The Market Values of Islamic 
Banks and Ethical Identity
Mamunur Rashid and M. Kabir Hassan

Abstract

Ethical identity refers to the set of guidelines that promote ethical
practices within and by the organization. This concept is embed-
ded in the Islamic teaching. This study examines the ethical iden-
tity of Islamic banks in Bangladesh, Malaysia, and the Arab Gulf
region under eight distinctive dimensions to explore the difference
between ideal and communicated ethical conducts via annual re-
ports. This study’s findings reveal an immediate need to develop
ethical identity disclosure requirements for Islamic banks. Other
areas of special importance include focused social and develop-
mental goals, putting the Shari‘ah strategically in the mission and
vision statements, enhanced employee welfare policy, and effec-
tive Shari‘ah monitoring of banking operations.

Keywords: Ethical norms, Content analysis, Islamic banks, Dis-
closure and reputation 

JEL: P4, G2 and G3

And give full measure when you measure out, and weigh with a true balance;
this is fair and better in the end. (Q. 17:35).

Allah does not bless usury, and He causes charitable deeds to prosper, and
Allah does not love any ungrateful sinner. (Q. 2:276)

Mamunur Rashid is assistant professor of finance, Nottingham University Business School,
Selangor Darul Ehsan, Malaysia. M. Kabir Hassan is professor of finance and Hibernia Pro-
fessor of Economics and Finance, Department of Economics and Finance, University of New
Orleans, Louisiana.

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44 The American Journal of Islamic Social Sciences 31:2

Introduction
During the twentieth century, ethical business principles shifted from a macro
issue to a more concrete and strategic paradigm.1 Business managers are ready
to implement anything to secure a higher bottomline. The ideas of corporate
governance, strategic alliances, diversification, integration, and economies of
scale and scope have not only made businesses more powerful and influential
in society, but have also enabled them to control global interests. Conse-
quently, large corporations have delved into the idea that giving charity and
making donations are business responsibilities, keeping aside the core respon-
sibility of “what is right and wrong” in the conduct of business. Corporate
leaders have been driving the notion that profit and principles are mutually
exclusive,2 an approach that has sacrificed the interest of the stakeholders and
society at large. The outcome of this has been abysmal for global corporate
identity in the form of the loss of customer loyalty and customers, invasion
from environmentalists, and strict government regulations. This can be seen
in such negative customer-related outcomes as reduced profits and market
shares.3

As the most unique economic unit, corporations must accomplish their
economic role by satisfying their stakeholders’ ethical, legal, and philanthropic
demands.4 Stakeholder normative theory argues that corporations are respon-
sible for maximizing the value of the stakeholder’s portfolio, which results in
a sustainable relationship and trust among both parties.5 Since it is difficult
for all stakeholders to know the corporation’s strategic intention, the latter are
solely responsible for adhering to standardized best practices as related to
human rights, a safe environment, and overall human development for present
and future generations.6 Banking is based on ethics and trust; therefore,
bankers are entrusted with the fiduciary responsibility of managing the stake-
holders’ interest both legally and ethically by searching proactively for ethical
forms of business operations and meaningfully blending them into the banks’
operations and strategy.7 In an Islamic bank, ethical identity is fundamental
due to the “partnership” type of business and higher level of relationship be-
tween customers and bankers.8 Part of their ethical identity includes compli-
ance with the Shari‘ah.9

Ethical identity started attracting growing public attention after the ap-
palling failures of, among others, WorldCom, Enron, Arthur Andersen, and
Adelphia. Large corporations found themselves increasingly challenged by
regulators and the public media, which amplified their need to acquire a strate-
gic ethical identity.10 Ethical identity is defined (by the firm’s stakeholders)

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as the system by which the actions taken by a firm and its authorized repre-
sentatives are determined to be morally appropriate.11 Stakeholders often con-
sider governance structures, environmental safety, community development,
employee relations, and other related matters as ethical issues.12 Even though
ethical identity has a positive impact on firm’s strategic processes and com-
petitiveness, the degree of influence that ethical decisions can have on its per-
formance and market value are still being debated.13 Moreover, subjective
influence has made it very difficult to measure a firm’s ethical identity. 

The banking industry deals with people’s money and contributes to eco-
nomic growth by channeling funds from surplus-spending units to deficit-
spending units. Banks can communicate their corporate identity through their
mission and vision statements, as well as strategy and corporate social respon-
sibility, via annual reports. An orderly disclosure of such information can in-
crease a corporation’s image and lead to a competitive advantage. Moreover,
positive imaging can increase a bank’s profitability and operational efficiency.
Reports of ethical conduct published in the public media and annual reports
also create a positive impression among stakeholders. 

A distinguishing feature of Islamic banks is their ethical business prac-
tices, as enshrined in Shari‘ah. However, recent experience shows that these
banks do not adequately communicate their ethical standards to stakeholders.14
In light of this gap and the growing importance of ethical identity, Haniffa
and Hudaib developed the Ethical Identity Index (EII) for Islamic banks by
taking samples from the Arab Gulf region (hereinafter “Gulf”).15 Their re-
search found a below-average performance of Islamic financial institutions
(IFIs) with regard to communicating ethical identity to the stakeholders via
annual reports. Hassan, Rashid, Imran, and Shahid,16 following Haniffa and
Hudaib’s methodology,17 studied the EII by taking samples from Bangladesh
and extended the study by relating the index with the banks’ market value.
The study found a positive correlation between the two. While researchers
show that corporate ethical conduct has a significant impact on a firm’s finan-
cial performance and market value, empirical studies on ethical identity and
bank performance are very limited in Islamic banking, especially from an em-
pirical point of view.18

This study extends the lessons learned from Haniffa and Hudaib19 and
Hassan et al.20 to test the EII using the former’s methodology21 and relating it
to market value of Islamic banks in Bangladesh, Malaysia, and the Gulf. It
will contribute to the existing limited knowledge on the ethical identity of Is-
lamic banks that has been practiced and reported to stakeholders via annual
reports. We chose two different regions – Asia and the Middle East – to de-

Rashid and Hassan: Islamic Banks and Ethical Identity 45

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termine whether the ethical banking practices differ in these two regions. Like
Haniffa and Hudaib,22 we used corporate annual reports to examine commu-
nicated ethical identity because these reports reflect management’s views at a
particular point in time, have a wider distributional impact among the business
community, are more accessible for research purposes, and have been used
by stakeholders to obtain corporate information.23 Our analysis will shed more
light on Islamic banks’ corporate communication, identity, and adherence to
the ethical principles enshrined in the Shari‘ah. The sample covers two im-
portant and high-growth regions for Islamic banking. Therefore, the EII study
related to the selected banks will be generablizable for ethical practices in the
Islamic banking industry. This paper is organized as follows: a literature re-
view, an explanation of the methodological issues, an account of the research
findings, and a summary and conclusion.

Literature Review 
The accelerated growth of Islamic financial products worldwide is raising new
challenges to the industry’s ethical conduct. The Islamic Financial Services
Board (IFSB) argues that the industry is growing at an annual rate of over 15
percent. Evidence indicates that non-Muslims are becoming part of Islamic
banking operations mainly due to its commitment to profit-and-loss sharing
and social development.24 Ideally, these banks should operate in accordance
with the Shari‘ah, defined as the combination of Islamic principles suggested
in the Qur’an, the Hadith literature, ijmā‘, and qiyās. Among many others, the
basic guiding principles here are prohibiting ribā (interest), gharar (uncertain
information), and maysir (gambling); not producing harmful products (alcohol
etc.); distributing zakat (alms giving) and charity; creating jobs and eradicating
poverty; and establishing overall human rights.25 Islamic banking started with
a socioeconomic motive back in 1950s and grew substantially in the 1980s in
the oil-rich Middle Eastern countries.26 As the industry has been facing ag-
gregate competition, the most important issues now facing it are operational
efficiency and ethical concerns. Table 1 (see appendix) breifly summarizes
the relevant ethical identity literature. 

Anas and Mounira argue that ethical values are ingrained in Islamic teach-
ings and that increasing numbers of investors and customers are asking for
socially responsible banks.27 The need for Islamic ethical conduct has been
necessitated by a sudden increase in preference for socially responsible in-
vestment and the tremendous growth of the Islamic finance industry world-
wide. Moreover, Islamic finance owns the lion’s share of the world’s energy

46 The American Journal of Islamic Social Sciences 31:2

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solution.28 A great deal of literature explores the ethical conduct of corpora-
tions from the perspective of corporate social responsibility (CSR). Under this
paradigm, stakeholder value maximization theory suggests that a corporation
should be responsible to owners and also strive to accomplish those goals that
relate to employee welfare, customer satisfaction, environmental safety, and
regulatory compliance.29 Under the broad spectrum of strategic management,
corporate ethical and philanthropic principles should be geared toward adding
strategic value.30 Therefore, there has been an ongoing interest in exploring
the relationship between the ethical substance of corporate operations and the
ultimate corporate bottom line. 

