TECHNICAL EFFICIENCY OF ISLAMIC BANKS IN SELECTED AFRICAN COUNTRIES
Abstract
The size of banking market for Islamic banks in Africa is relatively small. This poses serious threat to the level of competition with conventional ones unless they are technically efficient. Unfortunately, available evidences have shown that Islamic banks in Africa are technically inefficient, though no consensus have been reached on the source(s) of such inefficiency. Therefore this study investigated the technical efficiency of Islamic banks in Africa with particular emphasis pure technical and scale efficiencies. Convenient sampling technique was used to select a sample of 36 Islamic banks for eight (8) years from 2012 to 2019. Data were collected for input and output variables from annual reports of the banks. Data Envelopment Analysis (DEA) was used to analyse the data by estimating the efficiency scores for the banks. The efficiency scores of 0.764 (ar<1), 0.850 (ar<1) and 0.896 (ar<1) for OTE, PTE and SE respectively indicate that on average, the selected banks were technically inefficient. The study concluded that Islamic banks in Africa were technically inefficient due mainly to pure technical inefficiencies such as poor managerial performance. The study then recommended employment and training of staff with requisite skills and knowledge of Islamic banking and finance, to enhance managerial performance and boost their technical efficiency of the banks.
JEL Classification Codes: G21.
References
Ahmad, S., & Abdulrahman, A. (2012). The efficiency of islamic and conventional commercial banks in Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 5(3), 241-263.
Al-Khasawneh, J. A., Bassedat, K., Aktan, & Thapa, P. (2012). Efficiency of islamic banks: Check box of North African Arab countries. Qualitative Research in Financial Markets, 4(2/3), 228-239.
Bahrini, R. (2017). Efficiency analysis of islamic banks in the middle east and north Africa region: A bootstrap dea approach. International Journal of Financial Studies, 5(7), 1-13.
Bank Negara Malaysia [BNM] (2017). Annual Report of 2017.
Chortareas, G.E., Garza-Garcia, J.G., & Giradone, C. (2011). Banking sector performance in Latin America: Market power versus efficiency. Review of Development Economics, 15(2), 307-325
Demsetz, H. (1973). Industry structure, market rivalry, and public policy. Journal of Law and Economics 16, 1–9.
Ernst & Young (2012). Growing beyond: DNA of successful transformation. World Islamic Banking Competitiveness Report, 2013. Retrieved 10th March, 2021 from http://www.mifc.com/index.php?rp=ey_world_islamic_banking_competi
Faye, I., Triki, T., & Kangoye, T. (2013). The Islamic finance promises: Evidence from Africa. Review of Development Finance, 3, 136-151
Hafez, H.M., & Halim, M. (2019). The efficiency of Islamic banks versus conventional banks: An empirical study of an emerging economy. Banks and Bank Systems, 14(2), 50-62. https://doi.org/10.21511/bbs.14(2).2019.05
Hassine, M. & Limani, R. (2014). The impact of bank characteristics on the efficiency: Evidence from MENA Islamic banks. Journal of Applied Finance and Banking, 4(3), 237–253.
Homma, T., Tsutsui, Y., & Uchida, H. (2014). Firm growth and efficiency in the banking industry: A new test of the efficient structure hypothesis. Journal of Banking & Finance, 40, 143–153
IFSB (2018). Islamic financial service industry stability report. Retrieved 10th October 2019 from www.ifsb.org
IFSB (2019). Islamic Financial Service Industry Stability Report. Retrieved 10th October 2019 from www.ifsb.org
Ismail, F., Abdulmajid, M.S., & Abdulrahim, R. (2013). Efficiecny of islamic and conventional banks in Malaysia. Journal of Financial Reporting and Accounting, 11(1), 92-107.
Mokhtar, H.S.A., Abdullah, N., & AlHabshi, S.M. (2007). Technical and cost efficiency of islamic banking in Malaysia. Review of Islamic Economics, 11(1), 5-40.
Naeem-Ullah, M.A.G. (2013). Technical efficiency of islamic and commercial banks: Evidence from Pakistan using DEA model (2007-2011). IOSR Journal of Business and Management, 7(4), 68-76
Onour, I.A., & Abdalla, A. (2011). Efficiency of islamic banks in Sudan: A non-parametric approach. Journal of Islamic Economics, Banking and Finance, 7(4), 79- 91.
Tahir, I.M., & Haron, S. (2010). Cost and profit efficiency of Islamic banks: international evidence using the stochastic frontier approach. Banks and Bank Systems, 5(4), 78-83
Qureshi, M.A., Norway, O., & Shaikh, M. (2012). Efficiency of islamic and conventional banks in Pakistan: A non-parametric approach. International Journal of Business and Management, 7(7), 40-50.
Řepková, I. (2015). Banking efficiency determinants in the Czech banking sector. Procedia Economics and Finance 23, 191 – 196.
Yahya, H.M., Muhammad, J., & AbdulHadi, A. R. (2012). Comparative study on the level of efficiency between islamic and conventionl banking systems in Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 5(1), 48-62
Yildrim, I. (2017). Financial efficiency analysis of Islamic banks in the QISMUT countries. Journal of Islamic Economics and Finance, 3(2), 187-216
Yudistira, D. (2004). Efficiency in islamic banking: An empirical analysis of eighteen banks. Islamic Economics Studies, 2(1), 1-19.
Copyright (c) 2021 Abdulrazaq T. Jimoh, John A. Attah, Biliqees A. Abdulmumin, Falilat A. Abdul
This work is licensed under a Creative Commons Attribution 4.0 International License.
