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FRAMING THE SOCIAL RESPONSIBILITY ROLE OF ISLAMIC FINANCIAL INSTITUTIONS WITHIN A THREE-SECTOR ECONOMIC MODEL
Corresponding Author(s) : Mohd Nizam Barom
Humanities & Social Sciences Reviews,
Vol. 7 No. 1 (2019): January
Abstract
Purpose: This paper examines and reflects the ongoing debate on the social responsibility role of Islamic financial institutions (IFIs) in the light of the literature in the area of third sector and three-sector economic model. Subsequently, it seeks to develop a framework that can be used to conceptualise the potential interaction between the different sectors in the economy in relation to social welfare issues and locate the social responsibility role of IFIs within this framework.
Methodology: The paper uses an integrative analysis of Islamic finance and third sector literature, particularly on the American and European conceptions of the interactions between the three main sectors in the economy, i.e. public, private and ‘third’ sectors.
Results: The paper develops a modified circular flow of income and expenditure model as a basis for the integrative framework for social welfare provision within a three-sector economic model. Subsequently, it locates the social responsibility role of IFIs within this framework with the understanding that social welfare burden is a collective responsibility and therefore shared among the various potential welfare providers in the economy.
Implications: The integrative framework of social welfare provision within a three-sector economic model as conceptualised in this paper highlights a multi-institutional approach towards promoting socio-economic justice and society's well-being in an Islamic economy, and hence provides a proper and reasonable context for social responsibility roles expected of IFIs.
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- Arshad, M.N. and M.A. Haneef, 2016. Third sector socio-economic models: How Waqf fits in? Institutions and Economies, 8(2): 75-93.
- Asutay, M., 2007. The conceptualization of the second best solution in overcoming the social failure of Islamic finance: Examining the overpowering of homoislamicus by homoeconomicus. IIUM Journal of Economics and Management, 15(2): 167-194.
- Aydin, N., 2015. Islamic social business for sustainable development and subjective wellbeing. International Journal of Islamic and Middle Eastern Finance and Management, 8(4): 491-507. DOI: https://doi.org/10.1108/IMEFM-09-2014-0097
- Barom, M.N., 2018. Conceptualizing a unified normative framework for social responsibility in Islamic economics. International Journal of Economics, Management and Accounting, 26(2): 329-363.
- BNM, 2018. Value-based intermediation: Strengthening the roles and impact of Islamic finance. Kuala Lumpur: Bank Negara Malaysia.
- Chapra, M.U., 1979. Objectives of the Islamic economic order. Leicester, UK: Islamic Foundation.
- Chapra, M.U., 1985. Toward a just monetary system. Leicester: Islamic Foundation.
- CSR-IFI, 2010. Social responsibility trends of Islamic financial institutions- based on 2009 social responsibility survey. Dar Al-Istithmar and Dinar Standard.
- Defourney, J. and V. Pestoff, 2008. Images and concepts of the third sector in Europe. EMES Working Papers, no 08/02. Liège: EMES European Research Network.
- Dusuki, A.W., and N.I. Abdullah, 2007. Maqasid Al-Shariah, Maslahah, and corporate social responsibility. American Journal of Islamic Social Sciences, 24(1): 25-45. DOI: https://doi.org/10.35632/ajiss.v24i1.415
- Esping-Andersen, G., 1990. The three worlds of welfare capitalism. Princeton, N. J.: Princeton University Press. DOI: https://doi.org/10.1177/095892879100100108
- Etzioni, A., 1973. The third sector and domestic missions. Public Administration Review, 33(4): 314-323. DOI: https://doi.org/10.2307/975110
- Evers, A., 1995. Part of the welfare mix: The third sector as an intermediate area. Voluntas: International Journal of Voluntary and Non-profit Organizations, 6(2): 159-182. DOI: https://doi.org/10.1007/BF02353995
- Evers, A. and J. Laville, 2004. The third sector in Europe. Cheltenham, UK: Edward Elgar Publishing Limited. DOI: https://doi.org/10.4337/9781843769774
- Farook, S., 2007. On corporate social responsibility of Islamic financial institutions. Islamic Economic Studies, 15(1): 32-46.
- Firdaus, M., I.S. Beik, T. Irawan and B. Juanda, 2012. Economic estimation and determinations of Zakat potential in Indonesia. Jeddah: Islamic Research and Training Institute.
- Hassan, A. and H.S.B.A. Latiff, 2009. Corporate social responsibility of Islamic financial institutions and businesses: Optimizing charity value. Humanomics, 25(3): 177–188. DOI: https://doi.org/10.1108/08288660910986900
- Hoque, N., M.H. Ali, S. Arefeen, M.M. Mowla and A. Mamun, 2018. Use of crowdfunding for developing social enterprises: An Islamic approach. International Journal of Business and Management, 13(6): 156–164. DOI: https://doi.org/10.5539/ijbm.v13n6p156
- Ismail, A.H., 2002. The deferred contracts of exchange: Al-Quran in contrast with the Islamic economist's theory on banking and finance. Kuala Lumpur: Institute of Islamic Understanding Malaysia.