Following the EII concept of Gray and Balmer31 and Berrone et al.32 in
non-financial firms, Haniffa and Hudaib33 examined the ethical identity of Is-
lamic banks in the Gulf. Based on published annual reports, they sought to
measure the level of ethical identity for seven banks based on an ideal vs. a
communicated ethical identity framework. Even though their study did not
relate the EII with market value or any other performance measure, the gap
between the ideal and the communicated ethical identity revealed the selected
banks’ poor performance. Their study featured eight dimensions of ethical
identity: (1) mission and vision statements, (2) board of directors (BODs) and
top management, (3) products and services, (4) zakat, charity, and benevolent
funds, (5) commitment to employees, (6) commitment to debtors, (7) com-
mitment to society, and (8) the Shari‘ah Supervisory Board (SSB). 

Even though specific interest in ethical identity has been largely neglected
in academic and corporate arenas, the dimensions of corporate social identity,
partially portraying ethical conduct, has been well established in various stud-
ies. Ethical identity has been partially discussed in the form of CSR disclosure
in Islamic banks.34 However, Haniffa and Hudaib’s study shows the unique
importance of ethical identity for Islamic banks. Alongside the famous UN
Global Compact, the Dow Jones Sustainability Index, the World Business
Council for Sustainable Development (WBCSD), the Global Reporting Ini-
tiative, and the ISO 14001, corporate social identity has been discussed in the
Committee for Economic Development’s three circle of CSR measurement,35
Carroll’s four CSR components,36 Wilson’s seven CSR dimensions,37 and the
six CSR dimensions developed by CSR Europe.38

The literature shows an insignificant relationship between ethical identity
and financial performance or market value due to the category of stakeholders’
unique understanding and perception of the code of ethics.39 Cummings con-
cluded that ethical identity has an inconclusive link to the performance of Aus-
tralian non-financial firms.40 Ethical identity has been similarly taken in few

Rashid and Hassan: Islamic Banks and Ethical Identity 47

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studies under the “code of conduct” notion. Kaptein’s study of the world’s
largest 200 firms found that slightly more than half of them have a complete
code of conduct.41 Langlois and Schlegelmilch compared ethical identity gaps
in large companies in the United States and the United Kingdom and found
that the ethical gap was lower in American companies.42 Two studies on ethical
codes of large non-financial firms on the Toronto Stock Exchange found
slightly opposite issues. Singh found that ethical identity mostly helps the com-
panies in proactive defense,43 whereas Donker et al. found a positive relation-
ship between corporate ethical identity and market performance.44 Berrone et
al. analyzed the ethical conduct of non-financial firms on the basis of revealed
and applied corporate ethics.45 Their investigation of the relationship between
EII and market performance showed a positive relationship. Therefore, one
can conclude that the relationship between ethical identity and financial per-
formance is largely inconclusive across industries. 

Ethical identity has been measured according to preset scales or indices46
or by content analysis.47 Berrone et al.48 has taken ethical identity information
from Sustainable Investment Research International (SiRi) Company’s Global
Profile Database. Haniffa & Hudaib use eight ethical identity dimensions to
develop their EII, which is premised on ideal vs. communicated ethics. They
use ethical-based information communicated by Islamic banks via their annual
reports. The ideal ethical conduct is based on the Shari‘ah and subsequent Is-
lamic literature. To proxy firm performance, among a variety of available ac-
counting and market-based performance measures, the return on assets (ROA)
and return on equity (ROE) are widely used. Market-based measures, the
market-to-book value (ME/BE) ratio, and market price per share have also
been used in performance literature. As ethical identity is supposed to have a
long-term impact, choosing which performance-related variable to employ is
crucial.49 Berrone et al. use market value added (MVA), which is the difference
between market value and capital investment, to proxy market performance.
On the other hand, Donker et al. use the ME/BE ratio to proxy market per-
formance the firm.50

Conceptual Framework
Haniffa and Hudaib explain five themes that shape the EII’s eight dimensions:
(1) underlying philosophy and values, (2) provision of interest-free products
and services, (3) restriction to Islamically acceptable deals, (4) focus on de-
velopmental and social goals, and (5) subjection to additional SSB reviews.
With the exception of the fourth theme, the others are distinctive requirements

48 The American Journal of Islamic Social Sciences 31:2

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of the Islamic financial system designed to differentiate its ethical conduct
from the conventional financial system. Social and developmental focus can
be fulfilled by satisfying the stakeholders’ requirements. Under this theme,
Haniffa and Hudaib presented the banks’ commitment to society, debtors, and
employees, as well as the proper management of zakat, charity, and benevolent
loans, as dimensions of their ethical identity. Included in these four dimensions
as variables are, among others, creating job opportunities for local and inter-
national markets, sponsoring social events, ensuring employee welfare, re-
wards and excellent training facilities, an Islamically acceptable debt policy
and writing off debt, and finally, using zakat for social causes, poverty eradi-
cation, and helping poor people worldwide. 

Prophet Muhammad stressed the business’ intention (nīyah), which should
be the guiding light for the operationalization of its mission and vision state-
ments. Kaptein argued that ethical identity should be reflected primarily in
these statements. Islamic banks must ensure that their intention is to operate
in accordance with the Shari‘ah. Therefore, these two statements must be re-
viewed and even to rewritten in order to communicate the bank’s intention.
Ethical identity should also reflect the profile of the members of the BOD and
top management, as they will govern in line with these statements; hence,
their identity is very important to the bank’s ethical identity. The SSB actively
monitors all new products, explores processing defaults, and provides possible
remedies to these defaults. Customers trust a reliable SSB and its attestation
of the level of ethical practice in a given Islamic bank’s operations. This pro-
file, including the expertise and formal attestation of the SSB members, is
thus a vital element of ethical identity. 

Banking is becoming increasingly customer-centric. As customers come
to Islamic banks to bank in accordance with Islamic principles,51 the available
products and services should be Islamically acceptable. These banks must pro-
vide the details of their investment and financing products, how they meet Is-
lamic ideals, and whether an SSB has sanctioned them. Hitt and Collins assert
that ethical disturbance comes from those transactions in which relationships
among stakeholders take priority.52 Islamic banks, due to their relationship with
their clients as “partners,” must strive to maintain a consistent and continuous
relationship with those partners. The details of investment and financing prod-
ucts should also state whether the banks have engaged in any non-permissible
activity and what they are doing to mitigate future mistakes. In sum, a proper
description of the financial products and services’ ethical substance will help
investment banks communicate their commitments to customers. A detailed
view of the eight dimensions is given in box 1 (see appendix). Based on the

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eight dimensions of ethical identity and market price per share (MPS) of Is-
lamic banks, figure 1 illustrates this study’s conceptual framework. 

Figure 1: Conceptual Framework of the relationship between Ethical Identity and Market Performance
of Islamic Banks.

This study, which adheres to Haniffa and Hudaib’s methodology, intends
to (1) build the EII for selected Islamic banks in Bangladesh, Malaysia, and
the Gulf and (2) examine the relationship between the EII and market price
per share of the selected banks. Islamic banking in these regions covers a sig-
nificant percentage of the population of Islamic countries; hence, the selected
publicly listed banks will act as representative sample of ethical identity of
Islamic banks in general. The banks were selected based on the availability
of English-language annual reports published on their websites. A list of banks
included in the sample is given in Table 2 (see appendix). The data on Bangla-
desh is provided by Hassan et al.53 A sample frame for Malaysian Islamic
banks is available on the Bank Negara Malaysia’s website, and the Gulf banks
were chosen from Haniffa and Hudaib’s original study.  

As this study follows the content analysis method,54 contents based on
certain criteria will be coded using certain measurement scales. Adopting Han-
iffa and Hudaib’s method, the researchers coded the presence of any content
in the annual report by an “” (to represent “1”) and the absence of any content
by an “X” (to represent “0”). Construct validity is measured by mentioning
the page numbers of the annual report (pdf version) beside the check mark. A

50 The American Journal of Islamic Social Sciences 31:2

Mission and Vision Statements

BOD and Top Management

Products and Services

Zakat, Charity, and Benevolent Funds

Commitment to Debtors

Market Price
per Share

Market PerformanceComponents of Ethical Identity Index

Commitment to Employees

Commitment to Society

Shari‘ah Supervisory Board (SSB)

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simple average of the check marks provides the ethical identity for dimension
wise, yearly for each bank, and the group of banks for the region. This average
is called the EII. A high EII indicates less variation and more inclination to-
ward the ideal ethical identity, whereas a low index suggests otherwise. The
EII is determined according to the formula presented in equation 1. The market
share price (MPS) data were collected from the Bankscope database and then
converted into a common currency, namely, the American dollar, according
to its exchange rate with the respective currency during a specific year. Ex-
change rate data were collected from the Economists Intelligence Unit (EIU)
database. Since the effect of ethical identity will be in long-run, MPS data is
deferred by one year. Therefore, for the EII of 2001 the respective MPS data
is taken from year 2002. The MPS is as at the end of each year except for the
year 2009, where data were available only until October 2009. 

