Corporate Zakat Regulation and Zakat as Proxy for CSR: What Is Their Role on Islamic Banks’ Performance?

This study explores the impact of Zakat, used as a CSR proxy, and corporate Zakat regulations on the financial performance of Islamic banks (IBs). It analyzes panel data from 12 IBs across eight countries from 2016 to 2023, totaling 96 observations, and controls for size, age, leverage, and previous financial performance. The results show a positive correlation between CSR and IBs’ financial outcomes, but a negative correlation with corporate Zakat regulations, suggesting that such regulations might reduce short-term performance. However, in line with stakeholder theory, integrating Zakat into CSR strategies can improve long-term financial performance and fulfill ethical obligations, bringing prosperity to society and the giver. The study recommends that governments and IBs view Zakat as a strategic CSR component that enhances financial performance and aligns with Shariah principles.