How Islamic finance and a more ethical capitalism go hand-in-hand

Though wealth creation is the primary goal taught by top businessmen, social impact is considered to be a more fulfilling outcome for others. Money is not timeless, but what you do with that money can be. The light you instil in the uneducated, the medicine you provide to the ill, or the food and water you provide to the malnourished is far more enduring than the car you drive or the house you buy. Most advocates of social entrepreneurship believe that creating a business with a social impact leaves much more than just a humble footprint behind.

This article explores how both Islamic finance and ethical capitalism can go hand in hand. It will useful for those who do thier research in comparative and ethical. Please click the following link for to read more :

source : social Enterprise. Guardian.UK

Islamic finance and Coprate Social Responsibility

Corporate social responsibility (CSR) and Islamic financial institutions should have an obvious fit given the faith-based ethos of islamic finance, which also gives prominence not only to wealth creation and economic development but also to the promotion of social justice and concepts based on hard work, thrift and low or no indebtedness.

While the contemporary Islamic banking movement is now in its fourth decade, CSR and corporate governance has been slow to take off in the industry and has started to come to the fore only in the last few years. Several Islamic financial institutions and those conventional institutions offering Islamic financial products and services through windows have had sizeable CSR initiatives partly channeled through Zakat funds or through other concepts such as Sadaqah and Waqf (endowments). Kuwait Finance House, Jordan Islamic Bank, Bank Islam Malaysia, CIMB Islamic Bank and other Malaysian Islamic banks have had active CRS programs for years ranging from financing drub rehabilitation programs in Kuwait, to clinics and girls’ colleges in Malaysia.

On the other hand, the Oasis Group in South Africa, which has an active Islamic asset management and pensions business, has spearheaded a unique mix of CSR with Islamic charitable work. The Oasis Group, according to Vice Chairman Nazeem Ebrahim, has two charitable trusts under the Islamic Waqf concept – the Oasis Group Holdings Trust and The Crescent Fund, which are active in funding good causes including projects in hospitals, sports facilities, old people’s homes and in disaster relief both in South Africa and abroad. One of its more offbeat CSR projects is participation as a sponsor in the Timbuktu project, which is supported by the South African government and managed by experts from the University of Cape Town.

The project involves the restoration of Islamic manuscripts and artifacts; and housing these in a new museum, which is being built by funds allocated by the South African government and donated by South African companies. The University of Cape Town is also training Malians in manuscript restoration and librarianship so that they could manage the museum on completion.

On the downside, however, there has been much neglect of the CSR function by many Islamic financial institutions. There have even been a few cases of abuse of CSR and Zakat funds. Part of the problem is that there has been no proper scrutiny, standard or evaluation of the CSR function in the global Islamic finance industry. The Auditing and Accounting Organization for Islamic Financial Institutions (AAOIFI) in Bahrain issued a CSR standard at the end of 2009, but both governments and financial institutions or there regulatory bodies have failed to leverage this important social asset of Islamic finance.

As such, the publication of “The Social Responsibility Trends at Islamic Financial Institutions” report at the end of January 2010 by the US-based DinarStandard and Dar Al-Istithmar, which claim that it is a first-of-its-kind report, is timely. According to the publishers, the report is primarily based on the aggregate results of a survey on Social Responsibility at Islamic Financial Institutions (IFIs) carried out during the summer and fall of 2009.

The survey sample is unfortunately very limited which must impact on the conclusions and the potential for extrapolation on such a basis. This is a common drawback of survey-based methodology. “All, full or subsidiary, IFIs were eligible to participate and the invitation to participate in the survey was sent to the chief executive officers of 154 of the largest IFIs to complete the survey online or submit it through fax, e-mail or regular mail. Twenty-nine institutions completed the survey with a broad degree of representation from across the world,” stressed the report.

According to the report, some key findings of the survey were: a) 76 percent of respondents indicated that they had policies for charitable activities whilst 17 percent had none. Charitable activities remains a strong priority for IFIs, but most do not consider utilizing their fund mobilizing capabilities to raise funds for charities or emergency causes (only 34 percent said they do); b) 55 percent responded yes to having some policy in investment quotas on social, developmental and environment-orientated investments, whilst 38 percent did not have such policy. However, amongst the three types, environmental related investment quotas had the least focus (38 percent); c) 100 percent of respondents answered yes to having a policy to screen prospective clients which is actively implemented. Similarly, 97 percent have an organizational policy that deals with client responsibly; d) 83 percent of respondents stated that they have policies that provide equal opportunity to all of their employees, 93 percent have policies that ensure merit-based salary and promotion, and 86 percent have policies that specifically prohibit any kind of discrimination. However, when it comes to having policy to monitor employees from different backgrounds and gender, the response was mix with only 52 percent admitting to having such a monitoring policy and 48 percent not having any such policy.

