A Comparative study of Technical Efficiency in GCC Islamic Financial Institutions during the Global financial Crisis using Malmquist-Type Data Envelopment analysis

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The British University in Dubai (BUiD)
Islamic banking is gaining more importance, especially after the latest global banking crisis. This importance is because Islamic financial Institutions (IFIs) are believed to have not been affected by the year 2007-2008 financial meltdown. The major aim of this study was to investigate the effect of the 2007-2008 financial crisis on GCC IFIs efficiency. Moreover, this study examined the difference between GCC and non-GCC IFIs efficiency and whether or not IFIs efficiency was improving during the post and pre financial crisis period. The last aim of this study is to examine the relation between IFI size (by total Asset) and Annual Total Factor Productivity Change .To satisfy the previously mentioned aims both Data envelopment analysis (DEA) and Malmquist total productivity Index was applied on a balanced panel of 22 GCC and 19 non-GCC IFIs. The results suggest that generally GCC and non-GCC IFIs efficiency was not significantly affected by the financial crisis. However, Individual IFIs result showed that some bank has experienced increase or decrease of efficiency after the crisis. In addition, Malmquist index result suggests that both GCC and non-GCC IFIs experienced an efficiency progress during the period tested. The main source of efficiency was technical efficiency change and pure efficiency change, while scale efficiency was the least source of efficiency. The result also suggest that efficiency and IFI size is positively but weakly related. The study suggested some policy and managerial implications. This study highlights the significance of introducing technical efficiency as an alternative to other simple performance indicators .Also, this research suggests that regulators should give more attention to banks efficiency when imposing any new policies and regulations.
data envelopment analysis, malmquist index, technical efficiency, Islamic financial institutions, Gulf Cooperation Council (GCC), Islamic banking, financial crisis