Issues facing the Banking Industry.

Financial institutions -including banks of all sorts, credit agencies, private equity firms,

pension funds, insurance companies, and the like- have long been considered by most people

to have no other object in view than the creation of wealth. The performance of financial

institutions is therefore measured solely on the basis of their capacity to maximize financial

assets, that is, it has been measured with evaluation factors that review only their monetary

bottom-line results. How much return do they get on their investment decisions? How much

are they able to maximize the assets in their custody? How much profit can they derive from

the loans and credits they subscribe, from the bonds they float, from the equity they

successfully issue on the financial markets? Banks are judged by their ability to develop

financial instruments such as complex derivatives and sophisticated credit schemes that help

connect the money of investors with the companies in need of those financial resources in the

best possible way. In pursuing these ends, banks, and financial institutions in general, have

long defended the confidentiality of the information pertinent to their business, be it data

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about their clients, the sources and the destinations of the economic resources they handle,

their credit-giving policies and procedures, and many more aspects of the banking profession

that tend to be little transparent and not very communicative about their way of doing

business.

Financial institutions have become very complex and sophisticated in the way they operate.

The products and services they offer tend to be more and more complicated. The ways they

invest resources, the way they design, promote, and implement credit facilities, all become

less evident year after year, and the speed at which they evolve is ever accelerating. This

complexity and sophistication of the industry is in part a response to the shifting and ever-

growing needs of the banks’ clients. Companies in need of financing, and of financial

services, tend to have more and more complex businesses with complex needs and

requirements of capital. Globalization also plays an important role. Banks’ customers often

do not have a localized headquarters but they operate virtually everywhere in the world.

Today, it could be argued, it is more difficult for banks to know in detail where these

customers operate and what exactly they do and how they run their businesses. Moreover,

clients change, merge, get acquired, move in and out of businesses and markets much more

rapidly than in the past. It is not only banks that change so quickly, but their clients, and their

clients’ needs also move and evolve at a higher speed.

Unfortunately, governments, regulators, and other institutions simply cannot cope with this

rate of evolution in a satisfactory manner. Banks are moving too quickly for the reaction-time

of governments and other organizations. As a consequence, many important issues are being

overlooked by the institutions charged with directing our societies toward the common good.

Were one to give only a superficial consideration to the financial institutions and the

implications of their actions in the world, one could erroneously conclude that money is just

another commodity being traded. There is a danger that money will be treated as just another

product that makes things possible, as a simple means to accomplish an end. However, such

an approach bears the risk of becoming a highly inhumane approach when we look it in

detail. Money is not just another commodity being handled. Money, both in the form of

credit and in the form of investments, makes a huge impact on the world. Money is a means,

not an end; but, it is a powerful means to do things and therefore evil use of money can

indeed create a considerably negative impact on our world.

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Where money comes from, and the destination it might have (that is, the sources from which

it proceeds and the places where it ends up being used), should not be treated as “just another

business transaction”. Money, in all of its forms, has implications and consequences. The

things we do with money, and the things we allow to be done with money, are not irrelevant

from a moral and an ethical perspective. Money implies actions, money allows things to

happen, money promotes and enacts changes. Money is a very important, if not the most

important fuel for the happenings in the world. Money helps, money builds, money buys,

money creates and acquires, but money can also destroy, pollute, kill, and support evil.

Money should not be considered simply in terms of the percentage points being generated as

a return on an investment over a period of time. Given that banks are the official

intermediaries of money, we need to look at how they handle money and what they do with

it. By facilitating money to others, financial institutions enact and empower them to do things

with it. What clients end up doing with the money they get from a bank, then, is then not

irrelevant from an ethical viewpoint. This is all the more obvious when we consider that the

money banks handle, is indeed to a large extent, investors’ money, not their own.

To handle money as a commodity with no ethical implications and impact is to overlook

critical moral issues, issues that could in fact be financed, and thus, enacted, promoted, and

effectively created, by the investors’ money. In the end, whose money is the banks’ money?

Who in fact owns the money that financial institutions are investing and lending? In the end,

it is the money of individual investors. It is the money of pension funds, constituted in turn by

the savings, the taxes, the retirement plans of single individuals like you reading this paper.

Given the fact that money can be used in a wrong way -and it frequently does get used in

such a way- and considering that money is eventually funded to a very large extent by

individual investors, we should ask: is it still morally acceptable that financial institutions

invest and lend money indiscriminately, watching only the bottom-line? Should bank secrecy

and confidentiality never be held to answer for the moral and ethical implications that money

can have in our world? Is it acceptable that governments and regulators lag behind financial

institutions’ questionable way of doing businesses because “the markets can’t wait”? Can we

rightly ignore where our money is being used, what it is financing, where it is being invested,

as long as it generates a good return in percentage terms? Can banks really justify their arms-

length approach to their investments and financing consequences and impacts on our world as

far as they generate more money?

