Zakat, a Muslim Corporate Responsibility Duty. Does IT Have an Effect on the Malaysian Banking System's Financial Performance?
Islamic banks have to pay a mandatory religious duty called zakat. This special tax is paid on pre-tax earnings obtained by the bank and is dedicated to eradicating poverty and to the distribution of wealth, in general. For these reasons, it can be seen as a corporate responsibility duty dedicated to social actions. Malaysia has a dual banking system: conventional and Islamic. In this paper, we test whether a zakat banking responsibility duty has an effect on a bank’s economic and financial performance. The empirical research is based on a sample of 16 conventional banks and on another 16 Islamic banks. We conclude that zakat has a positive effect on the Islamic banking financial performance (return on equity), but not on its economic performance (return on assets). However, the Islamic banking approach showed better results on earnings before taxes.
KEYWORDS:
Corporate Social Responsibility, CSR, Malaysian Banking System, zakat, Muslim corporate responsibility, Islamic banking.