WhetherShari’ahcompliance efficiency is a matter for the financial performance

Abstract

Purpose Shari’ah is the foundation of Islamic banks. Although all the Islamic banks required complying with the Shari’ah requirements fully, the level of compliance differs among the Islamic banks. At the same time, Islamic banks have been performing well, but all do not demonstrate similar financial performance. This paper aims to explore whether Shari’ah compliance efficiency makes any difference in financial performance of Islami Bank Bangladesh Limited (IBBL). Design/methodology/approach This study used IBBL as a case. For exploring the issue of study, this paper applied an e-mail interview approach and interviewed 24 interviewees including financial analysts, IBBL clients and executives of regulatory bodies, the IBBL and other Islamic- and interest-based traditional banks. Interview opinions are then analyzed and interpreted for a deeper understanding of the topic. Findings The study observed that some other factors influence the financial performance of IBBL, but Shari’ah compliance is the dominant instinct of acquiring the leading position. Superior Shari’ah compliance creates internal strengths and external opportunities that facilitate IBBL in achieving higher financial performance. Most interviewees argued that Shari’ah is the only disposition that makes IBBL unique. Moreover, the bank that considerably follows Shari’ah gets better financial outcomes. Research limitations/implications The study used a qualitative method using interview responses only for evaluating the relationship between Shari’ah compliance and financial performance. Further study may be conducted based on a quantitative approach. Practical implications This paper expects to uphold the significance of Shari’ah in improving the financial performance of IBBL and simultaneously motivating the parties associated with the Islamic banks in enhancing the level of Shari’ah compliance. Moreover, this study provides new insights into the importance Islamic banks and their performance in relation to the choice of customers. Originality/value This study explores the significance of Shari’ah compliance in creating avenues for greater financial performance and develops a model showing the ways how Shari’ah compliance leads Islamic banks to achieve higher financial positions.

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