Corporate Social Responsibility of Islamic Banking: A Study of Two Banks in Bangladesh

Abstract

Corporate Social Responsibility (CSR) is a relatively new and rapidly developing phenomenon in the developing countries particularly in Bangladesh. It is the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life. Social Responsibility is more than compliance and more than corporate; philanthropy and requires a commitment by an organization to do more than simply abide by the minimal requirements of the law. Corporate social responsibility (CSR) is an evolving process and its manifestation varies from country to country and culture to culture. However, private sector business including Banks and Financial Institutions are the prime mover of the economic activities in the free economy. It is widely and intensively related to the various components of the society. Society in many respects depends on private sector business, because it holds and controls social resources and provides goods and services, employment opportunities and taxes to the government. Inversely, business depends on the society for the supply of employees, customers, raw materials, security, infrastructure and social recognition. Besides these dependencies, every business action has some positive and a few negative impacts on society. Industrial pollution creates ecological wound, concentration of resources increase poverty and social unrest leads to crime for which it becomes obligatory for business community to discharge corporate responsibility to the society. The relationship between business and society lead to manifold corporate social responsibility of trade and commerce including BFis. It is generally accepted that business certainly has social responsibility. But the way of performing this responsibility and degree of social involvement has not been fixed yet and the debate continued on this issue till today. In a free economy, banking sector has significant role in the society while Islamic Banks are not beyond the scope. As Allah in the Holy Qur'an Has directed, "… So that wealth is not concentrated among the rich," (Surah Hashor, verse-7) and in Surah Ale­Imran (verse-92) He said, " You will not get satisfaction of Allah until you would spend from your preferred goods (in the way of Allah for betterment of human being)." Being the Islamic Bank, it cannot disown the apparent urges of above verses; rather it must comply with it meticulously as this is the demand of Islam. But what is reality regarding the CSR activities of Islamic banks that have not yet been studied comprehensively by any researcher in the past. The present study, therefore, aims at analyzing and evaluating the pattern and culture of Corporate Social Responsibility of Islamic Banking particularly of IBBL and AIBL with reference to their contributions towards all segments of stakeholders including the government and the environment. It also finds out the factors which are hindering the CSR activities and offers suggestions and policy measures to_ promote the CSR activities in Bangladesh. For this purpose necessary data have been collected from secondary and primary sources by using survey method. After proper checking and editing data were arranged in tabular and graphical forms. Statistical tools including SPSS program were used when or wherever appropriate. Moreover, comparative evaluation, logical argument and rational judgment were also made through out the dissertation for ensuring reasonable interpretation. Content analysis method was used to find out inferences and conclusions from secondary data. The present study analyzes among other issues the growth trends of the activities of Islami Bank Bangladesh Limited and Al-Arafah Islami Bank Limited including the origin and development of Islamic Banking in Bangladesh. It is also observed that, with the developing . trend of Islamic Banking : All over the world as well as in Bangladesh, IBBL was established in 1983 and AIBL in 1995. By 2009 seven full­fledged Islamic Banks were established including a foreign one. Twelve other conventional banks also conducting Islamic Banking opening separate branches in addition to their conventional banking; and two banks were also allowed to convert their banking policy from conventional banks into Islamic banks such as: Exim Bank Ltd. and First Security Islami Bank Ltd. However, growth of performance covering capital, deposit, investment, foreign exchange, operating profit, expansion of branches and manpower etc. of IBBL and AIBL is positive and encouraging. It is observed from the analysis of growth performance of both the banks that the growth trend of IBBL is found very satisfactory and that of AIBL is also satisfactory. After analyzing the performance, it is found that among the different stakeholders, the shareholders are the most important interest groups who are directly related to the Islamic banks. Banks and Financial Institutions in general and Islamic Banks in particular have social responsibility to protect the investment and to pay fair dividend towards shareholders. If Islamic Banks properly perform its social responsibility towards shareholders, then it increases mass participation and acquire public trust. The impacts of social responsibility to the shareholders are internal resource mobilization, capital formation, alleviation of capital scarcity, and industrialization leading to the economic growth and social advancement. In this respect, IBBL provided handsome dividend