DETERMINANTS OF MAQĀṢID AL-SHARĪ‘AH-BASED PERFORMANCE MEASUREMENT PRACTICES: THE CASE OF MALAYSIAN ISLAMIC BANKS
This study aims at investigating the practice of Maqāṣid al-Sharī‘ah based performance measures, determinants of its successful implementation and its impact on Islamic bank performance. Understanding the extent that Islamic banks are institutionalizing Maqāṣid al-Sharī‘ah based performance measures (Maqāṣid PMs) will provide greater insights into the development of Islamic banking in achieving the Islamic financial system objectives. A total of 146 questionnaires were distributed to all business units of all 16 Islamic commercial banks in Malaysia. The study found that contrary to the contemporary scepticism, Islamic banks in Malaysia are indeed promoting and committed to achieving Maqāṣid al-Sharī‘ah with the relevant performance measures in place. Specifically, the study found that performance measures for public interest and fairness are widely used by the Islamic banks. With communication technology and regulatory compliance, use of Maqāṣid al-Sharī‘ah based performance measures as Islamic banks’ performance driver becomes more potent.
Abdul Majid, M., and M.K. Hassan. “The Impact of Foreign-Owned Islamic Banks and Islamic Bank Subsidiaries on The Efficiency and Productivity Change of Malaysian Banks.” Islamic Econ. 24, no. 2 (2011): 147-74.
Abdul Rahman, A.R. An Introduction to Islamic Accounting Theory and Practice. Kuala Lumpur: CERT Publication, 2010.
______. “Ethics in Accounting Education: Contribution of Islamic Principle of Maṣlaḥah.” IIUM Journal of Economics and Management 11, no.1 (2003): 31-49.
Abdul Rasid, S.Z. “Management Accounting System in Financial Institutions: Influencing Factors, Organizational Performance and Risk Management.” PhD dissertation, International Islamic University Malaysia, 2009.
______, and A.R. Abdul Rahman. “Management Accounting Systems in Islamic and Conventional Financial Institutions in Malaysia.” Journal of Islamic Accounting and Business Research 2, no. 2 (2011): 153-76.
Abdul Razak, D., and Y. Ismail. “Diminishing Partnership: Bankers Strategic Response to Shariah Compliant Home Financing.” International Journal of Economics, Management and Accounting, Supplementary Issue 19 (2011): 177-96.
Abu Bakar, M., and A. Abd Ghani. “Towards Achieving the Quality of Life in the Management of Zakat Distribution to the Rightful Recipients (the Poor and Needy).” International Journal of Business and Social Science 2 (2011): 237-45.
Ahmad, S., and A.R. Abdul Rahman. “The Efficiency of Islamic and Conventional Commercial Banks in Malaysia.” International Journal of Islamic and Middle Eastern Finance and Management 5, no. 3 (2012): 241-53.
Al-Najjar, S.M. and K.H. Kalaf. “Designing a Balanced Scorecard to Measure a Bank’s Performance: A Case Study.” International Journal of Business Administration 3, no. 4 (2012): 44-53.
Alam, N. “Impact of Banking Regulation on Risk and Efficiency in Islamic Banking.” Journal of Financial Reporting and Accounting 11, no. 1 (2013): 29-50.
Anand, M., B.S. Sahay and S. Saha. “Balance Scorecard in Indian Companies.” Vikalpa 30, no. 2 (2005): 11-25.
Baines, A., and K. Langfield-Smith. “Antecedents to Management Accounting Change: A Structural Equation Approach.” Accounting, Organizations and Society 28 (2003): 675–98.
Bank Negara Malaysia. “Sharī‘ah Governance Framework, 2010”. http://www.bnm.gov.my/guidelines/05_shariah/02_Shariah_Governance_Framework_20101026.pdf.
______. 2014. http://www.bnm.gov.my.
Barth, J.R., C. Lin, Y. Ma, J. Seade, and F.M. Song. “Do Bank Regulation, Supervision and Monitoring Enhance or Impede Bank Efficiency?” Journal of Banking and Finance 37 (2013): 2879-92.
______, G. Caprio, and R. Levine. “Bank Regulation and Supervision: What Works Best?” Journal of Financial Intermediation 13 (2004): 205-48.
Bastian, E., and M. Muchlish. “Perceived Environment Uncertainty, Business Strategy, Performance Measurement Systems and Organizational Performance.” Social and Behavioral Sciences 65 (2012): 787-92.
