Efficiency and Performance of Islamic Banking: The Case of Pakistan

The purpose of this study is to analyze to efficiency and performance of Islamic Bank as compare to two types of conventional banks i.e public and private sector banks in the case of Pakistan. The literature review shows that no such type of method has been used for Islamic Banking in Pakistan before this study. Therefore this study is being conducted first time in Pakistan. It will give clear understanding of the efficiency and performance of Islamic banking to decision makers. The nine financial ratios are used under (i) profitability (ii) Liquidity Risk and (iii) Credit Risk to measure the efficiency and performance. These ratios are applied on financial statements of these Islamic and conventional banks. The financial statements are used for the financial year 2006-2010. Trend analysis tool is also used to check the trends of balance sheet and income statement. The purpose of this study is to get results of efficiency and performance of interest free banking banking. The findings of this study will reflect the true picture of the Islamic Banking which will be helpful for policy makers. The study concludes that no significant difference is observed in interest free and interest based banking in respect of profitability. While this paper discovers the divergence in liquidity and credit performance. The trend analysis reveals the good trend of balance sheet of Islamic bank while in income statements there is no meaningful difference. The results of this study might be beneficial for the existing Islamic Bankers to enable them to enhance their performance.