Effect of Shari’ah Governance Framework Implementation on the Financial Performance of Islamic Banks

Abstract

The observance of Shari'ah and adherence to every fundamental Islamic principle are necessary for the Islamic financial system to succeed. But what it means for an institution to be successful in following the Shari’ah. What type of connections it could have with the implementation of Shari’ah governance guidelines and returns is still unanswered. This study tries to answer this question. The purpose of this study is to check the impact of Sharī‘ah Governance Framework implementation on the financial performance of Islamic banks. The results would be beneficial for investors, Islamic banks, regulator, academicians and practitioners for decision making to exploit maximum economic benefits. Panel data on 17 Islamic banks (full-fledged and Standalone branches) have been used in this study for the period of 2015-2019 after the implementation of Shari’ah Governance Framework. The findings indicate that Shari’ah Governance Framework implementation improve the performance of Islamic banks.  This study add value to the existing literature by presenting the statistical results for the impact of Sharī‘ah Governance Framework implementation on the financial performance of Islamic banks of Pakistan.

Keywords: Shari’ah governance framework, financial Performance, Islamic banks