Islamic financial institutions: Performance comparison with Canadian banks

Abstract

The Canadian financial market is considered to be very conservative and has been using the same practices for a long time. The economies of some countries such as England have adopted a strategy of including Islamic finance in their market and this has produced very satisfactory results. Considering that Islamic finance has been growing in recent years, this type of practice could be relevant to the Canadian market. The objective of this article is to analyze whether the performance of Islamic financial institutions is comparable to traditional banks. A comparison of the efficiency of conventional and Islamic banks will be important to determine because they do not operate in the same way and their primary source of income is different. The results revealed that Islamic banks tended to perform better than conventional banks. Performance ratios were in most cases higher for Islamic banks. This observation was confirmed with the use of the data envelopment analysis (DEA) model, which measures efficiency and effectiveness at the bank level. The results show that although some Islamic banks had significantly fewer assets than conventional banks, they were still able to use resources more efficiently. This confirmed that Islamic finance is an option for Canada and that with government support it will be possible to have a stronger economy overall.