EII jt =  

.............................................................................. (1)

Here: EII jt = ethical Identity Index for dimension j and period t.

= Variable X from 1 up to n for dimension j and time t.

N = Number of variabes/statements.

The study would like to draw the reader’s attention to the relationship be-
tween the Islamic banks’ market price per share and their respective EII. If
EIIt is the ethical identity index at time t and MPSt+1 is the American dollar
deferred MPS, then the following regression model is used for this study: 

MPSt+1 = α0 + β1(EIIt)+et ............................................................(2)

Here: EIIt = Ethical Identity Index for period t.
MPSt+1 = Deferred market price per share.

The sample selected for this study is appealing for various reasons: It fa-
cilitates a comparison of EII among three regions. According to a 2009 Asian
Banker report, banks in the United Arab Emirates (UAE), Kuwait, Bahrain,
and Saudi Arabia fall into the world’s top fifty Islamic banks. Moreover, this
study extends EII study for banks in the Gulf, which enables a researcher to

Rashid and Hassan: Islamic Banks and Ethical Identity 51

Σ
n

i=1
xi jt

Σxi jt

N

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52 The American Journal of Islamic Social Sciences 31:2

compare the development over the years with Haniffa and Hudaib’s findings.
Malaysia, which holds a good portfolio of Islamic banks, is said to be building
a rising modern Islamic culture in order to nurture the possibility of becoming
an Islamic banking hub. Bangladesh’s first Islamic bank, the Islami Bank
Bangladesh Ltd., began operating in 1983; the country now has six Islamic
banks. A recent study by Rashid, Hassan, and Ahmad examines a rise in cus-
tomer concern about ethical banking among them and stressed the possibility
of mergers and acquisition and the conversion from non-Islamic to Islamic
banking due to increased customer demand.55 However, data collection is still
the largest problem in these regions. More specifically, given that most Islamic
banks are subsidiaries of large holding companies, they are listed on the stock
exchanges through the holding companies. This is even more so for Malaysian
banks. In such cases, this study utilizes the holding company’s MPS. 

Table 2 (see appendix) lists the selected banks. In the case of Bangladesh,
the Social Investment Bank Ltd. recently changed its name to the Social Is-
lamic Bank. The Export Import Bank of Bangladesh became an Islamic bank
in 2004. Shahajalal Islami Bank Ltd. was listed on the Dhaka Stock Exchange
in 2006. Of these six banks, the ICB Islamic Bank opened its doors in 2007
after buying a near-bankrupt Islamic bank: Al-Baraka Bank Ltd. This new
bank was not included in the sample due to data limitations. 

In the case of Malaysia’s seventeen banks under local and foreign own-
ership and offering Islamic banking services through pure Islamic and Islamic
window services, we were able to collect data for only five of them. The re-
mainder were either not listed on the Kuala Lumpur Stock Exchange or the
full version of their annual report was unavailable on their website. Of the se-
lected banks, Bank Muamalat and Bank Islam Malaysia are locally owned
pure Islamic banks. Affin Bank, CIMB Bank, and RHB Bank are conventional
banks offering separate Islamic window services. Haniffa and Hudaib con-
sidered seven Gulf banks over the time period 2002 through 2004. This study
excluded the Bahrain Islamic Bank due to the unavailability of full annual re-
ports for our period of study (2004-08). The Shamil Bank’s 2008 annual report
was available; however, it was dropped from the study because the 2009 MPS
was unavailable.

Analysis of our Empirical Findings
We will first describe the EII findings and then explain the regression analysis
to investigate the relationship between the selected Islamic banks’ EII and
market performance. The overall analysis of ethical identity shows that

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Malaysia’s banks are, on average, doing worse than their Gulf and Bangladeshi
counterparts. However, the range (difference between highest and lowest EII)
of EII is the lowest in Malaysian banks. The highest EII was 0.81 out of 1
(Shamil Bank, the Gulf, 2007), and the lowest was 0.31 out of 1 (the Social
Islamic Bank, Bangladesh, 2001). The Gulf reports the highest range (0.57),
followed by Bangladesh (0.37) and Malaysia (0.29). Malaysian banks are
more consistent in reporting ethical practices. Table 3 (see appendix) high-
lights the EII statistics. Among the eight dimensions, banks are doing poorly
in directing their mission and vision statements toward the Shari‘ah and jus-
tifying their existence in society as “social institutions.” Their commitment
to debtors, products, and services, as well as to the BOD and top management,
are the most successful areas of ethical dimensions for most banks. 

The EII among Banks in Bangladesh 
Table 4 (see appendix) summarizes EII results of EII for the selected Bangla-
deshi banks. Of the six banks, Islami Bank Bangladesh Limited (IBBL) and
Al-Arafa Islami Bank (AAIB) scored the highest (0.57 out of 1) in commu-
nicating their mission and vision statements representing Islamic principles.
However, they scored very low (0.24) in communicating the names and pro-
files of the BOD and top management members as compared to Social Islamic
Bank Limited’s (SOIBL) score of 0.40. AAIB and IBBL scored the highest
in the product and services category and are followed by SOIBL. Shahjalal
Islami Bank Limited (SHIBL) and Export Import Bank Limited (EXIM)
scored very low (0.33). IBBL scored the highest in communicating its zakat-
and charity-related information, whereas other banks scored very low (the
second highest is EXIM’s 0.33). EXIM, which was converted into an Islamic
bank during 2004, scored the highest in commitment to employees (0.75), fol-
lowed by IBBL (0.50) and SHIBL (0.50). The industry average is 0.47, which
raises questions about Islamic banks’ concern for their employees. 

All of the banks have communicated their debt and debt write-off policies.
Banks in Bangladesh performed above average in stating their commitment
toward society in terms of job creation and social wellbeing (the industry av-
erage is 0.60). AAIB and SHIBL scored the highest in relaying information
regarding the SSB. From EII’s overall score, it seems that experience domi-
nates the industry. IBBL, the most experienced bank, scored the highest in
EII (0.63), followed by AAIB (0.52) and SOIBL (0.40). The newer banks,
EXIM and SHIBL, are doing relatively well with scores of 0.49 and 0.47, re-
spectively. The industry average considering all dimensions is 0.51, which is

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above average and higher than the Gulf’s score reported by Haniffa and Hu-
daib. After a full score of commitment to debtors, the banks’ commitment to-
ward society comes second. The banking industry in Bangladesh, one of the
largest providers of jobs, makes a significant contribution to the GDP’s growth
rate and comprises a significant proportion of the stock market’s capitalization.
The country’s banks are providing inadequate information on their mission
and vision statements, BODs and top management, and zakat, charity, and
benevolent funds. The lowest score of the industry is in information related
to BODs and top management (0.32). 

The EII among Banks in Malaysia 
The results for Malaysia’s Islamic banks are reported in table 5 (see appendix).
They were found to perform poorly in communicating their mission and vision
statements in accordance with Islamic principles. The industry average is only
0.26. Bank Muamalat scored the highest (0.46). Sufficient information was
available regarding the BOD’s and top management’s profile and experience.
A clear explanation of the various products and services offered is another
impediment to ethical identity. The industry average is 0.35, with RHB Bank
scoring the highest (0.50). Except for RHB Bank, the other four banks con-
veyed sufficient zakat information. Even though the industry average is 0.34,
four banks scored 0.40 each. Malaysian banks performed poorly in relaying
their commitment toward employees. The industry average is among the low-
est (0.28) in the eight dimensions. Bank Islam scored the highest (0.40) in this
category. Similar to banks in Bangladesh, Malaysian banks also reported their
full commitment to debtors. 

Malaysia, with its organized legal and Shari‘ah infrastructure and a pos-
itive attitude toward Islamic banking, expects to be the next generation market
for Islamic banks. However, the true value of Islamic banking for social de-
velopment is missing in ethical reporting. The lowest score among the eight
ethical identity dimensions is from their commitment toward society (0.09).
Bank Islam scored the highest with 0.25. Malaysia is one of the front-line
Asian countries based on the SMEs’ contribution to growth and its multi-racial
culture. Islamic banking must focus on the diverse socioeconomic opportuni-
ties available in this market, for the ethical reporting shows that, for some rea-
son, it is neglecting Malaysian society. The SSB is yet another obstacle
(industry average 0.339) in their ethical identity. The low score in this category
may suggest the Shari‘ah advisors’ low average quality. Such advisors have
less control over the banks’ operating procedure. Since these advisors are an

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important strategic component of Islamic banks, the shortage of skilled advi-
sors often results in one advisor working for several Islamic financial institu-
tions. Finally, except for their commitment toward debtors, the most successful
part of ethical identity in Malaysia is information regarding the BODs and top
management. Right now, the most important area they need to address is the
information regarding their commitment toward society. 

