Impact of Maqasid al-Shariah Based Social Performance on Financial Performance of Islamic Banks: Evidence from Pakistan

The current study examined the impact of Maqasid al-Shariah based social performance of Islamic banks on their financial performance. It regressed financial performance on Maqasid al-Shariah based social performance using a robust fixed effect model after controlling for capital ratio, operating expense ratio, liquidity risk, and capital intensity. Unbalanced panel data was collected from the annual reports of all full-fledged Islamic banks operating in Pakistan for the period 2008-2018. The results revealed a significant positive influence of Maqasid al-Shariah based social performance on financial performance, inferring that an improved Maqasid al-Shariah based social performance leads to superior financial performance. Therefore, it is recommended that Islamic banks should increase their Maqasid al-Shariah based social performance. It will not only enhance their ‘Islamic’ image but will also improve their financial performance, resulting in creation of/increasing their shareholders’ wealth. This study contributes to the literature on the relationship between social performance and financial performance by measuring social performance from the perspective of Maqasid al-Shariah