Corporate Social Responsibility in Islamic Banking - Research Proposal Example

RESEARCH PROPOSAL: Towards a best practice framework for corporate social responsibility in Islamic banking” BY YOU INFO HERE HERE 1.0 Title of Research Towards a best practice framework for corporate social responsibility in Islamic banking 1.1 Background Islamic banking consists of banking activity which complies with sharia, incorporating established Islamic economics with the teachings of the Quran, underpinned by strict adherence to Islamic religious, moral and ethical law (Rammal and Zurbruegg 2007). Sharia disallows the application of certain fees and interest rates on loans, a driving force for sharia-compliant finance throughout history. These exclusions in Islamic banking have underpinned development of banking system models in the Muslim community as more Islamic banks recognize the imperative of applying these principles in order to comply with divinity-inspired teachings of Islamic morality. In today’s Muslim world, there is a mounting interest within the Islamic community to comply with strict, traditional Islamic values and norms in an effort to reconcile teachings from the Quran and commitment to religious doctrine with a capitalistic ideology (Schielke 2015). The foundation of contemporary Islamic banking systems is ensuring the incorporation of a basic interpretation of sharia ideology to make Islamic banking completely harmonious with global modernism (Bayat 2007). Hence, this attempt at reconciling religious dogma with Islamic banking motivates Islamic banks to offer loans with no penalties for issuing late installment repayments and other incentives which reflect the banking institution’s commitment to strict Islamic financial mandates. Whilst Islamic banking would appear to already consist of potent moral and ethical objectives, there are many Islamic banks that have gone a step further, emphasizing corporate social responsibility (CSR) as an aspect of banks’ business models to ensure further compliance with the teachings of the Quran. There are many practical definitions of CSR, including advancing ethical ideologies within the entire business model whilst also advancing the social good (McWilliams and Siegel 2001). CSR is also recognized as being inclusive of guaranteeing fair conduct when engaging internal and external stakeholders (Dahlsrud 2008) and illustrating commitment to being considerate of a plethora of different stakeholder needs and expectations (Harrison, Bosse and Phillips 2010). Whilst Islamic banking institutions have turned toward CSR as a means of improving competitive advantage and better servicing stakeholders against strict sharia principles, there is a gap in literature describing recommendations for a best practice model of CSR in Islamic banking. For instance, Abu Dhabi Islamic Bank provides financial assistance to numerous charity organizations and works in partnership with schools and hospitals to undertake the provision of support to needy people (Chintaman and Com 2014). Qatar Islamic Bank emphasizes considerable economic and labor-based commitment to employing nationals and developing employee skills whilst also providing support for citizens affected by natural disasters (Chintaman and Com). 1.2 Significance of research There are such disparate CSR activities being undertaken and proposed by Islamic banks throughout the world and there is virtually no empirical support illustrating which specific CSR model would constitute best practice for ensuring competitive advantage, guaranteeing better engagement with stakeholders, or perhaps enhancing banking institution profitability. Hence, this study maintains opportunities to glean critical data from real-world Islamic banks to identify what model of CSR can provide the most superior benefits to Islamic banks that demand compliance to sharia principles; providing a potential series of best practice models of CSR that could be incorporated by today’s Islamic banks to improve their engagement with society and the institutions’ stakeholders. 1.3 Aim and objectives The aim of this proposed study is to explore what specific models of CSR have been most profitable, competitively-advantageous, and generally effective for Islamic banking institutions. To fulfill this aim, the study maintains three objectives: Substantiate the distinct CSR activities currently and historically undertaken by Islamic banks to promote their sharia-based ideologies. Investigate case studies of CSR within real-world Islamic banks to determine which have been effective and what has underpinned this success. Provide a series of CSR best practice models for contemporary Islamic banks buttressed by procured data with the highest probability of institutional, social and competitive-oriented advantages. 