Industry Article

Islamic financial institutions (IFIs), which comprise a range of financial institutions including banks, non-bank finance companies, venture capital firms, insurance companies and mutual funds, have shown tremendous growth and financial performance over the last decade. IFIs were founded on certain basic principles that differentiated them from conventional financial services industry,i.e. ethics and socio-economic objectives in line with the ‘Maqasid Al-Shariah’ or objectives of the Shariah (herein refered to as the Maqasid). However, the use of conventional financial reporting and the dominant capitalist system in which the IFIs operate has resulted in the use of conventional accounting performance measurement tools, and the extent to which these institutions achieve their fundamental objectives is therefore not clear. This article proposes and tests a model of performance analysis which can evaluate whether the tremendous financial growth of this sector has been in line with the Maqasid.