Review of Islamic Economics, Vol. 8, No. 2, 2004
reliability of the model results and the policy prescriptions that are
based on them.
Finally, Saaid et al. refer to the two alternative methods for
estimating the overall cost efficiency of banks: (i) by averaging of the
ξ, or (ii) by the deviation of the cost ratio of a bank from the
stochastic frontier. However, (ii) provides a measure of inefficiency
(r- OE), not of OE. Thus, the statement is inconsistent with their
equation (4): OE = C / C = where OE denotes overall efficiency,
C is the observable cost, C* is the estimated cost (p. 130).“ Also, the
authors do not clarify if the results the two alternative methods yield
would be the same results. Nor do they say what methods they have
used to obtain their own results. Thus, much confusion characterizes
their treatment of the issues.
However, despite its blemishes, Saaid et al. have produced a
work that we believe can, with appropriate modifications, be a
helpful contribution in an important area of Islamic banking.
Darrat et al.
This work focuses on assessing the cost and technical efficiency of
eight of the nine banks in Kuwait - all owned fully by the locals - in
view of the increasingly competitive environment in the financing
industry the world over but especially in the developing countries.
The study covers a period of four years from 1994 to 1997. It does
not resort to data panelling and produces separate results for each of
the years. It uses the non-parametric DEA (variable returns)1’ model
that has the advantage, among others, of allowing the direct
calculation of allocative efficiency. The Mamquist measure of bank
efficiency is employed to supplement the DEA.
Generally speaking, the product of the input output numbers in
a DEA application should optimally be less than the sample size for
effectively discriminating among the banks. The authors, therefore,
employ three inputs (labour, capital, and deposits) and two outputs
(loans and investments). For measuring cost efficiency, the analysis
also incorporates the unit prices of inputs. The contents of each item
and the method of its calculation are made explicit. Unlike many
other writings, Table ɪ of the paper presents the complete data file.
The analysis it presents is both static and dynamic: the paper provides
the efficiency scores of individual banks for each year of study and