Maqasid al-Sharı‘ah Index for Islamic Banking Institutions

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 maqāṣid al-Sharīʿah. Accordingly, we suggest an index through which the Islamic banks’ performance can be appraised from the maqāṣid al-Sharīʿah 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 maqāṣid al-Sharīʿah index using detailed information. The index is used to have a relative evaluation of the Islamic banks regarding their advancement towards achieving the maqāṣid al-Sharīʿah. To construct an index, we evaluate the Islamic banking services by the four maqāṣid namely ḥifẓ al-māl, ḥifẓ al-īmān, ḥifẓ al-ʿaql, and ḥifẓ al-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 Sharīʿah compliance fullfil the maqāṣid al-Sharīʿah 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 maqāṣid al-Sharīʿah. This study has directly related the Islamic banking services with the objectives of Sharīʿah and provided a measurable index for the Islamic banking industry.