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The Review of Islamic Corporate Social Responsibility Standard and Literature: Future Research for Malaysian Islamic Banks

Fatimah Noor Rashidah Mohd Sofian
The Review of Islamic Corporate Social Responsibility Standard and Literature: Future Research for Malaysian Islamic Banks

Islam, Islamic banking, Maqasid, Shariah, Sunnah, Waqf

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  1. Volume : 4 Issues: 20 [June, 2019] pp. 24 - 46] Journal of Islamic, Social, Economics and Development (JISED) eISSN: 0128-1755 Journal website: www.jised.com THE REVIEW OF ISLAMIC CORPORATE SOCIAL RESPONSIBILITY STANDARD AND LITERATURE: FUTURE RESEARCH FOR MALAYSIAN ISLAMIC BANKS Fatimah Noor Rashidah Mohd Sofian1 Rusnah Muhamad2 1 PhD student at University of Malaya; Lecturer at International Islamic University Malaysia Email: fatimahnoorrashidah@gmail.com 2 Lecturer at University of Malaya Accepted date: 14-04-2019 Published date: 20-06-2019 To cite this document: Mohd Sofian, F. N. S., & Muhamad, R. (2019). The Review of Islamic Corporate Social Responsibility Standard and Literature: Future Research for Malaysian Islamic Banks. Journal of Islamic, Social, Economics and Development (JISED), 4(20), 24 46. __________________________________________________________________________________________ Abstract: The Malaysian government has shown strong support towards the involvement in corporate social responsibility (CSR) and the disclosure of CSR activities by the Islamic financial institutions (IFI) and the Islamic banking sector. Despite the support, there is no Islamic CSR standard established in Malaysia specifically for Islamic banks even though several CSR standards comprising conventional elements have been issued. This, therefore, evinces the need to propose an Islamic CSR guideline. Indeed, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has issued an Islamic CSR standard, and there is a growing amount of Islamic CSR and corporate social responsibility disclosure (CSRD) literature related to the framework. Hence, the objective of this study is to identify the current state of Islamic CSR standard and its framework, and the gaps for improvement in proposing an Islamic CSR guideline for the Malaysian Islamic banks. An analysis from the systematic literature of AAOIFI Islamic CSR standard, and Islamic CSR and CSRD literature from Web of Science and SCOPUS found that there is a need to improvise Islamic CSR guideline for the Malaysian Islamic banks due to the inconsistencies of the existing Islamic CSR frameworks in the Malaysian context. Keywords: Islamic CSR, standard, framework, Islamic banks, Malaysia ___________________________________________________________________________ Introduction It is worth noting that the Malaysian government aspires to achieve Vision 2020 which is, to become an entirely developed country by the year 2020 in the economic, political, social, spiritual, psychological and cultural segments (Mohammad, 1991). Hence, a revolution is needed in the economic, social, and government sector (National Economic Advisory Council, 2009). According to the National Institute of Public Administration (INTAN) (2015), Economic Transformation Programme (ETP) and 11th Malaysia Plan are one of the national 25
  2. agendas for realising Vision 2020 . Ismail, Alias, and Mohd Rasdi (2015) state that through the ETP pillars, private corporations are considered to be the main enablers of the economic and social developments. Apparently, the Malaysian government announced that Malaysia aims to become an international Islamic financial hub (Performance Management & Delivery Unit (PEMANDU) (2013). This is due to the fact that Islamic banks have the ability to increase financial inclusion and promote real economic activity (Bank Negara Malaysia (BNM), 2015a, 2015b). Imam and Kpodar (2013) assert that the banking sector gives the most important contributions to the financial industry and hence, the country’s economic growth as it accelerates savings and manages funds efficiently. In light of this matter, this study is focused on the Islamic banking sector involving private corporations. In addition to this, the issuance of the 11th Malaysia Plan 2016-2020 has promoted the incorporation of corporate social responsibility (CSR) activities in various sections. The activities include providing financing sources to small-medium enterprises (SMEs), assisting the health sector, working collaboratively in the environmental sector with the government, private organisations and the society, and providing financial support to Bumiputra entrepreneurs involved in the halal industry which can further improve the society’s living standards by 2020 (Economic Planning Unit, 2015). From the 11th Malaysia plan, it can be seen that the Malaysian government shows great eagerness to encourage the public and private organisations to be engaged in CSR activities. Besides, the government is certain that the involvement in CSR and the disclosure of CSR activities will increase the profits gained by the organisations and enhance their good image (Othman, Darus, & Arshad, 2011). The inception of the Silver Book on September 25, 2006, was the critical point to manifest the support given by the government towards disclosing CSR activities (Wan Abd Rahman, Zain, & Yaakop Yahya Al-Haj, 2011). This is to say, the government has seriously urged the organisations to be involved in CSR activities as well as disclosing CSR information to the public. Besides, in the 2007 Budget, the government has announced an increase in tax deduction from 5% to 7% for private organisations if there is an involvement in charitable