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Corporate social responsibility In Islam

 

 

 

 

 

 

Corporate social responsibility

In Islam

Hussein Elasrag

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTENTS

 

 

1 INTRODUCTION 1

  • 2 THE CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY 11*

[* Corporate Social Responsibility: Definitions and History 13*]

ISLAMIC CORPORATE SOCIAL RESPONSIBILITY 35

  • The Concepts Of Business Ethics And Corporate Social Responsibility 38*

Benefits of Corporate Social Responsibility 51

  • 3 THE BASIS FOR ISLAMIC SOCIAL RESPONSIBILITY 75*

Appendices 115

References 124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[] 1 INTRODUCTION

 

 

 

 

Islam provides a basis and guideline for living one’s life. Within this, there is a very detailed concept of ethical and social behaviour which allows us to deduce that the concept of social responsibility automatically has a role in Islam. This is a critical point that must be firstly understood as the role of moral ethics has been underpinned in Islam for over 1400 years whilst the concept of CSR remains relatively new for businesses today.

Corporate Social Responsibility (CSR) has been associated with related terms like business ethics, corporate performance, corporate accountability, corporate responsibility and stake holder involvement. In recent years CSR has grown into a well-known collective expression. The growth of CSR has been a result of organizations realizing their responsibility toward their stake holders in the context of business scandals (e.g. Enron) and a growing concern for environmental changes (e.g. global warming). ^^1^^

The European Union defines CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis” (European Commission, 2002). According to Vernon and Mackenzie (2007), the question of whether companies should seek to do good by exercising CSR, rather than concentrate solely on wealth creation, is no longer interesting and in fact the focus today is on how well companies do good. Increasingly stake holders expect companies to take on public responsibility. Companies engage in CSR through diverse activities such as donating to charitable organizations (e.g. Ben and Jerry’s), ‘green’ activities (e.g. moves by major retailers to eliminate plastic bags and promote ‘green’ bags) and by implementing environment friendly purchase and supply policies. A survey conducted by Research International, however, found that while CSR practices are commendable, they need to be viewed with caution as these activities are not sufficient in and of themselves (Social Funds, 2000).

Before going to understanding the concept Corporate Social Responsibility on Islamic perspective, we need to know the Islamic Worldview. Islam is a complete code of life. The fundamental of Islam such as aqidah,( belief and faith) ibadah (worship) and akhlaq (morality and ethics) are not subject to change, their manifestation in secondary areas like economics,

business and other worldly activities would require flexibility and development according to time and space. This is embodied in Islamic Shari’ah which is central to the worldview of Islam. Normally, the Shari’ah as Islamic Law, but the boundaries of Shari’ah extend beyond the limited horizons of law. The concept of CSR in Islam encompasses a broader meaning embracing the taqwa (God consciousness) dimension by which corporation as group of individual, assuming the roles and responsibility as servants and vicegerents in all situations.

 

The difference between Islam and most other religions is that it did not content itself with merely establishing acts of worship and abandon the needs of society to a Caesar or any form of temporal governing body. Rather, Islam established ways of conduct, relationships, and rights and obligations for the individual vis-à-vis members of his family and the nation and for the nation vis-à-vis other nations. The reform of society was the main target of Islam. Even acts of worship contribute to the achieving of this reform. Within the framework of human society, the Islamic nation is a compact union having recourse to itself, possessing an inner sense of responsibility for its own members, and resisting decay, both individually and collectively.

 

This social solidarity (takaful) is apparent in all aspects of Prophet Muhammad’s Message. The history of mankind shows that few societies have developed as strong a sense of solidarity or have cooperated as closely or acted as mercifully as have Islamic societies.Developing this two-way responsibility is Islam’s principal way of achieving reform and social solidarity.The individual’s responsibility for the community in Islamic societies and conversely the community’s responsibility for the individual are of primary magnitude, constituting a trust of life and the highest of its responsibilities. It is for that reason that Islam introduced community worship. Islam also enjoins the group not to neglect the individual, obligating it to safeguard his various interests, to respect his rights and freedom, and to harmonize different interests. In Islam, praying in groups is preferred many times over to praying individually.The individual is thus an integral element of the Islamic society; he perfects it and is perfected by it, he gives to it and receives from it and he protects it, and is protected by it. Developing this two-way responsibility is Islam’s principal way of achieving reform and social solidarity. Islam has impressed the meaning of these two types of responsibility on the individual and collective conscience in order to guarantee for Muslims the life of a unified, sound, happy, and productive body in a classless community.^^2^^