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How banks use money is not irrelevant from a moral and ethical perspective. Crime,

pollution, corruption, violation of human rights, threats to human life, totalitarian regimes,

and all sorts of wrong-doing need and use money every year. Financial institutions play a key

role in the supply and movement of money. In this essay we intend to draw your attention to

the key role the banking industry plays in that supply chain of money. Moreover, we will call

your attention to the fact that it is your money, which can play a key role in that supply chain

and that is not morally or ethically avoidable anymore to investigate and to actively question

how banks are using that supply chain to channel your money, with financial practices that

can be fueling wrong doing across the world. Let us clarify that, whenever investors’ money

is channeled to evil-investments by financial institutions, it is the bank who is guilty of this

wrong-doing and not the individual investor, unless of course, the individual investor were

aware of the wrong-doing (and if he were just as easily able to invest his money elsewhere,

and if he were a significant enough investor to influence the company or fund in question).

What we attempt here is to call the investors’ attention to the importance of the potential

damage that their money could do when invested in the wrong destinations.

What are Bank main concerns?

We have several concerns regarding financial institutions and how they use money. Banks

can channel economic resources in different ways that make money result in some form of

evil-doing. The two main ways in which banks can do this are (a) by lending money to

others, that is, by issuing credit facilities to their clients, these being customers corporations,

governments, individuals, etc., and (b) by actively and directly investing money, that is,

owning shares, be it in the name of others or for themselves, in companies, projects, or

countries, that conduct different forms of wrong-doing. Owning shares of companies that

could be conducting wrong-doing is, of course, not exclusive to financial institutions;

however, the large sums of funds that banks have available to invest make these investments

particularly relevant when we analyze ethical issues facing banks.

When banks lend money to others, the bank may not be doing wrong by itself; it is these

other entities which might be engaged in wrong-doing. However, this does not excuse banks

from their moral responsibility. Money enables and promotes actions, and in this sense, banks

lending money to evil-doers are facilitating their activities. It is not valid to argue that a bank

is only in the business of financing and lending and that therefore they carry no ethical

PURCITM, MOHALIPage 23

responsibility in the wrong-doing. Banks effectively enact, enable, and promote the

realization of actions with their lending of financial resources. In the lines below we will

discuss how banks and financial institutions have been known to effectively fuel wrong-doing

through the issuance of credit facilities to clients in questionable businesses, and through

other actions that range from actively holding shares of companies with questionable

practices, to speculation and other questionable matters.

1. Usurious practices.

Banking is a business concerned with protecting and growing people’s money. As such, one

of its principal purposes is to generate wealth, in the form of financial returns for its

shareholders. As in any industry, it is understandable and acceptable that banks try their best

to maximize their investments and therefore, it is logical that banks charge interest rates on

the loans and financing activities they offer to their clients. However, banks that charge

excessive interest rates, abusive commissions, or ultra-profitable credit charges that go

beyond reasonable standards for taking an extra benefit from a specific situation in detriment

to their customers, are guilty of usury. Usury may be defined as demanding significantly

more money back from customers than is just and fair. Financial institutions consistently

engaged in usury are accordingly a subject of our concern. While we do not necessarily

endorse bureaucratic regulations which may be excessively burdensome and counter-

productive, we do expect banks to act morally with respect to lending practices within their

organizations which are potentially usurious. We are concerned that banks are frequently

charging excessive rates and imposing unfair advantages for themselves upon customers. We

thus expect banks to take care to implement policies that prevent wrong-doing in the form of

usury and similar sorts of abusive practices.

Financial institutions are also guilty of some forms of usury when they encourage their

customers, especially individuals, to go into excessive debt by taking irresponsible credit at

too high interest rates. Some credit customers, specially those located in low-credit

penetration communities are frequently being subjected to excessive marketing and pressure

to drive them into credit at advantageous interest rates that go beyond what is customary in

the industry.

2. Speculative banking.

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The assets a bank lends and invest should be handled responsibly, even moreover so, when

we consider that the bank is investing and lending money that belongs to other people, i.e.,

the individual and institutional investors whose money they manage. Engaging in excessively

speculative investments and irresponsible credit lending practices is morally unacceptable,

and in many cases, not even good business. We believe bankers and financial professionals

should take a responsible approach in all investment and lending operations with its

customers’ money. Even in the case of high-risk, high-return type of clients, a bank is the

ultimate entity making the investment decisions for the investors, and practices of

speculatively investing heavily in too-risky securities just for the sake of short-term returns

should be considered cautiously, especially given the massive loss of wealth that we have

witnessed during the current financial crisis. The point is that there is always an ethical

component involved in these too-risky investments that is being ignored. This crisis has made

evident that investing in financial securities of questionable value (such as derivatives

without the adequate collateral, sub-prime mortgages, irresponsible adjustable-rate-

mortgages, and other investments that do not undergo the serious due-diligence required)

have frequently resulted in clients’ wealth destruction.

