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Modeling Islamic banks' efficiency: a non-parametric frontier approach

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  • Mohamed M. Mostafa

Abstract

Purpose - The purpose of this paper is to measure the relative efficiency of the top 100 Islamic banks. The sensitivity of the results is also investigated. Design/methodology/approach - Data envelopment analysis (DEA) method was applied to evaluate the relative efficiency of Islamic banks using cross-sectional data for the year 2009. The use of DEA to measure Islamic banks' efficiency appears especially appropriate since this method does not require the specification of particular production or cost functions. Findings - The results indicate that the performance of several banks is sub-optimal, suggesting the potential for significant improvements. Separate benchmarks were derived for possible reductions in resources used, and significant savings are possible on this account. Originality/value - From a policy perspective, the paper highlights the importance of encouraging increased efficiency throughout the Islamic banking industry.

Suggested Citation

  • 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.
  • Handle: RePEc:eme:imefpp:v:4:y:2011:i:1:p:7-29
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Achraf Haddad & Anis El Ammari & Abdelfettah Bouri, 2019. "Comparative Study of Ambiguity Resolution between the Efficiency of Conventional and Islamic Banks in a Stable Financial Context," International Journal of Economics and Financial Issues, Econjournals, vol. 9(5), pages 111-129.

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    Keywords

    Islam; Banking; Profit; Modelling;
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