Abstract
While Islamic finance has developed impressively across the
globe, efforts have been initiated to measure the growth, its socio-economic
impact and realizing the objectives for which the new system has been
introduced. Some spade work has been done by experts from the platform
of Islamic Research and Training Institute (IRTI), Islamic Devloping Banks
(IDB), while Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI) and some individual researchers have made efforts
at preparing rating scales/indices for measuring overall performance,
Shar¯ı‘ah Compliance (SC) and governance. IRTI is considering about the
comprehensive Socio-Economic Development that is multidimensional
in nature and may involve other institutions like the State institutions
and the Non-Governmental Organisations (NGOs) working for poverty
alleviation or socio-economic development. This paper, however, focuses
on developing the scales for measurement of the objective achievement
by Islamic banks and financial institutions. Indices and rating scales
are necessary to enable the stakeholders to make an opinion about any
Islamic Banking and Financial Institutions (IBFIs’) adherence to Shar¯ı‘ah
principles and its performance in fiduciary capacity. As SC is the raison
d’etre of Islamic finance, the paper suggests two separate streams for the
rating, one for measuring the SC level and the other for governance and
fiduciary responsibilities. The both have been given weightage of 100
separately. Ultimate rating could be calculated by adding the score of the
both streams. It has been suggested that in case any IBFI fails to get a
certain minimum benchmark for SC, say 51 per cent, the rating assigned
could be ‘non-satisfactory’, although it might get relatively good rating for
the Governance stream. For the purpose of rating scale, the paper suggests
weightages for various modes/instruments/products keeping in view their
level of SC as also their role in realizing maq¯as.
id al-Shar¯ı‘ah. Practically,
however, it has been suggested that AAOIFI may like to constitute a Panel
of Shar¯ı‘ah Scholars and Finance Professionals to decide the weightages to
be given to various products for deciding Shar¯ı‘ah and governance based
rating of the IBFIs. The paper concludes that introduction of suitable
rating scales would be helpful in disciplining the IBFIs in terms of SC,
governance and performance.
Muhammad Ayub. (2018) Maqas¯ . id Realisation in Islamic Finance: Components of Framework for Measurement Index, Journal of Islamic Business and Management, Volume 8, Issue 1.
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