Social Reporting by Islamic Bank

Topics: Sharia, Islam, Islamic banking Pages: 21 (6742 words) Published: February 26, 2011
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ABACUS, \10/.42, No. 2, 2006

doi: 10.1 11 1/j.1468-4497.2006.00200.x


Social Reporting by Islamic Banks

The last thirty years have witnessed the appearance and rapid expansion of Islamic banking both inside and outside the Islamic world. Islamic banks provide financial products that do not violate Sharia, the Islamic law of human conduct. The Islamic principles upon which the banks claim to operate give an importantrole to social issues. Applying these principles, we develop a benchmark set of social disclosures appropriate to Islamic banks. These are then compared, using a disclosure index approach, the actual social disclosures contained in the annual reports of twenty-nine Islamic banks (located in sixteen countries) to this benchmark. In addition, content analysis is undertaken to measure the volume of social disclosures. Our analysis suggests that social reporting by Islamic banks falls significantly short of our expectations. The results of the analysis also suggest that banks required to pay the Islamic religious tax Zakah provide more social disclosures than banks not subject to Zakah. Key words: Islamic banks; Islamic values; Social reporting; Zakah.

Studies of accounting and accountability from an Islamic perspective have been emerging over .the .Iast 25 years. Scholars of Islamic accounting, such Gambling and Karim (1986, 1991), Adnan and Gaffikin (1997), Alam (1998), Baydoun and Willett (1997, 2000), Suliman (2000) and Lewis (2001) have adopted an ethical normative approach to develop general accounting theories dealing with financial reporting by Islamic business entities. However, these studies tend not to reflect the political, economic and regulatory situation, and other forces that affect reporting by Islamic businesses. In addition, with exception of thy model of social reporting developed by Haniffa (2001), all the prior research has been concerned with overall reporting of Islamic businesses, and not specifically with social reporting. Islamic societies have become affected, and in some cases dominated, by Western cultural values. This makes it difficult for business enterprises operating in Islamic countries (even those where a full Islamic system applies, such as Sudan and Iran) to apply the accounting and reporting recommendations of the normative studies referred to above. This is likely to continue, even though Western financial and sociaf reporting frameworks may not be suitable for Islamic enterprises. The

BASSAM MAALI is Assistant Professor in Accounting at the University of Petra, Amman; PETER CASSON is Senior Lccturer in Accounting; and Ci'JRISTOPHER NAPIER ( is Professor of Accounting at the University of Southampton. The authors thank participants at the 7th Financial Reporting and Business Communication Conference, Cardiff, July 2003, and the 16th Doctoral Consortium of the School of Accounting and Finance, University of Wollongong, July 2004, and an anonymous referee for their helpful comments.

© 2006 Accounting Foundntion, The University of Sydney

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significance of this problem has been highlighted by the emergence of a new type of enterprise that aims to abide by Islamic principles and thus· serve the ethical needs of Islamic societies: Islamic banks. In addition to their role in providing investment and financing activities for Muslims who are keen to adhere to Islamic law in their business transactions, Islamic banks offer their clients a vaI:iety of financial products that do not violate Sharia. 1 As well as following normal bank accounting and reporting...
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