Effect of Change in the Deposit Rates of Conventional Banks on Investment Rates of Islamic Banks in Pakistan

Abstract

The paper aims to inspect the change in deposit rates of conventional banks and its effect on investment rates of Islamic banks in Pakistan. This study would attempt to resolve the puzzle among Islamic banking is interest free or interest based by amassing data from the Islamic or non-Islamic banks in Pakistan over the period 2010 to 2014. The performance of Islamic banks is considered as a realistic evolution from the study of history. Islamic banking is actually the system of banking that is purely based on Islamic jurisprudence. They have become an undeniable reality and it is evident from the increasing number of Islamic based banks. The discriminatory feature of Islamic banking is the prohibition of Riba (interest) and profit and loss sharing according to shariah principle. From the analysis, it is found that the concept of Islamic banking is not much different from that of conventional banking. The investment rates of Islamic banks fluctuates with that of deposit rates of conventional banking but not vice versa.

Keywords: Deposit Rate, Investment Rate, Islamic Banking, Conventional Banking

Jell Classification: G21, E22