Journal of Financial Reporting and Accounting

Corporate social responsibility disclosure: A comparison between Islamic and

conventional financial institutions
Zakaria Ali Aribi Simon Gao

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JFRA
8,2

Corporate social responsibility

disclosure
A comparison between Islamic and
conventional financial institutions

72

Zakaria Ali Aribi

Lancashire Business School, University of Central Lancashire, Preston, UK, and
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Simon Gao
Edinburgh Napier Business School, Edinburgh Napier University,
Edinburgh, UK
Abstract
Purpose The purpose of this paper is to examine the influence of Islam on corporate social
responsibility disclosure (CSRD) in Islamic financial institutions (IFIs).
Design/methodology/approach Using the content analysis approach, the paper examines the
influences of Islam on CSRD by looking into the annual reports of 21 conventional financial
institutions (CFIs) and 21 IFIs operating in the Gulf region.
Findings The results show significant differences in the level and the extent of the disclosure
between IFIs and CFIs, largely due to the disclosure made by IFIs of religions related themes and
information, including Sharia supervisory board reports, the Zakah and charity donation, and free
interest loan.
Originality/value This papers contribution to the literature is twofold: the paper reveals the
actual difference of CSRD between IFIs and non-IFIs, by comparing the disclosures made by IFIs and
non-IFIs; and the paper identifies the extent of influence of Islam upon the CSRD of IFIs.
Keywords Corporate social responsibility, Disclosure, Islam, Financial institutions
Paper type Research paper

Journal of Financial Reporting and

Accounting
Vol. 8 No. 2, 2010
pp. 72-91
q Emerald Group Publishing Limited
1985-2517
DOI 10.1108/19852511011088352

1. Introduction
Corporate social responsibility disclosure (CSRD) is the provision of financial and
non-financial information relating to an organisations interaction with its physical and
social environment (Guthrie and Mathews, 1985). It is the process of communicating the
social and environmental effects of an organisations economic action to particular
interest grouping within society and to the society at large (Gray et al., 1987, p. 9). CSRD
has played a significant role in business, through enhancing corporate transparency,
developing corporate image and providing useful information for investment decision
making (Gray et al., 1988; Patten, 1990; Owen et al., 1997; ODwyer and Gray, 1998;
Alnajjar, 2000; Friedman and Miles, 2001; Deegan and Blomquist, 2006).
Over the past decades, CSRD became an expanding area of accounting research.
A number of theories, including agency theory, stakeholder theory, legitimacy theory,
political economy theory, accountability theory and institutional theory have been
employed to justify why companies disclose or not disclose corporate social responsibility
(CSR) information (Guthrie and Parker, 1989; Ness and Mirza, 1991; Gray et al., 1995a, b;
Deegan and Gordon, 1996; Deegan and Rankin, 1996; Adams and Harte, 1998; Ince, 1998;

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Deegan, 2002; Deegan and Blomquist, 2006). However, the above theories were very much
developed in the context of western market economies, and, therefore, their applicability
in other parts of the world is questionable, in particular in Islamic societies where
businesses operate in a totally different cultural context along with different business
objectives and ethics.
While the application of theories that were developed in a particular political,
economic and culture environment to justify disclosure practice in other different
environment is arguable (Hofstede, 1983; Perera, 1989), there has been little attempt to
explain CSRD from the cultural and religious perspectives. The existing theoretical
frameworks concerning CSRD rarely recognise religion as a foundation in explaining
why organisations disclose social information and also in making assessment of
organisations performance in terms of fulfilling their obligation to God, society and
eco-system (Haniffa and Cooke, 2001).
The aim of this paper is to presume Islam as a key factor inspiring CSRD of IFIs and
differentiating corporate behaviours between Islamic financial institutions (IFIs) and
conventional financial institutions (CFIs) in disclosing CSR information. The paper is
organised as follows: Section 2 explains Islamic values with a view to justifying the
need for this study. Section 3 reviews some prior studies. Section 4 describes research
methods and samples. The results and discussion are presented in Section 5. Section 6
concludes the paper and highlights the limitation.
2. Islamic values
Unlike in the western value-free society where religion is considered as a private matter
(Rice, 1999), in many parts of the Muslim world, Islam is integrated in all aspects of
society including politics, community, law and economy. The influence of Islam on
peoples daily activities and businesses is well-documented in the Holy Quran and
Sunah[1]. Islam is not merely a personal religion, but also an organisation for society and
its institutions, as well as the guide for conduct of individuals within that institutional
and social context (Tinker, 2004). Many of Islamic business values are part of core CSR
activities. As shown in Table I, for example, the primary sources of social responsibility
and business ethics in Islam are predominately based on the Holy Quran and Sunah.
Socio-economic justice is an essential element of Islam. This is because the objective
of Islam is to build a fair society, which was clearly stated in the Holy Quran. We send
our Messengers with clear signs and sent down with them the Book and the Balance
(Right and Wrong), that men may stand forth in justice (The Holy Quran S57:25). Islam
aims at the formation of a socio-economic order based on justice and considers economic
activities as a means to an end and not an end in itself (Ebrahim and Joo, 2001).
According to Al-Gazzali, one of the famous scholars in the eleventh century, the purpose
of Sharia is to promote the welfare of the people, which lies in safeguarding their faith,
their life, their intellect, their prosperity and their wealth (cited in Kamla (2005, p. 112).
Social responsibility in the Islamic context is based on the Islamic concept of human
well being and good life, which stresses brotherhood/sisterhood and socio-economic
justice and requires a balanced satisfaction of both the material and spiritual needs of all
humans (Chapra, 1992). The concept of Khilafah (Vicegerency) defines a persons
responsibility to the community and a persons responsibility to himself or herself.
According to Chapra (1992), the implication emanating from the concept of Khilafah is
that an individual is regarded as a trustee for Gods resources. This has a different

