GRM 2010 GRM 2011

Abstract Details

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Efficiency of Islamic Banks: A Comparative Analysis of MENA and Asian Countries
Paper Proposal Text :
Efficient and effective utilisation of resources is one of the key parameters of stable and sustainable financial intermediaries. It is particularly crucial for Islamic banks to be efficient in order to sustain competitive pressure and financial crisis. This study empirically examines and compares the efficiency of selected Islamic banks in Middle East and North Africa (MENA) countries including Gulf Cooperation Countries (GCC), and Asian countries. The efficiency scores are measured using Data Envelopment Analysis (DEA) based on intermediation approach. The samples are 63 Islamic banks from MENA and Asian countries for a four year period (i.e. 2006 – 2009).
The findings indicate that Islamic banks globally are improving their technical efficiency scores and obtained the highest score in 2008. However, most Islamic banks suffered an efficiency slump in 2009. The study found that the main source of technical inefficiency is their operation at a wrong scale. Islamic banks, in general, achieved a high score for pure technical efficiency which indicate that the management is able to control the cost and efficiently used the inputs to maximise the outputs regardless of scale effects. On average Islamic banks from Asian countries are found to be relatively more efficient than those in MENA countries. Interestingly, most of the efficient Islamic banks are from the GCC. The economic condition of a country has been found to be the main determinant of Islamic bank’s efficiency. Thus, it can be concluded that specific environmental factors and economic conditions of the country directly affect the efficiency of Islamic banks.