Examining Technological and Productivity Change in the Islamic Banking Industry

Abstract

Islamic banking dominates the largest market share of global Islamic finance assets. Thus, the performance of Islamic banks is crucial in shaping the future development of Islamic finance. This study aims to examine the performance of Islamic banks in the perspective of technological and productivity change based on the country level assessment. By adopting the Malmquist Index analysis, this study selected 44 Islamic banks from the top ten countries that had the largest Islamic banking asset for the period from 2015 to 2018. The findings reveal that the average productivity of Islamic banks has increased during the study period. Productivity improvements were supported by technological innovation, which significantly increased the level of productivity. Nevertheless, the high-tech expansion was not followed by an improvement in the efficiency level. This finding explains that the development of banking technology is not able to fully support the development of products and services.