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Sidra Thesis
Sidra Thesis
Sidra Thesis
INTRODUCTION
Efficiency generally describes the extent to which time effort or cost well
used for the intended task or purpose. It is often used with the specific
meaning in many different ways. For this purpose we use at least twenty
articles review from which we learned that how Islamic and conventional
of both Islamic and economic needs. Different steps for the elimination of
rib in the economy was taking during 1970’s.And major and practical
Islamic banking was start back in 2001 when the government strong-
the country that makes the people able all parts of the population to right
to use this financial system. Conventional financing system is based on
banks by using the stochastic frontier approach. The results shows the
banking consistent with the principles of Islamic law (sharpie) and guided
Moreover the efficiency of Islamic banks was improving with the passage
of time. The pure Islamic banks are working more efficiently as compared
suggests that Islamic banks should increase total assets and profit because
negative impact on efficiency. The current global financial disaster has not
contracts with long term tentative loan contracts is mitigated with equity
are dependable with their religious values. On the other hand little
till now. This paper describes some of the most familiar Islamic banking
interest payments (riba) as only goods and services are permitted to carry
of profit or loss and risk sharing on both the asset and liability side.
accumulation leasing like products are accepted along with Islamic banks,
find, little differences apart from those Islamic banks increased their
local industry.
Pakistan.
SURVEY OF LITERATURE
2.1 Introduction
eight Malaysian banks over the period of 2004-2008. Three ratios are used
to measure the risk adjusted return that are extensions of financial index>
return on risk, adjusted capital (RORAC) risk adjusted return on capital
We found that retail and commercial found that retail and commercial
activity are the most profitable activity, which lead it ran over investment
The analysis of the efficiency shows that none of these banks falls on the
frontier which means that they should change the structure of their
banks and 5 Islamic banks were selected. Nine financial ratios were used
return on assets, return on equity, cost income ratio, net loans to assets
ratio, liquid assets to customer deposits and short term fund net leaner to
deposits and borrowing common equity to total asset and etc used. In
The data which is used is secondary data collected from state bank of
maintenance Islamic banking are the location and Shari compliance, while
Mokhtar ET. al., (2006) examined the efficiency of the full fledged
the choice of input and output variables this study uses two input
variables and one output variables. The first input variable devoted by X 1
Finally total cost denoted by TC. This study used 288 panel data from the
to 2003. Some of the information was also obtained from the bank.
Negara Malaysia reports, the findings show that the average efficiency of
the overall Islamic banking industry has increased during the period of
study while the efficiency trend for conventional banks has been stable
over time. However, the efficiency level of Islamic banking is still less
efficient than that of conventional banks. This study also reveals that fully
making unit operates relative to the other bank in the sample. Two input
variables (Fined assets and staff costs) and one output variable (other
income) show similarity across the sample period based on mean and
sheet of 18 Islamic banks during the period of 1997-2000 which are made
conventional banks. Islamic banks in the sample suffered from the global
crisis in 1998-99 but performed very well after difficult periods. The
findings indicate that there are diseconomies of scale for small to medium
are used (I) GDP (real growth rate), (ii) industrial production rate (iii)
determined through return on asset and return on equity. The time period
of the data was taken from 2003 to 2009. Hypothesis was tested and
conventional banks.
The time period of the sample data was taken from 2005 to 2009. Ratios
are used in this study as a variable. Return on average asset measures how
well a company used it assets to generate additional profit and can be
calculated by dividing net income after tax with the average asset. Value
the t-test was carried on variables. The findings are that return on average
assets, bank size and board size values of conventional banks was higher
higher for Islamic banks. Significant difference between two banks was
profitability.
Yazdan and Hussain (2012) examined the short run and long run
in Iran and Indonesia. For this purpose this paper used the quarterly data
dependent variables used which are (I) gross domestic product (ii) gross
fined capital formation (iii) total Islamic bank financing (FIN). The data
was collected for this article from the World Bank statistics and
international financial statistics published by the international monetary
development and economic growth in the short run and ling run time
periods. This paper used empirical evidence to show the role of Islamic
Islamic banking. And he seriously attempted in this paper to fill this gap.
The performance of Islamic banks has been calculated banks has been
calculated using both trends and ratio analysis. In this paper ratio’s has
been used like rate on return on equity ratio, rate on return on assets ratio,
and capital asset ratio. For this study the data is collected from 1990-98
periods. And data of a large number of variables collected from the annual
reports of these bank. It has been found that generally Islamic banks have
their significant. Finding of the study are that bank Islam Berthed
8 conventional banks.
