Penn State Law Penn State Law eLibrary SJD Dissertations 12-3-2018 Corporate Social Responsibility (CSR) in Islamic Banks in the Light of Sharia: A Comparative Study of Islamic and Western Perspectives in Saudi Arabia Mohammed Abdullah Alshubrumi Follow this and additional works at: https://elibrary.law.psu.edu/sjd Part of the Business Organizations Law Commons, and the Comparative and Foreign Law Commons Recommended Citation Alshubrumi, Mohammed Abdullah, "Corporate Social Responsibility (CSR) in Islamic Banks in the Light of Sharia: A Comparative Study of Islamic and Western Perspectives in Saudi Arabia" (2018). SJD Dissertations. 13. https://elibrary.law.psu.edu/sjd/13 This Dissertation is brought to you for free and open access by Penn State Law eLibrary. It has been accepted for inclusion in SJD Dissertations by an authorized administrator of Penn State Law eLibrary. For more information, please contact [email protected]. The Pennsylvania State University Penn State Law CORPORATE SOCIAL RESPONSIBILITY (CSR) IN ISLAMIC BANKS IN THE LIGHT OF SHARIA: A COMPARATIVE STUDY OF ISLAMIC AND WESTERN PERSPECTIVES IN SAUDI ARABIA A Dissertation in Law by Mohammed Abdullah Alshubrumi © Mohammed Abdullah Alshubrumi Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Juridical Science September 2018 Ibn Umar, may Allah be pleased with them, reported: “I heard Messenger of Allah, peace and blessings be upon him, saying, ‘All of you are guardians and are responsible for your wards. The ruler is a guardian and responsible for his subjects; the man is a guardian and responsible for his family; the woman is a guardian and is responsible for her husband’s house and his offspring; and so all of you are guardians and are responsible for your wards.’” (Reported by Al-Bukhari and Muslim). Ibn Umar, may Allah be pleased with them reported: “The Prophet Muhammad, peace and blessings be upon him, said, ‘The most beloved people to Allah are those who are most beneficial to the people.’” (al-Mu’jam al-Awsat 6192). i ABSTRACT The focus of the study is the concept of corporate social responsibility (CSR), social justice and business ethics in relation to Sharia. The key role that Sharia plays in shaping CSR principles in business and society is explored and the related concepts of Ummah (Muslim community) and brotherhood in Islam are highlighted. In addition, Islamic social responsibility in both its mandatory (zakat) and voluntary (sadaqah, waqf, qard al-hassan) forms as practiced over centuries in Muslim society are considered. Further, the study provides significant insights into the Islamic transactions jurisprudence (fiqh al-mu’amalat). Against this background, CSR in its current incarnation in Saudi Arabia is explored with a specific focus on the practices of Islamic banks. Through this exploration, it is evident that philanthropy in mandatory and voluntary forms is ingrained in the Kingdom’s culture in multiple ways. The fundamental differences that distinguish Islamic banking from conventional banking systems are established. Also highlighted is the role of the Sharia Supervisory Board (SSB) in the Islamic banking system. It is recommended that the SSB promote Islamic ethics and values in the Islamic banks. The role of the SSB should include structuring CSR policies to ensure that all social activities are fully compliant with the principles of Sharia. Islamic banks should be in the forefront of motiving businesses to remain conscious of their social responsibilities. Businesses including Islamic banks operating in Saudi Arabia should align their goals and CSR initiatives with Saudi Arabia Vision 2030 especially in regard to issues related to social development. The conclusion is that CSR is part and parcel of Sharia principles and CSR principles in Islam are designed to promote social justice and more importantly to obey Almighty Allah’s commandments by fulfilling Maqasid Al-Sharia. ii ACKNOWLEDGMENTS Allah does not thank the person who does not thank people. – Prophet Mohammad (PBUH) In the name of Allah, the most compassionate the most merciful. All gratitude and praise be only to Him. I would like to express my deepest gratitude to my supervisor, Professor Marco Ventoruzzo, Professor of Law at Penn State Law, Professor of Law at the Bocconi University School of Law, and the Director of the Ph.D. in the Corporate and Business Law program of Bocconi University. I would like to thank him for his patience, guidance, and insightful comments. I would like also to extend my thanks to the staff and faculty members of Penn State Law for their assistance during my academic study. I hope that I have succeeded in this dissertation. If there is good, it is from Allah. If there are mistakes, they are from myself alone. May Allah forgive me for these mistakes and guide me to the right path. iii Table of Contents ABBREVIATIONS ........................................................................................................................ 1 GLOSSARY ................................................................................................................................... 3 CHAPTER ONE: INTRODUCTION ............................................................................................. 7 Objectives of the Study ................................................................................................................... 8 Significance of the Study ................................................................................................................ 8 Literature Review............................................................................................................................ 9 CHAPTER TWO: CORPORATE SOCIAL RESPONSIBILITY IN THE WEST ...................... 11 Introduction ................................................................................................................................... 11 Background ................................................................................................................................... 14 The Concept of CSR in the West .................................................................................................. 19 CSR Legislation ............................................................................................................................ 20 Economic View ............................................................................................................................. 21 Legal View .................................................................................................................................... 23 Do Corporations Have a Responsibility to Society?..................................................................... 24 How Was the Business Paradigm Created? .................................................................................. 25 Fraud and Corruption .................................................................................................................... 28 Deceit and Scandal ........................................................................................................................ 32 Capitalism’s Effect on Business ................................................................................................... 36 The Evolution from Philanthropy to Corporate Social Responsibility ......................................... 40 iv Stakeholder Theory Versus Shareholder Primacy Theory ............................................................ 41 Mandatory or Voluntary CSR Policy Debates .............................................................................. 49 Division of Power Between Shareholders and Directors .............................................................. 53 Social Balance Sheet ..................................................................................................................... 56 Conclusion .................................................................................................................................... 58 CHAPTER THREE: CORPORATE SOCIAL RESPONSIBILITY IN ISLAM ......................... 59 Introduction ................................................................................................................................... 59 Islam is Introduced to the Western World .................................................................................... 61 Sharia (Islamic Law) ..................................................................................................................... 65 Primary Sources of Sharia ............................................................................................................ 71 Application of “Urf” as a Source of Sharia .................................................................................. 73 Pillars of Islam .............................................................................................................................. 74 Variations of Madhhab (Schools of Thought) .............................................................................. 76 Sunni Schools of Thought ............................................................................................................. 76 Hanafi School....................................................................................................................... 77 Maliki School ....................................................................................................................... 77 Shafii School .......................................................................................................................