The situation of over-speculative, over-risky banking gets especially complicated from a

moral perspective when we consider that clients seldom receive the necessary, detailed

information to let them know what kind of investments their bankers are undertaking with

their money. Another aspect of concern regarding speculative banking, which has also been

evidenced in this crisis, is the fact that many financial institutions have been involved in

speculative investments resulting in enormous losses for their customers while their

executives continue to receive compensation packages and bonuses in the millions of dollars.

While we understand that the banking profession has traditionally generated a lot of wealth

for its executives, their excessive bonuses become an ethical concern when their clients’

wealth has been destroyed precisely because of these forms of speculative investment

practices.

3. Financing arms manufacturing and trade.

Many banks are actively financing the military industry around the world. While we

recognize the moral acceptability of a country taking care to defend its population, and thus

investing in arms and weapons, we are concerned with excesses and human rights violations

involved in this activity. We are specifically referring to indiscriminately destructive, overly-

PURCITM, MOHALIPage 25

damaging weapons and their manufacturers and distributors. These usually fall in the

category of so-called “cluster munitions” which are highly-destructive weapons which not

only destroy an enemy’s military target, but quite frequently kill thousands of innocent

civilian victims.

Why are cluster munitions so harmful? Cluster-munitions are designed to destroy large areas,

thus their use often results in the destruction of civilian settlements, killing innocent people.

On top of this, cluster-munitions weapons cause damage after the military attack as they

contain many explosive components that did not act at the moment of the attack but remain

active there, and explode afterwards. A potential mine field is created wherever cluster-

munitions have been used and their destructive potential can last for years hidden under the

ground. This information has been corroborated several times by different organizations

around the world, and yet regulation does not actively prevent the manufacturing of these

weapons, and of course, regulation doesn’t prevent financial institutions from either investing

or lending money to these companies.

It is believed that a large percentage of cluster-munitions victims are civilians. Several studies

support these statistics, and yet, manufacturing companies have no difficulties in securing

credit from banks. More than 60 financial institutions have been identified to be involved in

financing these companies, and it has become such a lucrative business that between the

period of 2004-2007 more than € 10 billion euro have been channeled to the six major

cluster-munitions manufacturers which are: GenCopr (USA), Lockheed Martin (USA),

Raytheon (USA), Textron (USA), Thales (France), and EADS (The Netherlands). All these

companies openly produce cluster-munitions arms that have been used in several conflicts

such as in Iraq (by the US army), in Lebanon (by the Israeli army), and many other places

like the former Yugoslavia or Sudan.

Some weapon-manufacturing companies have obtained credit facilities of very considerable

sizes from well-kwon financial institutions. We are talking about credits in the billions of

dollars. We cannot pretend that Banks did not know the purpose of the financing facilities

they were arranging.

Even worse is the fact that banks now also own shares in these cluster-munitions

manufacturers. Several reputed financial institutions own shares in companies like GenCorp,

Lockheed Martin, Textron, and Raytheon, which add up to double-digit equity positions in

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those companies. Owning shares in a company known to manufacture such weapons has

ethical and moral implications. Money invested in securities enables companies to do things

with it, and therefore, these investments have corresponding ethical repercussions. To own

such a considerable amount of equity in a company means the owner is actually involved and

interested in the progress of that company and in the performance of the products it

manufactures and sells.

4. Financing and supporting totalitarian regimes.

Banks frequently give loans to companies operating in countries governed by totalitarian

regimes such as Burma, North Korea, or Sudan. Those companies in turn use the money to

enter those markets. Some of these countries are plagued with corrupt government authorities

that frequently require them to give substantial bribes to allow them to operate in those

nations. By financing these companies, banks are allowing money to flow into these

totalitarian regimes which have no respect for human rights and who use this money to

strengthen their positions in their respective countries. The fundamental problem is not that a

company be present in a country with a repressive regime, but that its business there is

somehow complicit in propping up or perpetuating the repressive regime.

5. Financing of companies with little or no commitment to social responsibility.

The banking industry usually grants credit facilities to companies, and helps in raising capital

in the financial markets, to companies operating with no socially-responsible agendas, or with

little commitment to one. We are referring, amongst others, to companies operating in third-

world countries that allow child-labor, overwhelming pollution of the environment, black

economies, and so forth. We have observed companies that have little respect for their

workers and which have consistently violated labor laws (mainly in developing countries)

having no problem securing credits from well-known banks. So far, banks have not been

interested in questioning clients about their human-rights or social-impact agendas. Banks

tend to look at the risk-return ratio of their investment as the sole basis for granting the credit.

Some banks are financing companies, for instance in the infrastructure industry, that operate

in a highly utilitarian way in some countries. Some infrastructure developers, for example,

that build water dams around the world have been accused of impacting the communities in

which they operate by forcing the displacement of people from their home communities to

build the dams wherever it is more economically convenient for them to build them,

PURCITM, MOHALIPage 27

regardless of the social impact this might have. Moreover, these companies have been

accused of manipulating potable water sources in poor countries by linking itself to corrupt

governments like the Burma Junta or the regime in Sudan. Banks lending money to

companies like these facilitate their operations, and thus, often their wrong-doing. Making

money available to companies operating in this manner fuels their wrong-doing. Funds

channeled to these types of companies can easily end up in the hands of those totalitarian

regimes. These funds are not only the bank’s money, but more importantly, the individual

investor’s money.

