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An Investigation of the Performance of Islamic and Interest Based Banking Evidence from Pakistan

Author

Listed:
  • Khan Tauseef

    (University of Malakad)

  • Ahmad Waqar

    (University of Malakand)

  • Rahman Muhammad Khalil Ur

    (Abdul Wali Khan University Mardan, Pakistan)

  • Haleem Fazal

    (Abdul Wali Khan University Mardan, Pakistan)

Abstract

The main difference between Islamic and conventional banking is that Islamic banking works on profit and loss while conventional banking work is interest based. The aim of this research study is to measure and compare the financial performance of Islamic and conventional banking in Pakistan during 2006 to 2015. This study is to examine and to evaluate the performance of 5 Islamic banks (Meezan Islamic Bank, Bank Islami Limited, Al Baraka Islamic Bank, Dubai Islamic Bank Limited and Burj Bank Limited) and 5 conventional banks (Muslim Commercial Bank Limited, United Bank Limited, Askari Bank Limited, Allied Bank Limited, Habib Bank Limited) in terms of profitability, liquidity, risk, capital and efficiency. We used quantitative and qualitative data for comparison of Islamic and conventional banks. Collection of data consists on both primary as well as secondary sources. Primary data has been gathered from interviews and Secondary data has been gathered from the balance sheets and income statements of the sampled banks for the period of 2006 to 2015.Financial ratios such as profitability ratios, liquidity ratios, solvency ratios, capital ratios and efficiency ratios are used for measure of the financial performance of both banking sector. The results indicate that Islamic banks are less profitable, more liquid, less risky and less efficient. There is no significant difference in terms of capital between Islamic and conventional banks.

Suggested Citation

  • Khan Tauseef & Ahmad Waqar & Rahman Muhammad Khalil Ur & Haleem Fazal, 2018. "An Investigation of the Performance of Islamic and Interest Based Banking Evidence from Pakistan," HOLISTICA – Journal of Business and Public Administration, Sciendo, vol. 9(1), pages 81-112, May.
    • Handle: RePEc:vrs:hjobpa:v:9:y:2018:i:1:p:81-112:n:7
    DOI: 10.1515/hjbpa-2018-0007
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    1. Naseem Al Rahahleh & M. Ishaq Bhatti & Faridah Najuna Misman, 2019. "Developments in Risk Management in Islamic Finance: A Review," JRFM, MDPI, vol. 12(1), pages 1-22, February.

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    More about this item

    Keywords

    Islamic Banks; Conventional Banks; Profitability; Liquidity; Risk; Capital; Efficiency; Financial performance; Pakistan;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration

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