Maq Asid Al-Shari‘Ah Index for Islamic Banking Institutions

Journal of Islamic Business and Management, 7(1), 28-38, 2017, DOI: 10.26501/jibm/2017.0701-003

11 Pages Posted: 31 May 2018

See all articles by Sajjad Zaheer

Sajjad Zaheer

State Bank of Pakistan - Monetary Policy Department

Warda Rasool

State Bank of Pakistan - Islamic Banking Department

Date Written: 2017

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-Sharı‘ah. Accordingly,we suggest an index for the Islamic banking industry based on the maq asid al-Sharı‘ah through which the Islamic banks’ performance can be appraised from the maq asid al-Sharı‘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-Sharı‘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-Sharı‘ah. To construct an index, we evaluate the Islamic banking services by the four maq asid namely h.ifzal-mal, h.ifz.al-ıman, 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 Sharı‘ah compliance fullfil the maq asid al-Sharı‘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-Sharı‘ah. This study has directly related the Islamic banking services with the objectives of Sharı‘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 Sharı‘ah compliance of the products and services offered by various banks with a dual objective to encourage the banks to raise their Sharı‘ah compliance level and rating, and also guide the stakeholders in the selection of the banks.

Keywords: Islamic Banking, Maq¯as. id al-Shar¯ı‘ah Index, Pakistan

JEL Classification: C43, G21, Z12

Suggested Citation

Zaheer, Sajjad and Rasool, Warda, Maq Asid Al-Shari‘Ah Index for Islamic Banking Institutions (2017). Journal of Islamic Business and Management, 7(1), 28-38, 2017, DOI: 10.26501/jibm/2017.0701-003. Available at SSRN: https://ssrn.com/abstract=3180524

Sajjad Zaheer (Contact Author)

State Bank of Pakistan - Monetary Policy Department ( email )

I.I. Chundrigar Road
Karachi, 74000
Pakistan

Warda Rasool

State Bank of Pakistan - Islamic Banking Department

I.I. Chundrigar Road
Karachi, 74000
Pakistan

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