Jurnal Ekonomi Malaysia 54(2) 2020 77 - 90

http://dx.doi.org/10.17576/JEM-2020-5401-7

Islamic Banking and Income Inequality:

The Role of Corporate Social Responsibility
(Perbankan Islam dan Ketaksamaan Pendapatan: Peranan Tanggungjawab Sosial Korporat)

Nurul Muna Mohamad

Universiti Sains Malaysia

Tajul Ariffin Masron

Universiti Sains Malaysia

Risna Wijayanti
Universitas Brawijaya

Muslimah Mohd Jamil

Universiti Teknologi Mara

ABSTRACT

The objective of this study is to analyse whether engaging more actively in corporate social responsibility (CSR)
enhances the effectiveness of Islamic banks in narrowing income inequality in the selected Organization of Islamic
Cooperation (OIC) countries. Both fixed-effect and random-effect models representing static model as well as
generalized method of moments approach of dynamic model are employed to estimate the sample of 24 OIC countries
for the period from 2006 to 2013. The results suggest that Islamic banking has potential to reduce income inequality
via Islamic financing and CSR further helps to reduce income inequality. In addition, the findings suggest that Islamic
financial institutions able to reduce income inequality further if they actively engage in CSR. However, small size of
CSR activities is unlikely to be effective in reducing income inequality..

Keywords: Islamic banks; corporate social responsibility; OIC countries; dynamic model

ABSTRAK

Tujuan kajian ini ialah untuk mengalisis sama ada tanggungjawab sosial korporat (CSR) yang lebih aktif oleh bank-
bank Islam meningkatkan kecekapan bank-bank Islam dalam mengecilkan ketaksamaan pendapatan di negara-negara
Organisasi Kerjasama Islam (OIC) terpilih. Kedua model kesan tetap dan rawak mewakili model static dan panel
momen teritlak dari model dinamik untuk mengukur sampel 24 negara OIC bagi tempoh dari 2006 hingga 2013.
Keputusan kajian mencadangkan bahawa perbankan Islam berpotensi untuk mengurangkan ketaksetaraan pendapatan
melalui pembiayaan dan CSR membantu mengurangkan ketaksetaraan pendapatan. Tambahan lagi, dapatan kajian
mencadangkan bahawa institusi kewangan mampu untuk mengurangkan ketaksetaraan pendapatan jika aktif dalam
CSR. Namun, aktiviti CSR yang kecil tidak begitu berkesan.

Kata kunci: Bank-bank Islam; tanggungjawab sosial korporat; negara-negara OIC; model dinamik

INTRODUCTION and delinquency (Zagorski et al. 2014). In addition, it

also can impair the community’s condition through child
Income inequality is a gap of income between the rich bullying, more disorganisation of housing conditions,
and the poor. It occurs due to the discrepancy between erosion of the social trust, deterioration of the political
outcomes and opportunities even without the intervening participation, and declination of life satisfaction
of human’s control like gender, ethnicity, family history (Werfhorst & Salverda 2012). That is why income
and birth of place. It is because fair income equality inequality is an importance issue to the economists and
can avoid social illnesses such as deprived health, governments around the world.
short life expectancy, unbelievable social trust, stumpy In order to curb this issue, banking industry
status of women, mental disorders, killings, teenage could play role in changing the unequal distribution
pregnancies, illiteracy, intoxication, drug exploitation of income of the individuals (Stiglitz 2012). As time
78 Jurnal Ekonomi Malaysia 54(2)

passes by, when financial development comes to be changing incredibly for the past several decades and
matured and expected to be effective, income inequality showed tremendous improvement even during the
tends to improve (Zhang 2014). An effective financial financial crisis. Various Islamic banking products and
development can help in addressing the issue of income services have been offered to cater the needs of private
inequality through two channels. The first channel is and corporate consumers across the globe. It contributes
investment become attractive due to cheaper credit. It to the increment of the Islamic financial banking assets.
is where the small entrepreneurs gain greater benefits to The global Islamic banking assets are on upward trends
start up or expand their businesses. The access to financial from approximately USD600 billion in 2008 to more
resources helps the entrepreneurs to create employment than USD1.6 trillion in the mid- the year 2014 and
opportunities, increase output, and improve the welfare further increased to USD2.05 trillion in 2017.4 In line
of the previously poor (Zhang 2014). The second channel with this impressive development of Islamic finance
is borrowing. The financially disadvantaged families are sector, in 2015, OIC had come out with a blueprint,
able to utilize the fund in order to invest in education OIC-2025 Program of Action.5 It is where they agreed
and health for them and their generations, which will on the significance of the Islamic financial development
encourage human capital creation (Tiwari et al. 2013). to cater the social issue. Islamic social finance is an
However, the current conventional finance hurts the effective mechanism for mobilising its reserves in
poor and benefits the rich, resulting in widening gap order to overcome the problem of financial exclusion
between the poor and the rich (Sehrawat & Giri 2015). within the poverty alleviation agendas and initiatives.
This situation happens because the current conventional They aim to develop sound and well-regulated Islamic
banking system promotes inequitable distribution by financial system as well as to develop and promote
shifting all the risks to the borrowers. Moreover, in the Islamic financial products that can advance socio-
present setup, only the wealthy can ask for the loan economic development in OIC members. Thus, the
due to furnishing of collateral is the primary criterion Islamic financial development could help to minimize
for obtaining money, while the losses are shared by all income inequality.
types of savers, including the poor (Fasih 2012). The Nevertheless, Islamic financial development
conventional banking also prevents the entrepreneurial alone does not seem to be enough to help in reducing
ability and discourages innovation by small enterprises income inequality. Apart from Islamic finance is being
in getting new methods of production and trainings asymmetric to fair income distribution in OIC countries,
due to limited access to credit. Conventional banks Islamic banks also operate as profit maximising entities
tend to confine their lending to the well-established big (Henderson 2007; Bourkhis & Nabi 2013; Imam &
companies as they more concern on their ability to pay Kpodar 2013) and have similarities in the term to the
depositors and safe return of the principal loan (Fasih strategies and business model (Bourkhis & Nabi 2013).
2012).1 In fact, the finding of Abedifar et al. (2016) also show
As an alternative, Islamic finance could help a very small impact can be observed from the results.
in reducing income inequality. It is because Islamic Islam has its own social mechanism through the
finance, which is based on the Holy Quran and payment of zakat by companies.6 This argument has
prophetic messenger and guided by Maqasid Shariah been supported by Léon & Weill (2018) that Islamic
(or objectives of Islamic Law) should be relatively financial development does not really contribute to
more welfare-oriented to the society, especially the cushion the issue of credit constraints and Ibrahim
poor.2 Maqasid Shariah covers various scopes of (2006), who argues that the practices of Islamic banking
human needs as the main objective of the Shariah is in Sudan has neglected its role in poverty alleviation.
the preservation and protection of the basic necessities Although the above issue has been complemented
(Laldin & Furqani 2013).3 Without that necessities, by the zakat payment of financial institutions, zakat
man’s life would probably be filled with chaos and contribution is only 2.5% of the Islamic banks’ net
thus become worthless (Rosly 2010; Abdulaziz 2010; attributable income. It is a small amount of money and
Mansour et al. 2015). Given the advantageous of may have limited impact on the society.7 That is why
Islamic banking, there are long continuous efforts to alongside zakat, corporate social responsibility could
establish and promote Islamic banking sector. Abedifar help to improve the effectiveness of Islamic financial
et al. (2016) observe that Islamic financial institutions institutions in reducing income inequality. It is because
via their offering of Shariah-compatible financial corporate social responsibility gives benefits not only
services could have lessened the risk of being excluded to the beneficiaries but also to the contributors.8 More
from getting access to credit. Financial exclusion from importantly, it could not only improve the image of
the mainstream conventional banking could be due to the corporate sector through social license, but also
two reasons. Firstly, being excluded due to high risk provide the method for risk management in unstable
profile. Secondly, Muslims may avoid borrowing from social and political environment (Scholtens & Dam
interest-bearing conventional banks. Historically, it 2007; Gilberthorpe & Banks 2012). At the best of our
is proven that the Islamic banking industry has been knowledge, there are limited studies on the effect of
Islamic Banking and Income Inequality: The Role of Corporate Social Responsibility 79

