Comparative Risk Return Analysis of Conventional and Islamic Banks in Pakistan

This study measures and compares the risk and return of the two banking streams i.e. the Conventional banking system and the Islamic banking system. Conventional banking system being the most dominating banking system has its strengths and in its competition Islamic banking has evolved and is in progress. The main difference between these two streams of banking is the main tool of functioning. Interest rate is the basic tool of functioning for conventional banks whereas interest being “Haram” in Islam the main tool of functioning in Islamic banking system is the profit and loss sharing. Owing to this basic and huge difference all the products and services offered differ in both systems. This creates a gap of relative performance, asking which system is working better or is more feasible. To cater to this gap I have studied the complete risk and return analysis of these banks using selected models available. The results of the study help the investor and customer to judge which stream is more feasible for them and also for the stake holders and potential investors and customers.