Review of Islamic Economics, Vol. 8, No. ɪ, 2.004
VΠ. Concluding Remarks
We had mainly two objectives in examining some of the major recent
writings on the efficiency measurement of Islamic banks. First, we
aimed at highlighting the current criteria and measures used for the
purpose. A related goal in this context was to examine if the
applications were in order. Second, and more importantly, we wanted
to judge the efficacy of the current criteria and measures with
reference to the social objectives and priorities of an Islamic order and
the role banks are expected to play in their achievement. We find that
there have been some welcome contributions in the area of measuring
the efficiency of Islamic banks, albeit not always free of blemishes.
To begin with, it is gratifying to note that Islamic economists
have been quick to realize the importance of performance assessment
in the fast expanding sector of interest-free finance, and shown a
willingness for the usage of current techniques available for the
purpose. However, their efforts are wanting on two fronts. First, even
if one need not dispute the need of looking at the cost profit equation
for efficiency appraisal of the Islamic banks, the application of the
methods leaves much to be desired. Ratio analysis is a relatively older
and easier technique of analysis. There are, however, pitfalls along the
way of using ratios and percentages without taking into account
supplementary information, especially if the data were significantly
different or are very heterogeneous.
The parametric models were generally appropriate. But
conceptual clarity, and more background information in some cases
could perhaps have provided more convincing and fruitful results.
The cost-oriented and output-oriented approaches are to be kept
distinct; consistency in their use is vital; a mix up may create
difficulties. The difficulty, even at the higher levels of scholarship, is
that instead of theory leading empirical work, empirical research is
mostly leading theory. The results are often confirmatory, for the
simple reason that confirmation of a proposition is much easier than
its refutation.
The greater lament, however, is that the mainstream criteria,
methods and procedures were applied without attention to the
purposes Ofestablishing Islamic banks and their social responsibilities
in an Islamic order. To enable these banks to fulfil their societal