This paper theoretically reviews the performance and growth of participation banking industry of Pakistan. Secondary data is obtained from central banks, commercial banks, DFIs and organizations involved in financial research. In addition, financial data of the four participation (Islamic) banking operating in Pakistan has been sought to determine the issues, bottlenecks and opportunities present in the participation banking sector of Pakistan. In relation to the conventional banking sector, this research finds higher proportional increase and growth for participation banking sector as depicted by their financial indicators like leverage, cost to income ratio, asset growth, financing growth, investment account growth (YoY). In contrast, conventional banks present a far better picture in their financial indicators of total banking assets, financing assets, investment accounts and they performs better with respect to return on assets, return on equity , revenue/asset ratio and non-financing income ratio. Based on the above analyses, it can be concluded that participation banking has a great potential for growth in near future and with better image-building and perceptual shift regarding Islamic modes of finance, extensive growth could be expected.
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