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DOI: 10.1002/tie.22038
RESEARCH ARTICLE
Islamic business scorecard and the screening of Islamic
businesses in a cross-country setting
M. Kabir Hassan1 | Mamunur Rashid2
| Andrew S.T. Wei3 | Balqis O. Adedokun4 |
Jayalakshmy Ramachandran5
1
Department of Economics and Finance,
University of New Orleans, New Orleans,
Louisiana
2
Department of Accounting and Finance,
School of Business and Economics, Universiti
Brunei Darussalam, Gadong, Brunei
3
Labuan Faculty of International Finance,
Universiti Malaysia Sabah, Kuala Lumpur,
Malaysia
4
Independent Researcher, Lagos, Nigeria
5
Nottingham University Business School,
University of Nottingham Malaysia Campus,
Semenyih, Selangor, Malaysia
Correspondence
Mamunur Rashid, School of Business and
Economics, Universiti Brunei Darussalam, Jalan
Tungku Link, Gadong, BE 1410, Brunei.
Email: [email protected]
Screening of shari'ah compliant firms is incomplete without the inclusion of ethical and social
responsibilities. The existing “activity screen” does not directly capture the ethical and social
footprints of firms. The purpose of this study is to create and test an Islamic business scorecard
that combines activity, ethical, and social responsibilities that Islamic businesses must comply
with. This new Islamic business scorecard replaces the existing activity screens and is added to
the financial screens to create an integrated business screening mechanism to identify shari'ah
compliant firms. This study utilizes data from a sample of 410 shari'ah compliant companies
listed with stock exchanges in Malaysia, Pakistan, and Bangladesh. Out of the five newly developed constructs of the Islamic business scorecard, the results indicate Islamic firms are less committed to social responsibilities and tend to push forward economic responsibilities that focus
on profitability and growth. Of the three countries, this study reports Malaysian firms have the
highest compliance scores, while Bangladesh displays characteristics of the “next-big shari'ah
destination”. Financial screens are more important than the Islamic business scorecard for firms
in the construction, industrial, technology, and trading/services sectors. Because of its connection with the economic, ethical, and social dimensions, the scorecard helps to identify the true
nature of shari'ah compliance as a useful decision tool for investors and policymakers.
KEYWORDS
CSR, ethical identity index, Islamic business scorecard, shari'ah screening
1 | B A C KG RO U N D
does not consider advances in Islamic ethical and social identities.
Consequently, Islamic firms have not demonstrated high ethical and
The Islamic financial universe revolves around investment and financ-
social values (Hassan & Rashid, 2010; Haniffa & Hudaib, 2007; Rah-
ing activities based on shari'ah principles (Derigs & Marzban, 2008).
man & Saimi, 2015; Rashid, Hassan, Amin, & Samina, 2017).
To make the process easy, Islamic equity index providers classify com-
Second, there is a major misalignment of social as well as institu-
panies as shari'ah compliant or noncompliant by adopting diverse
tional parameters. If business organizations, as part of a society, are
screening criteria. Shari'ah screening is the major yardstick to differen-
liable to fulfill economic, legal, ethical, and philanthropic commitments
tiate between permissible and nonpermissible investment or financial
to stakeholders (Carroll, 1999), the “activity screen” has failed to jus-
activities for Muslims. Put simply, Islamic businesses are defined based
tify the importance and strata of “(social) responsibility” for Islamic
on their shari'ah screening status. The most dominant method of sha-
businesses. The existing screening exercises have also grossly failed to
ri'ah screening involves “activity screening”, which essentially helps to
satisfy the increasing institutional demand for Islamic businesses to be
broadly identify the shari'ah permissibility of Islamic business activi-
open, pragmatic, and engaging, such as appealing to people of all races
ties. However, for several reasons the activity screen presents an
and religions as well as connecting with companies from multidimen-
inadequate definition of Islamic firms. For instance, first, Islamic firms
sional industries (Amaeshi et al., 2016). This misalignment is evident in
are characterized as the “caretakers” of social and financial resources
the heterogeneity in screening exercises as shown in Table 1. Screen
who must promote activities in an ethical and socially responsible way
providers (i.e., DJIM, FTSE, etc.) have differences in opinion because
(Dusuki, 2008; Nienhaus, 2011). Interestingly, the “activity screen”
of diverse expectations and levels of tolerance (Pok, 2012).
Thunderbird Int. Bus. Rev. 2019;61:807–819.
wileyonlinelibrary.com/journal/tie
© 2019 Wiley Periodicals, Inc.
807
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HASSAN ET AL.
TABLE 1
Comparison of qualitative criteria for the shari'ah-compliant screening process
Items
DJIM
FTSE
S&P
SAC
MSCI
HSBC
Amiri
Azzad
Meezan
√
Alcohol
X
√┘
x
√
√
√
√
x
Biotechnology (genetic and foetus)
—
—
—
—
—
√
—
—
—
Broadcasting and entertainment
X
√
x
√
√
√
√
x
√
Conventional financial services
X
√
x
√
√
√
√
x
√
Gambling
X
√
x
√
√
√
√
x
√
Hotels
X
√
x
√
√
√
√
x
—
Insurance
X
√
x
√
√
√
√
x
√
Meat production
—
—
—
—
—
—
—
x
—
√
—
x
√
√
√
√
x
√
Media (except newspapers)
X
—
x
√
Pork-related products
X
√
x
√
Restaurant and bars
X
√
x
√
√
√
√
x
√
Tobacco
X
√
x
√
√
√
√
x
√
Trading of gold and silver
—
—
x
√
—
—
—
—
—
Weapon and defence
X
√
—
√
√
√
√
x
—
Notes. Notations for shari'ah noncompliant; “√”: If part of core business; “x”: any involvement; and “—”: Not applicable/yet to fully explore.
Source: Derigs and Marzban (2008).