The EII among Banks in the Gulf 
The results for the Gulf are reported in tables 6.1 and 6.2 (see appendix). These
banks have established a track of reporting ethical conduct for Islamic banks.
Annual reports presented full profiles of BODs and top management, full de-
tails of investment and financing products, full profiles and even signatures
with photos of SSB members. However, the mission and vision statements
are among the key areas of weakness for the Dubai Islamic Bank and Al-Rajhi
Bank. While Islamic banks from Bangladesh and Malaysia were nearly strug-
gling to report the right format of these statements, the Abu Dhabi Islamic
Bank, the Shamil Bank of Bahrain, and Al-Baraka Bank of Bahrain have set
a precedence on how to proactively put the Shari‘ah into a strategic vision.
An example of this enlightened vision statement is given below: 

Shamil Bank strives to become one of the leading Islamic financial institu-
tions in the region, offering a broad range of Islamic banking services
through efficient and convenient channels to all categories of markets in
which it operates, to achieve the highest possible returns for stakeholders.
(The Shamil Bank, 2008, p. 6)

The Shamil Bank scored the highest (0.80) in reporting the status, profile,
and characteristics of the BOD and top management, followed by Al-Baraka
Bank and the Kuwait Finance House (KFH; 0.57). The Dubai Islamic Bank
and Al-Rajhi Bank lag far behind; they scored 0.03 and 0.14, respectively.
The Abu Dhabi Islamic Bank and Al-Baraka Bank fully reported the required
criteria for product and services. The Dubai Islamic Bank and Al-Rajhi Bank
are still at the end. The SSB clearly specified the source and use of zakat,
whether it was given and how it was calculated; however, its exact amount
was missing. This may happen because zakat is the shareholders’ responsi-
bility and banks are not obliged to report that information. Therefore, a more
robust standard is needed for reporting zakat in this region. Commitment to-
ward employees is one of the poorest areas of performance in this region. To
foster local employment, banks had to sacrifice the equal opportunity princi-

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ple. However, the training and welfare of employees have been reported well.
Reporting commitment to debtors is similar to those of the banks in Bangla-
desh and Malaysia, the highest score among all the dimensions.  

KFH has proceeded its effective participation in the active social activities
carried out during the year, as it provided KD 2 million to Bait Al-Zakat
(Kuwait Zakat House) for philanthropic activities, KD 800,000 for assisting
poor families, KD 500,000 for the execution of charitable projects in the
name of KFH in poor countries, KD 250,000 for the relief and disaster re-
covery activities outside the State of Kuwait, and KD 250,000 for assisting
patients in buying the necessary medications as per the laws and regulations
applicable in Bait Al- Zakat. (Kuwait Finance House, 2008, p. 23)

KHF’s social contribution is shown by the small paragraph above, which
impacts the lives of millions of people. This bank reports its social responsi-
bility in a separate column, which is absent for banks in Bangladesh and
Malaysia. It scored the highest (0.80), followed by the Abu Dhabi Islamic
Bank, the Shamil Bank, and the Dubai Islamic Bank, with the same score of
0.75. Apparently, the more experienced Islamic banks can afford to spend
more in the social responsibility category. 

Islamic banking began with a new spirit with the growth and prominence
of the region’s oil economy. Therefore, it is expected that they will have a
record of proactive social responsibility as compared to banks in Bangladesh
and Malaysia. A positive change is expected in the Asian Islamic banking
community as well. Information on the SSB is one of the problem areas. Al-
Rajhi Bank has not provided even the minimum required information. KFH
scored the highest (0.63). Based on overall findings, the region’s best bank is
the Shamil Bank (0.72), followed by the Abu Dhabi Islamic Bank (0.70), Al-
Baraka Bank (0.66), and KFH (0.65). The Dubai Islamic Bank is the worst
performer (0.51). After commitment to debtors (0.90), information on product
and services was given the highest priority (0.73), and information on the
board and top management was given the lowest importance (0.41).

Comparison of Ethical Identity Indices
We provide a comparative analysis of the ethical performance of Islamic banks
in different regions in table 7 (see appendix). Our comparative analysis is lim-
ited by the differences in industry structure and existing regulations. Of the
three regions, Malaysian banks failed to adequately communicate information
on their mission and vision statements, products and services, zakat, charity
and benevolent loans, commitment toward employee, commitment toward

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society, and the SSB. Malaysian Islamic banks provided comparatively more
information on the BODs and top management and commitments to debtor.
Banks in the Gulf outperformed others in almost all categories. Banks in
Bangladesh reported inadequate information only on the BODs and top man-
agement. Even though banks in Malaysia scored the lowest in many of the
ethical dimensions, their consistency was commendable. All of them followed
the same standard, and intra-bank differences in the various dimensions were
negligible. This represents a higher opportunity for developing a common eth-
ical disclosure requirement very easily. On the contrary, banks in the Gulf suf-
fered from severe inconsistency. The Dubai Islamic Bank and Al-Rajhi Bank
lagged far behind. Therefore, government intervention is necessary to bring
about a change in ethical disclosure requirements. 

Market Performance and the EII 
Table 8 (see appendix) presents the relationship between Islamic banks’ mar-
ket performance and ethical identity. Berrone et al. found the relationship be-
tween ethical identity and market performance for non-financial firms, where
the relationship is mediated by stakeholders’ satisfaction. The relationship be-
tween ethical conduct and market performance depends on the stakeholders’
perception and the unique cultural context.56 Although this study finds this re-
lationship to be positive, it is not statistically significant. This inconclusive
result may stem from several reasons. First, our study’s result is similar to the
findings of earlier research.57 Moreover, Berrone et al. suggested having var-
ious control variables, such as firm size, firm risk, a dummy for the country,
and a dummy for firm’s sector. Ramsey’s RESET2 of this study (1.23, p =
0.271) also shows a significant misspecification of the model, which tells us
to control for other factors in the regression. Jarque-Bera test (28.35, p = 0.000)
indicates a significant violation of the normality assumption. Therefore, the
relationship between EII and the market price of Islamic banks for Bangla-
desh, Malaysia, and the Gulf is statistically insignificant. 

Prophet Muhammad was given the title “al-Amīn” because of his ethical
monetary dealings. Muslims should ask themselves why Allah chose the best
prophet from a business pool? As we know, Muhammad and Khadijah ran a
very successful business. This may indicate a divine blessing supporting a
positive relationship between business performance and ethical conduct. As
the Prophet said, “the most worthy of earnings are those of the merchant who,
if they are spoken to, do not lie, if they are trusted, do not betray, if they prom-
ise, do not fail, if they buy, do not condemn, if they sell, do not extol, if they
owe, do not delay and if they are owed, do not press. 

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Summary of the Findings 
The Shari‘ah teaches people how to embed ethical principles in banking prac-
tices and  strategies. However, the recent trend in Islamic banking raises ques-
tions about their ethical underpinning. Haniffa and Hudaib extended Gray and
Balmer’s study from a corporate ethical perspective to an Islamic banking
context for the Gulf. This study extends the study done by Haniffa and Hudaib
to Bangladesh, Malaysia, and an extended period for the Gulf. Eight dimen-
sions of ethical identity, developed earlier by Haniffa and Hudaib, were based
on a comparison of ideal and communicated ethical conduct via the banks’
annual reports. As the Prophet stressed the proper and timely dissemination
of business information, which reduces gharar and maysir, Islamic banks
must report relevant information so that stakeholders can make informed de-
cisions. Based on this philosophy, we study the extent of communicated ethical
conducts via annual report for Bangladesh (six banks [2001-06]), Malaysia
(five banks [2004-08]) and the Gulf (six banks [2004-08]). Our findings sug-
gest the need for more transparency and disclosure of ethical information. 

Haniffa and Hudaib found that banks in the Gulf communicated a below-
average standard of ethical identity information. However, we obtained con-
trasting results where they outperformed others banks. Similar to their
findings, banks in this region scored highest in communicating their commit-
ment to debtors. In the earlier sample, they put the least importance on com-
mitment to society. However, in our study they made that their third-highest
commitment, which is higher than the banks in the other two regions. No
change occurred in communicating information on products and services
(ranked 4) and zakat, charity, and benevolent loans (ranked 5). However, rank-
ing in commitment toward employees improved from to sixth from fourth.
So, an overall positive change took place during the two additional sample
periods: The Bahrain Islamic Bank (BIB) was ranked number 1 and the
Shamil Bank became number 2 in the earlier study. Our study excluded BIB
due to missing data. However, the Shamil Bank is ranked number 1 in the
current study. Al-Rajhi Bank was ranked last in both studies. The similarities
of these two banks’ ethical performance in the two studies shows that they
made a concerted and combined effort to develop and redesign their informa-
tion disclosure framework. 

The communication of a strategic objective requires a proper understand-
ing of the customers and social demands. Old and experienced banks in
Bangladesh reported mission and vision statements in line with the Shari‘ah,
as compared to their counterparties. Among Malaysian banks, our study shows
a deficient and curtailed mission and vision statements. One reason for this in-

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completeness is that Islamic banks in Malaysia offer Islamic window services,
which means that they have a dual mission and vision to cater to both conven-
tional and Islamic customers. This phenomenon makes it difficult for them to
embark upon a single and complete strategic vision for the whole bank. Few
good examples can be taken from banks in the Gulf, which also reported sep-
arate mission and vision statements for the banks and for individual depart-
ments. A few banks also included a “short profile” of their activity to give a
glimpse of the ethical issues highlighted in their operations. 

