The Inception Of Ethical Banking: An Imperative Transformation In Post-Revolution Egypt

Abstract

While the Egyptian Revolution has initiated democratic transformation, the economy remains vulnerable to shocks that are apt to exacerbate unemployment, inequity, and poverty – the prime triggers of the popular uprising. Stability hinges on the newly elected government’s ability to accelerate macroeconomic growth, create jobs, and alleviate poverty. Prior to the popular unrest, the Egyptian banking sector was principally focused on financial return, and Egyptian regulators were mainly concerned with bank soundness. While there has been a paradigm shift in bank customers’ perception of banks as needing to have an intrinsic ethical responsibility, ethical banking is still in its infancy stage in the Egyptian banking sector. This research aims to bridge the gap between the newly developed perceptions of Egyptian savers/borrowers on the one hand and the conduct of bankers on the other hand. To this avail, we introduce a two-stage model where the value creation of banks is not solely confined to pure financial value – but the human, social, and environmental demands of all stakeholders are integrated. In the first stage, instead of adopting mainstream ethics and sustainability indexes, we administer a field survey in order to develop a stakeholder-centric view of the requisites of (1) ethical banking principles, (2) lending policies with human, socially, and ecologically responsible criteria, (3) ethical screening, (4) risk minimization, and (5) the maximization of financial returns. Subsequent to building the all-inclusive Ethical Banking Index (EBI), the second stage of the model gauges the performance of Egyptian banks. The EBI is not only applicable to Egypt, but could also prove useful to nations encountering similar socioeconomic woes.