Social Performance of Islamic Banks
Theoretical and Practical Insights
DOI:
https://doi.org/10.13135/2421-2172/6199Keywords:
Islamic moral economy;, Islamic banks, social performance, maqasidAbstract
This study analyzes the social performance of 40 Islamic banks from 13 countries over the period 2012-2018, aiming to investigate to what extent Islamic banks around the world meet the social goals of the Islamic moral economy. As key financial institutions that operate within the framework of the Islamic moral economy, Islamic banks are expected to play and emphasize their socio-economic role in society by improving their economic, social, ethical, and environmental performance. Therefore, social performance in this paper was measured via a comprehensive evaluation framework using a maqasid index based on disclosure analysis. The main findings suggested that Islamic banks achieved 35% of the maximum index value, which indicated a room for improving their social performance. There was an encouraging fact that social performance over the observed period grew on a yearly basis. The average growth rate of social performance per year was 3.58%, which did not guarantee significant changes in a short time, but it was evident that banks made some progress in this regard over the observed period. Moreover, the highest score of Islamic banks' social performance was recorded in the category I3 (“Self”) of the social performance index, which was based on the level of investment in the real sector, particularly small and medium-sized enterprises (SMEs). On the contrary, the lowest rating was registered in the category I5 (“Posterity”). An alarming fact was that Islamic banks demonstrated deficient environmental awareness and achieved low performance in this index component. Further, banks from Indonesia achieved the highest social performance. Also, to provide an easier understanding of the social performance of Islamic banks compared to the expectations of the Islamic moral economy, banks were categorized into specific categories according to a rating system similar to the CAMELS approach in conventional banking, but based on the Islamic moral economy social performance framework.
References
Nuhanović, A. i Kozarević, E. (2020) Basics of Islamic economic and financial system (Osnove islamskog ekonomskog i finansijskog sistema). OFF-SET Štamparija Tuzla.
Chapra, M. U. (1985). Towards a Just Monetary System (Islamic Economics). Leicester: The Islamic Foundation.
Maali, B., Casson, P. & Napier, C. (2006). Social reporting by Islamic banks. Abacus, 42(2), pp. 266-289. Doi: 10.1111/j.1468-4497.2006.00200.x.
Kamla, R., Gallhofer, S. & Haslam, J. (2006). Islam, nature and accounting: Islamic principles and the notion of accounting for the environment. Accounting Forum, 30(3), pp. 245-265. Doi: 10.1016/j.accfor.2006.05.003.
Haniffa, R. & Hudaib, M. (2007). Exploring the Ethical Identity of Islamic Banks via Communication in Annual Reports. Journal of Business Ethics, 76, pp. 97-116. Doi: 10.1007/s10551-006-9272-5.
Dusuki, A. W. (2008). Understanding the objectives of Islamic banking: a survey of stakeholders' perspectives. International Journal of Islamic and Middle Eastern Finance and Management, 1(2), pp. 132-148. Doi: 10.1108/17538390810880982.
Warde, I. (2000). Islamic finance in the global economy. Edinburgh: Edinburgh University Press.
Farook, S. M., Hassan, K. & Lanis, R. (2011). Determinants of corporate social responsibility disclosure: the case of Islamic banks. Journal of Islamic Accounting and Business Research, 2(2), pp. 114-141. Doi: 10.1108/17590811111170539.
Aribi, Z. A., & Arun, T. (2015). Corporate Social Responsibility and Islamic Financial Institutions (IFIs): Management Perceptions from IFIs in Bahrain. Journal of Business Ethics, 129(4), pp. 785-794. Doi: 10.1007/s10551-014-2132-9.
Pollard, J. & Samers, M. (2007). Islamic Banking and Finance: Postcolonial Political Economy and the Decentring of Economic Geography. Transactions of the Institute of British Geographers, 32(3), pp. 313-330. Doi: 10.1111/j.1475-5661.2007.00255.x.
Belal, A. R., Abdelsalam, O. & Nizamee, S. S. (2015). Ethical reporting in islamic bank Bangladesh limited (1983-2010). Journal of Business Ethics, 129(4), pp. 769-784.
