Islamic practices and small and medium enterprises performance: Is corporate social responsibility a missing link?

• Published date: 01 May 2022
• Author: Yasir Aziz,Rizwan Ullah,Fadillah Mansor,Luqman Haji Abdullah
• Date: 01 May 2022
• DOI: http://doi.org/10.1002/pa.2314

ACADEMIC PAPER

Islamic practices and small and medium enterprises

performance: Is corporate social responsibility a missing link?

Yasir Aziz

1

| Rizwan Ullah

2

| Fadillah Mansor

1

| Luqman Haji Abdullah

3

1

Department of Shariah and Management,

Academy of Islamic Studies, University of

Malaya, Kuala Lumpur, Malaysia

2

Institute of Business Administration, Gomal

University, Dera Ismail Khan, Pakistan

3

Department of Fiqh and Usul, Academy of

Islamic Studies, University of Malaya, Kuala

Lumpur, Malaysia

Correspondence

Dr Fadillah Mansor, Head of Department,

Department of Shariah and Management,

Academy of Islamic Studies, University of

Malaya. 50603 Kuala Lumpur, Malaysia.

Email: fadillah@um.edu.my

We examined the role of Islamic practices: Islamic work ethics, Islamic social finance,

and religiosity in financial and environmental performances with corporate social

responsibility (CSR) as a mediator. We collected data from 241 Pakistani enterprises

through survey and applied structural equation modeling in AMOS. The results

showed that Islamic work ethics and Islamic social finance have insignificant effects

on financial performance but a significant influence on environmental performance.

Religiosity has a significant effect on financial but an insignificant influence on envi-

ronmental performance. Islamic practices significantly improve CSR activities in the

SMEs, resulting in financial and environmental performances. Our research further

showed that CSR partially mediates the effects of Islamic practices on financial and

environmental performances. Top management of the SMEs is suggested to follow

Islamic practices in order to configure their performance (financial and environmen-

tal). This research suggests policy implications for the policy makers to encourage

Islamic practices in business dealing and trading in order to configure CSR and envi-

ronmental practices.

1|INTRODUCTION

Islam is a complete code oflife incorporating guidance in all fieldsof life,

including thecorporate and economic systems (Hamidullah,1973). Sha-

riah is the complete code of life, which gover ns different aspects of life

to promotesocial justice and ensuresharmonized society.Adherence to

Shariah principles and following the footsteps of the Prophet Muham-

mad (PBUH) are the key responsibilities of a Muslim in all walks of life

(4:59).Islam is a complete code of life incorporating guidancein all fields

of life, including the corporateand economic system. Likeother fields of

life, Islamprovides a comprehensive code of conduct regardingthe eco-

nomic life of thepeople extending to individuals, regional, national, and

international levels, whereas the decisions are guided by faith

(Alawneh,1998). In business practice, Muslimsare autonomous to make

decisions but subject to the provision of the Islamic teachings and are

bound to follow the Islamic framework for exercising their decisions

with the appropriateness of gaining benefits with a certain interest of

society (Ali & Gibbs, 1998). The basic underlying principles are the con-

cepts of inclusivity, whichpromote the mutual benefits of the members

to bring harmony and prosperity to the society. Governing commercial

activities, Shariah described in detail the operational and managerial

aspects of business intending for enhanced success, performance

(i.e., financial and nonfinancial) contributing to humanity (Rafiki &

Wahab,2013).

Numerous studies have examined and discussed the Islamic prac-

tices and their effects on business performance (Elias, Yaacob, &

Othman, 2018; Rafiki & Wahab, 2013; Samad, Said, Kamarulzaman, &

Mahshar, 2015); however, still some areas warrant further research

particularly the role of Islamic practices, Islamic work ethics (IWE),

Islamic social finance, and religiosity in financial and environmental

performances have been neglected. Additionally, it is not yet known

either the Islamic practices directly or indirectly contribute to financial

and environmental performance via corporate social responsibility

(CSR). Furthermore, the generating mechanism through which, these

practices affect the organizational performances. In this context, in

the light of the teachings of Islam, which promotes harmony in the

society, the concept of CSR is important, therefore, it is important to

examine the role of the CSR between the Islamic practices and the

organizational practices. Additionally, financial outcomes and enter-

prises are now diverting toward sustainability practices because of

Received: 10 June 2020 Revised: 14 July 2020 Accepted: 17 July 2020

DOI: 10.1002/pa.2314

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https://doi.org/10.1002/pa.2314