A study on the corporate social responsibility of Islamic financial institutions: learning from the experience of socially responsible financial institutions in the UK

In order to fulfill the Shari'ah objective of promoting the welfare of society, Islamic financial institutions (IFIs) are expected to consciously align their decisions and actions so that they are `socially responsible'. An integral policy approach towards corporate social responsibility (CSR) would constitute assigning explicit social objectives to IFIs over and above their economic, legal, Shari'ah, and ethical responsibilities. Alternatively, the task of undertaking socially-oriented projects could be argued to be a discretionary responsibility of IFIs, with the objective of CSR being sought merely as a peripheral practice. Recent debates on the evolution of the practice of Islamic finance highlighted the profit and economic efficiency motives of IFIs rather than a concern for socio-economic equity and welfare. A divergence between the economics literature on Islamic finance and the course taken by the practical field of Islamic banking and finance has been argued to be arising over the years. An assessment of this contention motivates this study. The study seeks to assess the Corporate Social Performance (CSP) of a sample of forty six financial institutions offering Islamic products (FIIPs), located worldwide, which have responded to a questionnaire survey and whose CSR practices have been further verified by content analysis. The findings revealed that the majority of the Islamic financial practitioners believed in attributing an integrated social role to FIIPs. However, the practices of the FIIPs reflected a more limited approach to CSR. Most of the FIIPs were observed to be focused on meeting their legal, economic and Shari'ah responsibilities, that is, were concerned with the goals of profit maximisation and for their transactions to meet Shari 'ah compliance. Concurrently, the study appreciates the lessons that can be learnt from the socially responsible financial (SRF) movement that has evolved in the West to promote ethical finance. The ethical worldview of these socially responsible financial institutions (SRFIs) is guided by secular humanistic values which are largely socially determined rather than being drawn from a religious philosophy. The CSR practices of twelve British SRFIs - comprising mainly banks and asset management firms - have therefore been critically analysed through content analysis of their published and electronic materials. The analysis revealed that a sophisticated understanding of CSR shaped the culture of SRFIs which have mostly embedded CSR within their business transactions. CSR constituted an integral, explicit and strategic decision of management, with appropriate management system in place and, in some cases, with indicators developed to assess CSR performance against planned targets.