Islamic Banking gif
CORPORATE SOCIAL RESPONSIBILITY AND ITS IMPLICATIONS ON FINANCIAL INSTITUTIONS:
The Mainstream Western Perspective versus the Islamic Finance Viewpoint
Author: Beebee Salma Sairally, Researcher, International Sha- riah Reseach Academy for Islamic Finance (ISRA), Malaysia
Abstract: Corporate Social Responsibility (CSR) is a growing business practice worldwide. While for some businesses CSR represents philanthropic activities that the organisation gets involved in on a voluntary basis, others perceive CSR as an integral part of business policy that is meant to add value to society as well as improve the competitiveness of the organisation. Within these two CSR approaches–the American and the European model respectively–there is a broad continuum of CSR responses that businesses tend to endorse, from being proactive to being reactive. Financial institutions, by virtue of their interface with society, can not be dissociated from their social contexts. They are also called upon to meet their corporate social responsibilities.
This paper discusses the implications of CSR on financial institutions from both a main- stream Western perspective and from the viewpoint of the Islamic finance paradigm. It is observed that there is increasing tendency for endorsement of CSR practices by main- stream banks in the UK. Moreover, other financial institutions have evolved which tend to consider CSR as their way of doing business–notably, the Socially Responsible Invest- ment (SRI) movement. Within the Islamic finance discourse, the standard issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) on CSR for Islamic Financial Institutions (IFIs) attributes mandatory and voluntary CSR conduct to IFIs. Nonetheless, the call for endorsement of a more socially responsible approach in the practices of IFIs is being currently reiterated in several Islamic finance forums. The discussion revolves around the best possible approach for making the practices of IFIs better reflect the maslahah principle (protection of public interest) in line with the broader objective of achieving the maqasid al-Shariah (objectives of Islamic law).
Keywords: Corporate Social Responsibility, Corporate Social Performance, Socially Re- sponsible Financial Institutions, Islamic Finance, Islamic Financial Institutions, Shariah
It is common practice for businesses, in- cluding financial institutions, to get involved in different forms of social provisions. Until the 20th century, the social responsibility of European and American businesses has remained mostly implicit and voluntary, tak- ing the form of charitable donations or cor- porate philanthropy. Recent discussions on the social responsibility of businesses have, however, extended the concept of CSR to involve more than philanthropy. The trend since the 1990s, particularly in the Europe- an context, has been for CSR to represent a more explicit practice of businesses and it is increasingly changing from being a vol- untary practice to being mandatory by law. The participation of businesses in CSR has in turn broadened, to encompass such is- sues as socially responsible products and processes, socially responsible employee relations, socially responsible investments, ethical trade, corporate social reporting, stakeholder engagement and business codes and standards.
2012 April Global Islamic Finance 43
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