A major problem occurred at the time of data collection using the existing
research instrument suggested by Haniffa and Hudaib. The first question was
the name and profile of the BOD and top management. Many banks did not
separately publish the members’ names and profiles; some reported only one
or the other. The same thing happened for photos of the BOD and top man-
agement personnel. Banks in Malaysia and Bangladesh have not published
photos of top management, but have published photos of the BOD in their an-
nual reports. This information can easily be incorporated in their annual re-
ports. Banks in Bangladesh reported below-average information on BOD and
top management. However, our inquiry shows that they provided more infor-
mation on these groups on their websites. It should be understood that in a
country like Bangladesh, information and communication development have
not been properly planned. As a result, annual reports are a comparatively bet-
ter way of reporting information. However, banks in Malaysia have reported
the names, photos, and profiles of BOD and top management. As Haniffa and
Hudaib explain, the reporting standard and culture dominate the manner of
ethical reporting in certain countries.

Similar to the mission and vision statements, experienced banks reported
more on new products, SSB guidelines on new product announcements, de-
tails on investment and financing products, and about any undertaking of a
non-permissible investment. It seems that old banks used annual reports as
marketing and advertisement tools to disseminate product and service infor-
mation. More Shari‘ah scrutiny is advisable in this dimension for banks in
Malaysia because most of them operate according to Islamic window services
and thus may be selling questionable Shari‘ah-compliant products. 

Almost all banks in the three regions reported zakat issues. However, an
increased level of charity reporting was due to their increasing engagement
with non-permissible activities. While it is good news that banks are reporting
such activities, it is imperative that they try to engage only in Shari‘ah-certified
operations. The more profitable Islamic banks in Bangladesh and Malaysia
reported higher rates of giving charity. The SSB members should play a more

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active role in this matter. For example, the SSBs of Gulf banks lucidly wrote
that the banks were not engaged in any non-permissible activities, and yet
they contributed a substantial amount of funds in charity. Qarḍ ḥassan (benev-
olent loans) was not always correctly reported in their annual reports. 

Most banks in Bangladesh and Malaysia failed to report their commitment
to society. Islam emphasizes specific dress codes to maintain social dignity,
and hence separate branches for men and women are advisable. To cater to
female customers, banks may establish separate counters with female officers.
Banks in the Gulf are compelled by government regulation to create jobs for
local people, thereby leaving less chance for them to be equal opportunity
providers. Banks were more enthusiastic in reporting their commitment to
debtors. However, Shari‘ah issues such as whether payment has been deferred
without charging any penalty were not reported in detail. Many banks did not
report whether they correctly wrote off their debtor obligations. Employee
training was conspicuously absent in reports on banks in Bangladesh. An em-
ployee reward system was missing in banks in Malaysia and Bangladesh. We
suggest that banks should report their commitments to stakeholders separately.
More social areas, such as SME credit, job creation, and micro-credit, should
be the focal area in reporting commitments to society. Many banks did not
mention if they support any social organization. 

The SSB’s role is to monitor and guide Islamic banking products and
practices. Its members attest that bank operations comply with the Shari‘ah.
Most of the banks in the Gulf did not provide the photos and full profile of
the SSB members. Photos, profiles, and signature were totally missing in the
annual reports of Bangladesh and Malaysian banks. It is suggested that Is-
lamic banks report full details of the SSB members, their education, and any
special comments to communicate the Islamic banking framework’s strength
and to determine whether the law was applied correctly while determining
the judgment.

Policy Implications
Our empirical findings in the previous sections allow us to make a number of
definitive policy statements.

1. Ethical disclosure requirement. To achieve a better reporting of ethical
conduct, a uniform reporting standard for Islamic banks is inevitable.
Ethical reporting must be a Shari‘ah requirement, rather than a regulatory
requirement. Regulators should introduce an ideal ethical reporting

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guideline for Islamic banks. The Accounting and Auditing Organization
for Islamic Financial Institutions (AAIOFI) has suggested some manda-
tory and voluntary disclosures; however, they have yet to be adopted and
there is no regulatory pressure to implement them.58

2. Social development. Islamic banks should channel part of their profits
toward social projects and the social development needs of communities
worldwide, especially those that create jobs and eliminate poverty and
starvation. Investing in social causes in more affluent countries (e.g., the
UAE) and building skyscrapers in large cities are not necessarily con-
sistent with the understanding of Islamic egalitarianism. 

3. Islamic product and service management. Islamic banks are mimicking
conventional banking practices by making conventional products Shari‘ah
compliant but not Shari‘ah based. Islamic banks and institutions must
offer such partnership financing arrangements as muḍārabah and
mushārakah. Many Islamic banks do not practice qarḍ ḥassan. Islam pro-
hibits making loans for a lavish personal lifestyle, yet many Islamic banks
give loans to buy costly automobiles and apartments in Dubai. 

4. Employees’ right to Shari‘ah knowledge. Bank employees should be
trained in Islamic commercial jurisprudence. A majority of them come
straight from conventional banks and thus know only interest-based
banking practices. Such training will help them understand that Islamic
banking is both prohibition-driven and welfare-oriented banking. 

5. Strategic Shari‘ah Board. We find that one Shari‘ah scholar often sits
on two or more SSBs. To compete with conventional banks and survive
in the cut-throat financial world, Islamic banks have to maintain their
trade secrets and strategic values. Since the SSB decides on many of the
bank’s operational aspects, the current situation might be detrimental. 

6. An ethical culture. A culture of strategic disclosure will guide Islamic
banks on reporting the expected level of ethical behavior. The variety of
meanings attached to ethics by stakeholders across regions led to a pos-
itive but insignificant relationship between EII and stock price perform-
ance. But the meaning of ethics from an Islamic perspective should be
uniform across all regions. Perhaps a uniform ethical culture could be
developed by following the dictates of the Qur’an and prophetic hadith. 

Conclusion and Directions for Future Research
The ethical operation of financial institutions is crucial for a transparent and
sustainable social value chain in our globalized world. In order to establish

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justice, financing operations must comply with the given society’s basic norms
and best principles. Financial institutions must publish their record of com-
pliance with social practices and how their practices differ from the ideal.
Consequently, the differences will be known to users and enable them to be-
come informed users of financial services. The expected level of satisfaction
will be easy to accomplish, for transparency and accountability are closely
connected. If their activities are not transparent, the resulting difficulty in en-
suring accountability will lead to major unintended socioeconomic conse-
quences. Therefore an understanding of how such institutions behave will
facilitate the addition of social values. 

Research on ethical identity is still in its embryonic stage, as the research
instruments are riddled with problems and shortcomings. Although the re-
search goal is to define common ground, one obstacle to defining ethical iden-
tity is the engagement of multiple stakeholders. It is rather difficult to put all
opinions into one frame. As the Prophet called upon businesspeople to be hon-
est and transparent with their customers, ethical identity can also be examined
by applying a very recent phenomenon known as “customer centrism.” Is-
lamic banks are geared more toward clients than to catering to multiple stake-
holders. An increased database with more Islamic banks and over a longer
period of time will provide better results and yield a more meaningful rela-
tionship between stock prices and the EII. One can also test the same rela-
tionship by using the market-to-book ratio or Tobin’s Q to measure for market
performance in order to acquire a better understanding. In addition, a qualita-
tive methodology in the form of extensive case studies can be used in future
research. For example, three in-depth case studies on IBBL in Bangladesh,
Bank Islam in Malaysia, and the Shamil Bank in the Gulf can be undertaken
to investigate the processes of their ethical conduct and their implications on
business performance. 

Appendix

Table 1: Summary of the Extant Literature 

Author(s) Major Findings: Defining Ethical Identity 
Farook & Lanis, 2005 The basic guiding principles of Islamic financial transactions include pro-
Haniffa & Hudaib, 2007 hibiting ribā (interest), gharar (uncertain information), and maysir (gam-
Chapra, 1985 bling); not producing harmful products (alcohol etc.); distributing zakat

(almsgiving) and charity; creating jobs and eradicating poverty; and estab-
lishing overall human rights

Hitt & Collins, 2007 Corporate ethical conduct in a conventional environment is largely affected
by the underlying culture, leadership style, and country code of ethics

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Markwick & Fill, 1997 A conventional bank’s corporate identity includes its activities and pro-
Balmer, 1998 cesses, philosophy, values, history, strategy, and business scope, all of which 
Scott & Lane, 2000 can be integrated to serve the stakeholders proactively and to differentiate
Fombrun, 1996 the bank’s service from its competitors
Ahmed, 2008 In Islamic philosophy, the value and meaning of ethics is standardized: to

“uphold the theological concept of God-consciousness (tawḥīd)”

Anas & Mounira, 2009 An Islamic bank will direct its strategies, processes, and contribution to
continuously upgrade the quality of services to stakeholders in accord
with the guidance of the Qur’an, the Hadith literature, ijmā‘, and qiyās.

