The Phenomena of Globalization and Liberalization of the Market Economy - Case Study Example

Ethical Issues in Financial Lending Ethical Issues in Financial Lending The phenomena of globalization and liberalization of the market economy have had tremendous impact on the commercial practices of many sectors all round the globe. Financial institutions have remained the chief movers and shakers that determine the pace of development across many sectors. Their lending strategies and policies have therefore become the determinants of values, mores and ethics which are invariably attached to the sphere of commerce. According to Jennings (2005), financial institutions play the role of reservoirs that control the means of infrastructural development, lifestyle improvement, disaster mitigation and a wide variety of positive developments. The overall wheel of development of humanity is almost entirely hinged on the decisions, policies, strategies, and plans of financial institutions. However, as these institutions continue to grow in relevance so does the problems of mankind. The almost direct relationship between the growth of financial institutions and the level of humanitarian crises and predicaments in different times and places underlie some fundamental truths of their complicity in these situations. The dual potential of the lending institutions to create both good and evil in same measure has placed these institutions under scrutiny by analysis’s and rights watchdogs for suspected complicity in the geopolitical, and environmental dilemma that have been witnessed in modern times (Weiss, 2005). Some of the crises that have dominated the global stage since the second half of the twentieth century include the spread of HIV/AIDS pandemic, global warming resulting from the green gas emissions, mechanization of the labor market which has led to job losses, wars and violent conflicts, several forms of environmental degradation, among other many situations. The process of creation of these situations has been made possible by the willful involvement of human beings working within structural organizations that spend millions of dollars to create these situations. The source of these money has been chiefly through lending from financial institutions. These institutions have knowingly given loans to questionable organizations even amid protests from activists regarding the ethical ends of the borrower’s missions. Moreover, these same lending institutions have sought every opportunity to merge, link up, or buy stakes in some of the organizations with disastrous missions around the globe. The bottom line of profits has often blinded the lending institutions from the horrible missions that they have continually funded. Their drive has always been that if they decline to form associations with these institutions then some of their competitors will most certainly seize the opportunity. Market survival has therefore narrowed down to ignoring the ethical concerns that might arise from these associations (Weiss, 2005). Mining companies have been blamed for the chaos that has rocked the developing world for the last many decades. The search for precious diamonds in Sierra Leone, and Liberia has been cited as one case where foreign companies seized with a profiteering mission chose to create hostilities between communities, authorities and governments for the sole purpose of monopolizing the mining rights. The shadowy companies that operated in the region received funding from lending institutions. The money that was acquired was used to buy weaponry and munitions that saw the extermination and annihilation of entire populations. The human suffering that followed, and whose effects can still be felt in the post-conflict era are the ugly face of the lending companies that refuse to heed to the ethical considerations that should necessarily form part of the corporate social responsibility strategy. According to Jennings (2005), expansionist policies have seen the lending institutions seek to spread their wings into companies that involve themselves in warfare business. The lending companies buy stocks in these companies and maintain a commercial relationship that guarantees funding for the warfare companies. There have been reports of lending institutions buying up stakes in the weapon manufacturing companies. Some of these companies have been accused of fueling tensions in clash prone parts of the world ostensibly to create markets for their finished products, (weaponry). The ethical implication is that through lending and stakes, the lending companies become complicit to the horrific humanitarian crises presided over by these institutions. The problem of global warming remains a subject of continuing debate in many for a around the world. Governments and other institutions have sought to align their policies with the theme of reduction of green gas emissions. Industrialists have had to contend with the measures and policies that aim towards impact mitigation. There have been calls for all institutions to incorporate the reduction of green gas emission into the overall structure of their corporate social responsibility programs. The enormity of the problem is that the survival of humanity might be disabled if global warming is to be left to escalate to irreparable proportions. The task of correcting the situation of global warming is extremely expensive and burdensome to companies and governments. Ordinarily the lending institutions are expected to play instrumental roles in financing or lending funds towards this humanitarian endeavor. Indeed many lending institutions have consequently revised their corporate social responsibility programs in line with the need to reduce global warming. However other lending institutions have continued to lend money to projects whose environmental impact assessment has advised against. Funding companies that produce chloro fluoro carbons CFS has continued in many parts of the world unabated because of the massive support that the financial institutions receive from lending institutions. The situation has been made worse by the desire by countries to speed up the process of industrialization to as a factor of development and competition. Driven by policies and blue prints that are couched on developmental mantra such as Vision 2030, and Millennium Development Goals (MDGs), lending institutions have led the charge of funding industrialization initiatives without regard to possible environmental damage that might follow. Ethical considerations have remained piecemeal in the lending policies of many companies. Although many lending institutions have wanted to bill themselves as people centered, the superstructure that holds their operational framework is never overtly clear on the policy of environmental preservations. Hidden in their missions and visions is the desire to mop up all available opportunities on the lending market by spreading their presence and services with profits as their chief driver. The emergence of tailor made products in the lending industry has encouraged hidden operations that can never pass the ethical audit. Dubious institutions benefit by conditioning the banks to create lending products that conceal their real agenda. This means that a company whose real operations are a factor of war, or environmental damage can get some ethical clearance by exploiting the loopholes in the tailor program so that its operations proceed unnoticed. The lending policies of these financial institutions therefore continue to punish societies for as long as the tailor made products last. It might be argued that the lending money is primarily the banks core business and their ‘lifeline’ properly so called. Another defense is that the banks lack an inbuilt regulatory mechanism that might detect the real motive of their clients so that to decide whether to lend or not. However the fact that many lending institutions have their own systems to assess the credit worthiness on their clients mean that they can equally have the ethical side of the lending process as an appendage of the credit worthiness of the lending system. Financial lending institutions have also had their presence in the sustaining of despotic regimes. The business of running government always demands large sums of money so that the structures can be held together. When the system is dictatorial these funding becomes even more expensive because the commercial environment that should ordinarily support government can not thrive in an authoritarian setting. Because of the high stakes involved in the funding, the interest rates are much higher than they would have been in a peaceful environment. Banks find these kind of setting much conducive for their business with the impression that their stability and continued flow of profits are entirely dependent on the misery of the masses who have to shoulder the high rates through taxation. The trade and economic sanctions have recently become the most potent weapon against oppressors are a testament to the realization that lending institutions might very much desire to conduct business with isolated regimes. Furthermore this kind of problematic lending has served in entrenching ethnic, religious, and other forms of divisions in the troubled parts of the world. Funding factions has always led to the sustaining of wars and divisions because the large sums of money become instruments of perpetuating the divisions. These lending has always been in the form of reconstruction funds, and other services but they very much easily get converted into money for the purchasing of weapons and other related hardware that holds the structures of war and divisions. The problematic polices and strategies of lending institutions have also extended into areas of morality and values. Some of the lending has ended up into centers that support moral subservience and outright violation of morally accepted values. Notwithstanding the fact that we live in a world of conflicting interpretations of what should pass as morality, it would be appropriate for financial lending institutions to exercise much caution so that the ethical values that accord with virtue and good triumph over the interests of the subversive groups. Stakeholder analysis and impact assessment of the strategies and policies of financial institution lending practices could be seen in terms of victims and beneficiaries. On the whole much gain that arises from unethical lending practices benefits the lending institutions themselves and the clients who receive the funding. The lending institutions end up making large sums of money in terms of profits from interests while the client gets his mission bankrolled sufficiently from the steady supply of financial support (Boatright, 1999). In this manner the overall agenda of the borrower is met. Others who benefit from the system include thousands of middle level institutions that link up the lending institution to the client. The unethical nature of the lending has always demanded that the client operate in proxies to evade detection by the vigilance of rights groups, competitors or other moral assessors. Others who benefit from these clandestine borrowing systems include governments that willfully refuse to legislate against unethical lending practices (Boatright, 1999). These same governments seek to increase the volume of their trading through the secret support of underworld business. Every commercial system usually has many related businesses with which they relate in some mutual form. These businesses have always placed themselves strategically to benefit from the volume of the unethical trade. Other beneficiaries include strategically positioned politicians and opinion leaders who tacitly control the direction of government policy. In this category also are the law enforcers who deliberately show laxity in seeking change and ethics in lending. Stakeholder who suffer most from unethical lending practices include the small holder clients of these lending institutions who incur the damages occasioned by the end results of the unethical borrowers. These include poor families, and lower middle class individuals who are more prone to the effects of environmental devastations. This is much so in cases where environmental damage becomes the chief end of a specific unethical lending practice. Where unethical lending practices has caused civil unrest and political turmoil, the sufferers have been the general population but most specifically the impoverished masses (Richardson, 2002). This has happened in the war torn parts of the world where whole populations have been decimated or otherwise displaced by unending civil strife that is mostly sustained by funding from known lending institutions. On the level of control only the beneficiaries from the system exercise the power to determine the course of events of the established system. This is because they own the resources that usually translates into the wherewithal that gives force to the system. Because of this immense wealth some of these players have significant influence within the ruling elite so that it becomes easy o influence processes that favor the unethical lending processes. Through the provision of loans and grants these businessmen have managed to get and retain the influence necessary to impact change in the governing systems (Butts, 2003). Some of them often get to the level of participating directly in the political systems of their target environment or grooming and supporting candidates who get in office with the silent promise of perpetuating the system. Remedies to the question of unethical lending must necessarily involve the drafting of legislation aimed at providing sufficient safeguards against the vice of unethical lending. This must come alongside the establishment of a system of merit where competition in the lending industry is tempered with corporate social responsibility programs award program that exposes the merits of the high performers on the ethical score. More specifically governments and policy makers might do well to create stronger and attractive incentives that would steer the lending institutions towards the habit of entrenching ethics in their lending systems. The solution must therefore be two-pronged so that where the system of rewards and incentives appear to fail, there should be some form of legal restraint in form of punishments for companies involved in the unethical lending practices. Other practical solutions that would exert pressure more efficiently include the collaboration between the media and rights activists so that naming and shaming of the companies that do not adhere to the prescribed ethics become part of the overall correctional mechanisms. References Boatright, R. J. (1999). Ethics in Finance. Oxford: Wiley-Blackwell. Butts, D. (2003). How Corporations hurt us all: saving our rights, democracy, institutions, and our future. Victoria: Trafford Publishing. Richardson, J. B. (2002). Environmental Regulation through Financial Institutions: Comparative perspectives on the industrialized nations. The Hague: Kluwer Law International. Jennings, M. (2005). Business: its legal ethical and global environment. South Western: Cengage Learning. Weiss, W. J. (2008). Business Ethics: A Stakeholder and Issues Management Approach. South Western: Cengage Learning. Read More