activities and sports (Ahmad Badawi, 2007; Amran, Ling, & Sofri, 2007). Hence, it shows that the government is eager not only to support Malaysian organisations’ involvement in CSR but also to urge the companies to learn from developed countries in implementing CSR and practising corporate social responsibility disclosure (CSRD). Similarly, due to the announcement of the 2007 Budget, Bursa Malaysia has taken the initiative to develop a CSR guideline for public-listed companies. Bursa Malaysia has required CSRD to be mandatory in the annual report for all public-listed companies. This serves as a stepping stone for the organisations to act responsibly towards the society (Fatima, Abdullah, & Sulaiman, 2015). However, the guideline is only provided for the public-listed companies excluding the remaining organisations and Islamic banks that are not listed in Bursa Malaysia. Problem statement Therefore, the above matter implies that there is no Islamic CSR guideline established for Malaysian Islamic banks (Wan Jusoh & Ibrahim, 2017) despite Malaysia’s objective to become an international Islamic financial hub (PEMANDU, 2013). Islamic CSR guideline is important in order to distinguish the business operation of Islamic banks from that of conventional banks (Darus, Yusoff, Abang Naim, Amran, & Fauzi, 2018). Besides, due to the tarnished reputation of Lembaga Tabung Haji, there is a need for transparency in Islamic banks to prevent stakeholders’ negative judgment (Bani, Mohd Ariffin & Abdul Rahman, 2015; Mohd Pauzi, Abdul-Rahman, & Mohd Nor, 2017). Hence, prior to developing an Islamic CSR guideline, 26
  3. this study seeks to identify the current state of Islamic CSR standard and its existing framework proposed by international bodies and scholars . Thus, the objective of this paper is to review Islamic CSR standard and related articles in order to identify to what extent international bodies and scholars have developed Islamic CSR framework, and whether there is a gap that can be improved in proposing Islamic CSR guideline for Malaysian Islamic banks. The present study contributes to the field of Islamic banking by evoking awareness about the conceptualization of CSR from the Islamic perspective propagated by scholars and practitioners. The current conceptualization of CSR can be used to propose an Islamic CSR guideline that is relevant to Islamic banking in the Malaysian context. Literature review CSR and CSRD CSR can be defined as the involvement of social, economic and environmental responsibilities. According to Carroll (1979), CSR consists of four dimensions, which are economic, legal, ethical, and philanthropic. Freeman (1984) believes that an organisation should have responsibilities towards the shareholders, and stakeholders. Meanwhile, Friedman (1970) highlights that, CSR should only be involved in making profits when it is in line with the law and practised in the right manner. From an Islamic perspective, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) (2010) states that the involvement in CSR by Islamic financial institutions is related to religious, economic, legal, ethical and discretionary responsibilities. Meanwhile, Khurshid, Al-Aali, Soliman, and Amin (2014) highlight that the Islamic CSR model is derived from the theory developed by Carroll (1979) consisting of the economic, legal, ethical and philanthropic dimensions. The economic dimension acts as a basis for the CSR pyramid. Carroll (1991) concludes that the organisations should make profits in accordance with the law and ethics. Carroll (1991) explains that the organisations must target to maximise earnings per share in an appropriate way, be profitable as possible, be competitive, operate efficiently, and be consistent in making profits. In terms of legal responsibilities, every business organisation is expected to operate in compliance with the established rules and regulations (Carroll, 1979). Meanwhile, ethical responsibilities indicate that the organisations must act ethically even though it is not specifically stated in the existing rules and regulations. The stakeholders, specifically, expect the business organisations to uphold ethical responsibilities beyond the codified laws. For instance, the organisations should carry out ethical actions such as being fair and protecting the rights of the stakeholders (Carroll, 1991). Lastly, philanthropic responsibilities imply charitable activities that the business organisations conduct on a voluntary basis but which are not required by law, and do not fall under ethical categories (Carroll, 1979). Despite the definition of CSR proposed by various scholars, there is no consensus on the definition of CSR (Hou & Li, 2014). Moreover, CSR practices are different because of the diversity of culture and environment (Aksak, Ferguson, & Duman, 2016). CSRD, on the other hand, is a documentation to advise the stakeholders on the effects of the economic, social and environmental information towards the institution’s performance during the year (Garcia-Sanchez, Cuadrado-Ballesteros, & Sepulveda, 2014). Through CSRD the 27