Third, Islamic businesses are required to report activity screens,
Nonetheless, the “activity screen” remains the primary yardstick,
ethical responsibilities, and social responsibilities by several jurisdic-
followed by a financial screen in the second stage. Only those busi-
tions. Interestingly, there are common components in activity screen-
nesses that pass through the first stage can take part in the second
ing, ethical identity, and CSR activities of Islamic firms, as these are
stage. Hence, an incomplete measurement at the first stage (only
deemed “core” functions of Islamic businesses by Islamic shari'ah.
based on activity screening), without considering the already estab-
Hence, managers face a hydra in implementing and reporting these
lished importance of ethical and social activities, will be detrimental to
three separate requirements because of differences in screening exer-
the progress of the Islamic business sector. Financial screens are usu-
cises, ethical culture, and legal culture in different countries. As a
ally conducted using multiple financial ratios with the aim of measur-
result, Islamic firms continue to be inconsistent in their reporting
ing the inclusion of debt and interest related prohibitions (Rashid
practices.
et al., 2017). If the measurement is incomplete, the values and identity
Finally, besides multidimensional definitions for activity screening,
of Islamic businesses will not be connected to financial performance,
there are no established models on CSR and ethical identity of Islamic
which is a gross violation of Islamic business theory (Hassan, Rashid,
firms (Barom, 2015). Each of the three screens does not perform ade-
Imran, & Shahid, 2010).
quately when considered as an individual yardstick. The activity
The aforementioned discussion reveals critical gaps in the con-
screening does not give details about how Islamic firms are engaged
nection between Islamic business activities and social development.
in socioeconomic development (Rashid, Hassan, Shi-Min, & Ullah,
This study contributes to the existing literature, first, by offering
2016). Shari'ah compliant companies also practice CSR as it is integral
extensive cross-country evidence of a robust definition of Islamic
to fulfilling religious commitments. Yet, an established criterion linking
business activities, which leads to the creation of the Islamic business
CSR practices for Islamic firms and Islamic corporate values seems
scorecard. Second, the scorecard is aimed at helping Islamic corporate
missing (Girerd-Potin, Jimenez-Garcès, & Louvet, 2014). Often, Islamic
managers through the preparation of integrated reports consisting of
CSR initiatives are less connected to corporate strategy and social
ethical, social, and activity screens. Third, regulators and investors will
development and are more dependent on donation-based social activ-
be able to evaluate the overall standing of Islamic shari'ah compliant
ities (Rashid, Abdeljawad, Ngalim, & Hassan, 2013). Islamic social
corporations by looking at the scorecard. Fourth, the financial screens
responsibility imposes “prohibition” of activities that are noncompliant
added to the scorecard offer an extensive and comprehensive screen-
to Islamic shari'ah (Dusuki, 2008). Because of the requirement of
ing process. This study offers new results of overall screening, com-
Islamic shari'ah to pursue guidelines given by God through the holy
bining the scorecard and financial screens for three countries.
book, implications of “legitimacy theory” are extremely limited in
The study finds three major results. First, the social and ethical
Islamic CSR reporting (See Jamali & Mirshak, 2007 for similar theo-
commitments of Islamic corporations are below standard. Second,
ries). Rather, the shari'ah guidelines (and prohibitions) exhibit responsi-
businesses are being screened out from the overall screening exercise
bilities (of individual and groups) toward (relevant) stakeholders for
not because of the scorecard but because of the financial screens.
the betterment of society. Therefore, a broader spectrum of stake-
Because of excessive use of debt in financial structure, Islamic firms
holder management (i.e., stakeholder theory) and expectations of the
have received an inferior screening score. Third, Islamic firms from
institutions and stakeholders (i.e., institutional CSR theory) carry
Malaysia have performed better compared to firms from Pakistan and
strong implications for Islamic CSR and corporate governance (see
Bangladesh. An established Islamic corporate financial reporting sys-
Phillips, Freeman, & Wicks, 2003; Campbell, 2007).
tem has enabled Malaysia to enhance its shari'ah compliance universe.
809
HASSAN ET AL.
The ideas unfold in five sections. In the second section, the article
Several studies have concluded different criteria providers have
discusses the creation of the new Islamic business scorecard. The
varying levels of “tolerance”—liberal or strict. Pok (2012) compared
third section discusses the empirical design of the article. The fourth
477 Malaysian shari'ah compliant stocks with those of the world's
section reports the results with discussions on each country and vari-
leading equity index providers, such as DJIM, FTSE and S&P, and
able. The fifth section concludes the article with discussions on the
found KLSE and FTSE were the two most liberal in screening, whereas
implications for regulators, business managers, and investors.
S&P and DJIM were relatively stringent. Zandi, Abdul Razak, and Hussin (2014) termed FTSE and MSCI as liberal index providers while
DJIM and S&P were found to be stricter. Disparity in the shari'ah clas-
2 | CR E A TI O N O F I SL A M I C B U SI N E SS
SCORECARD
sification of companies among index providers and frequent modification within the same shari'ah board lead to distrust and insecurity of
Islamic
2.1 | Activity screening
investors
regarding
shari'ah
compliant
investments.
Researchers (Derigs & Marzban, 2008; Htay et al., 2013) argue the
lack of standardization increases the shari'ah risk of firms, as criteria
Activity screening is universally used to check the level of compliance
of shari'ah compliant businesses with the provisions of shari'ah, based
on the functions or activities of the businesses. Shari'ah screening is
providers may influence shari'ah boards in producing fatwa shopping.
These screening criteria can be combined into a single and robust
screening scorecard.
considered as an essential guide to investors (Adam & Abu Bakar,
2014). Typically, there is a two-tiered approach in screening businesses: first an activity screen, and second a financial screen (Derigs &
2.2 | Importance of ethical and social characteristics
Marzban, 2008; Yaquby, 2000). The activity screen qualitatively
Shari'ah screening practices emphasize the normative validity of the
screens out companies that are involved in any activities listed in
Islamic law and disregard the notions of ethics and morality (Cattelan,
Table 1 (Mahfooz & Ahmed, 2014; Trevor, 2006; Yazi, 2015; Derigs &
2010). Many scholars of Islamic finance have argued neglecting ethics
Marzban, 2008).
and social responsibility in shari'ah screening is an obstacle to realizing
Four financial screens (ratios) are employed in the second stage,
namely the liquidity ratio, debt ratio, interest ratio, and nonpermissible
the underlying objective of shari'ah and the normative goals of Islamic
economics (El-Gamal, 2006; Siddiqui, 2006; Wilson, 2004).
income ratio. The liquidity ratio is a proportion of liquid assets to total
Islam emphasizes certain disciplines that include the desire to
assets (Htay, Abedeen, & Salman, 2013). A higher liquidity ratio is not
make legitimate (halal) earnings, establishing mutual consent in trade,
acceptable because it represents a reserve of unused cash and
truthfulness, kindness, and leniency in commercial transactions, fulfill-
reserves in conventional financial market systems using interest as a
return (Abdul Rahman, Azlan Yahya, & Herry Mohd Nasir, 2010). The
debt ratio shows the proportion of the company's operations that are
financed by non-shari'ah compliant financing (Khatkhatay & Nisar,
2007). A higher proportion of corporate debt to total assets is considered as shari'ah noncompliance. The interest ratio is the proportion of
short-term and long-term investment to total assets. The nonpermissible income ratio is the ratio of a company's income derived from prohibited activities to its total income.
