Chapter 4: Embedding Social Responsibility in Islamic Banking: Ethical Foundations and Modern Practices

The subject of social responsibility in Islamic banking encompasses the ethical principles that create a link between operations in the financial sphere with reference to Shariah. The purpose of this chapter is to explain historical backdrop of social responsibility together with its remits in Islamic finance. As an aspect of banking in the Islamic world, it is the legal, moral, and religious duties that preserve the banking sector’s ethical practices also producing positive outcomes for the society. Islamic banks also provide social welfare activities which include Zakat, Sadaqah, and Qard Hasan that help improve the state of welfare. To understand the history of social responsibility in Islam and Islamic financial systems, one must look all the way back to the early Islamic age, during which the money’s distribution is equal, injustice was punished through ‘Bay’ah (or pledge), a form of contract that funded community services provided to public commonwealth like education and health, namely through Waqf (or endowment). Islamic financial institutions all over the world can be said to have created a revolution on incorporating ethical attributes in financial systems. This evolution also underlined the questions of ethical investments, the prohibition of unethical or haram, and the support for sustainable development goals. The social responsibility in Islamic banking does not mean the rules and regulation of the particular country but has deep Islamic values embedded in it. Thus, Islamic banks maintain Shariah law, and therefore, their activity positively impacts society and contributes to the development of the economy and stability.