corporate social responsibility on the effectiveness of nor unfair if the talents and social fortune are naturally
Islamic banks in curbing income inequality. Some past distributed (Renouard & Lado 2012).
studies have put emphasis on the role of Islamic finance in Since then, the banking sector should involve in the
bringing higher financial inclusion (see Demirguc-Kunt CSR activities. The Equator Principles (EP) is a policy
et al. 2014; Er & Mutlu 2017) or on bank performance that supports the effort of taking CSR activities of the
(Ascarya & Yumanita 2008; Mallin et al. 2014; Olson bank (Scholtens & Dam 2007). The EP is a voluntary
& Zoubi 2017), while the studies by Hassan and Latiff set of strategies for encouraging the responsibility
(2009) and Zafar and Sulaiman (2019) focus on setting on the social and environmental issue in financing
the foundation so that CSR can be implemented cost projects. It had been set up by the International Finance
effectively, and Hassan and Harahap (2010) as well as Corporation, a member of the World Bank Group.
Nugraheni and KHasanah (2019) explore the disclosure Institutions are required to categorise projects as high
issues of CSR. We could not see any other studies that (A), medium (B), or low (C) in environmental or social
integrate CSR and Islamic financial development other risk. It is a prerequisite of prior to the obtaining the
than this study. Hence, the objective of this paper is to financing approvals. Debtors, institutions, will have to
analyse whether higher corporate social responsibility by perform an environmental impact assessment (EIA).
Islamic banks contributes to the effectiveness of Islamic They must organise an environmental management
financial institutions in reducing income inequality in plan (EMP) for category A and category B projects.
OIC countries by using annual data from 2006 to 2014 Meanwhile, Category C projects do not require an EIA.
and utilize generalized methods of moments (GMM) In submitting for the EP, the lead directors will have to
approach. reach an agreement on the categorization of the project
Rest of the paper is organized as follows. Section (A, B, or C) beside other things. They also look on the
2 reviews the relevant literatures. Section 3 describes nature of the appropriate environmental assessment
data sources, defines variables and outline empirical and treaty package. They also need to categorise of
methodology. Section 4 explains the results, while each project according to its social and environmental
Section 5 lastly concludes. impact. The EP also can be used to develop finance
advisory activities. Institutions are required to report
about the performance and progress on an annual basis
LITERATURE REVIEW (Scholtens & Dam 2007). In Western perspective, there
are four dimensions of CSR practices which are human
CORPORATE SOCIAL RESPONSIBIILTY resource dimension, environmental dimension, human
right dimension and philanthropic dimension. It is
Corporate social responsibility (CSR) can be interpreted where the organisations should protect the health and
as movements on behalf of an organisation that promote safety of the stakeholders. The organisation also should
some social goods. Which carry value exceeding treat the employees fairly, promote equal opportunities
the immediate benefits to the shareholders. Another and invest in education and training. The organisation
definition for CSR is captivating actions which also should undertake many efforts in conserving
condense the degree of externalised costs or even evade the environment like recycle policy, good waste
the distributional conflicts (Scholtens & Dam 2007). management and energy conservation. In addition,
CSR gives benefits not only to the beneficiaries but also organisation has the role in solving the social problem.
to the contributors. Malik (2014) reviews contemporary They are required to support the charities and participate
literature and summarizes several benefits of CSR in the public affairs management. They must play their
namely, enhanced operating efficiency, product market role beyond monetary matters (Dusuki & Dar 2007).
gains, improved employee productivity, capital market Despite operating in different framework, Islamic
benefits, risk management, and earning quality. These banking systems, however, can have similar value and
benefits can be achieved once firms align their social aspiration when it comes to societal needs. Western
goals with their corporate goals. On top of these benefits, CSR practice is consistent with the Islamic principles
firms with strong CSR activities have more potential to and the teaching of Islam on the basic point of assisting
enhance values of shareholders as well as stakeholders. others. Thus, the dimension of the CSR practices can
A theory that supports the social contribution is Raws’ be applied in the Islamic banking since Islam urges
theory. This theory is consistent with the social contract organisation to bring benefits and prevent harm or
style. It considers public interest as their allies rather injury to the society (Dusuki & Dar 2007). However,
than a profit-maximizing entity. In a global social there are limited empirical studies on the role of Islamic
development, it is important for emphasising the social banks in reducing the income inequality as well as on
responsibility of the privileged as compared to the less the moderating effect of corporate social responsibility
privileged in the well-ordered society. The situation of by Islamic banks in improving banks’ role on income
the less privileged had been improved, then, inequalities inequality. This study infers that Islamic banks could
are socially accepted. For Raw’s, there is neither fair reduce income inequality better through greater
80 Jurnal Ekonomi Malaysia 54(2)

involvement in the corporate social responsibility always give priority to the needy Muslims.10 Demirguc-
programs. Kunt et al. (2014) and Er and Mutlu (2017) highlight the
role of Islamic finance in improving the size of financial
OTHER DETERMINANTS OF INCOME INEQUALITY inclusion. This could be the important explanation that
Islamic financial development is capable to assist the
“Kuznets curve” is always used to explain the neglected people to get financial support to engage
relationship between income and income inequality in any form of entrepreneurship. Hence, this study
(Kuznets 1955; Elmawazini et al., 2013; Tiwari et al., hypothesizes that Islamic finance helps to reduce income
2013; Rose & Viju, 2014; Batabyal & Chowdhury, inequality in OIC countries.
2015). Specifically, Kuznets theory explains a growing According to the Transparency International,11
income inequality in the initial phase of economic corruption is defined as the abuse of entrusted power for
growth, or low level of income. In the latter phase, private gain. Corruption gives negative implications to
after income of the country has surpassed certain the country through economic growth, concentration
level of high, income inequality gradually starts to fall of asset ownership, and tax administration. Economic
(Elmawazini et al. 2013; Kotarski 2015). However, the development may be worsening as results from
absence of inverted U-shaped Kuznets curve has been high corruption. Reduction in growth will distort
the main attribute in the histories of many American the rate of poverty alleviation, later, it will increase
and Asian countries. In the case of Asia, particularly income inequality. Moreover, a high concentration
when we refer to the East Asian miracle prior to the of asset ownership can influence public policy that
1997 financial crisis, this miracle is not accompanied by is favourable to the poor. Inequality in ownership of
Kuznets curve (Acemoglu & Robinson, 2002). In this assets will limit the ability of the poor to borrow or
study, we concur with the later statement that Kuznets invest and will increase poverty and income inequality.
curve is hardly prevailed in developing countries but In addition, corruption decreases revenue from taxes
retain the first half of the Kuznets curve that in low and fees. Corruption can lead to tax evasion, poor tax
income countries, any level of low income will always administration, disproportionately favours the wealthy
fail to bring income inequality down. Therefore, this population groups and reduce the progressivity of the
study hypothesizes that income will have a positive tax system. With less government revenue collection,
effect on income inequality.9 we can expect less poverty-alleviating social programs
Batabyal & Chowdhury (2015) is of the opinion that can be expected. Batabyal and Chowdury (2015) find
financial development is able to condense inequality to that the higher corruption is associated with higher
a lesser extent in countries that have large and modern income inequality. Therefore, this study hypothesizes
financial sectors. Greenwood and Jovanovic (1990) that there is a worsening effect of corruption on income
hypothesize that income distribution may deteriorate inequality.
at the early stages of financial development, but then, Prior studies describe inflation as having significant
income inequality tends to improve as the progression impact on income inequality (Jalil & Feridun 2011; Li &
takes full effect over time. The notion on the function Yu 2014; Siami-Namini & Hudson 2019). In one hand,
of financial development in enhancing economic higher inflation rate may cause real wages to decrease,
growth has been revived in poverty reduction context. but on the other hand, it may lead to higher employment
Advanced financial sector supports economic growth and later improvement in the income inequality (Jalil
via two mechanisms. The first mechanism is through & Feridun 2011). However, inflation is also observed
cheap credit. Cheaper credit makes investment become as exerting positive or worsening inequality by other
more attractive. Small and newly started entrepreneurs studies such as Li and Yu (2014) and Siami-Namini and
are expected to gain benefits if financial institutions Hudson (2019). This is because inflation will reduce
can expand their offering to cover prospective small the real fixed and low income earned by poor people.
and medium enterprises. It is because it allows creating Conversely, the rich can easily adjust to inflation given
employment opportunities, to improve output, and to their huge assets. In the nutshell, this study hypothesizes
enrich wellbeing of the poor. The second mechanism that inflation is significantly having positive effect on
is via borrowing. Borrowing at low cost allows the income inequality.
financially disadvantaged families to have means to
access for education and health of their children as well
as support human capital creation. It is because education METHODOLOGY
widens chances and human capital supports innovation
and technological progress (Tiwari et al. 2013). While As discussed in the above section, we can see that
the above advantageous are valid for financial services several factors have been identified as crucial,
in general, the ability of Islamic finance to serve better including corporate social responsibility in explaining
and subsequently solve the issue of inequality is due income inequality as summarized in the following
to Islamic general instruction to service providers to equation:
Islamic Banking and Income Inequality: The Role of Corporate Social Responsibility 81

