Analysing Banking Compliance from Maqasid Shariah Perspective: Evidence from Islamic and Conventional Bank in Indonesia

Abstract

Using the Shariah (Islamic legal rulings) and its higher ethical objectives namely the maqasid shariah, the purpose of this paper is to analyze the success of Banking in Indonesia. The maqasid shariah index (MSI) and limited maqasid shariah index (LMSI) are emphasizes disclosures regarding education, social justice, and redistribution of wealth. Researchers assess the ethical and social performance of selected banks in Indonesia from its annual reports. Simple Additive Weighting (SAW) technique used to calculate the sample’s MSI score. Empirical evidence suggests that conventional performance measurements do not truly reflect IBs’ higher ethical objectives and create a deficiency of attaining maqasid shariah performance in these banks. This study extends the previous literature on evaluating the performance of banks beyond the financial return to include their ethical and social identity based on the maqasid shariah scale, particularly over the past five years. The result reveal that there is a financial cost to achieving the maqasid shariah, as in the model generated from the panel data regression which shows a significant negative relationship between MSI and ROA for Islamic banks. Different results were obtained in analyzing conventional banks and mixed banks (Islamic banks and conventional banks) using the Limited MSI (LMSI). LMSI has a significant positive relationship to ROA in both conventional banks and Islamic banks. This happens because the elements used in MSI and LMSI calculations are different.