An Analysis of Social Responsibility Dimension in Islamic Investment Funds: Evidence from Malaysian Investors

In view of the ‘divergence dilemma’ between the aspirations of Islamic economics and the commercially oriented nature of Islamic finance, this research explores the prospect of incorporating social responsibility dimension in the practice of Islamic investment, in line with the normative goals of Islamic economics. The significance of the study is further emphasised in the face of the rapidly growing Socially Responsible Investment (SRI) movement, which uses various social, ethical, and environmental issues in investment to promote socially responsible behaviours among corporations. The conceptual discussion and empirical analysis of the study aims to explore and examine four important areas relevant to the research: the Islamic perspective of social responsibility and its normative foundations; the investment strategies that can be used to address social responsibility dimension; the investors’ perspective on the importance of social responsibility dimension and its various issues; and the investors’ level of commitment to incorporate these criteria into actual investment. In the light of the SRI experience, the conceptual discussion focuses on delineating the Islamic perspective of social responsibility, resulting in a unified behavioural framework of social responsibility issues and commitment. The theoretical model is based on the ethical values embedded in the Shari’ah and its underlying objectives (Maqasid al-Shari’ah), the precepts of justice (‘adl) and beneficence (ihsan), and the notion of ultimate happiness (falah). The discussion further evaluates the present practices of Islamic investment in relation to social responsibility dimension and explores the potential of applying various SRI strategies in the Islamic investment sector. The empirical component of the study aims to explore and examine the perceptions, attitudes and behaviours of the investors of Islamic funds in Malaysia in relation to the prospect of incorporating social responsibility dimension and its various issues in investment. Overall, social responsibility dimension is recognised by the respondents as part of an essential component in Shari’ah based investments. Nevertheless, there seemed to be a hierarchy in the component they perceived as important, with social responsibility dimension came third in the list after the fiqh injunction and economic dimensions. Additionally, the examination on the perceived importance of various social responsibility issues revealed that the underlying factor that influenced this perception is shaped by the nature of the criteria, particularly the distinction between harm prevention and the promotion of good, and the differentiation between internal business practice and external stakeholders. The study also found encouraging results on the willingness of the respondents to incorporate social responsibility criteria in their actual investment. The findings suggest that important factors influencing investors’ perceptions and commitment to incorporate social responsibility dimension in Islamic investment include participation in individually oriented behaviour, socio-demographic variables such as ethnicity, religion, age, income, education, types of occupation and organisation, as well as the level of SRI awareness. Additionally, while individual’s investment decision is shown to be highly influenced by normative consideration, favourable financial expectation remains a strong driving factor in all of the behaviours examined; obedient, altruistic and sacrificial behaviours. In view of the prominent influence of financial motive in the decisions of individuals, the interpretive discussion explores the potential of a strategic framework of social responsibility as a complement to the normative foundations in creating additional incentive and enabling environment towards goal realisation in an Islamic economy

Conceptualizing a unified normative framework for social responsibility in Islamic Economics

Recent trends have shown an increasing prominence of social responsibility issues in the literature of Islamic economics and finance. Despite this development, the justifications of responsibility issues and commitment are often argued from a number of different positions. This paper expounds three major routes to normative justification of social responsibility; the objectives of Sharī‘ah (Maqāṣid al-Sharī‘ah), principles of Islamic moral economy (axioms of justice and beneficence), and micro-foundational assumptions (characteristics of homo Islamicus and the notion of falāḥ). Despite the differences in perspectives, notable consistencies can be observed rendering a plausible synthesis of these foundations in providing a unified normative framework of social responsibility issues and commitment for economic agents in an Islamic economy. While social responsibility is argued to be a critical component in facilitating socio-economic justice and overall human well-being in society, its ability to facilitate spiritual development remains the central consideration in the vision of human development and well-being in Islam

Understanding socially responsible investing and its implications for Islamic investment industry

Social, ethical and environmental concerns have been used as important consideration for investment decision by an increasing number of investors. This can be seen by the size and growth of the socially responsible investment (SRI) industry in the developed economies. At the same time, scholars and commentators of Islamic finance have also called for Islamic investment industry to learn from the experience of SRI in incorporating social responsibility issues in the investment process, in line with the ethical principles of Islam and the overall objective of the Shari’ah (Maqasid al-Shari’ah). This would require Islamic investment sector to have a clear understanding of the SRI industry in order to effectively benefit from its experience. This is particularly critical due to the significant diversity of investors and complexity in the issues and strategies adopted in the SRI industry. Hence, this paper adds to the Islamic investment literature by providing an extensive and systematic survey of SRI industry in terms of its (i) underlying motivations and values; (ii) issues of concerns; (iii) types of investors; and (iv) screening strategies. It then synthesizes these components within the context of the ‘value-based’ investors. This synthesized framework offers a useful tool for Islamic investment practitioners to understand the theoretical and practical aspects of SRI. Subsequently, the paper highlights important implications of the findings for Islamic investment industry in terms of the issues that it needs to consider in emulating SRI practices and a number of lessons that it can learn from the SRI experience. Keywords: Socially responsible investing; Islamic investment; Islamic finance; Ethic; Social responsibilit

Framing the Social Responsibility Role of Islamic Financial Institutions within a Three-sector Economic Model

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

Understanding socially responsible investing and its implications for islamic investment industry / Mohd Nizam Barom.

