3 THE PERFORMANCE OF ISLAMIC BANKING BASED ON MAQASID AL-SHARIAH FRAMEWORK: A CASE OF SELECTED MALAYSIAN BANKS Mustafa Omar Mohammed

Universiti Sains Malaysia E-mail: mustafa@iiu.edu.my Fauziah Md Taib Universiti Sains Malaysia E-mail: mfauziah@usm.my Abstract Islamic banking (IB) has achieved remarkable growth that has surpassed its conventional counter-part. Yet, studies show that the performances of IB seem to be trailing behind their conventional counterparts. Is the poor performance of Islamic banks the result of mismatch between their objectives and their performance measurement criteria or it is a reflection of their true performances? The objectives of IB have not been formally addressed. It has been taken for granted that IB is only about avoiding riba (Siddiqi, 2000). Objectives are fundamental because they specify the activities of the organization, its performance and the measurable results that will allow the organization to know whether or not the objectives have been achieved (Wienclaw, Ruth A., 2008). Hence, this paper proposes the objectives of IB from the theory of Maqasid al-Shariah and, derives a model of IB performance measures based on these objectives. A behavioral approach operationalization method (Sekaran, 2000) and Simple Additive Weighting (SAW) (Hwang and Yoon, 1981) will be used to quantify the Maqasid into measurable indicators that will be developed into an Index called Maqasid Index (MI). The MI shall then be tested on a sample of two Islamic banks and two conventional banks in Malaysia. The four banks will also be evaluated using the traditional conventional financial measures. The results of the two tests will be compared. Policy prescriptions and recommendations for further studies are provided at the concluding section of the paper.