El-Gamal, M. A. (2006). Islamic Finance: Law, Economics and Practice. New York: Cambridge University Press.
Khan, F. (2010). How “Islamic” is Islamic Banking?. Journal of Economic Behaviour and Organization, 76, pp. 805-820. Doi: 10.1016/j.jebo.2010.09.015.
Asutay, M. & Harningtyas, A. F. (2015). Developing Maqasid al-Shari’ah Index to Evaluate Social Performance of Islamic Banks: A Conceptual and Empirical Attempt. International Journal of Islamic Economics and Finance Studies, 1(1), pp. 5-64.
Rusydiana, A. S. & Firmansyah, I. (2017). Efficiency versus Maqashid Sharia Index: an Application on Indonesian Islamic Bank. Shirkah Journal of Economics and Business, 2(2), pp. 139-165. Doi: 10.22515/shirkah.v2i2.154.
Antonio, M. S., Sanrego, Y. D. & Taufiq, M. (2012). An Analysis of Islamic Banking Performance: Maqashid Index Implementation in Indonesia and Jordan. Journal of Islamic Finance, 1(1), pp. 12-29.
Mergaliyev, A., Asutay, M., Avdukic, A. & Karbhari, Y. (2019). Higher Ethical Objective (Maqasid al-Shari’ah) Augmented Framework for Islamic Banks: Assessing Ethical Performance and Exploring Its Determinants. Journal of Business Ethics, 170(1), pp. 1-38. Doi: 10.1007/s10551-019-04331-4.
Mohammed, M. O. & Taib, F. M. (2015). Developing Islamic Banking Performance Measures Based on Maqasid al-Shari’ah Framework: Cases of 24 Selected Banks. Journal of Islamic Monetary Economics and Finance, 1(1), pp. 55-77. Doi: 10.21098/jimf.v1i1.483.
Hasan, Z. (2004). Measuring efficiency of Islamic banks: criteria, methods, and social priorities. Islamic Economic Review, 8(2), pp. 1-30.
Asutay, M. (2007). A political economy approach to Islamic economics: Systemic understanding for an alternative economic system. Kyoto bulletin of Islamic area studies, 1(2), 3-18.
Kuran, T. (1995). Islamic economics and the Islamic subeconomy. Journal of Economic Perspectives, 9(4), 155-173.
Siddiqi, M. N. (2004). Riba, bank interest and the rationale of its prohibition. Jeddah: Islamic Research and Training Institute.
Tripp. C. (2007). Islam and the moral economy (the challenge of capitalism). Cambridge University Press.
Chapra, M. U. (1992). Islam and the economic challenge (No. 17). International Institute of Islamic Thought (IIIT).
Asutay, M. (2007). Conceptualisation of the Second Best Solution in Overcoming the Social Failure of Islamic Banking and Finance: Examining the Overpowering of Homoislamicus by Homoeconomicus. IIUM Journal of Economics and Management, 15(2), pp. 167-195.
Mohammad, M. O. & Shahwan, S. (2013). The Objective of Islamic Economic and Islamic Banking in Light of Maqasid Al-Shariah: A Critical Review. Middle-East Journal of Scientific Research, 13(13), pp. 75-84. Doi: 10.5829/idosi.mejsr.2013.13.1885.
Al-Raisuni, A. (1995). Nazariyat al-Maqasid ‘ind al-Imam al-Shatibi. Herndon: International Institute of Islamic Thought.
Karcic, F. (2011). Studije o šerijatskom pravu i institucijama [Studies on Sharia law and institutions]. Sarajevo: El-Kalem, Centar za napredne studije (CNS).
Najjar, A. M. (2006). Maqaasid al-Shari'ah bi-Ab'aad Jadeedah. Beirut: Daarul Al-Gharb Al-Islaamee.
Bedoui, H. E. & Mansour, W. (2014). Performance and Maqasid al-Shari’ah’s Pentagon-Shaped Ethical Measurement. Science and Engineering Ethics, 21(3), pp. 555-576.
Chapra, M. U. (2008). The Islamic Vision of Development in Light of Maqasid al-Shari’ah. London: The International Institute of Islamic Thought.