6. Ecological Impact.

We should expect banks to start looking more in detail at the potential ecological damage that

their clients could be generating when receiving financing from them. Companies known to

be involved in activities that result in substantial environmental damage through the

extraction of fossil fuels for instance; companies polluting the seas through the release of

toxic chemicals; companies that manufacture products which persist in the environment and

are linked to health concerns; and any other company damaging the world should not receive

financing so easily as they do today from banks and financial institutions. While we

recognize that avoidance of all possible environmental damage is often very expensive and

hard to achieve, we believe that the efforts should be at least seriously pursued. We expect

companies to actively search for a balance between their activities, their production

processes, their use of natural and human resources and the respect for the environment.

The same goes for companies involved in unsustainable harvest of natural resources,

including fishing, timber, and other natural resources should also be severely questioned by

banks when asked for financing. Moreover, banks, pension funds and in general, every

investor, should be very cautious when it comes to buying or holding securities (be it bonds,

shares, etc.) in all these kinds of companies. By investing in these environmentally unfriendly

companies, financial institutions give them access to important sums of capital, which in turn,

results in larger environmental damage.

The same rationale goes for companies involved in aggressive, unnecessary animal testing of

cosmetics and household products or ingredients. We recognize testing is an important step of

many manufacturing processes; it is abusive, unnecessary, excessive, testing which we want

to avoid. Intensive farming methods, blood sports, trade in the furs of endangered species,

PURCITM, MOHALIPage 28

and other animal unfriendly businesses are also of our concern when they make use of

animals for unnecessarily violent and superficial entertainment activities.

7. Financing, donations, and sponsorships contrary to the good of the family.

As financial institutions handle huge amounts of capital, the impact of their donations and

sponsorships can be substantial and the money they channel through donations can have

important impact on society. In this respect, we are particularly concerned with banks giving

active support to organizations that advocate against the institution of family and against

family-values. As we are convinced that the family is the basis for any healthy society, we are

interested in seeing banks staying away from initiatives that somehow can affect the integrity

of family or attack family values in any way. These activities could include granting financial

support to causes that actively promote activism against family values. While we

acknowledge that there are other points of view regarding the value of families and their role

in society, we prefer to keep our investments, and recommendations for our clients’

investments away from companies promoting non-family friendly causes and activism. We

prefer not to generate our wealth from investing in companies that opt for financing,

promoting, and supporting entities and organizations that do not share our view on family and

family values as the cornerstones of society, peace and harmony.

8. Involvement in social enterprise.

The banking industry plays a key role in the development of the markets in which it operates.

By lending and raising money, a bank can effectively help develop a community, but further

than that, a bank is expected to get actively involved in supporting the development of that

community in which it operates. More and more banks and financial institutions are praised

when they support organizations such as cooperatives or credit unions, or get involved in

financing of community initiatives. Given the fact that a bank benefits directly from the

economic resources of a community, we would be concerned when a bank openly neglects to

help those communities in which it conducts business.

Is a better banking industry possible?

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The answer is absolutely YES. Better, ethically-responsible, respectful banking and financing

industries are not only possible, but also highly desirable, and they are already starting to

emerge. Some banks, mainly small institutions in developed countries have realized the

importance of being ethical beyond their internal Code of Values, that is, beyond paper and

beyond what is strictly within its operations. Individual investors will play a key role in

putting pressure on banks and regulators to let them know that banking practices cannot go

on as independent of ethics any longer. The relevance of what banks do with the people’s

resources is material.

A number of organizations around the world are starting to pay attention to how money is

being used and to the moral implications it has. Some important institutional investors are

becoming much more concerned with the handling of their investments. Institutions like the

Government Pension Fund of Norway, the so called, “Folketryfondet”, the world’s largest

single holder of equity securities, has been implementing strict ethical criteria to handle their

investments. Some bank-industry watch-dogs like Bank Secrets Organization or Netwerk

Vlaanderen of Belgium, have started to lobby regulators to implement stronger policies for

the banking industry.

Eiris Research of Ireland has been advising individual and institutional investors to make

them conscious of the moral relevance of taking care where their money is been invested.

Some banks like Triodos Bank of the UK are starting to offer their clients alternative ways to

invest their money considering the ethical and the financial impact of their investments. Some

government agencies like the UK Treasury have started to work on designing better

regulation for the banking industry. The world is changing and investors both individual and

institutional are starting to pay attention to the ethical implications of their money. A world

where investments and loans are made on the pure basis of financial return is not any more

acceptable and we at Fidelis International Institute are here to make our contribution.

