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Efficiency and competition of Islamic banking in Malaysia


  • Hamim S. Ahmad Mokhtar
  • Naziruddin Abdullah
  • Syed M. Alhabshi


Purpose - In an attempt to enrich the literature of the efficiency of Islamic banks, this study aims to empirically investigate the efficiency of the fully fledged Islamic banks as well as Islamic windows in Malaysia. Design/methodology/approach - This study measures the technical and cost-efficiencies of these banks using the non-parametric frontier method, data envelopment analysis (DEA). Findings - The findings show that, on average, the efficiency of the overall Islamic banking industry has increased during the period of study. The study also revealed that, although the fully fledged Islamic banks were more efficient than the Islamic windows, they were still less efficient than the conventional banks. Finally, Islamic windows of the foreign banks were found to be more efficient than Islamic windows of the domestic banks. Originality/value - The findings of this study will provide some empirical insights as to how these two modes of Islamic banks had fared in the competitive environment from 1997 to 2003.

Suggested Citation

  • Hamim S. Ahmad Mokhtar & Naziruddin Abdullah & Syed M. Alhabshi, 2008. "Efficiency and competition of Islamic banking in Malaysia," Humanomics: The International Journal of Systems and Ethics, Emerald Group Publishing, vol. 24(1), pages 28-48, February.
  • Handle: RePEc:eme:humpps:v:24:y:2008:i:1:p:28-48

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    References listed on IDEAS

    1. Randall P. Ellis & Thomas G. McGuire, 1993. "Supply-Side and Demand-Side Cost Sharing in Health Care," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 135-151, Fall.
    2. David M. Cutler & Sarah J. Reber, 1998. "Paying for Health Insurance: The Trade-Off between Competition and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 433-466.
    3. Balsa, Ana I. & McGuire, Thomas G., 2001. "Statistical discrimination in health care," Journal of Health Economics, Elsevier, vol. 20(6), pages 881-907, November.
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    Cited by:

    1. repec:lan:wpaper:1108 is not listed on IDEAS
    2. Mohamed M. Mostafa, 2011. "Modeling Islamic banks' efficiency: a non-parametric frontier approach," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 4(1), pages 7-29, April.
    3. repec:eee:pacfin:v:46:y:2017:i:pa:p:1-13 is not listed on IDEAS
    4. Filzah Mohamed Othman & Nor Aiza Mohd-Zamil & Siti Zaleha Abdul Rasid & Amin Vakilbashi & Mozhdeh Mokhber, 2016. "Data Envelopment Analysis: A Tool of Measuring Efficiency in Banking Sector," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 911-916.
    5. repec:eee:intfin:v:48:y:2017:i:c:p:1-24 is not listed on IDEAS
    6. Suraya Ahmad & Abdul Rahim Abdul Rahman, 2012. "The efficiency of Islamic and conventional commercial banks in Malaysia," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 5(3), pages 241-263, August.
    7. Hadri Kusuma & Ariza Ayumardani, 2016. "The Corporate Governance Efficiency And Islamic Bank Performance : An Indonesian Evidence," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 13(1), pages 111-120, June.
    8. Badreldin F. Salim & Mohamed H. Mahmoud, 2016. "Islamic Finance: Is it a Time to be Considered as an Alternative during Financial Crisis Times? A Comparative Study in Gulf Cooperation Council," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1123-1131.
    9. Rossazana Ab Rahim, 2016. "Does Competition Foster Efficiency? Empirical Evidence from Malaysian Commercial Banks," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 12(1), pages 1-23.
    10. Abdelghani Echchabi & Oladokun Nafiu Olaniyi, 2012. "Malaysian consumers' preferences for Islamic banking attributes," International Journal of Social Economics, Emerald Group Publishing, vol. 39(11), pages 859-874, September.
    11. Mia, Md Aslam & Ben Soltane, Bassem Ibrahim, 2016. "Productivity and its determinants in microfinance institutions (MFIs): Evidence from South Asian countries," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 32-45.

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    Banking; Banks; Islam; Malaysia;


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