Issuing a circular on January 25, 2017, Nepal Rastra Bank (NRB) made it compulsory for A, B, and C class banking and financial institutions (BFI) to pledge one per cent of their net profit in their Corporate Social Responsibility (CSR) fund.

United Nations Industrial Development Organisation (UNIDO) defines CSR as the management model used by the institutions to balance the economic, environmental and social imperatives of a company.
It makes a company accountable to the society and environment, in the line of earning profit.

Along with an ongoing debate of whether or not should CSR be made compulsory for profit earning institutions, another rising concern includes whether or not the CSR funds established by these institutions are being utilised effectively and sustainably.

Following the circular issued by the central bank, the BFIs have managed to maintain a fund for CSR. However, the activities that they carry out for promotion of CSR are similar in nature.
For an instance, NIC Asia, through NIC Asia Foundation has been carrying out various activities such as providing relief to the disaster victims, donating in the Prime Minister Relief Fund, organising various health and blood donation camps, providing scholarships for those in need, helping the old age homes and orphanages and the like.

Also, as publicised by NABIL Bank, blood donation programme, distribution of educational materials, supporting other welfare organisations, and construction of schools were the activities carried out under CSR, in the Fiscal year 2074/75.

Laxmi Prapanna Niroula, Spokesperson and Information Officer of NRB, said that the BFIs had complied with the mandatory maintenance of CSR fund, but their performance was questionable.
However, since inclusion of CSR practice in these institutions is in its initial stage, we shouldn’t be expecting cent per cent effectiveness from the BFIs, he added.

"The concept of CSR is all about being accountable to the society and aiding in sustainable development. We have made it mandatory for BFIs so that they would be able to set an example to other profit earning organisations," said Birendra Datta Awasthi, Acting Director, NRB Bank and Financial Institution Regulation Department.

CSR would render effective, only if the BFIs would utilise their funds, with a vision to ensure sustainability in activities they perform, he added.
Many CSR experts opine that providing just a set of stationery goodies or relief items do not amount as CSR. Since even one per cent of profit earned by banks is equivalent to a huge number, the fund could be used in the welfare of society as a whole.

"The current practice of CSR in Nepal shows an uneven distribution of the CSR funds," said Roshan Kumar Sigdel, Director, NRB, Biratnagar.

"BFIs are seen using the fund, just for the sake of formality. Even though they've been maintaining CSR practice, no concrete result that would benefit the society is seen," he added.

Sigdel said that the funds were being used in a centralised manner. "The funds have not reached the remote areas of the nation, where people are actually in need."

In order to decentralise the fund and to ensure its effectiveness, strategic distribution of the fund in consonance with the branch offices located at the rural areas could be done, said Sigdel.
"The CSR practice will be a boon only if the BFIs perceive development of the society as their responsibility and not as their obligation," he added.

Niroula said, "There are some institutions which have done an exemplary work under CSR, but to make it more effective, the BFIs should create separate policies by complying with the international models of CSR."
"Also, in order to preserve the essence of corporate culture, the activities under CSR must be continuous," he added. "Utmost benefit must be provided to the targeted group by ensuring effective management of the fund in a long run."

Other than NRB, the Industrial Enterprise Act 2016, under Section 48 has made CSR mandatory to industries, on the basis of capital investment and annual turnover.