Islamic financial institutions are growing faster all around the world. Most in Muslim countries, conventional and Islamic financial institutions exist side by side, interacting with one another. The development of Islamic financial institutions has the potential to play a leading role in serving the Muslim Ummah and contribute towards socio-economic development of Muslim countries in conformity with Islamic sensibilities. Financial institution primarily sell demand deposits, saving deposits, time deposits, insurance policies, pension funds, commercial papers, and bonds to the surplus units. In general financial institution consists of Profit-oriented institutions such as (bank, saving institutions, insurance company and etc.). By providing finances for both consumptions and investment purposes, financial institutions contribute towards the prosperity of household and economic growth in the economy. Conventional financial institution pay interest on funds procured and charged interest on funds loaned out. But Islamic scholar describes interest as riba which is prohibited in Islam. Hence, the participation of Muslims in interest-based contract is considered illegal by the Islamic Law. Over the past decades, (CSR) disclosure has been the subject of substantial academic accounting research. There a lot of theory develops to justify why companies disclose or not disclose (CSR) information. The existing theoretical frameworks concerning (CSR) disclosure is to make sure all the organizations disclose social information and also making assessment of organization’s performance in terms of fulfilling their obligation to God, society and eco-system. Corporate social responsibility disclosure (CSRD) is defined broadly as “including the concern for the impact of all of the corporation’s activities on the total welfare of society” (Bowman and Haire 1976, p. 13). Corporate social responsibility in Islamic perspective is derives itself from core principles in the holy Qur’an. There are three major fundamentals principles for Islamic CSR are; the vicegerency of mankind on earth, divine accountability and the duty on mankind to enjoin and forbid evil. There will be differentiation between Islamic Financial Institutions (IFI’s) and Conventional Financial Institutions (CFI’s) in terms of CSR disclosure.
Recent years have witnessed increasing importance on corporate social responsibility. Many companies are trying to make corporate behavior more responsible when it comes to ethics, working conditions, environmental sustainability and etc. Over past decades, CSR disclosure became an expending area of accounting research. A number of theories have been employed to justify why companies disclose or not disclose CSR information. However, the theories were very much develops in the context of western market economies, and therefore, their applicability in other part of the world such as in Islamic perspective is questionable, in particular in Islamic societies where businesses operate in a totally different cultural context along with different business objective and ethics. While there is argument about the disclosure practice between Islamic society businesses and western businesses, there has been little attempt to explain CSR disclosure from the cultural and religious perspectives. The existing theoretical frameworks concerning CSR disclosure rarely recognize religion as a foundation in explaining why organizations disclose social information and also in making assessment of organization’s performance in term of fulfilling their obligation to God, society and ec0-system (Haniffa and Cooke, 2001). The issue is to presume Islam is the key factor inspiring CSR disclosure of IFIs and differentiating corporate behaviors between Islamic Financial Institutions (IFIs) and Conventional Financial Institutions (CFIs) in disclosing CSR information in financial report.