Author(s) Major Findings: Ethical Guidance in Islamic Banks
Haniffa & Hudaib, 2007 An expert panel of Shari‘ah scholars, known as a Shari‘ah Supervisory Board

(SSB) is entrusted with guiding the Islamic banks’ management toward the
targeted philosophy. It keeps track of and attests to these banks’ ethical identity

Author(s) Major Findings: The Base of Ethical Identity in Islam/Islamic Banks
Anas & Mounira, 2009 Ethical values are ingrained in Islamic teachings, and a growing number of

investors and customers are asking for socially responsible banking operations

Beekun & Badawi, 2005 The sudden increased preference for socially responsible investment, as
well as the tremendous growth of the diversified and worldwide Islamic
finance industry that owns the lion share of world’s energy solution, has
shown the need for Islamic ethical conduct 

Cragg, 2002 The enhanced appeal of company shares due to socially responsible investors

Sethi, 2005 Provides ethical substance of corporate operation

Hummels & Timme, 2004 A company’s long-run mission statement 

Fombrun, 1996 Helps to create reputational capital
Fombrun & Foss, 2004
Hillman & Keim, 2001

Hosmer, 1994 Helps to reduce future uncertainty regarding investment 

Waddock & Graves, 1997 Gives a positive signal about the company’s resources, since mostly financially
capable companies can invest in ethical concern

Author(s) Major Findings: Ethics, CSR, and Strategic Management
Porter & Kramer, 2006 Under the broad spectrum of strategic management, corporate ethical and
Baron, 2001 philanthropic principles should be geared toward strategic value addition.
Farook & Lanis, 2005 Ethical identity under the broader spectrum of CSR
Farook, 2008 
Usmani, 2002
Maali et al., 2003

Griffin & Mahon, 1997 The relationship between CSR and corporate financial performance is
Schwartz & Carroll, 2003 mostly inconclusive. The inconclusive link is due to CSR measurement
Simpson & Kohers, 2002 problem.  

Lue & Bhattacharya, 2006 The relationship is found to be positive mediated by stakeholders’ satisfac-
Fombrun et al., 2000 tion. Customer satisfaction is one of the key issues. 

Author(s) Major Findings: Ethical Reporting/Disclosure Standards of Islamic Banks
Berrone et al., 2005 Corporate revealed ethics and corporate applied ethics

Jones, 1995 Proactive vs. reactive communication
Jones & Wicks, 1999

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Balmer & Soenen, 1999 Actual, communicated, ideal, and desired ethical identity

Farook & Lanis, 2005 Recent disclosure requirements have put forward the importance of
social disclosures through annual reports

Wilson, 2002 Irrespective of the level of ethical conduct, Islamic banks do not communicate 
Anas & Mounira, 2009 the information to the annual report.

Author(s) Major Findings: Ethical Identity: Measurement, and Performance
Gray & Balmer, 2001 Corporate ethical identity for non-financial contexts
Berrone et al., 2005 Corporate ethical identity and its positive relationship with market perfor-

mance is mediated by the stakeholders’ satisfaction with the non-financial
sector

Haniffa & Hudaib, 2007 The ethical identity index (EII) for Islamic banks in the Gulf, which resulted
in below-average performance of the selected Islamic banks. 

Bauer et al., 2007 The relationship between ethical identity and performance is statistically
insignificant in the mutual fund industry. 

Barnett & Salomon, 2006 The relationship between ethical identity and performance in the mutual 
und industry is negative in the short-run; however, it is positive in the long-run.

Hitt & Collins, 2007 Explored an indirect relationship between ethical conduct and financial
performance due to significant stakeholder intervention in the relationship.

Table 2: List of Banks used in the study

Bank Name Country Year (in Sample)

Islami Bank Bangladesh Ltd. Bangladesh 2001-2006
Al-Arafa Islamic Bank Ltd. Bangladesh 2001-2006
Social Islamic Bank Ltd. Bangladesh 2001-2006
Export Import Bank Ltd. Bangladesh 2004-2006
Shahjalal Islamic Bank Ltd. Bangladesh 2006

Affin Bank Malaysia 2004-2008
Bank Islam Malaysia Malaysia 2004-2008
Bank Muamalat Malaysia 2004-2008
CIMB Islamic Malaysia 2006-2008
RHB Islamic Malaysia 2005-2008
Abu Dhabi Islamic Bank UAE 2004-2006, 2008
Al-Baraka Banking Group Bahrain 2006-2007
Al-Rajhi Bank Saudi Arabia 2006-2008
Dubai Islamic Bank UAE 2005-2008
Kuwait Finance House Kuwait 2004-2008
Shamil Bank Bahrain 2004-2006

Table 3: Average, Maximum-Minimum and Range of Ethical Identity Index (EII)

Malaysia Bangladesh Arabian Gulf Region
Average 0.40 0.51 0.59
Max 0.60 0.67 0.81
Min 0.31 0.30 0.24
Range 0.29 0.37 0.57

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ki
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 o
f B

an
ks

 
3

1
2

2
4

[4
]

on
 Y

ea
rly

 A
ve

ra
ge

C
om

. t
w

d.
 D

eb
to

r
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
Y

ea
rly

 A
ve

ra
ge

1.
00

1.
00

1.
00

1.
00

1.
00

1.
00

R
an

ki
ng

 o
f B

an
ks

 
1

1
1

1
1

[1
]

on
 Y

ea
rly

 A
ve

ra
ge

C
om

. t
w

d.
 S

oc
ie

ty
0.

50
0.

50
0.

50
0.

50
0.

50
0.

50
0.

75
0.

75
0.

75
0.

50
0.

75
0.

75
0.

75
0.

75
0.

75
0.

75
0.

50
0.

50
0.

50
0.

50
0.

50
0.

50
Y

ea
rly

 A
ve

ra
ge

0.
50

0.
75

0.
50

0.
75

0.
50

0.
60

R
an

ki
ng

 o
f B

an
ks

 
2

1
2

1
2

[2
]

on
 Y

ea
rly

 A
ve

ra
ge

Rashid and Hassan: Islamic Banks and Ethical Identity 65

ajiss31-2_ajiss  3/26/2014  8:07 AM  Page 65



Sh
ar

i‘a
h 

Su
p.

 B
oa

rd
0.

38
0.

38
0.

50
0.

63
0.

63
0.

63
0.

13
0.

38
0.

38
0.

50
0.

38
0.

38
0.

38
0.

50
0.

38
0.

63
0.

13
0.

13
0.

38
0.

13
0.

38
0.

50
Y

ea
rly

 A
ve

ra
ge

0.
52

0.
29

0.
50

0.
44

0.
27

0.
40

R
an

ki
ng

 o
f B

an
ks

 
1

3
1

2
4

[5
]

on
 Y

ea
rly

 A
ve

ra
ge

G
R

A
N

D
 E

II
0.

46
0.

46
0.

55
0.

54
0.

57
0.

54
0.

42
0.

48
0.

56
0.

47
0.

60
0.

63
0.

62
0.

66
0.

62
0.

67
0.

30
0.

37
0.

39
0.

39
0.

42
0.

54
Y

E
A

R
LY

 A
V

G
. E

II
 

0.
52

0.
49

0.
47

0.
63

0.
40

A
A

IB
 =

 A
l A

ra
fa

 Is
la

m
i B

an
k,

 E
X

IM
 =

 E
xp

or
t I

m
po

rt 
B

an
k 

L
td

., 
SH

IB
L 

= 
Sh

ah
ja

la
l I

sl
am

i B
an

k 
L

td
.i 

IB
B

L 
= 

Is
la

m
i B

an
k 

B
an

gl
ad

es
h 

L
td

., 
SO

IB
L 

= 
So

ci
al

 Is
la

m
ic

 B
an

k 
L

td
.

E
II

 =
 E

th
ic

al
 Id

en
tit

y 
In

de
x

A
m

ou
nt

 in
 [ 

] p
ar

en
th

es
is

 re
pr

es
en

ts
 ra

nk
in

g 
of

 d
im

en
si

on
 w

ith
 re

sp
ec

t t
o 

E
II

.

Ta
ble
 5
: S
um

m
ar
y R

es
ult
s f
or
 E
th
ica
l Id
en
tity
 In
de
x f
or
 B
an
ks
 in
 M
ala
ys
ia

D
im

en
si

on
s

A
FF

IN
 B

A
N

K
 

B
A

N
K

 IS
L

A
M

B
A

N
K

 M
U

A
M

A
L

A
T

C
IM

B
 IS

L
A

M
IC

R
H

B
 B

A
N

K
E

II
 A

vg
.

Y
04

Y
05

Y
06

Y
07

Y
08

Y
04

Y
05

Y
06

Y
07

Y
08

Y
04

Y
05

Y
06

Y
07

Y
08

Y
06

Y
07

Y
08

Y
05

Y
06

Y
07

Y
08

M
is

./V
is

io
n 

St
at

em
en

ts
0.

14
0.

14
0.

14
0.

29
0.

29
0.

00
0.

00
0.