  4. stakeholders can monitor the activities that the banks have been conducted during the year by which the performance of the banks can be analysed systematically . Nevertheless, Reverte (2009) claims no regulation or consistency is found with regard to the reported items, or the format of reporting. Therefore, due to inconsistencies, there is a need for this study to review the current standard and literature about Islamic CSR. CSR standards in Malaysia Silver Book is one of the strategies derived from the Government Linked Company (GLC) Transformation Programme and approved by the Putrajaya Committee on GLC High Performance (PCG), and included in the GLC Transformation Manual (Putrajaya Committee on GLC High Committee, 2015). Silver Book is a guideline to disclose CSR information for the government-linked companies which emphasise seven core areas namely human rights, employee welfare, customer service, supplier partnership, environmental protection, community involvement and ethical business behaviour (Zahid & Ghazali, 2015). The establishment of Silver Book is important to assist the government-linked companies to actively engage in social activities which will then be displayed in the reporting. It is expected that other organisations will be aspired to follow the action of the government-linked companies (Othman et al., 2011; Putrajaya Committee on GLC High Committee, 2015). Indeed, Amran et al. (2007) opine that the implementation of Silver Book will trigger the companies in Malaysia to disclose CSR activities. Conceivably, it shows that the Malaysian companies are new to CSRD, and still learning how to benefit from it compared with large companies in developed countries. This turns out to be true when the announcement of 2007 Budget in September 2006 required public-listed companies to be involved in CSR and disclose CSR activities in their annual reports. This thus marked an important point for the CSR development in Malaysia (Ahmad Badawi, 2007). Meanwhile, the Sustainability Reporting Guide (Bursa Malaysia Securities Berhad, 2015) is only and specifically created for publiclisted companies. In Malaysia, there is only one public-listed Islamic financial institution in Bursa Malaysia namely BIMB Holdings Berhad. The established Guide covers three dimensions which are economic, environment and social. These dimensions are known as EES. Although the Guide provides a systematic guideline for social responsibility disclosure, it does not include any Islamic elements. Therefore, there is a need to propose a specific Islamic CSR guideline for the Malaysian Islamic banks. Previous literature on CSRD in Malaysia Previous literature has shown that the level of CSRD in Malaysia is gradually increasing after the announcement of the government’s support, the issuance of Silver Book and Bursa Malaysia’s mandatory requirement (e.g., Esa & Mohd Ghazali, 2012; Fatima et al., 2015; Haji, 2013; Wan Abd Rahman et al., 2011). Thus, this evinces that, with the issuance of the CSR standard and the government’s support, CSRD can be done. This has been supported by Saleh, Zulkifli, and Muhamad (2011) that participation from the government and regulators in fostering CSR advantages has gradually increased the engagement of Malaysian organisations in CSR. Indeed, this has directly nurtured the organisations’ reputation and improved their legitimacy. In order to strengthen the idea that the government’s involvement leads to a higher level of CSRD, empirical evidence presented by Said, Zainuddin, and Haron (2009) proves that when there is an ownership of government in the companies, the tendency to disclose more CSR activities is higher. This is supported by Amran and Devi (2008) who state that the intervention of the government in the organisations will influence the disclosure of CSR. Hence, it shows that the government takes CSR as an important element in Malaysia’s economic growth. 28
  5. Previous literature on CSRD in Islamic banks Majority of the studies used content analysis to analyse Islamic banks ’ annual reports. For instance, Adapa (2013) and Mallin, Farag, and Ow-Yong (2014) analysed the banks’ websites and Islamic banks’ annual reports. There are studies that analysed newsletters, newspapers, magazines, banks’ publication, and sustainability reports besides the banks’ annual reports and websites (e.g., Darus et al., 2014; Kamrujjaman & Uddin, 2015; Samina, 2012; Tuhin, 2014). An empirical study found that Islamic banks did not disclose all of the CSR dimensions that are in line with Shariah principles (Darus, et al, 2014; El-Halaby & Hussainey, 2015; Farook, Hassan, & Lanis, 2011). For example, less disclosure on the environmental dimension (Aribi & Arun, 2015; Mallin et al., 2014; Abdul Rahman & Bukair, 2013), social dimension, and ethical dimension in the CSR practices of Islamic banks (Aribi & Arun, 2015; Khan, 2013; Abdul Rahman & Bukair, 2013). In fact, Islamic banks are only keen to disclose the economic dimension (El-Halaby & Hussainey, 2015; Rashid, Abdeljawad, Ngalim, & Hassan, 2013). Indeed, the level of CSRD is ranged from low to moderate (e.g., Arfan & Hisda, 2013; Arshad, Othman & Othman, 2012; Fitriyah & Oktaviana, 2014; Musibah & Wan Yusoff Alfattani, 2013; 2014). However, the level of CSRD is high in 53 Islamic banks from the Gulf Cooperation Council (GCC) countries (Bukair & Abdul Rahman, 2015). This implies that the disclosure of CSR is inconsistent (Aribi & Arun, 2015; Farook et al., 2011; Khan, 2013). In summary, the CSR practised by Islamic banks is diversified across the countries. Thus, there is a need to propose an established guideline to reduce the inconsistencies of CSRD. Methodology A systematic literature review focuses on the literature with reference to specific questions that aim to identify, select, organise and analyse data from related studies critically. Thus, the main research questions posed in this article are to acknowledge; • What is the current state of the Islamic CSR framework particularly Islamic CSR dimensions, elements, and indexes? • What are the main gaps that the Islamic CSR dimensions, elements, and indexes should include in the proposed Islamic CSR guideline for the Malaysian Islamic banks? Literature research The current study presents a review of Islamic CSR