Beck, T., A. Demirgüç-Kunt, and O. Merrouche. “Islamic vs. Conventional Banking: Business Model, Efficiency and Stability.” Journal of Banking & Finance 37 (2013): 433-47.
Behery, M.H., and T.I. Eldomiaty. “Stakeholder-Oriented Banks and Bank Performance: Perspectives from International Business Management.” International Journal of Commerce and Management 20, no. 2 (2010): 120-50.
Bledsoe, N.L., and R.W. Ingram. “Customer Satisfaction Through Performance Evaluation.” Journal of Cost Management, (Winter, 1997): 43-5.
Bouwens, J., and M.A. Abernethy. “The Consequences of Customization on Management Accounting System Design.” Accounting, Organizations and Society 25 (2000): 221–41.
Brignall, S., and J. Ballantine. “Performance Measurement in Service Businesses Revisited.” International Journal of Service Industry Management 7, no. 1 (1996): 6-31.
Chenhall, R.H. “Management Control Systems Design within its Organizational Context: Findings from Contingency-Based Research and Directions for the Future.” Accounting, Organizations and Society 28, no. 2-3 (2003): 127-68.
______, and D. Morris. “The Impact of Structure, Environment, and Interdependence on the Perceived Usefulness of Management Accounting Systems.” The Accounting Review 61, no. 1 (1986): 16-35.
______, and K. Langfield-Smith. “Factors Influencing the Role of Management Accounting in the Development of Performance Measures within Organizational Change Program.” Management Accounting Research 9, no. 4 (1998): 361-86.
______. “Multiple Perspectives of Performance Measures.” European Management Journal 25, no. 4 (2007): 266-82.
Chong, V.K., I.R.C. Eggleton, and M.K.C. Leong “The Impacts of Market Competition and Budgetary Participation on Job Performance and Job Satisfaction: A Research Note.” The British Accounting Review 37(2005): 115-33.
Cumby, J., and J. Conrod. “Non-Financial Performance Measures in the Canadian Biotechnology Industry.” Journal of Intellectual Capital 2, no. 3 (2001): 261-72.
Damanpour, F. “Organizational Innovation: A Meta-Analysis of Effects of Determinants and Moderators.” Academy of Management Journal 34, no. 3 (1991): 555-90.
Dangolani, S.K. “The Impact of Information Technology in Banking System: A Case Study in Bank Keshavarzi, Iran.” Procedia-Social and Behavioral Sciences 30 (2011): 13-6.
Das, S.R., and M.P. Joshi. “Process Innovativeness in Technology Services Organization: Roles of Differentiation Strategy, Operational Economy and Risk Taking Propensity.” Journal of Operation Management 25, no. 3 (2007): 643-60.
Davis, S., and T. Albright. “An Investigation of the Effect of Balanced Scorecard Implementation on Financial Performance.” Management Accounting Research 15 (2004): 135–53.
Deng, Q., W.P. Wong, H.P. Wooi, and C.M. Xiong. “An Engineering Method to Measure the Bank Productivity Effect in Malaysia During 2001-2008.” System Engineering Procedia 2 (2011): 1-11.
Dusuki, A.W., and N.I. Abdullah. “Why Do Malaysian Customers Patronize Islamic Banks.” International Journal of Bank Marketing 25, no. 3 (2007): 142-60.
Eljelly, A.M.A., and A.A. Elobeed. “Performance Indicators of Banks in a Total Islamic Banking System: The Case of Sudan.” International Journal of Islamic and Middle Eastern Finance and Management 6, no. 2 (2013): 142-55.
Farook, S., M.K. Hassan, and R. Lanis. “Determinants of Corporate Social Responsibility Disclosure: The Case of Islamic Banks.” Journal of Islamic Accounting and Business Research 2, no. 2 (2011): 114-41.
Fleming, D.M., C.W. Chan, and G. Chen. “Strategy, Performance-Measurement Systems, and Performance: A Study of Chinese Firms.” The International Journal of Accounting 44 (2009): 256-78.
Franceschini, F., M. Galetto, and E. Turina. “Techniques for Impact Evaluation of Performance Measurement Systems.” International Journal of Quality & Reliability Management 30, no. 2 (2013): 197-220.
Galbreath, J. “Does Primary Stakeholder Management Positively Affect the Bottom Line? Some Evidence from Australia.” Management Decision 44, no. 8 (2006): 1106-21.
