Title: The sources and determinants of productivity growth in the Malaysian Islamic banking sector: a nonstochastic frontier approach

Authors: Fadzlan Sufian, Razali Haron

Addresses: Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia; Planning and Research Department, CIMB Bank Berhad, 21st Floor, 6 Jalan Tun Perak, 50050 Kuala Lumpur, Malaysia. ' Department of Business Administration, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Jalan Gombak, 53100 Kuala Lumpur, Malaysia

Abstract: This paper investigates the performance of the Malaysian Islamic banking sector during the period 2001–2005. In the first stage, the productivity estimates of individual banks are evaluated using the nonparametric Malmquist Productivity Index (MPI). A multivariate analysis is employed in the second stage to determine factors that influence the productivity of the domestic Islamic Banking Scheme (IBS) banks, the foreign IBS banks and the full-fledged Islamic banks. The empirical findings suggest that during the period of study, the Malaysian Islamic banking sector exhibited progress in productivity, attributed to an increase in efficiency rather than to technological change. The empirical findings suggest that profitability and bank size have positive relationships with Malaysian Islamic banks| productivity, while capitalisation and market share exhibit negative relationships with it. The results also suggest that Malaysian Islamic banks that are more efficient are the ones that pay Zakat (annual levy on the wealth of a Muslim).

Keywords: Islamic banks; Malmquist Productivity Index; MPI; Malaysia; productivity growth; Islamic finance; Malaysian banks; efficiency.

DOI: 10.1504/IJAF.2008.020303

International Journal of Accounting and Finance, 2008 Vol.1 No.2, pp.193 - 215

Published online: 15 Sep 2008 *

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