CHAPTER 3
BANKING SECTOR IN BANGLADESH AND CSR PRACTICE

3.1 Banking Sector of Bangladesh
The commercial banking system dominates Bangladesh's financial sector. Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system is composed of four state-owned commercial banks, five specialized development banks, thirty private commercial Banks and nine foreign commercial banks. The Nobel-prize winning Grameen Bank is a specialized micro-finance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh.

Central Bank
•    Bangladesh Bank
Pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country, and named it Bangladesh Bank with retrospective effect from 16 December 1971.

State-owned Commercial Banks
The banking system of Bangladesh is dominated by the 4 Nationalized Commercial Banks, which together controlled more than 54% of deposits and operated 3388 branches (54% of the total). The nationalized commercial banks are:
•    Sonali Bank Limited
•    Janata Bank Limited
•    Agrani Bank Limited
•    Rupali Bank Limited

Private Commercial Banks
Private Banks are the highest growth sector due to the dismal performances of government banks (above). They tend to offer better service and products.
•    AB Bank Limited
•    BRAC Bank Limited
•    Eastern Bank Limited
•    Dutch Bangla Bank Limited
•    Dhaka Bank Limited
•    Islami Bank Bangladesh Ltd
•    Pubali Bank Limited
•    Uttara Bank Limited
•    IFIC Bank Limited
•    National Bank Limited
•    The City Bank Limited
•    United Commercial Bank Limited
•    NCC Bank Limited
•    Prime Bank Limited
•    SouthEast Bank Limited
•    Al-Arafah Islami Bank Limited
•    Social Islami Bank Limited
•    Standard Bank Limited
•    One Bank Limited
•    Exim Bank Limited
•    Mercantile Bank Limited
•    Bangladesh Commerce Bank Limited
•    Mutual Trust Bank Limited
•    First Security Islami Bank Limited
•    The Premier Bank Limited
•    Bank Asia Limited
•    Trust Bank Limited
•    Shahjalal Islami Bank Limited
•    Jamuna Bank Limited
•    ICB Islami Bank

Foreign Commercial Banks
•    Citibank na
•    HSBC
•    Standard Chartered Bank
•    Commercial Bank of Ceylon
•    State Bank of India
•    Habib Bank
•    National Bank of Pakistan
•    Woori Bank
•    Bank Alfalah

Specialized Development Banks
Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two (Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) are for extending term loans to the industrial sector. These two have been merged to create Bangladesh Development Bank Ltd. The Specialized banks are:                 
•    Grameen Bank
•    Bangladesh Krishi Bank
•    Bangladesh Development Bank Ltd
•    Rajshahi Krishi Unnayan Bank
•    Basic Bank Ltd (Bank of Small Industries and Commerce)
•    Bangladesh Somobay Bank Limited(Cooperative Bank)
•    Ansar VDP Unnyan Bank

3.2 CSR in Banking Sector of Bangladesh
The modern concept of Corporate Social Responsibility (CSR) is evolving gradually despite several hindrances. Driving forces behind this evolution is pressure from various stakeholders (Importers, Environmentalists) while slow progress is attributed to lack of Good Governance, absence of strong labor unions, consumer forums and above all lack of understanding by business houses, specifically non-exporting ones, that CSR is not charity but is rather an instrumental PR investment. Corporate Social Responsibility (CSR) is gaining fast global acceptance as a standard to assume environmentally sustainable and socially equitable business practices. The role of business world-wide and specifically in the developed economies has evolved from classical 'profit maximizing' approach to a 'social responsibly' approach, where businesses are not only responsible to its stockholders but also to all of its stakeholders in a broader inclusive sense. With increased globalization, local businesses are being integrated with the global economy than ever hence pressure is mounting on local businesses to converge on international standards of socially responsible business. As a member of the global economy, Bangladesh is also aware of the need to take positive initiative to establish an image of environmentally and socially responsible businesses. CSR as a concept is being gradually interwoven into the psyche of local business, however, the process is slow and only in its infancy. In most of the cases, CSR practices are not particularly framed in the context of seeing to in that the money being given as corporate donations had been part of a sustaining community development effort.