- Ismail, A.H., 2014. My wishful thought on the development of Islamic banking and finance products for the social welfare sector. Lecture Presented at Global Islamic Finance Forum 2014.
- Jenson, J., 2015. Social innovation: Redesigning the welfare diamond. In A. Nicholls, J. Simon, M. Gabriel,& C. Whelan (Eds.), New Frontiers in Social Innovation Research. London: Palgrave Macmillan. pp: 89-106. DOI: https://doi.org/10.1057/9781137506801_5
- Laldin, M.A. and H. Furqani, 2013. Developing Islamic finance in the framework of Maqasid al-Shari'ah: Understanding the ends (Maqasid) and the means (Wasa'il). International Journal of Islamic and Middle Eastern Finance and Management, 6(4): 278-289. DOI: https://doi.org/10.1108/IMEFM-05-2013-0057
- Lewis, M.K. and L.M. Algaoud, 2001. Islamic banking. Cheltenham, UK; Northampton, MA: Edward Elgar. DOI: https://doi.org/10.4337/9781843762959
- Nor, S.M., 2012. Integrating moral in a dynamic model of corporate social responsibility in Islamic economics and finance. Asian and African Area Studies, 11(2): 137–150.
- Rahim, A.R.A., 2010. Islamic microfinance: An ethical alternative to poverty alleviation. Humanomics, 26(4): 284-295. DOI: https://doi.org/10.1108/08288661011090884
- Sairally, B.S., 2013. Evaluating the corporate social performance of Islamic financial institutions: An empirical study. International Journal of Islamic and Middle Eastern Finance and Management, 6(3): 238–260. DOI: https://doi.org/10.1108/IMEFM-02-2013-0026
- Salamon, L.M. and H.K. Anheier, 1992. In search of the non-profit sector: The question of definitions. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 3(2): 125-151. DOI: https://doi.org/10.1007/BF01397770
- Salamon, L.M., H.K. Anheier, R. List, S. Toepler and S.W. Sokolowski, 1999. Global civil society: Dimensions of the non-profit sector (The Johns Hopkins Comparative Non-profit Sector Project). Baltimore, MD: The Johns Hopkins Centre for Civil Society Studies.
- Shirazi, N.S., 2014. Integrating ZakÄt and Waqf into the poverty reduction strategy of the IDB member countries. Islamic Economic Studies, 22(1): 79-108. DOI: https://doi.org/10.12816/0004131
- Tag el Din, S.E.I., 2004. Ethics, entrepreneurial behavior and production organization. Paper Presented at the Roundtable on Islamic Economics: Current State of Knowledge and Development of the Discipline, 26-27 May, Jeddah, Saudi Arabia.
- Yusuf, M.Y. and Z. Bahari, 2015. Islamic corporate social responsibility in Islamic banking: Towards poverty alleviation. In H.A. El-Karanshawy et al. (Eds.), Ethics, Governance and Regulation in Islamic Finance. Doha: Bloomsbury Qatar Foundation. pp: 73-90.
- Zaman, N. and M. Asutay, 2009. The divergence between aspirations and realities of Islamic economics: A political economy approach to bridging the divide. IIUM Journal of Economics and Management, 17(1): 73-96.
References
Arshad, M.N. and M.A. Haneef, 2016. Third sector socio-economic models: How Waqf fits in? Institutions and Economies, 8(2): 75-93.
Asutay, M., 2007. The conceptualization of the second best solution in overcoming the social failure of Islamic finance: Examining the overpowering of homoislamicus by homoeconomicus. IIUM Journal of Economics and Management, 15(2): 167-194.
Aydin, N., 2015. Islamic social business for sustainable development and subjective wellbeing. International Journal of Islamic and Middle Eastern Finance and Management, 8(4): 491-507. DOI: https://doi.org/10.1108/IMEFM-09-2014-0097
Barom, M.N., 2018. Conceptualizing a unified normative framework for social responsibility in Islamic economics. International Journal of Economics, Management and Accounting, 26(2): 329-363.
BNM, 2018. Value-based intermediation: Strengthening the roles and impact of Islamic finance. Kuala Lumpur: Bank Negara Malaysia.
Chapra, M.U., 1979. Objectives of the Islamic economic order. Leicester, UK: Islamic Foundation.
Chapra, M.U., 1985. Toward a just monetary system. Leicester: Islamic Foundation.
CSR-IFI, 2010. Social responsibility trends of Islamic financial institutions- based on 2009 social responsibility survey. Dar Al-Istithmar and Dinar Standard.
Defourney, J. and V. Pestoff, 2008. Images and concepts of the third sector in Europe. EMES Working Papers, no 08/02. Liège: EMES European Research Network.