The value of social responsibility, either individually or collectively, has been recognised throughout history, and more structured programs for endowments and zakat were introduced by Islam in the 7th century. Major organisations throughout the world now realise that corporate social responsibility (CSR) is an important part of a company’s operations, because of its positive impact on society, which in turn impacts positively on staff members and the general public.^^3^^

 

The scope of this book is to briefly outline some of the major aspects of Islam which give consideration for businesses and their push towards Corporate Social Responsibility. It considers the belief system of Islam and how this belief has a significant underpinning of social behaviour.

 

 

 

 

 

 

[] 2 THE CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY

 

The field of corporate social responsibility (CSR) has grown exponentially in the last decade. More companies than ever before are engaged in serious efforts to define and integrate CSR into all aspects of their business, with their experiences being bolstered by a growing body of evidence that CSR has a positive impact on business economic performance. All of this is taking place against the backdrop of an ever more complex global economy with continuing economic, social and environmental inequities.

 

Most companies have considered social responsibility as a passive response to social pressure from the outside market. Now however, companies are positively responding to CSR demands. CSR is beginning to be incorporated into management processes in areas of investment, finance, and procurement. In other words, both the production process and the management process have become important factors in evaluating business, in addition to the more traditional factors of quality and cost of products. Further, because the power of choice that consumers and investors hold in the marketplace puts pressure on companies, this behavior serves as a message from the market, providing either positive or negative sanction. Comprehensive evaluations of corporate financial and non-financial value are developing in the market. The market is beginning to choose socially responsible and sustainable companies.

 

 

 

  • * Corporate Social Responsibility: Definitions and History

 

Corporate Social Responsibility (CSR) is a concept that has attracted worldwide attention and acquired a new resonance in the global economy. Heightened interest in CSR in recent years has stemmed from the advent of globalization and international trade , which have reflected in increased business complexity and new demands for enhanced transparency and corporate citizenship. Moreover, while governments have traditionally assumed sole responsibility for the improvement of the living conditions of the population, society’s needs have exceeded the capabilities of governments to fulfill them. In this context, the spotlight is increasingly turning to focus on the role of business in society and progressive companies are seeking to differentiate themselves through engagement in CSR.

Corporate Social Responsibility CSR is an idea that has been constantly evolving as business firms are continually more aware of the community around them. CSR encompasses a business firm’s obligation to society beyond simply maximizing its profits . CSR was not taken seriously and sometimes mocked by business firms before the late 1970s.The change in approach toward CSR can be partially attributed to the enactment of new legislation that created many of the regulatory government agencies during this time period. The new legislation provided business firms with an added incentive to earmark appropriate amounts of fiscal resources to CSR, rather than face harsh government regulation. The attitude toward CSR changed

drastically by the late 1990s, as CSR was now a mainstream idea being promoted by different facets of society, ranging from corporations to governments.

Corporate social responsibility (CSR) has grown enormously in the last thirty years and most business organizations feel to give in charity. The business organizations involving charitable giving and reflecting the highly competitive environment of the 1990s has been termed ‘‘strategic charity’’. It involves corporate giving which serves dual purposes: contributing funds to charitable causes while simultaneously benefiting the firm’s financial bottom line and enhancing business political legitimacy. ‘‘Strategic charity’’ has become an accepted practice that allows a corporation to satisfy altruistic impulses to contribute in charitable causes while serving the bottom line. In this way the corporate community investment has emerged through the objectives of CSR programmes and business organizations some times take care of neighbor through its philanthropic responsibility programmes. Pure charity is concerned with assistance to education, arts and culture, health and social services, civic and community projects. While ‘‘strategic charity’’ combines pure philanthropy and business sponsorship with giving programmes that are directly or indirectly linked to business objectives. One of the characteristics of the ‘‘strategic charity’’ is a joint sponsorship of one or more corporations’ programmes to implement through purposefully created charity foundations in order to optimize the charity value.