2.0 A brief review of the literature From a fundamental perspective, shariah imposes on every Islamic community member to be considerate of ensuring the needs of the poverty-stricken and needy are satisfied (Yousri 2005). These socially-oriented motivations are consistently reiterated in the teachings of the Quran in order to ensure equality and a prosperous future for all members of the Islamic moral community. To this end, one empirical study revealed that Affin Islamic Bank Berhad coordinates the collection of donations which have been distributed to needy beneficiaries in the pursuit of constructing low-cost housing for the poverty-stricken (Nor and Hashim 2014). The extent to which this sharia-based CSR activity produced advantages is unclear. However, in this same study, one participant from an undisclosed Islamic bank did assert that poverty eradication should not be the goal of CSR policy in Islamic banks (Nor and Hashim). As asserted by Mayer (1985), the provision of financial support to the poor and needy is largely unprofitable and risky to the institution. Perhaps this risk and potential inability to improve bank profitability is why other Islamic banks seek different CSR strategies. There are some Islamic banks that provide credit to assist in providing business start-up capital and supplement this credit with training and support for small or medium-sized start-up businesses (Dusuki 2008). This CSR objective ensures micro-development of the Islamic economy without the absorption of potential risk of providing direct financial assistance to the poverty-stricken as asserted by Mayer (1985) that could potentially produce insignificant return on investment. Farook (2007) identifies potential alternative models of CSR in Islamic banks, including maintaining an emphasis on reducing negative environmental impact, establishing superior customer service-centric banking models and enhancing employee welfare from a socio-economic perspective. In an empirical study of six different Islamic banks, Samina (2012) identified a significant statistical correlation between CSR expenditures (in the capacity suggested by Farook) and the volume of deposits achieved by these researched Islamic banks. Hence, there is evidence that maintaining an environmental focus, building superior service-centric banking models and improving employee stakeholder welfare can potentially bring a bank greater profitability. This is consistent with a recent study by Oh and Yoon (2014) who identified that customers maintain a more satisfactory perception of firms with a strong ethical focus and maintain more willingness to patronize these businesses over that of competitors with less moral and ethical focus. Yet another Islamic bank, whose identity was obscured from the results of an empirical study for ethical considerations, established what it refers to as a Musafir card, a no-fee bank card that provides cash withdrawal opportunities for religious pilgrims in Malaysia to reduce the risks of having their resources lost or stolen (Nor and Hashim). This shows Islamic bank emphasis on satisfying the needs of religiously-committed Muslim citizens which may contribute to improved bank institution reputation. Islamic Bank Bangladesh Ltd provided investment to establish the development of hospitals that provide low-cost healthcare provision to the impoverished (Latiff 2009). Furthermore, this same bank invested £727 million toward a micro-finance program that advanced rural development, which provided 4,700 villages with improved vegetable cultivation capabilities and animal-rearing practices with the objective of long-run socio-economic advantages in rural regions of Bangladesh (Latiff). However, the return-on-investment for this significant financial expenditure is unclear. Furthermore, several empirical studies have found that Islamic financial institutions’ CSR objective one of the most significant factors underpinning consumers’ intentions to patronize various Islamic banks (Dusuki and Dar 2005; Abbas, et al. 2003). Hence, from a reputational perspective, there is evidence that engaging in CSR is significantly-advantageous to Islamic banks from a competitive perspective. However, the existing gap in literature does not make effective, statistically-significant correlations as to which specific CSR objectives underpin this consumer intention to patronize the bank engaged in CSR as a fundamental business ideology. Cama (2004) iterates that CSR maintains disparate meaning to different society stakeholders according to different situations in the social environment. Therefore, it may be significantly-difficult to quantify what specific CSR models might underpin improved reputational advantages, competitive advantages and economic advantages Islamic banks might achieve using different models of CSR available at their disposal. 2.1 Summary This review of literature re-asserts that there are many different, potential CSR models that can be implemented by today’s Islamic banks, yet the literature does not propose which specific models would be most advantageous for these Islamic financial institutions. However, this study’s review of literature provided a framework by which to approach the primary study, providing an understanding of what constitutes CSR in Islamic banking and how such banks might approach establishing a model of corporate social responsibility. This review of literature again iterates the gap in empirical support for what might constitute the CSR model(s) which would be most viable as recommendations for a best practice framework, underpinning the aim of this proposed study. 