Impact of Awareness on Profit Distribution Management by Islamic Banks in Pakistan: An Empirical Investigation

Abstract

In current era of competition in financial markets particularly in banking sector everyone is putting its best efforts to attract more depositors. And the pattern of profit distribution is primary concern of every potential depositor for both conventional and Islamic banking, however, this pattern is not uniform. There are several factors that determine the pattern of profit Distribution among depositors. The current study also focuses on the role of different internal, bank specific, and external, macroeconomic, variables in relation with profit distribution where the variable of interest is customer’s awareness towards Islamic banking system. The current study constructs a Panel of 14 Islamic banks where 4 banks among them are full-fledged Islamic banks and remaining have their Islamic windows. The data covers the time span of 2008-17. To find empirical evidence, this study adopts Fixed effect model with White corrected standard errors structure to tackle the problems of heterogeneity in balanced panel. This study finds that customer awareness towards Islamic banks affects negatively but insignificantlyto profit distribution management in Pakistan. These findings are beneficial for Islamic banks and customers of Islamic bank because with an increase in competition there is no impact on depositors return. Therefore, Islamic banks can increase their number of branches and windows along with good quality human capital and customers can deposit their savings in Islamic banks.