 

A significant number of terms and definitions are used, including; corporate responsibility, corporate accountability, corporate ethics, corporate citizenship, sustainability, stewardship, triple bottom line and responsible business. CSR could be defined as the voluntary integration of environmental, social and human rights considerations into business operations, over and above legal requirements and contractual obligations. CSR is the commitment of an organization to act in a manner that serves the interests of its stakeholders and is concerned with the ways that companies generate profits and their impact on the broader community. It is about how companies manage their business processes to produce an overall positive impact on society. McAlister (2005) and Carroll (1993) mentioned that there is a widespread acceptance of the view that if a business is to prosper, then the environment in which it operates must prosper as well. This means that business must adopt approaches in which companies see themselves as part of a wider social system.

 

 

This responsibility is overwhelming and encompasses all aspects of a Muslim’s life. It comprises a prescription towards positive (permissible and recommended) actions and a prescription against negative (impermissible and not recommended) actions. IFIs have generally ensured their operational status by avoiding negative actions. However, their approach to positive actions has been varied due to a lack of standards in the area.

 

The combination of these principles denotes a divine accountability for each Muslim to enjoin good and justice and forbid evil and injustice. These core principles therefore constitute the basis of individual social responsibility.

 

Milton Friedman is one of the architects of the movement against social responsibility, writing what is considered by many the seminal piece of work disparaging CSR and the businesses who promoting their CSR credentials.

Friedman’s objection to CSR was two-fold. First, he argued that managers were accountable to the owners of the business and that,unless they otherwise signalled, the assumption should be that the owners wanted the profits of the company to be maximised. The corollary is that for Friedman CSR is a net expenditure with no positive benefits for the company. Somewhat curiously, he added that it was possible for companies to make community investments but if these had some company advantages (e.g. workforce loyalty, productivity), they should not be considered as CSR. The conclusion here is that Friedman did not regard social and private Interests as potentially in conformance – rather they are dichotomous. This will betaken up later in the paper underthe heading, the ‘socialisation of markets’.

Secondly, Friedman argued that CSR encroached on the proper terrain of (democratic) government and that managers are neither trained in addressing public policy questions and thus lack appropriate expertise, nor are they accountable for public policy issues. In both cases the contrast is made with legislators and public servants, both of whom he sees as having expertise and being properly accountable. In short, Friedman (1970) offers

another dichotomy, in this case between the work of government and the business of business.

 

According to Friedman (1970 cited in  Galbreath 2009, p.111  ), it is the firm responsibility to meet the economic needs and that only leads to the welfare of the society and it is the role of the government, service organizations, educational institution to meet the societal welfare.

Galbreath, (2009) cited that after the publication of the thesis of Friedman, (1970)   there was much research on the social responsibilities of the firm. Galbreath, (2009) states that ‘In the late 1970s, Carroll (1979) offered one of the first – and perhaps still the most widely accepted conceptualisations of CSR (Matten and Crane, 2005).’ ^^4^^

In Galbreath (2009), Carroll’s (1979) model conceptualises the responsibilities of the firm as:

#
p(((((<>{color:#000;}. The economic responsibility to generate profits;

#
p(((((<>{color:#000;}. the legal responsibility to comply by local, state, federal, and relevant international laws;

#
p(((((<>{color:#000;}. The ethical responsibility to meet other social expectations, not written as law (e.g. avoiding harm or social injury, respecting moral rights of individuals, doing what is right, just, fair); and

#
p(((((<>{color:#000;}. The discretionary responsibility to meet additional behaviours and activities that society finds desirable (e.g. philanthropic initiatives such as contributing  money to various kinds of social or cultural enterprises).

 

Nowadays, companies have become more aware and mindful of their responsibilities, roles and rights towards the society. They are seen to have implemented activities, practices and guidelines in order to fulfill their legal, ethical, social and environmental responsibilities to stakeholders, which include shareholders, employees, customers, suppliers and the environment and society in general. These actions have been given many terms, including: (1) Corporate Responsibility or CR, (2) Corporate Social and Environmental Responsibility or CSER, (3) Corporate Citizenship, (4) Corporate Accountability, and lastly, (5) Socially Responsible Business (SRB) (Raynard & Forstater, 2002). However, the most famous terminology would have to be Corporate Social Responsibility or CSR.