IEi,t = γ0 + γ1 IFDi,t + γ2 CSRi,t + γ3 IFD*CSRi,t + examines what would be the effect of CSR if corporate
(1) social responsibility stands at 6.25% of the net income
γ4 GDPCi,t + γ5 CORi,t + γ6 INFi,t + εit
of each Islamic bank in OIC countries.13 We believe that
where IE is income inequality, IFD is Islamic financial Islamic banks will certainly involve in CSR as CSR
development, CSR is corporate social responsibility can bring in not only good image to the banks, but also
by Islamic banks, IFD*CSR is the interaction variable because it is tax exempted. The measurements for other
between corporate social responsibility from Islamic variables are relatively straightforward. Gross domestic
banks and Islamic financial development, GDPC is product per capita and inflation are using the standard
gross domestic product per capita, COR is corruption measurement available from World Bank (2016a), while
index, INF is inflation rate, γs are parameters to be corruption index is taken from Worldwide Governance
estimated, ε is error term, i represents country and t is Indicators (World Bank 2016b).
time. All variables enter in the logarithmic form. As When all variables are transformed into logarithm,
argued by Ibrahim (2006), Imam & Kpodar (2013), and X represents all explanatory variables, Eq. (1) can
Abedifar et al. (2016) and Léon & Weill (2018) that be simplified as follows:
Islamic financial development does not really contribute
to cushion the issue of credit constraints and expand the lnIEi,t = α+βlnXi,t + εi,t (2)
level of financial inclusion to include preferably those where the prefix ln represents the natural logarithm,
marginalized people, the interaction between corporate is a set of explanatory variables that are deemed to be
social responsibility and Islamic financial development important to explain income inequality. Initially, we
(IFD*CSR) is included to confirm the role of CSR. estimate Eq. (2) by using static approach, namely pooled
In other words, the size of CSR activities is expected model (PM), fixed-effect model (FEM) and random-
to moderate the effectiveness of Islamic financing in effect models (REM). Considering several limitations of
reducing income inequality. static approach, especially in dealing with endogeneity
There are three measures of income inequality issue, complementary analysis will be conducted by
which are Watts index, MLD index, and Gini Index using dynamic panel of generalized method of moments
(Khan et al. 2014). There is no specific theory in (GMM) technique (Arellano and Bond 1991; Blundell
telling which measurement should be used to explain & Bond 1998). Hence, we estimate Eq. (2) by using
income inequality. This study uses Gini co-efficient GMM and the modified dynamic panel data model can
for the income inequality measurement because of the be shown as in Eq. (3):
availability of the data (Lee 2008; Ozawa & Kim 2000).
For the measurement of Islamic financial development lnIEi,t = α1+γlnIEi,t-1+βlnXi,t+εi,t (3)
(IFD), several possible measurements from past
Following Arellano and Bond (1991), the first
literature have been designed, although mainly for
step is to take first-difference under difference-GMM
conventional financial environment such as credit to
in order to wipe out country-specific effect under the
private sector and personal credit (Jalil & Feridun
conditions that the disturbance term is not serially
2011; Arora 2012; Batabyal & Chowdhury 2015),
correlated and the level of the explanatory variables
population per bank branch (Arora 2012), money and
are weakly exogenous (uncorrelated with future error
quasi money (M2) and M3 to nominal GDP (Demir et
terms). However, the lagged difference in dependent
al. 2012; Batabyal & Chowdhury 2015), demographic
variable may be correlated with the disturbance term
and geographic institution penetration (Bae et. al 2012),
and may produce endogenity among the explanatory
deposit-income ratio (Bae et al. 2012), the ratio of liquid
variables (Choong et al. 2010; Ibrahim & Law 2014).
liabilities to GDP (Jalil & Feridun 2011), the ratio of
To overcome this condition, Arellano and Bover (1995)
commercial bank assets to the sum of commercial
bank and central bank assets (Jalil & Feridun 2011), recommend the first difference GMM regression further
and financial reform index (Li & Yu 2014). There is no combined with an estimator in levels to produce a
consensus of what measurement of Islamic financial system, which is known as a system-GMM estimator. In
development variable should specifically be included. the estimation, these moment conditions are applied to
Moreover, majority of literatures dealt with a dual calculated the difference estimator, as follows:
financial system, the co-existence of conventional and
E[FSi,t-s(εi,t–εi,t-1) = 0 for s ≥ 2, t = 3,…T
Islamic banking in the countries under study. Given (4)
E[Xi,t-s(εi,t–εi,t-1) = 0 for s ≥ 2, t = 3,…T
the focus of this study is on Islamic finance, this study
uses total financing by Islamic banks (as % of GDP). Moreover, Blundell and Bond (1998) indicate that
For the measurement of corporate social responsibility, there are two different statistics, namely serial correlation
limited studies are found.12 The biggest difficulty to find and Hansen tests to further examine the validity of the
empirical studies dealing with this could be primarily GMM estimator. The serial correlation test examines the
due to unavailability of data albeit growing consensus on null hypothesis of no first-order serial correlation and no
what describes CSR. In conjunction with that, this study second order serial correlation in the residuals. Rejection
82 Jurnal Ekonomi Malaysia 54(2)