Various levels of inconsistencies exist in different threshold levels
and in the estimation of the financial ratios. While some screens use
market capitalization (DJIM and S&P) as the denominator to calculate
the ratios, others (SAC, FTSE, and MSCI) use total assets (Derigs &
Marzban, 2008). Also, the majority of the screens permit a maximum
ing business responsibilities, fair treatment of workers, and avoidance
of unlawful transactions (Quran, various verses, 3–110; 17–35; 2–276;
Khan, 2009; Chapra, 1985; Farook, Hassan, & Lanis, 2011; Haniffa &
Hudaib, 2007). Because of recent cases of business failure and fraud,
such as WorldCom, Enron, Arthur Andersen, and Adelphia, and more
recently Toshiba and Tesco, companies are challenged by regulators,
environmental activists, and the media to have an account of the
social consequences of their activities. To meet these challenges,
there is a need for companies to adopt an ethical identity and hence
improve their corporate values (Stevens, Steensma, Harrison, &
Cochran, 2005). The presence of these shari'ah principles is often
sought not only for Islamic financial activities but also for Islamic marketing and trading activities (Ghazali & Mutum, 2016).
Shari'ah compliant businesses are expected to have a transparent
disclosure policy (Hassan, Antoniou, & Paudyal, 2005; Said, Daud,
of 33% for the debt and interest ratios, which has been criticized
Radjeman, & Ismail, 2013; Rahman & Saimi, 2015; Anuar, Sulaiman, &
widely. Table 2 presents these inconsistencies in threshold levels.
Ahmad, 2009). Haniffa and Hudaib (2007) developed and tested eight
Derigs and Marzban (2008) have examined the compliance of
dimensions of the Ethical Identity Index (EII) that inculcated the ideal
387 stocks with the criteria set by DJIM, MSCI, S&P, FTSE, HSBC,
information disclosure that Islamic institutions are required to commu-
and Amiri. Using a sample of the shari'ah compliant assets contained
nicate to their stakeholders. These eight dimensions are explained in
in the S&P 500 index, they found the criteria providers have differed
Table A1. Similar studies were conducted to include samples from
in classifying the shari'ah compliant status of 109 (28%) stocks. Abdul
Bangladesh, Malaysia, and the Arabian Gulf region (Hassan & Rashid,
Rahman et al. (2010) examined the level of disparity between KLSE
2010; Said et al., 2013; Rahman & Saimi, 2015).
and DJIM and found 199 (21%) Malaysian companies that were
The World Business Council for Sustainable Development (1999)
approved by SAC as shari'ah compliant were unable to conform to the
suggests “CSR is the continuing commitment by business to behave ethi-
standard of DJIM, establishing DJIM as a comparatively stringent
cally and contribute to economic development while improving the quality
equity provider.
of life of the workforce and their families as well as the local community
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HASSAN ET AL.
TABLE 2
Financial screen: summary of the financial ratios and threshold used
Ratio
DJIM
FTSE
S&P
SAC
MSCI
HSBC
Amiri
Azzad
Meezan
Liquidity ratio
Acts. Rec., cash equiv. and ST investment as a % of total assets
50%
Acts. Rec., and cash equivalents as a % of total assets
50%
80%
70%
Acts. Rec. as a % of total assets
70%
Acts. Rec. as a % of market capitalization
33%
49%
45%
Difference between current assets and liability as a % of total # of shares
Cash as a % of total assets
33%
Interest ratios
Total interest as a % of total revenue
5%
Cash equivalents, ST investment as a % of market capitalization
33%
Cash equivalents, ST investment as a % of total assets
5%
5%
33%
33%
33.33%
33%
ST and LT investment as a % of total assets
33%
Cash, acts. Rec., ST & LT investment as a % of total assets
30%
Cash, acts. Rec., ST & LT investment as a % of market capitalization
30%
Total interest as a % of profit before tax
5%
Debt ratio
Total debt as a % of total assets
33%
Total debt as a % of market capitalization
33%
33%
33.33%
30%
33%
33%
40%
33%
Nonpermissible ratio
Nonpermissible income excluding interest as a % of total revenue
5%
5%
5%
Nonpermissible income (including interest) as a % of total revenue
Nonpermissible income as a % of profit before tax
5%
5%
Source. Modified based on Derigs and Marzban (2008).
and society at large”. Social responsibility is at the core of Islamic
3 | EMP I RICAL D ES IGN OF T HIS ST U DY
finance. During the International Islamic finance forum held in 2006,
world leaders in Islamic finance emphasized the need for Islamic
3.1 | Dimensions of the Islamic business scorecard
finance industries to indoctrinate moral and social dimensions into
their investment criteria in addition to other principles (Zawya.com,
2015). An example of such an initiative is the launch of the Dow Jones
Islamic Market Sustainability Index (DJIMSI). Although this initiative is
considered a milestone for embracing ethics and social responsibility
in Islamic investment, the consideration of broader ethical, social, and
environmental
criteria
is
still
lacking in
Islamic investments
(Barom, 2015).
Businesses do not hold a “not-so-social” reason to invest in CSR.
Cavalieri (2007) stated businesses do not willingly demonstrate
responsible behavior but do so because of the systematic pressure
from social institutions (Longo, Mura, & Bonoli, 2005; Ite, 2004; Raynard & Forstater, 2002; Martínez, Pérez, & Rodríguez del Bosque,
2014; Jia & Zhang, 2014). Studies have found a conflict of interest
Based on the aforementioned discussion, there are three dimensions
to Islamic screening: activity screen, ethical identity, and corporate
social responsibility.
3.1.1 | Activity screening
Because of the complexity of choosing a representable activity
screening, this study follows the “best of” strategy explained in Derigs
and Marzban (2009). Under the “best of” strategy, this study prioritizes the selection of an activity screen based on the best risk–return
performance of the equity screening criteria providers. DJIM has been
consistently outperforming others in the stock market. The DJIM
benchmark is considered the most visible and widely used shari'ah
screening strategy. Thus, this study adopts DJIM in the backdrop for
the activity screening.
between managerial strategy making, which is primarily profit-centric,
and the social responsibility initiative of corporations (Henderson,
3.1.2 | Ethical identity index (EII)
2001; Wolf, 2001). Unfortunately, Barom (2015) found the desire to
To add the ethical component to the activity screening, this study
make a profit and the commercial orientation of Islamic institutions
adopts the Islamic Ethical Identity constructs implemented by Haniffa
often override the supposed social responsibility, which contradicts
and Hudaib (2007). The details of the items are listed in Table A1.
