Banks and CSR: Bringing more discipline and rigour

There is a sudden furore over corporate social responsibility (CSR) acquitted by commercial banks in the country. A war of words broke out recently between the finance minister and the chairman of a public sector commercial bank over the issue. While the finance minister called into question the ability to steer the affairs of the bank efficiently the chairman brought allegation of pressure from him to approve fund for a particular activity under CSR. From this it appears that recommendations are received from the finance minister in favour of social and cultural organisations who approach him for financial help. This is only natural because the management of commercial banks are more or less politicised with directors and chairmen selected on the basis of their political leanings.
As long as banks have CSR mandated by authorities and they have funds to disburse under this head there will be no dearth of applicants seeking succour. To make their case strong the applicants will deem it convenient to get recommendations of political authorities. There is room for discretionary use of power in dealing with those applications. Extraneous pressure and not merit may often decide which applicants get the approving nod. Only a standardised and transparent guideline can ensure that funds under CSR are used for right purposes.
Corporate social responsibility is not confined to banks only. Its ambit covers all corporate business entities that are engaged in making profit. The very nomenclature is associated with corporate activities, that is functions of corporate bodies that have money making as their bottom line. For a long while it was thought that the obligation of corporate bodied to society represented by government was fulfilled through payment of tax, duties and fees. Soon it dawned upon the management and the corporate board that their companies also owed to the community that supported their activities in various ways e.g. giving land, providing labour, bearing the cost of externalities like pollution and most importantly, through purchase of their goods and services. Communities contribute directly or indirectly to the profit earned by companies. As such corporate bodies have an obligation to help communities and their members by spending a portion of its profit for their welfare. This can take the form of communitywide projects e.g. developing a park, roadside tree plantation, water purification or support needy individuals. It goes without saying that an activity under CSR enjoys popularity and wide support when it is undertaken for the community as a whole. The importance of countrywide development projects cannot be over-emphasised. As another variant, CSR may undertake a welfare activity for a disadvantaged group. The scope of CSR may not be limitless but neither does it consist of a handful of activities.
It is not known how much of CSR fund spent by banks are for individual applicants or for groups and organisations. It is also not clear what type of activities gets priority in sanctioning funds. From a media report published recently it appears that the central bank has asked public sector commercial banks to submit reports giving details of expenditures under CSR. In the letter the central bank has asked for names of beneficiaries and their applications, copies of approvals, type of CSR activities financed, release of fund and the implementation status of CSR activities in their portfolio. Before this circular from the central bank a letter was issued by the Banking division of the finance ministry on August 28, 2014 pointing out that the management board of banks were engaged in liberal spending of funds under CSR. According to the ministry of finance the wide-ranging CSR activities had adversely impacted on the capital provisioning and capital adequacy of commercial banks. In view of this all public sector commercial banks were asked to suspend CSR funding until further orders. The banks were asked to furnish all relevant information for the period from July 2013 to June 2014 to the central bank for examination. Before this letter was issued the banking division stopped CSR activities of four public sector banks on August 28, 2014.
It is learnt that there is a guideline prepared by the central bank for use by commercial banks in respect of CSR. After the required information is received from the commercial banks it will be known whether the guideline was being complied with. If there was compliance with the guideline the commercial banks will have little reason to wring their hands and not much to explain for. But it is likely that there have been deviations from the circular. According to information available, organised groups have been active lobbying for applicants in almost all the banks. It is alleged that there is collusion between these groups and bank functionaries at various levels. As a result, the CSR programme has ballooned over the years. According to a report of the central bank, the total amount spent under CSR by banks in 2013 amounted to Taka 4420 million which was nine times that of 2009. On average a bank spent Taka 70.89 million under CSR according to the same source. With such big amount involved it is hardly surprising that organised lobbyists are busy at work inside the banks to subvert or derail the main objective of CSR.
It is reported that a new guideline for CSR to be followed by banks is on the anvil. Hints have been made that it will be more detailed and restrictive to rein in extravagance. The new guideline is expected to bring more discipline and rigour in the CSR activities of the banks. What is more important is regular supervision through quarterly checks and monitoring. For this a cell need to be set up in the central bank which should be in regular touch with the commercial banks. With such close supervision and monitoring abuse of CSR fund by banks can be greatly minimised.
A variant of the CSR is the Social Business model propagated by Dr. Yunus, the Nobel laureate. Its focus is on investment in non-profit social business, giving emphasis on employment generation. The idea has caught on and already there are supporters in many countries of the world. Social business has attracted economists as well as policy makers indicating its reach to diverse people. In Bangladesh, there are already a few social business concerns in operations. The commercial banks should diversify their CSR activities and participate in social business enterprises. This will be one example of CSR where allegation of abuse of funds is not likely to be made.    
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