almost every year except 1992 with an increasing trend. AIBL also maintains very satisfactory trend_ of providing dividend almost every year. Thirty percent bonus share has been given for the year 2008 by both the Banks. It is observed proved that Islamic Banks have social responsibility to protect the employees' interest. Payment of proper salaries and wages, providing of training for carrier development, implementation of employees' safety and welfare measures are the major social responsibility of BFis. Execution of these social responsibilities plays an important role in increasing living standard and job satisfactions leading to efficient human resource management. It is worth mentioning that for the employees both the banks have ensured excellent working conditions by arranging air-condition and decorated comfortð€€±ble physical working environment, automation of operational procedures including note counting machines and so on. Besides, both the Banks have introduced Superannuation Fund, Provident Fund, Gratuity Fund and Benevolent Fund to ensure economic safety of the employees against any untoward incidences in discharging their whole hearted and dedicated services to the organization. Nevertheless, there are some limitations regarding CSR as the most satisfactory performance on social responsibility of Islamic Banks towards employees does not exist. Maintaining of equal employment opportunity for both male and female is a social responsibility of financial institute particularly Islamic Banks which is not satisfactory in the country. IBBL started appointment of female officers after one and a half decade later of establishment. And AIBL has not yet initiated employment of female officers though it walked 15 years till date. Less than fifty percent stakeholders say that Islamic Banks satisfactorily discharge their social responsibility to the employees. However, it is also evident that like shareholders and employees, the deposit customers are relatively satisfied as they feel secured regarding their deposits and receiving justified rate of profit. Similarly, the investment clients are also happy having reasonable behaviour from both the banks and there is no visible or invisible hassle in getting investment. However, there are some technical weaknesses in case of some investment schemes as there is no sufficient investment opportunity in agriculture sector and agro-based business and most of the branches are located in urban areas. Moreover, the customer service of IBBL is not up-to the mark though it is better in comparison to NCBs. It is also observed that, poor customer services of IBBL are being taken place due to its huge volume of customers. Besides, being the largest commercial private bank and having largest online ne,twork the numbers of ATM booths are not sufficient i.e. below one hundred, where as DBBL has more then 700 booths though the transaction volume of DBBL is much smaller than IBBL. On the contrary, AIBL has not yet introduced ATM booth service for its customers. Apparently, it is thought that Islamic Banks became popular mainly due to its religious factor. But in practice there are more dominant reasons other than fascination to Islamic Values. As the researcher found reasons, on the basis of opinions of the customers through field survey; such as; overall standard services, strong financial base, more financial security, convenience of little deposit and so on. In this study, it is ob,served that IBBL and AIBL are committed to discharge their due social responsibility towards environment and these are especially concerned about the impact of the bank's financed projects on environment. An environmental policy has been formulated in accordance with the guidelines issued by the government. As per the policy, environmental impacts are being considered through investment (credit) risks analysis. Regarding this IBBL have around 1053 industrial projects located in 19 different industrial sectors while AIBL also financed considerable number of industries maintaining the green industrialization rules as they believe in Green Industrialization. It is a common practice of these banks to take clearance from the government authorities to establish each project so that no environmental hazards are being created by the projects. They take all possible care to protect the projects from environmental pollution. In this regard, they encourage their dyeing and printing projects to establish Effluent Treatment Plant (ETP) to protect water and soil from pollution. All the brick fields financed by IBBL and AIBL have at least 120 feet chimney to minimize the air pollution. They assure NOC of various Authorities such as, Explosive Department, Fire Service Department, 'Rupantorito Prakritic Gas' (Compressed Natural Gas) Company etc. for setting up gasoline/CNG filling station. They also ensure by visiting the projects whether the clients comply all the requirements or not and they do not invest in any project which may be hazardous to the environment. Government, being the most powerful social institution of a country, establishes utility services, legal and administrative framework for safeguarding liberty, justice, freedom and smoothing the living standard of citizens. Taxes of business activities are the major sources of government's revenue, which is essential for execution of government's functions. Through this study, the researcher has observed that IBBL is playing a vital role by contributing a good