SHARI‘AH DISCLOSURE AND READABILITY OF ISLAMIC BANKS IN PAKISTAN

Abstract

Islamic banks are required to ensure Shari‘ah compliance as established by regulatory authorities, i.e., the State Bank of Pakistan. Stakeholders consider Shari‘ah compliance as a crucial factor when investing in these banks, which is why annual reports are produced to communicate the level of compliance. However, these reports often lack complete and readable information about the banks’ level of Shari‘ah compliance. This study analysed the extent of Shari‘ah governance disclosure and readability in annual reports of 19 Pakistani banks, including full-fledged and window Islamic banks. Using the Shari‘ah disclosure index and content analysis, the study identified the disclosure level and explored the disclosures’ readability using Bog Index in the Shari‘ah reports. Results showed that full-fledged banks had a higher level of disclosure than window banks. Meanwhile, Shari‘ah reports were generally difficult to read. Improving the level of disclosure and readability in Shari‘ah reports can have a positive impact on all stakeholders. The study provides implications for management to enhance the level of SharÊ‘ah compliance and readability, which will lead to a better understanding of the banks’ operations, increased trust in these institutions, and ultimately, contribute to the growth and development of Islamic finance in Pakistan. Stakeholders such as investors, customers, and policymakers will be able to make more informed decisions with a clearer understanding of the banks’ operations. A better reputation for Islamic banking will help attract more customers and investors, further boosting the country’s growth and development of Islamic finance.