Impact of Shari’ah and Corporate Governance on Islamic Banks Performance: Evidence from Pakistan

Purpose: The objective of this paper is to examine the effect of Shari’ah and corporate governance on the performance of the Islamic banks in Pakistan. Design/methodology/approach: This research uses a hand-gathered data on Shari’ah and corporate governance of the major Islamic banks in Pakistan for the period of 2018 to 2023. The selection of index uses the Islamic Corporate Governance (ICG) where various necessary attributes of Shari’ah board (SB) is considered. By way of data analysis, basic measures such as mean, mode, and standard deviation used, as well as correlation coefficient and panel REM regression. Findings: The conclusion of the study establishes that Shari’ah governance factors especially the functioning of Shari’ah boards have bigger impact toward financial performance of Islamic banks than corporate governance factors. Further, capital adequacy has a positive effect (Equity to Total Assets, EQTA) on the performance but loan provision has a negative effect on the performance (Net Loans to Total Assets, NLTA). Preposterously, Shari’ah Board Education (SBE) takes negative signs, stating that excessive education on the Shari’ah board may cause such board to make extra conservative decisions no longer brought about by way of profitability but through compliance. Research limitations/implications: Strong, autonomous Shari’ah boards positioned to focus solely on the supervisory contexts can improve stakeholder confidence and performance of Islamic banks. The results presented in this study can be beneficial for Pakistan’s policymakers and those authorities that regulate IFIs. Originality/value: This research enhances the stock of knowledge on Shari’ah governance, corporate governance and their effects on financial performance in the context of Pakistan’s Islamic banking sector.