standard and extant literature concerning Islamic CSR. The AAOIFI Islamic CSR standard issued by the AAOIFI in 2010 has been referred to throughout the review. This is due to the fact that the AAOIFI leads the development and issuance of standards for the global Islamic finance industry, whose steps have inspired other prominent Islamic financial institutions across the world. The AAOIFI has named the CSR standard as the Governance Standard No. 7: Corporate Social Responsibility, Conduct and Disclosure for Islamic Financial Institutions. Meanwhile, Islamic CSR articles revolve around CSR and corporate social responsibility disclosure (CSRD) topics. Google Scholar was used as the primary search engine to gain detailed and reliable information related to the subject matter. The keyword used for the search is “Islamic corporate social responsibility”. The articles reviewed were taken among those published from 2014 until 2018. The researchers restricted articles that have been published within five aforementioned years in order to ensure that only relevant and updated dimensions and indexes are taken into account. The articles were restricted to English articles only. 29
  6. Search output In phase one , a total of 26, 300 research articles were retrieved from Google Scholar using the keyword “Islamic corporate social responsibility”. All the articles must be concerned with Islamic banks, Islamic financial institutions, framework, disclosure, and reporting related to the framework, dimensions, elements and indexes. In particular, the articles must be within the scope of Islamic literature. Hence, a total of 106 related articles were found. In phase two, the researchers searched the articles for the second time based on year, from 2014 to 2018, in order to ensure that no relevant article is left out. The researchers restricted the selection of the articles only from Web of Science and SCOPUS. In addition, only articles that provide detailed information on CSR dimensions, elements and indexes were analysed. Hence, out of 106 articles, only 24 articles met the criteria. Notably, there were 10 articles from Web of Science and 14 articles from SCOPUS. The distribution of the articles is displayed in Table 1. Table 1: Distribution of the reviewed articles by the researchers Description Total Web of Science 10 SCOPUS 14 Total Web of Science and SCOPUS reviewed articles 24 Extraction of data The final analysis comprised 24 articles. The articles were categorised into five main groups, namely articles that provide CSR dimensions; CSR indexes; CSR dimensions and elements; CSR dimensions and indexes; CSR dimensions, elements and indexes. Besides, the study reviewed the Islamic CSR standard which has been issued by the AAOIFI. Findings and discussion Review on Islamic CSR standards The Islamic CSR standard issued by the AAOIFI has been named as the Governance Standard No. 7: Corporate Social Responsibility, Conduct and Disclosure for Islamic Financial Institutions. The AAOIFI CSR standard has been divided into two which are mandatory, and recommended as shown in Appendix A. Mandatory disclosure consists of disclosure of policy on screening clients, disclosure of policy for dealing with clients, disclosure of earning and expenditure prohibited by Shariah, disclosure of policy for employee welfare and disclosure of policy for zakah. Voluntary disclosure refers to the disclosure of policy on social, development and environment-based investment quotas, disclosure of policy on par excellence customer service, disclosure of policy on micro and small businesses and social savings and investments, disclosure of policy on qard hasan, disclosure of policy on charitable activities, and disclosure of policy on waqf management. Nevertheless, this standard still has a loophole that needs to be closed. Hassan and Harahap (2010) assert that the AAOIFI should add other elements such as ethical behaviour, customer relation, diversity and environmental policies, besides incorporating other features of CSR such 30
  7. as transparency , accountability and partnership into the standard. Moreover, it is worth emphasising that Malaysia does not adopt the AAOIFI CSR standard (AAOIFI, 2017). Hence, considering this fact, Islamic CSR literature has been reviewed. Review on Islamic CSR articles 24 Islamic CSR articles published from the year 2014 to 2018 were reviewed. The articles revolve around the topics relating to Islamic CSR and CSRD. The articles provide information regarding CSR dimensions (e.g., Abu Bakar & Md Yusof, 2016; Franzoni & Allali, 2018), CSR indexes (e.g., Hidayat & Alhur, 2016), CSR dimensions and elements (Tarique, Ahmed, Hossain, & Momen, 2018), CSR dimensions and indexes (Platonova, Asutay, Dixon, & Mohammad, 2018; Darus, Amran, Nejati, & Yusoff, 2014) and CSR dimensions, elements and indexes (Alamer, Salamon, Qureshi, & Rasli, 2015). Articles on CSR dimensions Appendix B shows three articles concerning CSR dimensions. The articles are all empirical in nature. For instance, Franzoni and Allali (2018) propose Islamic CSR dimensions based on the definition of CSR given by the AAOIFI (2010). The CSR dimensions consist of economic responsibility, discretional responsibility, ethical responsibility, legal responsibility and religious responsibility. The Islamic CSR dimensions were reviewed to identify whether they can be merged with conventional CSR based on the case studies of two banks. Indeed, the authors found that the Islamic CSR, and the conventional CSR can be converged. However, the only difference that stands out between these two types of CSR is in terms of religious responsibility. It evinces that Islamic CSR dimensions are attached to