Performance of Islamic Banking and Conventional Banking in Pakistan: A Comparative Study

ACKNOWLEDGEMENT First of all I would like to thank my ALLAH Almighty Who gave me the courage, health, and energy to accomplish my thesis in due time and without Whose help this study which required untiring efforts would have not been possible to complete within the time limits. key elements required from the supervisor(s) to write and complete a thesis of a good standard and a quality within deadlines. It is a matter of utmost pleasure for me to extend my gratitude and give due credit to my supervisor Yinghong Chen whose support has always been there in need of time and who provided me with all these key elements to complete my dissertation within the time frame. Acknowledgement would be incomplete without extending my gratitude to one of my friends in Pakistan Mr. mammoth help in data collection made this study possible. Moreover, he has been supporting me enthusiastically throughout my work to make my thesis ready in due time. My thanks is also due to my examiner Max Zamanian whose valuable comments and suggestions made colossal contribution in improving my dissertation. Last but not least, I extend my thanks to my entire family for moral support and prays for my health and successful completion of my dissertation within time limits. ABSTRACT Islamic banking and finance in Pakistan started in 1977-78 with the elimination of interest in compliance with the Principles of Islamic Shari'ah in Islamic banking practices. Since then, amendments in financial system to allow the issuance of new interest-free instrument of corporate financing, promulgation of ordinance to permit the establishment of Mudaraba companies and floatation of Mudaraba Certificates, constitution of Commission for Transformation of Financial System (CTFS), and the establishments of Islamic Banking Department by the State Bank of Pakistan are some of the key steps taken place by the governments. The aim of this study is to examine and to evaluate the performance of the first Islamic bank in Pakistan, i.e. Meezan Bank Limited (MBL) in comparison with that of a group of 5 Pakistani conventional banks. The study evaluates performance of the Islamic bank (MBL) in profitability, liquidity, risk, and efficiency for the period of 2003-2007. Asset Utilization (AU), and Income to Expense ratio (IER) are used to assess banking performances. T-test and F-test are used in determining the significance of the differential performance of the two groups of banks. The study found that MBL …