Asutay, Mehmet, and Isa Yilmaz. "Re-embedding Maqasid al-Shari’ah in the essential methodology of Islamic economics." Islamic Book Trust, 2018.
Aggarwal, R. K. & Yousef, T. (2000). Islamic banks and investment financing. Journal of money, credit and banking, 32(1), pp. 93-120.
Hasan, Z. (2010). Profit sharing ratios in mudaraba contract. International Journal of Banking and Finance, 7(1), pp. 1-20.
Nagaoka, S. (2007). Beyond the Theoretical Dichotomy in Islamic Finance: Analytical Reflections on Murabahah Contracts and Islamic Debt Securities. Kyoto Bulletin of Islamic Area Studies, 1(2), pp. 72-91.
Tag el-Din, S. I. (2003). Incentivising an Ethical Economy. The Muslim World Book Review. 23(3), pp. 5-17.
Mohammed, M. O., Dzuljastri, A. R. & Fauziah, M. T. (2008). The Performance Measures of Islamic Banking Based on the Maqasid Framework. IIUM International Accounting Conference (INTAC IV), Putra Jaya Marroitt, Malaysia, June 28th.
Sekaran, U. (2000). Research Methods for Business A Skill Business Approach. New York: John Wiley & Sons.
Yoon, K. P. & Hwang, C. L. (1995). Multiple Attribute Decision Making: An Introduction. Vol. 104, Thousand Oaks: Sage Publications. Doi: 10.4135/9781412985161.
Asutay, M. (2012). Conceptualising and Locating the Social Failure of Islamic Finance: Aspirations of Islamic Moral Economy versus the Realities of Islamic Finance. Journal of Asian and African Area Studies, 11(2), pp. 93-113.
Ngalim, S. M. & Ismail, A. G. (2014). An Islamic vision development based indicators in analysing the Islamic banks performance: evidence from Malaysia, Indonesia and selected GCC countries. IRTI Working Papers WP-1436-02.
Alamer, A. R. A., Salamon, H. B., Qureshi, M. I. & Rasli, A. M. (2015). A new business process and outcome oriented corporate social responsibility index for Islamic banking. International Journal of Economics and Financial Issues, 5(1S).
Bedoui, H. E. (2015). Multidimensional metrics for measuring social and sustainable finance performance. ACRN Oxford Journal of Finance and Risk Perspectives, 4(4), pp. 109-128.
Bedoui, H. E. (2012). Shari‘a-based ethical performance measurement framework. Chair for Ethics and Financial Norms (pp. 1-12), University of Sorbonne, Paris.
Hudaefi, F. A. & Noordin, K. (2019). Harmonizing and constructing an integrated maqāṣid al-Sharīʿah index for measuring the performance of Islamic banks. ISRA International Journal of Islamic Finance, 11(2), pp. 282-302. Doi: 10.1108/IJIF-01-2018-0003.
Hameed, S., Wirman, A., Alrazi, B., Nazli, M., & Pramono, S. (2004). Alternative disclosure and performance measures for Islamic banks. In Second Conference on Administrative Sciences: Meeting the Challenges of the Globalization Age, King Fahd University of Petroleum & Minerals, Dhahran, Saudi Arabia (pp. 19-21).
Sairally, S. (2007). Community Development Financial Institutions: Lessons in Social Banking for the Islamic Financial Industry. Kyoto Bulletin of Islamic Area Studies, 1(2), pp. 19-37.
Ascarya, S. R. & Sukmana, R. (2016). Measuring The Islamicity of Islamic Bank in Indonesia and other Countries based on shari’ah objectives. Jakarta: Center for Central Banking Research and Education, Bank Indonesia.
Ashraf, M. A., & Lahsasna, A. (2017). Proposal for a new Sharīʿah risk rating approach for Islamic banks. ISRA International Journal of Islamic Finance.
Alhammadi, S., Alotaibi, K. O. & Hakam, D. F. (2020). Analysing Islamic banking ethical performance from Maqāṣid al-Sharī‘ah perspective: evidence from Indonesia. Journal of Sustainable Finance & Investment, pp. 1-23. Doi: 10.1080/20430795.2020.1848179.
