Comparative Analysis of Islamic and Conventional Banking in Pakistan

This report presents a comparative analysis of Islamic and conventional banking institutions in Pakistan, specifically examining Meezan Bank and My Bank. The introduction highlights the importance of banks in the economy and the two main types of banking systems: conventional and Islamic. The background section provides context on Pakistan's Islamic principles and its development. The literature review delves into the meaning of both banking systems, their importance in the Pakistani economy, and a comparative analysis of their operations. The methodology section outlines the research design, approach, and data collection methods, emphasizing a qualitative, inductive approach using secondary data. The report aims to understand the key differences between Islamic and conventional banking, evaluate their impact, and recommend ways to influence economic growth. The research questions explore the meanings of both banking types and their key differences. The report uses secondary data sources to derive effective results in the comparative analysis.

Comparative Analysis of Islamic
and Conventional Banking
Institutions In Pakistan

TABLE OF CONTENTS
INTRODUCTION................................................................................................................................3
Background of the Research............................................................................................................3
Research Aim:..................................................................................................................................4
Research Question...........................................................................................................................4
Rationale of the Research................................................................................................................4
LITERATURE REVIEW.....................................................................................................................5
Introduction......................................................................................................................................5
Meaning of banking systems...........................................................................................................5
Importance of both systems in economy of Pakistan......................................................................5
Comparative analysis of Islamic and Conventional banking system..............................................6
METHODOLOGY...............................................................................................................................6
Type of Research:............................................................................................................................6
Research Design..............................................................................................................................6
Research Approach..........................................................................................................................6
Data collecting.................................................................................................................................6
REFERENCES.....................................................................................................................................8

Aim: To carry out a comparative analysis of Islamic and conventional Banking Institutions in
Pakistan: A study on Meezan Bank and My bank.
INTRODUCTION
Banks have been regarded as the most important pillars of any economy of world at present
times as they are the one which are engaged in lending and leasing purpose to all individuals,
governments and corporate individuals. At this time, there are two types of banking institutions
which have been operating within economies of world namely, Conventional banks and Islamic
banks. As all the operations or products and services which have been provided by both these types
of banks are same. However, there is one major difference in their operations which is conventional
banks are earning their profits from rate of interest which they are charging. On the other hand,
Islamic banks have been earning by trading, leasing and profit or loss sharing. Here, in present
dissertation proposal, researcher will be carrying out comparative analysis of Islamic and
Conventional banks of Pakistan which are namely, Meezan Bank and My bank.
Background of the Research
Pakistan is mainly Islam dominating nation so all the functions which have been carried
forward by them are based on Sharia board. The country has been dealing and making all the
business operations based on the rules and regulations which are based on Sharia board, Holy Quran
and principles of Prophet Muhammad (p.b.u.h.). Country has been dealing into banking institution
for a long time and all types of banks have been into operations both Islamic and Conventional
banks are there which are dealing and lending to its customers. Pakistan is one of the developing
countries of world with 24th largest nation in terms of purchasing power parity and 42nd in terms of
Gross Domestic Product (GDP). In 2017, the purchasing power parity of country was about $1
trillion which means that growth rate of Pakistan is very high since the time of its independence.
Islamic and Conventional banking systems are existing within the economy of Pakistan
which are selling and offering same types of products and services to its customers (Awan, 2009).
But there are still some major differences which are being there within functioning or operations of
both these banking systems. In this present proposal, researcher will be carrying out discussion
between how do both these banking institutions of Pakistan have been working and operating within
country.

Research Aim:
To carry out a comparative analysis of Islamic and conventional Banking Institutions in Pakistan: A
study on Meezan Bank and My bank.
Research Objectives:
 To understand meaning of Islamic and Conventional banking systems of Pakistan.
 To carry out a comparative analysis of Islamic and conventional Banking Institutions in
Pakistan.
 To evaluate key difference between both the banking systems.
 To recommend ways in which both banks could influence whole economic growth of
Pakistan.
Research Question
1. What is the meaning of Islamic banking in Pakistan?
2. What is the meaning of Conventional banking in Pakistan?
3. What is key difference between both these types of banking systems?
Rationale of the Research
Islamic banking and conventional banking is playing very important role in bringing out
visible and effective changes within the working of country like that of Pakistan. So, this topic
which we would be exploring basic changes and difference between both these types of banks. This
topic is very important at present times to study as banks have been evolved very much since their
first ever introduction within economies of world. Banking sector has been playing very much vital
role in bringing country up in people and country in front line. In country like that of Pakistan
which is Islam dominated nation and is also one amongst developing nations. As per the rule in
Islam interest which has been given from banks have been considered to as illegal so Islamic banks
were set up which drew attention of many people by their principles which were governed by Sharia
board, Holy Quran and principles of Prophet Muhammad (p.b.u.h.) (Ahmad, ur Rehman and Saif
2010). So, this topic is very much important at present times for studying so that it becomes easy to
understand meaning and difference between both Islamic and Conventional type of banking within
economy.