CSR first began to be written about by academics in the 20th century. The term Corporate Social Responsibility and the modern view on CSR are largely attributed to Howard Bowen, who is considered by many scholars, especially Carroll, as the father of CSR. Bowen conceived CSR as an integral part of a larger vision of a better American society with a robust and socially responsible business sector. Before Bowen wrote his book in 1953, CSR was not a generally accepted practice among businesses in the United States.^^5^^

 

The business community needs to be aware of the responsibility it has towards the society. CSR does not mean just taking part in charitable activities and events, it means holding the responsibility to develop the society by envisioning future plans for socio-economic justice and be conscious about their responsibility for the welfare of society around them. The business community is highly qualified to set a plan for social change, and integrate their development goals with the country’s at large, as well as engage with the other organisations on collaborative projects.

 

 

Islamic ethical principles provide a broader framework for CSR. In terms of responsibility and accountability, Muslims believe that they will be accounted for whatever they do in this world in the hereafter (life after death). In Islam, Muslims verily have to fulfill the will of Allah in order to seek the promised rewards in the hereafter. Thus, it requires that every deed and word in this world must be in line with the Islamic teachings. The importance of accountability to the man’s life also has been manifested by the Prophet Muhammad (PBUH) as “each one of you is a guardian and each guardian is accountable to everything under his care”. Individuals are expected to feel socially responsible for others in the community. In general, the aim of the Islamic economic system is to allow people to earn their living in a fair and profitable way on the basis of Shariah without exploitation of others, so that the whole society may get benefits. Islam also emphasizes the welfare of the community over individual rights.

 

CSR in the world view of Islam requires both individuals and organisations to be guided in the development of a moral self that distinguishes between right and wrong and never loses sight of its responsibilities towards God and mankind. Islam as a religion has not lost its general influence on societies where it is practiced and constitutes a ‘complete way of life’ for the followers with specific implications for economic life and hence the role that responsible business can play in the development of a community/society/economy based upon the principles of social justice and equity rather than efficiency or profit generation^^6^^.

Over the years, CSR has been developed from the classical ‘profit-centred model’ to the modern ‘socially responsible model’ (see Carroll (1999) for a comprehensive overview). The classical model states that the management’s only legitimate goal is to maximize profit. Milton Friedman (1962), who has been recognized as an advocate of this view, believes that the primary responsibility of managers and directors is to operate in the best interests of the shareholders who are essentially the true owners of a corporation. The classical view perceives that corporate expenditure on social causes is a violation of management’s responsibility to shareholders at least to the extent that these expenditures do not lead to higher shareholder wealth. On the other hand, Frank Abrams (1954) stated that a firm’s management is responsible for maintaining an equitable and working balance among the claims of the various directly interested groups such as stockholders,employees, customers and the public at large. The World Business Council for Sustainable Development (WBCSD, 1999) viewed CSR as a continuous commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce,their families and society at large. CSR means different things to different stakeholders, and Baker (2007) highlighted that in different countries there will be different priorities and values that will shape how business undertakes its CSR. The WBCSD in its publication Making Good Business Sense also highlighted some evidence of the different perceptions of CSR from a number of different societies across the world.

 

 

CSR literature identifies several driving forces behind the growing trend towards CSR initiatives:

#
p(((((<>{color:#000;}. There is growing market pressure, wherein customers, employees, or capital markets exert some form of preference, pressure or signal. Social and ethical issue shave received increasing public attention and affected market performance, in addition to the traditional price and brand preferences. The growth of the ethical investment industry is another indicator of how much emphasis people are now apparently placing on the social and ethical behaviour of companies.

#
p(((((<>{color:#000;}. There has been an increasing regulatory pressure ranging from reporting requirements to government regulations that introduce compulsory business standards by which companies of all sizes have to abide.