of the null of no first-order serial correlation AR (1) and of 11.4 also suggests that generally Islamic banks are
failure to reject the absence of the second-order serial doing much for CSR.
correlation AR (2) validate the models. The second test Moving on to the correlation analysis as shown in
is the Hansen test of over-identifying restrictions, which Table 2, generally we observe that there is no serious
is used to examine the overall validity of the instruments issue of multicollinearity. The positive association
by comparing the moment’s conditions with their between CSR and income inequality could be surprising.
sample analogue. Finally, the difference-Sargan (Dif- This could be due to less impressive size of CSR by
Sar) statistic in GMM approach is used to compare the Islamic banks in most countries under study.
superiority between the difference GMM (DIFF-GMM) Moving on to our main focal point, which is about
and system GMM (SYS-GMM). SYS-GMM estimator relationship between CSR and income inequality, we
requires more assumptions than DIFF-GMM, but if the engage into two types of techniques, namely static and
assumption hold, it achieve a greater efficiency and dynamic models. For static linear panel model approach,
scalar statistic will justify (Blundell & Bond 1998). This PM, FEM and REM are utilized. In order to choose the
study utilises the data from 24 OIC countries, namely best estimation, three hypotheses testing are performed
Albania, Azerbaijan, Bangladesh, Djibouti, Egypt, as per Table 3. Poolability test, which is used to evaluate
Indonesia, Iran, Iraq, Jordan, Kazakhstan, Kyrgyzstan, the option between PM and FEM indicates rejection of
Malaysia, Maldives, Mauritania, Nigeria, Pakistan, the null hypothesis. It means that fixed effect estimation
Qatar, Senegal, Sudan, Syria, Tunisia, Turkey, United is preferred. Meanwhile, Breush-Pagan LM test fails
Arab Emirates, and Yemen. These countries have been to reject null hypothesis (or pooled model is the best)
chosen due to their long practices of Islamic finance and random effect estimation is preferred. The third
in the countries. The data are mainly obtained from test is Hausman test that evaluates the choice between
Bankscope, World Development Indicators (World fixed effect and random effect estimations, which
Bank 2016a) and Worldwide Governance Indicators shows that the fixed-effect model is preferred. In this
(World Bank 2016b). model, only total financing is observed as significant
and demonstrates its ability to bring income inequality
down.
RESULTS AND DISCUSSION Static panel data is subjected to several econometric
issues, mainly endogeneity issue. To solve this issue,
We start our discussion by looking at the summary of the dynamic panel GMM technique is adopted. As per
statistic for each variable as shown in Table 1. We can Table 4, the result for the first order of autocorrelation
see huge variation in the size of CSR by each country of this basic model signifies the rejection of the null
as shown by the highest standard deviation. The mean hypothesis. Meanwhile, the results of the second order

TABLE 1. Descriptive analysis

Mean Std. Deviation Minimum Maximum

Income inequality (IE) 36.394 5.421 16.800 48.800
Total financing (TF) 6.173a 8.728 0.078 215.40a
Social contribution (CSR) 0.126a 6.220 0.000 3.356a
GDP per capita (GDPC) 0.164a 2.521 0.019a 1.381a
Inflation (INF) 8.381 7.643 -10.067 53.231
Corruption (COR) 3.353 0.617 2.315 4.357
Note: Corruption has been transformed into a positive score by adding 2.5, ranging from 0 (the best) to 5 (the worst). Figure in ‘00,000.
a

TABLE 2. Correlation analysis

lnIE lnTF lnCSR lnGDPC lnINF lnCOR

lnIE 1.000
lnTF 0.122 1.000
lnCSR 0.083 0.811 1.000
lnGDPC 0.118 0.182 0.230 1.000
lnINF -0.125 0.057 0.046 -0.117 1.000
lnCOR 0.135 0.368 0.352 0.230 -0.179 1.000
Islamic Banking and Income Inequality: The Role of Corporate Social Responsibility 83

auto-correlation and Hansen test indicate that the model is proven to be capable to reduce income inequality in
is valid. Dif-Sar test, on the other hand, suggests that OIC countries. However, the size of the effect seems to
SYS-GMM is superior to DIFF-GMM. Since 2-step be too small and negligible.
GMM theoretically tends to outperform 1-step, the The result of this model also indicates that corporate
subsequent discussion will focus on the results of 2-step social responsibility has negative relationship with
SYS-GMM. Based on the results in Table 4, Islamic income inequality as well as statistically significant. It
financial development, CSR of the Islamic banks and means that corporate social responsibility does help in
the interaction between Islamic financial development improving income inequality. It is consistent with two
and CSR are statistically significant. All variables have theories that adopted in this study, which are Maqasid
negative relationships with income inequality. Islamic Shariah and Islamic accountability. Maqasid Shariah by
financial development has negative relationship with definition can be understood as the goals and objectives
income inequality and statistically significant. With of the Shariah (Rosly 2010; Laldin & Furqani 2013;
the negative coefficient, Islamic financial development Saifuddeen et al. 2014; Mansour et. al 2015). Some of

TABLE 3. Regression analysis in static framework

PM REM FEM
Constant 2.111(7.132)*** 1.989(5.793)*** 1.077(1.931)
lnTF 0.039(0.765) -0.054(-0.956) -0.070(-1.981)**
lnCSR -0.074(-1.694) -0.067(-1.404) -0.071(-1.059)
InTF*CSR -0.016(-1.664) -0.025(-1.382) -0.012(-0.970)
Model criteria
Poolability Test - - 1.64[0.040]**
Breush-Pagan LM Test 1.64[0.100] -
Hausman Test - 4.21[0.239]
Note: Figure in ( ) stands for t-value and [ ] stands for p-value. Asterisks ** and *** indicate significant at 5% and 1%, respectively. Marginal
effect is not calculated as the interaction term is not significant.

TABLE 4. Regression analysis in dynamic framework

DIFF-GMM SYS-GMM
1-Step 2-Step 1-Step 2-Step
lnIE(-1) -0.288 -0.287 -0.213 -0.200
(-2.422)*** (-6.372)*** (-2.403)** (-4.988)***
Constant 3.498 3.507 4.272 4.239
(4.061)*** (3.812)*** (5.195)*** (1.981)*
lnTF -0.003 -0.007 -0.006 -0.005
(-0.525) (-1.392) (-1.488) (-5.052)***
lnCSR -0.038 -0.017 -0.004 -0.018
(-1.307) (-2.337)** (-2.057)** (-3.603)***
lnTF*CSR -0.013 -0.011 -0.019 -0.020
(-1.273) (-2.527)** (-1.989)** (-4.172)***
Model criteria
AR(1) 0.012** 0.015** 0.022** 0.029**
AR(2) 0.316 0.392 0.452 0.218
Hansen 0.221 0.377 0.625 0.316
Dif-Sar - - 0.355 0.428
Marginal Effecta
Minimum 0.000 0.000 0.000 -0.005
Maximum 0.000 -0.049 -0.086 -0.100
Note: Figure in ( ) stands for t-value. Asterisks ** and *** indicate significant at 5% and 1%, respectively. AR, Hansen and Dif-Sar refer to
p-value. a 0.000 indicate no effect.
84 Jurnal Ekonomi Malaysia 54(2)

