An evaluation of strategic performance measurement in Islamic finance
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Background of the Study
Strategic performance measurement is essential for monitoring and enhancing the effectiveness of financial institutions. In Islamic finance, performance measurement must consider not only financial outcomes but also adherence to ethical and Shariah compliant practices (Rauf, 2023). The development of robust performance measurement systems enables Islamic banks to assess the efficiency of their operations, the quality of customer service, and the alignment of business practices with Islamic ethical standards. Recent innovations in performance analytics, driven by digital technologies and advanced data analytics, have provided new tools for measuring strategic performance in a holistic manner (Siddiqui, 2024).
In Islamic finance, traditional financial metrics must be complemented with qualitative assessments that capture the ethical dimensions of banking operations. This integrated approach to performance measurement helps ensure that the institution not only achieves profitability but also maintains its reputation for ethical conduct and Shariah compliance. Strategic performance measurement frameworks now incorporate a range of indicators, including customer satisfaction, operational efficiency, risk management effectiveness, and compliance with Islamic norms (Imran, 2023). These frameworks are instrumental in guiding decision making, setting performance targets, and driving continuous improvement.
Despite the advances, Islamic financial institutions often encounter difficulties in designing and implementing performance measurement systems that fully capture the dual mandate of financial and ethical performance. The lack of standardized metrics and the inherent subjectivity of some qualitative indicators pose significant challenges. Moreover, the rapidly changing business environment, driven by digital transformation and evolving market dynamics, requires that performance measurement systems be adaptable and forward looking (Kareem, 2025). This study aims to evaluate the strategic performance measurement practices in Islamic finance, identifying best practices and areas where further refinement is needed to support sustainable growth and ethical integrity.
Statement of the Problem
While strategic performance measurement is critical for the success of Islamic finance, many institutions face challenges in developing systems that integrate both financial and ethical indicators effectively. A major problem is the absence of standardized performance metrics that capture the unique requirements of Islamic finance, leading to discrepancies in performance evaluation across institutions (Rashid, 2023). Traditional financial metrics, while useful, often overlook the ethical and compliance dimensions that are equally important in an Islamic context.
Furthermore, the rapid pace of digital transformation introduces additional complexity in performance measurement. The adoption of advanced analytics and digital reporting tools is uneven across institutions, resulting in varied levels of insight into operational efficiency and strategic alignment (Hussein, 2024). This disparity makes it difficult to benchmark performance accurately and to identify best practices that can be adopted industry wide. Moreover, the subjective nature of certain ethical indicators further complicates the evaluation process, as different stakeholders may have divergent views on what constitutes acceptable performance in terms of Shariah compliance and ethical conduct (Noman, 2025).
This study seeks to address these issues by investigating the current strategic performance measurement frameworks used in Islamic finance. It will explore the challenges inherent in integrating financial, operational, and ethical performance indicators and propose a comprehensive framework that enhances both accountability and strategic decision making.
Objectives of the Study
• To assess the current strategic performance measurement practices in Islamic finance.
• To identify challenges in integrating financial and ethical performance indicators.
• To propose a unified framework for strategic performance measurement in Islamic banking.
Research Questions
• What performance measurement systems are currently used in Islamic finance?
• How effectively do these systems integrate ethical and financial indicators?
• What improvements can be made to standardize performance measurement across the industry?
Research Hypotheses
• H1: Integrated performance measurement frameworks improve strategic decision making in Islamic finance.
• H2: Standardization of performance metrics enhances overall operational efficiency.
• H3: The inclusion of ethical indicators positively influences stakeholder trust and performance.
Scope and Limitations of the Study
This study focuses on Islamic financial institutions employing strategic performance measurement systems between 2023 and 2025. Limitations include variations in reporting practices and the subjective nature of ethical assessments.
Definitions of Terms
• Performance Measurement: The process of evaluating the efficiency and effectiveness of an organization.
• Strategic Performance: Outcomes that reflect the achievement of long-term organizational goals.
• Islamic Finance: A system of finance based on Islamic law and ethical principles.
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