Strategic Approaches to Banking Business and Sustainable Development Goals

The evolving landscape of the banking sector has prompted a critical examination of banking business models (BBMs) and their role in fostering sustainable development. This chapter discusses the role of BBMs in advancing sustainable development. It begins by exploring traditional and emerging BBMs, including investment banking, digital banking, Islamic banking, and sustainable banking. The chapter then delves into the concept of sustainable development, highlighting some policies such as the Sustainable Development Goals (SDGs). It discusses how BBMs can promote sustainability through green financing; environmental, social, and governance (ESG) criteria incorporation; innovation; inclusive finance; and strategic partnerships. Despite these contributions, challenges such as short-term profit focus, geographic constraints, and alignment with sustainability goals persist. The chapter concludes by identifying some opportunities for banks who adopt BBMs that support sustainable development such as emphasizing the importance of supportive policies, increased awareness, and collaborative efforts between multilateral development banks (MDBs) and domestic banks.

This chapter examines how financial development influences environmental quality in West Africa. While the effect of financial development on environmental pollution has garnered considerable interest in recent years, a plethora of extant studies have dwelled on the banking sector and stock market indicators to gauge financial development, almost to the exclusion of the impact of the insurance sector. This study departs from the use of single-based indicators of financial development by employing a financial development index that captures the development of the banking sector and the insurance sector. Applying the fully modified least squares (FMOLS) technique, the findings show that financial development contributes to environmental degradation in West Africa. This holds for both banking sector development (BSD) and insurance sector development (INSD). The results also reveal that foreign direct investment (FDI) and economic growth (ECG) reduce environmental quality in the region. These findings highlight the need for policy interventions that integrate financial development with environmental sustainability, in line with the Sustainable Development Goals (SDGs), particularly Goals 8 (decent work and economic growth), 9 (industry, innovation, and infrastructure), and 13 (climate action).

The urgency to address environmental challenges, such as climate change, resource depletion and biodiversity loss, has reached unprecedented levels in recent years. As a result, there has been a notable shift in the priorities and practices of banking institutions worldwide, with a growing recognition of the pivotal role they play in advancing environmental sustainability. This paradigm shift has catalysed a surge in green finance initiatives within banking institutions, reflecting a broader commitment to align financial activities with environmental objectives and promote sustainable development. This chapter provides a comprehensive overview of these initiatives, exploring their emergence, evolution and impact on sustainable development. It examines the motivations driving banks to adopt green finance practices. Furthermore, the chapter delves into the policies and principles that encourage green finance initiatives in banking (GFIB) institutions. It also discusses the challenges associated with implementing green finance initiatives in banking institutions. Finally, it offers insights into future trends and prospects for green finance in banking institutions.

Amidst the growing urgency to confront environmental and social challenges, the financial sector finds itself at a critical juncture. Recognizing the need to address issues such as climate change, social inequality, and sustainable development, financial institutions are increasingly turning to innovative solutions to drive positive change. Central to this evolution is financial technology (FinTech), offering financial institutions the means to champion sustainable banking. This dynamic underscores a compelling opportunity to redefine the industry’s stance on environmental and social stewardship. First, this chapter provides an in-depth exploration of fintech innovations aimed at promoting sustainability within banking institutions. Then, it examines the regulatory and ethical considerations that accompany these innovations. Finally, it discusses the potential benefits and challenges associated with integrating fintech into sustainable banking practices.

Green Sukuk, a Sharia-compliant financial instrument, has gained prominence as a means to fund environmentally sustainable projects while adhering to Islamic finance principles. This study empirically analyzes the impact of Green Sukuk investment (GSI) by Islamic banks on sustainable development in the United Arab Emirates (UAE). Utilizing robust least squares (RLS) regression, this study examines the influence of GSI on the Sustainable Development Goals Index (SDGI), controlling for financial development (FDEV) and foreign direct investment (FDI). The results reveal that GSI significantly contributes to the SDGI, underscoring its role in promoting sustainable development. FDEV and FDI also show significant positive effects on sustainable development, highlighting the importance of a robust financial and investment environment. These findings suggest that targeted financial instruments and strong financial infrastructure are crucial for achieving Sustainable Development Goals (SDGs) in the UAE.

This chapter examines the potential of microfinance institutions (MFIs) in empowering women in Nigeria amidst ongoing gender disparities. Despite global efforts to address these issues, Nigerian women continue to face significant challenges due to cultural norms, educational disparities, and limited financial access. This chapter outlines key policies, such as the Better Life Programme for Rural Women and the National Gender Policy, while highlighting how MFIs can address barriers by providing financial services, promoting financial literacy, and fostering financial inclusion through technology. This chapter also discusses the challenges MFIs face, including high operational costs and regulatory constraints, and concludes with policy recommendations to enhance the effectiveness of MFIs in empowering women, particularly in rural and underserved areas.

