DOES FINANCIAL INCLUSION DRIVE THE ISLAMIC BANKING EFFICIENCY? A POST-FINANCIAL CRISIS ANALYSIS

Abstract

Considering the reverberations of financial crisis of 2007–09 that the banking industry terribly witnessed, this paper aims to estimate both the non-bias-corrected and bias-corrected efficiency by employing the data envelopment analysis and Simar–Wilson double bootstrapping regression techniques over the period of 2011–2017 and see how the financial inclusion impacts on Islamic banks. This study finds that most of the countries, except some Asian and Middle-Eastern countries, have inconsistent efficiency trends in Islamic banking sector. It also shows that financial inclusion is significantly allied with Islamic banking efficiency. Eventually, the results propose that Islamic banks are still bearing the consequence of that economic recession and, therefore, bank should focus more on financial inclusion since those banks having sound and inclusive financial environment are seen enjoying higher level of financial efficiency.