Toward the development of an Islamic banking sustainability performance index

Abstract

Purpose The purpose of this paper is to suggest a model that yields a sustainability performance index for Islamic banks (IBs). This index is expected to account for stakeholders’ viewpoints while considering sustainability and Maqasid Al-Shariah as bases. Design/methodology/approach First, based on the relevant literature review refined through consultations with academic, banking and Shariah experts, the main stakeholders and their corresponding lists of relevant attributes and sub-attributes are identified. Then, adopting a multi-attribute utility approach and based on a second step of interviews with experts, an aggregated index is suggested. Finally, the developed index is applied to five famous Islamic banking groups over the period 2005–2019. Findings Empirical evidence shows that the banks used in the implementation do not achieve high scores of the suggested index. This can be interpreted through a lack of Islamic normative aspects and low adherence to sustainability practices. Specifically, they are not functioning on a justice basis and are deficient in providing sufficient varieties of Islamic products. They are also more interested in economic sustainability and are not involved in environmental and social ones. Originality/value The developed index not only considers the compliance of the banking activities with Shariah, but it also addresses their sustainability from the main stakeholders’ perspectives. The suggested model provides a transparent performance evaluation tool for IBs omitting all causes of conflict of interests and certifies the fairness of the resulting assessments.