#
p(((((<>{color:#000;}. Increased power of communications (e.g. internet, electronic media, and others) have driven consumers and pressure groups like social activists, non-governmental organizations (NGOs) and trade unions to scrutinize the activities of companies more effectively and develop strategies that may influence companies to act in a socially responsible way.

#
p(((((<>{color:#000;}. There is a competitive advantage that companies believe they can reap by being socially responsible. They foresee that by communicating effectively about their social, environmental and economic contributions, they can strengthen their brand, enhance their corporate reputation with customers and suppliers, and attract and retain a committed and skilled workforce. Indeed, extant literature asserts that, the commitment to CSR will in turn lead to better performance in terms of profitability, competitiveness and risk management.

 

 

 

 

[] ISLAMIC CORPORATE SOCIAL RESPONSIBILITY

 

The prevailing concept of corporate social responsibility refers to the expectations that society has of business not to harm, and also to contribute positively to the well being of others. Corporations have numerous responsibilities to all those who have a stake in it and these responsibilities derive from ethical principles and moral values. Similar values with features consistent with CSR also exist in Islamic values and moral philosophy. This section will elaborate this by looking at Islam and the basic principles of this religion that also govern commercial life and highlight the presence of a rich vein of values and principles in Islamic jurisprudence (fiqh) similar to the prevailing notion of CSR.

The concept of social responsibility in Islam is discussed in light of Islamic religious values and beliefs according to Shariah, the sacred law of Islam derived from the holy Qur’an (book of divine revelation), Hadith (sayings and deeds of the holy Prophet Mohammed [PBUH]), Ijma (consensus), Qiyas (reasoning by analogy), and Maslaha (public interest). The purpose of the Islamic system (maqasid al Shariah) is material as well as spiritual. The goal of an Islamic social system is based on falah (human well-being) and hayat tayyibah (good life), both of which stress brotherhood and socio-economic justice, as well as a balance between the material and spiritual requirements of all human being that is necessary to preserve and enrich faith, life intellect, posterity and wealth. The concept of social responsibility and justice in Islam in light of the holy Qur’an and Hadith suggests that there seems to be congruence between the ideals of social responsibility and justice and business transactions in Islam that has a resonance with prevailing notions of corporate social responsibility (CSR). This perspective on social justice and responsibility lays the foundation for the study of Islamic understandings and practice of corporate social responsibility. From this viewpoint, within Islam, as it is practiced amongst Muslims, the relationship between commercial activity and civil society is taken as natural and the rules of practice are embedded in the Islamic precepts.

 

 

  • * The Concepts Of Business Ethics And Corporate Social Responsibility

There has been over the last three decades a growing emphasis on companies to conduct ethically sound behaviour and practice behaviour governed by ethical code of conduct prescribed by the corporate policy. The birth of industrialization did not bring the need for ethics but the drastic consequences did, in the form of child labour, dishonest trade, lack of systematic procedures and inequity in various aspects in the businesses. Social awareness from 1960s onwards forced companies to consider ethical behaviour, which refines their actions morally and in turn produces a positive image of the company in the eyes of the existing or potential customers and the society as a whole in which the company operates. But this is where the debate arises. Ethics are good for business, as it has been claimed by many business authors. However, ethical decision making is by the most complex decision making situation that companies face today. What is ethically right to one is wrong to another. This so happens owing to the definition of ethics, according to which it is the discipline that examines one’s moral standards or moral standards of the society. Every individual and society has its own set of values, beliefs and morals and the resultant is a conflict among different ethical decisions which pose a dilemma for managers of companies which are fast expanding across the global and taking into consideration a diverse customer base as well as a diverse workforce belonging to different cultures and different moral orientations. Following strong ethically behaviour and catering to the rights of individuals and societies which are major stakeholders in the companies, companies follow a socially responsible behaviour which is quality of running a good business. The need for companies to be socially responsible and ethically sound is a complex issue for the companies as they put forward cost complications as well. But nonetheless, the argument that good ethics are good for businesses is well supported and companies who are not following ethically sound behaviour are facing tremendous challenges in sustaining profitable performance of their operations. It has been argued that commitment to socially responsible behaviour and ethically sound practices is an effective long term strategy and it may lead to short term losses but its benefits are spread across the longer run, which companies have to realize to adapt. The concept of sustainable value emerges in the context of long term corporate social responsibility which companies are increasingly benefiting from.^^7^^

Over the past 50 years, business ethicists and management theorists have devoted much effort to thinking through the business-society relationship . These ethicists developed models that could be modified or compromised to suit evolving social interests. In general there are six major ethical models that now dominate ethical thinking leading to the concept of corporate social responsibility. These can be summarized as following:

1. Relativism – Ethical decisions are made on the basis of self-interest and needs, excluding any interaction with or input from the outside.

