Is Shariah compliance important in the measurement of the performance of Islamic banks?
Performance of Islamic financial institution, such as Islamic bank, should not only cover the financial performance or benefit for shareholders, but should also cover the benefit for extended stakeholders, the community, the environment, etc. Of course, Shariah compliance is a must, and should be expanded to the maqasid Shariah.
Yes, from the various context it's an important element to consider.
Dear Abdul Aziz,
I totally agree with Ascarya and Iftekhar, Sharia compliant is a fundamental factor in Islamic banks and also as you might know there should be Sharia supervisory board that verifies and check Sharia compliance of operations and transactions.
The above answers have explained clearly regarding your question. Here I would like to add up some more on the matter. It's very crucial due to several reasons.
First, Islamic Banks (IBs) have shariah-compliant risk whereby they are required to fulfill Islamic law in their business operation. As such, sharia-compliant measurement on their performance is important to mitigate shariah issues.
Second, what are the standards to see how "Islamic" is an IB? Though there's no standard benchmark, shariah-compliant measurement can be an alternative.
And how to measure IBs' Shariah performance? The above Ascarya has the right answer, it should be expanded to maqasid shariah.
Yes.
Islamic Bank Maqashid Index is what I mean.
You could refer to my paper on that topic.