Examining the Influence of Maqasid al-Shariah Oriented Performance on Financial Performance of Islamic Banks: Evidence from Pakistan

Abstract

Purpose: Islamic Banks (IBs) have been criticized for convergence
towards their conventional counterparts by replicating their products.
This criticism may be reinforced due to their poor maqa¯s.
id al-Shar¯ıah´
oriented performance. Arguably, it is essential that IBs enhance their
maqa¯s.
id al-Shar¯ıah oriented performance to differentiate themselves from ´
conventional banks and to improve their public image of being ‘Islamic’.
In this context, the purpose of the present study is to evaluate the impact
of maqas¯.
id al-Shar¯ıah Orientation on financial performance of IBs. ´
Methodology: The study regresses financial performance on maqa¯s.
id
al-Shar¯ıah oriented performance by applying fixed effects model. ´
Unbalanced panel data, for the period of 2008-2020, has been extracted
from the annual reports of five full-fledged Islamic banks operating
in Pakistan. The study uses five independent variables that represent
maqa¯s.
id al-Shar¯ıah orientation namely, protection of faith, protection of ´
life, protection of intellect, protection of family and protection of wealth.
Findings: The results reveal that faith and wealth-oriented performances
have positive relationships whereas family-oriented performance has a
negative relationship with financial performance.
Significance: The present study evaluates the impact of five major
Maqasid al-Shariah on financial performance whereas the existing
literature focuses on fewer maqa¯s.
id al-Shar¯ıah while examining the stated ´
relationship.
Practical Implication: The study suggests that Islamic banks should
improve their faith and wealth-oriented performances to be more profitable and to differentiate themselves from their conventional counterparts.