CODE OF ETHICS AND PROFESSIONALISM IN THE BANKING AND FINANCE

INDUSTRY

The aim of the code is to enable financial institutions, regulatory bodies and their employees

to know in clear terms what acts, conducts, omissions and practices are considered unethical,

and the appropriate sanctions that would apply for non-compliance with the code. It is

expected that this code would bring about discipline and professionalism in the industry.

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Unethical Practices/Unprofessional Conduct In Banks

Certain conducts are classified unprofessional/unethical under the following headlines which

include but are not limited to:

(1) Conflicts of Interests

(a) Engaging in extraneous activities which compete/interfere with or constrain a bank’s

primary responsibility.

(b) Colluding with third parties to inflate contracts.

(2) Abuse Of Trust/Office

(a) Abuse of position and taking advantage of the institution to enrich oneself.

(b) Inappropriate and unauthorized use of foreign exchange for example, using customers

names to procure foreign exchange without their request.

(c) Exploiting the ignorance of unsuspecting customers through excessive/unwarranted

charges or unnecessary commissions to boost income

(d) Recommending for employment by a bank a person known to be of bad character or

doubtful integrity

(e) Collusion with the banks’ customers to divert credit facilities for unauthorized purposes.

(3) Full Disclosure

(a) Lack of appropriate disclosure in dealing with other players and customers in the market

place.

(b) Understanding the volume of deposits in order to evade insurance premium, mandatory

cash reserve requirements.

(c) Imposition of previously undisclosed charges on customer’s accounts

(d) Failure to submit report on dismissed/terminated staff to Central Bank of Nigeria and

allowing proven fraudulent staff to resign

(e) Failure to submit report on eligible credit to CBN for the CRMS system.

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(4) Misuse of Information

(a) Misuse, manipulation or non-disclosure of material information on operation supplied to

Regulatory Authorities, in order to derive some benefit or avoid liability

(b) Running down competitors through deliberate misinformation

(c) Misuse of various financial derivatives

(d) Deliberate rendition of inaccurate returns to the Regulatory Authorities with intent to

mislead

(e) Misuse of confidential information gained through banking operations.

(5) Insider Abuse

(a) Meeting re-capitalisation requirement other than by actual injection of fresh/genuine

funds

(b) Improper granting of loans to Directors, insiders and political interests.

(c) Insiders’ conversion of bank’s resources to purposes other than business interest

(d) Granting of unsecured credit facilities to Directors in contravention of the provisions of

Banks And Other Financial Institutions Act ( BOFIA)

(e) Granting of interest waivers on non-performing insider credit without CBN’s prior

approval as required by BOFIA

(f) Diversion of Bank earnings through the use of subsidiaries or “secret accounts” to deny

the bank of legitimate earnings.

(6) Offer And Acceptance of Gratification

(a) Offering/accepting gratification to/by the regulator as an inducement to waive the

imposition of penalties arising from failure to comply with laws or regulations.

(b) Applying uneven standards/imposing unfair penalties by the regulator with the intention

to induce gratification.

PURCITM, MOHALIPage 32

(c) Offering/acceptance of gratification to/from customers and potential customers to do

business.

(d) Aiding a customer to evade Tarrrifs and Taxes and to make unwarranted earnings.

(7) Non- Conformity With Standards And Guidelines

(a) Non-Conformity with Nigerian Accounting Standards and Central Bank Of Nigeria

prudential guidelines in the preparation of financial Statements, resulting in complete or false

information.

(b) Preparation of multiple financial statements in order to mislead the monetary and tax

authorities.

(c) Association

Bankers should not knowingly associate with or do business with People of doubtful

character.

(7) Aiding And Abetting

(a) Aiding and abetting the failure of a new staff to meet the financial obligations to a

previous employer

(b) Employing new staff without obtaining suitable reference.

Ethical Challenges to Insurance Sector

Recent financial scandals may be leaving consumers wondering whom they can trust to

provide guidance as they search for products and advice that support their insurance needs

and financial objectives.

Amid all of the investigations and media coverage calling ethical business practices into

question, agents are reminded of their own personal commitment to business ethics, and the

opportunity to create trust with concerned consumers.

Because agents are doing business in a marketplace that has left consumers confused, afraid,

or downright furious, demonstrating an ethical business approach to prospects and customers

has never been more important than it is today.

PURCITM, MOHALIPage 33

A good place to start is by taking a look at the top five ethical challenges facing today's

insurance agent, and revisiting your own approach in these selling situations.

Ethical challenge #1: Comprehensive product knowledge

Greater consumer choice can mean that products are better tailored for individual needs -- but

it can also raise the possibility of consumer confusion. To help clients make informed

decisions, agents must be able to educate them so that they feel comfortable. When you

understand something completely, you can adapt your sales presentation to better suit your

prospect's needs. You communicate with more enthusiasm and confidence. When you know

the facts, you can more easily answer questions and overcome objections.