the concept of religious obligation that Islamic banks must fulfil. Meanwhile, Hamidi and Worthington (2018) developed a framework for Islamic social banking to measure the social performance of Islamic social banking. It is said that Islamic social banking could overcome Islamic banking’s failure to find balance between financial and social outcomes (Hamidi & Worthington, 2018). The proposed framework consists of four dimensions which are prosperity (sustainable profit), planet (environmental sound), people (socially oriented) and Prophet to achieve Maqasid alshariah. Indeed, scholars have different opinions concerning the conceptualization of Islamic CSR due to the difference in achieving the objectives. On the other hand, Abu Bakar and Md Yusof (2016) have come up with a framework to manage CSR initiatives based on Tawhidic, and Shariah paradigm by using a case study of Bank Islam Malaysia Berhad (BIMB). There are four phases of CSR initiatives management namely environmental scanning, designing CSR initiatives, implementing CSR initiatives and evaluating CSR initiatives. Among the four phases of managing CSR initiatives, designing CSR initiatives also gives focus on religious responsibility. Evidently, all of the three authors stress that Islamic CSR dimensions should be instilled with Shariah elements. Notably, Abu Bakar and Md Yusof (2016) emphasise that CSR initiatives must be disclosed in order to increase the awareness of the stakeholders. The next section discusses articles on CSR indexes only. Articles on CSR indexes Both of the articles reviewed herewith are empirical. The studies developed CSR indexes based on the underlying theories or standards. Besides, the CSR indexes have been perceived as to whether the stakeholders agree or disagree with the indexes. For example, Mohd Nor, Abdul Rahim, and Senik (2016) provided seven indexes to gauge the perception of the customers and the employees of Islamic banks in Malaysia regarding what should social banking be like. The result of their study reported that the respondents agreed that assisting community development implies social banking. Nonetheless, the remaining six indexes are within the boundaries of social banking as well. The indexes were formed based on the Islamic economic theory which 31
  8. consists of tawhid , ‘adl, rububiyyah, tazkiyyah, ukhuwwah and unity. These principles must be in line with the Quran and Hadith. Whereas, Hidayat and Alhur (2016) asked the depositors of Islamic bank in Saudi Arabia to respond whether they are aware of the CSR activities based on the AAOIFI CSR standard. The findings report that the depositors are more aware of one of the CSR activities of Islamic banks which is, the policy on screening clients for Shariah compliance. In addition, the depositors are not aware of other CSR activities such as policy on managing Waqf properties, assisting poor and needy individuals and families in terms of health, education, and business. On a related note, both of the articles seem to contradict each other. This is perhaps due to the fact that the empirical studies were conducted in different countries. Hence, the preference for the conceptualization of CSR indexes is different depending on the environment and culture. The next article discusses about CSR dimensions and elements. Article on CSR dimensions and elements Appendix D provides the article on CSR dimensions and elements. There is only one article in this section in which the authors have analysed CSR activities in Islami Bank Bangladesh Limited (IBBL) (Tarique et al., 2018). The analysis of the CSR activities was done with reference to the level of maqasid al-shariah. The level of maqasid shariah is divided into necessities (daruriyyat), complements (hajiyyat) and embellishments (tahsiniyyat). The analysis of CSR activities from the annual report of IBBL found that education, health, humanitarian and disaster relief represent necessities. Meanwhile, the environment represents complements. Lastly, sports and arts, literature and culture represent embellishment. Thus, in the Bangladesh context, CSR activities are more focused on the welfare of society. This study, however, has a clear-cut limitation as it does not focus on the Malaysian context. In addition, the analysis was conducted from 2009 to 2013. Thus, the level of maqasid al-shariah could change due to the transition of the period. The next section reviews the CSR dimensions and indexes proposed by previous scholars. Articles on CSR dimensions and indexes In this section, the articles on CSR dimensions and indexes have been reviewed as shown in Appendix E. The articles consist of theoretical and empirical research. There is one article preseting theoretical research (Khurshid et al., 2014), whilst the remaining articles present empirical research particularly content analysis (Platonova et al. 2018; Yusoff, Mohd Azhari, & Darus, 2018; Sherif, Khaled, Mohamed, & Hussein, 2018; Ahmed & El-Belihy, 2017; ElHalaby & Hussainey, 2015; Aribi & Arun, 2015; Belal, Abdelsalam, & Nizamee, 2015; Abduh & AlAgeely, 2014; Mallin et al., 2014; Darus et al., 2014) and survey perceptions on CSR dimensions and indexes (Kunhibava, Ling, & Ruslan, 2018; Marsidi, Annuar, & Abdul Rahman, 2017; Di Bella & Al-Fayoumi, 2016). From the theoretical part, Khurshid et al. (2014) provided an Islamic CSR framework entailing the combination of both conventional and Islamic elements taken from Carroll, the Quran and the Sunnah. Hence, based on the principles applied, the proposed Islamic CSR framework consists of economic, legal, ethical and philanthropic elements. On the other hand, there are empirical studies that have conducted content analysis with regard to CSR dimensions and indexes. Some of the scholars provide CSR dimensions and indexes to examine the level of CSRD and the relationship between the variables. Most of the CSR dimensions and indexes for this study were taken from the previous Islamic CSR literature and conventional literature, but they are not up-to-date. For example, most of the scholars used the AAOIFI standard as one of their references in developing the CSR checklist to analyse CSR 32