Islam and chowdhury 2011 examined and focused on the comparative
credit on investment deposit ratio, return on asset, earning per share, price
was used for Islamic and conventional banks of Bangladesh. The data
From the whole analysis we see that Islamic bank of Bangladesh limited
AB bank limited for the period of 2003 to 2006 both on short term and
conventional and Islamic banks we used the t-test statistic. different ratios
performing finance, net interest margin, loan to deposit ratio etc.The data
required in this study is secondary data are monthly time series data from
study showed the results that based on the calculation of the average
banks.
Dost and Ahmad 2011 examined the scale efficiency scores of Islamic
banks of Pakistan for the period of 2006 to 2009.To determine the scale
Data for this study has been taken from the each banks annual reports and
each banks own website for the period of 2006 to 2009.Data envelopment
for the analysis of the Islamic banks. The variable used for the analysis is
deposits and total assets are inputs while investment and net spread earned
are the outputs which are used for the analysis. The results shows that the
Dawood Islamic bank was the more efficient bank in pakistan.the results
also suggested that the Islamic bank had the highest mean scale efficiency
value during the period if 2007.this study is the early effort to determine
very few banks are operating in this sector which performs pure Islamic
banking. For this purpose we take a sample of five Islamic and five
constant return on scale and variable return on scale approach. The data
source for the research for the research is the banking statistic of Pakistan
report and all the financial data used for analysis are in term of Pakistani
banks of the period of 2004-2008. The result shows that the technical
conventional bank i.e. public and private sector banks in the case of
has been used for Islamic banking in Pakistan before this study. It
used under (I) profitability it liquidity risk and the credit risk to
interest based banking system and third bank is Islamic bank doing
aspects.
The secondary data is sued key advantage shows this method
removes the disparities. The banking firms are not in equal size. This
compete with them. The liquidity and solvency ratios are used in this
model. The four ratios are used to measure the profitability and
These ratios indicate that the capital and dividends of the share
reasons that Islamic banks are better that conventional is that Islamic
banks are financed more with equity and less with debt as compared
to conventional banks.
There are three Islamic banks in Jordan one which has been
established recently 2010. The data used in this study are financial
banks. The study uses eleven financial ratios for bank performance.
These ratios are grouped under three broad categories, profitability,
liquidity and risk and solvency. There are three banks according to
Jordan Islamic banks, which are Jordan Islamic bank for investment
excluded from the study because it has been recently published 2010,
while the study sample covers the period to 2005-2009. The data has
efficiency within Islamic bank in the MENA area. This paper used
three stages of analysis. The first stage consisted of measuring the
the financial data of Islamic banks for MENA banking from the
period of 2006 to 2009. The study results have revealed credit risk
MENA area.
Jaffar and Manarvi (2011) examined and compared the
Islamic banks in the sample do not have five years of financial data.
ability. Asset quality for both modes of banking was almost the same,
conventional banks recorded slightly smaller loan loss ratio showing
used between and among banks. The audited financial statement income
statement and balance sheet both Islamic and conventional banks for the
period of 2000-2011 are used for ratio analysis. The ratios have been
calculated with the help of ratios formula. The other source sued for data
collection is SBP and business record data bases. The study concluded
that Islamic banks proved to be more liquid, less risky and operationally
overhead, loan and liquidity ratios and foreign ownership as proxies for
is specified. The data used in this study are a cross country bank level
banks each year in the 1993-1998 periods in eight countries. The main
The estimation technique used is panel data methods and the while
The results indicate that foreign owned banks are more profitable than
measure positively. Our results also show that stock markets are
Theoretical Framework
sector of any country. According to the act no; 10 of 1998 the definition of
The main focus of the study is the analysis of Islamic banking in Pakistan.
On the supply side the important component of growth of Islamic banking
is the increasing number of financial services institution contribution
shriah compliant solutions. In adding up the new Islamic banks that are
being started there is an increasing trend among present conventional
banks to change their operations according to the shriah complaint.
Moreover the markets of Islamic banking shows the rich potential. for the
purpose of analysis of the efficiency of Islamic banking we used input and
output variables.
Total Deposits;
Money mostly kept in a banking institution for the purpose of safe
keeping. Bank deposits are mostly made deposits at a banking institution
like as saving accounts, checking accounts, and money market accounts.
The account holder has the right to withdraw these deposits according to
the terms and condition of the account which is set onward. The deposit
itself is like a liability which bank payable to the person who made this
deposit to the bank.
