Performance Analysis of Islamic Banking in Pakistan Using DEA Technical Efficiency and Maqasid-e-Shariah Index

Abstract

Purpose: The goal of Islamic banking is to offer Shariah compliant
products along with ultimate objective of high performance.
Methodology: We use maqa¯s. id al-Shar¯ı‘ah index (MSI) to assess the
level of Shar¯ı‘ah compliant and DEA technical efficiency score to measure
the performance of Islamic banks in Pakistan. Results of efficiency and
MSI scores are combined and plotted on four quadrants. Since the best
bank is set as benchmark, the study provides relative results not absolute.
Findings: The study has four main findings based on the results. Meezan
Bank falls in quadrant 1 which achieves highest level of technical efficiency
and high level of MSI score. Bank Islami and Al-barakah Bank fall in
quadrant 2 which depicts that both banks achieve high technical efficiency
but low MSI scores. Dubai Islamic Bank falls in quadrant 3 having low
score in technical efficiency and high score in MSI. Quadrant 4 has the
lowest level in both the technical efficiency and MSI. None of the banks
falls in this quadrant. Although, Meezan Bank achieves the highest level
of MSI, nevertheless all banks are required to improve the MSI scores.
Originality/Significance: Large number of studies uses the DEA approach to measure the efficiency of Islamic banks. On the other hand, another set of research studies prefer MSI approach to determine the efficiency of Islamic banks. 
Practical and Social Implications: Since all Islamic banks are meant to achieve highest possible level of maqa¯s. id al-Shar¯ı‘ah, the management of these banks has to focus on improving MSI scores along with highest technical efficiency.