SUMBITTED BY:

(Leader) Hussnain Butt (bsf2004142)

(Member) Aqeel Kalyar (bsf2004134)
(Member) Mehak Mehmood (bsf2004060)
(Member) Muhammad Shahryar Nagra (bsf2004168)

SUMBITTED TO:
Syed Fazal Abbas

SUBJECT:
Business Research

SECTION
8th Semester Evening (A)

UNIVERSITY OF EDUCATION LOWER MALL

CAMPUS, LAHORE.
Introduction
Islam is the complete basic code of conduct for Muslims. Islamic finance has been
practiced all over the world and some European financiers and businessman also adopted Islamic
finance. In 1970 some Islamic scholars and Shari scholars started Islamic banking as a universal
banking. Although interest free financing was also been practiced but there was no concept of
Islamic banking.
An Islamic banking operates on the basis of profit and loss sharing. Islamic banking was
established against the concept of interest which is nor allowed in Islam. Just like other Muslim
countries who started practicing Islamic banking Pakistan also started practicing Islamic banking
in 1970 with a very small amount of interest free products. The actual work on Islamic banking
was started in 1980s in Zia-ul-Haq era during the Islamization of financial system. The
government and some other institutes who works on interest base was against this change.
State bank of Pakistan
fully supported Islamic banking from 2001 to onward. Policies, Framework and rules of
business for Islamic banking were made. Like conventional banks Islamic banks is also a fund
mobilizer of people. On contrary it share profit and loss with its depositors. Conventional
banking follows the traditional rule of interest rate system and Islamic banking based on the rules
of interest free principle and profit and loss sharing while performing their businesses.
And according to Islamic rules
and principles Islamic banking should have to follow the rules of Allah Almighty in every
transactions, especially the transactions which involves exchange of money for money. As Islam
is focused on interest free transactions and that emphasis are given in different points of
Muslims’ holy book Quran, “That they took riba, though they were forbidden and that they
devoured men’s substance wrongfully – We have prepared for those among men who reject faith
a grievous punishment. Surah An-Nisa”. At another point such type of arguments are passed in
Surah Bakara “O ye who believe! Be afraid of Allah and give up what remains from Riba if you
are believers.”
Islamic banks which are working in Pakistan showed great performance. Writers around the
globe have compared Islamic banking with conventional banking. Islamic banking is better than
conventional banking in certain factors especially maintaining their customers trust and some
financial aspects as well Islamic banking is better than conventional banking.
Problem statement:
We want to study the comparison of Islamic banks and conventional banks because now a
day’s people are more interested in Islamic banking. We want to study how Islamic bank are
performing? What will be the future of Islamic banking in Pakistan? Is conventional performing
well or Islamic banking? And what will be the prediction for the performance of Islamic banking
in Pakistan in upcoming years?
Literature Review
Bhatti, F. A., Aslam, E., ur Rehman, A., Ashraf, S., Aslam, M., & Shabbir, M. S. (2023) did their
comparative analysis of Islamic and conventional banks of Pakistan. In their study they focused
on the financial performance of Pakistani Islamic and conventional banks. They used different
types of variables to measure the performance of Islamic and conventional banks like ROA,
ROE, and LDR. They found that return on assets were more or less same for both conventional
and Islamic banks because bank is whether Islamic or conventional bankers always play on the
safer side while lending. Their study also concluded that in terms of ROE Islamic banks
outperformed conventional banks and LDR had negative affect on the performance of
conventional banks but positive affect on the performance of Islamic banks. Moreover their
paper suggested that demand of Islamic products will increase in the near future so expanding
the branch network and employee workforce will positively affect the performance of Islamic
banks.
This paper presented a comparative analysis
of Islamic and conventional banks in Pakistan. They focused on profitability, liquidity, and risk
of credit. During their study they used different methods includes t-test, logistic regression, and
neutral analysis. Their study revealed that on average conventional banks generally outperform
Islamic banks in terms of profitability but the important point they mentioned that the liquidity
position of both Islamic and conventional banks is same which is different from Khalil, F, &
Siddiqui, D. A. (2019) They concluded that conventional banks are less liquid than Islamic
banks. However, according to their research Islamic banks demonstrate higher insolvency risk.
They recommend to improve and enhance the liquidity and risk management systems in Islamic
banks to improve profitability and mitigate risks. (Ali, A., Council, P. V. T., & Svobodová,
L.)2022.
This paper also considered financial ratio analysis to analyze and compare the financial
performance of top Pakistani Islamic and conventional banks. Their sample included five full-
fledges Islamic and five conventional banks. Their findings once again showed that liquidity
position if Islamic banks is higher than conventional banks due to the lack of Islamic financial
instruments is the market hence they can’t use their surplus funds to invest in the market. In
contrast of revenue and profit earning conventional banks outperformed Islamic banks. Majeed,
M. T., & Zainab, A. (2021).
Khalil, F, & Siddiqui, D. A. (2019) investigated the performance of
Islamic banks versus conventional banks in Pakistan Over the period of (2007-2017) using
different financial ratios. Total 18 banks were selected as a sample in which 13 were
conventional and 5 were Islamic. 12 financial ratios were used to measure the performance in
terms of profitability, liquidity, risk and solvency, and efficiency. They applied t-test as a
statistical tool to determine the performance between Islamic and conventional banks in
Pakistan. There results showed that conventional banks were more profitable than Islamic banks,
less liquid, more risky and more efficient as compared to Islamic banks due to several reasons.
Moreover they found out that there are some challenges for Islamic banks which could be lack of
proper training to the staff that could be the reason of operational inefficiency is more in Islamic
banks as compared to conventional banks.

