Social disclosure: compliance of Islamic banks to governance standards No. 7 of AAOIFI (2010)

Abstract

Purpose

This paper aims to investigate the compliance of Islamic banks (IBs) with the AAOIFI standard No. 7, in Middle East and North Africa area during the period 2010-2014. The authors seek to identify, among the 15 countries and 72 banks, those which conform more to this standard. The level of compliance is expected to be more stringent in countries where AAOIFI standards are made mandatory.

Design/methodology/approach

The paper uses the unweighted disclosure method which measures the corporate social report disclosure (CSRD) score of a bank as additive. Each country and bank are assessed according to two obligatory and voluntary CSRDs.

Findings

The empirical results indicate that even though the global disclosure index has been improved over the observation period, it has remained relatively low. The results also allowed us to see that the global, mandatory and voluntary societal disclosures vary according to the country and banks. Further, it has been seen that banks allow more attention to the mandatory disclosure recommendations of AAOIFI Governance Standard No. 7, in comparison with the voluntary CSRD.

Research limitations/implications

One limitation of this study is that the sample is restricted to only the Islamic banking sector. Future research could include other Islamic financial institutions (IFIs) such as insurance companies. Second, the study could be extended to other countries to better control the religious system and cultural effects. Because in our modern era, traditional laws in the Muslim world have been widely replaced by statutes inspired by European models, the authors suggest then to apply a new classification that separates, for instance, countries that rely on an Islamic model from those with a western model, and national banks from those allied with western banks. Finally, the paper’s data collection relies solely on annual reports and does not include publications from bank sites. Future research could consider all these limitations. Another possible avenue could examine the determinants of such disclosure level.

Practical implications

Almost no study has been limited to the text of the AOIFFI. This detail is important for some countries where the AAOIFI standards are mandatory.

Social implications

The findings may be of interest to shareholders and all those who deal with IBs that have religious expectations.

Originality/value

Despite the fact that most studies investigated compliance of IB Sharia law, almost no study has been limited to the text of the AOIFFI. This detail is important for some countries where the AAOIFI standards are mandatory. The findings may be of interest to shareholders and all those who deal with IBs that have religious expectations.

Citation

Brahim, N.B. and Arab, M.B. (2020), "Social disclosure: compliance of Islamic banks to governance standards No. 7 of AAOIFI (2010)", Journal of Islamic Accounting and Business Research, Vol. 11 No. 7, pp. 1427-1452. https://doi.org/10.1108/JIABR-12-2018-0199