Ethical challenge 2: Misrepresentation

While you are probably thinking, "This topic doesn't apply to me; I would never misrepresent

anything," remember that misrepresentation can take place unintentionally. To help avoid

unintentional misrepresentation, remember to respond to consumer questions accurately and

clearly, in language that the consumer will understand. If a 70-year-old man with an eighth-

grade education asks you questions and you respond in a level of detail that is over his head,

you could subject yourself to accusations of misrepresentation.

Ethical challenge 3: Disclosures

Failure to disclose may not only erode trust with your clients, but it can also lead to E&O

claims or regulatory action. The contract your customer signs is a legal document, which is

designed to protect all parties, including the customer and you. While it is tempting to hold a

customer responsible for what they are signing -- a contract that is new to them but one that

the agent knows quite well -- it is the ethical agent's responsibility to honor the trust that a

client has put in them and to protect that client.

Ethical challenge 4: Single-product sales vs. overall strategy

To recommend the right product for the right individual, it is critical to gain a comprehensive

picture of the prospect's history, lifestyle, attitudes, and resources. If you walk into a

presentation with one product you're planning to sell, then you are simply selling a product --

not necessarily a solution. Just as a doctor can't prescribe medicine without a diagnosis, an

agent can't make a product recommendation without understanding what a client is trying to

accomplish.

PURCITM, MOHALIPage 34

Ethical challenge 5: Keeping up with compliance

The seemingly endless layers of compliance procedures and paperwork involved in the sale

of a simple product can be an understandable source of great frustration for many agents. A

solid foundation of compliance, however, confirms your ethical business practices to the

companies whose products you represent, as well as to your peers, professional associates,

prospects, and clients -- which translates into a greater business opportunity. Compliance is

all about providing protection for the customer, the company you represent, and your agency.

Consumers like to do business with people they trust. Treating customers fairly and honestly

helps an agent earn that trust, close sales, and build long-term client relationships. The

goodwill that an agent can spread with each encounter can also yield new clients, since many

people rely heavily on the recommendations and referrals of friends and family when

choosing an agent.

Ethical Dimensions of RBI’s Mandate

The first is on the ‘Role of the Regulator - Governance and Regulation’ and the second on the

‘Role of Individual Financial Institutions and Corporate Responsibility’. The panellists are

some of the most distinguished leaders of the Indian financial sector. Both these topics have a

connection with RBI’s role and responsibilities.

The Reserve Bank has a broad mandate. As central banks go, Governor believes that they are

a ‘full service’ central bank. they are the monetary authority, the issue currency, they are the

regulator of banks and non-bank finance companies and much of the financial markets. They

regulate also the payment and settlement system. They are the debt manager for the central

and state governments and the gatekeeper for the external sector. What guides them in

fulfilling this broad mandate is a sense of institutional values and professional integrity.

One of the core aims of monetary policy is to maintain price stability. If RBI fails in that

regard, there would be inflation. And inflation, as we know, is a perniciously regressive tax

that hurts the poor the most. So, by maintaining price stability, we are safeguarding the well

being of the poor in society.

They take their regulation responsibility seriously. An important guideline for regulation is to

protect the interests of depositors. They therefore ensure that banks are well capitalized,

prudently managed and that they have adequate and appropriate internal controls.

PURCITM, MOHALIPage 35

Their regulatory responsibility also casts an obligation on us of protecting the interests of the

borrowers. They need to ensure that borrowers get credit at remunerative rates of interest and

that they are not disadvantaged by information asymmetries. They advise banks not to charge

excessive/usurious rates of interest on non-priority sector personal loans and credit card dues.

They have asked that banks should communicate publically information on the maximum

interest chargeable to any type of loan or advance. They have mandated that service charges

should be reasonable and have some relation to the cost of rendering the services. They have

a system of banking ombudsman to address the grievances of customers. The Governor

cannot claim that they are the best practice in dispute resolution, but he can claim with pride

that they try their best to be the best practice.

In recent years, they have been focussing on financial inclusion and financial literacy. The

aim of the financial inclusion campaign is to provide access to financial services to people in

remote and rural areas and poorer segments of the society. Their stress is on expanding the

reach of financial services to ensure that every household has a bank account. But the

aspiration extends, beyond merely chasing a target, to the quality of financial inclusion. Not

only should the poor have an account, but they should also be getting the benefit of the

account by way of credit and other financial transactions. The aim of the financial literacy

programme is precisely that - to educate people on the type of services that they can get from

the financial sector, on the rights that they have and on the grievance redressal mechanism.

Finally they are deeply sensitive to the Reserve Bank’s role as the issuer of currency. A

billion plus people place their implicit faith in the currency signed by the Governor promising

to pay the bearer on demand the face value of the note. It is this faith that makes people keeps

the currency as a store of value. It is this faith that enabled us to make the transition from the

inefficiencies of the barter system to an efficient cash economy. It is this faith that underlies

hundreds and thousands of cash transactions that take place every day and keeps a sixty

trillion rupee economy going. The preamble to the RBI Act enjoins on the Reserve Bank,

among other things, of ‘securing monetary stability’. Maintaining the integrity of the

currency note signed by the Governor is a responsibility that the Reserve Bank treats as

sacrosanct - not just as a legal mandate but as an ethical responsibility.