  9. activities in the secondary data (El-Halaby & Hussainey 2015; Platonova et al., 2018; Abduh & AlAgeely, 2014). Nevertheless, as stated by Hassan and Harahap (2010), the AAOIFI standard needs some improvements. In addition, Malaysia does not adopt the AAOIFI standard. Even though Yusoff et al. (2018) used Bursa Malaysia in 2007 as one of the references to provide a CSR checklist, CSR dimensions and indexes need to be reviewed again as Bursa Malaysia has now provided a new guideline for CSR which needs to be followed by publiclisted companies (Bursa Malaysia Securities Berhad, 2015). Meanwhile, these scholars (Aribi & Arun, 2015; Belal et al., 2015; Mallin et al., 2014; Platonova et al., 2018; Sherif et al., 2018) adopted Haniffa and Hudaib’s (2007) Ethical Identity Index (EII) as one of their references for CSR checklist. In fact, Ahmed & El-Belihy (2017) used the EII (Haniffa & Hudaib, 2007) solely for CSR checklist. This shows that EII (Haniffa & Hudaib, 2007) is relevant and reputable to be applied by Islamic banks in this era. However, the study done by Haniffa and Hudaib (2007) did not include information regarding the environment. Environmental dimension is important to be included as it is part of the Khalifah (vicegerency) principle which indicates that a person is responsible to take care of the earth’s resources (Wan Jusoh, Ibrahim, & Mohd Napiah, 2015). Secondly, previous literature adapted by Haniffa and Hudaib (2007) was not solely concerned with the banking sector. This is to say, although Haniffa and Hudaib (2007) adapted both Islamic and conventional literature and standards, the conventional literature did not come solely from the banking sector. For example, Haniffa and Hudaib (2007) adapted the literature from Guthrie and Parker (1989). Accordingly, Guthrie and Parker (1989) developed an index for Australia mining or manufacturing industries. Thus, it shows that Haniffa and Hudaib (2007) did not refer to the banking sector solely. Thirdly, the EII index was used by Haniffa and Hudaib (2007) to conduct content analysis in Arabian Gulf Region countries. Lastly, the EII has not been validated by highly qualified panels, and through exploratory factor analysis (EFA). Meanwhile, Darus et al. (2014) developed an Islamic CSR framework to evaluate the level of CSRD. Although the development of the Islamic CSR framework has undergone several stages including obtaining responses from researchers, Islamic scholars, and the industry, there is still a gap in this framework. Consequently, the Islamic CSR framework intends to focus on both Malaysia and Indonesia. Adding to this, the Islamic CSR framework has not been validated through exploratory factor analysis (EFA) and confirmatory factor analysis (CFA). Therefore, the CSR dimensions and indexes still need to be examined thoroughly. In contrast, there are CSR dimensions and indexes that have been referred to and that are concerned with the perceptions of the stakeholders. For example, Di Bella and Al-Fayoumi’s (2016) study developed an Islamic CSR concept and its dimensions that are rooted in the Islamic ethical system, represented through profit and loss arrangements, embedded within the principles of Islamic banks, and benchmarked by the AAOIFI. As a result, the stakeholders in Jordan showed positive preferences towards the Islamic CSR dimensions. In contrast, Kunhibava et al. (2018) and Marsidi et al. (2017) conducted specific studies in Malaysia. However, the studies only covered part of the CSR dimensions. For instance, in the study done by Kunhibava et al. (2018), the CSR dimensions and indexes only covered the environmental and green practices aspect. Meanwhile, Marsidi et al. (2017) covered the social part of CSR whereby the authors found that sadaqa or donation is perceived to be important by the Malaysian Islamic banks. The next section reviews CSR dimensions, elements and indexes. Articles on CSR dimensions, elements and indexes In Appendix F, the reviewed articles deliver information regarding CSR dimensions, elements and indexes. Most of the reviewed articles have taken reference from Islamic literature (Alamer 33
  10. et al ., 2015; Amran et al., 2017; Darus et al., 2018). Hence, it shows that CSR activities are limited to Shariah principles only. However, in the Malaysian context, several things need to be considered such as the fact that Malaysia applies a dual banking system, and that it has diverse population consisting of Muslims and non-Muslims. Thus, by taking this point into consideration, it is significant to ensure the sustainability of Islamic banks in Malaysia. Besides, the theory and principles applied also vary, but most of the scholars include maqasid al-shariah as the basis for undertaking CSR activities. Conclusion All in all, the analysis presented indicates that there are inconsistencies in the dimensions and indexes of the Islamic CSR framework, not to mention the existence of various theories and principles applied. Besides, Bani et al. (2015) add, even though scholars have included Shariah principles as the basis for developing CSR dimensions and indexes, there is still no consensus concerning which Shariah principle should be used. This is also agreed by previous scholars