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Reυιeu> of Islamic Economics, Vol. 8, No. ɪ, 2004

Interestingly, Islamic scholars consider the same conventional
criteria appropriate for measuring the performance of Islamic banks
and often find them more efficient than their mainstream
counterparts. They have usually employed either of the two measures
for the purpose: (i) the traditional ratio analysis and (ii) the more
sophisticated Stochastic Frontier framework. Their conclusions
require scrutiny as they appear to counter both popular perception
and experience.

III. Tlie Ratio Analysis

Munatvar Iqbal

We may begin with the important work of Munawar Iqbal (2.001):
Islamic and Conventional Banking in the 1990s: A Comparative
Study
that uses the ratio method for the purpose. He presents a survey
of the overall progress of Islamic banking, including its growth and
performance over the decade in a comparative setting. We are
concerned here mainly with the part that deals with the efficiency of
Islamic banks vis-à-vis their mainstream competitors. Iqbal uses the
relevant ratios of 1000 top conventional banks as the benchmark for
purposes of comparison (p. 377). His conclusion is:

When compared with the conventional banks, Islamic banks
as a group out-performed the former in almost all areas and in
almost all years [though] there are considerable variations
among Islamic banks in terms of growth as well as
performance (Entry 4, p. 388).

This is a categorical statement and calls for a hard look at the
evidence it rests on. Prefacing the exercise with a brief mention of the
method and content of Iqbal’s work may perhaps be helpful. The
work has two conspicuous features. First, it deals only in terms of
ratios and percentages to compare various variables for 1000
conventional banks as against ɪɪ from the Islamic sector. The
aggregated magnitudes of variables in the former category may be
millions of times more than those in the latter. The market share of
the Islamic sample may be ‘a drop in the ocean’, for that reason alone,
Iqbal may be seen to be comparing two very different sorts of oranges
on the basis of their colour, nor quality. That apart, if the author had
based his ratios on the information compiled from the annual reports



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