Islamic principles. Establishing an ethical and socially responsible
an atmosphere only weakens its usefulness. If ethical and social attri-
3.1.3 | Corporate social responsibility (CSR) for Islamic
organizations
butes are combined with activity screens, the existence of Islamic
Barom (2015) has used a survey comprising 215 respondents to iden-
businesses will be more aligned with shari'ah principles.
tify three determinants of socially responsible activities of Islamic
atmosphere is mandatory for Islamic businesses. The absence of such
811
HASSAN ET AL.
firms. These are (1) the organization's contribution to poverty eradica-
3.2.2 | Quantitative screening: Phase II
tion, (2) the organization's positive contributions to the development
In this study, the quantitative screening comprises the financial ratios
of society, and (3) the organization's concern about its impact to the
adopted by the DJIM. The three screens for the quantitative screen
environment. More explanations of these items are listed in Table A2.
are the liquidity screen, debt screen, and interest screen. The thresh-
This study considers the items used by Barom (2015) as the most
old level is 33% for each of the screens. A company is shari'ah compli-
comprehensive CSR index and, therefore, the most suitable for this
ant if its financial ratios are below 33%.
study.
After excluding businesses with noncompliant activities (Phase I),
the remaining businesses are screened for Phase II, which is the finan-
3.3 | Testing the Islamic business scorecard
cial (quantitative) screen. Businesses that meet the accepted levels of
3.3.1 | Extraction of information
debt and impure interest income are considered shari'ah compliant.
This study employs a three-stage methodology to collect and analyze
The threshold that DJIM applies in its calcualtion is povided in
information. First, the study utilizes the content analysis method of
Table 2.
Weber (1990) to extract information from annual reports on the five
constructs of the Islamic business scorecard (Annual Reports, various
3.2 | Development of the Islamic business scorecard
This study uses an analytical approach by combining extensive literature review, analytical matching of the various indicators/criteria, and
brainstorming sessions with Islamic finance experts, academicians, and
students to reach a holistic conclusion. There are several common
areas among the three screens—activity screens, ethical identity, and
CSR. After carefully analyzing the contents, definitions, and scope of
application of the items used in (1) activity screening by DJIM, (2) ethical identity index, and (3) CSR practices from Barom (2015), a new
conceptual model is developed (Figure 1).
companies). Second, the study uses the appearance coding system to
quantify the qualitative contents that are extracted from the first
stage. Based on the appearance method, an item is coded with “1” if it
is found in the content analysis; otherwise it is coded with “0” for nonappearance/absence. A similar analysis using the appearance method
was conducted by Rashid et al. (2013) and Said et al. (2013). Third, the
study reports the liquidity, interest, and debt ratios (financial/quantitative screens) based on the DJIM guidelines.
3.3.2 | Choice of the sample firms for model testing
The Islamic business scorecard model is tested on a number of compa-
3.2.1 | Qualitative screening: Phase I
Based on our critical review founded on three dimensions (activity
screen, ethical identity, and CSR), the qualitative screening criteria can
be divided into five constructs. These are the dimensions of the
Islamic business scorecard.
nies in Malaysia, Pakistan, and Bangladesh. Malaysia was chosen
because of its rapid growth of shari'ah compliant ecosystems and
availability of information (MIFC, 2013). A total of 672 Main Board
nonfinancial shari'ah compliant companies of Bursa Malaysia (as of
May 29, 2015) forms the population for Malaysia in this study. Of
these, a total of 200 Malaysian nonfinancial firms are chosen for this
• Core business activities: “Core business activities” include the usual
activity screening based on DJIM, which is quite like the “Products and Services” construct of the ethical identity index. Because
study. Pakistan and Bangladesh are majority Muslim markets that are
growing rapidly. The sampling choice is explained in Table 3. Because
of a relatively complete list of shari'ah compliant companies in
of their conceptual similarities, these two factors are combined
Bangladesh, this study considers the Chittagong Stock Exchange sha-
into one—Core Business Activities.
ri'ah Index (CSI) as the reference for Bangladesh. A random check with
• Benefits to the society: This dimension inculcates several EII and
the other dominant market from Bangladesh, Dhaka Stock Exchange
CSR concepts, such as the “commitment towards the society”,
(DSE), results in a negligible difference in terms of the number of listed
(contribution to the) “development of the society”, and “care for
firms that are shari'ah compliant. For Pakistan, this study considers the
the (safety of the) environment”.
All Share Price shari'ah Index as a reference for the list of shari'ah com-
• (Ensuring) Equitable distribution of wealth: This construct combines
pliant firms.
the EII construct of “commitment towards employees”, “commit-
To maintain similarity among the sectors of the companies for the
ment towards debtors”, and a CSR element of the “organization's
three countries, this study considers sectoral divisions from KLSE as
contribution towards poverty eradication”.
the benchmark. The number of companies in this study is limited by
• Corporate objectives: Clear mission and vision statements offer
the updated information available on the websites of the selected
investors insights into the firm's policies of adhering to Islamic
companies. Information on financial ratios is collected from Bloom-
principles. This is a single-item construct, which is taken from the
berg terminal. This information is tallied against the figures from
ethical identity index.
annual reports for greater reliability. For market capitalization, an
• Internal control: The members of the shari'ah supervisory board
average of 12-month market cap starting from first December 2014
and the top management are responsible for making the decisions
to first December 2015 is considered. The equations for the three
of an Islamic organization. The profile of these important people
financial ratios are as follows. The liquidity ratio is the proportion of
enhances the confidence of the stakeholders in the way in which
accounts receivable to the 12-month average of market capitalization.
business affairs are handled. These two items are taken from the
The debt ratio is the proportion of total debt to the 12-month average
ethical identity index.
of market capitalization. The interest ratio is the proportion of cash
812
FIGURE 1
HASSAN ET AL.
Islamic business scorecardSource: Developed for this study by the authors [Color figure can be viewed at wileyonlinelibrary.com]
and interest-bearing investments to the 12-month average of market
Islamic business scorecard. The maximum possible sum of scores is
capitalization. Figure 2 summarizes the methodologies used to con-
20 (five constructs x four items in each construct). Simple averages of
struct the Islamic business scorecard.
each construct and each industry are computed and presented in
Table 4. Nominal rankings of the constructs, countries, and industries
are reported as well.