This study empirically investigates the impact of financial inclusion on economic growth in Sub-Saharan Africa and explores the moderating role of institutional quality in this relationship. Utilizing data from 33 countries, the study applies the system generalized method of moments (GMM) technique for analysis. The empirical results reveal a significant negative impact of financial inclusion on economic growth, while institutional quality has a positive direct effect. Notably, the interaction between financial inclusion and institutional quality has a positive influence on economic growth. The study further indicates that bank stability and inflation significantly and negatively influence growth. To achieve the desired growth through inclusive finance, efforts to promote financial inclusion must align with robust institutions. Recognizing that financial inclusion negatively impacts growth independently, policymakers need to implement regulations and oversight to mitigate these adverse effects, preventing over-indebtedness and reducing vulnerability to financial fraud.

This chapter investigates the impact of financial inclusion on the Sustainable Development Goals Index (SDG Index) in the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) using data from 2015 to 2021. Employing the Pooled Estimated Generalized Least Squares (EGLS) method with cross-section weights, the study reveals that financial inclusion has a significant positive effect on the SDG Index, underscoring its crucial role in advancing sustainable development. Conversely, financial development, economic growth, and education show negative impacts on the SDG Index. The study highlights significant policy implications, including the need to expand financial inclusion through supportive regulations and digital innovation. Additionally, continuous monitoring and evaluation of financial inclusion initiatives are essential to ensure their effectiveness and alignment with the SDGs, enabling data-driven adjustments and improved outcomes.

This chapter examines the potential of Central Bank Digital Currencies (CBDCs) in achieving Sustainable Development Goals (SDGs) in developing economies. Through analysis of current initiatives and case studies, this study explores CBDCs’ impact on financial inclusion, economic growth, gender equality, and government services. The findings of this study indicate that CBDCs can enhance financial access for unbanked populations, reduce transaction costs, promote gender equality in financial services, and improve government transparency. However, implementation challenges include inadequate infrastructure, regulatory hurdles, and digital skills gaps. This study provides policy recommendations emphasizing clear objectives, phased implementation, and collaboration with international organizations and the private sector. While not a panacea, CBDCs, if thoughtfully designed and implemented, can significantly contribute to SDGs in developing economies. This research underscores the need for context-specific approaches and adaptive policymaking in navigating the intersection of digital currencies and sustainable development.

Small and medium enterprises (SMEs) face growth challenges in many emerging economies primarily due to limited access to financial support. For instance, in Africa, many SMEs on average fail within their first 5 years of operation. Traditional commercial banks often overlook SMEs for financial assistance because these businesses usually lack the formal documentation or collateral necessary to secure loans. However, the emergence of ethical banking practices is beginning to bridge this gap, aiming to extend financial services to a wider population, including SMEs. This chapter examines how sustainable ethical banking practices can mitigate these sustainability challenges and foster the growth of SMEs. The role of central banks in enhancing ethical banking was also discussed.

Gender equality and women’s empowerment in banking are crucial for driving inclusive economic growth and sustainable development. Financial institutions play a pivotal role in economies worldwide, making it necessary to ensure equal access and opportunities for women. This is not solely a matter of social justice but also strategic. By fully utilising women’s potential as clients, employees, and leaders, banks can foster innovation, talent, and economic productivity. Advancing gender equality in banking supports global efforts towards achieving Sustainable Development Goals (SDGs), promoting resilience and inclusivity in financial systems for societal benefit. Topics covered in this chapter are as follows: barriers to women’s participation in banking; the importance, challenges, and opportunities of gender equality and women’s empowerment in banking (GEWEB) and the role of central banks in empowering women in banking.

The high cost of transferring remittances through formal channels often drives migrants to rely on informal methods to send money home. Recognizing the importance of remittances to economies and the need to reduce transaction costs, the United Nations’ 2030 Sustainable Development Goals (Target 10.c) specifically aim to lower remittance costs. Recently, digital remittances have emerged as a viable, cost-effective alternative for these transfers. This research examines the factors influencing variations in digital and non-digital remittance fees in Sub-Saharan Africa (SSA) from 2011 to 2022, using bilateral remittance flow data and transaction costs from 28 receiving countries in SSA and 8 sending countries. Using the system GMM approach, the results reveal a consistent decline in remittance fees, primarily through digital channels. The findings also show that transaction fees significantly determine the formal volume of remittance flows. Thus, digitally, a 1% decrease in the cost of remitting USD 200 leads to approximately a 0.64% increase in remittance inflows in SSA. Furthermore, lower remittance fees are associated with greater market competitiveness, financial and digital growth, and higher literacy rates in SSA. The results highlight the importance of policymakers prioritizing digital remittance channels to achieve SDG Target 10.c: reducing remittance transaction costs.