CSR disclosure

73

Source: Adopted from Rice (1999, p. 350)

Importance of knowledge seeking, research and development,

scientific activities, training programme

Fairness in contracts negotiation

Whoever knows of defect in something is obliged to disclose it

Fulfilling obligations and trust in business relationships and

workplace
Give full measure and weight

Excellence and quality of work

Employee fair treatment, equal opportunity and non-discriminatory

behaviour

The Holy Prophet said I will be foe to three persons on the day of
judgment, one of them being the one who, when he employs a person
that has accomplished his duty, does not give him his due (Al
Bukhari, No. 2109)
No Arab has superiority over a non-Arab and no non-Arab has any
superiority over an Arab; no dark person has superiority over a white
person and no white person has superiority over a dark person. The
criterion of honour in the sight of God is righteousness and honest
living (saying of prophet Muhammad) (Sallam and Hanafy, 1988)
God likes that when someone does any thing, it must be done perfectly
well (saying of the prophet Muhammad-pray and peace upon him)
(Sallam and Hanafy, 1988)
God does command you to render back your trusts to those to whom
they are due (Quran 4:54)
Give just measure and weight, nor withhold from the people the
things that are their due[. . .] (Quran 11:85)
He who cheats is not one of us (saying of the Prophet Mohamed-pray
and peace upon him) (Keller, 1994)
[. . .] do not outbid one another in order to raise the price, fairness in
contract negotiation [. . .] dont enter into a transaction when other
have already entered into that transaction and be as brothers one to
another (saying of prophet Mohamed-pray and peace upon him)
The acquisition of knowledge is a duty incumbent on every Muslim,
male and female (saying of the prophet Muhammad-pray and peace
upon him) (Sallam and Hanafy, 1988)

Table I.
Some examples of
business ethics principle
in Islam
Related business practice

74

Ethical principle

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meaning to the concept of private ownership in the context of a western-market

economy. Under Khilafah, individuals will ultimately be accountable to God for their
actions as they agree to assume their great responsibility in a covenant with God
(Hamid et al., 1993; Lewis, 2001). Allah empowers individuals to own, enjoy and transfer
what He has entrusted them. Thus, Islam perceives wealth as a grant, which has been
given as a trust from Allah into the hand of the human being, and, therefore, should be
utilised in the most effective and efficient way to produce the maximum output
and to follow Allah guidance of establishing prosperity and justice on the earth
(Metwally, 1997).
To lay emphasis on social responsibility in society, Islam imposes payments of the
Zakah[2] on individuals and businesses and promotes charities[3] in order to harmonise
between the rich and the poor. The main purpose of the Zakah is a redistribution of
wealth (Lewis, 2001). The Zakah is collected from Muslim individuals and businesses
and then paid to the poor, needy and for the interest and welfare of the community.
In addition to charities and the Zakah, Islam encourages free of interest loan where a
borrower requires to pay back the amount borrowed and the lender to be lenient with the
borrower if the debtor is in a difficulty, grant him time till it is easy for him to repay.
But if ye remit it by way of charity, that is best for you if ye only knew (The Holy Quran,
S2:280). Islam strictly bans charging interest on any loan under any circumstances.
Interest is regarded as a prominent source of unjustified advantage (Sarker, 2000) and
violates the principle of social justice (Mirza and Baydoun, 2000):
O ye who believe! fear Allah and give up what remains of your demands for usury, if ye are
indeed believers. If ye do it not, take notice of war from Allah and His Messenger: but if ye
repent ye shall have your capital sums; deal not unjustly and ye shall not be dealt with
unjustly (The Holy Quran, S2:279-80).

