Objective Performance Evaluation of the Islamic Banking Services Industry: Evidence from Pakistan

Abstract

Purpose — The study documents the performance of the Islamic banking services industry (IBSI) in light of the Islamic finance objectives, notably financial stability, equitable distribution of wealth, and social responsibility. Design/Methodology/Approach — After drawing the performance evaluation framework based on the objectives, the research conducts a balance sheet analysis of the IBSI in Pakistan for 32 quarters (2013Q4–2021Q3). The analysis examines sources and uses of funds by looking at the application of financial contracts and sectoral distribution of financing. Objectively classified data trends are reported through graphs. Findings — Findings suggest that the domestic IBSI has shown progress in achieving primary and intermediate objectives, including commercial performance, contribution to equitable wealth distribution, and financial stability. However, the industry’s in-practice business models lack any significant contribution to the social sector, which represents a more advanced objective. Originality/Value — The contributions to the literature include development of a performance evaluation framework based on Islamic finance objectives, and documentation of findings on the IBSI’s achievements in Pakistan. Research Implications — The study recommends that regulators develop a legal framework for business models of the IBSI. It also recommends that managers of domestic Islamic banks include the social sector as well as agricultural and rural areas in financing and investment portfolios. Article Classification — Research paper

Performance Analysis of Islamic Banking in Pakistan Using DEA Technical Efficiency and Maqasid-e-Shariah Index

“…According to many contemporary scholars, the permissibility and validity of Islamic banking products and practices should be judged through the realization of maqās . id al-Sharī'ah (Ahmed, 2011;Ayub & Paldi, 2015;Hanif & Farooqi, 2023;Kahf, 2006;Siddiqui, 2007). Lesmana & Haron (2019) suggest that Islamic banks' performance should not be measured with a conventional yardstick alone.…”