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Catch-Up or Divergence? Operational Efficiency Convergence Dynamics of Islamic Banks in SSA

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  • Abdallah Mambo Dallu
  • Michael Njoroge Njogo
  • Fiona Jepkosgei Korir

Abstract

This study examines whether Islamic banks in SSA exhibit convergence in operational efficiency or whether performance disparities persist over time. Specifically, it evaluates whether less efficient banks catch up with more efficient peers within the region’s emerging Islamic banking sector. The study adopts a two-stage empirical framework using panel data from 35 Islamic banks across SSA over the period 2010–2024. In the first stage, operational efficiency scores are estimated using a bias-corrected Data Envelopment Analysis (DEA) model following the Simar and Wilson two-stage approach. An input-oriented specification under Variable Returns to Scale (VRS) is employed to reflect cost minimization behaviour and heterogeneity in bank size. Bias correction is implemented using a bootstrap procedure to obtain consistent efficiency estimates. In the second stage, convergence dynamics are analysed using sigma (σ) and beta (β) convergence models, alongside conditional convergence regressions incorporating bank size, age, and market concentration. The results reveal significant β-convergence, with the baseline model yielding a coefficient of −0.267 (p

Suggested Citation

  • Abdallah Mambo Dallu & Michael Njoroge Njogo & Fiona Jepkosgei Korir, 2026. "Catch-Up or Divergence? Operational Efficiency Convergence Dynamics of Islamic Banks in SSA," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 15(2), pages 49-62, April.
    • Handle: RePEc:rbs:ijfbss:v:15:y:2026:i:2:id:5058
    DOI: 10.20525/ijfbs.v15i2.5058
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    References listed on IDEAS

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    1. Mensah, Emmanuel B. & Owusu, Solomon & Foster-McGregor, Neil, 2023. "Productive efficiency, structural change, and catch-up within Africa," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 78-100.
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