Measuring the Social and Developmental Impact of Islamic Financial Institutions: Evaluation Frameworks and Practical Tools

Measuring the social and developmental impact of financial institutions in Islamic countries, especially in Libya, is crucial for assessing the extent of these institutions’ performance and their contribution to tangible progress in social and economic development. The current study identifies specific theoretical concepts based on a review of key theoretical frameworks, aiming to distinguish between objective measures and those based on subjective opinions and ideas. This was done to clarify the differences between these measures, as they have become crucial for monitoring the performance of financial institutions, particularly in Libya. It remains clear that practical indicators are needed to lay the foundations for measuring Islamic banks' performance and their impact on community development. In conclusion, the study found that several factors, most notably weak infrastructure, lack of transparency, poor governance practices, and political instability, have had a direct and significant impact on the performance of financial institutions in Libya; this, in turn, has undermined actual performance and produced inaccurate indicators for clearly assessing these institutions’ contribution to social or developmental impact. This necessitates the development of practical measurement alternatives capable of effectively assessing the significance and role of these institutions.