Exploring the Ethical
behind the prohibition is the wish to protect the weak from exploitation and as such goes beyond financial accountability to include accountability to society. Hence, IBs should communicate in their annual reports the following:
any involvement in non-permissible activities;
if involved in non-permissible activities, the reason for involvement, the percentage of profit from such activities and how gains from such activities have been handled.
Focus on developmental and social goals IBs are expected to be more socially responsible than their conventional counterparts, as Islam emphasises social justice. One of the indicators is their contri- bution to and management of zakah (religious levy), saddaqa (charity) and qard-hassan (benevolent loans) funds. Zakah is one of the five pillars of the Islamic faith and the spending of the proceeds and the beneficiaries6 are specified in the Qur’an. They are God’s laws and non-fulfilment is a sin and will result in punishment in the hereafter. However, there have been mixed opinions as to which party is liable for zakah: banks or individuals (i.e. shareholders and depositors). Regardless of who is liable, what is more important is for the IB to communicate the fol- lowing details:
which party is liable for zakah;
if the bank is liable, whether zakah has been paid, the sources of zakah funds, the uses of the zakah funds,7 any balance of zakah not distributed and the reason for it, and attestation from the SSB that they have been properly computed and that the sources and uses of the funds are legitimate based on God’s rules.
Unlike zakah, which is obligatory, saddaqa (charity) is voluntary in nature and can be used for purposes allowed by Shari’ah for the benefit of society. Hence, IBs should communicate:
(i) the amount and the sources and uses of charity funds, separate from the zakah funds.
Providing qard-hassan (benevolent or interest-free loans) for socially beneficial causes is an important social contribution that IBs may make, especially to
Identity of Islamic Banks
the local community in which they operate. As such, IBs should ideally communicate the following in their annual reports:
the amount and the sources and uses of such funds;
the banks’ policies in providing such funds and how non-repayment of such funds will be dealt with.
Other revealing indicators of an organisation’s eth- ical stand from an Islamic perspective are the ways it treats its employees and debtors as well as its com- mitments to society. Employees are the greatest asset of the business and their welfare should be given due attention. It is the responsibility of employers to ensure that employees are paid fair wages,8 not overworked9 and have the opportunity to fulfil their spiritual obligations. Equal opportunity is also stres- sed in Islam.10 For IBs to be successful in a highly competitive services sector, there must be consis- tency between the brand values and staff behaviour. In other words, an adequate supply of capable, trained personnel with knowledge and understand- ing of the principles underlying Islamic banking and a strong belief in it is one of the ingredients for success, echoing de Chernatony and Segal-Horn (2001), who mentioned that a successful services brand is dependent on genuine staff conviction and commitment. Hence, the following should be communicated in the annual report:
training and development (especially on Sha- ri’ah awareness), amount spent on training, provision of special training or recruitment schemes;
reward to employees.
Debtors receive special attention in Islam. Lenders are asked to be lenient with their debtors and in certain circumstances, debtors are entitled to receive zakah and debts should be written off as charity.11 As such, IBs are expected to demonstrate and communicate such commitments in their annual reports:
debt policy and type of debt;
amount of debts written off.