Widening CSR across banking industry in Bangladesh

M Fazlur Rahman

On June 01, 2008, Bangladesh Bank (BB) addressed a circular letter to the Chief Executives and Managing Directors of all the scheduled banks and financial institutions with an aim to mainstreaming Corporate Social Responsibility (CSR) in their businesses. The circular noted the importance of voluntary contribution of business towards “environmentally sustainable and socially equitable development”. It spoke of three dimensions of CSR namely:

(i) “taking stock of the economic, social and environmental impacts of a business, (ii) instigating the negative impacts and bolstering the benign impacts, (iii) taking up action programmes and community investments to reduce social inequality and to address the key sustainable development challenges”.

The BB observed very correctly that CSR operations go beyond mandatory compliances by law (e.g. ETI in primary health, compulsory primary education in public education) into voluntary engagements to promote equitable and sustainable development. Milton Friedman (1970) argued that ‘CSR was effectively putting on a benign mask over profit motive of businesses’. The BB circular recognised this dimension – CSR “seen as benefiting a business by:

— building reputation, brand value, customer loyalty, employee motivation and retention

— initiating risks in own operation and in assessing supplier and clients

— gaining new markets for products and services, in the communities/social groups benefited by the CSR actions”

The BB circular then encouraged all Managing Directors (MDs) and Chief Executive Officers (CEOs) “to embrace CSR in their management approaches, with initiatives chosen in broad-based extensive stakeholder engagements.” The delineated areas of operation were encouraging, to say the least. These were: Small and medium enterprises (SMFs), biomass processing plants (bio-gas), solar home solutions, effluent treatment plants (ETPs), credit programmes for crop production like oil seed, spices, vegetables, fruits, fish and duck production with deepwater aman in low-lying areas, mobile phone-based micro-finance institution (MFI) programmes, support to fake business (crafts, mosaic, performing arts with domestic tourism and cultural products).

Proactive initiative of the BB was followed up by circulars of 2010 and 2011 asking for half-yearly statements in given formats, establishing CSR desks in banks and reporting on gender quality performance. Banks and non-banking financial institutions responded positively to this CSR initiative in varying measures. A dozen of joint-owned banks and several non-banking financial institutions now have small to moderate level CSR programmes. Foreign banks too run modest CSR programmes. About 30 commercial banks run comparatively bigger CSR programmes. Our focus is on CSR in banking industry. It may perhaps be safely said that banks have taken measures but most of them are yet to mainstream CSR in their operation.

Conceptual problems: CSR has not moved fast enough and afterwards gets jolts due to lack of conceptual clarity among the stakeholders in general and bankers in particular. Milton Friedman discussed CSR and famously observed in 1970 that a sound theoretical basis of CSR was lacking. Since then, during the last 40 years, literature on CSR has grown large. Since the CSR phenomenon has exhibited a variety of colours of ‘task attraction’ and features of ‘social attractiveness’ of its character, many scholars have engaged serious attention to this phenomenon. In a recent paper on CSR, the writer has analysed 37 definitions of CSR with erudition, prudence and mathematical rigour. A Google survey produced 37 definitions and this writer by method of a frequency distribution of key words, has produced five dimensions of CSR definition. These are: (a) environmental, (b) social, (c) economic, (d) stakeholder and (e) voluntary dimension. The definitions were taken from published sources between 1980 and 2003. These were “primarily of European and American Origin’ with inclusions from India and Canada.

This study by Alexander Dahlsrud of Norway aims to analyse “How Corporate Social Responsibility is Defined” and, in sum said, “despite numerous efforts to bring about a clear and unbiased definition of CSR, there is still some confusion”. Are we surprised? We are not surprised, not at all. We have experience of listening to the economists, the makers and merchandisers of this volatile science called economies, of home and abroad. Dahlsrud ruefully observed “none of the definitions actually defines social responsibility of business, as so famously discussed by Milton Friedman (1970) but rather describe CSR as a phenomenon.”

This vagueness and confusion arc continued. It may be tempting to suggest CSR merchandisers to focus closely on the margin of their wares, and draw a CSR production function; then we may find some way forward (!) in lessening confusion. We are told that being biased “towards specific interests” the available definitions “prevent the development and implementation of the concept”. So, where are we leading to? To a consumer like me, it appears that the “gyre” widens! This brings to my mind the famous lines of WB Yeats:

Turning and turning in the widening gyre the falcon can not hear the falconer; Things fall apart; the centre cannot hold …

And slightly reversing the order, we may say: Turning and turning in the widening gyre the falconer (read, economist/ central bank) cannot hear the falcon (read CSR); Things fall apart; the centre cannot hold …!

We are not looking for the Yeatsian beast here but normal people can not be amused by 37 definitions of CSR, and we are led to a kind of Yeatsian imagery. Leaving these conceptual problems for eventual time series resolution, we look for a realty check.

Realty check: It will be interesting to briefly review, how is this CSR phenomenon functioning in real terms? And in banking industry here in Bangladesh? From personal interactions with bankers of both government-owned and private sector banks and from the perspective of both client and solution provider, I present a critique below.