3.0 Research methodology The current study focuses on specific CSR practices that have been historically adopted by Islamic banks headquartered in the GCC region. Some of the most profitable and successful Islamic banks maintain operations in this region, serving as the rationale for selection criteria. With little empirical support for development of a relevant hypothesis as to what might constitute a best practice framework, this study is exploratory in nature and will employ qualitative methods to satisfy the study’s three objectives. Qualitative research is appropriate as it seeks to conduct in-depth investigation of new socially-based phenomenon in which there is little knowledge of the phenomenon pre-existing. Thus, conducting extensive qualitative interviews allows for comprehending complex phenomenon which might underpin CSR successes or failures (Sekaran 2003). The proposed study will employ the interview approach to collect data from a managerial perspective, as these Islamic banking representatives maintain the most direct experience of historical failures or accomplishment with various CSR initiatives. The study had considered distribution of surveys to Islamic banking customers to gain perspectives on what CSR initiatives by Islamic banks are most favorable or engaging, however Cama (2004) iterated that CSR maintains different meaning in different situations for consumers. It is not the underpinning socio-psychological dimensions of what drives consumer behavior that the study seeks to identify and investigate, only the specific models of CSR initiated by Islamic banks that have brought the institutions competitive, reputational or profit-related advantages. Hence, the worms-eye view of managerial experience in CSR is most relevant for determining an effective best practice(s) recommendation. The preliminary research conducted did not uncover any specific characteristics of Islamic banking models which might bolster CSR effectiveness, therefore the study employs a simple random sampling technique for managerial participation recruitment. This sampling method will allow the researcher to draw inferred conclusion about the entire population of Islamic banking managers which is based on the sample responses. There is no evidence that various Islamic banks may maintain heterogeneous characteristics, thus stratification of a potential sample is inappropriate for recruitment strategy. The researcher will seek a sample of between 15 and 20 relevant managers in Islamic banks, with emphasis on recruiting representatives from shariah advisory committees, managers engaged in development of corporate strategy, operational managers or planning managers with direct experience in corporate social responsibility development, implementation and control. Access to the participants will be procured through face-to-face consultation with various Islamic bank administrators and via telecommunications. Upon procuring authorization to engage in research with relevant managerial professionals, interviews will be scheduled with a duration of 1.5 hours at the participants’ respective Islamic bank institutions. A participant consent form will be constructed to ensure proper documentation to satisfy ethical requirements. Interviews will be tape-recorded and transcribed by the researcher. Transcripts will be analyzed utilizing coding analysis methods, employing a thematic tactic to find congruency and other similar patterns in responses (Silverman and Marvasti 2008). The interview protocol questions proposed for the study are inclusive of: 1) What do you believe should be the objective of corporate social responsibility in Islamic banking? 2) What does CSR mean to you from a personal perspective? 3) Do you maintain the belief that CSR is an important conception relevant to Islamic banking ideology? Please provide an explanation. 4) Please describe how CSR is employed in your bank. 5) Do you believe that conducting CSR has benefitted your bank? How? 6) Do you believe that CSR can bring competitive advantages? If so, how? 7) Do you have any metrics system to measure CSR effectiveness and potential return on investment? If so, what are these metrics and controls? 8) What types of CSR activities would you recommend be excluded from Islamic banking? Why? 9) Do any of your bank industry competitors utilize different CSR models than your own bank that you think would be beneficial for your institution to employ? Why? 10) Sharia ideology suggests that the poor and needy should be considered in CSR, with some Islamic banks providing direct financial assistance to these disadvantaged groups. Do you believe this philanthropy in this form is relevant and beneficial for CSR? Why or why not? 11) Please engage with any additional thoughts about what you believe constitutes success in CSR for your bank that you might wish to propose. The open-ended interview questions were constructed to avoid being too exhaustive, but serving as a guideline to ensure that participants did not deviate from the main topic under investigation. Utilizing a digital recorder to gather information justifies the ability of the researcher to carefully analyze exact respondent quotations that might provide valuable socio-psychological perspectives about what constitutes CSR return-on-investment and general success or failure. As it is likely a blend of social and psychological factors that drive customer attitudes about CSR in Islamic banks, exact measurement of specific discourse is required for full and in-depth analysis which will be supplemented with researcher consultation with various texts in the domains of sociology and human behavioral psychology; thus enhancing study validity. 