Corporate social responsibility expenditure on the financial performance of financial institutions with the special reference of Rural Development Bank (RDB)

Abstract

CSR activities and expenditure have gone up significantly in last few years. Part of this increase attributed to certain directions of the Sri Lankan financial sector. Besides providing goods and services in order to achieve profitability, they also serve as a source of livelihood for many, pay taxes that enable governments to operate, and have an impact on the physical and social environment. However, the practice of social responsibility poses a challenge to many financial institutions in Sri Lanka including the RDB. The socially responsible acts of financial have been assumed to have negative effect on the expenditure and profitability of some financial institutions thereby affecting their profit margins in the short-term. This research therefore focused on determining the extent of the effects of corporate social responsibility (CSR) expenditures on the financial performance of financial institutions. A survey and interviews of some selected department heads at the RDB and reviews of the annual CSR reports revealed that the immediate effect of socially responsible activities on the financial performance of financial institutions tends to be negative. In the long term, such efforts have the potential to accrue positive impacts for financial institutions that engage in socially responsible behaviors as part of their core functions. It is therefore recommended that financial institutions need to undertake socially responsible activities that are part of their core functions so as to overcome the initial shocks that are associated with such programs.