the Western Islamic scholars defined it as the higher all aspects of life (Saad et al. 2014). The central point to
objective of Islamic laws (Abdulaziz 2010; Auda 2011; the Islamic accountability concept is the eternal reward
Ibrahim et al. 2014). It set rulings on how people should and punishment in the next world. It should provide
behave that enable people to create a set of norms, strong motivations for Muslims to be accountable for
values and laws that cover all aspects of life such as their actions in this world (Nahar & Yaacob 2011).
political, cultural and civilizational matters within Islamic accountability can be explained through two
Islamic framework. It does not only mean to the Muslim concepts. The first concept is the accountability as
community but to all civilisation. In other words, the vicegerent of Allah. The second concept is the
Maqasid Shariah explains an inclusive theoretical contract between the principal and agent, similar to
framework, in which it comprises values and goals for the conventional perspectives. To execute this kind of
the Islamic vision of life. It also contains all the legal concept, an agent should do a thorough analysis on the
matters about the mechanical and procedural aspects. In effect of the activities toward Islamic, social, economic
practical, Maqasid Shariah directs us toward a balance and environmental issues. Based on these assessments,
method in deriving laws from the test that resulted in an agent needs to solve one of the societal problems.
a moderate and just outcome. There are three types of An agent is not allowed to do any harmful activities to
categories in Maqasid Shariah, which are essentials or another human being, even to other creatures (Yaya &
dharuriyyat, necessities or hajiyyat and desirables or Mohd Ibrahim 2005). Due to that, Islam urges Muslims
tahsiniyyat (Abdulaziz 2010; Auda 2011; Saifuddeen to pay charity as it is a specific tool to the fulfilment
et. Al. 2014; Ibrahim et al. 2014; Mansour et al. 2015). of the accountability. The mandatory zakat helps to
The categorization is parallel with the result of this shift any institution goal from wealth orientation to
model that corporate social responsibility improves social maximisation. It is where it encourages people
income inequality as corporate social responsibility to maximise wealth and allocate the wealth in the
can be placed under the category of the essential and form of zakat for the social benefits (Yaya & Mohd
necessities. Although corporate social responsibility is Ibrahim 2005; Saad et al. 2014). In addition, Islamic
not compulsory to be practiced by the laws, the result of banks does not lose their image as the financial
this study also proves that corporate social responsibility intermediaries or even receive lesser income by giving
can help to alleviate income inequality. At the same social contribution. It is because CSR gives benefits not
time, it could serve to eliminate social conflicts given only to the beneficiaries but also to the contributors. It
that the three objectives of having Islamic financial is not only improving the image of the corporate sector
systems are to promote socio-economic justice. This through social license, but also providing the method
objective of Shariah is fixed, established and permanent for risk management in unstable social and political
but the means are subject to change. It is because the environments (Scholtens & Dam 2007; Gilberthorpe &
means must be tailored to effectively comprehend Banks 2012). CSR gives means for safer technologies
those fixed goals in the context of ever-changing and better stakeholder engagement, improves the
circumstances. Creativity is required to generate the business’s model of efficiency, gives motivation to the
appropriate means for that end (Laldin & Furqani 2013). shareholder and increases the employee perceptions
Furthermore, establishing socially responsible activities (Gilberthorpe & Banks 2012). Besides, the result of
is not an option according to the Shariah. The concept this study parallel with Raw’s theory that states social
social obligation (fard kifayah) places responsibility on contribution could help in improving socioeconomic
those who are capable or better off to help those who condition by reducing the income gaps. This theory
are incapable or who are worse off. Islamic financial is also consistent with the social contract approach
institutions should incorporate Maqasid Shariah into that considers society as a mutual benefit association
account in setting their corporate objectives and policies rather than a profit-maximizing entity. In a global social
as well as to use them to verify their level of compliance development, it is important for underlining the social
with the true Islamic principles. The advancement of responsibility of the privileged rather than the less
Islamic finance will be valued by the realization of the privileged in the well-ordered society. Thus, inequalities
spirit of brotherhood and cooperation, social equality are socially acceptable only if they improve the situation
and justice, just and fair allocation of resources, of the less privileged (Renouard & Lado 2012). In
elimination of poverty, protection of the environment practice, the corporate social responsibility from the
and achievement of general wellbeing (Laldin & Islamic banks play roles in helping in lowering income
Furqani 2013). inequality. The significant effect of interaction term
Moreover, corporate social responsibility also further justifies that the effectiveness of Islamic finance,
improves income inequality parallel with the theory of especially Islamic banks in assisting income inequality
Islamic accountability. Islamic accountability is derived reduction may be strengthened if Islamic banks can
from the concept of oneness of Allah (Tawhid). The offer more CSR funds to the public. As we can see from
concept of oneness of Allah suggests total submission to the bottom of the Table 4, the marginal effect of Islamic
Allah’s will and following the religious requirement in financial development on income inequality has been
Islamic Banking and Income Inequality: The Role of Corporate Social Responsibility 85

-0.100 when CSR activities are at maximum, relative to Based on REM results, inflation is the only variable
when the level of CSR is at minimum, which stands at that is significant. The insignificant TF and CSR could
--0.005 only. suggest that the current practices of Islamic banking are
Robustness test has been performed for this model not so pro-poor as well as lack of CSR to compensate
by including other variables such as GDPC, inflation and for lacking of pro-poor attributes.
corruption as per Table 5. The results of poolability, BP- Given the poor results of static approach, which
LM and Hausman tests suggest that REM is preferred. partly could be due to the endogeneity issue, we re-

TABLE 5. Regression analysis of the augmented model in static framework

PM REM FEM
Constant 2.614(1.852)** 2.819(1.881)** -28.680(-2.683)**
lnTF 0.037(0.713) 0.054(0.857) 0.072(1.816)*
lnCSR -0.078(-1.783)* -0.067(-1.415) -0.050(-0.777)
lnTF*CSR -0.006(-1.710)* -0.004(-1.296) -0.003(-0.611)
lnGDPC 1.055(0.862) 1.055(0.676) 0.709(2.933)**
lnCOR 0.182(0.805) 0.177(0.745) 0.226(0.795)
lnINF -0.527(-1.614) -0.647(-1.927)* -0.351(-2.314)**
Model criteria
Poolability Test - - 2.154[0.003]***
Breush-Pagan LM Test 1.683[0.097]* -
Hausman Test - 18.147[0.006]***
Marginal Effecta
Minimum 0.000 0.000 0.072
Maximum -0.027 0.000 0.072
Note: Figure in ( ) stands for t-value and [ ] stands for p-value. Asterisks *, ** and *** indicate significant at 40%, 5% and 1%, respectively. a
0.000 indicate no effect.

TABLE 6. Regression analysis of augmented model in dynamic framework

DIFF-GMM SYS-GMM
1-Step 2-Step 1-Step 2-Step
lnIE(-1) -0.217(-1.77)* -0.246(-4.72)*** -0.175(-1.90) -0.155(-3.97)**
Constant -5.869(-0.36) 6.112(0.65) 2.949(0.88) 3.922(1.65)
lnTF -0.007(-0.21) -0.003(-1.98)* -0.005(-1.22) -0.003(-2.01)*
lnCSR -0.134(-1.22) -0.166(-2.53)** -0.129(-1.24) -0.130(-2.85)***
lnTF*CSR -0.013(-1.18) -0.016(-2.74)* -0.012(-1.189)* -0.013(-3.39)***
lnGDPC 1.234(0.65) -0.291(-0.23) 0.456(1.85)* 0.417(6.70)***
lnCOR 0.290(0.48) 0.559(0.84) -0.024(-0.04) -0.208(-0.29)
lnINF -0.965(-2.09)** -0.963(-11.95)*** -1.006(-2.16)** -0.979(-13.63)***
Model Criteria
AR(1) 0.031 0.038 0.033 0.021
AR(2) 0.743 0.453 0.732 0.934
Hansen 0.333 0.388 0.310 0.428
Dif-Sar 0.432 0.382 0.511 0.339
Marginal Effecta
Minimum 0.000 -0.003 0.000 -0.003
Maximum 0.000 -0.075 -0.054 -0.062
Note: Figures in ( ) stand for t-value. Asterisks *, ** and *** indicate significant at 10%, 5% and 1%, respectively. AR, Hansen and Dif-Sar refer
to p-value. a 0.000 indicate no effect.
86 Jurnal Ekonomi Malaysia 54(2)