Govindarajan, V., and A.K. Gupta. “Linking Control Systems to Business Unit Strategy: Impact on Performance.” Accounting, Organizations and Society 10, no. 1 (1985): 51-66.
Grassa, R. “Shariah Supervisory System in Islamic Financial Institutions. New Issues and Challenges: A Comparative Analysis between Southeast Asia Models and GCC Models.” Humanomics 29, no. 4 (2013): 333-48.
Hall, M. “The Effect of Comprehensive Performance Measurement Systems on Role Clarity, Psychological Empowerment and Managerial Performance.” Accounting, Organizations and Society 33, no. 2 (2008): 141-63.
Hasan, Z. “In Search of the Perceptions of the Sharī‘ah Scholars on the Sharī‘ah Governance System.” International Journal of Islamic and Middle Eastern Finance and Management 7, no. 1 (2014): 22-36.
Henri, J.F. “Organizational Culture and Performance Measurement Systems.” Accounting, Organizations and Society 31, no. 1 (2006): 77-103.
Hillman, A.J., and G.D. Keim. “Shareholder Value, Stakeholder Management, and Social Issues: What’s the Bottom Line?” Strategic Management Journal 22 (2001): 125-39.
Hoque, Z. “A Contingency Theory Model of the Association Between Strategy, Environmental Uncertainty and Performance Measurement: Impact on Organization Performance.” International Business Review 13 (2004): 485-502.
Ibrahim, B.D.A. “The “Missing Links” between Islamic Development Objectives and the Current Practice of Islamic Banking - the Experience of the Sudanese Islamic Banks (SIBs).” Humanomics 22, no. 2 (2006): 55-66.
Indjejikian, R.J., and M. Matejka. “Organizational Slack in Decentralized Firms: The Role of Business Unit Controllers.” The Accounting Review 81, no. 4 (2006): 849-72.
Iqbal, Z., and A. Mirakhor. Introduction to Islamic Finance: Theory and Practice. Singapore: John Wiley and Sons (Asia), 2007.
Ittner, C.D., D.F. Larcker, and T. Randall. “Performance Implications of Strategic Performance Measurement in Financial Services Firms.” Accounting, Organisations and Society 28 (2003): 715-41.
Johansson, P. “Implementing Stakeholder Management: A Case Study at a Micro-Enterprise.” Measuring Business Excellence 12, no. 3 (2008): 33-43.
Kaplan, R.S., and D.P. Norton. “Using the Balance Scorecard as a Strategic Management System.” Business Harvard Review (Jan-Feb, 1996): 75-85.
Khan, M.S., and A. Mirakhor. “The Financial System and Monetary Policy in an Islamic Economy.” Journal of King Abdulaziz University: Islamic Economics 1 (1989): 39-57.
Khandwalla, P.N. “The Effect of Different Types of Competition on the Use of Management Controls.’ Journal of Accounting Research (Autumn, 1972): 275-85.
Lahouel, B.B., J. Peretti, and D. Autissie. “Stakeholder Power and Corporate Social Performance: The Ownership Effect.” Corporate Governance 14, no. 3 (2014): 368-81.
Langfield-Smith, K. “Management Accounting Control Systems and Strategy: A Critical Review.” Accounting, Organizations and Society 2, no. 2 (1997): 207-32.
Lau, C.M., and E. Berry. “Nonfinancial Performance Measures: How Do They Affect Fairness of Performance Evaluation Procedures?” In Performance Measurement and Management Control: Innovative Concepts and Practices, edited by Marc J. Epstein, Jean-François Manzoni, and Antonio Davila, 285-307. Bingley, UK: Emerald Group Publishing Limited, 2010.
_____, and M. Sholihin. “Financial and Nonfinancial Performance Measures: How Do They Affect Job Satisfaction?” The British Accounting Review 37 (2005): 389-413.
Law of Malaysia, Islamic Financial Service Act, 2013.
Lewis, M.K. “Islam and Accounting.” Accounting Forum 25, no. 2 (2001): 104-27.
Lo, Y.H. “Stakeholder Management in the Chinese Hotel Industry: The Antecedents and Impacts.” International Journal of Contemporary Hospitality Management 25, no. 4 (2013): 470-90.
Markus, R.M. “Driving Force: Key to Strategy.” Strategy & Leadership 9, no. 6 (1981): 24–7.
Mia, L., and B. Clarke. “Market Competition, Management Accounting Systems and Business Unit Performance.” Management Accounting Research 10 (1999): 137-58.
