Developing Islamic Banking Performance Measures Based on Maqasid Al-Shari’ah Framework: Cases of 24 Selected Banks

Abstract

Islamic banking has achieved remarkable growth that has surpassed the growth of the conventional banking system. Yet, studies show that the performances of Islamic banks (IBs) seem to be trailing behind the conventional banks (CBs). Is the poor performance of IBs the result of mismatch between their objectives and their performance measurement criteria or it is a reflection of their true performances? The objectives of Islamic banking had not been formally addressed. Mustafa and Taib (2009) derived the objectives of Islamic banking from Abu Zahara’s theory of the objectives of Shari’ah (Maqasid al-Shari’ah) and, based on these Shari’ah objectives, developed a model of Islamic banking performance measures. They named it as Performance Measures based on Maqasid al-Shari’ah framework or the PMMS model. This paper has tested the PMMS model on a sample 24 banks (12 IBs and 12 CBs). The twenty four banks were also evaluated using the traditional conventional financial measures. Mann-Whitney U-Test results show IBs faring well in their performances when measured using the PMMS model than when they are measured using the conventional banking performance yardstick. Policy prescriptions and recommendations for further studies are provided at the concluding section of the paper. Key words: Maqasid al-shari’ah, operationalization, PMMS Model, Simple Additive Weighting (SAW), Mann-Whitney U-Test.JEL Classification: A13, B59, C02, C6, C12, C19, C42, C43, G21, M21, P46, P47, P49

Maqasid al Shariah and Stakeholders’ Wellbeing in Islamic Banks: A Proposed Framework

“…Consistent with this view, several studies attempt to evaluate the performance of Islamic banks in terms of stakeholders' wellbeing (See for example,Abdul Razak, Mohamed, & Md Taib, 2008;Bedoui & Mansour, 2015;Ismail & Arshad, 2010;Jazil, 2013;Mohammed & Taib, 2015;Yusob et al, 2015). However, the extant literature is limited in several ways.…”

“…Few studies attempt to assess the stakeholders' wellbeing in the operations of Islamic financial institutes and banks. However, these studies have focused the secondary financial data of Islamic banks and measured the performance of Islamic banks in terms of stakeholders' wellbeing by considering the expenditures in different avenues e.g., training and development, public awareness, and social welfare etc, the financing mechanism, and the distribution mechanism of Islamic banks (See for example Asutay & Harningtyas, 2015;Bedoui & Mansour, 2015;Mohammed & Taib, 2015). However, literature lacks insight on the practitioners' point of view on the IFIs ability to ensure the wellbeing of stakeholders.…”

Ethical decision‐making in Islamic financial institutions in light of Maqasid Al‐Sharia: A conceptual framework

“…Despite the theoretical assumption that IFIs are ethical, criticisms of their lack of contribution to the aspirations of Sharia and Islamic socioeconomic objectives have been increasingly noticed in recent literature. When trying to diagnose this issue, researchers usually subscribe to the claim that IFIs do not work to achieve broader Sharia objectives (e.g., Asutay, ; Badr El Din & Ibrahim, ; Bedoui, ; Bedoui & Mansour, ; Mohammed, Abdul Razak, & Taib, ; Sairally, 2008; Antonio, Sanrego & Taufiq, 2012; Zaman & Asutay, 2009). Studies addressing this issue vary from subjective arguments to empirical evidence based on models developed to operationalize Sharia objectives and accordingly gauge the ethical performance of IFIs.…”

“…The common denominator for empirical studies is that they tend to measure Sharia objectives through proxies denoting the achievement of specific ethical aspects of performance (e.g., Antonio, Sanrego, & Taufiq, ; Bedoui, ; Bedoui & Mansour, Mohammed et al, ; Mohammed & Taib, , ; Sairally, 2008). However, such methods for gauging ethical aspects usually ignore key methodological issues including the intention of the management and shareholders, the context dependence of moral actions, the control of companies over their actions, and the level of disclosure of good deeds (Graafland, Eijffinger, & SmidJohan, ).…”

Analisis Penerapan Good Governance Bisnis Syariah Dalam Mencapai Maqashid Syariah Pada Bank Umum Syariah Di Indonesia

“…Pengukuran kinerja pada bank syariah tidak hanya terdiri dari aspek keuangan saja, tetapi juga dari aspek non keuangan yang tercermin dalam maqashid syariah (Holili, 2017). Selama ini, dalam menilai kinerja bank syariah maupun bank konvensional tidak terdapat perbedaan, padahal kedua bank tersebut memiliki kegiatan operasi yang berbeda baik prinsip maupun filosofi (Mohammed dan Taib, 2015). Karena terdapat perbedaan tersebut, maka untuk mengukur kinerja bank syariah dalam mencapai tujuannya akan lebih tepat jika menggunakan pendekatan maqashidsyariah (Kholid dan Bachtiar, 2015).…”