estimate the model by using dynamic approach of GMM. In summary, three main findings are observed from
As per Table 6, all models are valid given the significant this study. Firstly, Islamic banking has potential to
result of AR(1), but insignificant results of AR(2) and bring income inequality down via Islamic financing.
Hausmann tests. Insignificant Dif-Sar also suggests that Secondly, as expected, CSR also shows a significant
2-step SYS-GMM is preferred. In this model, all the desirable impact on income inequality. Thirdly, the
independent variables except corruption are statistically result also highlights that Islamic financial development
significant. The significant lagged income inequality can further improve income inequality if they actively
further justifies the validity of using dynamic model. engage in corporate social responsibilities. Nevertheless,
The result of Islamic financial development is proven small size of CSR activities unlikely to be effective in
to reduce income inequality. Nevertheless, the size of the effort to reduce income inequality. Carrying Islamic
the impact is too small or negligible. Considering the name in the entity’s name or the products, Islamic banks
potential role of CSR to assist in lowering income should also be serious in sharing the profits with the
inequality, the significant interaction term has confirmed public, especially those who are socially marginalized.
the hypothesis given the expected sign is realized. Moreover, tackling poverty may require beyond money
As shown at the bottom of Table 6, when CSR is at assistance. Instead of directly giving money, a more
minimum, Islamic financial development still maintains powerful poverty-alleviating CSR programs could
its vital role but the effect is manifold when the size of be more meaningful and effective to combat income
CSR is big enough. Among the possible explanation to inequality and poverty (Masron & Subramaniam 2019).
low CSR could due to the profit equalization reserves However, this study has several limitations. The
and investment risk reserves, which is calculated from first limitation is the availability of the data. Some of the
the total financing. The two reserves are to protect banks’ data are not available in some countries in OIC, limiting
interest against various forms of risk. There are higher the number of countries can be included in the sample.
risks of the default due to withdrawal and reputation of These countries are mainly those categorized under
Islamic products in future. As part of the strategies to the third world countries. They do not even have the
smoothen income to the stakeholders, Islamic banks national database that can be used in this study. Some of
need to keep some percentage of money as reserves the data are being conducted in the interval basis such
(Ismail 2010; Htay & Salman 2013; Mohd Isa & as every three to five years and there are inconsistent.
Abdul Rashid 2014). Reduction in CSR is inevitable In conjunction with the first limitation, the second
as higher the total financing will always ask for more limitation is that this study could only employ the total
significant amount of reserves. Lower CSR will imply funding of the Islamic banks as the measurement for the
low effectiveness in combating income inequality. Islamic financial development. This data might not be
On other variables, GDP per capita surprisingly able to reflect the true pictures of the Islamic financial
shows a positive impact, which is worsening income growth. Similarly, corporate social responsibility is
inequality, while inflation unexpectedly demonstrates also being calculated based on the net income of the
income-inequality-reducing effect. The counter-equality Islamic banks, rather than its true activities for the same
effect of GDP per capita could simply highlight an reason. The third limitation of this study is the limited
absence of effective policies targeting income inequality focus to banking sector only. Since there is limited data
in the selected OIC countries. Meanwhile, as inflation pertaining to the other industries like takaful, sukuk and
leads to a reduction in real wealth of the rich more than Islamic capital market, this study only employed the
the poor, the scenario is reflected in the negative effect Islamic banking sector only. However, as the Islamic
of inflation on income inequality (Jalil & Feridun 2011). banking contribute more than 70% of Islamic financial
The insignificant role of corruption is also against the assets, the use of banking sector could be representative
expectation. However, this could be due to the increasing but may not be fully represent the full Islamic finance
size of informal sectors in OIC countries (Dobson & industry.
Ramlogan-Dobson 2012). This study can be further extended by having the
time-series research. Among the countries that may
have long information of Islamic finance could be Iran,
CONCLUSION Sudan, Pakistan, Saudi Arabia, UAE, Egypt, Kuwait,
Jordan and Bahrain by the fact that they are having
As the rapid development of Islamic banking industry Islamic financial development prior to 1980s. Another
is unlikely accompanied better equality of income possibility is to turn into case study.
in OIC countries, the effectiveness of financing by
Islamic banking industry per se is in big question mark. NOTES
Hence, the objective of this study is to analyse whether
higher engagement in corporate social responsibility 1. This has been the primary reason for low
by Islamic banks enhances the effectiveness of Islamic performance of banks during the crises. During the
financial industry in bringing down income inequality. financial crises, many banks in the conventional
Islamic Banking and Income Inequality: The Role of Corporate Social Responsibility 87

banking system are unable to execute their lending fortunate’ Muslims or to allow (without extra
activities, leading to economic slowdown. It is charge) for delay in repayment of obligations due
because they did not have sufficient financial to valid reasons. Unfortunately, both are difficult
back-up to absorb the losses from the massive and rarely practiced by current Islamic banks as the
loan defaults. The capital growth of the banks fell first will expose banks to higher risk and the latter
far below the growth of total credit and overall will increase cost of operation, and thus, profit of
riskiness of the assets (Karim et al., 2014). the banks. Due to these, this paper is initiated to
2. Not much is known empirically. Among the first carefully examine whether the current Islamic bank
few studies could be Muslimah et al. (2020). practices, which put less emphasis on both aspects
3. The traditional classifications of Maqasid Shariah will help reducing income inequality.
can be divided into three main level of necessity, 11. See www.transparency.org.
namely daruriyat (necessities or mandatory) hajiyat 12. Most of past studies are either on the measurement or
(needs or something can be compromised) and determinants of CSR (Aribi & Gao 2011; Rashid et al.
tahsiniyat (luxuries or complementary). Under 2013; Khurshid et al. 2014; among few), or the effect
necessities, there are 5 essential elements for human on bank performance (Mallin et al. 2014; Platonova et
life and the absence may cause damage to human al. 2018; among few). The closest to this study could
being. The elements are protection of: (i) faith or be the effect of CSR on poverty by Yusuf and Bahari
religion (e.g. defend Islam against enemies), (ii) life (2015).
(e.g. prohibit killing life), (iii) lineage or progeny 13. 6.25% is based on doubling of zakat requirements,
(e.g. build hospital), (iv) intellect (e.g. provide which is 2.5%. Relatively, this amount is much
education), and (v) property (e.g. fair distribution smaller than the size of corporate tax, which is
of wealth via zakat). See the detail from www.kfh. normally at 25% such as in Malaysia.
com.my.
4. See https://www.researchandmarkets.com/ ACKNOWLEDGEMENT
research/bq7pb4/global_islamic?w=12.
5. See various publications by OIC at www.oic-oci. The second author would like to thank Ministry of
org. Higher Education Malaysia for funding this project
6. To make this worse, not many Islamic countries under the Fundamental Research Grant Scheme (FRGS)
recognize the responsibility of company to pay No. 203/PMGT/67115.
zakat as they define zakat is due to individual,
rather than by company. REFERENCES
7. Limited impact does not mean zakat is not effective
as its true impact is hard to measure. Surely it has Abedifar, P., Hasan, I. & Tarazi, A. 2016. Finance-growth
nexus and dual-banking systems: Relative importance
its own unique contribution. However, the general
of Islamic banks. Journal of Economic Behavior &
idea here is that if more assistances are given, the Organization 132(December): 198-215.
chances of the poor to be out of poverty will be Abdulaziz, A. 2010. Al-Dhara’i and Maqasid al-Shari’ah: A
higher. case study of Islamic Insurance. Intellectual Discourse
8. There is a growing consensus that instead of 18(2): 261-281.
just giving money, which may be used for daily Acemoglu, D., Johnson, S. & Robinson, J.A. 2002. Reversal
consumption only so immediately, well-designed of fortune: Geography and institutions in the making of
CSR activities that directly tailored towards the real the modern world income distribution.  The Quarterly
Journal of Economics 117(4): 1231-1294.
need of the poor may be more effective to alleviate
Arellano, M. & Bond, S. 1991. Some tests of specification
poverty. Among the examples is RM100 million for panel data: Monte Carlo evidence and an application
issuance of SUKUK Ihsan by Khazanah Nasional to employment equations. The Review of Economic
Bhd (see https://www.theedgemarkets.com/article/ Studies 58(2): 277-297.
going-listing-ihsan-sukuk-good-cause). Arellano, M. & Bover, O. 1995. Another look at the
9. Kuznets curve if assumed hold must have two instrumental variable estimation of error-components
hypotheses. The second hypothesis would be models. Journal of Econometrics 68(1): 29-51.
high-income level will help to bring down income Aribi, Z.A. & Gao, S.S. 2011. Narrative disclosure of
inequality, or will have negative effect on income corporate social responsibility in Islamic financial
institutions.  Managerial Auditing Journal  27(2): 199-
inequality. We report only the equation without high
222.
income variable in the main text. Nevertheless, the Arora, R.U. 2012. Finance and inequality: A study of Indian
equation with high income variable is also supplied states. Applied Economics 44(34): 4527-4538.
at Appendix A. Ascarya, A. & Yumanita, D. 2008. Comparing the efficiency
10. At least, there are two options, either to offer more of Islamic banks in Malaysia and Indonesia. Buletin
financial assistance such as credit to ‘poor or less Ekonomi Moneter dan Perbankan 11(2): 95-119.
88 Jurnal Ekonomi Malaysia 54(2)

