Evidence of CSR Practices of Islamic Financial Institutions in Indonesia

Abstract

Purpose

This chapter is derived from the result of research conducted by Firman Menne, Lanita Winata and Mohammad Hossain. The emergence of Islamic Financial Institutions (IFIs) is expected to provide enormous benefits for the Muslim community in Indonesia such as the availability of IFIs based on Sharia law and the implementation of Islamic value in the community. Like Corporate Social Responsibility (CSR) practices in all business organizations, the IFI’s CSR becomes one of the important factors in improving organizational performance. The implementation of CSR in IFIs is unique as it is based on Sharia law. Zakat and Qardh are the unique IFI CSR practices. There are many studies which have investigated the relationship of Zakat and Qardh on organizational performance in Arabic and Muslim countries. In Muslim countries, Islamic laws, including providing Zakat and Qardh, are practices of every business organization. As Indonesia is not a Muslim country, Zakat and Qardh are only required for IFIs as part of CSR practices. This study aims to analyse the influence of CSR practices on the financial performances of IFIs in Indonesia using gender as a control variable.

Methodology/approach

The samples of this research were taken from the annual reports of nine Islamic banks for the period of 2010–2014. Regression method was used to analyse and test hypotheses.

Findings

The results of this research indicate that the relationship between CSR practices and financial performance is significant, the value of R is 0.737, and R square is 0.543.

Practical implications

This means that the implementation of CSR practices (Zakat and Qardh) improves organizational financial performances of IFIs in Indonesia.

Originality/value

This study also has a limitation as it only focuses on Zakat and Qardh; thus in the future, it is necessary to advance the variable of CSR practices on the real social and environmental practices such as environmental improvement, increasing the quality of human resources, involvement in any jobs or reducing unemployment and any other activities.

Citation

Menne, F. (2016), "Evidence of CSR Practices of Islamic Financial Institutions in Indonesia", Mutum, D.S., Butt, M.M. and Rashid, M. (Ed.) Advances in Islamic Finance, Marketing, and Management, Emerald Group Publishing Limited, Leeds, pp. 341-362. https://doi.org/10.1108/978-1-78635-899-820161018