Given the limited sample and methodology, the conclusion of the report, said author and senior consultant at Dar Al-Istithmar, Sayd Farook, are premature and sweeping. “This report,” he stressed, “demonstrates, within its limited sample, that Islamic finance is a truly ethical solution to the socio-economic issues facing mankind.”

It is also a pity that the report did not even attempt to define what corporate social responsibility is, especially under Islamic concepts. This may sound obvious but there are disagreements over the nature of CSR and its implementation. In the Islamic finance space, for instance, some Shariah scholars are dead against institutionalizing Zakat and insist that it must be distributed immediately to the poor and needy for immediate relief from hunger and poverty. Others have successfully institutionalized the Zakat function which has resulted in impressive gains in efforts toward social and financial inclusion; poverty alleviation; provision of primary healthcare and education; women’s education, drug rehabilitation and so on.

The other missed opportunity of the report is that its independence is undermined because it was done with the support of AAOIFI. Instead, the report should also have critically evaluated the AAOIFI standard 7 on CSR which was issued under its governance standards, and also examined other codes such as Bank Negara Malaysia’s Management Code of Ethics for IFIs in Malaysia.

Indeed, according to the publishers, the survey benchmarked IFIs with the recently released CSR standards by AAOIFI that cover 13 aspects of social responsibility such as client engagement, employee welfare, charity, environment, investment quotas and others.

Nevertheless, both DinarStandard and Dar Al-Istithmar should be encouraged to continue their work in this vital area. The global financial crisis has highlighted some issues between some banking practices and amorality with the society, communities and the real economy in which they operate. Islamic banking would be naïve to think that the industry is immune to the excesses and vagaries of casino capitalism that has brought the global financial system to the brink of collapse. In fact, concomitant with a culture of poor disclosure and corporate governance in a number of markets, and underdeveloped enforcement and a lack of transparency, the global financial crisis should be a reality check for the Islamic finance sector, albeit it has emerged relatively unscathed than its conventional counterpart.

source : arabnews

HSBC Amanah reaching out with Corporate Social Responsibility (CSR)

HSBC Amanah, the global Islamic finance services arm of the HSBC Group, recently announced it has entered into a partnership with Islamic Relief, a major international relief and development charity to offer a pilot Islamic microfinance scheme in Pakistan.

As per this partnership, HSBC Amanah will be providing funding towards Islamic Relief’s microfinance projects in Rawalpindi, Pakistan.    HSBC Amanah will also assist Islamic Relief as required in developing the Shariah structure for financing models and contracts and providing Islamic finance training to Islamic Relief staff.

Islamic Relief will, in turn, manage microfinance projects, identify and screen beneficiaries, set out eligibility criteria, encourage entrepreneurs to come forward with lucrative business ideas for investment and provide financial and social reports to HSBC Amanah.

Nabeel A Shoaib, Global Head of HSBC Amanah  said:

“We are extremely  excited to partner with Islamic Relief in this ground-breaking initiative to bring greater financial inclusion to Pakistan’s poor and empower hundreds of families to capture good economic opportunities. We are confident that Islamic microfinance can be a promising finance tool that can help reduce poverty and accelerate economic growth and financial inclusion, particularly in impoverished rural areas.”

“HSBC Amanah is keen to encourage the development of the Islamic microfinance sector and to promote the production of a commercially viable microfinance business model with high social impact. Based on the results of this pilot project, HSBC Amanah will be rolling out other Shariah compliant microfinance schemes in other locations,’ Nabeel added.

Saleh Saeed CEO, Islamic Relief commented:  ” We’re pleased to be part of this unique initiative, which combines HSBC Amanah’s Islamic finance expertise with Islamic Relief’s understanding of the dynamics of less privileged environments and constant interaction with the poor.

“Islamic Relief has experience of implementing microfinance projects in Pakistan as well as other countries in Asia and Eastern Europe. These projects help to alleviate poverty by providing people with the means to establish sustainable livelihoods. We are excited about the prospect of working with HSBC Amanah and look forward to replicating this model in other parts of the world where there is a pressing need to build financial inclusion for the entrepreneurial poor.”

source : optimist world

CSR for Islamic financial institutions

Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is developing a governance standard on corporate social responsibility (CSR) for Islamic financial institutions.

The Auditing and Governance Standards Committee consisting of high level executives from the international Islamic finance industry met at the Bahrain Institute of Banking and Finance (BIBF) to finalise the specific details of the standard.

