Analysing Islamic banking ethical performance from Maqāṣid al-Sharī‘ah perspective: evidence from Indonesia

This paper aims to investigate Islamic banking performance based on higher ethical objectives enshrined within Sharī‘ah (Islamic legal rulings); namely, Maqāṣid al-Sharī‘ah. First, we examine the importance of both ethical and social concerns on bank performance in general. Second, we analyse the ethical and social performance of Islamic banks (IBs) based on the Maqāṣid al-Sharī‘ah Index (MSI) that emphasises disclosures related to education, social justice, and redistribution of wealth. Third, we investigate how far IBs have gone towards achieving Maqāṣid al-Sharī‘ah goals during the last decade, post-global financial crises (GFC) period, with a particular focus on Indonesia as a case study. Hence, testing whether IBs achieve socio-economic justice and attain best practice by securing social good. The selected banks’ annual reports were examined, applying content analysis to obtain the necessary data, using the Simple Additive Weighting (SAW) method to determine the level of Maqāṣid in the sample. Empirical evidence suggests that conventional performance measurements do not truly reflect IBs’ higher ethical objectives, and create a deficiency of attaining Maqāṣid al-Sharī‘ah performance in these banks. This research extends the previous literature on evaluating the performance of IBs beyond the financial return, which includes their ethical and social identity based on the Maqāṣid al-Sharī‘ah scale, especially the post-GFC period. The result also reveals that there is a financial cost to achieving the Maqāṣid al-Sharī‘ah, as IBs that achieved high MSI scores have sacrificed financially. This supports the findings of the literature that IBs prefer financial returns over their ethical and social impact.