Structural Mix of Credit Portfolios in Islamic Banking System: Evidence from a South Asian Economy

Abstract

Purpose

Inquiring into the role of Islamic and conventional banks regarding the core responsibility of lending is an established phenomenon. This chapter is based on key findings regarding dynamic changes in the structural mix of credit portfolios in Islamic banks and conventional banks of Pakistan.

Methodology/approach

The nature of the study is exploratory; the sample consists of 5 Islamic banks and 20 conventional banks of Pakistan comparatively evaluated for the time frame of 2008–2014.

Findings

Our findings show that for Islamic banks, there is an increasing trend in the credit portfolios as a proportion to assets as well as to equity, whereas in case of conventional banks the findings are opposite. The results further prove a positive and negative growth of credit portfolios as proportional to assets and equity in case of Islamic and conventional banks respectively. It is also observed that credit portfolios of Islamic banks are growing with higher degree as a proportion to equity as compared to proportion to assets. On the other hand, conventional banks show higher degree of decline of credit portfolios as a proportion to equity as compared to assets.

Originality/value

These findings also show that primary stakeholders in Islamic banks are more risk seekers thus more inclined towards risky investments than ordinary credits.

Citation

Rafay, A., Mohsan, T. and Sadiq, R. (2016), "Structural Mix of Credit Portfolios in Islamic Banking System: Evidence from a South Asian Economy", Mutum, D.S., Butt, M.M. and Rashid, M. (Ed.) Advances in Islamic Finance, Marketing, and Management, Emerald Group Publishing Limited, Leeds, pp. 185-210. https://doi.org/10.1108/978-1-78635-899-820161010