The banking sector of Bangladesh has been actively participating in various social activities. However, these efforts were hardly recognized and labeled as CSR activities since most of the financial institutions have not integrated CSR in their routine operation; rather these were in the form of occasional charity or promotional activities. Bangladesh Bank has taken initiatives in respect of formalizing CSR in the banking sector of Bangladesh and issued a directive to the banks and, financial institutions on June 01, 2008 in this regard. It defined the strategic objective for CSR engagement, provided some priority areas with a suggestion to foster CSR in their client businesses, and suggested a first time CSR program indicating some likely action plans. Bangladesh Bank will monitor CSR adoption and CSR performance of banks and financial institutions, as an additional dimension of their management performance. Bangladesh Bank also had the opportunity to provide a sense of direction to the CSR agenda of the banking sector when it suggested that, banks which are taking measures for rehabilitating, agriculture, fisheries, livestock, and protecting environment, will be considered as more compliant of Corporate Social Responsibility besides providing relief to the people affected in natural calamities like 'Sidr' and 'Aila'. The banking community has responded sensibly to the call for CSR and sustainable social development. We are also observing a gradual but qualitative change in the CSR action programs undertaken by banks. For example:

•    Disaster relief and rehabilitation became the segment where the highest number of banks participated to help case the sufferings of the affected people. In the current context, there is a desired move from the traditionally popular fields of education or health.
•    Several banks introduced micro-finance for the target groups, such as poor farmers, landless peasants, women entrepreneurs, rootless slum people, handicapped people, etc.
•    More and more banks have taken long-term or renewable scholarship programs for under-privileged but meritorious students for the persuasion of their studies, instead of providing one-time recognition awards to good performers.
•    Some banks choose to provide continued financial support for maintaining operating costs of health care organizations.
Without a 'governance framework', businesses may face substantial difficulties in finding and maintaining appropriate boundaries for their CSR interventions, and they may find themselves pressured into activities that are beyond their core competence and represent a financial drain on business rather than a sensible CSR investment. The initiative of Management and Resources Development Initiative (MRDI) aiming at proper utilization of CSR funds by means of seeking commitment from the leaders of trade and industry to undertaken target-oriented actions for sustainable social development is appreciable. MRDI has right pointed out that as an alternative development funds, CSR can contribute to poverty reduction and supplement government's efforts towards achieving the millennium development goals. In a developing country like ours with modest resources, it is important that we deploy our resources most usefully, and hence, we should make an effort to have an overall national policy on CSR that starts from building understanding of CSR incentives and pressure points and improving strategic interactions and alignment between public policy goals and the CSR-related activities of businesses.

3.3 Highlights of Recent Engagements of Banks in CSR Practice

• Out of forty eight scheduled banks in Bangladesh, forty six had engagement in CSR practices in some form or other in 2009.

• In terms of direct monetary expenditure, engagements of banks in CSR initiatives are increasing, particularly following issuance of BB guidance (DOS Circular No 01 Dated 1st June 2008):

Year                                              2007    2008    2009
CSR expenditure(Million Taka)    226.4    410.7    553.8


• CSR expenditures of banks have thus far largely been in the form of passive grants and donations. Banks were particularly responsive to emergency support needs of population groups affected in natural and manmade disasters.

• Apart from one-off grants and giveaways, some banks have engagements in longer term continuing support commitments, in areas of education and healthcare.

• Besides the passive engagements by way of grants/donations (Table 1), banks are now getting actively engaged in socially responsible business operations, by way of increased lending to under-served economic sectors like agriculture and SMEs, towards fuller financial inclusion and faster poverty eradication.

• Banks are yet to adopt practices of prior stakeholder consultations (an important element indicated in BB’s guidance circular) in drawing up their CSR programs.

• Some banks have reported embracing commitment for environmental sustainability in own and client businesses. Their actions have not however gone beyond compliance with relevant government laws and regulations. Proactive initiatives of helping arrest environmental degradation, like adoption of more energy efficient, and harmful emission/effluence reducing internal practices and processes have been largely absent in the CSR initiatives, even of branches of foreign banks with such practices in their home offices.

• Banks are yet to adopt separate reporting of their CSR activities in comprehensive formats such as the GRI.