The standard will highlight the importance of CSR from an Islamic perspective and give guidance to Islamic financial institutions in carrying out its CSR functions.

“With substantive provisions on CSR conduct and disclosure, this standard will open the way for Islamic financial institutions to be recognised for their positive ethical and social activities and further differentiate them from other financial organisations as direct contributors to society,” Centre for Islamic Finance R&D manager Sayd Farook said.

The CSR standard complements AAOIFI’s 68 existing international standards on Sharia, accounting, auditing, ethics, and governance.

AOIFI’s standards are adopted in leading Islamic financial centres across the world including Bahrain, Dubai Islamic Financial Centre, Qatar, Qatar Financial Centre, Sudan, and Syria as well as by the Islamic Development Bank Group.


Islamic Banking and Corporate Social Responsibility

Each year, with the advent of the month of Ramadan, the Saudi Dallah Al Baraka group holds a jurisprudential seminar that brings together all the personnel and those concerned in the field of Islamic banking from all over the world. Held under the auspices of the Saudi Dallah Al Baraka group, this year’s seminar marks the 28th anniversary.

Twenty-eight years of achievements in the field of Islamic banking, the Dallah Al Baraka group has hosted scholars, researchers and economists, among others, over numerous pertinent and emerging issues related to the subject. Additionally, contentious matters that the legitimate bodies of Islamic financial institutions have disagreed upon are discussed with the intention of resolution.

The seminar lasts between two-to-three days in which a number of issues are brought to the table and debated. At the end of the seminar, recommendations are made and are the outcome of the scholars’ consensus following consultations over issues. They make recommendations that give the jurisprudential view of the issue at stake.

These recommendations have had an impact to the point that they have been adopted by the jurisprudential bodies, which examine them closely and issue various decisions based on them. Perhaps the most important of these recommendations were the ones that prohibited systematic ‘tawaruq’* banking and tampering with Shariah, issues that were discussed in the Dallah Al Baraka seminars before they were officially studied by the jurisprudential authorities.


Undoubtedly the credit goes to Dallah Al Baraka group, especially the businessman Salah Abdullah Kamel who is the chairman of Dallah Al Baraka group, for organizing the seminars every year since their inception, in addition to the group’s moral, financial and media support.

This proves the group’s awareness and dedication to fulfilling its social responsibility towards society, whilst paving the way for the dissemination of an outlook that values social responsibility among financial institutions and private sector companies in the Islamic world. The majority of these entities neglect their social responsibilities despite the fact that it is a crucial aspect of Islamic Shariah, which calls upon the community to unite and collaborate.

The Prophet (PBUH) said: You may liken the faithful having mercy for one another and in their love and kindness towards one another to the body; when one member of it ails, the entire body ails, one part calling out to the others with feverish sleeplessness.

How many of our major companies have made social responsibility part of their policies and targeted goals?! How many of our companies have programs dedicated to social responsibility?!

Without a doubt, social responsibility among companies is no longer a social aspect; rather, it has become an unwritten ethical code that companies must abide by and allocate a portion of their budget for. This approach aims to share the benefits with our societies, which would especially benefit the economies that do not impose taxes on companies, such as most of the economies in the Gulf States. Consider the number of Gulf companies that have devoted part of their budgets to nurture the gifted or grant scholarship opportunities to those who excel academically and for medical and academic research, in addition to environmental awareness programs, among others.

Social responsibility, or what is known as Corporate Social Responsibility (CSR), has become a basic component in major Western companies. However, this responsibility is not limited to financial donations for charity projects and institutions, but rather surpasses that to cover ethical management. Since everyone can reap the benefits when this approach is implemented, it follows that it serves all the different segments of society, which in turn serves the company through increased loyalty among the workers, thus resulting in more stability and productivity.

The United Nations (UN) has exerted practical efforts to set a universal code of standards for CSR, while some governments have established standards which they adhere to, such as Britain. Within this context of international efforts to establish CSR codes, I would like to take this opportunity to call upon the general council for Islamic banks and Islamic financial institutions to adopt a CSR code based on the Quran and Sunnah while benefiting from international experiences in the field.

* Lahem al Nasser is a Saudi Islamic banking expert

Tawaruq Finance

1) This form of Shariah-compliant finance helps businesses with their need for cash required to finance their operating capital and is based on the Tawaruq sale principles.

2) Tawaruq is a Shariah-compliant finance method, with which you can raise loan finance through buying installments in a local commodity, owned by the bank.

3) The customer buys a share in local or international commodity the bank owns. The customer then authorizes the bank to sell his share in this commodity, on his behalf, to a third party for cash and then deposit the proceeds into his account.

Source Riyad Bank