This study examines the relationship between remittance inflows and school enrolment rates across primary, secondary and tertiary levels of education in Africa. The authors employ data from 43 African countries spanning 2000–2021 and apply the generalised method of moments (GMM) estimator for analysis. The results reveal that remittance inflows have a significant positive impact on school enrolment at all levels of education. Additionally, government expenditure on education positively affects primary school enrolment but has a negative impact on secondary and tertiary enrolment rates. The findings also show that economic growth has a positive effect on primary and tertiary school enrolment rates but a negative impact on secondary school enrolment. The study underscores the importance of remittance inflows as an effective strategy to improve access to education in Africa. The findings also highlight the need for targeted policies that address the varying effects of different economic factors on different levels of education.

Corporate social responsibility (CSR) consistently attracts debates from academia, politicians, the media, policymakers, and business leaders on its role in the community. While CSR plays a vital role in the Global North, its portrayal in the Global South is reviewed with a black eye. Therefore, with a need to attain the UN Sustainable Development Goals (SDG) by 2030, this chapter focuses on the politics of CSR in the banking sector and how it aligns with the SDGs of No Poverty and Quality Education, drawing examples of Uganda’s Stanbic Bank and Nigeria’s Zenith Bank. Ratio analysis was utilized to analyze Stanbic Bank and Zenith Bank’s annual financial and sustainability reports from 2019 to 2023, showcasing exact percentages of their yearly profits against their annual Corporate Social Investments (CSI). Findings reveal that these banks invest less than 1.3 percent of their annual profits in corporate social investments. Therefore, we recommend that African governments design legislation that enforces corporations to invest at least 5 percent of their annual profits in CSR initiatives, providing a substantive contribution to the UN SDGs.

Sub-Saharan Africa (SSA) faces many challenges such as poverty, inequality, conflict, corruption and weak institutions. However, it also has the potential for economic growth and development due to its abundant natural resources, young population and increasing global integration. The study examines the impact of financial development on economic growth, unemployment and inflation in sub-Saharan Africa. It also investigates the moderating effects of property rights and legal systems. The study uses panel data from 41 sub-Saharan African countries covering the years 2000–2020 and employs the smoothed sequential quantile regression technique for the empirical analysis. The findings show that at the 25th, 50th and 75th quantiles, financial development has a positive effect on economic growth and unemployment, whilst it has a negative effect on inflation. These results highlight the importance of financial development for promoting economic prosperity and stability in the region. Employment increases whilst inflation and economic progress’ upsides expand when property rights interact with legal systems. Sturdy institutions and law structures are key to tapping financial growth’s full potential for jobs, prices and expansion. The study shows that lawmakers should bolster law frameworks and property rights enforcement, limiting corruption, guarding property rights, improving transparency and backing financial growth. It underscores how vital SSA’s need to grow capital markets, diversify and enable financial inclusion.

This chapter investigates the crucial role of monetary policy in shaping economic outcomes and promoting inclusive growth, particularly during periods of economic uncertainty. It begins by defining monetary policy and detailing the tools used by central banks, including unconventional methods like quantitative easing (QE) and forward guidance. The discussion highlights the importance of central bank independence (CBI) for protecting policy decisions from political influence and bolstering market credibility. It addresses the challenges central banks face in implementing monetary policy and provides an overview of inclusive growth. The chapter further explores how monetary policy impacts inclusive growth, examining its specific role during economic uncertainty. It also analyses the challenges, opportunities and future prospects of monetary policy in fostering inclusive growth amid economic instability. This thorough analysis emphasises the dynamic nature of monetary policy and its essential function in stabilising economies while advancing equity and development.

This chapter investigates the relationship between monetary policy, global policy uncertainty, and credit risk in Ghana, employing the Autoregressive distributed lag (ARDL) bounds testing approach to cointegration. Utilizing quarterly data spanning from 2010q1 to 2022q4, our analysis unveils a cointegrating relationship among monetary policy, global economic policy uncertainty, and credit risk. However, we fail to find an asymmetric relationship between monetary policy and the non-performing loan ratio. Our findings reveal a positive long-run relationship between the monetary policy rate and the non-performing loan ratio, contrasting with a negative short-term relationship. Additionally, global economic policy uncertainty exerts a negative influence on credit risk, both in the long run and short run. Furthermore, variables such as Gross Domestic Product (GDP) growth, inflation rate, capital adequacy ratio, and bank performance (as measured by the return on equity) significantly impact the non-performing loan ratio in both temporal dimensions. Based on the findings, several policy recommendations are proposed, including improving communication from monetary authorities to help banks and borrowers anticipate and adjust to policy changes. Banks should also strengthen their credit risk management by conducting thorough borrower assessments, monitoring continuously, and implementing effective risk mitigation strategies. Additionally, stricter regulatory oversight is needed to ensure banks maintain adequate capital reserves to withstand economic disruptions and reduce the likelihood of non-performing loans. These measures are essential for promoting financial stability and resilience, which are crucial for sustainable economic development.