Social Responsibilities and Emerging Morality: Evaluating Social Responsibility of Malaysian Islamic Banks

Friday, June 24, 2016: 4:15 PM-5:45 PM
87 Dwinelle (Dwinelle Hall)
Shifa Mohd Nor, Universiti Kebangsaan Malaysia, Bangi, Selangor, Malaysia
Mehmet Asutay, Durham University, Durham, United Kingdom
Islamic economics and finance movement emerged in 1960s as a discourse and practice to respond to underdevelopment in the Muslim World. Within this social and politically motivated movement it is considered that Islamic economics, banking and financial institutions and regulations should be provided in line with the ‘Islamic morality oriented behaviour norms’ of Muslim in their everyday practice of economics and finance so that inconsistency between institutional setting of economics and finance and the expectations and practice of Muslim individuals should be overcome.

With such expectations Islamic banks and financial institutions have emerged since 1970s to expand the transactional base of the society according to the Islamic fiqhi regulations and Islamic moral norms; and it is imagined that with such an expansion transformational base of the society will also be expanded so that emancipation and empowerment of individuals can be achieved.

The experience with the increased asset base of Islamic banks and financial institutions and their diversified operational base indicates that transactional success has been achieved and Muslims and non-Muslims have been given a new opportunity space. However, with such success, the nature of the achievements by Islamic banks and financial institutional have become an important subject to debate in the sense that ‘substantive morality’ is missing in the operations of Islamic finance as it is claimed that they have failed to respond to the initial imagination in economically and socially developing societies. Thus, ‘form’ vs ‘substance’ debate has shaped the recent debate; as those use substantive morality of Islam questions the moral legitimacy of Islamic finance, while Shari’ah scholars, Islamic bankers and financiers as well as regulators have relegated the whole issue to form related compliancy by their rationale interpretation of Islamic morality in an instrumental sense. Hence, if not more, two particular interpretations of Islam have been dominating the debate in Islamic finance related studies and practices.

In current times, the social expectations from Islamic banks and financial institutions are conceptualised through ‘Islamic corporate social responsibility’ (ICSR) frame to fit into academic sub-discipline we have in the existing body of knowledge. Studies in ICSR, on the one hand, focused on modifying the conceptual base of CSR to produce ICSR according to substantive and instrumental Islamic morality; on the other hand, a growing literature focused on either using conventional frames and indices or newly developed ICSR based indices are used to evaluate the ICSR performance of Islamic banks and financial institutions through the examinations of annual reports by employing disclosure analysis. However, such efforts remain within the disclosed information which does not help to capture the morality debate, while CSR or ICSR should relate to articulation of a particular type of morality.

This study, hence aims to examine the articulation of morality in the form of perceived ICSR performance through the perceptions of Islamic bank customers in a questionnaire survey conducted in Malaysia. The 800 questionnaire surveys were distributed to the main Islamic banks in Kuala Lumpur with a return of 477 that fits to analyse. Since Malaysia is considered as the most successful society in developing the necessary and efficient environment for the development of Islamic finance industry from regulation and legal framework to education, the participants were expected to have the necessary awareness and hence knowledge of the issues relating to ICSR.

The questionnaire aimed at assembling data from the Islamic bank customers on their understanding of ICSR activity of their respective Islamic banks to fulfil Islamic moral expectations. Furthermore, data were collected form Islamic banks’ staff to measure their ICSR understanding. These are expected to help to identify the different understanding of Islamic morality in relation to ICSR, as it is hypothesised that when it comes to expectations, customers may use substantive morality to ask for more ICSR performance from their banks.

Based on the analysis of the assembled data, it is revealed that 49.3% of the participants understands and have knowledge on CSR whereby they suggested that ICSR should be embedded in Islamic banks policy. Among the findings are regarding ICSR dimensions expected by the customers to be practised by Islamic banks. According to the respondents, Islamic banks should establish ethical values governing social responsibility, community development and conserving the environment; and hence customers imposed a great deal of the fulfilment of morality on Islamic banks. In other words, in terms of their expectations from the Islamic banks they opt for substantive morality of the maximisation of social good. The result depicts that ‘social responsibility’ factor is highly valued than ‘charity’ and ‘profit orientation’.

The practice of CSR is perceived to be relevant to Islamic banking since 79.4% of the participants voted for this element. Consequently, the participants express their opinion on the potential benefits for Islamic banks’ to perform CSR. Majority participants expect a better brand image for Islamic banks when they are socially responsible leading to overcome barrier between the bank and society. This is beneficial for ummah development and awareness on environmental care. The participants least perceived that CSR practices are costly and only suitable for financially stable institutions.

The detailed analysis of data beyond the mentioned results indicates that customers’ uses substantive morality in expecting maximum ICSR from their respective Islamic banks; therefore, in detailing their opinions in relation to their expectations and actual performance of ICSR they gave high score for aspirational ICSR issues while financial oriented definitions of Islamic banks were given lower score. When correlated with profile details of the participants, it seems that religious learning and knowledge has impact on such high moral expectations from the Islamic banks; and therefore Islamic banks are criticised for not fully implementing ICSR articulations. Thus, this study argues that in the practice of Islamic banking, customers impose the the fulfilment of Islamic morality on their Islamic banks, which indicates that they act according to substantive morality informed by higher objectives of Islam (maqasid al-Shari’ah). Therefore, rather than inductively informed morality they opt for deductively determined ontological meaning of morality.