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Measuring the Performance of Islamic Banks by Adapting Conventional Ratios

Author

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  • Ahmed Mohamed Badreldin

    () (Faculty of Management Technology, The German University in Cairo)

Abstract

One consequence of the current financial crisis is that many countries began to reevaluate their financial systems and recognize its flaws and drawbacks. They also began the search for alternative systems for their economies; one of the proposed systems is the current Islamic financial model. This model is still in its infancy and many modifications and additions are required. It also lacks the necessary financial performance measurement tools similar to those used by conventional banks for managers and investors alike. This paper evaluates this lack of performance measures. It then adapts a currently applied ROE Analysis Tool used in conventional banks, to the currently established model of Islamic Banks and tests its applicability and evaluates its usefulness. The findings suggest that such an adapted model would be quite successful for use in Islamic banks and would offer much better analysis and basis of comparison within the Islamic financial system. It also suggests that much of the previously measured performance of Islamic Banks is unsound and should be revised for accuracy and reliability because of the flawed methods used for measurement in the first place.

Suggested Citation

  • Ahmed Mohamed Badreldin, 2009. "Measuring the Performance of Islamic Banks by Adapting Conventional Ratios," Working Papers 16, The German University in Cairo, Faculty of Management Technology.
  • Handle: RePEc:guc:wpaper:16
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    File URL: http://mgt.guc.edu.eg/wpapers/016badreldin2009.pdf
    File Function: First version, 2009
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    More about this item

    Keywords

    Performance measurement; ratio analysis; ROE; Islamic banks;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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