Implementation of Green Banking and Sharia Compliance in Enhancing Islamic Bank Value (Maqhasid Sharia Index) in Indonesia's Islamic Commercial Banks

Abstract

Purpose: This study aims to empirically evaluate the influence of green banking practices and sharia compliance on Islamic Bank Value, as proxied by the Maqhasid Sharia Index (MSI), as well as to examine the moderating role of sharia compliance in influencing that relationship within Indonesia's Islamic commercial banks. Methodology: Employing a quantitative census approach, this research analyzes 33 observations collected from 11 Islamic commercial banks in Indonesia over the three years from 2021 to 2023. The data, sourced from annual and sustainability reports, were tested using Moderated Regression Analysis (MRA). Results: The findings indicate that green banking initiatives significantly enhance Islamic bank value by aligning operations with environmental and social goals. Conversely, sharia compliance has no significant direct impact on the MSI due to an industry-wide "ceiling effect". Crucially, sharia compliance acts as a negative moderator, significantly weakening the positive relationship between green banking and bank value. Conclusion: While green banking plays a vital role in fulfilling the Maqasid Sharia framework, traditional sharia compliance has a direct positive impact on corporate value but unexpectedly constrains sustainability outcomes. This negative moderation suggests that current compliance models lean toward normative, formalistic rules, creating a legalistic focus that distracts from proactive sustainability integration. Implications: The study underscores that banking regulators and management must go beyond procedural compliance. There is a critical necessity to harmonize theological pillars with green strategies, shifting from "negative screening" (avoiding prohibited sectors) to substantive integration of global ESG standards within the sharia framework. Originality: Underpinned by Resource-Based Theory, this research introduces a novel perspective by treating sustainability and sharia compliance as interacting operational resources. It reveals a previously unexamined strategic tension in Islamic finance: rigid regulatory adherence can induce organizational rigidity that inadvertently hampers proactive environmental innovation.