Sources and Uses of Charity Fund Accounts: A Comparative Analysis of Islamic Banks in Pakistan

Abstract

Charity Fund Account (CFA) is a unique account of Islamic banks (IBs) where all Shari‘ah non- compliant earnings of the banks are transferred. However, unfortunately, this has got the least attention in the academic literature so far. This case study explored the sources and uses of charity funds accounts of four Islamic banks in Pakistan. It also analyzed the disclosure level of information regarding these sources and uses of funds. The study applied content analysis technique on disclosures of charity fund composition. The study uses five-year secondary data (2014-2018) of four Islamic banks (Meezan Bank, Dubai Islamic Bank, Bank Al Barakah and Bank Islami) collected from their financial statements. The findings of the study were that there is no uniformity in the disclosure of sources and uses of charity accounts funds of the selected banks. The Meezan Bank’s disclosure level was higher than the rest of the three banks. Further, among these four banks, the Dubai Islamic banks’ late payment charges showed more decreasing trend over time. It means that Dubai Islamic banks performed better in controls and monitoring. The SBP as a regulator should make a detailed policy regarding disclosure of charity funds account to ensure uniformity and ultimately the comparability of these accounts.