CODE OF ETHICS

PURCITM, MOHALIPage 36

Selling Life Insurance is like selling intangible product. So, the marketing staff needs to

observe a set of norms in his / her professional conduct, which make him / her worthy of trust

and faith.

The Code of Ethics for the life insurance, marketing staff

1. To perform his / her duties in high esteem.

2. To give utmost priority to the client's interest.

3. Not to disclose client's confidential and personal information

4. To ensure prompt and sincere service to the client and his or her family.

5. To use appropriate methods in convincing clients to protect their insurable interest.

6. To make truthful and accurate presentations.

7. To improve his / her knowledge of life insurance through constant study.

8. To set a plan and work accordingly.

9. To maintain fair relations with colleagues.

10. To strictly follow the concerned laws and regulations.

11. To obtain proposals only on the lives of persons who fits in the physical, moral and

financial standard defined by the Company.

12. To be loyal to the Organization.

The IRDA has formulated a Code of Conduct for the marketing staff which comprises two

broad group heads viz. "Do's" and "Don'ts". They are listed herewith:

Do's

1. Identification of marketing staff and the insurance agency - certificate of License to be

shown to the prospect on demand.

2. Match the needs of his / her client with various products available with his insurer.

PURCITM, MOHALIPage 37

3. Work out the premium to be charged so that his / her prospect is able to weigh the

economic or financial implication of the proposal on his / her resources.

4. Bring to the notice of his / her client the implication of various questions in the proposal

form and other documents and advise the client to disclose all the material information.

5. Disclose to the insurer all relevant information.

6. Inform the prospect about acceptance or rejection of the proposal by the insurer.

7. Obtain all documents from the prospect for the completion of the case.

8. Assist the policy holder in matters of:

• Claim settlement,

• Effecting nomination/assignment,

• Revival, change of address,

• Exercise of various options.

Don'ts - No Marketer shall

1. Solicit or procure insurance business without holding a proper authorization

2. Induce the prospect to omit to disclose the material information in the proposal form

3. Induce the prospect to submit wrong information in the proposal form or in the documents

submitted to the insurer for acceptance of the proposal

4. Behave in discourteous manner.

5. Interfere with any proposal introduced by any other insurance marketers.

6. Offer different terms and conditions other than offered by the insurer.

7. Part with or share his incentive with Prospect or with any other person.

8. Receive a share of the policy proceeds from the beneficiary.

PURCITM, MOHALIPage 38

9. Compel any person to terminate an insurance contract with any insurer in order to effect

a new proposal within three years from date of such termination.

10. Apply for fresh license to act as an insurance marketer if his / her earlier license /

authorization have been terminated with in five years from the date of termination.

11. Remain or become a director of any insurer carrying on insurance business in India.

CASE STUDY:

CODE OF ETHICS AND PROFESSIONAL CONDUCT

ICICI LOMBARD-CHEATS

Rahul Saxena is a policy holder who is an unsatisfied consumer of ICICI LOMBARD. He

shares his personal experience with us.

The Cheating by ICICI

Now if things could not get any worse, I am currently going through what can only be termed

as the blatant cheating of a customer from one of India’s largest Companies – ICICI. The

following is a timeline as to what happened and continues to happen.

12-11-05: Accident took place. Police report was made. Insurance company was notified and

claim number received.

16-11-05: After checking the list of cashless garages on their company website, and verifying

the same with your customer service representatives as well as the garage of choice –

Autograph Skoda,

Official Skoda dealers, I towed the car to the workshop. All papers as desired by ICICI were

handed over to the garage to produce to the Insurance agent at the time of the survey. The

only reason I picked an authorized Skoda garage, even after knowing the ridiculous prices

they have, was because ICICI told me they had a cashless facility for that garage.

PURCITM, MOHALIPage 39

19-12-05: At 7:30pm, I get a call from Mr. Abhay stating that ICICI cannot process my

cashless claim as a third party has been injured and a case has been filed. He instructed me

that if I want my car I could pick it up after paying the full amount. I then spoke to Mr.

Suresh Shetty, who stated, “the ICICI legal department had advised them not to pay the

claim”. I asked for a written copy of the clause in the policy where it is stated that the claim

for vehicle repairs cannot be paid unless the case is solved in court. I also spoke to my long

time insurance agent from New India Assurance who confirmed that there is no such

requirement and that ICICI is known to harass its customers on large claims.

I was put on the line with Mr. Kapil Madgar who stated that he was the Regional Manager. I

asked him to provide me with the clause as mentioned above. However he rudely told me that

he does not know and even though he was sitting in the office, he did not take the bother to

atleast try and assist me. Till date, Mr. Abhay and Mr. Shetty were well mannered and helpful

to the extent they could be, but I must say that the manner of speaking of Mr. Kapil leaves a

lot to be desired! As it was obvious that I was not going to get an accurate answer on the

phone, I have asked for a written statement by fax from the company showing me where this

clause is mentioned. I was assured that it would be with me by 10am the next day. Nothing

came.

