With the exponential growth of Islamic finance, there has been a simultaneous increase in the expectations gap between Islamic finance practitioners and civil society members about the role that Islamic financial institutions (IFIs) should play in society.  The purpose of the survey conducted was to benchmark IFIs with the recently released AAOIFI standards that cover 13 aspects of social responsibility such as client engagement, employee welfare, charity, environment, investment quotas and others.   The objective is to provide some empirical data to benchmark trends in social responsibility.

Some key findings of the survey were:

Clients:  100% of respondents answered yes to having a policy to screen prospective clients which is actively implemented.  Similarly 97% have an organizational policy that deals with client responsibly.

Employees:  83% of respondents’ state having policies that provide equal opportunity to all their employees, 93% have policies that ensures merit-based salary and promotion, and 86% having policies that specifically prohibits any kind of discrimination.  However, when it comes to having policy to monitor employees from different backgrounds and gender, the response was mix with only 52% admitting to having such a monitoring policy and 48% not having any such policy.

Charity: 76% indicated that they had polices for charitable activities whilst 17% had none.  Charitable activities remains a strong priority for IFIs, but most do not consider utilising their fund mobilizing capabilities to raise funds for charities or emergency causes (only 34% said they do.)

Responsible Investments:  55% responded yes to having some policy in investment quotas on social, developmental and environment orientated investments, whilst 38% did not have such policy.  However, amongst the three types, environmental related investment quotas had the least focus (38%).

Zakah/ Waqf Management: Only 10% of respondents said they had a policy to manage Waqf properties on behalf of clients, while only 33% said they managed Zakah on behalf of clients

A set of socially responsible programs shared by the respondents and profiled in this report include a Charitable Takaful Savings plan, a social impact based investment program, and a Sharia compliant micro-finance initiative amongst others. 

Overall, the results suggest that IFIs do have a good start on most aspects of social responsibility, contrary to criticisms leveled at the industry.  However, this varies widely between institutions.   Also, the IFIs have yet to move from the negative screening framework which is primarily based on avoidance (first generation) to the positive action framework which is based on both avoidance and engagement in socially responsible activities (second generation.)

This is where IFIs can really make a difference given their financial institution infrastructure.  The results should not necessarily be generalized as it may be affected by response bias, since only pro-active and socially responsible institution may feel the need to respond to the survey.

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Articles/Papers on Islamic Finance & Social Responsibility (PDF Documents)

Accounting and Auditing Organisation for Islamic Financial Institution’s (AAOIFI) Governance Standard No. 7: Corporate Social Responsibility Conduct and Disclosure for Islamic Financial Institutions Stakeholders’ Perceptions of Corporate Social Responsibility of Islamic Banks: Evidence from Malaysian Economy; by Asyraf Wajdi Dusuki, Humayon Dar Evaluating the ‘Social Responsibility’ of Islamic Finance: Learning From the Experiences of Socially Responsible Investment Funds; by Sister Salma Sairally Social Reporting by Islamic Banks, ABACUS, 10/.42, No. 2, 2006 by Bassam Maali, Peter Casson and Christopher Napier What Does Islam Say About Corporate Social Responsibility (CSR), Review of Islamic Economics, Volume 12, Number 1, May 2008, by Dr. Asyraf Wajdi Dusuki Banking on Islam? Determinants of Corporate Social Responsibility Disclosure; by Sayd Farook, Roman Lanis Empowering Islamic Microfinance: Lesson from Group-Based Lending Scheme and Ibn Khaldun’s Concept of ‘Asabiyah; by Dr. Asyraf Wajdi Dusuki

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