Title: Social Reporting by Islamic Banks
Authors: Bassam Maali, Peter Casson and Christopher Napier
Over the last 25 years the need for accounting practices in an Islamic perspective has risen, this is because western financial and social reporting frameworks may not be suitable for Islamic enterprises as it goes against Sharia Law (Islamic law) therefore Islamic banks have emerged.
Islamic banks provide the normal services of a bank except those practices which are against lawful practices (halal) of sharia such as interest and those involving speculation, Depositors enter into Mudaraba and Musharka contracts where interest is replaced through profit/loss sharing scheme. ...view middle of the document...
Islamic banks in certain situations cannot help but be involved in unlawful transactions (haram) like some countries need to deposit part of the bank savings in an interest bearing account of the central bank, operations which takes excessive risks (gharar) such as hedging is also prohibited however due to some reason if the banks have engaged in these transactions they are supposed to disclose to the community and also explain how they are going to dispose these transactions.
AAOIFI standards require Islamic banks to provide disclosure on zakah payment, for those banks not required by law to pay Zakah, it is still considered important for the shareholders and depositors to know how much they should pay as Zakah therefore it should be disclosed.
Islamic banks provide an alternative to interest bearing loans for the benefit of the society through Qurad Hassan, Banks should disclose this area of work so that users of financial statements are aware that the bank is undertaking religious duties, banks should also state on how the money has been used for Qurad Hassan whether it was through the banks money or use of savers funds these requirements are also covered by the AAOIFI standards, banks are also required to disclose information about other social activities as well as how they treat their employees, exploitation and discrimination is prohibited in Islamic principles which safeguard the employees from being treated unfairly as this impacts the society too, these disclosures provide a platform for people to assess if the company has followed procedures according to sharia.
Under sharia Law Islamic banks are required to defer or even forgo collection of debt if the client is unable to pay however they should disclose on how they treat the insolvent client the users may need to know if the bank followed this process oh handling insolvent clients in an ethical way.
Islam prohibits destruction or damage of physical environment this also means that Islamic banks are not expected to finance any project which harms the environment, this is another subjective situation. Therefore, details regarding the nature of the project and why it is being financed are required to be disclosed.
Empirical Evidence and Results
This Research article is based on the importance of social reporting by Islamic banks, the main objective of the article is to assess on what is needed by Islamic banks in terms of social reporting (social disclosure) based on an Islamic perspective of accountability, social justice and ownership and using this as a benchmark to compare with the empirical evidence gathered on the actual social reporting practices followed by Islamic banks.
Control groups were used to obtain data on the subject matter only fully flagged banks were...