On 20/12/2005, I receive the biggest shock of my life. I get an unsigned fax from ICICI

stating that they will NOT HONOUR my insurance at all stating the limitation in the policy

of “PACEMAKING”. No explanation was given as to what they mean by pace making, and

my agent at New India told me that this is a motor sport activity and does not apply to my

case at all.

All further attempts to get a proper reply from ICICI has fallen on deaf years, and a fax sent

on the 20th to their MD – Mr. Sandeep Bakshi has not been replied too till date.

There is no-one at ICICI who is willing to take responsibility, all their written

correspondence is unsigned, and there is no-one you can speak to who will give you a straight

answer. This from a company who’s slogan is “Haam hai na!” I should take them to court for

false advertising alone!

PURCITM, MOHALIPage 40

I have now approached the WIAA who are supporting me completely. This battle will now

move to the Insurance Regulatory Board. From there I can move the Consumer Court if I am

not happy with the verdict.

However this will now take time and I have no choice but to fund the entire repair costs

myself. But, from all the legal opinions I have taken, I am in very good standing legally and I

should win my case plus penalties and other expenses paid to me.

I am putting this topic up here now to WARN all other members (and the thousands of non-

members who view this thread everyday) that ICICI are COMPLETE CHEATS AND DO

NOT GIVE A DAMN ABOUT THEIR CUSTOMERS. They will try anything in their power

to wriggle out of paying a large claim, which they are rightfully entitled to pay. This tactic is

probably their company policy, hoping that finally the customer will give up and forget about

it.

Well, this is not happening here with me and rest assured this case will be followed till its

rightful conclusion. And hopefully it will serve as a lesson to ICICI and other insurance

companies that the Customer is no longer just going to lie down and take the CRAP that is

meshed out to them.

My Final notes – DO NOT DEAL WITH ICICI, whether it’s their banking, insurance or

loans. They will gladly take your money with a smile, but when it comes to actual customer

service, they are the WORST I have ever had the displeasure of dealing with.

Ethics to be maintain in Banking

Ensuring Security of Depositors Money.

Investment and Loan Policy will be directed with absolute fairness and wisdom.

All the decision shall be made without any discrimination of race , religion, cast and

creeds.

Bank should not give any preference or show favor to any individual or group in loan

decision or recovery process.

Consideration should be given first to the safety of investments, profitability is the

second issue.

All classes of borrower should receive equal consideration.

PURCITM, MOHALIPage 41

Feel the customers money as your own money.

Bank is a social institution – we serve as ‘public servant’ – depositors interest should

not be sacrificed at any cost.

Large loan not to any single party to avoid concentration of wealth and business risk.

Confidentiality for safety, profit and social responsiveness.

Banker’s service consider as ‘duty’ not ‘favor’.

Avoid indebtedness- ‘cut your coat according to your cloth’.

Maintain high morality, values and ethics.

Avoid misbehavior, misdealing and discrimination.

Maintain confidentiality of the customers.

Conclusion:

The ethical and spiritual path in insurance, and in life, is an individual one. At times, it can

feel like a solitary path. Ethics is not reached by consensus but by conviction. The ethical

path may not be popular but it does stand the test of time. Ethics is not a hard and fast set of

rules but is based upon guiding principles. Ethics should guide our communities, yet they are

deeply personal. Above all, ethics and the spiritual compass that underlies our individual

ethical code, is not a destination, it is not even a journey, it is the journey. What is good, right

and true usually stands the test of time and may not always be immediately apparent. The

ethical “stake in the ground” will always be scrutinized and criticized by someone.

PURCITM, MOHALIPage 42

BIBLIOGRAPHY & REFERENCES

Accounting Ethics : Ronald F. Duska & Brenda Shay Duska Blackwell Publishing, 2003

Winning by the Rules – Ethics and Success in the Insurance Professiont Ken Brownlee,

CPCU The National Underwriter Company, 2001

Black’s Law Dictionary, Seventh Edition West Publishing Co.

The Legal Environment of Risk Management and Insurance Mallor, Barnes, Bowers, Phillips,

Langvardt McGraw Hill Primis Custom Publishing

Life and Health Insurance, Thirteenth Edition Kenneth Black, Jr., & Harold Skipper, Jr.

Prentice Hall, 2000

Property and Liability Insurance Principles Smith, Trieschmann, Wiening Insurance Institute

of America, 1988

Property and Casualty Insurance Philip Gordis, CPCU, CLU Rough Notes Co., Inc., 1991

Ethics Continuing Education Insurance School Private Printing, 1999

Accounting Ethics: A Practical Guide for Professionals P. G. Cotell, Jr. and Terry M. Perlin

Quorum Books, 1990

PURCITM, MOHALIPage 43