Evaluating the Productive Efficiency of Islamic Banking in GCC: A Non Parametric Approach

The purpose of this paper is to propose a method to evaluate the productive performance of Islamic banks operating in the GCC region, over the period 2005-2008. Thus, we evaluate the productive performance of Islamic banks with the technique of productive efficiency proposed by Farrell (1957). We use the method of data envelopment analysis (DEA) to decompose the productive efficiency into technical efficiency, allocative efficiency and cost efficiency. The application of this technique on a sample of 23 Islamic banks reveals that the technical inefficiency and allocative inefficiency increased bank costs, on average, by about 14% and 29% respectively. In addition, the results show that internal and external factors seem to contribute significantly to the evolution of efficiency scores of Islamic banks operating in the GCC region.