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Efficiency, productivity and Islamic banks: an application of DEA and Malmquist index

Muhammad Abbas (Air University, Multan Campus, Multan, Pakistan)
Rayan S Hammad (College of Business Administration, Taibah University, Madinah, KSA)
Mohamed Fathy Elshahat (Department of Accounting, College of Commerce, Benha University, Benha, Egypt)
Toseef Azid (Department of Finance and Economics, College of Business Administration, Madinah, Taibah University, KSA)

Humanomics

ISSN: 0828-8666

Publication date: 9 February 2015

Abstract

Purpose

This paper aims to compute the Malmquist Index of Islamic and conventional banks to compare their performance in the sample period of 2005-2009. Islamic banks have been showing tremendous growth throughout the world in recent past. Their progress is exceptional in Islamic countries on account of patronization for religious reasons. There existed vacuum in research of their productivity change over the years.

Design/methodology/approach

This study tries to apply the Malmquist Index. The Malmquist Total Factor Productivity Index has been further divided into Efficiency Change Index, Technological Change Index, Pure Efficiency Change Index and Scale Efficiency Change Index to obtain an insight about the reasons for the change in productivity.

Findings

Results indicate that the productivity of Islamic banks decreased in 2007 but it increased in 2008 to 2009. Islamic banks had higher productivity growth from 2005 to 2006, but they experienced lower growth in subsequent years as compared to their conventional counterparts.

Research limitations/implications

Data were not available before 2005 in Pakistan.

Practical implications

This study is helpful for the investors and bankers for formulating the future policy.

Social implications

This study also provides a guideline for establishing the ethical financial institutions.

Originality/value

This is an original attempt.

Keywords

Citation

Abbas, M., Hammad, R.S., Elshahat, M.F. and Azid, T. (2015), "Efficiency, productivity and Islamic banks: an application of DEA and Malmquist index", Humanomics, Vol. 31 No. 1, pp. 118-131. https://doi.org/10.1108/H-03-2013-0022

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited