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.

Design/methodology/approach:

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 implications:

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.

Keywords

Maqas ¯. id al-Shar¯ıah, Al-Ghazali Model, Financial Performance, Islamic Banks