4 | FINDINGS AND DISCUSSIONS
Based on the average score, a wider consensus is possible among
the three countries regarding the importance of the constructs. For
4.1 | Phase I: Qualitative screening: Islamic business
scorecard
instance, this study reports “Internal Control” as the most important
construct (see construct ranking by country) for all countries. “Distribution of wealth” is the second most important component for Malay-
Table 4 tabulates the sum of scores and ranks of qualitative screening
sia and Pakistan, whereas Bangladesh has voted for “core business”.
based on several industry classifications and the five constructs of the
“Benefits to society” is the fourth most important component of the
813
HASSAN ET AL.
TABLE 3
Sampling choice for the study
Malaysia
Pakistan
Bangladesh
Industry
Selected companies
%
Selected companies
%
Selected companies
%
Consumer product
31
16
19
13
3
5.1
Industrial product
58
29
98
65
33
55
Construction
11
5.5
2
1.3
1
1.7
Trading/services
46
23
22
15
13
22
Properties
20
10
0
0
0
0
Plantation
11
5.5
1
0.7
0
0
Technology
21
11
0
0
4
6.8
Infrastructure
1
0.5
9
6
5
8.5
SPAC
1
0.5
0
0
0
0
Total
200
100
151
100
59
100
Notes. Based on the list published at the end of 2015, 200 Malaysian firms were selected from 672 Main board shariah compliant firms, 232 firms from
Pakistan, and 77 firms from Bangladesh. The study had to trim the number down because of nonavailability of information on websites during the time of
data collection.
scorecard in Malaysia and Pakistan. “Corporate objectives” is the least
three financial screens from DJIM to identify a robust screening
important component for all three countries. Therefore, based on the
model.
evidence in this study, Islamic businesses report their engagement on
As Table 5 shows, 69.5% of the Malaysian shari'ah compliant
a scale having internal control and corporate objectives at the two
firms passed the Islamic business scorecard. The reported figures are
ends, and social responsibilities in the middle. Also, based on country
higher than the median of the sum of scores for the five constructs of
rank for each construct, Malaysia tops the list of countries in all but
the Islamic business scorecard. In Pakistan, 55.6%, and in Bangladesh,
one construct (Pakistan is at the top for “Corporate objectives”).
50.8%, of the selected shari'ah compliant firms have passed the
Malaysia leads the ranking of countries, followed by Pakistan and then
median threshold of the Islamic business scorecard. This means there
Bangladesh.
are more socially responsible Islamic firms in Malaysia compared to
Bangladesh and Pakistan. These companies are also equally committed to ethical and legal compliance. Therefore, this is good news for
4.2 | The pyramid of Islamic CSR
Muslim investors in Malaysia and indicates new opportunities for
The scores of the five constructs of the Islamic business scorecard
investors in Pakistan and Bangladesh.
(from Table 4) indicate Islamic organizations are placing less importance on their social contribution. Despite being important sectors,
the consumer products and trading/services sectors demonstrate a
relatively mediocre performance. Lack of exposure, enforcement, and
commitment to shari'ah rules is primarily responsible for limited disclosure of the dimensions associated with Islamic principles. Few companies that have disclosed Islamic-related activities are those with
majority Muslim shareholders and directors (Said et al., 2013). The
activities of the selected shari'ah compliant companies can be traced
back to the pyramid of CSR by Carroll (1991). Carroll has identified
corporations have four stages in CSR—economic, legal, ethical, and
To present a combined and robust set of shari'ah compliant companies, this study combines the Islamic business scorecard with three
financial screens—the liquidity, interest, and debt screens. Using the
qualitative screen (Islamic business scorecard) and liquidity screen,
which can be also considered the least restrictive screen, around 40%
of the companies in the three countries appear as shari'ah compliant.
Interestingly, with this option (Islamic business scorecard plus liquidity
screen), fewer companies from Malaysia are evidenced as shari'ah
compliant, even though most companies are socially and ethically
compliant according to the Islamic business scorecard. The scenario is
even worse after using all three financial screens with the qualitative
screen. Only 19% of Malaysia's companies are shari'ah compliant in
philanthropic. Islamic businesses do place their economic responsibilities at the forefront as they place more emphasis on “internal control”.
Then, there is a gradual movement toward other components of social
Phase 1: (Content Analysis)
responsibilities. Figure 3 recreates the pyramid of CSR for Islamic
1.1 Activity screen
1.2 CSR
businesses.
1.3 Ethical identity
4.3 | Screening of Islamic businesses
Islamic Business
Scorecard
One of the major contributions of this study is to present a modified
model to screen shari'ah compliant businesses to help Muslim inves-
Phase 2: Quantiative Screen
tors choose their future investments. The first part, the Islamic busi-
Financial Ratios (by DJIM)
ness scorecard, helps in this regard to screen the best socially
responsible firms. This study combines the business scorecard with
FIGURE 2
Summary of the methodology
814
1
1
1
5
5
5
3
2
2
4
3
4
2
4
3
9.75
3
2
10
13.2
1
2
3.88
3.09
3
3.98
1
3
0.94
1.25
1
2
1.1
1.81
3
2
2.46
3.15
1
3
1.23
1.84
2
1
2.4
1.9
2
3
1.52
2.53
1
Construct ranking by country
Country rank for each construct
Average
Notes. BD: Bangladesh; MY: Malaysia; PAK: Pakistan. Sum of score = score of each item in a construct x four items in each construct x five constructs. Total maximum score is 20. Rank of sum of score = Ranking of
each country based on their sum of score of the constructs for each sector. 1 represents that country is ranked at the top while 3 represents the country ranked at the bottom. Average = Average of each construct for
each country. 2.53 is average of core business for Malaysia. Country rank for each construct = ranking of countries for each construct. Here, 1 for MY in “core business” construct represents Malaysia is ranked number
one among the three countries in “core business” reporting. Construct ranking by country = Ranking of the constructs for each country. 3 in the first column for MY (core business) means “core business” is ranked number 3 for Malaysia, while “benefits to society” is ranked at number 4 for Malaysia, and so on.
