Essentially, the notion of CSR and the ethical underpinnings of Islamic principles share the same objectives - promotion of social justice, equal distribution of wealth and a sustainable economic environment are some of the goals common to CSR and Islamic principles.

Business has come under increasing pressure to demonstrably engage in activities that fulfill and advance corporate social responsibility. CSR has traditionally been the province of the corporate sector but recognition of the growing significance of the SME sector has led to an emphasis on their social and environmental impact.

Essentially, the notion of CSR and the ethical underpinnings of Islamic principles share the same objectives - promotion of social justice, equal distribution of wealth and a sustainable economic environment are some of the goals common to CSR and Islamic principles.

Most companies that are sharia-compliant will justify their lack of quality CSR programs by arguing that the principles of sharia substantially cover the CSR aspect of entrepreneurship. The ethics of business and the concept of giving back to society are already embedded within the tenets of Islam. The inclusion of waqf (endowments), sadaqa (charitable donations), qard al-hassan (interest-free loans) and zakat funds provide benefits to the underprivileged. However, to be truly considered a sharia-compliant entity, the company should ideally implement sharia principles in all aspects of its business.

For better assessment, we can divide CSR of a sharia-compliant SME into two forms.

The mandatory form: This type of social responsibility does not involve a lot of resources since these are mainly prescriptions to avoid rather than how to act. This includes:

  • Earnings prohibited by sharia

  • Responsibly dealing with clients

  • Justice and fairness to all employees

  • Paying the zakat

 

The recommended form: Recommended forms of social responsibility are those activities that go beyond what is obligatory in Islam. These activities are done purely on a voluntary basis, subject to the resources and capacity of the company. Some of the recommended activities are:

  • Reduction of environmental impact

  • Screening of clients and contractors to verify sharia-compliance

  • Quotas for industry-wide and social impact based investments

  • Par excellence customer service

  • Providing employee welfare and benefits

  • Charitable activities

  • Transparency regarding internal activities for additional accountability

CSR Initiatives

Depending on the resources at their disposal, SMEs can undertake an assortment of CSR initiatives that impact all areas of society. Some of these are:

Education: This can involve creation of scholarships, international language courses such as English and French, improving the standards and utilities of public schools, funding quality educational trips abroad etc.

Sports and physical education: SMEs can help build a sporting culture across the region that enables young people to actively pursue careers in the sport of their choice. Sponsorship of athletes, tennis development programs and football scholarships are some examples.

Community welfare: Environmental initiatives such as 'Clean your beach' or 'Protect the palm trees' campaigns, building public parks, launching a paperless library etc are some examples. Community welfare also includes intervention programs such as those involving abuse of drugs and alcohol

In addition to the above, philanthropic gestures such as disaster relief funds and aid to war-torn countries will contribute towards diminishing social inequities.

Benefits of CSR

The business rationales for CSR activities are often promoted and it is assumed that such benefits are also enjoyed by the SMEs themselves. Some of the benefits of CSR for sharia- compliant SMEs are:

  • Companies actively engaging in CSR activities and are in accordance with sharia develop an improved image and reputation in the market

  • The company is associated with trust and understanding

  • Builds a larger, more prominent profile for the company

  • Significant increase in employee motivation

  • Better market position

  • Improved company culture

The beneficiary of such CSR activities will be the stakeholders associated with the company. The parties involved with the business develop a sense of pride being associated with such an organization, thereby boosting long-term profitability and reputation of the company.

Zawya BusinessPulse 2013