This study aims at evaluating and comparatively analyzing the financial performance of all full-fledged Islamic banks operating in Pakistan and five Islamic banks from Malaysia conveniently chosen, subject to profitability and liquidity. Data has been compiled from annual reports for 2006-11. Famous ratios analysis model has been applied with descriptive and inferential statistics to analyze the results. Empirical results revealed that Malaysian Islamic banks are more profitable, liquid and well ahead to Pakistani Islamic banks in profit margin, profit to expense, earnings per share, cash ratio and loan to deposit ratio. However no significant difference is observed in return on asset, return on equity, current ratio, cash & portfolio investment to deposit and loan to asset ratio, although Malaysian Islamic banks are superior in maintaining healthy investment portfolio and high cash ratio while Pakistani Islamic banks have maintained high loan to deposits.

The Bank, which is open to all member countries of the Organisation of Islamic Cooperation, commenced operations in 1975. Its main objective is to foster economic development and social progress of member countries and Muslim communities individually as well as jointly in accordance with the principles of the Sharia. It is active in the promotion of trade and the flow of investments among member countries, and maintains a Special Assistance Fund for member countries suffering natural calamities. The Fund is also used to finance health and educational projects aimed at improving the socioeconomic conditions of Muslim communities in non-member countries. A US$1•5bn. IDB Infrastructure Fund was launched in 1998 to invest in projects such as power, telecommunications, transportation, energy, natural resources, petrochemical and other infrastructure-related sectors in member countries.