Islamic Banking and Finance Review <div style="text-align: justify;">Islamic Banking and Finance Review (IBFR) is a double-blind peer-reviewed international research journal indexed with well-reputed international indexing agencies (such as EconLit, INDEX ISLAMICUS), and recognized by the Higher Education Commission of Pakistan in Y-Category. The IBFR is an official publication of the Department of Banking and Finance, Dr Hasan Murad School of Management, the University of Management and Technology Lahore, Pakistan.</div> Department of Banking and Finance, Dr Hasan Murad School of Management, University of Management & Technology, Lahore, Pakistan en-US Islamic Banking and Finance Review 2413-2977 <p>Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a&nbsp;<a href="">Creative Commons Attribution (CC-BY) 4.0 License</a> that allows others to share the work with an acknowledgement of the work’s authorship and initial publication in this journal.</p> Impact of Shariah Compliance on Financial Performance of Islamic Banks: Evidence from Pakistan <p>Despite the remarkable growth of the Islamic banking industry over the past few decades, its Shariah legitimacy is still debatable. In this regard, most of the pronouncements of Shariah scholars are deduced from the secondary sources of Islamic jurisprudence which are open to diverse interpretation. In general, the well-known Islamic legal maxim “<em>Al-Khraj bil Dhaman</em>” suggests that each Shariah-compliant business should expose to some kind of risk. Arguably, while pursuing the goal of profit maximization, Islamic banks offer such risk-free modes of financing that undermine their Shariah legitimacy. In this context, some studies explored the relationship between Shariah compliance and profitability and reported mixed findings as they measured Shariah compliance using irrelevant or limited proxies. The purpose of the present study is to revisit this relationship by applying a more comprehensive proxy to measure Shariah compliance of Islamic banks. &nbsp;The study analyzes unbalanced panel data extracted from the annual reports (2008-2020) of full-fledged Islamic banks operating in Pakistan. Applying, fixed effect robust model, the study finds a significant positive relationship between Shariah compliance and financial performance suggesting that better Shariah compliance leads to improved financial performance.&nbsp;</p> <p>&nbsp;</p> Muhammad Mansoor Javed Syed Muhammad Hassan Bukhari Adnan Bashir Copyright (c) 2022 Muhammad Mansoor Javed, Syed Muhammad Hassan Bukhari, Adnan Bashir 2022-07-21 2022-07-21 9 1 A Comparative Analysis of Profit Rates on Deposit in Islamic and Conventional Banks in Pakistan <p>This study uses five Islamic banks (IBs) and four conventional banks (CBs) in Pakistan. The data used for the study are secondary data and monthly data ranging from 2008 to 2017 collected through websites of Islamic and conventional banks in Pakistan. This study examined weather there is difference in Islamic and conventional banks profit rates offered to customer, weather, Islamic or conventional banks offer high return rate to their customers on deposits. It also aims to analyze the relationship between inflation rate and profit rates on deposit weather customer are in profit or loss in real sense. The analysis is done on saving account and one-year term deposit account of both banks and inflation rate in the economy. In this study t-test technique is used to check whether there is significant difference in monthly profit rates of Islamic and conventional banks. The study reveals that in the Saving Account, conventional banks offer high return to their customers and one-year term deposit account Islamic banks offering high return to their customers. The comparison of profit rates with inflation rate concluded both Islamic and conventional banks offer low return on savings account to the customer, and on one-year term deposit account, Islamic banks offer high return than inflation rate, but conventional banks offer slightly lower returns than inflation rate.</p> Shar Zaman Mir Copyright (c) 2022 Shar Zaman Mir 2022-07-21 2022-07-21 9 1 Shariah Approvals Issued by Shariah Supervisory Boards of Islamic Banks: Compliance with the Parameters of Fatwā <p>On the contrary to its conventional counterpart, Islamic banks are bound to get <em>Fatwā</em> from its Shariah supervisory boards (SSBs) regarding the Shariah compliance of their operations, products and services. It is SSB that is responsible for any violation and circumvention of Shariah principles from Islamic banking side. Hence, to earn the trust of customers regarding Shariah compliance, the importance of <em>Fatwās</em> of SSB increases. In case of Pakistan, situation becomes ambiguous looking at the term ‘Shariah approval’ being used for Shariah ruling issued by SSB. It raises a question about juristic status of Shariah approval. The objective of the paper is to determine the juristic status of Shariah approval whether it is <em>Fatwā </em>or not? For this qualitative analytical approach is used. From four prominent manuals of <em>Fatwā </em>principles, parameters of<em> Fatwā </em>were extracted and applied on Shariah approvals. The study found that Shariah approvals are being considered as <em>Fatwā</em> because they announce the permissibility of Islamic banking operations, products, and services with duly signatures of Shariah advisors. It was also found that Shariah approvals do not fulfill prerequisites of <em>Fatwā. </em>The paper also draws the attention of regulators that detailed <em>Fatwā</em> is missing in Islamic banks. What exists is Shariah approval which only states that all matters of Islamic banks are Shariah compliant and lawful, but it does not possess any evidence and reference from the Qur'an, Sunnah and the books of jurists. These inefficient short <em>Fatwā </em>are defaming Islamic banking and hurting the public trust of its Shariah compliance.</p> Muhammad Abubakar Siddique Abdul Rashid Copyright (c) 2022 Muhammad Abubakar Siddique, Abdul Rashid 2022-07-21 2022-07-21 9 1 Risk-return analysis of profit and loss sharing contracts in Islamic banks <p>The purpose of this paper is to make a risk-return analysis of the contracts offered by Islamic banks to demonstrate the economic and financial utilities of profit and loss sharing (PLS) contracts. In this paper, we start from the idea that the increase in the weight of PLS contracts is beneficial for both Islamic banks and the economy as a whole. Our approach is based on a risk-return analysis to identify the financial causes of non-development of PLS contracts and possible ways and trends to stimulate this development. From our analysis, we can conclude that the increase in the weight of sales-based contracts at the expense of PLS contracts is not necessarily the result of good risk and capital management. On the other hand, the low weight of PLS contracts is the result of a lack of risk management and liquidity instruments, a lack of innovation and expertise in risk management and contract design and finally the result of a lack of legal and fiscal frameworks adapted to Islamic banks. This paper proposes a risk-return approach to make the case for increasing the share of PLS contracts, which promotes greater optimization of the risk-return ratio and greater involvement of Islamic banks in the real economy.</p> Cherif El msiyah Jaouad Madkour Aziz Motahaddib Copyright (c) 2022 Cherif El msiyah, Jaouad Madkour, Aziz Motahaddib 2022-11-03 2022-11-03 9 1 Modelling Islamic Banking Efficiency by Decomposing using D.E.A. Bootstrapping Analysis <p>This research determined the efficiency of Islamic banks operating in the Pakistan region. This study will also help understand which bank performs poorly and best according to our time period. The study used the bootstrap D.E.A. approach for the time period of 2008-2018. The bootstrap D.E.A. approach removes the biases error by repeatedly replicating the data-generating process and using the actual measurement for each sample made. The study found out that the mean value of efficiencies for Islamic banks of Pakistan is greater than 1, so banks are running optimally. However, BankIslami Pakistan needs to increase its efficiency because it works way below its optimal level. This study adds excellent value to the literature by opening a new direction for the study of Islamic banks in Pakistan. Only a few studies have been done on this topic, which is not mainly related to Pakistan.</p> Zunaira Zahoor Copyright (c) 2022 Zunaira Zahoor 2022-11-03 2022-11-03 9 1