Importance of Sustainability and Social Responsibility in Finance

This article discusses the importance of sustainability and social responsibility in the finance sector. It highlights how sustainability impacts business performance and growth, and how corporate social responsibility initiatives can create a positive image for banks and financial institutions. The article also includes a case study on VISA's financial inclusion program and its impact on business growth.

FINANCE QUESTIONS

TABLE OF CONTENTS
(1) Compounded value.....................................................................................................................1
(2).....................................................................................................................................................1
(A) Saving on plan for five years................................................................................................1
(B)...............................................................................................................................................1
(3).....................................................................................................................................................2
(A)...............................................................................................................................................2
(B)...............................................................................................................................................2
©..................................................................................................................................................2
(4) ROE............................................................................................................................................3
(5) Operating profit margin..............................................................................................................4
(6) Analyse the importance of sustainability and social responsibility in finance..........................4
REFERENCES................................................................................................................................7

(1) Compounded value
Table 1Compounded value calculation
Principal 17,700,000
Interest rate 4.20%
N 12
T 400
Compounded
value $339,924,149,169,355.00
Britain during its colonial rule looted or forcefully acquire assets of value $17,700,000. If
interest rate of 4.20% is charged and time period is 400 years then in that case at compound
interest given above value of asset will be $339,924,149,169,355.00.
(2)
(A) Saving on plan for five years
Table 2Saving in case plan prepared for five years
Principal 66,000
Interest rate 3.20%
N 12
T 5
Total amount (Principal +
Interest) $77,435.23
Savings $11,435.23
Saving amount will be $11,435.23 if $60000 is deposited in the bank account and interest rate of
3.20%.
(B)
Table 3Saving on receipt of interest
Principal 116,000
Interest rate 3.20%
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N 12
T 5
Total amount (Principal +
Interest) $136,098.28
Savings $20,098.28
In case addition of $50000 is made to the above given value then new obtained value is
$116000. Interest rate is same 3.20% and if amount is deposited in the bank account for 5 years
then in that case saving amount will be $20,098.28.
(3)
(A)
Table 4Monthly instalment of credit card
Credit card payment
liability 13800
Yearly instalment 2760
Monthly instalment 230
Monthly instalment amount on credit card is $230. Total credit card payment liability is $13800.
On yearly basis, instalment amount is $2760.
(B)
Mortgage amount will be increased by the $13,800. This is because it is the value that is
the addition to the whatever value of debt that William intend to take as credit card debt.
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Table 5Interest in case payment made through credit card
Credit card
Principal 13,800
Interest rate 13.40%
N 12
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T 5
Total amount (Principal +
Interest) $26,868.52
Interest $13,068.52
Interest amount that need to be paid on credit card loan of $13800 is $13068 at interest rate of
13.40%, loan taken for 5 years.
Table 6Payment made on mortgage
Principal 13,800
Interest rate 4.50%
N 12
T 5
Total amount (Principal +
Interest) $17,274.78
Interest $3,474.78
Interest amount that need to be paid on credit card loan of $13800 is $3474 at interest rate of
4.50%, loan taken for 5 years.
Table 7Saving on interest on deduction of home loan interest from credit card interest
Saving on interest $9,593.74
On subtraction of loan of home loan from credit card loan total saving obtained is $9593.74.
Thus, it can be said that payment of credit card loan from mortgage loan is good strategy for the
investor as it is generating saving of $9593.74.
(4) ROE
Table 8ROE
Equity 60%
Net profit margin 5.50%
ROE 9.17%
ROE is 9.17% which is good and it can be said that firm is generating good amount of return for
its investors.
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(5) Operating profit margin
Table 9Operating profit margin
Sales 50000
Gross profit 41500
Operating expenses 7300
Net profit margin 12.90%
Operating profit margin 68%
Operating profit margin in above case is 68% which is good and it can be said that firm have
strong control on its operating expenses. First of all operating profit is computed for which from
gross profit operating expenses subtracted then operating profit is divided by the sales value and
in this way operating profit margin is calculated.
(6) Analyse the importance of sustainability and social responsibility in
finance
There is huge importance of the sustainability for the finance sector because if there will
be sustainability in the domestic and international economy then in that case regularly investors
will make investment and will take bank loan. Such kind of things will ultimately improve
business performance (Prasetia and Aliudin, 2017). In case there is lack of stability in the
economy then in that case investors reduce investments which lead to heavy decline in revenue
