Efficiency in Islamic Banking: Evidence from MENA Region

Abstract

The purpose of this paper is to assess empirically the efficiency of 33 Islamic banks operating in MENA region over the period 2006-2012. This paper is based on efficiency measurement in which the non-parametric approach, Data envelopment Analysis (DEA) method that applied the intermediation approach, is employed to measure the level of Technical, pure technical, and scale efficiency. Overall, our empirical evidence suggests that during the period of study, pure technical inefficiency dominates scale inefficiency in the Islamic banking sector which can be attributed to their relative inability to monitor the operations costs and the full use of resources. Moreover, the largest Islamic banks tend to operate at constant return to scale (CRS) or decrease return to scale (DRS), despite the fact that the small banks tend to operate at CRS or at increase return to scale (IRS)

Keywords

• Islamic Banks, Data Envelopment Analysis (DEA), MENA