The relationship between Sharia'h compliance and sustainable socially responsible financial service practices.

• Author: Alafi, Khaled

1. INTRODUCTION

   The notion of the corporate social responsibility and justice has been the foundation of an Islamic society since its advent in the seventh century. The holy prophet Mohammed (PBUH) exemplified the principles of social responsibility and justice embedded in the holy Qur'an through his practices (Sunnah) to establish a social system that was just and harmonious. These principles that permeate every aspect of a Muslim life, also governs Islamic business and commercial practices and has been present for the last fourteen centuries.

2. THE APPLICABILITY OF CSR TO FINANCIAL SERVICE PROVISION UNIVERSALLY

   Over the past decade or so, significant research attention in the international financial services sector has been directed towards addressing the problem of how service providers should grapple with the concept of social responsibility (Decker, 2004).

   For many years the literature has been quite equivocal on this issue however according to Sweeny et al (2001), at the dawn of the 21st century, corporations are being challenged to fulfil their citizenship duties. They argue that the view that 'corporate social responsibility consists of making as much money for their shareholders as possible' (Friedman, 1962, p.133) is no longer valid. Instead the view that is gaining credibility is the one that sees the purpose of business as being to enrich society as a whole, not only management and shareholders (Sweeny et al 2001). Essentially global corporations are expected to be good corporate citizens and accept social responsibility towards a broader base than shareholders alone.

   This trend is reflected in the financial services literature whereby there is a growing consensus that corporate social responsibility (CSR) is an important and necessary business concept (Decker, 2004). Indeed there is evidence to suggest that CSR can be an excellent instrument in enhancing not only the legitimacy of the firm among its stakeholders (Garriga & Mele, 2004) but also in demonstrating positive social responsibility perceptions (Sen & Bhattacharya, 2001) and providing a viable sustainable competitive advantage for businesses in an increasingly hostile and competitive marketplace (Snider et al., 2003).

   Given that most published research on the notion of corporate social responsibility (CSR) appears to be Western in orientation, specifically European and North American, one would expect a much slower uptake of CSR related activities in non-Western societies. In fact on the face of it the development of CSR within the banking sector does not appear to have progressed at the same rate in other parts of the world for example Asia (Ang, 2000; Posner, 1997) or indeed even the Arab or Muslim world (Dusuki & Abdullah, 2007; Dusuki & Dar, 2006). However such a supposition may not be entirely accurate with respect to Islamic societies and specifically where Islamic banking or Sharia'h compliant banking regimes exist.

   A close examination of the core elements of Western CSR concepts reveal that these CSR conceptualisations may not be entirely alien to the 'core' principles that govern Sharia'h compliance as it pertains to the rapidly growing Islamic banking sector. On one hand, and according to Buchholz (1995, p.23), Corporate social responsibility (CSR) refers to 'the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of actions which are desirable in terms of the objectives and values of society'. This definition implies that it is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the community and society at large that is at issue. Moreover, according to the World Business Council for Sustainable Development (WBCSD, 2001) this means acting with responsibility in its relationships with other stakeholders, not just shareholders. Watts and Holme (1999), identify stakeholders as those affected by or those affecting a business's activities.

   A close examination of the core elements of Western CSR concepts reveal that these CSR conceptualisations may not be entirely alien to the 'core' principles that govern Sharia'h compliance as it pertains to the rapidly growing Islamic banking sector. On one hand, and according to Buchholz (1995, p.23), Corporate social responsibility (CSR) refers to 'the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of actions which are desirable in terms of the objectives and values of society'. This definition implies that it is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the community and society at large, that is at issue. On the other hand, the building blocks of Sharia'h compliance, as a set of workable principles for running an entity such as a banking/financial institution appear to be based among others on i) Socially aware and responsible values based management practices and products (Gait & Worthington, 2007; Iqbal, 1997; Norman, 2002) ii) ethical lending of money via the...