Corporate Social Responsibility in Islamic and Conventional Banking Systems in Pakistan

Corporate Social Responsibility (CSR) is the most important issue in the world. Pakistani banking system is very strong and works as a backbone in the economy. Conventional banking system has very deep roots in this system whereas Islamic banking system is at its start. However, both banking sectors are trying to play their positive role in the implementation of CSR in Pakistan. As there is a huge competition among Islamic and conventional banks in the country, it has raised concerns about their social and environmental performance as well. The purpose of this study is to check the priority of CSR by Islamic and conventional banking system in Pakistan. Another purpose is to check the impact of CSR on the banking performance and stability in the country. For this, the implementation of CSR theories has been checked among all banks and their practices and banking policies have been studied in detail. It has been found that self-induced vices, regulatory flexibility, unpredictable macro-economic environment and corruption in the economy are the major constraints to the discharge of CSR in Pakistani banking system. However, Islamic banks have less impact of these factors due to the reasons that their banking practices are based on Sharia'h principles. In the light of the findings, it is suggested that State Bank of Pakistan should separate the roles of banks' supervision from fiscal policy management for a more effective economic, social and environmental viability of the banking system. This should be anchored on effective corporate governance in the Islamic and conventional banking institutions in Pakistan.