There are many sustainable banking systems existing where green banking gets the highest priority but the entire banking system is rarely explained in a single model. Different parts of the banking issues explain different factors like green banking and Basel-III for assessment of capital requirements. Some authors have explained ethical practices in banks but not received legal framework like green banking and Basel-III. The existing banking model does not put emphasis on skill and honesty of sponsor directors, borrower selection procedure, investment in the form of equity, providing CSR in a befitting manner and responsibility of regulators.
Moreover, experts opine that the existing Islamic Banking system is not truly interest-free as they are not directly involved with buying and selling and they deal with documents but not goods. In practice, the Islamic Banking is putting more emphasis on making duplicate vouchers but not involved with buying and selling. They are not making deals on business but making deals on duration. They use sentiment of religious-minded unaware people using mixture of Arabic and English names (like Hire Purchase under SherkatulMelk and Al-wadia Current Account) of their investment (truly loan) and deposit products.
In this connection, a complete model is required considering the major parts of banking i.e. independent, dependent and intervening variables, we may call it well-guided (Mahdia) Sustainable Banking Model.
In the mahdia (well guided) banking model there are eleven independent variables which are (i) Sponsors/
Directors, (ii) Capital, (iii) Ethical Banking, (iv) Entrepreneur/ partner Selection, (v) Profit Sharing,
(vi) Corporate Governance, (vii) Green Banking, (viii) Tech-based banking (ix) CSR as 2.5% on ideal
assets, (x) Providing Tax and (xi) Regulator. All the independent variables independently and accumulatively affect the dependent variable i.e. Mahdia (well-guided)Banking Model. The
independent variables also affect the dependent variables with some of its characteristics which are
lying between independent and dependent variables. Description of all independent variables and how
they play a role in sustainable banking are as follows:
i) Sponsors/ Directors: The sponsors should be honest and skilled in business and banking as such he/she has to have a certain period of banking/ business experience.
ii) Capital: A bank is a highly leveraged organization and capital can’t save the bank as the disaster
comes from dishonest and inefficient decisions . So, capital increase is one of the main components now for saving the bank as per existing BASEL-III. But, increasing capital creates dependence on capitalistic persons who may be corrupt and inefficient. iii) Ethical Banking: Bankers’ skill should be checked through examination and 360-degree reports.
Moreover, honesty of a banker, especially senior executive, should be checked through neighbours,
lenders, employees and family members as well as friends before recommending promotion. If the
bankers are honest and skilled, they can easily assess the investment requirements for a particular
sector. After a decision of investment, the said investment should be monitored prudently so that the
fund can’t be diverted to any other sector. Without strong monitoring of investment, the project can’t
be successful. In this way a bank can earn maximum return. This is found from a research that main
causes of loan default are improper assessment before approval and weak monitoring after
disbursement. The research report has also said that these two problem arise because of a lack of
iv) Entrepreneur/ Partner Selection: Here a bank is an investor as well as an entrepreneur is a
partner of a bank. No partnership can sustain unless otherwise trust exists. To ensure the trust,
transparency is much important. Before selection of a partner the bankers must check his/her
managerial, financial and technical status. Credit reports should be obtained through lenders/
neighbours/relatives. Here lenders mean financial institutions, suppliers of goods and investors in an
existing business. So sources of the central bank as well as other informal sources should be utilized
to know the credit report of a partner. Bankers will have the right to use his/her prudence for
documentation and judgment. Finally, a banker will assess the need of investment in a particular
business before making his/her decision of investment.
v) Profit Sharing: Profit means anything excess over expenditure for operation. Besides, interest
means anything certainly in excess against lending of money or assets or lately charges of penalty
against credit sales. Interest not only makes poor people poorer but also makes rich people poorer.
Interest is the expense which is certain while there is the uncertainty that the business will earn profit.
Profit sharing banking will help a banker remain tension-free and ensure growth in business.
vi) Corporate Governance:
The Creator created the humans and also a management system for the humans. First of all, He gave a
guideline like the religious book, then ensured transparency through angels and also ensured reward
and punishment on the earth and in the afterworld. Like this, corporate governance is at the heart of an
organization and it ensures sustainability of a bank and or any other organization. The banks have to
have a guideline as well as investment policy to ensure responsibility of banks. Then transparency has
to be ensured as per the guidelines, accountability be confirmed and reward and punishment be there
as per the guideline. This process will lead to sustainable banking.
vii) Green/Earth Banking:
The green banking means doing investment that will not go against the earth and humanity. For the
purpose of green banking, people, the planet and profit should be considered.
viii) Tech-Based Banking:
For the benefit of common people and providing door to door services banks need to integrate
Artificial Intelligence, Block Chain and online credit approval process system.
ix) Corporate Social Responsibility as 2.5% on ideal assets:
For the purpose of shared prosperity, we should pay a portion of income to the poor without any direct
benefit. This expenditure will increase the consumption of the poor and also increase the sales of
x) Providing Tax:
Banks should pay fair amounts of tax for getting benefits of security and infrastructure, etc. from the
A regulator ensures the regulation. No bank can run without regulation by a state. The regulator
should be independent but responsible as per guidelines and/or laws.
Thorough the above ways the bank can be inclusive and sustainable.