2
3
1
1
11.2
10.9
15
4
3.44
4
4
1.2
1.33
1
1
1.8
2.56
1
4
2.2
1.67
2
3
2
1.89
3
2
0
5
9
0
1
1
Infrastructure
2
1
1.1
1.09
1.25
3
3.43
3
1
2
2.48
1.91
1.5
1
2.76
2.73
0
4
0
1
11
21
Technology
Plantation
10
1
9
8.25
12.7
4
0.75
4
3.75
13.8
13
1.95
2.33
2.15
1.91
2.3
2.35
2.54
13
0
0
22
46
20
Properties
Trading/Services
SPAC
2
1
2
3
2
1
9.08
3.32
4
1
3.3
0.92
3.41
2.45
1.46
1.13
1.55
0.84
3.98
3.69
13.4
11.2
1
2
3
1
11
8.5
14.1
4
3.5
3.91
1
0.5
1.27
3
2
3.73
1
1.5
2.82
2
1
2.36
1
2
11
Construction
3
2
3
2
1
Rank of sum of score
1
9.97
9.28
3.07
2.28
2.06
2.38
Industrial products
58
98
33
1.48
1.38
1.24
3.45
2.14
1.67
1.12
1.21
1.15
4
3.84
13.2
9
11.4
Sum of score
13.4
4
3.21
Internal control
3.97
0.67
1.16
Corporate objectives
1.23
1.67
2.63
Distribution of wealth
3.06
1
2.53
2.52
Benefits to society
1.67
1.84
2.65
Core business
3
19
Sample companies
PAK
MY
BD
PAK
MY
BD
PAK
MY
31
Consumer products
Industry
TABLE 4
Islamic business scorecard—Qualitative screening—all countries
BD
MY
PAK
BD
MY
PAK
BD
MY
PAK
BD
MY
PAK
BD
MY
PAK
BD
HASSAN ET AL.
this scenario, whereas the percentage is 26.5% for Pakistan and
28.8% for Bangladesh, which is indeed an interesting observation.
Even though their financial market is not entirely shari'ah compliant,
the shari'ah (financial) compliance of Bangladeshi companies is commendable. On the other hand, even being in a superior shari'ah compliant financial market, 50% of the Malaysian firms could not pass the
financial screens.
Such extremely low turnouts of the shari'ah compliant companies
are not unbelievable. Zandi et al. (2014) have reported based on DJIM,
40% of the companies approved by SAC are shari'ah compliant. Also,
Pok (2012) has reported only 12% of the SAC approved companies
met the requirements of DJIM. The majority of the companies
approved by the Malaysian SAC do not meet the quantitative screening requirement because of the market capitalization used in the
model.
There are several possible explanations for having a higher compliance using the interest screen but lower compliance using the debt
screen. In the interest ratio, the numerator is cash and short-term
investments. Companies generally record low returns from cash and
short-term investments and are more inclined to invest in the longterm to benefit from higher returns. Thus, the interest ratio has been
extremely low for these companies, which has enabled them to meet
the threshold (33%). Alternatively, a higher debt ratio in the debt
screen is found among companies with the desire to benefit from the
tax credit of debt. Malaysian firms are inclined to earn tax benefits
from debt because of a higher tax rate when compared to other
ASEAN countries (theGlobaleconomy.com, 2015). Malaysia's desire to
finance internal financing needs using the banking sector may be
another reason behind the higher debt ratio (Abdul Rahman
et al., 2010).
4.4 | Most shari'ah compliant sectors
Sector-wise screening of corporations in the three countries is presented in Tables 6–8. These tables help us to find some of the best
sectors for Islamic investment. Even though Malaysian companies
have reported a superior form of Islamic social and ethical practices,
the overall (average) compliance to shari'ah practices has been less
promising (Table 6). The Consumer Products, Industrial Products, and
Technology sectors are the three most shari'ah compliant sectors in
Malaysia. Primarily because of extremely low financial compliance,
Properties and Construction are the two least shari'ah compliant sectors in Malaysia.
Consumer Products, Trading/Services, and Construction are the
three most shari'ah compliant sectors in Pakistan (Table 7). Two relatively less shari'ah compliant sectors are Infrastructure and Industrial
Products, primarily because of limited social as well as financial reporting. The situation is quite the opposite in Bangladesh (Table 8). Infrastructure, Construction, and Industrial Products are the three most
shari'ah compliant sectors in Bangladesh. These sectors in Bangladesh
are both socially and financially compliant. In the absence of a quality
shari'ah compliant financial market, these sectors present the shari'ah
compliant universe in Bangladesh as a unique case for further study,
with particular interest on financing patterns and management of
these firms in Bangladesh.
815
HASSAN ET AL.
Corporate
objectives
•having clear corporate mission and vision statements
•fulfilling commitments to society and environmental
protection
Society and
environment
•having Halal products properly screened out
based on traditional Shari'ah screening
Core business
•fulfilling commitments to employees,
debtors and greater social goods
(eradicate poverty)
Distribution of wealth
•having the right people as BOD
and in top management who
can serve the social interests of
the corporation
Internal control
FIGURE 3
TABLE 5
Pyramid of Islamic CSR
Overall compliance—combination of qualitative with quantitative screens
Malaysia
Pakistan
Bangladesh
Screens
Threshold
Sample
Compliant
%
Sample
Compliant
%
Sample
Compliant
%
Qualitative screening
(Islamic business scorecard)
Median of sum
of scores
200
139
69.5
151
84
55.6
59
30
50.8
Qualitative + liquidity
<33%
139
80
40
84
67
44.4
30
26
44.1
Qualitative + liquidity + interest
<33%
80
58
29
67
67
44.4
26
25
42.4
Qualitative + liquidity + interest + debt
<33%
58
38
19
67
40
26.5
25
17
28.8
Notes. Median score of the Islamic business scorecard was considered as the threshold for the qualitative screen. The global median score was around 13.
To read from the first row, 69.5% of the Malaysian firms were shari'ah compliant based on the Islamic business scorecard. The last row is the most restrictive screen, combining the qualitative screen with the three financial screens. Only 19% of the Malaysian, 26.5% of the Pakistani, and 28.8% of the
Bangladeshi firms were found to be shari'ah compliant based on the most restrictive screen.
Tangible industries, such as Infrastructure, Construction, and
the type of industrial sector and commitment to compliance. Another
Industrial Products, have demonstrated relatively high commitment to
interesting finding of this study is the relationship between qualitative
social and ethical compliance, whereas the same industries have dem-
and quantitative screens. In a relatively stronger market, such as
onstrated low commitment to financial compliance, especially with
Malaysia, the volatility of screens (the compliance in percentage) is rel-
the debt screen. These industries are capital intensive. A higher debt
atively lesser, whereas the volatility is comparatively higher in lesser
ratio is common in capital-intensive firms, which has possibly
developed markets like Bangladesh and Pakistan. For instance, in
impacted their commitment to financial compliance. The scenario dif-
Malaysia, the qualitative compliance of Consumer Products is 77.4%,
fers in relatively intangible industries like Consumer Products and Tra-
whereas the financial compliance is 71, 74.2, and 64.5% for the liquid-
ding/Services. It is, hence, possible to establish a relationship between
ity, interest, and debt screens, respectively. If we compare these
TABLE 6
Sectoral and screen-wise analysis of compliance—Malaysia
Industry
Sample
Stage 1
Stage 2: Quantitative screens
Qualitative
Liquidity
No
No
%
Overall compliance
Interest
%
No
Debt
%
No
%
Avg. (Qual. and quant.)
