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Comparison of Islamic Banks with Conventional Banks: Evidence from an Emerging Market

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  • Ameenullah Shaikh, Saqib Sharif, Imtiaz Arif

    ( Iqra University Karachi, Pakistan)

Abstract

This paper evaluates and compares the performance of Sharia-compliant banks with their conventional counterparts operating in Pakistan. Data of five full-fledged Islamic banks and fifteen conventional banks, all from Pakistan, have been used for the study. Study period comprises of six years from year 2008 to year 2013. Bank's orientation, competence, quality of assets and stability are the measures used to compare the performance of Shariah compliant and conventional banks. The Islamic banks in Pakistan are younger in age and smaller in size compared to the conventional banks. Based on the financial ratios of two types of banks, we find that the business model of Islamic banks is inferior to the model of conventional banks. Islamic banks are less cost efficient than conventional banks. However, Islamic banks have superior asset quality with better bank stability position. Further, we have compared the market efficiency measures of Shariah-compliant and Conventional banks. Liquidity and volatility measures are examined to compare the two banking systems based on daily observations from January 1, 2007 to June 30, 2013. Only two Islamic banks and fourteen conventional banks are listed on the Karachi Stock Exchange of Pakistan. Bid-Ask Spread and Amihud illiquidity ratio are used to check liquidity in the market, whereas, relative high-low price volatility is the measure to check daily price volatility. We find that Islamic bank stocks are less volatile compared to conventional banks after controlling for factors that influence price volatility measure. But we find mixed evidence on liquidity measures for two types of banks.

Suggested Citation

  • Ameenullah Shaikh, Saqib Sharif, Imtiaz Arif, 2016. "Comparison of Islamic Banks with Conventional Banks: Evidence from an Emerging Market," Journal of Management Sciences, Geist Science, Iqra University, Faculty of Business Administration, vol. 3(1), pages 22-38, March.
  • Handle: RePEc:gei:journl:v:3:y:2016:i:1:p:22-38
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Yunas Ali, Farooq Hassan, 2019. "The Study of Potential Shariah Non-Compliance Risks in Murabahah Along with Their Risk Management," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 44-58, March.
    2. repec:gei:journl:v:4:y:2017:i:1:p:136-150 is not listed on IDEAS
    3. repec:gei:journl:v:4:y:2017:i:1:p:126-135 is not listed on IDEAS
    4. Assad Ullah & Xinshun Zhao & Muhammad Abdul Kamal & Adeel Riaz & Bowen Zheng, 2021. "Exploring asymmetric relationship between Islamic banking development and economic growth in Pakistan: Fresh evidence from a non‐linear ARDL approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6168-6187, October.
    5. Shazia Zahid, AB. Basit, 2018. "Impact of Macroeconomic Factors on the Growth of Islamic Banking: A Case of Pakistan," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 3(2), pages 37-50, October.
    6. Muhammad Ali, 2016. "Bank Profitability and its Determinants in Pakistan: A Panel Data Analysis after Financial Crisis," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(1), pages 1-14, March.
    7. Jamshed Y. Uppal, Inayat Ullah Mangla, 2017. "Co-integration of Sukuk and Bond Yields - Evidence from Globally Placed Sukuk," Journal of Management Sciences, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 106-115, March.
    8. Shaikh Muhammad Saleem, 2017. "Does International Financial Integration Spur Economic Growth? Evidence from Pakistan," Journal of Management Sciences, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 116-130, March.

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