The interplay between sharia auditing and Moroccan Islamic banks development: a partial least squares structural equation modeling study

Purpose This study aims to investigate the systemic role of the Sharia audit function within the nascent, centrally-regulated landscape of Moroccan Islamic Banks. While extant literature predominantly examines auditing in isolation or as a mere compliance mechanism, this research seeks to explicate the broader causal pathways. Specifically, it aims to determine how Sharia audit acts as a strategic antecedent that drives institutional development through the mediating mechanisms of risk management, reputational capital and ethical performance. Design/methodology/approach To navigate the structural constraints of the Moroccan sector, the study uses a comprehensive census strategy, achieving an exhaustive enumeration of the primary ecosystem of Sharia governance stakeholders (N = 62). This approach secures total population coverage across the regulatory and operational spectrum, thereby eliminating sampling error. The resulting data set was analyzed using PLS-SEM to empirically validate the systemic pathways linking audit quality to institutional development. Findings Results reveal that Sharia audit is not merely a compliance tool but a strategic driver of bank development. Crucially, the analysis unlocks the “black box” of transmission: the value of auditing is transmitted primarily through its capacity to fortify risk management and construct market reputation. Contrary to theoretical expectations, ethical performance does not yet exert a significant direct impact on institutional growth, suggesting a “temporal decoupling” in this early market phase where technical stability (risk/reputation) takes precedence over social legitimacy. Practical implications The findings indicate that for the Moroccan sector to transition from market entry to sustainable maturity, the audit function must be elevated from a retrospective compliance mechanism to a strategic governance pillar. Furthermore, the identified “legitimacy gap” highlights an urgent need for banks to operationalize ethical performance, translating internal Sharia adherence into visible social impact to secure long-term market acceptance. Originality/value To the best of the authors’ knowledge, this study represents the first census-based empirical analysis of the Moroccan Sharia audit ecosystem. Theoretically, it introduces a novel structural model that has no precedent in the extant literature. By conceptually linking audit quality to institutional development via the specific triadic mediation of risk, reputation and ethics, this research effectively explicates the underlying transmission mechanisms of Sharia audit. It thus provides the first empirical evidence of these specific transmission pathways, offering a new theoretical blueprint for analyzing audit efficacy in emerging financial markets.