The policy laid down in the budget is welcome but needs some revisions.

One of the announcements made by the Finance Minister while presenting the federal budget in the parliament for the fiscal year 2022/23 reads:  “In order to increase the access to finance of marginalised and Dalit community, Marginalised and Dalit Upliftment Fund will be created. It will be provisioned to deposit at least 50% of the amount that is separated by the banks for Corporate Social Responsibility (CSR) to this fund.”

Under the existing requirements of the Nepal Rastra Bank, banks have to spend on CSR an amount equivalent to 1% of the net profit of the previous fiscal year. This works out to be a huge amount of money and the banks are finding it very difficult to spend it. Thus it has turned into a burden to most of the banks as they have to make a number of other arrangements to implement this. For example, they have to conduct a study to select areas and specific projects to spend this money, develop the project proposals and monitor the utilisation of the funds sanctioned. Then they also have to study the impact made by such expenses.

Therefore, the government proposal to take the fund from the banks may relieve the banks from this burden. However, based on the experience so far of the banks in utilising the CSR fund created as per the directive of NRB, this new provision needs some revision. Here are the reasons:

First, the spirit of having a CSR fund for any organisation is to be an organisation responsible for the society it operates in. If such funds are being mobilised by another entity, say, the government, then such organisations might lose the desire to become responsible organisations. This might work against the spirit of having a CSR fund at the enterprise level. Till today, the banks are encouraged to become socially responsible by making some broad policies on CSR which they have to follow. The provision laid down by the new budget will make CSR a liability rather than a responsibility.

Second, banks are spending their CSR budget on different sustainable development goals (SDGs) according to their own company philosophy (Vision-Mission-Goals). A bank may be focusing more on sanitation while another one may be giving top priority to female education. This way different banks are working on different SDGs so that the resources are spread across a broad spectrum of SDGs.  And the banks are motivated to be steadfast year after year in such selected areas so that there will be tangible results which will improve their brand image or reputation. If the government reduces their budget by 50% as announced by the Finance Minister, such money taken away by the government will be spent according to the priorities of the existing government this year and when the government changes, these priorities may change next year and thus the effectiveness of such spending may dissipate.   

Third, such practice of confiscating the CSR fund from a corporate body by the government is not heard of in any of the countries which are regarded as having the best practices in this field. Nepal too should try to emulate those best practices. The banks should be allowed to decide how they want to manage their CSR fund within certain parameters specified by the central bank or the government.

Of course, as the supreme authority of the country, the government can take not just 50% but 100% of the CSR fund of the banks. And many of the banks may not complain if the government does so by making a law because this way the banks will not have to allocate additional resources (human, logistics and others) to manage their CSR fund and thus they will be saving a lot in such expenses.

Maybe, the government came up with this idea because it might have thought that the CSR fund of the banks has not been mobilised properly and thus not been impactful. If the government wants to fix this issue, it can make guidelines or give specific targets in specific areas of SDGs. By doing so, certain major areas where the government wants to make positive and impactful changes can be covered by the banks’ CSR fund. In that case, the fund will be managed by the bank itself and not by the government.

The government can also have some priority areas of social development where it can ask all the organisations of the country to either directly contribute a certain portion or work in line to meet the objectives of the government. In India, the government has identified some major areas such as Make in India, Swachha Bharat etc. The organisations of the country work to achieve the objectives of the government.

It is good that the government of Nepal wants to support the marginalised and Dalit community. Of course, this requires a certain fund. But, is this method of taxing the already over-taxed banking sector a good idea?  

Moreover, the budget announcement has not outlined what sort of fund the government is forming. How will the fund be governed? From where else are the financial resources coming? If it is being financed only through the 50% of the CSR funds of the banks, will that be enough to carry out effectively the tasks planned for Dalit and marginalized ?

By utilising the bank’s CSR fund, will the government be liable to share the details of the fund so utilised (e.g. the areas, amount and the impact of the fund) to the general public? Currently, the banks are providing a report of CSR expenses details to its regulatory authority, Nepal Rastra Bank (NRB). If history is anything to go by, most of the programs run by the government are started with a bang but end with a fizzle.