Islam concerns about safeguarding of natural resources. About 1,427 years ago, the
Holy Quran warned against the negativity of spoiling the environment: Mischief has
appeared on land and sea because of (themed) that the hand of men have earned
(The Holy Quran S30:41). Islam advocates the mankind to take care everything created
by Almighty Allah, as it is part of submission to Allah. In relation to the environmental
responsibility in Islam, the Holy Quran underlines the importance of protecting the
environment. The Quran says do not spread mischief on the earth, after it has been set
in order, and invoke Him with fear and hope; Surely, Allahs Mercy is (ever) near unto the
good-doers (The Holy Quran, S7:56). In Islam, the mankind has been entrusted with
the responsibility of protecting the earth. This trusteeship is seen as onerous and no
other creature would accept it. Allah says: We offered the trust unto the heavens and the
earth and the hills, but they shrank from bearing it and were afraid of it and man
assumed it (The Holy Quran, S33:72). This concept of trusteeship in Islam, similar to
the notion of sustainable development, does not regard natural resources as a free good
to be wasted at the free well of any nation (Rice, 1999). No one has the authority to waste
or corrupt the resources. Eat and drink, but waste not by excess; Verily He loves not the
excessive (The Holy Quran:S7:31).
Indeed, Islam offers great advantage for environmental conservation, protection
and sustainable development in that it is a source for law that is consistent with
cultural values of Islamic Society and can be imported with ease into environmental
policy that is both effective and implement-able (Bagader et al., 1994, p. viii). There are
hundreds of verses in the Holy Quran concerning environmental issues. Sharia sets up

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75

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76

the standards of human conduct and how businesses should deal with their external
environment.
Muslims are expected to conduct their business activities in accordance with the
requirement of Sharia. Since the foundation of IFIs is based on Islamic values, they are
considered having ethical identity and have unique social and economic objectives
(Haniffa and Hudaib, 2007). IFIs are guided by an Islamic economic worldview, which
is based on the principle of social justice and the well being of society (Dusuki and Dar,
2005). Llias (2008, p. 1) outlines major differences between IFIs and CFIs. IFIs operate
on the basis of banning interest (riba) and uncertainty, sharing risk and profits,
encouraging ethical investments that enhance society and asset-banking. It requires
each a financial transaction must be tied to a tangible, identifiable underlying asset.
Under Sharia, money does not belong to the asset category as it is intangible and thus
should not earn a return.
Businesses that follow Islam principles have to incorporate Sharia fully into their
business practice and objectives, leading to corporate behaviours that are different
from the ones in the western market economy where profits maximisation including
profits from interest on loans is the legitimate aim of business. In the context of Islam
business world, businesses have to demonstrate their accountability to God and
fulfillment of social objectives. This demonstration is expected to be reflected in the
annual reports published to the public.
3. Prior research
A number of studies have investigated the CSRD of companies conducting their
business according to Islam (Anuar et al., 2004; Yahya et al., 2005; Haniffa and Hudaib,
2007). For instance, using content analysis, Anuar et al. (2004) provide evidence that
supports the contention that Islam has an effect on corporate environmental reporting.
They compare the environmental practice of Sharia-approved companies, which are
conducting their activities in strict accordance to Islamic principles with the
environmental practice of non-Sharia-approved companies that operate in Malaysia,
and show that the former has a higher level of environmental reporting compared to
non-Sharia companies. They suggest that the higher extent of environmental reporting
among Sharia-approved companies may reflect an attempt by such companies to
present corporate reporting which embodies the Islamic principles of full disclosure and
environmental accountability. While adopting a comparative approach, their study was
very much limited to environmental reporting.
Haniffa and Hudaib (2007) conduct a longitudinal survey study of the annual
reports of seven IFIs in four Arabian Gulf region countries. Using content analysis
to examine the effectiveness of Islamic banks communicating of their ethical identity,
they investigate the discrepancy between the communicated information (based
on information disclosed in the annual reports) and ideal disclosure (i.e. disclosure of
information deemed vital based on the Islamic ethical business framework). While it
expects that IFIs must comply with the precepts of Sharia Islamiah in their reporting,
their findings indicate fall far short of what would be enabling ethical and social
communication in IFIs, and the reports vary across the 3-year period, suggesting that
the communication by IFIs is very much minimal. They believe this was mainly due to
a lack of pressure from stakeholders and also the prevailing secretive culture in the
region (p. 111).

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Yahya et al. (2005) measure the level of CSRD in Sharia-approved companies in