LITERATURE REVIEW
Introduction
This section of dissertation will be including important points of difference which are there
between working and functioning of Islamic banks with that of Conventional banks. There are
various authors who have been included this topic as comparative study or analysis of Meezan and
My bank of Pakistan so, we would be also including this topic for some greater understanding.
Meaning of banking systems.
As Jaffar and Manarvi, (2011) introduced both the style of banking which are prevailing
within economy of Pakistan it was included that Islamic banking system started in year 1963 in
country. The functions and working procedures of this type of bank is been laid down on rules,
regulations and principles of Sharia board. This broad will be depending and explaining how
Islamic business and contracts would be depending upon. As interest is been the basic difference
and main element in starting up of Islamic banks within countries which are Islam dominating. This
also caused because according to Sharia which tells that interest has been illegal within religion of
Islam. Muhammad Awan, Shahzad Bukhari and Iqbal, (2011) also included that Islamic banking
systems is that one which is based on principles of Islamic law which is called to as Sharia and is
been guided by Islamic economics. The reason behind setting up of this type of banking system is
collection of interest or Riga which is regarded to as illegal in Islamic law and share of profits and
loss within banking system.
Importance of both systems in economy of Pakistan
Iqbal, (2001) mentioned that both type of systems namely Islamic and Conventional are
been regulated within Pakistan. But it is seen since the establishment of Islamic banks in world that
their profitability is comparatively low as compared to other banks which are operating within
economy. The reason behind this could be short term investments and low equity base they are very
less investing in long term bonds or debt as in case law is not allowing them to do so. Various short
term investment in Islamic banks includes Salam, Qurd fund and Murabaha while long term
includes leasing, Sukuk and Istisna. They have not been considered to give higher return as
compared to those used in Conventional banking like that of treasury bills, bonds and loans and
advances.

Comparative analysis of Islamic and Conventional banking system.
It was seen that both banks have been operational within economy of Pakistan and they are
performing very good since the time of independence and partition from India. Akhtar, Ali and
Sadaqat, (2011) included that conventional banks in Pakistan like that of My Bank is also provided
same rate of interest like that of Islamic banks. Although, Islamic banks are not very much
profitable because of not using more of long and short term investment elements but then also they
are more popular as compared to others like conventional banks Usman and Khan, 2012 included.
METHODOLOGY
Type of Research:
The present dissertation proposal will be based on qualitative type of research which will be
exploring more difference and doing comparative analysis of both banking systems namely, Islamic
and Conventional.
Research Design
This is defined as type of strategies which researcher would be using to carry out whole
research work so that it becomes clearer about topic which we would be dealing with. This
methodology will be helping us to find out more about research questions and problems which we
would be defining at starting of work.
Research Approach
This of two types namely inductive and deductive which will be telling about pattern of
theory and research data collecting techniques. The present dissertation will be based on inductive
type of approach so that more in-depth study could be done and conclusion could be drawn out
successfully.
Data collecting
There are two types of data collection sources and methods which are primary and
secondary. Later one is that type which is having its origin like that of questionnaire which is
prepared to find out reactions and reasons behind specified topic. While, former one is defined to as
second hand data like which have been already published including books, journals and data which
is given on websites. So, researcher will be using secondary data source to take out effective results

in comparative analysis of Islamic Conventional banking type.

REFERENCES
Books and Journals:
Ahmad, A., ur Rehman, K. and Saif, M.I., 2010. Islamic banking experience of Pakistan:
comparison between Islamic and conventional banks. International Journal of Business and
management. 5(2). p.137.
Akhtar, M.F., Ali, K. and Sadaqat, S., 2011. Liquidity risk management: a comparative study
between conventional and Islamic banks of Pakistan. Interdisciplinary Journal of Research in
Business. 1(1), pp.35-44.
Awan, A.G., 2009. Comparison of Islamic and conventional banking in Pakistan. Proceedings
2nd CBRC, Lahore, Pakistan. pp.1-36.
Iqbal, M., 2001. Islamic and conventional banking in the nineties: a comparative study. Islamic
economic studies. 8(2). pp.1-27.
Jaffar, M. and Manarvi, I., 2011. Performance comparison of Islamic and Conventional banks
in Pakistan. Global Journal of Management and Business Research. 11(1).
Muhammad Awan, H., Shahzad Bukhari, K. and Iqbal, A., 2011. Service quality and customer
satisfaction in the banking sector: A comparative study of conventional and Islamic banks in
Pakistan. Journal of Islamic Marketing. 2(3). pp.203-224.
Usman, A. and Khan, M.K., 2012. Evaluating the financial performance of Islamic and
conventional banks of Pakistan: A comparative analysis. International Journal of Business
and Social Science. 3(7).