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Measuring the Performance of Islamic Banks by Adapting Conventional Ratios

Ahmed Mohamed Badreldin

affiliation not provided to SSRN

October 21, 2009

German University in Cairo Working Paper No. 16

One consequence of the current financial crisis is that many countries began to reevaluate their financial systems and recognize its flaws and drawbacks. They also began the search for alternative systems for their economies; one of the proposed systems is the current Islamic financial model. This model is still in its infancy and many modifications and additions are required. It also lacks the necessary financial performance measurement tools similar to those used by conventional banks for managers and investors alike. This paper evaluates this lack of performance measures. It then adapts a currently applied ROE Analysis Tool used in conventional banks, to the currently established model of Islamic Banks and tests its applicability and evaluates its usefulness. The findings suggest that such an adapted model would be quite successful for use in Islamic banks and would offer much better analysis and basis of comparison within the Islamic financial system. It also suggests that much of the previously measured performance of Islamic Banks is unsound and should be revised for accuracy and reliability because of the flawed methods used for measurement in the first place.

Number of Pages in PDF File: 28

Keywords: Islamic banks, Performance measurement, Ratio analysis, ROE

JEL Classification: G21, G29

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Date posted: October 22, 2009  

Suggested Citation

Badreldin, Ahmed Mohamed, Measuring the Performance of Islamic Banks by Adapting Conventional Ratios (October 21, 2009). German University in Cairo Working Paper No. 16. Available at SSRN: https://ssrn.com/abstract=1492192 or http://dx.doi.org/10.2139/ssrn.1492192

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Ahmed Mohamed Badreldin (Contact Author)
affiliation not provided to SSRN
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