Productivity of MENA Islamic banks: a bootstrapped Malmquist index approach

Abstract

Purpose – The purpose of this paper is to analyze the total factor productivity (TFP)[1] change and to investigate its determinants in the case of MENA Islamic banks. Design/methodology/approach – In the first stage, bootstrapped Malmquist index approach is used to provide a robust analysis of the changes in the productivity of 33 Islamic banks operating in 10 MENA countries during the period 2006-2011. In the second stage, panel data models are used to investigate the determinants of TFP change. Findings – The results of the first stage show that Gulf Cooperation Council (GCC) banks have known a productivity decline between 2006 and 2011 due to technical regress and scale inefficiency. In contrast, non-GCC banks have improved their productivity by benefiting from scale economies. The results of the second stage show that the productivity growth of MENA Islamic banks was mainly determined by bank-specific factors and that TFP indices decreased in the period of global financial crisis. Practical implications – This paper provides relevant recommendations for improving the productivity of Islamic banks operating in the MENA countries. Originality/value – This paper attempts to fill a demanding gap in the literature by examining productivity change and investigating its determinants using cross-country data of MENA Islamic banks. In addition, it is one of the few studies that have applied the bootstrapped Malmquist index approach in the case of Islamic banking.