Measuring performance of islamic banks using maqasid index

Abstract

Banking Industry plays vital role in a country's economic development therefore it is important to evaluate banks’ performance. Islamic Banks performances are measured using the same mechanism, which considers only financial ratios that are shareholder oriented. From Shariah point of view it is insufficient. The objectives of this paper are twofolds, firstly, to determine the performance of Islamic banks in Malaysia by using Maqasid Index that integrates the Shariah principles with financial ratios by applying Simple Additive Weightage (SAW). Secondly to identify the indicators contributing to the performance using Panel Data Analysis. The scope of this research is nine local Islamic Banks in Malaysia. The study found that Alliance Bank outperformed the other banks based on Maqasid Index. The indicators that significantly contribute to the performance of Islamic banks are fair returns, profit ratio, and investment ratio in real sectors.