Corporate philanthropy as a determinant of profitability among commercial banks in Kenya

Abstract

Strategic Corporate philanthropy has for long been mistaken with cause related marketing. This is mainly because cause related marketing deals with the concentration of giving on a single cause or admired organization for example sponsorship of the Olympics. However, as opposed to cause-related marketing, SCP involves the emphasis on social impact rather than publicity. Given that, most Kenyan banks have embarked on SCP, albeit without a general benchmark or backdrop of information on its impact, through the costs incurred, on the financial books. There is need to fill this knowledge vacuum towards harnessing the resources of the corporate firms-banks in this case and hence reducing wastage or helping in shoring up profits. This study sought to determine the aforementioned construct of social impact within the confines of SCP and hence ensuring delivery of profits and specific margins to the commercial banks in Kenya. This was through a survey of 43 banks, and two respondents in each given bank. The respondent rate was 65% (56 questionnaires), and they reflected a strong correlation between the kind of SCP initiative they were involved in and the performance of the given banks. All the 43 selected banks for the research study show that they do engage in philanthropic activities of various nature. 30% of them note that there is an increase in profitability in relation to SCP, from the marketing perspective 25% of the respondents said SCP activities would want to retain the customers. Also 20% of the respondent banks noted a public relations paradigm as SCP activities play a role in improving the image of the organization. Combined with CSR and SCP goals 15% of the respondent banks reflected an interest in addressing the community needs while 8% of the respondent banks noted an expansion of the target market due to SCP activities. The instruments applied (questionnaires) identified three forms of assessment in the evolution of corporate philanthropy towards community involvement. The first wave involved companies adopting sophisticated approaches of setting aside annual budgets and the second wave entails establishing in-house departments for community affairs. The final wave involved the complete integration of community affairs with business objectives. In the course of time, different schools of thought have informed on the divergent ways of giving or different paradigms. The study provides proof to the growing demand in changes of organizational engagement with society and how the interaction is bound to influence their performance. Overall, the study reflects that consumers should have a positive view of proactive corporate philanthropic activity. An examination of the amount of funds donated underscores the importance today’s corporations place on philanthropic activity. The amounts dedicated to SCP are reflective of the premium placed by the banking industry on engagement with the society at large, showing that the banks are active participants in the societies within which they operate.