Stakeholders emphasise that Islamic banks’ commitment to aligning financial activities with ethical and social objectives is crucial in navigating current challenges and continuing efforts to reduce poverty and enhance social welfare.
Corporate Social Responsibility (CSR) spending by Islamic Banks in Bangladesh has experienced a substantial decline, raising concerns over the banks’ ability to sustain their critical social impact initiatives. According to the latest Bangladesh Bank (BB) report, CSR expenditure during the July-September 2024 quarter fell to Tk0.58 billion, marking a sharp 27.5 per cent drop from Tk0.80 billion in the preceding April-June quarter. The same period in 2023 recorded a similar amount as the April-June 2024 figure, further highlighting the severity of the current downturn.
The January-March 2024 quarter saw CSR spending at a higher Tk0.85 billion, showcasing a consistent downward trend throughout the year. This significant reduction has sparked concerns among stakeholders, as Islamic banks have traditionally played a vital role in addressing social challenges through initiatives funded by Shariah-compliant sources such as Zakat, penalties on defaulting clients, and other permissible earnings. These funds are typically allocated to critical sectors like education, healthcare, training, and charitable activities, with a focus on underserved and impoverished communities.
Islamic banks’ CSR programmes are designed to prioritise human necessities and productivity-focused projects, aiming to alleviate poverty and promote sustainable development. The recent cutbacks in spending could hinder the banks’ ability to maintain these impactful initiatives, especially at a time when disadvantaged communities’ needs remain acute.
Stakeholders have expressed concerns over the potential long-term implications of this decline, urging banks to strengthen their CSR frameworks and ensure adequate resource allocation. They emphasise that Islamic banks’ commitment to aligning financial activities with ethical and social objectives is crucial in navigating current challenges and continuing efforts to reduce poverty and enhance social work and social welfare.
Decline in CSR Activities Threatens Social Impact
The Islamic banking sector in Bangladesh accounts for more than 25 per cent of the total deposit share and 28 per cent of the investment share in the country’s entire banking system, according to the BB report. Despite this significant presence, the sector has also faced a contraction in total deposits. By the end of September 2024, deposits had declined by Tk86.42 billion, or 1.94 per cent, to Tk4.36 trillion compared to the end of June 2024.
Among the total deposits, the 10 full-fledged Islamic banks held a dominant share of Tk3.90 trillion (89.48 per cent), while Islamic banking windows of conventional banks contributed Tk253.25 billion (5.80 per cent), and Islamic banking branches of conventional banks accounted for Tk205.82 billion (4.71 per cent). The sector’s total investment (loans and advances) stood at Tk4.68 trillion at the end of June 2024, with 93.26 per cent of this amount managed by the 10 full-fledged Islamic banks.
Call to Action from the Central Bank
As of September 2024, the Islamic banking system in Bangladesh consisted of 10 full-fledged banks operating with 1,686 branches across the country’s total 11,300 banking branches. Additionally, 33 Islamic banking branches of 16 conventional commercial banks and 750 Islamic banking windows of 19 conventional commercial banks are providing Shariah-compliant financial services.
In light of the declining CSR expenditure, Bangladesh Bank has directed Islamic banks to enhance their CSR activities to support socio-economic development. The central bank has urged these institutions to focus on areas such as health, education, disaster management, rehabilitation, and poverty eradication. These initiatives are seen as essential not only for serving humanity but also for reinforcing the ethical and social principles that underpin Islamic banking. The recent decline in CSR spending comes at a time when the demand for social support remains high, particularly among vulnerable populations.
The Islamic Banks’ ability to balance financial stability with their ethical and social responsibilities will be critical in maintaining their role as key drivers of socio-economic development in Bangladesh. Moving forward, robust CSR frameworks and renewed commitments to impactful initiatives will be essential in ensuring that the sector continues to address pressing societal challenges effectively.
