Developing Maqasid al-Shari’ah Index to Evaluate Social Performance of Islamic Banks: A Conceptual and Empirical Attempt

Abstract

The rise of Islamic banking and finance is now a reality with Shari 'ah compliant financial operations existing in many different parts of the world. However, its development has recently been subjected to criticism in relation to the aspirational objectives of Islamic moral economy, which constitutes the moral foundations of Islamic finance. The aspirational objectives are general expressed with maqasid al-Shari'ah, which is defined as 'human well-being'. The aim of this research, hence, is to evaluate the social performance of Islamic banks according to maqasid al-Shari'ah upon the realization of Islamic Moral Economy aspirations. AbdelMajid Najjar's concept of maqasid al-Shari 'ah with eight orientations or articulations is adopted to construct an evaluation framework aligned with the objective of rendering a critical improvement of current empirical studies. In operationalizing the developed framework, this study conducts empirical investigations by taking 13 banks from 6 countries for 5-year period (2008-2012) as a sample. In doing so, the annual reports of the sampled banks for the period are subjected to content analysis to generate the necessary data in applying to the formulated framework. Empirical evidence indicates that there is lack of achievement in maqasid al- Shari 'ah performance of Islamic bank and finance. Nevertheless, the overall industry concentrates mainly on self, faith and rights and stakeholding rather than wealth orientation, despite the fewer contributions in social entity, intellect, posterity and ecology. Additionally, the empirical results find that there are different orientations across the banks and countries. Finally, the industry orientation is estimated in this research, which is located to be somewhere betweenfaith and rights and stakeholding.