A scientific study proves that Takaful insurers who openly share their social and environmental efforts become more financially stable – especially during tough times like COVID-19. But the research also contains a surprising warning about women on corporate boards in Saudi Arabia.
When the COVID-19 pandemic swept the world, many businesses collapsed. Insurance companies faced waves of claims and economic uncertainty. But a study from Saudi Arabia reveals a powerful weapon that helped some Islamic insurance companies survive – and even thrive: telling the public about their good deeds.
This is not about marketing. It is about corporate social responsibility (CSR) disclosure – voluntarily reporting how a company helps the environment, treats its workers, supports communities, and ensures product quality. And for Takaful (Islamic cooperative insurance) companies, it made a measurable difference.
What Did the Study Find?
Researchers from Imam Mohammad Ibn Saud Islamic University analyzed 26 Saudi Takaful insurers over five years (2020–2024) – a period covering the COVID-19 crisis. They examined annual reports, financial statements, and corporate governance data. Their conclusion is striking:
Companies that disclosed more CSR activities were significantly more financially stable. In fact, a one-standard-deviation increase in CSR disclosure translated into a 3.27% rise in financial stability (measured by the Z-score, which tracks the distance from bankruptcy risk).
Why? Two major theories explain it:
- Stakeholder theory: When a company shows it cares about employees, communities, and the environment, stakeholders (customers, investors, regulators) trust it more. That trust translates into loyalty, investment, and leniency during hard times.
- Risk-management theory: CSR disclosure forces managers to act responsibly. It reduces legal risks, operational failures, and reputational damage – all of which can bankrupt an insurer.
What Kind of “Good Deeds” Count?
The study used a detailed 41-item CSR disclosure index covering four categories:
- Environmental actions: recycling, pollution control, energy saving, waste disposal.
- Employee welfare: training, healthcare, safety, housing loans, pension schemes.
- Community involvement: endowments (waqf), scholarships, medical centers, reducing unemployment.
- Product quality: customer service, complaint handling, fair pricing, warranty.
A Takaful insurer that reports, for example, “We have established a scholarship fund for 50 students” or “We reduced our carbon emissions by 15%” – that is CSR disclosure. And the study proves it directly boosts financial stability.
The Surprising (and Controversial) Finding on Women Directors
Here is where the study gets unexpected – and uncomfortable.
The researchers expected that having more women on corporate boards (board gender diversity or BGD) would strengthen the positive effect of CSR disclosure. After all, global research shows that women often bring higher ethical standards, better risk management, and stronger stakeholder focus.
But in Saudi Takaful companies, the opposite happened. The presence of female directors actually weakened the positive link between CSR disclosure and financial stability.
Why?
The study offers several explanations, grounded in Saudi Arabia’s unique context:
- Tokenism, not power: Women hold only 1.73% of board seats on average. With such low representation, female directors become “symbols” rather than active decision-makers. They lack the numbers to influence strategy.
- Cultural constraints: Saudi Arabia is a male-centric society. Public leadership roles for women remain limited, especially in religiously oriented organizations like Takaful insurers. Social norms may prevent female directors from fully contributing.
- Institutional theory: Imposing gender diversity rules without changing the underlying corporate culture does not work. If the existing environment does not value women’s voices, adding a few female directors changes nothing.
The study’s authors state clearly: “Placing women on boards isn’t sufficient. There must be a supportive corporate culture to tap their worth.”
This finding does not mean women are bad for business. Rather, it means that mere presence is not enough. Empowerment requires critical mass, real authority, and cultural acceptance.
Other Control Factors: What Helped and What Did Not
The study also examined other corporate governance features:
| Governance Factor | Effect on Financial Stability |
|---|---|
| Board size (more directors) | Positive – larger boards bring more skills and experience |
| Independent non-executive directors | No significant effect |
| Shariah Supervisory Board size | Negative – too many scholars complicates coordination |
| Audit committee size | No significant effect |
| Board meeting frequency | No significant effect (pandemic disrupted meetings) |
| Company age | No significant effect |
The positive effect of board size aligns with resource dependence theory: more directors mean more connections, knowledge, and resources.
The negative effect of a large Shariah board is interesting. Agency theory suggests that too many members create coordination problems and slower decisions – exactly what you do not want during a crisis.
Why Takaful Is Different from Conventional Insurance
Unlike conventional insurance (which transfers risk from policyholder to insurer), Takaful is based on cooperation and mutual guarantee. Participants contribute to a pool, and the company manages the pool as a trustee. This structure is inherently more aligned with CSR and ethical behavior.