who highlight that CSR concept still cannot be accepted universally (e.g., Bagire, Tusiime, Nalweyiso, & Kakooza, 2011; Galbreath & Shum, 2012; Hou & Li, 2014), let alone the Islamic CSR concept. This is in line with the literature that reports that the level of CSRD among Islamic banks varies. This is due to the differences existing in the cultural, environmental, and religious aspects (Aksak et al., 2016). Furthermore, previous literature also states that the Malaysian government shows strong support to public companies, and private companies to disclose CSR activities. However, currently in Malaysia, there is no Islamic CSR guideline established specifically for Islamic banks. This proves the need to propose an Islamic CSR guideline for the Islamic banks in Malaysia. As asserted by Tuhin (2014), Islamic banks should strategize and select the appropriate CSR activities to ensure that their business can sustain long-term. Therefore, the researchers suggest that the Islamic CSR guideline should be formed meticulously through several stages. Firstly, the Islamic CSR guideline should be reviewed in light of the Malaysian banking context and by referring to the ‘urf tijari principle. The ‘urf tijari principle is the common business practice that is acceptable by the Malaysian community, and which does not go against the Shariah principles (BNM, 2018). Nonetheless, conventional banking literature should also be reviewed due to the fact that Malaysia practises a dual banking system and that the country consists of Muslim and non-Muslim population. As a matter of fact, Franzoni and Allali (2018) found that Islamic and conventional CSR can be converged, but the only difference is that Islamic CSR must emphasise religious responsibility. Secondly, CSR dimensions and indexes are perceived important by the respondents as reported by Di Bella and Al-Fayoumi (2016) and Marsidi et al. (2017). However, the respondents representing the stakeholders came from different backgrounds and different countries. Therefore, other stakeholders should be taken into consideration in conducting the survey of their perception of CSR dimensions and indexes in order to satisfy their need and demand which can hence ensure the success of Islamic banks. This matter is important because different stakeholders have varying expectations and experiences resulting in different outcomes (Wood & Jones, 1995). Thirdly, the CSR dimensions and indexes should be validated by the qualified panels through exploratory factor analysis (EFA) and confirmatory factor analysis (CFA). References AAOIFI. (2010). Corporate social responsibility conduct and disclosure for Islam financial institutions. Bahrain: Accounting and Auditing Organization for Islamic Financial Institutions Bahrain. 34
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  16. Appendix Appendix A . The AAOIFI CSR standard No 1 Types of disclosure Mandatory 2 Voluntary Name of dimensions 1. Disclosure of policy on screening clients 2. Disclosure of policy on dealing with clients 3. Disclosure of policy on earning and expenditure prohibited by Shariah 4. Disclosure of policy on employee welfare 5. Disclosure of policy on zakah 1. Disclosure of policy on social, development and environment based investment quotas 2. Disclosure of policy on par excellence customer service 3. Disclosure of policy on micro and small businesses and social savings and investments 4. Disclosure of policy on qard hasan 5. Disclosure of policy on charitable activities 6. Disclosure of policy on waqf management. Appendix B. Articles on CSR dimensions No 1. Author Franzoni (2018) 2 Hamidi & Worthington (2018) 3 Abu Bakar & Yusof (2016) No 1 2 Author Hidayat&Alhur (2016) MohdNor, Abdul Rahim &Senik (2016) & Allali Md Name of dimensions 1.Economic responsibility 2.Discretionary responsibility 3.Ethical responsibility 4.Legal responsibility 1.Prosperity 2.Planet 3.People 4. Prophet Propose managerial guideline on CSR management process from an Islamic perspective No. of indexes - Theories or principles AAOIFI (2010) - Maqasid al-shariah - Tawhidic, paradigm and Shariah Appendix C. Articles on CSR indexes Name of dimensions - 40 No. of indexes 15 7 Theories or principles AAOIFI (2010) Islamic moral economy
  17. Appendix D . Article on CSR dimensions and elements No 1 Author Tarique et al (2018) Name of dimensions 1.Necessities 2. Complements 3. Embellishment Elements Education, health, humanitarian and disaster relief Environment Sports and arts, literature and culture Theories or principles Maqasid al-shariah APPENDIX E. Articles on CSR dimensions and indexes No 1 Author Kunhibava et al. (2018) Name of dimensions 1. Islamic bank level 2. Central bank level 3.International level Indexes 9 Theories/principles/reference Shariah principles 2 Platonova et al. (2018) 56 Stakeholder theory/ AAOIFI Standard No. 7; Haniffa & Hudaib (2007); Aribi & Gao (2012); Aribi & Arun (2015) 3 Sherif et al. (2018) 1. Mission and vision statement 2. Products and services 3. Zakah, charity and benevolent funds 4. Commitment towards employees 5. Commitment towards debtors 6. Commitment towards community 1. Employee welfare 2.Internal environment preservation policy 3.Earning and expenditure prohibited by Sharia 4.Par Excellence customers services 5.Late repayments and insolvent clients and avoiding onerous terms 6.Qard Hassan 7.Micro and small business and social saving and investments and development 8.Screening and informing clients for compliance withIslamic principles 9.Zakah 95 Accountability/ Hassan & Harahap, 2010; Farag et al., 2014; Aribi& Gao, 2012; Maali et al., 2006; Haniffa & Hudaib,2007; Mohammed, 2007; Ullah & Jamali, 2010; Williams & Zinkin, 2010; Rashid et al., 2013; Besar et al., 2009; Kamla & Rammal, 2013)/ survey the Quran and Sunnah to observe the main themes for compliance with Shariah accountability towards Allah and also for social activities. 41
