Definition of Islamic corporate social responsibility (CSR)
Sharia compliancy requires both the form and substance of Islamic finance to be fulfilled.
Therefore, it is imperative upon Islamic financial institutions and banks to evaluate their financing in terms of their social contributions as well as, say, the prohibition of interest.
While social responsibility and contributions can be voluntary for conventional financial institutions and corporations, it is a religious requirement for Islamically defined financial institutions and corporations. This is due to the fact that Islamic institutions are perceived to be an essential part of the larger environment and therefore should also contribute to the needs of the larger environment, as Islamic moral economy requires horizontal and vertical equality and growth in harmony with all the stakeholders, and also aims to remove all the barriers in front of the development path of all the stakeholders including individuals, society and natural environment.
As part of this ethical economic paradigm, Islamic banks and financial institutions are expected to operate within such an objective function and framework to establish the perfect balance between financial operations and social objectives (as a morally identified objective function). Empirical studies so far, however, indicate that Islamic banks have not been fulfilling their social responsibilities.