Malaysia. They find that only 102 companies out of 194 disclose their social activities
in the annual reports. They further investigate the relationship between the level of
CSRD and the number of Islamic equity funds holding shares in the companies. Their
results reveal that the number of Islamic equity funds investing in any company is
parallel to the level of social activities disclosed by the company. Maali et al. (2003,
2006) investigate the influence of Islam on social reporting. Based on Islamic principles
and Islamic code of ethics, Maali et al. (2006) develop a benchmark for social disclosure
which they would expect Islamic banks to provide. Yet, their results indicate that the
extent of social disclosure by Islamic banks falls far short of the benchmark and there
is a considerable variation in the voluntary social reporting across Islamic banks.
Overall, most of the studies tend to examine the gaps between the expectation of
disclosure and the actual disclosure of Islamic businesses. While the identification of
expectation gaps is useful, it fails to reveal the actual difference of CSRD between IFIs
and non-IFIs. Our study attempts to make a contribution to the literature by comparing
CSRD between IFIs and non-IFIs, with a view to identifying the extent to which Islam
has influenced the CSRD of IFIs. Such a comparison would clearly enhance our
understanding of the actual influence of Islam on CSRD.
4. Sample and research methods
Our study is based on the annual reports of financial institutions. Of the 42 companies
that were included in the sample, 21 (50 per cent) were fully Sharia-approved companies
and the rest were CFIs. Since the aim of our study is to compare CSRD between IFIs and
CFIs, it is essential to control the political, social and economical variables. To achieve
this, we focus on financial institutions operating in Gulf countries as these countries
have, to a large extent, analogous economic, political and social environments. The entire
population of IFIs was obtained from the General Council of Islamic Banks and Financial
Institutions. Among these there are 24 IFIs operating in Gulf countries. The annual
reports of three IFIs were not available. To make a valid comparison, the similar number
of 2004[4] annual reports from 21 CFIs companies was obtained; those firms were
randomly selected from companies listed on the stock exchanges in the region.
To measure and compare the quantity and the quality of CSRD among financial
institutions, content analysis was employed. Content analysis, as a commonly used
method in disclosure research (Gray et al., 1995a; Deegan and Rankin, 1996; Gao et al.,
2005) is an approach of codifying the text (or content) of a piece of writing into different
groups depending on particular criteria (Weber, 1988). Different units of a content
analysis can be employed including number of words; number of sentences; number of
lines; proportion of pages; or a mix of these units (Unerman, 2000). Each method has its
pros and cons (Campbell, 2004). This study measures the level of CSRD with numbers
of words disclosed as words are the smallest unit of measurement for analysis and can
be expected to provide the maximum robustness to a study in assessing the quantity of
disclosure (Zeghal and Ahmed, 1990; Campbell, 2004). The use of words will increase
the reliability of content analysis.
Content analysis requires the researcher to implement a coding (checklist) scheme
(Wolfe, 1991). In this study, a checklist instrument (Appendix, Table AI) describing the
themes and the sub-themes for CSRD was designed based on prior research in
CSRD generally and Arab Muslim countries particularly (Ernst and Ernst, 1978;

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78

Gray et al., 1995a; Kamla, 2005; Maali et al., 2006; Haniffa and Hudaib, 2007). Some of
our themes in the checklist are formally required by the AAOIFI[5]. As AAOIFI
standards are not mandated in all the sample countries and most IFIs in the sample
operate in more than two countries including countries where AAOIFI was not
mandated, the annual report produced by these institutions does not have a clear cut
between mandatory and voluntary elements. Moreover, distinguishing between
voluntary and mandatory disclosure is beyond the scope of this study as our purpose is
to investigate the extent of CSR disclosures with a view to identifying the influence
of Islam. So this study does not differentiate mandatory and voluntary disclosures.
In order to enrich the content analysis data and to provide a detailed in-depth analysis,
an effort was made to capture the quality and type of disclosure.
Consistent with prior studies (Guthrie and Mathews, 1985; Gray et al., 1995b; Zeghal
and Ahmed, 1990), the themes were further analysed under three categories of evidence
(i.e. monetary, qualitative and quantitative) and type of news (i.e. good, neutral and bad)
(Appendix, Table AII).
Reliability and validity in content analysis refer to a measuring procedure, which
ensures to provide the same results on repeated trails. In other word, reliability
and validity are determined to ensure that different researchers will code the text in the
same way and therefore diminish the chance for inaccuracy and biases. A number of
steps were taking to ensure reliability:
(1) Well specified coding instruments, with well-specified decision rules (Appendix,
Tables AI and AII) have been developed to minimise discrepancies and fulfill
objectivity.
(2) One of the researchers, main coder, has undergone an extensive period of
training prior to starting the process of analysing in order to have a better
understanding of the subject.
(3) To ensure reproducibility, three annual reports were tested by different coders
in a pilot test. Ambiguities were discussed with the authors, who endeavour to
ensure that all coders used the same coding rules; and any points made were
used to develop the framework of analysis.
(4) Each step in the research process must be fulfilled on the basis of explicitly
formulated rules and procedures. Moreover, any definitions used in the data
gathering must be negotiated to realise these shared meanings which recreate
the same referents in all the associated investigators (Gray et al., 1995b, p. 80).
(5) In order to ascertain stability in the measurement procedure, a few annual
reports, which were analysed by the researchers, were those which were
analysed during the pilot test. The result was almost stabilised. This procedure
was undertaken in order to ascertain if the initial categories identified and their
measurement have remained stable at different times (stability).
For the examination of the internal consistency of CSRD, Cronbach coefficient was used.
Cronbach coefficient a, is a measure of internal consistency that uses repeated
measurement to assess the degree to which correlation among the measurements is
attenuated to random error (Botosan, 1997). For the seven categories, Cronbach
coefficient a is 0.624, which is fairly within an acceptable level. However, there is no
universal standard test of significance for this statistic (Botosan, 1997). Milne and Adler

