How Efficient is the Islamic Banking Model in Pakistan?

Abstract

The purpose of this study is to analyze the conventional and Islamic banking in Pakistan. For this study, a sample of 19 conventional banks and five Islamic banks was selected. The CAMEL approach is used to evaluate the performance of both conventional and Islamic banks. Ten ratios were used to measure profitability, liquidity and credit risk. Our findings suggest that Islamic banks are less efficient than conventional banks in asset management, management capability and liquidity. Conventional banks have better earning capability in terms of return on assets and overhead ratios. The analysis also shows that Islamic banks have better capital adequacy than conventional banks.