EFFICIENCY IN ISLAMIC BANKING: AN EMPIRICAL ANALYSIS OF EIGHTEEN BANKS

Donsyah Yudistira ()

Islamic Economic Studies, 2004, vol. 12-1, 2-19

Abstract: Are Islamic banks stable and efficient? This paper addresses this question. Technical, pure technical, and scale efficiency measures are calculated by utilizing non-parametric technique, Data Envelopment Analysis. Several conclusions emerge. First, the overall efficiency results suggest that inefficiency across 18 Islamic banks is small at just over 10 percent, which is quite low compared to many conventional counterparts. Islamic banks in the sample suffered from the global crisis in 1998-1999 but performed very well after the difficult periods. The findings indicate that there are diseconomies of scale for small-to-medium Islamic banks which suggests that mergers should be encouraged.

Date: 2004
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