I have understood that a large majority of bankers consider CSR as a negligible minor activity. In real terms it is so, like a “frill on the frock”. This is our imposed externality to normal business with profit motive. Bank employees get substantial motivation when they receive bonuses for good performance, like getting deposits, speedy settlement of letters of credit (L/C), meticulous collection of interests and loan portfolios, taking action against defaulters or settlement of audits objections. There are mainstream banking functions (farz) and CSR activities are voluntary (nafl) and can not be equated on even par with others. A frock may be quite OK, without frill.

Currently we find several banks are spending money as CSR activity to support education of poor and meritorious students. This is laudable and should be recognised with unstinted appreciation. The BB pioneered this positive thinking in the banking industry. Thus our central bank, as a national institution, has done a meritorious job.

A look at the pattern of CSR expenditure is due. Of the government-owned banks, Sonali Bank has posted a net loss of Tk 12.77 billion (1277 crore) in 2012. This figure for Janata Bank is Tk. 5.42 billion (542 crore). From a rational viewpoint, for loss-making banks there can be no CSR. Agrani and Rupali registered profits of Tk. 6.77 billion (677 crore) and Tk.1.31 billion (131 crore) respectively and spent about Tk.60 million (6.0 crore) as CSR. Of the private sector banks, notable CSR expenditures were made by the Pubali Bank, the DBBL and the Southeast Bank.

Looking at a holistic picture all the banks made a net profit Tk. 91.21 billion (9,121 crore) in 2011. The net profit registered a fall, almost halved to Tk. 44.65 billion (4,465 crore) in 2012, after deducting provisions for default loans and taxes.

Of this Tk. 44.65 billion (4,465 crore), net profit of foreign banks stood at Tk. 14.44 billion (1,444 crore). At 1.0% of net profit CSR activities to the tune of Tk. 440 million (44 crores) would be expected in 2012 over the entire banking industry. In 2011, this figure would be Tk. 910 million (91 crore). This is not a small sum and if spent cautiously and prudently, may yield good volume of services. Not all banks have good CSR programmes. The Pupali Bank, the Dutch-Bangla Bank and the Southeast Bank have strong CSR programmes, while the others have much smaller programmes. There is thus good scope of widening CSR initiatives in the banking industry in Bangladesh.

CSR as a phenomenon is rather new in Bangladesh, while one would view this as almost mature. I say, “almost” because the concept carries some vagueness even now. For a successful CSR strategy, it has to be context specific (Van Marrewijk, 2003). It should be recognised that definitions discussed in this paper will not be applicable through a variety of contexts. Obviously contextual aspects of’ CSR strategy in banking industry will be different from CSR strategy in agro-business and the like.

Away from banking, I would argue that CSR as a concept may be promoted in other industries and business as well.

When a business is owned by one individual, mainstreaming CSR will be easier. In banks and limited companies, questions raised by Milton Friedman are very valid. Whose money is the Board of Directors spending? Is the decision taken by all/majority of the stakeholders? When a business is owned by one person, questions of concept or legality disappear.

Notwithstanding these conceptual arguments/debate, I would like to argue that when banks can do more in CSR initiatives, why then finance private sector business and industries simply by asking good questions on environment (which they are required to do as per law) and on matters of job creation, notably in apprenticeship work? There is an apprenticeship law in the country (1968 Ordinance, updated later on); this is aimed to grow skill formation in more than two dozen listed industries and vocations. Skill formation is supposed to be assisted by employing a small member of apprentices by SMEs. Thus CSR may be directed towards young apprentices in several forms.

If the enterprise is owned by one person, he has no corporate responsibility. Banks can promote CSR —where the client is a company of several people.

Say X is an apprentice in a leather workshop and Y is an apprentice in glass blowing-works which carry risks of physical injury. Can they be given insurance cover out of CSR money from the enterprises? If the enterprise takes loan from a bank, there may be a conditionality of such a loan. The enterprise on its part may negotiate lessening of interest on obtaining enhanced rebate for clinically correct loan servicing. Can the apprentice get Eid bonus? Can a bank finance hand-brakes for the pushcart drivers? There are thousands of pushcarts in Dhaka City, transporting goods and household articles. Pushcart drivers have proven record of honesty and sincerity. At traffic lights and intersections, they operate with sheer physical prowess, stopping momentum of a loaded cart and/or starting it. Their drudgery will be lessened if hand brakes are installed on pushcarts. One such brake was developed by a project of DG Health Service as part of improving workplace by hygienic initiative.

Any discussion on corporate social responsibilities in Bangladesh will remain incomplete without a word on corporate criminal liability. We may call it CCI to keep the rhetoric similar to CSR. Society’s culture depends on how the elite class behaves in obstructing or promoting activities which go beyond normal rules and usual decency. Banks moving towards CSR may do well to look closely at their own books of audit and create conditions to zero tolerance towards corporate criminal liability. If and when level of CCL gets reduced, CSR aims will be promoted.

In conclusion, I would argue that banks may serve the nation better, by directing a portion of CSR resources towards vocational and technical training say in supporting apprenticeship development. This is likely to yield fruits enhancing national productivity and quality workmanship.

The writer is a former Secretary to the Government of Bangladesh and also a former Chairman of Agrani Bank. mfrahman@scout.org, rahman_mafuz@yahoo.com

Source: Financial Express

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