Social, ethical and environmental concerns have been used as important consideration for investment decision by an increasing number of investors. This can be seen by the size and growth of the socially responsible investment (SRI) industry in the developed economies. At the same time, scholars and commentators of Islamic finance have also called for Islamic investment industry to learn from the experience of SRI in incorporating social responsibility issues in the investment process, in line with the ethical principles of Islam and the overall objective of the Shari’ah (Maqasid al-Shari’ah). This would require Islamic investment sector to have a clear understanding of the SRI industry in order to effectively benefit from its experience. This is particularly critical due to the significant diversity of investors and complexity in the issues and strategies adopted in the SRI industry. Hence, this paper adds to the Islamic investment literature by providing an extensive and systematic survey of SRI industry in terms of its (i) underlying motivations and values; (ii) issues of concerns; (iii) types of investors; and (iv) screening strategies. It then synthesizes these components within the context of the ‘value-based’ investors. This synthesized framework offers a useful tool for Islamic investment practitioners to understand the theoretical and practical aspects of SRI. Subsequently, the paper highlights important implications of the findings for Islamic investment industry in terms of the issues that it needs to consider in emulating SRI practices and a number of lessons that it can learn from the SRI experience

Understanding the motivation to invest: a profile analysis of Islamic funds' investors

This paper seeks to provide a preliminary profile analysis of investors of Islamic funds based on their underlying motivation to invest, which at present received little interest in the literature. The experience of faith-based and socially responsible investment clearly reveals the heterogeneity of investors with divergent investment motives, and this is highly likely to be true among Islamic funds’ investors as well. For this purpose, the study surveys Investors of Islamic funds from three fund management companies in Malaysia with a total sample of 451 respondents. The profiling employs a cluster analysis of the respondents using religion, percentage invested in Islamic funds, and four potential motivations to invest. The result shows a possible segmentation of the investors into three groups, with Muslim investors being segmented into two categories, ‘committed’ and ‘pragmatic’ investors, while the third category being the ‘non-Muslim’ investors. The clusters represent a clear distinction between the three groups in terms of their commitment to Shari’ah principles in investment, the importance of earning halal vis-à-vis high returns, and the benefits of diversification between Islamic and conventional funds. The findings provide valuable insights for fund management companies in terms of understanding the different segments of investors and their issues of concerns for better investment services, product innovation and offering, as well as marketing strategies

Islamic economics education in Southeast Asian universities: an introduction

‘Islamic Economics Education in Southeast Asian Universities’ deliberates on an important, yet relatively neglected and under-written area in Islamic economics, i.e. Islamic economics education. In view of the importance of providing the necessary guidance in the integration and Islamization process in the discipline of economics, this book starts with four important chapters that discuss conceptual issues in Islamic economics education from its philosophical foundations, curriculum structure and design, as well as the relevant issues in the process of integrating Islamic heritage (al-turath al-Islami) into economics on one hand, and the process of Islamization of mainstream economics on the other. The strive for the continuous improvement of the quality of the teaching of Islamic economics also necessitates collective efforts and the sharing of knowledge and experience among academics and institutions involve in Islamic economics education. The second part of this book is aimed at serving this purpose. These chapters can be an important point of reference for institutions currently offering or intend to offer Islamic economics program to develop and improve on the curriculum and delivery of the integration and Islamization process. Finally, the last chapter concludes this edited book by highlighting several issues critical to the success of the Islamic economics programs in view of the experiences of the different universities in the Southeast Asian region. It also proposes several solutions and future plans for the improvement of the quality of Islamic economics education. Given the scant literature available in this area, this book is an important contribution to the literature on integration and Islamization of knowledge in the discipline of economics, both at the regional and international level

Selected issues in Islamic economics education and the way forward

The past recent decades witnessed a steady growth of ‘Islamization of knowledge’ efforts in the wake of intellectual resurgence of the Muslim world, not least in the discipline of economics. Since the 1980s, there have been an increasing number of institutions around the world attempting to offer courses and programs in Islamic economics (and since the 1990s in Islamic Banking and Finance). Despite the encouraging progress so far, literature specifically in the area of Islamic economics education is rather limited. This chapter seeks to highlight selected critical issues that have arisen in the teaching of Islamic economics as reflected by the experiences of the Southeast Asian universities, namely the Quality of human resources involved in the delivery of the integration and Islamization efforts and the availability of reference materials to support the teaching and learning process. In view of these issues, the chapter also attempts to offer some possible avenues to find solutions to these challenges, as well as planning for the future of Islamic economics education. In this context, the chapter discusses the importance of developing an Usul (methodology) for Islamic economics, which takes into account various aspects of Islamic heritage concerning economic dealings, behavior and institutions beyond the realm of the fiqhi (legalistic) aspect of the Shari’ah. Finally, the chapter highlights the need for regional cooperation to further strengthen the collective efforts in the development of Islamic economics education, particularly in the Southeast Asian region

Towards the definition and analysis of social component of sustainable development

This paper defines social development in the context of sustainable development. To this end, the concept of development and its evolution has been reviewed over the past seven decades. The concept of development has evolved from economic growth to poverty alleviation, sustainable development, human development, and most recently the millennium development goals towards sustainable development goals. A preliminary finding shows that the concept of development has focused more on the economic and environmental aspects in comparison to the social aspect of development. In recent years, however, the concept of sustainable development has begun to emphasis on the social aspect as a fundamental aspect of development. Thereafter, it has gained significant recognition, especially in the World Summit for Social Development in Copenhagen in the late 1990s. However, the definition of social development remains vague and there is no consensus of what perspectives should be adopted in defining social development. Therefore, this paper aims to define and analyse social development from related modern literature on development and argues for the need for a new definition of the social component of sustainable development. Furthermore, the paper adopts meta-analysis and content analysis methods by reviewing and analysing related literature on development from journals, books, conferences, and reports. This study contributes to the existing literature that provides a comprehensive overview of the current understanding of social development and identifies the main propositions of the concept. Besides, the analysis of the existing social component of sustainable development can give insights in developing more comprehensive social development concept in the future