14
0.

14
0.

57
0.

29
0.

57
0.

43
0.

43
0.

57
0.

29
0.

29
0.

29
0.

29
0.

14
0.

14
0.

14
Y

ea
rly

 A
ve

ra
ge

0.
20

0.
17

0.
46

0.
29

0.
18

0.
25

9
R

an
ki

ng
 o

f B
an

ks
 

(Y
ea

rly
 A

ve
ra

ge
)

3
5

1
2

4
[7

]

B
oa

rd
 o

f D
ire

ct
or

s 
&

 
0.

29
0.

29
0.

43
0.

71
0.

71
0.

43
0.

43
0.

71
0.

71
0.

71
0.

00
0.

57
0.

71
0.

71
0.

71
0.

57
0.

57
0.

57
0.

57
0.

43
0.

43
0.

57
To

p 
M

an
ag

em
en

t
Y

ea
rly

 A
ve

ra
ge

0.
49

0.
60

0.
54

0.
57

0.
50

0.
54

R
an

ki
ng

 o
f B

an
ks

5
1

3
2

4
[2

]
(Y

ea
rly

 A
ve

ra
ge

)

Pr
od

uc
t a

nd
 S

er
vi

ce
s

0.
25

0.
25

0.
25

0.
50

0.
50

0.
25

0.
25

0.
25

0.
25

0.
25

0.
50

0.
25

0.
25

0.
25

0.
25

0.
25

0.
25

0.
50

0.
50

0.
50

0.
50

0.
50

Y
ea

rly
 A

ve
ra

ge
0.

35
0.

25
0.

30
0.

33
0.

50
0.

35
R

an
ki

ng
 o

f B
an

ks
 

2
5

4
3

1
[3

]
(Y

ea
rly

 A
ve

ra
ge

)

Z
ak

at
, C

ha
rit

y,
 &

 
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

40
0.

20
0.

00
0.

00
0.

20
B

en
ev

ol
en

t L
oa

ns
Y

ea
rly

 A
ve

ra
ge

0.
40

0.
40

0.
40

0.
40

0.
10

0.
34

0
R

an
ki

ng
 o

f B
an

ks
 

1
1

1
1

2
[4

]
(Y

ea
rly

 A
ve

ra
ge

)

66 The American Journal of Islamic Social Sciences 31:2

ajiss31-2_ajiss  3/26/2014  8:07 AM  Page 66



C
om

. t
w

d.
 E

m
pl

oy
ee

s
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

50
0.

75
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
0.

25
Y

ea
rly

 A
ve

ra
ge

0.
25

0.
40

0.
25

0.
25

0.
25

0.
28

0
R

an
ki

ng
 o

f B
an

ks
 

2
1

2
2

2
[6

]
(Y

ea
rly

 A
ve

ra
ge

)

C
om

. t
w

d.
 D

eb
to

r
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
Y

ea
rly

 A
ve

ra
ge

1.
00

1.
00

1.
00

1.
00

1.
00

1.
00

R
an

ki
ng

 o
f B

an
ks

1
1

1
1

1
[1

]
(Y

ea
rly

 A
ve

ra
ge

)

C
om

. t
w

d.
 S

oc
ie

ty
0.

00
0.

00
0.

00
0.

50
0.

50
0.

00
0.

00
0.

25
0.

50
0.

50
0.

00
0.

00
0.

00
0.

00
0.

00
0.

00
0.

00
0.

00
0.

00
0.

00
0.

00
0.

00
Y

ea
rly

 A
ve

ra
ge

0.
20

0.
25

0.
00

0.
00

0.
00

0.
09

R
an

ki
ng

 o
f B

an
ks

2
1

0
0

0
[8

]
(Y

ea
rly

 A
ve

ra
ge

)

Sh
ar

i‘a
h 

Su
p.

 B
oa

rd
0.

25
0.

25
0.

25
0.

25
0.

25
0.

13
0.

13
0.

25
0.

38
0.

63
0.

38
0.

38
0.

38
0.

38
0.

38
0.

25
0.

38
0.

38
0.

38
0.

38
0.

50
0.

50
Y

ea
rly

 A
ve

ra
ge

0.
25

0.
30

0.
38

0.
33

0.
44

0.
33

9
R

an
ki

ng
 o

f B
an

ks
5

4
2

3
1

[5
]

(Y
ea

rly
 A

ve
ra

ge
)

G
R

A
N

D
 E

II
0.

32
0.

32
0.

34
0.

49
0.

49
0.

31
0.

31
0.

41
0.

49
0.

60
0.

35
0.

43
0.

43
0.

43
0.

45
0.

38
0.

39
0.

42
0.

40
0.

34
0.

35
0.

40
Y

E
A

R
LY

 A
V

G
. E

II
 

0.
39

0.
42

0.
42

0.
40

0.
37

E
II

 =
 E

th
ic

al
 Id

en
tit

y 
In

de
x

A
m

ou
nt

 in
 [ 

] r
ep

re
se

nt
s 

ra
nk

in
g 

of
 d

im
en

si
on

 w
ith

 re
sp

ec
t t

o 
E

II
. 

Ta
ble
 6
.1
: S
um

m
ar
y R

es
ult
s f
or
 E
th
ica
l Id
en
tity
 In
de
x f
or
 B
an
ks
 in
 A
ra
bia
n 
Gu
lf R

eg
ion
 [P
ar
t 1
]

D
im

en
si

on
s

A
B

U
 D

H
A

B
I I

SL
A

M
IC

 B
A

N
K

A
L

B
A

R
A

K
A

 B
A

N
K

SH
A

M
IL

 B
A

N
K

D
U

B
A

I I
SL

A
M

IC
 B

A
N

K
Y

04
Y

05
Y

06
Y

08
Y

06
Y

07
Y

04
Y

05
Y

06
Y

07
Y

08
Y

04
Y

05
Y

06
Y

07
Y

08

M
is

./V
is

io
n 

St
at

em
en

ts
0.

86
0.

86
0.

71
1.

00
0.

86
0.

86
0.

57
0.

71
1.

00
1.

00
1.

00
0.

00
0.

14
0.

14
0.

14
0.

14
Y

ea
rly

 A
ve

ra
ge

0.
86

0.
86

0.
86

0.
11

R
an

ki
ng

 o
f B

an
ks

 
1

1
1

4
(Y

ea
rly

 A
ve

ra
ge

)

B
oa

rd
 o

f D
ire

ct
or

s 
&

 
0.

14
0.

14
0.

43
0.

71
0.

57
0.

57
0.

71
0.

71
0.

86
0.

86
0.

86
0.

14
0.

00
0.

00
0.

00
0.

00
To

p 
M

an
ag

em
en

t
Y

ea
rly

 A
ve

ra
ge

0.
36

0.
57

0.
80

0.
03

R
an

ki
ng

 o
f B

an
ks

 
3

2
1

5
(Y

ea
rly

 A
ve

ra
ge

)

Rashid and Hassan: Islamic Banks and Ethical Identity 67

ajiss31-2_ajiss  3/26/2014  8:07 AM  Page 67



Pr
od

uc
t &

 S
er

vi
ce

s
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
0.

50
0.

75
1.

00
1.

00
0.

50
0.

25
0.

25
0.

25
0.

25
Y

ea
rly

 A
ve

ra
ge

1.
00

1.
00

0.
85

0.
30

R
an

ki
ng

 o
f B

an
ks

 
1

1
3

4
(Y

ea
rly

 A
ve

ra
ge

)

Z
ak

at
, C

ha
rit

y 
&

 
0.

40
0.

60
0.

60
0.

60
0.

60
0.

60
0.

60
0.

40
0.

60
0.

60
0.

60
0.

60
0.

60
0.

60
0.

60
0.

60
B

en
ev

ol
en

t L
oa

ns
Y

ea
rly

 A
ve

ra
ge

0.
55

0.
60

0.
56

0.
60

R
an

ki
ng

 o
f B

an
ks

 
3

1
2

1
(Y

ea
rly

 A
ve

ra
ge

)

C
om

. t
w

d.
 E

m
pl

oy
ee

s
0.

75
0.

50
0.

75
0.

75
0.

25
0.

50
0.

75
0

.7
5

0.
75

0.
75

0.
75

0.
75

0.
75

0.
75

0.
75

0.
75

Y
ea

rly
 A

ve
ra

ge
0.

69
0.

38
0.

75
0.

75
R

an
ki

ng
 o

f B
an

ks
2

3
1

1
(Y

ea
rly

 A
ve

ra
ge

)

C
om

. t
w

d.
 D

eb
to

r
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
1.

00
0.

50
1.

00
0.

50
0.

50
1.

00
1.

00
1.

00
1.

00
1.

00
Y

ea
rly

 A
ve

ra
ge

1.
00

1.
00

0.
70

1.
00

R
an

ki
ng

 o
f B

an
ks

 
1

1
2

1
(Y

ea
rly

 A
ve

ra
ge

)

C
om

. t
w

d.
 S

oc
ie

ty
0.

50
0.

75
0.

75
1.