of the finance sector. Thus, sustainability matters a lot for the business firms. On other hand,
corporate social responsibility also has due importance for the business firms. This is because
many company’s managers believed that if under CSR initiatives banks provide more security to
the investors and make available loan at cheaper rate as well as finance their important needs
then in that great support can be extended to the society (Gusnardi, Pratiwi and Suarman, 2015).
Such kind of practice create positive image of the bank among people and assist it to obtain more
and more investments from the general public. In past couple of years, it is observed that there
are number of benefits of the social responsibility in finance industry. It is assumed that if
business is socially responsible then in that case relevant policies help company to attract and
retain customers in the business. It is well known fact that if firm is socially responsible towards
its customers or general public then in that case its good image is formed among the people
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which lead to fast business growth. Hence, it can be said that social responsible policies shape
unique image of the firm among its customers. It can be said that social responsible policies
ensure long term success of the business. In the finance industry number of banks and other
companies operates that provide technical support to the banks. One of these firms is VISA
which prepare debit card. In past couple of years VISA make a lot of efforts to motivate people
to do online transactions so that they can be done safely and in convenient and easy way
(Birindelli and et.al., 2015). In respect to this VISA launch financial inclusion program under
which it develops an innovative way to enable people to do online transactions. Such kind of
programs were run at the place where technical infrastructure was not developed or not exist.
Company in its statement stated that in today time period about half of adults live in
underdeveloped economy (Financial inclusion makes life better., 2019). These people do all
transactions only in cash. Company believed that two billion people face financial barriers which
make life risky, expensive and inefficient. It is the such kind of efforts that assist VISA in
developing its positive image among people and banks or financial institutions. This is the reason
due to which in case of large number of banks debit card name of VISA is seen or it can be said
that large number of banks prefers to make use of technology infrastructure of VISA (Forcadell
and Aracil, 2017). Financial inclusion program run by the VISA empower citizens and foster
business opportunities. Now people are connected online and due to this reason cash transaction
become easy task. Thus, it can be said that all these things play a very crucial role in shaping
strong positive image of the firm among people. All these things ultimately make creation of
customers an easy task for the VISA and this lead to fast business growth of VISA. It can be said
that social responsibility performance help VISA a lot in expanding its business.
Sustainability is another important factor that matter a lot for the banks. This is because
in the business on daily basis loans are given. With passage of time many new competitors
emerge in the domestic and international market. More and more people are now connected to
the banking system specially in urban area. Due to all these reasons competition between banks
and other financial institutions become fierce (Forcadell and Aracil, 2017). There is lack of
continuity in profit and business expansion growth rate. This is the reason due to which
sustainability matter a lot for the financial institutions. In case there is absence of sustainability
then in that case heavy fluctuations will be observed which will lead to origination of turmoil in
the business. In many cases it is observed that NPA of banks become out of control. Due to
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elevation in non-performing assets banks suddenly entangle in financial problem and ultimately
become bankrupt. Thus, sustainability in terms of business growth matter a lot for the entire
finance industry (Sperimborgo, 2016). It was the absence of sustainability due to which Merrill
Lynch and Layman Brothers become bankrupt which were world largest banks. Banks must time
to time evaluate business risk and accordingly must change their strategy so that on time any
issue can be addressed. If action will be taken on time situation will remain in control and there
will be sustainability in the business.
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REFERENCES
Books and Journals
Birindelli, G. and et.al., 2015. On the drivers of corporate social responsibility in banks: evidence
from an ethical rating model. Journal of Management & Governance. 19(2). pp.303-340.
Cornett, M.M., Erhemjamts, O. and Tehranian, H., 2016. Greed or good deeds: An examination
of the relation between corporate social responsibility and the financial performance of US
commercial banks around the financial crisis. Journal of Banking & Finance. 70. pp.137-
159.
Forcadell, F.J. and Aracil, E., 2017. European banks' reputation for corporate social
responsibility. Corporate Social Responsibility and Environmental Management,.24(1).
pp.1-14.
Gusnardi, G., Pratiwi, M. and Suarman, S., 2015. Keberadaan Struktur Kepemilikan Perusahaan
dan Pengaruhnya Terhadap Pengungkapan CSR. Jurnal Telaah dan Riset Akuntansi. 8(2).
pp.97-108.
Prasetia, A.F. and Aliudin, I.H.A., 2017. CSR Expenditure Effect to the Financial Performance
on the Mining and Financial Service Companies in Indonesia. Australian Academy of
Accounting and Finance Review. 1(2). pp.160-180.
Sperimborgo, S., 2016. Digital revolution and bank business, the keys for
sustainibility. BANCARIA, 12. pp.64-69.
Online
Financial inclusion makes life better., 2019. [Online]. Available through:<
https://usa.visa.com/about-visa/financial-inclusion.html>.
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