Auda, J. 2011. A Maqasidi approach to contemporary Hassan, A. & Harahap, S.S. 2010. Exploring corporate
application of the Shari’ah. Intellectual Discourse 19: social responsibility disclosure: The case of Islamic
193-217. banks.  International Journal of Islamic and Middle
Bae, K., Han, D. & Sohn, H. 2012. Importance of access to Eastern Finance and Management 3(3): 203-227.
finance in reducing income inequality and poverty level. Henderson, A. 2007. Limiting the regulation of Islamic
International Review of Public Administration 17(1): 55- finance: Lessons from Dubai. Law and Financial Markets
77. Review 1(3): 213-220.
Batabyal, S. & Chowdhury, A. 2015. Curbing corruption, Htay, S.N. & Salman, S. 2013. Practice of profit equalization
financial development and income inequality. Progress reserve and investment risk reserve by Islamic banks.
in Development Studies 15(1): 49-72. International Journal of Research In Social Sciences
Blundell, R. & Bond, S. 1998. Initial conditions and moment 2(2): 15-19.
restrictions in dynamic panel data models. Journal of Ibrahim, E.D.A.B.  2006. The “missing links” between
Econometrics 87(1): 115-143. Islamic development objectives and the current practice
Bourkhis, K. & Nabi, M.S. 2013. Islamic and conventional of Islamic banking – The experience of the Sudanese
banks’ soundness during the 2007–2008 financial Islamic banks (SIBs). Humanomics 22(2): 55-66.
crisis. Review of Financial Economics 22(2): 68-77. Ibrahim, A.A., Elatrash, R.J. & Farooq, M.O. 2014. Hoarding
Choong, C.K., Lam, S.Y. & Yusop, Z. 2010. Private capital versus circulation of wealth from the perspective of
flows to low‐income countries: The role of domestic maqasid al-Shari’ah. International Journal of Islamic
financial sector.  Journal of Business Economics and and Middle Eastern Finance and Management 7(1):
Management 11(4): 598-612. 6-21.
Dabla-Norris, M.E., Kochhar, M.K., Suphaphiphat, M.N., Ibrahim, M.H. & Law, S.H. 2014. Social capital and CO2
Ricka, M.F. & Tsounta, E. 2015. Causes and consequences emission—output relations: A panel analysis. Renewable
of income inequality: A global perspective. International and Sustainable Energy Reviews 29(January): 528-534.
Monetary Fund Discussion Note SDN/15/13. Imam, P. & Kpodar, K. 2013. Islamic banking: how has it
Demir, F., Ju, J. & Zhou, Y. 2012. Income inequality and expanded? Emerging Markets Finance and Trade 49(6):
structures of international trade. Asia-Pacific Journal of 112-137.
Accounting & Economics 19(2): 167-180. Ismail, A. 2010. Money, Islamic Banks and the Real Economy.
Demirguc-Kunt, A., Klapper, L. & Randall, D. 2014. Singapore: Cengage Learning Asia Pte Ltd.
Islamic finance and financial inclusion: Measuring use Ismail, N. & Muqorobin, A. 2017. Implementation of
of and demand for formal financial services among Corporate Social Responsibility (CSR) On Islamic
Muslim adults. Review of Middle East Economics and Banking: Maqasid Syariah’s Approach.  Islamic
Finance 10(2): 177-218. Economics Journal 3(1): 75-91.
Dobson, S. & Ramlogan-Dobson, C. 2012. Why is corruption Jalil , A. & Feridun, M. 2011. Long-run relationship between
less harmful to income inequality in Latin America? income inequality and financial development in China.
World Development 40(8): 1534–1545. Journal of the Asia Pacific Economy 16(2): 202-214.
Dusuki, A. & Dar, H. 2007. Stakeholders’ Perceptions Karim, M. A., Hassan, M. K., Hassan, T., & Mohamad, S. 2014.
of corporate social responsibility of Islamic Banks: Capital adequacy and lending and deposit behaviors of
Evidence from Malaysian Economy. Proceedings of conventional and Islamic banks. Pacific-Basin Finance
6th International Conference on Islamic Economic and Journal 28(June): 58-75.
Finance. Iqbal, M., Ali, S.S. & Muljawan, D., Jakarta, Khan, M. A., Khan, M. Z., Zaman, K., Hassan, U., & Umar,
Indonesia, 249-277, Saudi Arabia: Islamic Research and S. 2014. Global estimates of growth–inequality–poverty
Training Institute of Islamic Banks. (GIP) triangle: evidence from World Bank’s classification
Elmawazini, K., Sharif, A., Manga, P. & Drucker, P. 2013. countries. Quality & Quantity 48(5): 2631-2646.
Trade globalization, financial globalization and inequality Kotarski , K. 2015. Financial deepening and income
within south-east Europe and cis countries. The Journal inequality: Is there any financial Kuznets curve in China?
of Developing Areas 47(2): 303-317. The political economy analysis. China Economic Journal
Er, B., & Mutlu, M. 2017. Financial inclusion and Islamic 8(1), 18-39.
finance: A survey of Islamic financial literacy Khurshid, M.A., Al-Aali, Soliman, A.A. and Amin, S.M. 2014.
index.  International Journal of Islamic Economics and Developing an Islamic corporate social responsibility
Finance Studies 3(2): 33-54. model (CSR). Competitive Review 24(4): 258-274.
Fasih, F. 2012. Inclusive growth in India through Islamic Kuznets, S. 1958. Long swings in the growth of population
banking.  Procedia-Social and Behavioral Sciences 37: and in related economic variables. Proceedings of the
97-110. American Philosophical Society 102(1): 25-52.
Gilberthorpe, E., & Banks, G. 2012. Development on whose Laldin, M. A., & Furqani, H. 2013. Developing Islamic finance
terms?: CSR discourse and social realities in Papua New in the framework of maqasid al-Shari’ah. International
Guinea’s extractive industries sector. Resources Policy Journal of Islamic and Middle Eastern Finance and
37: 185-193. Management 6(4): 278-289.
Greenwood, J. & Jovanovic, B. 1990. Financial development, Lee, Y.-F. 2008. Economic Growth and Income Inequality: the
growth and the distribution of income. Journal of modern Taiwan experience. Journal of Contemporary
Political Economy 98(5): 1076-1107. China 17(55): 361-374.
Hassan, A. & Latiff, S.B.A. 2009. Corporate social Léon, F., & Weill, L. 2018. Islamic banking development
responsibility of Islamic financial institutions and and access to credit. Pacific-Basin Finance
businesses. Humanomics 25(3): 177-188. Journal 52(December): 54-69.
Islamic Banking and Income Inequality: The Role of Corporate Social Responsibility 89