00
0.

25
0.

50
0.

75
0.

75
0.

75
0.

75
0.

75
0.

75
0.

75
0.

75
0.

75
0.

75
Y

ea
rly

 A
ve

ra
ge

0.
75

0.
38

0.
75

0.
75

R
an

ki
ng

 o
f B

an
ks

 
2

3
2

2
(Y

ea
rly

 A
ve

ra
ge

)

Sh
ar

i‘a
h 

Su
p.

 B
oa

rd
0.

38
0.

38
0.

38
0.

38
0.

50
0.

50
0.

63
0.

50
0.

75
0.

38
0.

38
0.

50
0.

50
0.

50
0.

50
0.

50
Y

ea
rly

 A
ve

ra
ge

0.
38

0.
50

0.
53

0.
50

R
an

ki
ng

 o
f B

an
ks

 
4

3
2

3
(Y

ea
rly

 A
ve

ra
ge

)

G
R

A
N

D
 E

II
0.

63
0.

65
0.

70
0.

80
0.

63
0.

69
0.

75
0.

60
0.

81
0.

73
0.

73
0.

53
0.

50
0.

50
0.

50
0.

50
Y

E
A

R
LY

 A
V

G
. E

II
 

0.
70

0.
66

0.
72

0.
51

E
II

 =
 E

th
ic

al
 Id

en
tit

y 
In

de
x

Fi
gu

re
s 

in
 [ 

] r
ep

re
se

nt
 ra

nk
in

g 
of

 d
im

en
si

on
 w

ith
 re

sp
ec

t t
o 

E
II

.

68 The American Journal of Islamic Social Sciences 31:2

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Table 6.2: Summary Results for Ethical Identity Index for Banks in Arabian Gulf Region [Part 2]

Dimensions AL RAJHI BANK KUWAIT FINANCE HOUSE EII Avg.
Y06 Y07 Y08 Y04 Y05 Y06 Y07 Y08

Mission & Vision 0.14 0.14 0.29 0.71 0.71 0.71 0.71 0.71
Statements
Yearly Average 0.19 0.71 0.60
Ranking of Banks 3 2 [4]
(Yearly Average)

Board of Directors 0.14 0.14 0.14 0.57 0.57 0.57 0.57 0.57
& Top Management
Yearly Average 0.14 0.57 0.41
Ranking of Banks 4 2 [8]
(Yearly Average)

Product and Services 0.25 0.25 0.25 1.00 1.00 1.00 1.00 0.75
Yearly Average 0.25 0.95 0.73
Ranking of Banks 5 2 [2]
(Yearly Average)

Zakat, Charity, & 0.40 0.40 0.40 0.60 0.60 0.60 0.60 0.60
Benevolent Loans
Yearly Average 0.40 0.60 0.55
Ranking of Banks 4 1 [5]
(Yearly Average)

Commitment toward 0.25 0.00 0.25 0.00 0.25 0.50 0.25 0.00
Employees
Yearly Average 0.17 0.20 0.49
Ranking of Banks 5 4 [6]
(Yearly Average)

Commitment toward 1.00 1.00 1.00 0.50 0.50 0.50 1.00 1.00
Debtor
Yearly Average 1.00 0.70 0.90
Ranking of Banks 1 2 [1]
(Yearly Average)

Commitment toward 0.75 0.00 0.00 0.50 1.00 1.00 0.75 0.75
Society
Yearly Average 0.25 0.80 0.61
Ranking of Banks 4 1 [3]
(Yearly Average)

Shariah Supervisory 0.00 0.00 0.00 0.63 0.63 0.63 0.63 0.63
Board
Yearly Average 0.00 0.63 0.42
Ranking of Banks 0 1 [7]
(Yearly Average)

GRAND EII 0.37 0.24 0.29 0.56 0.66 0.69 0.69 0.63
YEARLY AVG. EII 0.30 0.65

EII = Ethical Identity Index, 
Figures in [ ] represent ranking of dimension with respect to EII.

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Table 7: Summary Table: Countrywide Comparison and Ranking of Dimensions 

Dimensions Comparison among the Three Ranking of 
Regions Dimension

(Average of the Sample Period) Bangladesh Malaysia Arab Gulf Region
Mission and Vision Statements 0.34 0.26 0.60 0.399
Ranking among three regions [2] [3] [1] [7]
Board of Directors and Top Management 0.32 0.54 0.41 0.424
Ranking among three regions [3] [1] [2] [4]
Product and Services 0.52 0.35 0.73 0.531
Ranking among three regions [2] [3] [1] [2]
Zakat, Charity, & Benevolent Loans 0.37 0.34 0.55 0.421
Ranking among three regions [2] [3] [1] [5]
Commitment toward Employees 0.47 0.28 0.49 0.413
Ranking among three regions [2] [3] [1] [6]
Commitment toward Debtor 1.00 1.00 0.90 0.967
Ranking among three regions [1] [1] [2] [1]
Commitment toward Society 0.60 0.09 0.61 0.434
Ranking among three regions [2] [3] [1] [3]
Shari‘ah Supervisory Board 0.40 0.34 0.42 0.387
Ranking among three regions [2] [3] [1] [8]

Note: Figures in bold represent best result. Figures in italics represent worst among three. 
Note: Ranking of eight dimensions is shown in [ ] in last column. 

Table 8: Regression Results
Mean of dep. var. = 16.0850 LM het. test = 6.85091 [.009]
Std. dev. of dep. var. = 24.7744 Durbin-Watson = .150326 [.000,.000]
Sum of squared residuals = 38149.7 Jarque-Bera test = 28.3504 [.000]
Variance of residuals = 605.551   Ramsey's RESET2 = .543055 [.464]
Std. error of regression = 24.6080 F (zero slopes) = 1.86853 [.177]
R-squared = .028805 Schwarz B.I.C. = 303.589
Adjusted R squared = .013389

Variable Estimated Coefficient  Standard Error t-statistic P-value
C .625924 10.9962 .056922 [.955]
EII 31.0399 24.8269 1.25025 [.216]
Standard Errors are heteroskedastic-consistent (HCTYPE=2)
Dependent variable: MPS_USD

Box 1: Eight Dimensions of Ethical Identity according to Haniffa and Hudaib (2007) 

Dimension 1: Mission and Vision Statement Dimension 2: BOD and Top Management
1. Commitments to operate within Shari‘ah 1. Names and Positions of board members and

principles/ideals top management
2. Commitments to provide returns within 2. Photos of board members and top management

Shari‘ah principles/ideals
3. Commitments to engage in investment activities 3. Profile of board members and top management 

that comply with Shari‘ah principles as indicators of their knowledge of and compe
petence in banking and the Shari‘ah

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4. Commitments to engage in financing activities 4. Balanced board
that comply with Shari‘ah principles 

5. Commitments to fulfill contractual relation- 5. No role duality
ships with various stakeholders via contract
(‘uqūd) statements

6. Current and future directions in serving the 6. Having an audit committee
needs of Muslim communities

7. Statements of appreciation to stakeholders 7. Limited multiple directorships and shareholdings

Dimension 3: Products and Services Dimension 4: Zakat, Charity, & Benevolent Funds
1. Details of investment activities 1. Which party is liable for zakat
2. If new products have been introduced, 2. If the bank is liable, whether zakat has been

whether they have been approved by the paid, the sources of zakat funds, the uses of the
SSB (ex-ante) as well as an explanation of zakat funds, any balance of zakat not distributed
the basis of the Shari‘ah concept legitimiz- and the reason for it, and the SSB’s attestation
ing the new product that they have been properly computed and that

the sources and uses of the funds are legitimate
based on God’s rules

3. Any involvement in non-permissible 3. The amount and the sources and uses of charity
activities funds, separate from the zakat funds

4. The amount and the sources and uses of benev-
olent funds

5. The bank’s policies in providing such funds 
and how non-repayment of such funds will be
dealt with

Dimension 5: Commitment toward Employee Dimension 6: Commitment toward Debtors
1. Employees’ welfare 1. Debt policy and type of debt
2. Training and development (especially in 2. Amount of debts written off

Shari‘ah awareness), amount spent on
training, provision of special training or 
recruitment schemes

3. Equal opportunity
4. Reward to Employees

Dimension 7: Commitment toward Customers Dimension 8: Shari‘ah Supervisory Board
1. Having a female branch 1. Names of SSB members
2. Creating job opportunities 2. Pictures of SSB members
3. Supporting organizations that benefit society 3. Remuneration of SSB members

and participating in government social
activities

4. Sponsoring Islamic educational and social 4. Number of meetings held
events

5. Whether the offered products contain defects,
and if there are, what are their recommendations
to rectify them and the actions taken by
management

6. Basis of examination of the documents
7. Attestation that profits and gained lawfully
8. Signatures of all members

Source: R. Haniffa and M. Hudaib (2007). “Exploring the ethical identity of Islamic banks via communica-
tion in annual reports.” Journal of Business Ethics, 76, 97-116.

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36. Carroll, “A Three-Dimensional Conceptual Model,” 497-505.

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