2. Utilitarianism – Ethical decisions are made on the basis of calculating costs and benefits. Utilitarianism is generally considered outcome oriented. Whatever is good for majority is considered ethical.

 

3. Universalism – Ethical decisions stress on the intention of the decision or action (duty). Everyone under similar circumstances should reach similar decisions.

4. Rights – Ethical decisions stress a single value – liberty, and are based on individual rights (individual entitlement) ensuring freedom of choice.

 

5. Distributive Justice – Ethical decisions revolve around a single value – justice. To be considered ethical, decisions and actions should ensure an equitable distribution of wealth and benefits (fairness and equality).

6. Eternal Law – Ethical decisions are made on the basis of eternal law, which is revealed in scripture.

 

These ethical models provide a background to the concept of corporate social responsibility. There have been efforts to conceptualise ethical behaviour in terms of business practices of corporations in society. Much of this work has specifically focused on theorizing what responsibility corporations have to society and what the consequences of related actions or inactions are.

 

In Islamic perspective, CSR encompasses a broader meaning embracing the value of righteousness (taqwa) in all situations, by which everyone in the organization must play his/her roles and responsibilities as servant and vicegerent. A person with righteousness value understands their role in this worldly life is to manage and develop the world in accordance with the shari’ah principle and value. The core principles of Islamic CSR are derived from Qur’an and Sunnah, while the major foundations of Islamic CSR principles are unity, vicegerency and trusteeship, justice and equilibrium, and rights and responsibilities .

 

#
p(((((<>{color:#000;}. Unity

 

 

Unity of Allah is the first principle in Islam, because Allah is the One and absolutely One who creates the earth and universe. The Qur’an (57:5) states that Allah is the ultimate owner of everything on earth and universe and man is ultimately accountable to Allah (Qur’an, 2:28). It means that, by accepting Unity of Allah, all commercial activities must be in accordance to shari’ah principle and value.

 

#
p(((((<>{color:#000;}. Vicegerency and Trusteeship

 

 

Man is a vicegerent (khalifah) or representative of Allah on earth and trustee of Allah resources. As a khalifah or leader in organization, they have greater responsibility to utilize things that belongs to Allah to utilize all these given facilities by Allah to best of their abilities to create maximum added value to the organization itself and to the whole community as well.

 

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p(((((<>{color:#000;}. Justice and Equilibrium

 

 

According to Parvez (2000), human beings are equal and human interactions should be based on trust, equity and justice. In Islam, human beings are khalifah (leaders). In order to fulfill their role as vicegerencies, they should collaborate and support each other, be honest, sincere, keep the promises and truthful in their business dealings. Equilibrium must be practiced by treating people fairly and justly in wage distribution without discrimination. Through justice and equilibrium principle, organization can create harmonious lives in all societies.

***

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Corporate social responsibility In Islam

Islam provides a basis and guideline for living one’s life. Within this, there is a very detailed concept of ethical and social behavior which allows us to deduce that the concept of social responsibility automatically has a role in Islam. This is a critical point that must be firstly understood as the role of moral ethics has been underpinned in Islam for over 1400 years whilst the concept of CSR remains relatively new for businesses today. The scope of this book is to briefly outline some of the major aspects of Islam which give consideration for businesses and their push towards Corporate Social Responsibility. It considers the belief system of Islam and how this belief has a significant underpinning of social behavior.

  • ISBN: 9781370342594
  • Author: Hussein Elasrag
  • Published: 2016-11-20 19:50:22
  • Words: 12622
Corporate social responsibility In Islam Corporate social responsibility In Islam