Labor cost;
The labor cost is the amount of wages and benefits which is given to the
employees according to the accounting period daily monthl indirect y or
weekly basis payroll and other taxes are also include in the labor cost.
Labor cost can be divided into two parts, direct and labor cost.
Share capital;
Total number of shares of a company that is kept by the share holders of the company
is called share capital. A company can issue the new shares at any time according to
his full amount of official share capital. The issuing of new share is also called
subscribed share capital. Authorized share capital mean the maximum value of
securities that the company can legally issue. share capita can also defined as a long
term financial investment by the share holder in a company.
Investment
An asset or investment that is purchased with this thought that it will give
income in the future. And from the economic point of view an investment
is the purchase of such things which is not consumed today with this hope
that it will bring income in the near future. And according to finance
investment is the purchase of monetary asset with this thought that it will
bring income and could be sold at high prices.
Total loan
The essential amount of the loan plus any extra financed closing
costs called the total loan. The most ordinary type of loan comes
from the bank which exist to let somebody borrow so its number
disclosure that banks present a large variety of ways to fund the
business development.
Ch. 4
DATA&METHODOLOGY
(1) Technical efficiency. (2) scale efficiency (3) the combination of these two
efficiencies represent economic efficiency. This is also known as total cost
efficiency.
Output at a scale that minimizes the profit of a firm where capital and
infrastructure can be set to maximize the level of profit called scale efficiency.
Economic efficiency mean when the cost of production a given output is below
as possible.
To analyze the efficiency of Islamic bank in Pakistan results and model are discussed
in this chapter.
Table 5.1
VRS input oriented DEA analysis
According to the DEA Meezan bank is working according to the decreasing return to
scale.
Decreasing return to scale mean when our inputs are increased by m and our
outputs are increased by less than one it’s called decreasing return to scale.
While other banks are working according to the constant return to scale .
Constant return to scale mean when our inputs are increased by m, and our
output increased by exactly by m.
so through the Data envelopment analysis we come to know that the Meezan bank is
working according to the decreasing return to scale while other banks are working
according to the constant return to scale. so the result shows that the Meezan bank is
working inefficiently.
NOTE
Scale=scale efficiency=CRSE/VRSTE
Table 5.2
According to the table 5.2 technical efficiency of all the banks is constant.
The scale efficiency without the Meezan bank is constant while the
scale efficiency of Meezan bank is inefficient.
Output at a scale that minimizes the profit for a firm where capital and
infrastructure can be set to maximize the profit of a firm.
Table 5.3
Bank crste vrste scale
Meezan 0.059 0.264 0.225 irs
Al-baraka 0.366 0.812 0.45 irs
Burg 0.676 1 0.676 irs
bank islami 0.767 0.906 0.847 irs
Dubai islamic
bank 1 1 1
According to the table first four banks have been working according to the increasing
return to scale while the fifth bank is working according to the constant return to scale.
The forth bank which is bank islami is more efficient from all the banks. There is a
clear result which come from the analysis is that according to the 2008 analysis all
banks were working according to the decreasing return to scale while according to the
2012 analysis all banks except Dubai Islamic bank is working according the increasing
return to scale. So the trend of Islamic banking among people clearly increased.
Table 5.4
Scale
Bank Technical Efficiency Efficiency
Meezan 0.264 0.225
Al-baraka 0.812 0.45
Burg 1 0.676
bank islami 0.906 0.847
Dubai islamic
bank 1 1
According to the table 5.4 the bank Islami is more efficient because the technical and
scale efficiency is greater than the Al-baraka because the technical efficiency of Al-
Baraka is 0.8 and scale efficiency of al-barka is 0.45 which is less than the bank
islami. But the Dubai Islamic bank is according to the analysis of 2008 and 2012 is
working according to the constant return to scale.
in Pakistan .for this purpose five Islamic bank Meezan, Al-baraka , Burg,
Bank islami & Dubai islamic bank has been taken. I choose two periods for
the efficiency analysis which are 2008 &2012. For the efficiency analysis I
use three input variable and three output variables. The data for this
purpose has been taken from every banks own annual report from 2008 to
banks because according to the 2008 analysis mostly banking was working
the 2012 analysis mostly banking are working according to the increasing
The public should be made aware of the cultural impact of the Islamic
banking system. They should be educated on the social benefits that an
Islamic banking system would have. They should be educated on the
social benefits that the society would gain from adopting the system.
Issues of poverty, basic public services in health, education etc. can be
addressed by sketch potency from such a banking system.
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