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Review of Islamic Economics, Vol. 8, No. 2., 2004
course the categories overlap. Had the authors provided the edited
data file as an appendix to their work, one could better appreciate
their contribution, and future researchers might have benefited more.
Also, the paper does not reveal the component details of the
outputs or inputs selected for modelling. One finds a general sort of
discussion on the issue on page 9 of the paper. It is hinted that total
cost (C) includes all labour and capital expenses plus interest. In the
case of Islamic banks, interest is replaced with income distributed to
the depositors. What is included in labour expense or how capital
expense is estimated is not clear. The authors refer to a paper of Al-
Habshi (1999) for details. The paper is not readily available and, in
any case, does not contain the needed explanations. Ideally, the
explanation of this crucial point in the paper needed to have been full
and complete. The authors mention three outputs: loans, advances,
and financing, but provide few details on their nature, content or
inter-bank differences. ‘Financing’ in particular is a dubious category
unless clearly explained.
The corresponding input prices include (i) staff expenses per
employee, (ii) expenses on land, building and equipment per Ringgit
of assets, and (iii) expenses on interest or income distributed per
Ringgit of deposits. Here also, the paper has no explanatory
discussion. For example, in (i) for averaging expenses of labour, all
employees cannot be treated on the same footing; the proportion of
officials to clerks is not the same in all banks. In foreign banks it is
found loaded generally in favour of the officials as opposed to clerks.
Also, foreign banks earn a significantly larger share of their revenue
from non-interest sources, through activities like derivatives trading,
consumer credit, and merchant banking. Such matters are not given
weight in the condensed data the work uses. Likewise, in (ii) historical
and current costs differences, between items and banks, may have
considerably distorted the aggregation.
Finally, in their use of the translog cost frontier model Majid et
al. did not explain, crucial though it was, the way they used the
maximum likelihood method MLM for obtaining E[exp (-ujεi)∣."i
Saaid et al.
The paper of Saaid et al. deals with the performance of banks in
Sudan. They assign to the country the distinction of initiating a total