The study emphasizes that in Islam, CSR is not optional. It is rooted in taqwa (God-consciousness), tawhid (oneness of God), and the principle of accountability before Allah. A Takaful insurer that ignores social responsibility is not only bad business – it is religiously deficient.
What This Means for You (Policyholder, Investor, or Citizen)
If you are a Muslim considering Takaful insurance, look for companies that publish detailed CSR reports. They are likely to be more stable, especially during economic shocks.
If you are an investor, prioritize Takaful insurers with strong CSR disclosure. The study provides rigorous evidence that this leads to lower bankruptcy risk.
If you are a policymaker in a Muslim-majority country, the study offers two clear lessons:
- Mandate and standardize CSR disclosure for Takaful insurers. It works.
- Do not stop at “adding women to boards.” Ensure they have real power, critical mass, and a supportive culture. Tokenism backfires.
Impact of CSR Disclosure and Board Gender Diversity on Takaful Financial Stability (Z-Score)
| Variable | Effect on Financial Stability | Statistical Significance | Interpretation |
|---|---|---|---|
| CSR Disclosure (CSR_DISC) | Positive (+3.27% per 1 SD increase) | 1% (very strong) | More CSR reporting = more stable insurer |
| Board Gender Diversity (BGD) (alone) | Negative | 5% (significant) | More women (at very low numbers) associated with lower stability |
| Interaction (CSR_DISC × BGD) | Negative | 1% (very strong) | Women directors weaken the positive effect of CSR disclosure |
| Board Size (BSZ) | Positive | 1% (very strong) | Larger boards bring more resources |
| Shariah Supervisory Board Size (SSBZS) | Negative | 1% (very strong) | Too many scholars slows decision-making |
*Source: Hachicha, Jouber & Benyoussef (2025), Discover Sustainability, based on 130 firm-year observations from 26 Saudi Takaful insurers (2020–2024)*
The Saudi Context: Vision 2030 and Women’s Empowerment
Saudi Arabia has made dramatic progress in women’s empowerment. The labor force participation rate for women reached 33.2% by late 2020. The World Bank rated Saudi Arabia as the “leading reformer in female empowerment and gender equality” in 2020.
But change takes time. The insurance sector still lags. By the end of 2019, women held less than 1% of director seats in Saudi insurance companies. The study’s average of 1.73% for 2020–2024 shows improvement, but it remains far below critical mass (generally considered 30%).
The study’s negative finding on BGD is not a condemnation of women. It is a condemnation of superficial compliance. As the authors note, “increasing female representation is ineffective unless it is congruent with the existing cultural and institutional environment.”
Categories of CSR Disclosure That Boost Takaful Financial Stability (41-item index)
| Category | Examples of Disclosed Activities | Why It Helps Financial Stability |
|---|---|---|
| Environment | Recycling, pollution control, energy saving, waste disposal | Reduces regulatory fines and environmental lawsuits |
| Employee Welfare | Training, healthcare, safety, housing loans, pensions | Improves productivity, reduces turnover and labor disputes |
| Community Involvement | Endowments (waqf), scholarships, medical centers, job creation | Builds public goodwill and customer loyalty during crises |
| Product Quality & Safety | Complaint handling, fair pricing, warranty, packaging improvements | Reduces customer lawsuits and reputational damage |
Source: Compiled from Appendix A of Hachicha et al. (2025), based on Mousa et al. (2018)
Conclusion: Good Deeds Are Good Business (But Tokenism Is Not)
This study, published in a major Springer Nature journal, provides clear evidence that CSR disclosure directly improves financial stability for Takaful insurers during crises. Every director, manager, and policymaker in Islamic finance should take note.
But the surprising finding on board gender diversity is equally important. It warns against checking boxes without changing minds. Adding women to boards without giving them power, without reaching critical mass, and without transforming corporate culture does not help – it may even hurt financial stability.
The Quran commands justice, accountability, and social responsibility. A Takaful insurer that embraces these values – and reports them honestly – will be rewarded with both divine blessing and financial soundness. But a company that merely pretends to be diverse or responsible, without substance, will find no protection from Allah or from the market.
As the Prophet Muhammad (peace be upon him) said: “Each of you is a shepherd and each of you is responsible for his flock.” Corporate leaders, including board members of all genders, are shepherds. And their responsibility includes transparently reporting how they serve society.
Reference: here
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