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Comparative Efficiency Analysis of Islamic vs Conventional Banking System of Pakistan

Muhammad Dawood Ur Rahman, Arshad Mahmood Malik, Ghulam Hussain Babar

Abstract


This study investigates the efficiency of the Islamic banks in relation to Conventional banks of Pakistan. To provide insightful and comprehensive efficiency analysis of Pakistan’s banking system, the secondary data from 2018 to 2023 of key performance indicators (total assets, total equity and customer deposits) of six banks (3 Islamic banks and 3 Conventional banks) have been randomly selected from the financial market of Pakistan. In this study we used Data Envelopment Analysis (DEA) to assess the technical efficiency of Islamic and conventional banks in Pakistan. By avoiding rigid assumptions about the production function, DEA offers a flexible framework for comparing bank performance. We consider three scenarios with varying combinations of inputs and outputs (total assets, total equity, and customer deposits) to capture the multifaceted nature of banking operations. Our findings show the significant variations in efficiency across different scenarios. Notably, UBL (conventional) and Dubai Islamic Bank Pakistan emerge as top performers in terms of overall efficiency. The results of our study highlight specific areas where banks can improve their operational efficiency and resource utilization.

Keywords


Islamic banking system; Conventional banking system; Efficiency; Data development analysis; Pakistan

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DOI: https://doi.org/10.33687/jacm.006.01.5557

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