Research Objectives
The main objective of this research project is to gain the basic
understanding of research process. This is also the requirement of our degree of bachelor of
business administration (BBA). To develop the skills by evaluating the existing literature,
research, or information on topic.to learn and practice research methodologies, data collection,
and analysis technique.to practice to present our results and findings in written form.

Methodology
This study is based on historical data. The population for this study includes
all Islamic & Conventional banks that are working in Pakistan. The sample size consist of three
Islamic Banks and three Conventional Banks. To compare the performance of Islamic and
Conventional Banks we will use ratio analyses to compare the profitability of these banks.
The financial data of all Islamic and Conventional Banks will be extracted from the
SBP’s website, PSX website and B-Recorder websites for the period.

Sample

 The following banks were included in the sample

 Meezan Bank limited, Bank Islamic Limited and Dubai Islamic Bank Limited are
selected as Islamic Banks and Habib Bank Limited, United Bank Limited and
Jahangir Siddiqui Investment Bank Limited are selected as Conventional banks.
Center Islamic Economics and Finance. Qatar Faculty of Islamic Studies, Qatar
Foundation.

Variables

Return on Assets (ROA)

 ROA is a ratio which is derived by dividing the net revenue of the firm aver the
whole Assets. It’s a fundamental approach that is used to explain net pay return
in the proportion of the organization’s effectiveness of the assets.
Return on Equity (ROE)
 ROE is utilize to calculate the profitability of the firm. It is calculated by dividing
the net profit of the firm over the whole Equity. It is used to measure the return in
percentage.
 Liquidity
  The liquidity ratio is calculated by the proportion of the liquid Assets over the
total deposits liquidity.

Limitations

At this level we will face some limitations while conducting research like time constraint,
do not have any kind of budget, lack of participation from all participants, challenge in
obtaining high quality data, supervisor availability issues, lack of technical skills, scope
constraints, sample size and representatives and other several limitations that can affect
the quality of work.

References

 Bhatti, F. A., Aslam, E., ur Rehman, A., Ashraf, S., Aslam, M., &, M. S. (2023).
Does intellectual capital efficiency spur the financial performance of Shabbir
banks? A comparative analysis of Islamic and conventional banks in Pakistan. Al-
Qanṭara, 9(3), 55-67.

 Ali, A., Council, P. V. T., & Svobodová, L. A COMPARATIVE

PERFORMANCE APPRAISAL OF ISLAMIC AND CONVENTIONAL
BANKING IN PAKISTAN (2022).

 Majeed, M. T., & Zainab, A. (2021). A comparative analysis of financial

performance of Islamic banks vis-à-vis conventional banks: evidence from
Pakistan. ISRA International Journal of Islamic Finance, 13(3), 331-346.

 Khalil, F., & Siddiqui, D. A. (2019). Comparative analysis of financial

performance of Islamic and conventional banks: evidence from
Pakistan. Available at SSRN 3397473.