The social reporting practices of Islamic banks in Malaysia

Abstract

Islamic banks are said to possess ethical identity (Haniffa and Hudaib, 2007) because their social goals are just as important if not more important than financial goals because of the fact that they are based on religious foundations, i.e. the Islamic Shari’ah which has as its ultimate goal, the betterment of society. Islamic banks are thus expected to potray a high level of corporate social responsibility which would be evident in their social reporting practices as evidenced in their annual reports. However, two prominent studies of the social reporting practices of Islamic banks have shown otherwise (Maali et.al, 2003; Haniffa and Hudaib, 2007). This study replicated the Haniffa and Hudaib study by examining the social reporting practices of Islamic Banks in Malaysia. This examination involves a comparison of the social disclosures of 7 Islamic banks made through their annual reports against an ideal level of social disclosures that Islamic banks ought to make, over the years 2004-2007. This comparison was accomplished using the Ethical Identity Index (EII) developed by Haniffa and Hudaib (2007). The findings revealed that at present, Islamic banks in Malaysia have much more in common with their conventional counterparts than they do with banks that are supposedly based on Shari’ah. This is because they disclose a reasonable amount of information on their debtors and their corporate governance practices which is what one would expect from conventional banks. However, in areas that would demonstrate their ethical identity and ultimate goal of betterment of society that separates them from their conventional counterparts, they disclose very little information in this regard in their annual reports.