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(1999) note that any attempt to establish a single criterion value of acceptable coding
reliability is problematic.
5. Results and discussions
A summary of the disclosures made by both IFIs and CFIs is presented in Table II,
indicating that all the sample reports provided CSRD. The overall level of CSRD was
greater by IFIs than CFIs. The mean of words disclosed by IFIs was 1,160 comparing
to 750 by CFIs. A t-test shows the difference between the two groups is statistically
significant (Table II). To determine the robustness of the results, a non-parametric
Mann-Whitney U-test was also performed. The result of U-test supports the findings
with p-value , 0.05. However, the differences in the level of disclosure varied across the
different themes between the two groups. As shown in Table II, both t-test and U-test
show statistically significant differences between the two groups in some themes. The
proportion of IFIs reporting on philanthropy, Sharia board report and other disclosure
was higher than that of CFIs; this is probably because the two categories (philanthropy
and Sharia board report) were required by the AAOIFI standards. Excluding these
two categories, the difference between the two groups of institutions was less
statistically significant, even though IFIs disclosed slightly more than CFIs.
Table II also shows that IFIs were more inclined to disclose monetary information
with 2,965 words, comparing to 678 words by CFIs and there was no bad news
disclosed by CFIs. Overall, IFIs intended to disclose more than their counterparts.
5.1 Employees
All companies in the sample disclosed some sorts of employee-related information.
Table III reveals the quantity of words on human resource disclosed by each group.
While there is no overall difference in the number of companies between the two groups,
IFIs appear to provide more words of the disclosure than CFIs. The level of words
disclosed varies greatly among sub-themes under employees. While both groups showed
more attention to training and development, and employee benefit, less disclosure was
given to workplace environment and equal opportunity. The disclosures were very
much in qualitative nature as shown in Table III. Also more space was dedicated to good
news disclosure by both groups. IFIs were inclined to disclose more bad news than CFIs.
5.2 Community
Disclosure under this theme covers sub-themes such as community investment,
contribution to national economy and education, health support, provision of
interest-free loans and public welfare. The disclosure results are presented in
Table IV. Overall, 29 banks (69 per cent) of the total sample disclosed information as to
the community and the average number of words disclosed by IFIs was 81 as
compared to 109 by CFIs. Although CFIs reported more community information with
total number of 2,303 words as compared to 1,718 words by IFIs, the number of banks
disclosed community information was 15 (90 per cent) by IFIs as compared to
14 (66 per cent) companies in CFIs. The disclosure of positive community related
information might offer a good opportunity for banks to portray themselves as a good
citizen in their societies. Table IV shows that the level of disclosure varied between the
two groups across all the sub-themes. However, there was a lack of disclosure under
social loan by CFIs in comparison to the disclosure of 338 words by IFIs, which was

CSR disclosure

79

Table II.
CSRD comparisons
between IFIs and CFIs

Themes
Employee
Community
Philanthropy
Product and services
Customer
Sharia Supervisory Board report
Other disclosure
Total
Significance p-value, two-tailed
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news
21
15
19
17
18
19
21

t-test 0.007
2,965
885
23,874
2,2154
5,385
185

5,031
1,718
2,782
2,951
3,853
6,523
4,866
27,724

IFIs
Number of
words
239
81
132
140
183
310
75
1,160

Mean

Number of
words

678
957
14,408
13,978
2,056

21
4,555
14
2,303
4
608
18
2,822
18
4,809

13
946

16,043
Mann-Whitney test 0.004

Number of companies

CFIs

216
109
28
134
229

34
750

Mean

80

Category

Number of
companies

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0.601
0.619
0.004
0.783
0.514
0.000
0.019

0.950
0.636
0.000
0.724
0.782
0.000
0.001

t-test
U-test
Significance p
two-tailed

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IFIs

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Category
Sub-themes
Employee data
Equal opportunity
Training and development
Appreciation and thanks
Employee benefit
End service indemnity
Pension
Localisation of employees
Work place environment
Other
Total
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news

Number of
companies

Number of
words

Number of
companies

Number of
words

14
2
17
15
10
15
6
4
1
8

347
44
1,282
508
1,380
834
158
91
16
371
5,031

7
2
11
17
11
13
6
10
2
4

143
22
867
363
1,090
662
195
604
91
518
4,555

1,101
454
3,476
3,665
1,351
15
5,031

283
724
3,548
3,053
1,502

4,555

IFIs
Category
Sub-themes
Community investment
Contribution to national
economy
Education
Health
Social loan
Social activities support
Other
Total
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news

CSR disclosure

CFIs

Number of
companies

81

Table III.
Disclosure of employee
information by
IFIs and CFIs

CFIs
Number of
words

Number of
companies

Number of
words

575

455

8
4
2
5
1

624
93
69
338
19
0
1,718

8
11
1

8
1

967
122
84
0
664
11
2,303

497
50
1,171
1,530
188

92
114
2,097
2,060
243

expected as disclosure by IFIs under this sub-theme is required under the AAOIFI
standards. In addition, the high level of disclosure was of qualitative nature and tended
to be good news for both groups. While both groups disclosed monetary information,
IFIs provided more disclosure than CFIs.