Mohamad, M.H.S., F. Ali, and A. Mohd Amir. “Role of Organisational Culture on Performance Measurement Practice: The Case of Malaysian Manufacturing Firms.” Afro-Asian Journal Finance and Accounting 3, no. 4 (2013): 297-318.
Mohamed, E.K.A. “Multidimensional Performance Measurement in Islamic Banking.” Global Journal of Business Research 4, no. 3 (2010): 47-60.
Mohammad, O.M., and S. Shahwan. “The Objective of Islamic Economic and Islamic Banking in Light of Maqāṣid Al-Sharī‘ah: A Critical Review.” Middle-East Journal of Scientific Research 13 (2013): 75-84.
Mohammed, M.O., D. Abdul Razak, and F. Md. Taib “The Performance Measures of Islamic Banking Based on the Maqāṣid Framework.” Paper presented at the International Accounting Conferences IV, Putrajaya, 25 June 2008.
Mohd Amir, A. “The Indirect Effects of PMS Design on Malaysian Service Firms’ Characteristics and Performance.” Asian Review of Accounting 19, no. 1 (2011): 31-49.
______, N.N. Nik Ahmad, and M.H.S. Mohamad. “An Investigation on PMS Attributes in Service Organizations in Malaysia.” International Journal of Productivity and Performance Management 59, no. 8 (2010): 734-56.
Moneva, J.M., J.M. Rivera-Lirio, and M.J. Munoz-Torres. “The Corporate Stakeholder Commitment and Social and Financial Performance.” Industrial Management and Data Systems 107, no. 1 (2007): 84-102.
Munir, R., K. Baird, and S. Parera. “Performance Measurement System Change in an Emerging Economy Bank.” Accounting, Auditing and Accountability Journal 26, no. 2 (2013): 196-233.
Rais, S., and R.V. Goedegebuure. “Stakeholder Orientation and Financial Performance: Evidence from Indonesia.” Problems and Perspectives in Management 7, no. 3 (2009): 62-75.
Russell, R.D., and C.J. Russell. “An Examination of Effects of Organizational Norms, Organizational Structure and Environmental Uncertainty on Entrepreneurial Strategy.” Journal of Management 18 (1992): 639-6.
Ruzita, J., and A.P. John. “Competitive Strategy and Performance Measurement in the Malaysian Context: An Exploratory Study.” Management Decision 46, no. 1 (2008): 5-31.
Sekaran, U. Research Method for Business: A Skill-Building Approach. New York: John Wiley & Sons Inc., 2006.
Sharma, D.S. “The Differential Effects of Environmental Dimensionality, Size and Structure on Budget System Characteristics in Hotel.” Management Accounting Research 13 (2002): 101-30.
Siddiqi, M.N. “Islamic Banking and Finance in Theory and Practice: A Survey of State of the Art.” Islamic Economic Studies 13, no. 2 (2006): 1-48.
Simmons, J. “Employee Significance within Stakeholder-Accountable Performance Management.” The TQM Journal 20, no. 5 (2008): 463-75.
Tillema, S. “Towards an Integrated Contingency Framework for MAS Sophistication: Case Studies on the Scope of Accounting Instruments in Dutch Power and Gas Companies.” Management Accounting Research 16 (2005): 101-29.
Tung, A., K. Baird, and H.P. Schoch. “Factors Influencing the Effectiveness of Performance Measurement Systems.” International Journal of Operations & Production Management 31, no. 12 (2011): 1287-310.
Wu, H.Y. “Constructing a Strategy Map for Banking Institutions with Key Performance Indicators of the Balanced Scorecard.” Evaluation and Program Planning 35 (2012): 303-20.
Yang, J., G.Q. Shen, M. Ho, D.S. Drew, and A.P.C. Chan. “Exploring Critical Success Factors for Stakeholder Management in Construction Projects,” Journal of Civil Engineering and Management 15, no. 4 (2009): 337–48.
Zhang, Y., and L. Li. “Study on Balanced Scorecard of Commercial Banks in Performance Management System.” Proceedings of the 2009 International Symposium on Web Information Systems and Applications. Nanchang, China (2009): 206-9.
Zhu, K., K.L. Kraemer, S. Xu, and J. Dedrick. “Information Technology Pay-Off in E-Business Environments: An International Perspective on Value Creation of E-Business in the Financial Services Industry.” Journal of Information Systems 21, no. 1 (2004): 17-54.