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R Digest offers
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on corporate social re
esponsibility
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nd sustainable and responsib
ble
Exploring the Corporate Conscience
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Sociallly Respo
onsible Banking?
B explores the corporate conscience
with one
e comment worldwide, with a special emphasis on

By Danie
el Chandrana
ayagam Malaysia
a and the Asia
a Pacific Rim. For
our edittorial content, clickhere. The
e
As the year turns jus
st fourteen da
ays old, more
e and more people
p and
Digest is also currentlly a free
business
ses are turnin
ng to centuriies old religio
ous tenets fo
or the
distribution electronic
c digest, so fee
el
regulatio
on of their fin
nancing. Proffessor Bala Shanmugam
S of
o Monash free to s
send your conttent or press
Universitty Malaysia was
w reported recently to have
h said, releases
s to us at edito
or [at] csrdiges
st
dot com
m.
Islamic finance is also kknown as socia ally responsib
ble banking 
because w we tend to thinnk of what thee consequencces are of 
Pages
this. It’s no
ot just lending
g money for tthe sake of len
nding and 
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Understa
andably, with
h crumbling financial
f marrkets, an ethical Searrch
financiall framework based on fairness sounds desirable. As
A such,
the grow c Finance in institutional finance mark
wth of Islamic kets is
unsurpriising. In November 2006, Ethical Corp
poration repo
orted that Subscrribe to CSR Digest
D
hydrocarbons conglo
omerate, Saudi Basic Indu
ustries Corpo
oration, Sub
bscribe in a rea
ader
issued a three billion
n Saudi riyal (USD800
( mill) Sukuk, Isla
amic
Finance’s equivalent of a bond. At
A that time, it was also sttated that Categorie
es
Kuwait Finance
F Hous
se was to issu
ue a USD200
0 mill Sukuk for
f a
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Money by Psyrax of Devian


nt Art visuals rem
main with the
authors/artists.
More rec
cently in Octo
ober, Malaysia’s central bank
b governo
or, Dr. Zeti
Akhtar Aziz,
A stated, during her keynote
k addre
ess at the Sta
ate Street
Islamic Finance
F Cong
gress 2008 in
n Boston, tha
at the outstan
nding
amount of Islamic prrivate securitties amounted to USD79 bill.
b She

also add
ded that the number
n of Sh
hariah-based
d unit trust fu
unds had
increased to a net as
sset value of over USD5.2 bill.
Page
 

Why?
According to Malaysia’s central bank governor, Dr. Zeti Akhtar Aziz, the strengths in Islamic Finance
are derived from Shariah principles. During her keynote address at the State Street Islamic Finance
Congress 2008 in Boston, Dr. Zeti stated that these principles, based on Islamic law, “require that the
financial transactions be accompanied by an underlying productive activity, thus giving rise to a close
link between financial and productive flaws.”

Because gambling and the exacting of interest are prohibited, Islamic financiers are required to
innovate in order to come up with comparable instruments to lend, invest and insure. The instruments
for these activities are usually based on contracts that require both parties to share profit and loss
equitably.

Dato’ Vaseehar Hassan Abdul Razack, Chairman of Unicorn International Islamic Bank, was reported to
have said that Islamic banks “will follow through exactly what you want to do and be your partner
holding your hands from day one, until the project is completed, and then make sure it is properly
completed and that the cash flows are generated according to what they are projected, and then they
share an equitable proportion of the profit.”

Money for? by Ferruh


This sounds like a good enough reason to consider Islamic banks as conducting their corporate social
responsibility in the course of their business.

There’s more…
It is said that Islamic laws covers the entire social order. Islam protects the right to private property,
but these rights should also take into consideration the rights of others in the community, including
the right to proper natural resources. Because these natural resources, like water, forests, air and
sunlight, are the property of society (and the world at large), an individual is held accountable for its

use or repair if she causes harm to them.