Table IV.
Disclosure of community
information by
IFIs and CFIs

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82

5.3 Philanthropy
This category mainly includes the disclosure related to donation, charity and the
Zakah. As shown in Table V, both groups provided some kinds of philanthropy
disclosure. The total number of companies disclosed information under this theme was
22 (52 per cent of the total sample); of which 4 were CFIs and 18 IFIs. The total number
of words disclosed was considerably higher by IFIs with 2,728 words comparing to
608 words disclosed by CFIs. This is expected because under the AAOIFI standards,
IFIs are required to disclose information on their involvement in the Zakah and charity.
Two types of philanthropy information were disclosed. Much of the information found
in both groups was qualitative and monetary in nature and neutral. While good news
was the dominated type of news, no disclosure was made of bad news by both groups.
5.4 Products and services
Products and services disclosure are classified under four sub-themes including
development and innovation of new products, quality of products and services, ISO or
other quality awards and related disclosure. The number of institutions that disclosed
information under this theme was quite similar for both groups. Table VI indicates that
35 (83 per cent) companies of the total sample disclosed information on products and
services; 17 were IFIs and 18 were CFIs. The level of words disclosed was considerably
high in both groups, with 2,951 words disclosed by IFIs and 2,822 words by CFIs. The
vast majority of disclosures made by both groups were related to the sub-themes of
development and innovation. The nature of information disclosed was very similar and
tended to be qualitative with good news.
5.5 Customer
Disclosure under this theme covers information concerning customer service, meeting
customer needs, customer satisfaction and policy towards insolvent clients. As shown
in Table VII, the disclosure of such information under customer category was very
common among the two groups. A total of 18 companies of each group disclosed
such information. The number of words disclosed ranged from 4,809 words by CFIs

IFIs
Category

Table V.
Disclosure of
philanthropy information
by IFIs and CFIs

Sub-themes
Charity and
donation
Zakah
Other
Total
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news

CFIs

Number of
companies

Number of
words

Number of
companies

Number of
words

9
18

487
2,295

2,782

608

608

1,224
279
1,279
1,319
1,463

235
81
292
608

IFIs

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Category

Number of
companies

Number of
words

18
9
3

2,524
256
171

2,951

Sub-themes
New product development
and innovation
Products and services quality
ISO and other awards
Other
Total
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news

CFIs
Number of
Number of
companies
words

17
10
4

2,951
2,913
38

2,822
2,806
16

IFIs
Category
Themes
Customer service
Meeting customer needs
Customer satisfaction
Policy towards insolvent
clients
Difficult to reach customer
Other
Total
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news

2,284
386
188

2,822

CSR disclosure

83

Table VI.
Disclosure of product and
service information by
IFIs and CFIs

CFIs

Number of
companies

Number of
words

Number of
companies

Number of
words

14
6
7

2,826
135
267

16

3,742

250

1
11

12
25
588
3,853

1
9

19
798
4,809

77
3,776
3,543
310

38
4,771
4,514
295

to 3,853 words by IFIs. The most predominant sub-theme was customer service. There
was a lack of disclosure by CFIs concerning the themes of policy towards insolvent
clients and meeting customer needs. The nature of disclosure was somehow similar for
both groups, with the vast majority of disclosure were qualitative and good news.
5.6 Sharia supervisory board report (SSBR)
The SSB is an independent external committee to observe the conduct of business and
provide assurance to the stakeholders that the business is carried out in accordance
with the Islamic principles. Annual reports produced by the SSB provide the necessary