Dusuki, A.W., and N.I. Abdullah, 2007. Maqasid Al-Shariah, Maslahah, and corporate social responsibility. American Journal of Islamic Social Sciences, 24(1): 25-45. DOI: https://doi.org/10.35632/ajiss.v24i1.415
Esping-Andersen, G., 1990. The three worlds of welfare capitalism. Princeton, N. J.: Princeton University Press. DOI: https://doi.org/10.1177/095892879100100108
Etzioni, A., 1973. The third sector and domestic missions. Public Administration Review, 33(4): 314-323. DOI: https://doi.org/10.2307/975110
Evers, A., 1995. Part of the welfare mix: The third sector as an intermediate area. Voluntas: International Journal of Voluntary and Non-profit Organizations, 6(2): 159-182. DOI: https://doi.org/10.1007/BF02353995
Evers, A. and J. Laville, 2004. The third sector in Europe. Cheltenham, UK: Edward Elgar Publishing Limited. DOI: https://doi.org/10.4337/9781843769774
Farook, S., 2007. On corporate social responsibility of Islamic financial institutions. Islamic Economic Studies, 15(1): 32-46.
Firdaus, M., I.S. Beik, T. Irawan and B. Juanda, 2012. Economic estimation and determinations of Zakat potential in Indonesia. Jeddah: Islamic Research and Training Institute.
Hassan, A. and H.S.B.A. Latiff, 2009. Corporate social responsibility of Islamic financial institutions and businesses: Optimizing charity value. Humanomics, 25(3): 177–188. DOI: https://doi.org/10.1108/08288660910986900
Hoque, N., M.H. Ali, S. Arefeen, M.M. Mowla and A. Mamun, 2018. Use of crowdfunding for developing social enterprises: An Islamic approach. International Journal of Business and Management, 13(6): 156–164. DOI: https://doi.org/10.5539/ijbm.v13n6p156
Ismail, A.H., 2002. The deferred contracts of exchange: Al-Quran in contrast with the Islamic economist's theory on banking and finance. Kuala Lumpur: Institute of Islamic Understanding Malaysia.
Ismail, A.H., 2014. My wishful thought on the development of Islamic banking and finance products for the social welfare sector. Lecture Presented at Global Islamic Finance Forum 2014.
Jenson, J., 2015. Social innovation: Redesigning the welfare diamond. In A. Nicholls, J. Simon, M. Gabriel,& C. Whelan (Eds.), New Frontiers in Social Innovation Research. London: Palgrave Macmillan. pp: 89-106. DOI: https://doi.org/10.1057/9781137506801_5
Laldin, M.A. and H. Furqani, 2013. Developing Islamic finance in the framework of Maqasid al-Shari'ah: Understanding the ends (Maqasid) and the means (Wasa'il). International Journal of Islamic and Middle Eastern Finance and Management, 6(4): 278-289. DOI: https://doi.org/10.1108/IMEFM-05-2013-0057
Lewis, M.K. and L.M. Algaoud, 2001. Islamic banking. Cheltenham, UK; Northampton, MA: Edward Elgar. DOI: https://doi.org/10.4337/9781843762959
Nor, S.M., 2012. Integrating moral in a dynamic model of corporate social responsibility in Islamic economics and finance. Asian and African Area Studies, 11(2): 137–150.
Rahim, A.R.A., 2010. Islamic microfinance: An ethical alternative to poverty alleviation. Humanomics, 26(4): 284-295. DOI: https://doi.org/10.1108/08288661011090884
Sairally, B.S., 2013. Evaluating the corporate social performance of Islamic financial institutions: An empirical study. International Journal of Islamic and Middle Eastern Finance and Management, 6(3): 238–260. DOI: https://doi.org/10.1108/IMEFM-02-2013-0026
Salamon, L.M. and H.K. Anheier, 1992. In search of the non-profit sector: The question of definitions. Voluntas: International Journal of Voluntary and Nonprofit Organizations, 3(2): 125-151. DOI: https://doi.org/10.1007/BF01397770
Salamon, L.M., H.K. Anheier, R. List, S. Toepler and S.W. Sokolowski, 1999. Global civil society: Dimensions of the non-profit sector (The Johns Hopkins Comparative Non-profit Sector Project). Baltimore, MD: The Johns Hopkins Centre for Civil Society Studies.
Shirazi, N.S., 2014. Integrating ZakÄt and Waqf into the poverty reduction strategy of the IDB member countries. Islamic Economic Studies, 22(1): 79-108. DOI: https://doi.org/10.12816/0004131
Tag el Din, S.E.I., 2004. Ethics, entrepreneurial behavior and production organization. Paper Presented at the Roundtable on Islamic Economics: Current State of Knowledge and Development of the Discipline, 26-27 May, Jeddah, Saudi Arabia.
Yusuf, M.Y. and Z. Bahari, 2015. Islamic corporate social responsibility in Islamic banking: Towards poverty alleviation. In H.A. El-Karanshawy et al. (Eds.), Ethics, Governance and Regulation in Islamic Finance. Doha: Bloomsbury Qatar Foundation. pp: 73-90.
Zaman, N. and M. Asutay, 2009. The divergence between aspirations and realities of Islamic economics: A political economy approach to bridging the divide. IIUM Journal of Economics and Management, 17(1): 73-96.