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Islamic banking has undergone significant adaption since its inception. This study aims to investigate why and how Islamic banks adapt their services, using participatory financing as evidence.

A qualitative study is designed, using working capital financing and commodity operations financing in Pakistan as analytical units. The data for each analytical unit is analyzed using a qualitative content analysis, while the findings are synthesized using a cross-case synthesis method.

Findings suggest that participatory financing has undergone extensive adaptation in the Islamic banking industry of Pakistan, in the wake of resolving constraints to participatory financing and increasing its viability. Consequently, participatory finance has emerged as an attractive and viable option in Pakistan. These findings suggest that unlike in the past, where Islamic banks used to buffer themselves from the environment and ignore the market demands, they have learned to respond effectively to the market demands and the challenges posed by the environment.

Findings suggest that the adaptation strategy is more effective than the migration strategy, because it enables the financial service systems to reduce the underlying risks by avoiding emergent threats and eradicating the inherent weaknesses.

The extant literature provides a generalized view on the adaptation process that Islamic banks undergo to comply with their environment. However, it is limited in terms of conceptualizing the adaptations and innovations in their products and the underlying structural variations. The present study fills this gap.

The Takāful (Islamic insurance) industry operates on the principles of Maqāṣid al-Sharī’ah, and of late, the industry has witnessed significant market growth. The purpose of this study is to develop a performance measurement model based on Maqāṣid al-Sharī’ah to evaluate the performance of Takāful firms.

A mixed-method research approach was adopted to conduct the present study. Priorities were assigned to various dimensions of the Maqāṣid model using analytic hierarchy process and by taking inputs from 18 Takāful experts. On the contrary, six experts were involved in identifying the elements and measures for the operationalization of the Maqāṣid dimensions.

Maṣlaḥa (0.359) was found to possess the highest priority, followed by Justice (0.345) and Educating Individuals (0.295). Furthermore, under Necessity, protection of religion (0.398) and protection of life (0.388) are assigned almost similar priorities. These two are followed by the protection of progeny (0.107), protection of wealth (0.058) and protection of intellect (0.047). The final outcome of this study is a hierarchical model for the evaluation of performance of Takāful firms.

The application of the performance evaluation model will provide information to the management of Takāful firms on where they stand in terms of fulfilling Maqāṣid al-Sharī’ah principles. If any firms are found to have a deficiency in a certain part of Maqāṣid components, then proper and adequate measures can be taken to ameliorate the situation.

It is necessary to have a performance evaluation model based upon Maqāṣid al-Sharī’ah to evaluate the performance of Takāful firms as these firms operate on the principles of Maqāṣid al-Sharī’ah. Because there does not exist any such model, this study fills up this gap. Details of the measures that can be used to evaluate the performance of Takāful firms are also provided.