Technical efficiency analysis of MENA Islamic banks during and after the global financial crisis

Abstract

Despite that the most impressive growth rates realized by Islamic banks was recorded in the Middle East and North Africa (MENA) region, few empirical studies have analyzed their performance especially in the global financial crisis period. Given this, in our paper we measure and analyze the technical efficiency of a sample of 33 MENA Islamic banks during and after the global financial crisis period (2006-2012). To do this, we apply the bootstrap Data Envelopment Analysis (DEA) approach, which is a robust method that allowed us to correct the estimation bias and to construct confidence intervals for the estimated efficiency scores at desired levels of significance. Our results show that over the period of study the technical inefficiency of MENA Islamic banks was mainly explained by pure technical inefficiency rather than scale inefficiency. In addition, we find that all MENA Islamic banks’ efficiency levels have increased during the global financial crisis period (2007-2008) and in the early post-crisis period (2009-2010) before decreasing in the last two years of the study period (2011-2012). According to our findings, we suggest that the managers of MENA Islamic banks should focus more on improving their managerial performance rather than on increasing the scale of operations. We also recommend that supervisory authorities in MENA countries undertake many regulatory and financial measures in order to support the development of Islamic banking in the MENA region.