Validity of zakat ratios as Islamic performance indicators in Islamic banking: a congeneric model and confirmatory factor analysis

Purpose There is much debate in the literature about how performance of Islamic banks (IBs) should be measured. Basically, IBs’ business models are different from that conventional banks; thus, IBs measured by using a Sharīʿah-based approach. This paper considers zakat (Islamic tax) as an alternative indicator to measure IBs. aims examine whether ratios can used (ISPER) indicators for besides (COPER) indicators. Design/methodology/approach The investigation covered sample 214 yearly observations 37 located Indonesia, Malaysia, Bahrain, Saudi Arabia and United Arab Emirates period 2007–2015. study single-factor congeneric model confirmatory factor analysis, performed AMOS 23.0 software. Findings findings assert discriminant validity multi-bank performance, ISPER [zakat on assets (ZOA) equity (ZOE)] COPER (return assets, return operational efficiency terms assets), very high. Hence, measurements valid, either together multi-performance both perspectives, or independently each measurement valid if it separately. Research limitations/implications does not investigate constant across time. represents one limitations this study. Practical implications It strongly recommended calculate disclose ratios, particularly ZOA ZOE, their annual reports. Researchers academicians use these measuring IBs, along with Originality/value Empirical evidence provided development banking industry. Zakat suitable achieve goals well those economics. Technically, has dynamic ability reflect profitability more generate profit, they pay zakat. Furthermore, greater total higher amount pay. Thus, case tax ratios.