Islamic corporate social responsibility as a governance-embedded system: evidence from Islamic banks in Malaysia and Indonesia

Purpose Although there has been a rapid rate of expansion observed in the domain of Islamic banking, there remains an inconsistent degree of institutionalisation of Islamic corporate social responsibility (ICSR). The reason is that a higher priority level has been placed on contractual and financial compliance by existing CSR and Shariah governance models, rather than broader socio-economic aspects. The purpose of this study was to develop an ICSR framework to assess the capacity of existing Islamic banking institutions to institutionalise ICSR through relevant governance mechanisms and Islamic social finance instruments, while examining their relationships with socio-economic outcomes. Design/methodology/approach In this investigation, a qualitative multiple-case study design, which involved both Maybank Islamic (Malaysia) and Bank Syariah Indonesia (Indonesia), was employed. Specifically, semi-structured interviews were conducted with a total of 20 purposively selected senior informants, with 10 from each of the two institutions, who were directly involved in the process of ICSR governance and implementation. The interviews, which ranged between 60 and 120 min, were triangulated with corresponding institutional and sustainability documents. After collecting the data, a thematic content analysis was performed through the NVivo software, which incorporated iterative coding, intercoder verification, participant validation and cross-case comparison to identify relevant patterns of ICSR institutionalisation and socio-economic value creation. Findings The findings revealed a clear hierarchy of ICSR institutionalisation, wherein zakat represented the most formally embedded instrument, supported by Shariah oversight, structured procedures, auditing and reporting. Meanwhile, voluntary instruments, including sadaqah and infaq, and developmental instruments, such as qard al-hasan and waqf, exhibited weaker and more fragmented degrees of organisational integration. Four differentiated socio-economic outcome clusters were associated with the above instruments, namely, immediate relief and redistribution (zakat), community trust and relational legitimacy (sadaqah or infaq), economic empowerment (qard al-hasan) and long-term or intergenerational welfare (waqf). Importantly, the interview results demonstrated an institutionalisation–impact paradox, in which instruments associated with greater long-term developmental potential were not equivalent to those most strongly embedded within existing structures of governance. Practical implications A policy-relevant framework was provided for existing Islamic banking institutions, regulators and Shariah boards to strengthen the governance, coordination, measurement and reporting aspects of relevant ICSR instruments that were often under-institutionalised. The proposed framework could also inform the development of Shariah-specific social responsibility indicators that were aligned with the Sustainable Development Goals (SDGs), which could enable more substantive and comparable assessment of ICSR beyond conventional CSR reporting processes. Originality/value Islamic ethical underpinnings, Shariah governance structures, Islamic social finance tools and various socio-economic outcomes were incorporated in this study into a consolidated and empirically grounded framework. Particularly, it was demonstrated that there were varying levels of institutionalisation and socio-economic value observed in existing ICSR instruments, which highlighted the existence of an institutionalisation–impact paradox. As such, there was a deeper understanding of how Islamic obligations are converted from religious teachings into actual organisational practice and developmental value.