Islamic Social Banking: A Distinctive or Integral Part of Islamic Banking?

Abstract

Realizing the weaknesses in the conventional banking system, whose aim is to maximize profit without compromising the moral economy, the notion of social banking emerged. To contribute to the development of people and the planet today and in the future, social banks were introduced in Western countries as value-driven institutions that prioritize social and environmental impacts alongside their financial returns. This significant feature of social banking is originally rooted in the aspiration of Islamic banking establishments to promote a balance between social and economic justice. However, scholars have discussed the possibility of setting up a stand-alone distinctive Islamic social banking, as the current practice of Islamic banking has yet to address moral issues. Thus, this study aims to revisit the notions of social banking, Islamic social banking, and Islamic banking to redesign our understanding of the ultimate role of Islamic banking. This paper also discusses the social sustainability features and practices of Islamic banks and social banks using the Maqasid al-Shariah. Considering the current social sustainability contributions of Islamic banks, the study discovers that Islamic banks are practicing and improving their roles in both social and economic wellbeing, implying that Islamic social banks are unnecessary. The implication of the study is to develop an impact measurement model to gauge the implementation of socio-economic activities by Islamic banks to uphold the role of Islamic banking in promoting a social and fair economy.