A descriptive study on the level and extent of CSR disclosure by islamic banks in Malaysia and Bahrain

Abstract

While several prior studies (Hassan and Harahap 2010; Haniffa and Hudaib 2007 and Maali e. at., 2006) provided evidences that the Corporate Social Responsibility (CSR) disclosures by Islamic Financial Institutions (IFIs) were short falls from the expected Islamic CSR disclosure, Aribi and Gao (2010) suddenly revealed significant differences in the level and extent found between the IFIs and Conventional Financial Institutions (CFIs) which are largely due to the disclosure made by the IFIs of religions related themes and information not found in the Western practices. This highlight which is too early sometimes may be felt sufficiently welcoming by the Muslim society due to their expectation of full disclosure and accountability. Anxious over this conflict and also concern on the image and reputation of IFIs, this study explored the reality of CSR disclosure in two comparable groups of the IFIs. Using the method of content analysis in annual reports, this study specifically examined the level and extent of CSR disclosure made by the Malaysian Islamic Banks (MIBs) and Bahrain Islamic Banks (BIBs) against a set of Social Disclosure Items developed in this study. The two objectives are firstly, to identify the range of CSR subthemes disclosed by the Islamic banks in Malaysia and Bahrain, and secondly to examine the comprehensiveness of the CSR disclosure by the Islamic banks in Malaysia and Bahrain. The results reflect that in terms of the level of CSR disclosure, BIBs in overall scored higher than MIBs at a total of 185 and 149 points respectively while in terms of the extent of CSR disclosure, MIBs scored higher than BIBs at a total of 629 and 613 points respectively. In reality, there are big gaps of CSR disclosure levels by both MIBs and BIBs and the expected Islamic CSR disclosure needs serious attention from respective bodies such as the AAOIFI. The findings of this study have important implications towards the improvement on IFIs’ CSR disclosure to run parallel with their establishment objectives and also to provide avenues for the improvement on the role of AAOIFI at the national and international levels in providing revised CSR disclosure requirement and encouraging IFIs to meet the requirement of full disclosure and high transparency. This study originally contributes to the literature of CSR disclosure by IFIs in the context of reality differences in the level and extent of CSR disclosure by IFIs. Both IFIs in Malaysia and Bahrain still require a lot of improvement in ensuring full disclosure. Through this paper, the Muslims’ understanding on the current performance of CSR disclosure by the IFIs is enhanced and the anxiousness over the conflict towards the highlight by Aribi and Gao, 2010 is released.