Table VII.
Disclosure of customer
information by IFIs
and CFIs

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84

assurance to Muslim clients and shareholders as to if the business meets their ethical
expectations. As the disclosure of SSBR in annual reports is recommended under the
AAOIFI standards, this theme was unique to IFIs and no disclosure of this theme was
made by CFIs[6]. As shown in Table VIII, SSBR was included in the annual reports by
19 companies (90 per cent) out of 21 IFIs. The large number of IFIs disclosing SSBR
was not surprising since IFIs need to assure their stakeholders that all their activities
and products are complying with Sharia. However, the level of information disclosed
varied greatly among IFIs and across the sub-themes. As shown in Table VIII, the vast
majority of the disclosures tended to be qualitative with a mixture of bad, neutral and
good news. The bad news was largely concerned with transactions which contradicted
Sharia, and the ways of dealing with the income generated from such transactions.
Very few companies disclosed monetary information.
5.7 Other CSR disclosures
Other disclosures are concerned with social information in the sample of the annual
reports that were not captured in the previous themes. It includes mentioning the name
of Allah and his Prophet, praising Allah, verses from the Holy Quran, and adherence
to Islamic principles and ethical conduct. A total of 34 companies within the sample
disclosed some information under this theme. The information provided tended to fall
into two streams, mainly the Islamic values and the ethical values. Table IX presents
the disclosures by each group. All IFIs provided information with 4,866 words
disclosed, in comparison to only 13 companies by CFIs with total 946 words disclosed.
Table IX shows that most of these disclosures by IFIs came under Islamic value and
commitment to Sharia. Most of the disclosures by CFIs were related to commitment to
ethical conducts. Few CFIs companies disclose monetary and quantitative disclosure.
The majority of these disclosures by IFIs were purely qualitative with a mixture of
good, bad and neutral news.
6. Discussion and conclusion
The above results of content analysis reveal two interesting observations. First,
CSRD is presently very much a common practice among financial institutions from
IFIs
Category

Table VIII.
Disclosure of SSBR
information by IFIs

Themes
Background on the SSB members
Provision of fatwa[7] and consultancy
Examination of documents
Compliance with Sharia
Total
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news

Number of companies

Number of words

19
19
19
19

1,708
130
2,617
2,068
6,523
34

6,489
4,553
1,810
160

IFIs

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Category
Themes
Islamic values
Commitment to ethical
conduct
Adherence to Sharia
General statement of CSR
Total
Quality
Monetary
Quantitative
Qualitative
Good news
Neutral news
Bad news

CSR disclosure

CFIs

Number of
companies

Number of
words

Number of
companies

Number of
words

15

1,261

79

4
21
9

121
3,288
196
4,866

232

635
946

109
25
4,732
4,631
225
10

68

878
946

developing countries in the Gulf region, although the levels of disclosures differ across
different institutions. In most of those disclosures there were little differences between
IFIs and CFIs, suggesting that some common themes and concerns are applicable to all
financial institutions, regardless of their business ethics and objectives. This perhaps
reflects the accounting-globalization interrelation (Gallhofer and Haslam, 2006).
Second, IFIs provide additional disclosures under the AAOIFI standards with a view to
justifying their ethical values and accountability to God. So far little evidence suggests
that such a disclosure would sufficiently discharge the accountability to God and meet
the expectations of religious needs in the context of Islam environments. Nevertheless,
such additional disclosures as shown in this study prove, to some extent, the influences
of Islamic religion on CSRD. This raises an interesting question for further research as
to whether other religions (e.g. Buddhism in some Asian countries and Christianity in
the west) would also play some roles in CSRD. Such research would help identify
whether the findings of this study are unique to Islamic societies (in this case it would
dispute the universalism of religious influences on CSRD) or the findings share similar
evidence from studies based on other religions. Clearly a questioning approach should
be employed to interpret our results which were derived from a content analysis of
limited numbers of annual reports.
Yet, it can be argued that in addition to providing information for economic
decisions, there may be a further primary objective for corporate reporting of IFIs from
an Islamic perspective. This primary objective, noted in the literature, is to ensure that
the organisation discharges the Islamic concept of accountability. The statutory
requirement per se under the AAOIFI standards including the disclosure of SSBR, the
Zakah, charity donation and free interest loan statement probably emphasises this
objective. The lack of disclosure by CFIs under those theme and sub-themes could be
justified on the basis that these disclosures merely relate to the religious practice and
ensure that the IFIs discharge the Islamic concept of accountability; this has nothing to
do with the business of CFIs, even they operate in the similar political and economic
environment.