amount of money to the national exchequer and thus it is helping the government initiatives in collection of revenue. IBBL is the highest corporate tax payer in the banking sector and second among all corporate bodies of Bangladesh in 2008-2009 by paying Tk. 4016 million including VAT and Excise Duty etc. while Grameen Phone bagged the first position. The status of AIBL regarding tax payment including other obligatory payments to government is also satisfactory. So, it is obvious that, social responsibility of Islamic Banks particularly IBBL and AIBL is relatively satisfactory though it is not enough in the context of Bangladesh. From the study, CSR based some special services have been found out in IBBL and AIBL. In fact, the business is conducted among the people of a society. So, business institutions are liable to ensure the interest and benefits of the mass people of the society. Considering this and the Islamic Shariah IBBL and AIBL are very much sincere to the corporate interest of the poor destitute and other impoverished section of people. Thus, IBBL and AIBL are implementing various programs through IBF and AIBF for the betterment of the society such as income generating programs and health-care, relief and rehabilitation, education, humanitarian, dawah and special programs. Among the service based projects heath service, general education, heath education, technical education, income generating activities etc. are worth mentioning. With a view to providing financial assistance to the poor, distressed and needy people, Islami Bank Foundation spent Taka 1178 million up to 2008, since the inception of IBF for (a) Income Generating Projects, (b) Education (c) Health and Medicare, (d) Humanitarian, (e) Relief and Rehabilitation, (f) dawah activities, etc. Out of which Tk 43 million was spent as scholarship for 5216 students of different educational institutions. And Al-Arafah Islami Bank is also conducting some CSR programs among which Al-Arafah English Medium Madrasah and a big library having more then twenty two thousand books at Top khana Road are worth while to note. The Household Durables Scheme (HDS) was introduced in 1992 with special initiative of Lutfar Rahman Sarker the then Executive President of IBBL and former Governor of Bangladesh Bank. Since then, Islami Bank brings revolutionary changes in the banking arena as pioneer. Though, the HDS has got momentum and became the most popular scheme but CSR oriented other eleven schemes are also contributing remarkably. Those include Housing Investment Scheme, Transport Investment Scheme, Car Investment Scheme, investment Scheme for Doctors, Small Business Investment Scheme, Agriculture Implements Investment Scheme, Rural Development Scheme and Women Entrepreneurs Investment Scheme and so on. Similar to IBBL, AIBL is also implementing some CSR oriented projects since long. These are; Women Entrepreneurs Investment Scheme, Micro-Finance and Poverty Alleviation Program, Desired Durable Investment Scheme and Investment for SMEs. Though, performance of above schemes is not so attractive, but being the newly devised schemes, they are doing not bad as observed by the researcher. On the other hand, IBBL has some limitations also as there is no assessment and moderating system of these stereo typed schemes. As a result, there is no remarkable expansion of these schemes as it could be. The challenging factors of performing corporate social responsibility of business including Banks and Financial Institutions are categorized in this study. Lack of awareness and avoidance of social responsibility of business, absence of good governance, existence of corruption, political turmoil, rleterioration of law and order situation, ethical degradation of entrepreneurs, corruption of government officials, high cost of pollution control and business operation are the major challenges for poor performance of discharging corporate social responsibility of BFis in Bangladesh. Prior to conclude, this study suggests for undertaking of some measures for developing CSR activities of business including BFis in Bangladesh. Social campaign, establishment of research institute on CSR, devising adequate rules and regulations for CSR, establishing monitoring cell for CSR, introduction of President's or Prime Minister's Award on CSR, ensuring mandatory disclosure in the annual reports, real implementation of law and order, establishment of transparent and good governance, arresting corruption, establishing bank's branches in remote and rural areas, expansion of ATM booths, minimizing gender disparity in employment, allocation of at least 5% of net profits as contributions in social issues, development of ethical and moral standard, maintenance of political stability and development of corporate governance are the major recommendations for the development of the perormance of social responsibility of Banks and Financial Institutions in Bangladesh. So, in this dissertation the growth trends and performance of Islamic Banks and their motives, objectives and role in CSR activities in Bangladesh have been critically analyzed and required suggestions and recommendations have also been provided on the basis of research findings. It can be concluded that IBBL and AIBL have set some very good examples of CSR activities in Bangladesh. This may encourage the policy makers to make rules and regulations for other Fls and business houses so that they also come forward to undertake CSR activities in Bangladesh.