Examining the Influence of Maqas ¯. id al-Shar¯ıah Orientation 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 maq¯as. id al-Shar¯ı´ah oriented performance. Arguably, it is essential that IBs enhance their maq¯as. id al-Shar¯ı´ah 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 maq¯as. id al-Shar¯ı´ah Orientation on financial performance of IBs. Methodology: The study regresses financial performance on maq¯as. id al-Shar¯ı´ah 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 maq¯as. id al-Shar¯ı´ah 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 maq¯as. id al-Shar¯ı´ah while examining the stated relationship. Practical Implication: The study suggests that Islamic banks should improve their faith and wealth oriented performances to be more prof- itable and to differentiate themselves from their conventional counterparts.