Integrating moral principles in banking business

Banks are gradually motivated to be CSR-compliant organisations because organisations around the world and their stakeholders, are becoming increasingly aware of the need for and benefits of socially responsible behaviour. An organisation where it belongs, its responsibilities to the society and its impact on environment have become a critical part of measuring its overall performance and its ability to continue operating effectively now-a-days. In view of this, the government policies and role of the Bangladesh Bank (BB) are laudable, but some of the policies need revisiting to encourage corporate bodies to be more inclined to corporate social responsibility (CSR) activities.
2015 is the last year of Millennium Development Goals (MDG). We are entering the age of Sustainable Development Goals (SDGs) where entrepreneurs should be made responsible for taking care of plant and planet. The SDGs contain 17 goals with 169 targets covering a broad range of sustainable development issues. These include ending poverty and hunger, improving health and education, making cities more sustainable, combating climate change, and protecting oceans and forests. The 17 SDG Action Plans have given enough thrust on healthy lives, decent work for all, urgent action to combat climate change and its impact etc.
So, national and international practices are to be aligned to develop a dynamic corporate sector for operation at a sustainable manner.  Initiated by the BB in 2008, the CSR mainstreaming campaign in Bangladesh's financial sector has enthused all banks and financial institutions into a broad range of direct and indirect CSR engagements including humanitarian relief and disaster response, widening of advancement opportunities for disadvantaged population segments with support in areas of healthcare, education and training, 'greening' initiatives arresting environmental degradation, etc.
Direct and indirect budgetary CSR commitments of banks and financial institutions have increased several-fold since 2008. The already substantial and further increasing levels of financial involvement in CSR engagements have understandably raised concerns about ensuring allocation of the budgetary resources on an arm's length basis, free of insider interests connected to members of the boards and senior managements, as also about proper end use monitoring. Specific policies of the BB have tried to address these issues.
The BB has some policies for CSR. With a view to developing green banking practices in the country also, an indicative Green Banking Policy and Strategy framework has been developed for the banks.  The Green Banking Policy covered through time framework  are segregated into 3 phases, the last phase  supposed to be completed by June of this year.
Banks are required to report their green banking initiatives/activities on quarterly basis and school banking on half-yearly basis to the Banking Regulation and Policy Department (BRPD) as per a circular. Banks are also required to submit reports on CSR, gender equality and education budget-related activities on a half-yearly basis as per policy to the concerned section of the central bank.
Banks are facing problems in getting the benefits of CSR policies announced by the government because of lack of required clarity. In the BB circular, there is a mention of establishing a separate CSR unit by the banks or foundation but while they would like to use the money transferred to any foundation, it needs permission from the NBR to use this money for CSR activities and faces separate audit. The dedicated CSR unit/foundation will propose budgetary allocations for CSR programmes annually for approval of the board of the bank/financial institution. The board will approve allocations by appropriations from annual post-tax net profits. The proposals for board approval must scrupulously avoid any allocation in favour of any entity directly or indirectly connected with directors, senior management members of the bank/financial institution or with the trustees of its CSR foundation. As per their version, if the transferred money is post- tax amount, then they might have to face double taxation problem which should be addressed and the money could be pre-taxed rather than post-taxed.
Banks are supporting its clients to be CSR- compliant by encouraging them to be socially and environmentally compliant. The lists of CSR areas of the BB and the NBR are not   aligned.  Some examples can make the issue clear. The NBR list includes education for rural and deprived community run by the government as one of the qualified sectors to get CSR benefits while in the BB list, it is for education scholarships/stipends for students from low-income family in reputed academic and vocational training institutions.
Healthcare for rural and deprived community run by the government is included in the NBR list, but in the BB list, preventive and curative healthcare support assistance for underprivileged population segments is included as one of the qualified areas for CSR. Grant for disaster relief, flood-stricken people, etc., is included in the list of the NBR.  While promoting adoption of environmentally sustainable output practices and lifestyles, promoting artistic, cultural, literary, sports and recreational facilities for the underprivileged, upgrading facilities and lifesaving equipment in emergency rescue services like the fire brigades etc., infrastructure improvement for disadvantaged communities in remote far- flung areas and so forth are in the BB list.
The NBR has announced 23 sectors for tax exemption up to Tk 120 million.  In the SRO, it is written that exempted limit should not exceed 20 per cent of net profit or Tk 120 million whichever is lower.  Twenty per cent limit could be without condition or the limit could be up to Tk 250 million. But these exemptions can not be availed by the banks as the areas are not aligned with the two organisations, along with other unclear policies.
The aim in promoting CSR among banks is to help them strengthen their own CSR policies, and also to raise awareness among the bank clients of the need to adopt best practices. ISO 26000:2010 provides guidance to all types of organisations, regardless of their size or location.  
Bangladesh has not yet voted for this standard. Now that ISO26000 has become the International SR Guidance Standard, there is a role for the BSTI (as Bangladesh ISO member-state) and the Ministry of Industries for implementing ISO 26000 for Bangladesh. In case of having business with other countries by signing FTA and PTA, it might have some implications. Among SAARC and ASEAN countries vetted for SO-26000, Pakistan, India,  Sri Lanka, Thailand and Malaysia  also participated  and voted.
Banks are encouraged to use solar energy, green business and environmental management and also maximum use of precious resources. They, by taking care of these issues while extending loans, can encourage entrepreneurs to be socially responsible if policies are properly aligned.
As the corporate tax rate structure of banks (42.50 per cent) is very high, banks can get a tax rebate for CSR activities as allowed by the NBR circular, but they are not quite capable of utilising benefits extended to them because of procedural complicacy and differences of requirements.
BUILD presented a reform policy paper at its 5th financial sector development working committee chaired by the Deputy Governor-1 in June 2015 and suggested some policy measures.
The lists of the CSR sectors could be reviewed in consultation with and as per capabilities of the private sector. The allocation for CSR activities through foundation could be pre-taxed instead of post-tax net profits to encourage banks to go for more CSR activities for the benefits of the community.  There could be a specific guideline for audit so that they can prepare accordingly.
The BB has announced a list of products in the category of energy and environmental goods to get refinancing facilities which is a welcome move. In order to increase utilisation of green refinancing fund which is presently less than 5.0 per cent, condition and criteria for refinancing should be simplified. The list of 47 products  could include some  energy and environmental goods such as; energy and water minimising equipment, equipment and machineries used for minimising electricity use (tannery, textile, dying etc.), waste recovery products, low energy, solar panel etc. Leather Industries supposed to be relocated from Hazaribag to Savar, may be an identified sector to be supported through Green Banking Refinancing for commencing their production as  a climate-sustainable sector. Chrome tanning can be a chosen sector to get support from Green Refinancing. Refinancing in the field of renewable energy and environment- friendly sector is supposed to get these financing.
Banks can play a great role to make their clients educated about CSR. Each bank should be permitted to develop/adopt its definition of CSR. The Association of Bankers and the NBR may like to agree on a common definition of CSR.  
Concept of corporate social responsibility and its ethical behaviour in business area are not new but they are becoming topical because crises have significantly highlighted the need for integration of moral principles in banking business. The CSR does not figure out yet as a key source of competitive advantage in Bangladesh. In the future, Asian consumers are bound to give more importance to the CSR issues in their purchasing behaviour.

The writer is CEO, Business Initiative Leading Development (BUILD).
ceo_build@outlook.com