Maqasid al-Shari‘ah Index for Islamic Banking Institutions

Abstract

The main aim of the study is to provide an index for the Islamic banking industry through which the performance of the Islamic banks can be gauged on the maq asid al-Shari‘ah. Accordingly,we suggest an index for the Islamic banking industry based on the maq asid al-Shari‘ah through which the Islamic banks’ performance can be appraised from the maq asid al-Shari‘ah perspective. The index incorporates quantitative and qualitative information of the Islamic banks and assigns the ratings accordingly. We also applied the criteria to 5 Islamic banks in Pakistan and computed their maq asid al-Shari‘ah index using detailed information. The index is used to have a relative evaluation of the Islamic banks regarding their advancement towards achieving the maq asid al-Shari‘ah. To construct an index, we evaluate the Islamic banking services by the four maq asid namely h.ifzal-mal, h.ifz.al-iman, h.ifz.al-‘aql, and h.ifzal-nafs. Using the quantitative and qualitative information, the index shows each bank’s rating. The paper finds that the banks with more prudent practices regarding the financial performance and Shari‘ah compliance fullfil the maq asid al-Shari‘ah in a better manner and accordingly get a higher index ranking. The stakeholders of the Islamic banking would prefer to have the industry evaluated as per maq asid al-Shari‘ah. This study has directly related the Islamic banking services with the objectives of Shari‘ah and provided a measurable index for the Islamic banking industry. The suggested index can be used mainly by the regulatory bodies. Future studies may focus more on the aspect and level of Shari‘ah compliance of the products and services offered by various banks with a dual objective to encourage the banks to raise their Shari‘ah compliance level and rating, and also guide the stakeholders in the selection of the banks.