Abstract:
Broadly speaking, two types of banking systems exist in the world. One is Conventional,
which is interest based and the other one is Islamic, which is interest free. The objective
of both type of banking system is to earn maximum profit through offering different
banking products and services to their customers.
This research has tried to asses different aspects of Islamic Banking in Pakistan, such as
problems, performance and future outlook of Islamic Banking in Pakistan. A sample of
total four banks has been selected for the research purpose, two was from Conventional
sector and two was from Islamic sector. Different types of research techniques have been
applied to gather and analyze the data, such as questionnaires, face to face interviews,
online browsing and financial ratios.
To measure the profitability four ratios have been used, Return on Assets (ROA), Profit
Margin (PM), Return on Equity (ROE) and Earnings per Share (EPS). To Measure li
quidity ratios three ratios have been applied, Deposit to total assets, Current asset and
quick asset ratio. Further, to measure solvency, Debt ratio, Debt to equity and Long term
debt to equity ratios have been used.
Research concluded that, Islamic Banking is facing many challenges, such as, untrained
Human capital, Lack of shariat scholar, benchmark issues and some others, but despite of
being infant and facing challenges, still it’s performance is better than conventional one.
The tests and techniques also indicate that Islamic banks are more profitable than conven
tional banks and debt ratio is also less than conventional one. And there is also a viable
market for this industry, as its growth rate is more than 30%.