Corporate Social Responsibility Moderates the Nexus between Financial Inclusion and Islamic Financial Stability

Abstract

This research work checks the influence of the financial inclusion index (FI) and corporate social responsibility index (CSRI) on financial stability, profitability, and return on equity of the Islamic banks of Pakistan. Further, research works to check whether the corporate social responsibility index plays a moderating role in the association between the financial inclusion and financial stability of Islamic banks and windows of Islamic conventional banks of Pakistan. The corporate social responsibility index was measured through the contribution of social activity to society. Financial inclusion was measured through financial access to the entire society without any discrimination against society. In this paper, samples of the Islamic banks including the Islamic window of the conventional banks for 2005 to 2020 are investigated. Further, the data is selected of the variables from the financial statement and balance sheet of the banks. The fixed effects and generalized moments of the method are employed to check the affiliation between the FI and CSR on the stability and profitability of Islamic banks. The generalized moment of method (GMM) has been employed on the panel data set to control the endogeneity from the model. The empirical results of this research study have the following conclusion: Firstly, FI has a constructive and significant impact on the financial stability and profitability of the banks. Secondly, corporate social responsibility has a positive and significant impact on stability and profitability. Finally, the interaction term corporate social responsibility has a positive and significantly moderating effect on the relationship with the financial inclusion on the stability (FS) and profitability on the Islamic banks.