CSR and Legitimacy of Indonesian Islamic Banks

Abstract

Every bank needs to strengthen their society's acceptance to exist and grow in the long term. As a country with the largest Muslim population, Islamic banks’ market share in Indonesia is still relatively small. These banks should obtain legitimacy from stakeholders for business continuity and growth. To ensure legitimacy, the impact of all of the corporation's activities on society's welfare is a significant concern. Several studies showed that CSR activities are needed to increase legitimacy. However, previous studies regarding CSR and legitimacy mostly used the positive paradigm, and mostly conducted in Western societies. Since the discussion on this matter in Islamic banking in Indonesia is not yet found, this study aims to understand how Islamic banks in Indonesia implement CSR to gain legitimacy using an Islamic perspective. This research is based on the ontology that reality is constructed by business actors who implement CSR programs. A qualitative case study is used by interviewing practitioners who are in charge of CSR programs in the two largest Islamic banks in Indonesia and supported by banks’ reports. This study reveals how legitimacy is achieved in the context of an Indonesian Islamic bank.