Consumer products
31
24
77.4
22
71.0
23
74.2
20
64.5
71.775
Industrial products
58
42
72.4
37
63.8
45
77.6
38
65.5
67.230
Construction
11
9
81.8
3
27.3
6
54.5
3
27.3
47.725
Trading/services
46
29
63.0
25
54.3
32
69.6
30
65.2
58.650
Properties
20
10
50
17
85.0
16
80.0
9
45.0
47.500
Plantation
11
6
54.5
11
100
8
72.7
6
54.5
54.500
Technology
21
18
85.7
6
28.6
13
61.9
15
71.4
61.900
Infrastructure
1
1
100
0
0
0
0
0
0
00.000
SPAC
1
0
0
1
100
1
100
1
100
00.000
816
HASSAN ET AL.
TABLE 7
Sectoral and screen-wise analysis of compliance—Pakistan
Stage 1
Stage 2: Quantitative screens
Qualitative
Liquidity
Overall compliance
Interest
Debt
Industry
Sample
No
%
No
%
No
%
No
%
Avg. (Qual. and quant.)
Consumer products
19
15
79.0
18
94.7
19
100
15
78.9
79.000
Industrial products
98
47
48.0
70
71.4
94
95.9
22
22.4
35.200
Construction
2
1
50.0
1
50.0
2
100
1
50.0
50.000
Trading/services
22
16
72.7
17
77.3
22
100
10
54.5
63.600
Plantation
1
0
0.0
0
0.0
1
100
0
0.0
00.000
Infrastructure
9
5
55.6
3
33.3
9
100
2
22.2
37.030
TABLE 8
Sectoral and screen-wise analysis of compliance—Bangladesh
Stage 1
Stage 2: Quantitative screens
Qualitative
Liquidity
Overall compliance
Interest
Debt
Industry
Sample
No
%
No
%
No
%
No
%
Avg. (Qual. and quant.)
Consumer products
3
1
33.3
2
66.7
2
66.7
2
66.7
33.330
Industrial products
33
17
51.5
28
84.8
31
94.0
17
48.5
50.000
Construction
1
1
100
1
100
1
100
0
0.0
100.00
Trading/services
13
6
46.2
12
92.3
13
100
11
84.6
46.200
Technology
4
1
25
4
100
4
100
4
100
25.000
Infrastructure
5
4
80
5
100
5
100
4
80
80.000
Notes. (Tables 6–8) The overall compliance is computed based on the following assumptions: A company must pass the qualitative screen to qualify for
quantitative screen and overall compliance. A company must pass both qualitative and quantitative screens independently. Because qualitative compliance
is the first stage, the maximum overall compliance is the same as the qualitative compliance. After deciding on the qualitative component, the overall compliance is the simple average of all compliance components given that no individual quantitative component is larger than the qualitative component.
figures with the same industry in Pakistan and Bangladesh, a relatively
the Islamic business scorecard are Internal control, Distribution of
higher level is observed in the latter countries. These volatilities have
wealth, and Core business. Employing the Islamic business scorecard,
important implications for information disclosure policies in their
69.5% of Malaysian companies are found to be shari'ah complaint. The
respective countries.
same figures are 55.6% in Pakistan and 50.8% in Bangladesh.
To investigate further, the study combines the Islamic business
scorecard with the financial screens. In the least restrictive screen, com-
5 | C O NC L U D I N G D I S C U S S I O N S
bining the business scorecard with the liquidity screen, the proportion of
shari'ah compliant companies in Malaysia drops by 30% (from 69.5%
Screening of Islamic corporations is important for investors and pol-
using the Islamic business scorecard). The least restrictive screen results
icymakers. The existing screening exercise includes two components.
in a drop of 10% and only 6% in shari'ah compliant companies in
In the first stage, the qualitative component, also known as the activ-
Pakistan and Bangladesh, respectively. However, after using the most
ity screen, is used to identify shari'ah compliant companies simply
restrictive screen, which combines the Islamic business scorecard with
based on their activity. In the second step, the financial screening is
all three financial screens, shari'ah compliance in Malaysia drops to only
undertaken using multiple financial ratios with their respective bench-
19% (from 69.5% with the Islamic business scorecard), 26.5% in
marks. Existing studies on CSR and ethical identity of Islamic corpora-
Pakistan (from 55.6%), and 28.8% in Bangladesh (from 50.8%). The
tions find the first step grossly incomplete.
severe loss is primarily because of financial screens, especially the debt
Based on principles of Islamic business, this study integrates mul-
screen. To help investors invest in Islamic businesses, the study has
tiple activity, social, and ethical components to screen Islamic compa-
identified the top shari'ah compliant sectors, such as Consumer Prod-
nies. Thus, the first part, qualitative screening, was replaced with a
ucts, Industrial Products, and Technology in Malaysia; Consumer Prod-
more robust screening practice, namely the Islamic business score-
ucts, Trading/Services, and Construction in Pakistan; and Construction,
card. There are five constructs of the Islamic business scorecard. The
Infrastructure, and Industrial Products in Bangladesh.
new screenings are tested on a total of 410 companies from three
countries (200 in Malaysia, 151 in Pakistan, and 59 in Bangladesh).
The results of this study offer several implications, having
unique influence on stock markets. Companies listed on Islamic
This study delivers two unique contributions to the existing litera-
stock markets are screened out not only because of their activity,
ture. First, the Islamic business scorecard shows shari'ah compliant firms
ethical identity, or social responsibility disclosures, but mostly
usually sacrifice their social intentions for more economic and opera-
because of their higher involvement with conventional financial mar-
tional responsibilities, which is in line with Carroll's (1991) CSR pyramid.
kets (i.e., debt, interest, and liquidity). This study has found a strong
The scores for the Islamic business scorecard are the highest for Malay-
influence of the nature of a business (or industry classification)
sia, followed by Pakistan and Bangladesh. The top three constructs of
on the selection of shari'ah compliant companies. There exists a
817
HASSAN ET AL.
trade-off between the debt screen and qualitative compliance.
Because the debtholders ask for clearer terms from the borrowers,
there exists a connection between information disclosure and debt
compliance. By using this scorecard, investors and policymakers can
clearly identify the unique social, ethical, and financial compliance of
each firm. This may help alert institutional groups to exert pressure
on companies to invest in one of the weakest screens. Because the
scorecard can be applied to stock markets globally, a standard comparison among shari'ah compliant firms can be conducted to visualize
a greater accessibility to Islamic investors.
