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The Current Status of Corporate Social Responsibility Disclosure of Islamic Shari-based Banking Companies in Bangladesh

Md Sumon Hossain
By Md Sumon Hossain
2 weeks ago
The Current Status of Corporate Social Responsibility Disclosure of Islamic Shari-based Banking Companies in Bangladesh

Islam, Islamic banking

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  1. Research Article ISSN 2313-4747 (Print); ISSN 2313-4755 (Online) The Current Status of Corporate Social Responsibility Disclosure of Islamic Shari-based Banking Companies in Bangladesh Md. Sumon Hossain1*, Taposh Kumar Neogy2 1Assistant Professor, Dept. of Accounting and Information Systems, University of Rajshahi, BANGLADESH Professor of Accounting, Department of Business Administration, Institute of Business Administration (IBA), Rajshahi (under National University), BANGLADESH 2Assistant *E-mail for correspondence: Received: Jun 12, 2017; Accepted: Jun 27, 2017; Source of Support: None Published: Feb 20, 2017 No Conflict of Interest: Declared ABSTRACT The purpose of this study is to examine the current extent and any difference (if any) of CSR disclosure of Islamic Sharia-based banking companies in Bangladesh during the period of 2011-2015. Content analysis is adopted to accumulate the data from company’s annual reports. The CSR checklist comprise of sixteen dimensions (including 85 items) of CSR activities i.e., ‘Environment’, Disaster management, ‘Sports, Shelter, Women, Disabled, Liberation war, Health, Education, Energy, Minorities, Employee, Product responsibility, IT, Community and Government. The study reveals that the grand mean disclosure of CSR information in annual report of Islamic banks is 25.89% with a standard deviation of 5.49%. Empirical evidence provides that there is statistically significant difference of CSR disclosure among Islamic Sharia-based banking companies in Bangladesh. But there is no significant difference of CSR disclosure of Islamic banking industry in Bangladesh year to year. Moreover, CSR disclosure of Islamic Shari-based banking companies is not diversified rather concentrated on some specific dimension and items of CSR. The study is mainly based on annual reports for the financial year 20112015 of Islamic Sharia-based banking companies in Bangladesh. Hence, the conclusion reached cannot be generalized. Keywords: Corporate Social Responsibility, Disclosure, Islamic Sharia-based banking companies, Bangladesh INTRODUCTION Islamic financial institutions (IFIs) are considered as having ethical identity, and they have different social and economic objectives since the foundation of their business is based on religion (Haniffa and Hudaib, 2007). The general objective of IFIs is to contribute to the development of the economy within the boundary of Islam. Within the range of Shari'a (Islamic law), IFIs are expected to be guided by an Islamic economic worldview, which is based on the principle of social justice and the wellbeing of society (Dusuki and Dar, 2005). As Islam is based on the equal right of individual and ensuring maximum benefits to social people, banks that follow the Islamic principle, it becomes an utmost duty for them to be involved in social activities. Corporate social responsibilities is a set of management practices that confirms the maximum positive impacts of its operation on society or “operating CC-BY-NC 2014, Asian Business Consortium | AJTP in a manner that meets and even exceeds the legal, ethical, commercial and public expectations. Banking companies all over the world engage in various types of social activities to ensure social sustainable developments. In Bangladesh, approximately 25% of total deposit share and 30% of total investment of banking sector are from Islamic Sharia-based commercial banks. The topic of corporate social responsibility (CSR) has become more significant than ever before due to the occurrence of some high profiled events all over the world. Some examples of incidents are for instance, the collapse of Enron, USA (2001), or the incidents involving WorldCom USA (2002), Parmalat, Italy (2003), Union Carbide, India (1984), Exxon Valdez, Alaska, USA (1989), Shell in Nigeria (1993), Nike in Vietnam (1996), Kathie Lee Gifford and Wal-Mart, China (1992). We do not need to look abroad to have some experience in this regard. In Bangladesh, Sonali Page 7
  2. Hossain and Neogy : The Current Status of Corporate Social Responsibility Disclosure of Islamic Shari-based Banking Companies in Bangladesh bank, Basic bank & Hallmark Co. scams also question the social responsibility of banking company in our country. So, to ensure clarity and transparency, there is an urgent need for in-depth study into the extent and quality of social reporting. In addition, it is also vital to identify the areas for future betterment. (Masud, Hossain-2012). Bangladesh Bank (BB) motivates listed commercial banks to participate in social activities (CSR) willingly, which might pave the banking sectors to become more prepared on the thoughts of CSR issues (Bangladesh Bank 2008). BB also advised banking and other financial institutions to move towards implementation of CSR program (Bangladesh Bank 2009, 2010a), set up a separate CSR desk (Bangladesh Bank 2010b) and ensuring gender equality in the office in order to confirming basic human rights and socio economic growth (Bangladesh Bank 2011b). According to Bangladesh Bank (2010a), now CSR initiatives start in a modest way as supplements to usual annual financial reports, eventually it will grow as a comprehensive reports format like Global Reporting Initiative (GRI) (Das, Dixon & Michael, 2015). This study concentrate on the extent of reporting of CSR information in annual reports of Islamic Sharia-based banks considering a comprehensive CSR dimensions. This study has therefore contributed to our understanding and knowledge of CSR, and CSR disclosure (CSRD) in particular, in the business environment of IFIs i.e. Islamic Sharia-based banking companies in Bangladesh. A number of studies have been conducted on different manufacturing companies, insurance companies, banking companies but focusing on Islamic banks CSR disclosure is a new research attempt. The structure of this paper is proceeded as: Section 1.2 relates to literature review, section 1.3 states the objectives of the study, section 1.4 describes the methodological aspects of the study, section 1.5 provides the analysis and discussion of results, section 1.6 gives the conclusion part of the paper. REVIEW OF LITERATURE Islam provides guidance to its followers in all aspects of life, in spiritual as well as material activities (Hamidullah, 2005). Islam is intensely concerned with the problem of economic development, but treats it as an important part of a wider problem (i. e. total human development) (Ebrahim and Joo, 2001). Therefore, the primary objective of Islamic economics is a social and economic justice, equitable distribution of wealth, and elimination of exploitation in business activities by banning all sources of unfair enrichment (Sarker, 1999). The emphasis on the welfare of the community is very significant from an Islamic perspective. Accordingly, working for the welfare of the others is the best way of extending one's usefulness in pleasing Allah (Suliman and Willett, 2003). In line with this argument, the Holy Quean states "You will never come to piety unless you spend of things you love" (Qur'an S3: 92), "Ah, what will convey unto thee what the Ascent is: (it Page 8 (7-12) is) to free a slave, and to feed in the day of hunger an orphan, near of kin or some poor wretch in misery (Qur'an: S90: 20). One of the operational tools by which a corporation can demonstrate social responsibility is via CSRD, which is defined as "Provision of financial and non-financial information relating to an organization’s interaction with its physical and social environment, as stated in corporate annual reports or separate social reports" (Guthrie and Mathews, 1985, cited in Hackston and Milne, 1996, p. 78). Another definition was offered by Gray et al. (1987, p. 9) "the process of communicating the social and environmental effects of an organization’s economic action to particular interest grouping within society and to the society at large". Thus, CSRD is a communication tool of the organization’s social and environmental impact through different media. CSRD also plays a significant role indifferent aspects of business, including enhancing corporate transparency, developing corporate image and providing useful information for investment decision making (see, e. g. Gray et al., 1988; Patten, 1990; Gray et a/., 1995a; Owen, et aL, 1997; O'Dwer and Gray, 1998; Alnajjar, 2000; Friedman and Miles, 2001 ; Gray and Bebbington 2001). The empirical studies of CSRD are concentrated mainly in Western countries. In addition, the majority of international comparative studies of CSRD have focused on the analyses of the differences and similarities of CSRD practices in these countries only (Tsang, 1998). It is apparent that less attention has been given to developing countries generally and to the influence of religion as an 'environmental/cultural' factor particularly. So, this study may assist the policymaker to formulate proper policy for Islamic banking companies in Bangladesh regarding financial reporting. OBJECTIVES OF THE STUDY The main objective of this study is to examine the level CSR disclosure of Islamic Sharia-based banking companies in Bangladesh. Specifically this study will consider:  To focus on the extent of CSR disclosure of Islamic Sharia-based banks.  To investigate whether there is any difference in CSR disclosure among Islamic Sharia-based banks.  To examine whether there is any difference in CSR disclosure of Islamic-Sharia-based commercial banks over the study periods. METHODOLOGY OF THE STUDY Sample Selection In Bangladesh, there are two Stock Exchange namely Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). Researchers have excluded the listed banking companies on CSE. There are 30 banking American Journal of Trade and Policy ● Vol 6 ● Issue 1/2019
  3. Research Article ISSN 2313-4747 (Print); ISSN 2313-4755 (Online) companies listed on DSE where 24 are conventional private commercial banks and 6 are Islamic Sharia-based commercial banks. The present research study has considered only Islamic Sharia-based banking companies, so our number of population is reduced to only 6. Among these 6 banks, researchers have selected 4 Islamic Shariabased commercial banks that represent 66.67% of population and the study covers the periods from 20112015.The following Table shows the list of sample banks of the study. H0a: There is no difference of CSR disclosure among the Islamic Sharia-based banking companies in Bangladesh Table 1: Sample Companies of the Study H1b: There is a difference of CSR disclosure during the study periods among the Islamic Sharia-based banking companies in Bangladesh. S.N. 1. 2. 3. 4. Acronym IBBL SJIBL FSIBL ICBIBL Full Name Islami Bank Bangladesh Limited ShajalalIslami Bank Limited First Security Islami Bank Limited ICB Islami Bank Limited Construction CSR index A number of approaches exist in measuring several dimensions of CSR reporting. The first approach is company rating approach, such as Kinder, Lydenberg and Domini index (KLD), Dow Jones Sustainability Index (DJSI), Global reporting Initiative (GRI) and Domini Social Index (DSI) 400. The second approaches to measuring CSR are the reputation indices such as Council Economic Priorities (CAP) reputation index, the Milton Moskowiz reputation Index and Fortune reputation Index. Survey methodology is also another approach to measure CSR. Researchers or trained data collectors collect relevant data using questionnaire or adopting other techniques (Mishra and Sour, 2010; Tilakasiri, 2012; Ahmed, 2012). The limitations of this approach are that it is very time consuming and also costly. Moreover, measurement of CSR of secondary data, content analysis is also used. In this research, the un-weighted disclosure index approach (Haniffa and Cooke, 2002, 2005; Rouf 2012) is used to calculate the extent of CSR reporting as a dichotomous variable. If a financial company (bank) disclosed CSR items in its annual report it scored “1’ while banks that did not disclose an item scored ‘0’ (Gujarati, 2009).The disclosure model is additive and unweight index are calculated as follows: CSRI = ∑