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Developing Islamic Banking Performance Measures Based On Maqasid Al-Shari’Ah Framework: Cases Of 24 Selected Banks

Author

Listed:
  • Mustafa Omar Mohammed

    (International Islamic University Malaysia)

  • Fauziah Md Taib

    (University Sains Malaysia)

Abstract

Islamic banking has achieved remarkable growth that has surpassed the growth of the conventional banking system. Yet, studies show that the performances of Islamic banks (IBs) seem to be trailing behind the conventional banks (CBs). Is the poor performance of IBs the result of mismatch between their objectives and their performance measurement criteria or it is a reflection of their true performances? The objectives of Islamic banking had not been formally addressed. Mustafa and Taib (2009) derived the objectives of Islamic banking from Abu Zahara’s theory of the objectives of Shari’ah (Maqasid al-Shari’ah) and, based on these Shari’ah objectives, developed a model of Islamic banking performance measures. They named it as Performance Measures based on Maqasid al-Shari’ah framework or the PMMS model. This paper has tested the PMMS model on a sample 24 banks (12 IBs and 12 CBs). The twenty four banks were also evaluated using the traditional conventional financial measures. Mann-Whitney U-Test results show IBs faring well in their performances when measured using the PMMS model than when they are measured using the conventional banking performance yardstick. Policy prescriptions and recommendations for further studies are provided at the concluding section of the paper. Classification-JEL: A13, B59, C02, C6, C12, C19, C42, C43, G21, M21, P46, P47, P49

Suggested Citation

  • Mustafa Omar Mohammed & Fauziah Md Taib, 2015. "Developing Islamic Banking Performance Measures Based On Maqasid Al-Shari’Ah Framework: Cases Of 24 Selected Banks," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 1(1), pages 55-78, August.
    • Handle: RePEc:idn:jimfjn:v:1:y:2015:i:1c:p:55-78
    DOI: https://doi.org/10.21098/jimf.v1i1.483
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    Keywords

    Maqasid al-shari’ah; operationalization; PMMS Model; Simple Additive Weighting (SAW); Mann-Whitney U-Test;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • B59 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Other
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • P46 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty
    • P47 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Performance and Prospects
    • P49 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Other

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