Li, J., & Yu, H. 2014. Income inequality and financial reform Saifuddeen, S.M., Rahman, N.N.A., Isa, N.M. & Baharuddin,
in Asia: the role of human capital. Applied Economics A. 2014. Maqasid al-Shariah as a complementary
46(24): 2920-2935. framework to conventional bioethics.  Science and
Malik, M. 2015. Value-enhancing capabilities of CSR: A brief Engineering Ethics 20(2): 317-327.
review of contemporary literature.  Journal of Business Scholtens, B. & Dam, L. 2007. Banking on the equator:
Ethics 127(2): 419-438. Are banks that adopted the equator principles different
Mallin, C., Farag, H., & Ow-Yong, K. 2014. Corporate from non-adopters? World Development 35(8): 1307–
social responsibility and financial performance in 1328.
Islamic banks. Journal of Economic Behavior & Sehrawat, M. & Giri, K.A. 2015. Financial development and
Organization 103(July): S21-S38. income inequality in India: An application of ARDL
Mansour, W., Ben Abdelhamid, M., & Heshmati, A. 2015. approach. International Journal of Social Economics
Recursive profit-and-loss sharing. Journal of Risk 17(6): 42(1): 64-81.
21-50. Siami-Namini, S. & Hudson, D. 2019. Inflation and income
Masron, T.A. & Subramaniam, Y. 2019. Does Poverty Cause inequality in developed and developing countries. Journal
Environmental Degradation? Evidence from Developing of Economic Studies 46(3): 611-632.
Countries. Journal of Poverty 23(1): 44-64. Stiglitz, J.E. 2012. Macroeconomic fluctuations, inequality,
Mohd Isa, M., & Abdul Rashid, Z. 2014. Islamic Deposits and human development. Journal of Human Development
and Investment Accounts in Income Smoothing in and Capabilities 13(1): 31-58.
Post Reclassification. Expert Journal of Finance, 2: Tiwari, A.K., Shahbaz, M. & Islam, F. 2013. Does financial
18-25. development increase rural‐urban income inequality?:
Muslimah, M.J., Masron, T.A., Khalid, A.A. & Jaaffar, Cointegration analysis in the case of Indian economy.
A.H. 2020. Islamic Financial Development and International Journal of Social Economics 40(2): 151-
Income inequality in the selected Organisation of 168.
Islamic Cooperation (OIC) countries. International Werfhorst, H.G., & Salverda, W. 2012. Consequences of
Journal of Economics and Business Research economic inequality: Introduction to a special issue.
[Forthcoming]. Research in Social Stratification and Mobility 30(4):
Nahar, H.S. & Yaacob, H. 2011. Accountability in the sacred 377–387.
context. Journal of Islamic Accounting and Business World Bank. 2016a. World Development Indicators. http://
Research 2(2): 87-113. databank.worldbank.org
Nugraheni, P. & Khasanah, E. N. 2019. Implementation of the World Bank. 2016b. Worldwide Governance Indicators. info.
AAOIFI index on CSR disclosure in Indonesian Islamic worldbank.org/governance/wgi
banks.  Journal of Financial Reporting and Accounting Yaya, R. & Mohd Ibrahim, S.H. 2005. The emerging issues
17(3): 365-382. on the objectives of Islamic accounting. Malaysian
Olson, D. & Zoubi, T. 2017. Convergence in bank performance Accounting Review 4(1): 75-80.
for commercial and Islamic banks during and after Yusuf M.Y. & Bahari Z.B. 2015. Islamic corporate social
the Global Financial Crisis. The Quarterly Review of responsibility in Islamic banking: Towards poverty
Economics and Finance 65(August): 71-87. alleviation. In Ethics, Governance and Regulation in
Ozawa, M.N. & Kim, R.Y. 2000. The Increasing Income Islamic Finance. edited by El-Karanshawy, H.A., Omar,
inequality Among Children. Journal of Poverty 4(3): A., Khan, T., Ali, S.S., Izhar, H., Tariq, W., Ginena, K.
1-19. & Quradaghi, B.A. Doha, Qatar: Bloomsbury Qatar
Platonova, E., Asutay, M., Dixon, R. & Mohammad, S. Foundation
2018. The impact of corporate social responsibility Zafar, M.B. & Sulaiman, A.A. 2019. CSR narrative under
disclosure on financial performance: Evidence from Islamic banking paradigm. Social Responsibility Journal.
the GCC Islamic banking sector. Journal of Business Zagorski, K., Evans, M.D., Kelley, J. & Piotrowska, K. 2014.
Ethics 151(2): 451-471. Does national income inequality affect individuals’
Rashid, M., Abdeljawad, I., Ngalim, S.M. & Hassan, quality of life in Europe? Inequality, happiness, finances,
M.K. 2013. Customer-centric corporate social and health. Social Indicators Research 117(3): 1089-
responsibility: A framework for Islamic banks on ethical 1110.
efficiency.  Management Research Review 36(4): 359- Zhang, Q. 2014. The effects of financial deepening on income
378. inequality based on grey incidence. Grey Systems: Theory
Renouard , C. & Lado, H. 2012. CSR and inequality in the and Application 4(3): 495 - 504.
Niger Delta (Nigeria). Corporate Governance: The
International Journal of Business in Society 12(4): 472 Nurul Muna Mohamad
- 484. School of Management
Rose, S. & Viju, C. 2014. Income inequality in post-communist Universiti Sains Malaysia,
Central and Eastern European countries. Eastern Journal 11800 Penang, MALAYSIA.
of European Studies 5(1): 5-20. E-mail: nanurulmohamad@gmail.com
Rosly, S.A. 2010. Shariah parameters reconsidered.
International Journal of Islamic and Middle Eastern Tajul Ariffin Masron*
Finance and Management 3(2): 132-146. School of Management
Saad, R. A., Abdul Aziz, N. M., & Sawandi, N. 2014. Islamic Universiti Sains Malaysia,
accountability framework in the zakat funds management. 11800 Penang, MALAYSIA.
Procedia-Social and Behavioral Sciences 164: 508-515. E-mail: tams@usm.my
90 Jurnal Ekonomi Malaysia 54(2)

Risna Widiyanti Muslimah Mohd Jamil

Faculty of Economics and Business, Universiti Teknologi MARA
Universitas Brawijaya Kampus Sungai Petani
Jl. MT. Haryono 165, 08400 Merbok, Kedah, MALAYSIA.
Malang 65145, INDONESIA. E-mail: muslimah_mohdjamil@yahoo.com
E-mail: risna@ub.ac.id
*Corresponding author.