Biancone, P. P., Saiti, B., Petricean, D., & Chmet, F. (2020). The bibliometric analysis of Islamic banking and finance. Journal of Islamic Accounting and Business Research.
Bollani, L., & Chmet, F. (2020). Bibliometric analysis of Islamic finance. European Journal of Islamic Finance.
Singh, R. K., Murty, H. R., Gupta, S. K. & Dikshit, A. K. (2009). An overview of sustainability assessment methodologies. Ecological indicators, 9(2), pp. 189-212. Doi: 10.1016/j.ecolind.2008.05.011.
Hassan, R. & Nor, F. M. (2019). Value-Based Intermediation: An Analysis from The Perspective of Shariah And Its Objectives. International Journal of Fiqh and Usul al-Fiqh Studies, 3(1), pp. 81-89. Doi: 10.31436/ijfus.v3i1.132.
Platonova, E. (2013). Corporate Social Responsibility from an Islamic Moral Economy Perspective: A Literature Survey. Afro Eurasian Studies, 2(1&2), pp. 272-297.
Barr, R. S., Killgo, K. A., Siems, T. F. & Zimmel, S. (2002). Evaluating the Productive Efficiency and Performance of U.S. Commercial Banks. Engineering Management, 288, pp. 3-25.
Hays, F. H., De Lurgio, S. A. & Gilbert, A. H. (2009). Efficiency Ratios and Community Bank Performance. Journal of Finance and Accountancy, 1(1), pp. 1-15.
Adib, N., Nabiha, S. & Khalid, A. (2010). Performance Measurement System In Islamic Bank: Some Issues And Considerations. Jurnal Akuntansi Multiparadigma, 1(3), pp. 457-465.
Hameed, S., Wirman, A., Alrazi, B., Nazli, M. & Pramono, S. (2004). Alternative disclosure and performance measures for Islamic banks. In Proceedings of Second Conference on Administrative Sciences: Meeting the Challenges of the Globalization Age (pp. 19-21), King Fahd University of Petroleum & Minerals, Dhahran, Saudi Arabia.
Hassan, A. & Harahap, S. S. (2010). Exploring corporate social responsibility disclosure: the case of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 3(3), pp. 203-227.
Hasan, Z. (2007). Fifty Years of Malaysian Economic Development: Policies and Achievements. Review of Islamic Economics , 11(2), pp. 101-118.
Abedifar, P., Molyneux, P. & Tarazi, A. (2013). Risk in Islamic Banking. Review of Finance, 17(6), pp. 2035-2096.
IFSB (2019) Risk sharing in Islamic Banking. Working Paper Series WP-10/05/2019.
Kozarević, E., Nuhanovic, S., & Nurikic, M. B. (2013). Comparative analysis of risk management in Conventional and Islamic Banks: the case of Bosnia and Herzegovina. International Business Research, (5), 180.
Al-Amine, M. A. B. (2015). Product Development and Maqāṣid in Islamic Finance: Towards a Balanced Methodology. Islamic Economic Studies, 130(1951), pp. 1-40.
Biancone, P., Secinaro, S. F., Brescia, V., & Iannaci, D. (2019). Business model innovation for sustainability and social impact.
Iannaci, D., & Jonathan, G. M. (2020). Islamic finance and social finance, an opportunity for social enterprises.
Biancone, P., & Secinaro, S. (2021). Islamic Finance and Globalisation through Halal Tourism. Quaderni di Diritto e Politica Ecclesiastica, 131-142.
Downloads
Published
How to Cite
Issue
Section
License
EJIF content is licensed under a Creative Commons Attribution 4.0 International License.
Authors keep the copyrights for their work and give the journal the work's first publication copyright, which is at the same time licensed under a Creative Commons License – Attribution, which in turn allows other parties to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
EJIF has been approved for inclusion in 
EJIF has been approved for inclusion in 
EJIF is member of 
EJIF is indexed by 
EJIF is listed in the ANVUR (Italian National Agency for the Evaluation of Universities and Research Institutes) as a scientific journal in both 
