Efficiency analysis of Islamic banks in Africa, Asia and the Middle East

Abstract

This article examines the efficiency change or improvement of Islamic banks over 8- on a country and regional basis using Malmquist DEA methodology. The resulting Malmquist Total Factor Productivity (TFP) index is then decomposed to consider changes in their productive and technical efficiency components. Indonesia and Yemen proved the most improved countries over the period, and Asia was the best region. In contrast, the United Arab Emirates, as a country, and the Middle East, as a region, had the best use of inputs and outputs for efficiency change. For technical change efficiency Indonesia and Yemen were the most improved countries and Asia was once again the best performing region. Finally, efficiency change and TFP change was negatively related to the banks’ age. Therefore, policy-makers might well look to Islamic banks from the United Arab Emirates for their use of inputs and outputs, and to Indonesian or Yemeni banks for their use of technology.

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