Page
 

It has been noted that some Islamic Finance products provides better deals than those of conventional
banking. Managing Director of DVA Consulting Sdn Bhd, Daud Vicary Abdullah, was reported to have
said, “… an example that I often use is a deposit-based product, where you are penalised if you break
a fixed-term deposit in the conventional world and you get less interest. But in the Islamic world, you
get the profit that you’re due, up to that point in time when you break the deposit.”

Formerly the Chief Operating Officer of Asian Finance Bank, Mr. Daud was also quoted on INSEAD
Knowledgeas saying,

There is a significant potential for socially and ethically responsible financing … not 
just in terms of ethics, but also the opportunity in terms of the structure in 
development of some of the green funds, waste recycling, green forms of energy, and 
so on. There is under the tenets of Islam a clear alignment between what Islam 
represents and what is ethically and socially responsible. 

Credibility Problems
On the basis of the tenets discussed above, it can be said that Islamic Finance products, through their
very nature, are eco-friendly. However, there are some challenges to Islamic Banking. For one thing, it
has been suggested by industry practitioners to the CSR Digest that some Islamic Finance Institutions
possibly “close one eye” as to whether or not what they are funding will cause detriment to the
environment.

Furthermore, Ethical Corporation comments in its Special Report, “Islamic finance - Ancient values in a
global economy” that the “lack of transparency even on contractual compliance matters is
disquieting”. Ethical Corporation pointed out in 2006 that Shariah board members, at least in the UK,
are paid by banks to deliver fatwah (Shariah rulings). Although, institutional clients might be advised
on the reasons behind the rulings, private consumers and affected communities were usually just left
to accept the fatwahs made by people “chosen and paid for by the other team”.

Money Money Money by Ivy046



Page
 

Dr. Zeti pointed out, “Against a backdrop


b of an
a increasing
gly uncertain global environment, Islamic
finance, as a form off financial inttermediation in the intern ncial system, has continued to be
national finan
viable an
nd competitiv
ve.”

Norton Rose’s
R Head of Islamic fin
nance and an
n adviser to the British go
overnment wa
as reported to
t have
said onthe Huffingto
on Post:

Islamic finance does dem monstrate go ood banking bbehavior that has been perrhaps lost 


ast 10 years or so… Islamic banking is sa
over the la aying we are cclose to our cllients and 
we’re onlyy going to do ggenuine transsactions wherre we can seee the asset, wee 
understand the asset, w we can make a an assessmennt of that asseet: whether itt’s 
financing aa ship or an a
aircraft they w
will go and have a look at tthe business. IIt’s giving 
guidance a as to what baanking should d be. 

A very ta
all order, and
d the world watches.◊
w

Written by
y Daniel Edit
January 14
4, 2009 at 11:15 am
Posted in CSR Digest Edittorial, Marketplace, Transpare
ency
Tagged with ethical finan
nce, Islamic Finance, Malaysia,, reporting
« Stop the
e CSR Spin

One Re
esponse to 'Socially Re
esponsible Banking?'
Subscribe
e to comments
s with RSS or TrackBack
T to 'S
Socially Respon
nsible Banking?'.

1. As you kn
now a rough co
ousin to Islamic banking and
d finance in th
he west is ethic
cal investing.

I got interested in ethic


cal investing so
ome forty yearrs ago as I beliieved that whe
en we invest in
n a company we
w share in
the respo
onsibility for th
he activities of the company as well as participate in the outcomes of tthe company’s
s
activities.. Therefore any
yone valuing their
t personal or spiritual growth has to ta
ake these thing
gs into accoun
nt when
investing.

I also believe that if eve


eryone does in
nvest according
g to their personal values, th
hen, since so m
many of core values
v are
alike — and are supporrtive of higher ideals — that in the long run, only compa ng these higher values
anies employin
will truly prosper.

For anyon
ne interested I have a site that covers the latest
l arch on ethicall investing, as well as
global news and resea
occasiona
al reports on Is
slamic finance
e. It’s at http://
/investingforth
hesoul.com/

Best wishes, Ron Robins

Ron Robins
15 Jan 09 at 12:44 am Ed
dit

 

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