The efficiency of Islamic banks versus conventional banks: an empirical study of an emerging economy
-
DOIhttp://dx.doi.org/10.21511/bbs.14(2).2019.05
-
Article InfoVolume 14 2019, Issue #2, pp. 50-62
- Cited by
- 1441 Views
-
201 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The purpose of this study is to investigate the efficiency of two different banking systems operating in Egypt (Islamic versus conventional banks). A sample of 35 banks has been used to examine the technical efficiency before and after the financial crisis using data envelopment analysis model. Evaluating the technical efficiency of Egyptian banks will enable policymakers to support which banking system is more efficient to facilitate the financial inclusion and enhance the economic development.
Before the financial crisis, conventional banks outperformed conventional banks with Islamic windows and Islamic banks, scale technical efficiency outperformed pure technical efficiency when analyzing conventional banks and conventional banks with Islamic windows. In terms of Islamic banks, pure efficiency outperformed scale efficiency. After the financial crisis, technical efficiency of all banks decreased. However, pure technical efficiency of Islamic banks has improved as a result of the quality of management and outperformed both conventional banks and conventional banks with Islamic windows. These results imply that Islamic banks have not been affected by the financial crisis. Therefore, the increased adoption and support of the Islamic banks in Egypt is addressed to develop the economy and push forward entrepreneurship projects, support the financial inclusion and the informal economy integration.
- Keywords
-
JEL Classification (Paper profile tab)G01, G20, G21
-
References18
-
Tables13
-
Figures1
-
- Figure 1. Islamic finance contributions to the banking sector in Egypt
-
- Table 1. Total assets, deposits and loans for the years 2003 to 2017
- Table 2. Input and output variables
- Table 3. Measures of efficiency of all banks before the crisis
- Table 4. Measures of efficiency of conventional commercial banks before the crisis
- Table 5. Measures of efficiency of conventional banks with Islamic windows before the crisis
- Table 6. Measures of efficiency of Islamic banks before the crisis
- Table 7. Input and output variables after the crisis
- Table 8. Measures of efficiency of all banks after the crisis
- Table 9. Measures of efficiency of conventional banks after the crisis
- Table 10. Measures of efficiency of conventional banks with Islamic windows after the crisis
- Table 11. Measures of efficiency of Islamic banks after the crisis
- Table 12. Summary of conclusions
- Table A1. The sample
-
- Abdul-Majid, M., Saal, S. D., & Battisti, G. (2009). Efficiency in Islamic and conventional banking: an international comparison. Journal of Production Analysis, 34(1), 25-43.
- Abdul-Wahab, A.-H., & Haron, R. (2017). Efficiency of Qatari banking industry: an empirical investigation. International Journal of Bank Marketing, 35(2), 298-318.
- Ahmed, S., & Abdul Rahman, 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.
- Benston, G. J. (1965). Branch banking and economies of scale. Journal of Finance, 20(2), 312-331.
- Berger, A. N., & Humphrey, D. B. (1997). Efficiency of financial institutions: international survey and directions for future research. European Journal of Operational Research, 98(2), 175-212.
- Coelli, T. (1996). A guide to DEAP version 2.1: A data envelopment analysis (computer) program (CEPA Working Paper 96/08). Armidale: University of New England.
- Farrell, M. J. (1957). The measurement of productive efficiency. Journal of Royal Statistical Society, 120(3), 253-290.
- Gishkori, M. A., & Ullah, N. (2013). Technical efficiency of Islamic and commercial banks evidence from Pakistan using DEA Model (2007–2011). Journal of Business and Management, 7(4), 68-76.
- Hardianto, D. S., & Wulandari, P. (2016). Islamic bank versus conventional bank: intermediation fee-based service activity and efficiency. International Journal of Islamic and Middle Eastern Finance and Management, 9(2), 296-311.
- Kamarudin, F., Nordin, B. A. A., Muhammad, J., & Hamid, M. A. A. (2014a). Cost, revenue and profit efficiency of Islamic and conventional banking sector; empirical evidence from Gulf cooperative council countries. Global Business Review, 15(1), 1-24.
- Louati, S., & Boujelbene, Y. (2015). Banks’ stability-efficiency within dual banking system: a stochastic frontier analysis. International Journal of Islamic and Middle Eastern Finance and Management, 8(4), 472-490.
- Miah, D. M., & Sharmeen, K. (2015). Relationship between capital risk and efficiency: A comparative study between Islamic and conventional banks of Bangladesh. International Journal of Islamic and Middle Eastern Finance and Management, 8(2), 203-221.
- Sealey, C., & Lindley, J. T. (1977). Inputs, outputs and a theory of Production and cost at depository financial institutions. Journal of Finance, 32(4), 1251-1266.
- Srairi, S. A (2010). Cost and profit efficiency of conventional and Islamic banks in GCC countries. Journal of Productivity Analysis, 34(1), 45-62.
- Sufian, F., Kamarudin, F., & Noor, M. H. H. N. (2013). Assessing the revenue efficiency of domestic and foreign Islamic banks: empirical evidence from Malaysia. Journal Pengurusan, 37(1), 77-90.
- Trabelsi, M. A., & Trad, N. (2017). Profitability and risk in interest-free banking industries: a dynamic panel data analysis. International Journal of Islamic and Middle Eastern Finance and Management, 10(4), 454-469.
- Yehya, M., Muhammad, J., & Hadi, A. R. A. (2012). A comparative study on the level of efficiency between Islamic and conventional banking systems in Malaysia. International Journal of Islamic and Middle Eastern Finance and Management, 5(1), 48-62.
- Yudistira, D. (2004). Efficiency in Islamic banking: an empirical analysis of eighteen banks. Islamic Economic Studies, 12(1), 2-9.