3.1 Limitations The present study would be enhanced with a mixed methodology, consisting of both qualitative and quantitative approaches, utilizing a supplementary survey of existing Islamic bank customers. However, the researcher was uncertain as to whether this would support study reliability with the recognition that consumers may maintain very disparate attitudes and opinions about CSR and its Islamic banking dynamics. This would have required the researcher to recruit a substantial sample population of diverse Islamic banking customers to make valid generalizations about the broader customer population in the GCC region, representing a substantial challenge based on researcher resources and timeframe available to conduct such a longitudinal study of consumer attitudes. Furthermore, the survey instrument tends to limit participants to strict response criteria (such as through the utilization of a ranked Likert-like scale), which would not provide opportunities to explore more complex aspects of business and consumer behavior. Not all aspects of attitude can be measured directly using statistical methods. 3.2 Ethical considerations Because a variety of responses might pose perceived risk of confidentiality for participants, the consent form will contain discourse that all respondents and their relevant Islamic banks will be kept anonymous. It is the intention that guaranteeing this anonymity will provide more incentive to be candid about aspects of competitive advantage and finance without concern that publication of these results (if relevant) will jeopardize the competitive position of participants’ respective banking institutions. The research will follow all guidelines for approval to conduct human participant research as mandated by the university’s ethical policies. 4.0 Resources and timeline for study completion The researcher will require procurement of a digital recorder as the only significant resource requirement to conduct the present study and requests for university assistance in this capacity may be proposed and submitted per any existing university guidelines pertaining to such a policy (if applicable). General office supplies and computer technologies needed for analysis and final project drafting/construction are within the pre-existing capabilities of the researcher. To properly recruit the sample population of between 15 and 20 participants, including personal labor expenditures to consult with various Islamic banking administrators, will likely require between 8 and 10 weeks. Supplementing this timeline requirement, the researcher will likely require, based on the scheduling capabilities of the recruited banking managers, an additional 10 to 12 weeks to ensure all recruited managers fulfill their participation requirements. Analysis of data in concert with researcher consultation with texts in socio-psychological knowledge to make quality inferred conclusions, will require an estimated 6 weeks for completion. The study, therefore, requires approximately 28 weeks to be allotted for the depth required to achieve valid recommendations for a potential best practice model(s). References Abbas, S.Z.M., Hamid, M.A., Joher, H. and Ismail, S. (2003). Factors that determine consumers’ choice in selecting Islamic financing products, International Islamic Banking Conference 2003, Prato: Italy. Bayat, A. (2007). Making Islam Democratic – Social Movement and the Post-Islamist Turn. Stanford: Stanford University Press. Cama, Z.J. (2004). Why CSR matters: the international banking perspective, paper presented at The Conference on Corporate Social Responsibility: Creating Greater Competitive Advantage. [online] Available at: http://www.sc.com.my/eng/html/cg/pdf/HSBC%20CSR-3%20(101204).pdf (accessed 6 June 2015). Chintaman, S.A. and Com, M. (2014). A comparative study of CSR practices of Islamic banks and conventional banks in GCC region, Journal of Islamic Banking and Finance, 2(1), pp.1-21. Dahlsrud, A. (2008). How corporate social responsibility is defined: an analysis of 37 definitions, Corporate Social Responsibility and Environmental Management, 15, pp.1-13. Dusuki, A. (2008). What does Islam say about corporate social responsibility?, Review of Islamic Economics, 12(1), pp.5-28. Dusuki, A. and Dar, H. (2005). Stakeholders’ perceptions of corporate social responsibility of Islamic banks: evidence from Malaysian economy, paper presented at 6th International Conference on Islamic Economics and Finance, Jakarta. Farook, S. (2007). On corporate social responsibility of Islamic financial institutions, Journal of Islamic Economic Studies, 15(1), pp.31-46. Harrison, J., Bosse, D. and Phillips, R.A. (2010). Managing for stakeholders, stakeholder utility functions and competitive advantage, Strategic Management Journal, 31, pp.58-74. Latiff, A. (2009). Corporate social responsibility of Islamic financial institutions and businesses, Humanomics, 25(3), pp.177-188. Mayer, A.E. (1985). Islamic banking and credit policies in the Sadat era: the social origins of Islamic banking in Egypt, Arab Law Quarterly, 1(1), pp.32-50. Nor, S.M. and Hashim, N.A. (2014). 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