Reι,ieιι> of Islamic Economics, Vol. 8, No. 2, 2.004
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Majid et al.
Majid et al. (2003) measure the cost efficiency of 34 commercial
banks in Malaysia, panelling the data for the period 1993-2000 with
a view to comparing the relative performance of two bank sets -
Islamic and mainstream.'6 On the basis of their results, they claim that
“the efficiency of Islamic banks is not statistically different from the
conventional banks”. Also, they find “no evidence to suggest that
bank efficiency is a function of ownership status, i.e. public or private,
foreign or local” (p.ι). These conclusions are important, and need
closer examination.
The authors employ the familiar translog cost frontier function
for ascertaining the efficiency scores for the selected banks
individually, as well as for different bank groupings. Their model
specification and its details are mostly in order. Still, a few comments
may be appropriate. To begin with, the study covers a fairly long
period - 1993 to 2000 - but the results have no time dimension:
obviously the authors have used panel modelling for their work. Since
the total number of banks they cover (34) is quite large, one wonders
if the post 1997-1998 crisis data, with greater homogeneity and
handling ease, would not have served the purpose better. Or the data
could have been used for a dynamic study of inefficiency i.e. changes
in it over time.
Again, only two Islamic banks appear in the sample and the
results do not highlight their comparison with mainstream banks as
planned. This makes the title of the paper a bit misleading. Also, what
about the Islamic windows operating in the mainstream banks? How
have the authors dealt with the impact of this phenomenon on the
efficiency of banking in the country, Islamic or otherwise? This is a
difficult question, yet those measuring efficiency of banks in Malaysia
can hardly afford to bypass it.'7 One is expected to at least discuss it
as a limitation of the study.
The data set for 34 banks - 24 local and 10 foreign - for the
paper, is created using the banks’ annual reports and the ABM
Bankers Directory, to fill gaps in information on the number of
employees in some cases. The banks have been categorized as local
and foreign, Islamic and conventional, private and public, and as
large and small (p.ιo) to study the impact, if any, of ownership forms,
interest-free financing, and scale, on bank efficiency in the country. Of