Assessing the Performance of Islamic Banking Institutions in Pakistan and Bangladesh: A Comparative Study Employing Maqasid-e-Shari’ah Index and CAMEL Methodology

Abstract

This study evaluates the performance of Islamic banks in Pakistan and Bangladesh using the CAMEL method and the Maqasid Shariah Index (MSI). The CAMEL method assesses financial performance through key metrics: Capital adequacy, Asset quality, Management quality, Earnings, and Liquidity, while the MSI evaluates adherence to Shari’ah principles based on a weighted average of 10 ratios. By integrating these two frameworks, the study aims to analyze both financial efficiency and Shari’ah compliance and to identify potential mismatches between these dimensions.

The findings are categorized into four quadrants. In Quadrant 1, which indicates high financial efficiency and high Shari’ah performance, Meezan Bank in Pakistan and Shahjalal Islamic Bank in Bangladesh emerged as the top performers. Quadrant 2, characterized by high financial performance but low Shari’ah compliance, included Dubai Islamic Bank and Bank Alfalah from Pakistan, and Social Islamic Bank from Bangladesh. Quadrant 3, which represents low financial performance but high Shari’ah compliance, included Bank Islami and Albaraka Bank in Pakistan, and Islamic Bank Bangladesh (IBB), EXIM Bank, and First Security Islamic Bank (FSIB) in Bangladesh. Notably, no banks fell into Quadrant 4, which would indicate low performance on both fronts