This study also finds companies are reluctant to disclose their
social and religious (faith-related) responsibilities (i.e., disclosures on
Zakat, benevolent loans, and commitment to providing returns within
shari'ah principles). Policymakers can work to strengthen the disclosure requirement based on the Islamic business scorecard.
ORCID
Mamunur Rashid
https://orcid.org/0000-0002-6688-5740
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shoulddomore
Business in the University of New Orleans. Professor Hassan
received his BA in Economics and Mathematics from Gustavus
Adolphus College, Minnesota, USA, and his M.A. in Economics
and Ph.D. in Finance from the University of NebraskaLincoln, USA.
Mamunur Rashid ([email protected]) is a Senior
Assistant Professor of Finance in School of Business and Economics with Universiti Brunei Darussalam. Dr. Mamunur is currently
serving as an Associate Editor of the International Journal of Islamic
and Middle Eastern Finance and Management. Dr. Mamunur is a fellow of the Higher Education Academy, UK. He publishes widely
on Islamic finance, corporate finance, and social responsibility.
Andrew Saw Tek Wei ([email protected]) is a Fellow of
Universiti Malaysia Sabah (UMS) from which he graduated with a
first Class Degree Bachelor of International Finance, was awarded
the institution's Book Award and was the six-time recipient of the
Dean's List Award. Having obtained his Master of Science (MSc.)
in Finance and Investment at the University of Nottingham, he is
now pursuing his Ph.D. in Finance at Putra Business School and is
currently based in Kuala Lumpur, Malaysia. His research interests
are in capital structure, Islamic screening, bank efficiency, and
bank ownership. He has contributed to upcoming publications
such as Management of Islamic Finance: Principle, Practice, and Performance and The effect of Financial Leverage and Risk Policy: Evidence from Govertment Linked Companies.
Balqis O. Adedokun ([email protected]) obtained her
master's degree in Investment and Islamic finance from the University of Nottingham, Malaysia Campus. She received a bachelor's degree from the University of Ilorin, Ilorin, Nigeria. Her
current field placement is giving financial advise to entrepreneurs
who aims at financing their businesses the halal way. Her interests
are Islamic capital markets, Islamic financial products, and
education.
Jayalakhsmi Ramachandran ([email protected]
edu.my) is an Assistant Professor attached to the University of
Nottingham, Malaysia. A chartered Accountant by profession, she
has been in academics since 2000 and has been attached to
numerous reputed universities such as Multimedia and Monash in
Malaysia. Prior to entering academia, she was attached to the
audit industry for 7 years gaining experience in statutory, internal,
compliance, and tax audits. She is a registered member of the
Malaysian Institute of Accountants as well as a fellow of the Institute of Chartered Accountants of India and the Higher Education
AUTHOR BIOGRAPHI ES
Academy, UK. Her research interests are wide ranged and she has
published peer-reviewed articles in scholarly academic and professional journals. Her research interests include Financial Reporting
M. Kabir Hassan ([email protected]) is a Professor of Finance
and disclosures, Audit, Corporate governance and ethics, and CSR
in the Department of Economics and Finance in the University of
disclosures. She actively interacts with Security Commission
New Orleans. He currently holds two endowed Chairs-Hibernia
(Malaysia) and Minority Shareholder Watchdog Group of Malay-
Professor of Economics and Finance, and Bank One Professor in
sia, on progress in Corporate governance principles and
regulations.
819
HASSAN ET AL.
TABLE A1
Dimensions of ethical identity
Dimension 01: Mission and vision statement
Commitment to operate within shari'ah principles/ideas, to provide
returns within shari'ah principles/ideas, to engage in investment
activities that comply with shari'ah principles, to engage in
financing activities that comply with shari'ah principles, to fulfill
contractual relationship with various stakeholders via contract
(uqud)statement, current and future directions in serving the needs
of Muslim communities, and statement of appreciation to
stakeholders
Dimension 02: BOD and top management
Name and position of top members and board management, pictures
of top members and board management, profile of board members
and top management as indicators of their knowledge of and
competence in business transactions and shari'ah, balanced board,
no role duality, having an audit committee, and limited multiple
directorship and shareholdings
TABLE A2
Important CSR criteria considered by Islamic investors
1 Not be involved in the manufacture or sale of prohibited products
2 Not be involved in gambling related activities
3 Not be involved in entertainment activities which are not permissible in
shari'ah
4 Manage risks prudently
5 Maximize returns from investment
6 Use resources efficiently
7 Not be involved in conventional financial services
8 Contribute to poverty eradication
9 Contribute positively to the development of the society
10 Care about the impact to the environment
Source. Barom (2015).
Dimension 03: Products and services
Details of investment activities, if new products have been
introduced, whether they have been approved by the SSB (ex-ante)
as well as an explanation of the basis of the shari'ah concept
legitimizing the new product, and any involvement in
nonpermissible activities
Dimension 04: Zakat, charity, and benevolent funds
Which party is liable for zakat, if the company is liable, whether zakat
has been paid, the sources of zakat funds, the uses of zakat funds,
any balance of zakat not distributed and the reason for it, an
attestation from the SSB that they have been properly computed
and that the sources and uses of funds are legitimate based on
God's rules, the amount and the sources of and uses of charity
funds, separate from zakat funds, the amount and sources and uses
of benevolent funds, and the company's policies in providing such
funds and how nonpayment of such funds will be dealt with.
Dimension 05: Commitment toward employees
Employees' welfare, training and development (especially on shari'ah
awareness), amount spent on training, provision of special training
or recruitment scheme, equal opportunity, and reward to
employees.
Dimension 06: Commitment toward debtors
Debt policy and type of debt, and amount of debt written off
Dimension 07: Commitment toward customers
Having a female branch, creating job opportunities, supporting
organizations that benefit society and participating in government
social activities, and sponsoring Islamic education and social
events.
Dimension 08: shari'ah advisory board
Names of SSB members, pictures of SSB members, remuneration of
SSB members, number of meetings held, whether there are defects
in the products offered and if there are, what are their
recommendations to rectify the defects and actions taken by the
management, basis of examination of documents, attestation that
profit are gained lawfully, and signature of all members.
Source. Haniffa and Hudaib (2007).
How to cite this article: Hassan MK, Rashid M, Wei AST,
Adedokun BO, Ramachandran J. Islamic business scorecard
and the screening of Islamic businesses in a cross-country setting. Thunderbird Int. Bus. Rev. 2019;61:807–819. https://doi.
org/10.1002/tie.22038
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