EMPIRICAL EVIDENCE ON COMPARATIVE PERFORMANCE OF CONVENTIONAL AND ISLAMIC BANKING IN PAKISTAN

Abstract

The banking sector is crucial to the development of every economy. The purpose of this study is to find if there exists a significant difference between the financial performance of Islamic and conventional banks in Pakistan. Islamic banking system has emerged as a new horizon in the international financial system since the 1970s. Pakistan’s Islamic banking department was created on September 15, 2003 and assigned a duty for the promotion and development of banking services in compliance with Islamic laws. Several studies have been carried out by scholars to observe problems associated with Islamic banking systems across the globe. This study fills a gap in the empirical literature and analyzes the profitability of Islamic banks and conventional banks over the period of 2006 to 2015. Differential statistics is applied to quantify the difference. Findings which are generalizable to the banking sector only show that there is a significant difference between the profitability of Islamic banks and conventional banks. That is, conventional banks are more profitable than Islamic banks and contributes the most to sustainable development in Pakistan. Policy implications are discussed and future studies may be conducted on multiple countries.