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26


Review of Islamic Economics, Vol. 8, No. 2, 2004

priorities their organizational structure needs a major shake up.
Greater transparency in transactions, encouragement to participatory
financing, opening up of more specialized banks and customer
services, increasing indulgence in long run finance, promotion of
cooperative organizations are some of the suggestions to revamp, and
reorganize Islamic finance. Things are moving, albeit late, in that
direction (Hasan, 2003: 15-16).

Notes

1. The financial sector is becoming progressively divorced from the real economy.
Today foreign exchange spot transactions alone are worth more than 70 times
the total volume of international commodity trade (Hasan 2003: 53).

2. See Beng (2004: 1). Such figures are often quoted in writings on Islamic finance
and usually vary, the writers never indicating their sources. In view of this
infirmity in reporting the figures, we join Rahman (2003: 232) in demanding
research to get real data from authentic sources, the instruments these funds are
invested in, their destinations, as also the motivation for collecting them. Proper
documentation is needed.

3. The interest in different outcomes has grown with the magnitude of resources
involved and the increasing national emphasis on microeconomic reforms,
especially in the developing economies due to the onward march of global
competition.

4. See Sathye (2001, Section 2, pp. 3-6) for a good example of incorporating
relevant background information for such studies and how it helps a clearer
understanding of his argument.

5. Definitions (a) and (b) put CE and C∕E in a logical relationship: CE + CEI = ι.
However, in the literature
ClE has come to be conceived as a ratio of CE i.e.
CIE - (j - CE) I CE. Alternatively, we may state the relationship as: CE -it
(1 + CIE).
In some cases, the use of (6) may help avoid inconsistencies that
insistence on using (c) may lead to.

6. Interestingly, Bisha (2004), in one of rhe more recent studies using ratio analysis,
refutes convincingly the thesis that Islamic banks in Malaysia are more cost
efficient than the mainstream banks. He bases his argument on extensive data
provided in numerous appendices to his work. Another good example of
providing data with ratios is the work of Eliraika ( 1998).

7. For example, he asks: How was the cost income ratio derived? What is included
in costs? What is the definition of income used, is it the total revenue or total
profit or what? Why is 65 percent the benchmark, and what are the implications
if the percentage is achieved or if there were deviations? (Entry 6, p. 392)

8. But Figures 17.7 and 17.10 of the paper tell a different story: it is not the
smallest but the tallest bar in each case that must have carried greater weight.
Anyway, later the use of simple averages of the ratios in such a heterogeneous
data, as the Figures depict, is but grossly inappropriate.

9. Berger and Hemphrey (1997) survey 130 studies that apply frontier efficiency
analyses to financial institutions across 21 countries. The majority of these



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