Exploring CSR in Islamic Finance Compared to Western Banks in UK

This essay provides a detailed comparison of Corporate Social Responsibility (CSR) in Islamic finance and Western banking systems, primarily focusing on the United Kingdom. It discusses the implementation of CSR recommendations in Islamic banks, emphasizing their adherence to Shariah law and ethical principles, contrasting this with the profit-driven approach of Western banks. The essay examines how Islamic banks differ by avoiding interest charges, sharing profits and losses, and focusing on societal welfare, while Western banks prioritize profit generation and risk management. It also provides examples of small, medium, and large Islamic banks and their CSR practices, highlighting the differences in their approaches to liabilities, risk management, and community engagement. Desklib offers this solution along with numerous other solved assignments and past papers for students.

CSR and Islamic
Finance Word count
or equivalent 2500
words

Table of Contents
MAIN BODY...................................................................................................................................3
Discuss the recommendations that have already been implemented. Give example of things
that have already been implemented...........................................................................................3
What are Islamic banks doing different to western banks in the United Kingdom? How it
differ in two banks. Give examples of Small, medium and large companies.............................3
REFERENCES................................................................................................................................6

MAIN BODY
Discuss the recommendations that have already been implemented. Give example of things that
have already been implemented.
The Islamic banks strictly follows all the principles mentioned in Shariah law whether
they relates to their management or to the adaptation of any responsibility towards the society or
the environment. For providing advantage the people, they do not charge any interest from them.
The norms present in that law are mostly in accordance with the requirements of the corporate
social responsibilities and the guidelines provided by the United Nations. Butt there are many
codes which can be executed on the shared religious level only and cannot be handled out at the
individual level. This creates a problem because it is difficult to coordinate all the people on the
same grounds (Moghul, 2017).
The description studied related to the three banks shows that there are not involved in the
activities of corporate social responsibility at a big level. They are just exhibiting a part of it and
that too which can be visible by the authorities clearly. But there are many banks which are
adhering to these responsibilities and working completely as per the Shariah law. Although many
organisations today feels that they are operating a business and it is not a work of charity.
Modern thoughts have made lot of impact on the acceptance of Islamic law.
Religion in Islam is the base which lines up all the activities of humans according to the
welfare of the society. It fills them with motivation for recognising the activities of CSR. It also
makes them to work as per ethics of the society. But the changes in the choices of new
generation is not following it properly. This is becoming an hurdle in the fulfilment of corporate
social activities. They focus more on profits rather than making charity for the society (Murphy
and Smolarski, 2020).
What are Islamic banks doing different to western banks in the United Kingdom? How it differ
in two banks. Give examples of Small, medium and large companies.
Islamic and western banks both has similar purposes but there are some differences
which makes them different from each other. At very first, Islamic banks works strictly
according to the Shariah laws. This focuses more on the welfare of the people rather than

focussing on the profit generation motives for the organisation. Whereas, in the western banking
system, the aim is to generate more and more profits for the business while maintaining the
balance with the public help. They basically works on the principles made by human s only and
is governed in accordance to that. The basic rule of both of them is not different, they works on
the income generated from the interests. Their is no much difference in the workings of both the
formats because they both have to excel in their tasks and the demands of modern banking
system have narrowed down all the variances. But there is a difference between the manner in
which they treat their various liabilities and risks (Paltrinieri and Kutan, 2019).
According to the Islamic banking system, the liabilities occurring at the time of
transactions are required to be absorbed by the beneficiary person only in addition to that task.
On the other hand, in the Islamic system, these liabilities are adjusted from the interest payments
made by the customers or received by them. Sighting at the risk factor, the former one prefers to
bear all the risks related to the client while the later one seeks at eliminating all the possible risks
and securing them from any kind of problem. But they also bears risks as according to them,
there is a risks associated with the investment of capital and for them interest is a risk free
reward.
Looking at the religious point of view, Islamic banking operates in accordance with the
religious doctrines and follows it strictly, whereas, western system focuses on capitalism. They
creates a professional relation among the bank and its clients or borrowers, depositors and
lenders. But the Islamic system urges to follow the behaviour mentioned in the Holy Quran and
adapts the same codes mentioned in it. The ration among the various parties of banks are
governed by the Shariah Law (Paltrinieri and et.al., 2020).
The Islamic banking system, does not charge any type of interest on loans as this is
prohibited in Islam, whereas it charges some penalties and extra charges from the defaulters
which is further used for the purpose of charity. They also provide some sorts of compensations
to those who make early payments. Another unique point of it is that the it works on the policy of
equal distribution, whether it is profit or loss among the bank, its depositors and those borrowed
from it. Whereas there is no such case in western banking system, there is a fixed rate of interest
and interests on loans are their main sources of income. They also charge penalties and provides
rebates but the amount collected is not used for charity purpose.

In the both the systems, the organisations are provides interests on the amount deposited
by them, but this does not means that terms on deposits are also similar for both. In western
banking system, the banks pays fixed rate of interest on the deposits, while in Islamic system,
there are some terms and conditions which are required to be followed. Also they shares profits
rather than providing interests to them (Watkins, 2020).
The western banks are encouraging all their suppliers and contractors for adopting all the
principles and policies of business. They record and resolve all types of complaints of customers
according to the standards. They tries to manage all types of risks effectively for providing good
value to the stakeholders. The western banks motivate their employees to help their local
community and supports charity. They maintain good terms with their employees and avail them
resources so that they can develop themselves. These organisations provide a safe and hyginic
working environments to their staff members.
AI Rajhi Bank is the largest bank among the Islamic states. It strictly works according to
the Sharaih law and the rules of Islam governs its workings. In the same way other small and
medium level banks such as Alizz Islamic Bank and Cham bank also works according to the
requirements of Islamic law only. Turkish Islamic bank of Turkey and Al-Arafah Islamic Bank
Limited of Bangladesh are some of the Islamic banks that also operates strictly according to the
Sharaih Law.

REFERENCES
Books and Journals
Moghul, U.F., 2017. A socially responsible Islamic finance: Character and the common good.
Springer.
Murphy, M.J. and Smolarski, J.M., 2020. Religion and CSR: An Islamic “political” model of
corporate governance. Business & Society. 59(5). pp.823-854.
Paltrinieri, A. and Kutan, A., 2019. Islamic finance and business: an overview with directions for
further research. International Journal of Emerging Markets.
Paltrinieri, A. and et.al., 2020. Islamic finance development and banking ESG scores: Evidence
from a cross-country analysis. Research in International Business and Finance. 51.
p.101100.
Watkins, J.S., 2020. Ethical and Business Finance. In Islamic Finance and Global Capitalism
(pp. 207-255). Palgrave Macmillan, Cham.