85

Table IX.
Disclosure of other
related information by
IFIs and CFIs

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86

It can also be argued that the disclosure of negative news by IFIs (particularly
regarding transactions which contradict Sharia, and the ways to deal with the income
generated from such transactions) is a sign of the positive role played by SSB in
transparency and social responsibility. The duty to disclose or tell the truth is very
important in the Islamic context and this applies to businesses as much as to individuals,
even if such disclosure would work against the firm or person himself (Maali et al., 2006).
Although the effectiveness of SSB under the Islamic corporate governance system is
unclear due to a dearth of research, our results of additional disclosure, inter alia, the
disclosure of negative news by IFIs could indicate some potential of this religion-based
supervisory board and its reports on corporate social responsibility. An externally
independent ethical board, in addition to the sole board of directors could be an option to
overcome some of the drawbacks witnessed presently in the western market economy of
corporate governance and corporate social responsibility.
Our study presents an empirical result as to the current status of CSRD in IFIs
through a comparison with CFIs operating in the identical political, social and
economic environment. Using the content analysis approach, we compare the annual
reports of 21 CFIs with 21 IFIs operating in the Gulf region. Our results show
significant differences in the level and the extent of the disclosure between IFIs and
CFIs, largely due to the disclosure made by IFIs concerning religion-related themes and
information, including Sharia supervisory board reports, the Zakah and charity
donation and free interest loan under the guidance of the AAOIFI. Excluding this
supplementary disclosure, the difference between IFIs and CFIs of CSRD was not
significant. Yet, IFIs intended to disclose more negative news than CFIs. The above
results lead intuitively to the conception of Islamic influence on CSRD, which may
provide an additional perspective to the existing literature on CSRD.
Nevertheless, the results of our study are subject to a number of limitations. We did
not examine the longitudinal data of CSRD. As a result, our study can only unearth the
status of CSRD in a particular year, but cannot provide a trend and development
picture. Future research should try to overcome this limitation. Another limitation is
that the sample is restricted to financial institutions operating in the Gulf region. The
findings would be more generalisable if more IFIs and CFIs are included in the sample.
Future research might extend the scope of this study by including IFIs from other
regions (e.g. South-East Asia and Africa) where IFIs are actively in operation as well as
including non-financial institutions.
Notes
1. Sunah linguistically means path. In this context, it stands for the saying, actions and
approvals of prophet Mohamed pray and peace upon him.
2. The Zakah, literally means purification. It is one of the five pillars of Islam. The Zakah is
payable once every year at the end of the Zakah period (i.e. one lunar year). It is payable on a
productive asset that has been possessed for one lunar year. However, assets and goods,
which are for consumption, are exempt from the Zakah, provided they are not aimed for
trade.
3. The prophet Mohamed (peace and prayer be upon him) said When a person dies, his good
deeds come to end, except for three things: charity that continues to benefit others,
knowledge that continues to be benefit, and pious child who prays for him.
4. Fiscal year of 2004 was chosen when this study initially as a PhD project started.

5. AAOIFI is an independent international professional body responsible for developing

accounting, auditing, ethics, corporate governance and Sharia standards for IFIs. AAOFIF
is supported by institutional members (155 members from 40 countries) including central
banks, Islamic financial institutions and other participants from the international Islamic
banking and finance industry.
6. The vast majority of IFIs have the Sharia Supervisory Board and, therefore, disclose SSBR.
In a few countries such as Bahrain this report is required by law. However, in most other
countries IFIs disclose this report on a voluntary basis despite it being recommended by the
AAOIFI.

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7. Fatwa is a religious opinion concerning Islamic law. It is issued by an Islamic scholar.

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Appendix

Employee

Community

Philanthropy
Customer

Products and service

Environment issue
Sharia Supervisory Board Report
(SSBR)

Table AI.
Disclosure themes and
sub-themes

Other

This theme describes the impact of organisational activities on

those who constitute the human resources of the organisation.
This form of disclosures includes reporting on matters such as
employee numbers and remuneration, equal opportunities,
employee share ownership, employee benefit, pension, end
service indemnity and work place environment. It also covers
disclosures on employee consultation, training
Community theme comprises any reference to community,
including information relating to community investment,
contribution to national economy (e.g. financing projects that
lead to the economy development), free interest loan to low
income people, social activities support, as well as supporting
existing community activities (such as local health and
education)
Disclosure under this sub-theme, covers any information
considering charity donation and Zakah, and any other
philanthropy related activities
This theme covers items such as customer service (e.g.
provision for customer convenience). It also includes meeting
customer needs, providing special services or branches,
customer compliant/satisfaction, as well as specific customer
relation such as policy for late payment by the client
This concerns the qualitative aspects of the products, for
example product development, product and service quality,
ISO or any other awards for product and services
It covers disclosures on environmental policy, lending and
investment policy for environmental projects and conservation
for natural resource
The main reason for having SSB is to make sure that the
company conduct its business according to Islamic moral and
avoiding transaction that contradicts with Sharia. Disclosure
under SSBR includes items such as background of SSB
members, exam of documents, provision of fatwa and
consultation and compliance with Sharia
This theme includes any CSRD, which is not covered in the
above themes. For example, commitment to ethical conduct,
general statement of CSR, etc.

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Evidence

Definition

Monetary
Disclosure will be classified as monetary if it includes monetary value or measure
Quantitative Disclosure will be classified as quantitative if it is expressed in quantitative terms
Qualitative
Disclosure that is not classified as monetary or quantitative, such as general statement
of an opinion
Type of disclosure
Good news
Disclosure which includes, for example, details where these details have a creditable
reflection on company, any statements which reflect credit on company, upbeat
analysis/discussion/statements, etc.
Neutral news Disclosure will be counted as neutral news if it refers to general policy statement or
intent within statutory minimum with no details of what or how; statement of facts
whose credit/discredit to company is not obvious unaccompanied by editorializing
Bad news
Any statement, which reflects/might reflect discredit on the company, including, for
example, numbers made redundant, accident, negative feedback from customers [. . .]

Corresponding author
Simon Gao can be contacted at: s.gao@napier.ac.uk

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CSR disclosure

91

Table AII.
Defined evidence of
CSRD and type of news

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