Efficiency of Islamic banks: A comparative analysis of MENA and Asian countries

It is crucial for islamic banks to be efficient in order to withstand competitive pressures and financial crises. this study empirically examines and compares the efficiency of selected islamic banks in middle eastern and north african (mena) countries (including gulf cooperation countries) and asian countries. the efficiency scores were measured using data envelopment analysis based on the intermediation approach. the sample was comprised of 63 islamic banks,focusing on performance for a four year period (2006 to 2009). the study finds that the main source of technical inefficiency among the islamic banks is the scale of their operations. the islamic banks,in general,achieved a high score for pure technical efficiency,indicating that the banks' management were able to efficiently control costs and use the inputs to maximise the outputs regardless of scale effects. on average,islamic banks from asian countries are found to be relatively more efficient than those in mena countries. interestingly,most of the efficient islamic banks were from gulf cooperation countries. the economic condition of a country is found to be the main determinant of an islamic bank's efficiency.