  18. APPENDIX E . Continued No Author Name of dimensions 4 Yusoff et al. (2018) 5 Ahmed (2017) 6 Marsidi et al. (2017) 7 Mohd Nor (2016) & Elbelihy No. indexes 10.Charitable activities 11.Waqf management 12.Social responsibility 1. Finance and investment 2. Products and services 3. Employees 4. Society 5.Environment 6. Corporate governance 43 77 Employees, environment 10 and 10 42 Theories/principles/references Validate the indexes with academics and professionals Ethical identity index by Haniffa & Hudaib (2007) society of AAOIFI’s (2010) underlying CSR responsibilities framework, and the prevailing literature/ Othman et al. (2009); Bursa Malaysia (2007); Ousama & Fatima (2006); Sulaiman (2005), Haniffa (2002); Baydoun & Willet (2000), Kazemian & Mohd-Sanusi (2015). Tawhid (unity), ‘Adl & Qist (Justice, Equity and Equilibrium, benevolence and excellence) and Khalifah (Accountability, Trusteeship and social responsibility) by Haniffa & Hudaib (2007) Legitimacy theory, stakeholder theory, accountability Islamic moral economy: Promote Islamic social banking
  19. APPENDIX E . Continued No 8 Author Di Bella & Fayoumi (2016) Name of dimensions 1. Islamic ethical system 2.Represented through profit and loss arrangements 3.Embedded within the principles behind financial services provided by Islamic Banks 4. Benchmarked by the AAOIFI corporate governance standard 19 categories No. of indexes Theories/principles/references 9 Abduh & Al Ageely (2015) 95 Aribi & Arun (2015) 1.Shariah compliance 2.Zakah 3.Charity 4.Qard hasan 5.Debtors 6.Environment 7.Employees 26 based on the AAIOFI corporate governance standard for Islamic financial institutions and CSR disclosure conduct and disclosure for Islamic financial institutions, OECD principles for corporate governance, Basel principles for enhancing corporate governance, and related articles that have developed social and environmental disclosure indexes Rice 1999; Kamla et al. 2006; Maali et al. 2006; Haniffa & Hudaib 2007; Williams & Zinkin 2010; Aribi & Gao 2010, 2012) 10 11 Belal et al. (2015) 1.Universal (89 items) 2.Particular (60 items) 149 Accountability/ Maali’s et al. (2006); Haniffa & Hudaib’s (2007); AAOIFI 12 El-Halaby Hussainey (2015) 1.Social responsibility within the organisation 2.Social responsibility in its relationship 3.Social responsibility in screening its investment 12 Social accountability/ governance standard No.7 issued by the AAOIFI, and previous literature. Al- & 43
  20. APPENDIX E . Continued No Author Name of dimensions No. indexes of Theories/principles/references 4.Social responsibility in its relationship with greater society 13 Darus et al. (2014) 1.Social development 2.Education and awareness 3.Economic development 4.Health 9 Literature review and content analysis, discussion with researchers and practitioners, drafting indexes, final review indexes 14 Mallin et al. (2014) 10 dimensions 84 Slack resource theory, management theory 15 Khurshid et al. (2014) 1.Economic 2.Legal 3.Ethical 4.Philantrophic 16 Carroll, the Quran and the Sunnah 44 good
  21. APPENDIX F . Articles on CSR dimensions, elements and indexes No Author Name of dimensions 1 Darus et al. (2018) Dimensions and elements 1. Strategy (Corporate vision) 2. Governance (Board of Directors and top Management; Shariahcompliant) 3. Product (Product, Services, and Fair Dealing with Supply Chain) 4.CommunityDevelopment and Social Goals (Strategic Social Development; Research, Development, and Training) 5.Employment (Employees) 6. Environment (Environment) 2 Amran et al. (2017) 1. Strategy (Corporate vision) 2.Governance (Board of directors and top management, Shariah compliant) 3.Product (Product, services and fair dealing with supply chain) 4.Community development and socialGoals (Strategic social development, Research, development and training) 5.Employment (Employees) 6.Environment (Environment) Dimensions and sub-dimensions 1.Human resource -Protecting health and safety -Investing in education and training -Responsible in work -Justice 2.Good governance -Vision and mission statement -Board members and top management -Fair dealings 3.SSB -SSB members and their roles -Compliance with Shariah 3 Alamer et al. (2015) 45 No. indexes 78 78 of Theories/principles/references unity (tawhid), vicegerency (khalifah), accountability, and justice/ AAOIFI (2005); Haniffa & Hudaib (2004); Hassan & Harahap (2010) Islamic accountability, ultimate aim of protecting Maqasid alShariah, legitimacy theory adapted from the guidelines of the AAOIFI (2005), Haniffa and Hudaib (2004) and Hassan and Harahap (2010) 115 Business process and outcome oriented /Islamic CSR literature
  22. APPENDIX F . Continued No Author 4 Issalih et al. (2015) 5 Darus et al. (2014) Name of dimensions 4.Environment -Investment and finance -In workplace -Protecting the environment 5.Research and development -Advancement of knowledge -Innovation 6.Investment -Affordable products and services -Empowerment of community 7.Social activities and sharing -Alleviate social problems -Support and help fund welfare -Support charities -Play the role of welfare without looking solely for profitability -Fair returns -Achieve economic and social goals -Make awareness of Islamic banks 1.Finance and investment 2.Employees 3.Product (consumer) 4.Environment 1.Strategy 2.Governance 3.Product 4.Community development and social goals 5.Employees 6.Environment 46 No. indexes of Theories/principles/references 23 Maqasid al-Shariah 78 Legitimacy theory