Islamic Corporate Social Responsibility in Islamic Banking

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8th International Conference on Islamic Economics and Finance

Islamic Corporate Social Responsibility in Islamic Banking; Towards Poverty Alleviation Muhammad Yasir Yusuf 1 Zakaria bin Bahari 2 One of the goals of Islamic banking operations is to increase the economic growth towards a better and just society. This study aims to examine the criteria and Islamic instrument of corporate social responsibility towards the creation of a sustainable economic development. Specifically, the study analyses the various approaches to improve the quality of life and alleviate poverty and the methods of applying Islamic instruments to corporate social responsibility programs in Islamic banking. Based on the review of literature and findings resulted from in depth interview with the expertises of Islamic banking in Indonesia, the study reveals that there are six (6) fundamental criteria and 34 items considered as critical for corporate social responsibility to make an impact on the society. These criteria are namely; shari’ah compliance, equality, responsibility in work, the guarantee of welfare, the guarantee environmental sustainability and charity for preservation of virtue. Then application of Islamic corporate social responsibility in the society should be guided by two Islamic principles, first, the application of maslahah (the public good) which provides a better framework that managers can use when faced with potential conflicts arising from diverse expectations and interests of any corporation’s stakeholders. Secondly, corporate social responsibility program should pay more attention to the importance of social capital in the society. The corporate social responsibility practices in Islamic banking should not only be based on responsibility al kifayah (obligatory upon community) and get a positive corporate image but can also be deemed as a method to alleviate poverty and achieve the true economic goals of Islam. Keywords: Islamic Corporate Social Responsibility, Islamic Banking and Poverty Alleviation

Universiti Sains Malaysia, Center for Islamic Development Management Studies (ISDEV), 11800 Minden, Pulau Pinang E-mail: Tel: +60-103986425. 2 Universiti Sains Malaysia, Center for Islamic Development Management Studies (ISDEV), 11800 Minden, Pulau Pinang. E-mail: Tel: +60-134281960. 1


Center for Islamic Economics and Finance, Qatar Faculty of Islamic Studies, Qatar Foundation

Background The concept of corporate social responsibility (CSR) 3 is corporate responsibility for sustainable economic development in the effort to improve the quality of life and environment (Obaloha, 2008: 538, Hay and Gray, 1974: 9, Dusuki and Dar, 2005: 390). In the last thirty years, the concept of CSR has become an issue of discussion related to the relationship between business and society. One issue discussed was the importance of harmonious relationship between the stakeholders 4 with the corporate institutions. The concept of CSR began in the West in the 1970s and discussions on the concept of CSR often focused on the view that is founded on the norms, cultures and beliefs of the West, especially Europe and America. Western perspective of CSR has become common practice for a corporate to run CSR programs. Nevertheless, the concept of CSR can be studied and explored critically from a different source that has been developed in the West. The concept of CSR can be studied from the culture and norms of society like Middle East, Southeast Asia and China or in any religion and beliefs, like Islam, Buddhism and Hinduism. Every culture, norms and beliefs of certain communities have different philosophies and epistemologies on the form and practice of CSR. In Indonesia the discourse about CSR has been growing significantly. After having been issued, Act No. 40 in 2007 article 74 refers to the obligation of corporations on corporate social responsibility and society. Thus corporates in Indonesia inevitably...
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