Islamic banks' CSR continues to shrink amid liquidity stress

Corporate Social Responsibility (CSR) expenditure by Islamic banks in Bangladesh has witnessed a persistent downward trend, with spending in the third quarter of 2025 falling significantly from what it was a year ago.

According to the latest Bangladesh Bank (BB) data, expenditure on CSR activities by Shariah-based lenders stood at Tk 0.43 billion during the July-September 2025 quarter, marking nearly a 26 per cent year-on-year decline.

In addition, CSR expenditure by Islamic banks recorded a 15.69 per cent quarter-on-quarter decline, sliding to Tk 0.43 billion in the July-September 2025 period from Tk 0.51 billion in the preceding April-June quarter.

This consistent dip comes at a time when the Islamic banking system accounts for more than 24.6 per cent of total deposits in the overall banking sector, even as it grapples with  tightened liquidity and shifting economic priorities. Islamic banks in Bangladesh operate under a unique socio-economic framework, where CSR is not merely a philanthropic choice but an inherent part of their Shariah-compliant identity.

Islamic banks undertake and implement various social programmes under their CSR activities. Sources of funds available for CSR include Zakat, compensation charges (penal charges from defaulting investment clients) and other Shariah-permitted sources of earnings. These funds are spent on education, training, health and charity-based organisations across Bangladesh.

Islamic banks serve deprived and disadvantaged people who remain outside the purview of the conventional banking system due to extreme poverty. They aim to conduct financial transactions based on human needs and undertake productivity-oriented projects and activities to reduce poverty.

Industry insiders suggest the decline in spending is a direct result of contractionary monetary policy and lower net profits.

"The turnaround of the economy is key to boosting CSR contributions," noted a senior executive of a private commercial bank. "When liquidity is tight and private-sector credit growth slows, the surplus available for social programmes naturally shrinks."

Stakeholders and analysts argue that for Islamic banks to regain their social impact momentum, they must strengthen their internal governance and Shariah-compliance frameworks.

As the Islamic banking system represents 29.2 per cent of total investment in the country, its ability to support the disadvantaged is vital to the nation's broader poverty alleviation goals.

Islamic banks may enhance their CSR activities for socio-economic development, aiming to serve humanity through various philanthropic initiatives with emphasis on health, education, disaster management, rehabilitation and poverty eradication, according to a Bangladesh Bank report.

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