The sources of productivity change in Yemen Islamic banks: An application of Malmquist productivity index

Abstract

Motivated by the catalytic role that the banking sector could play in the economy, this paper examined the cost efficiency of Yemen Islamic banks under the intermediation approaches using the Data Envelopment Analysis (DEA) method and panel data for four banks during the period 2002-2014. The most important results on productivity growth on the basis of the intermediation approach that the Total Factor Productivity (TFP) in Yemen Islamic Banks increasing at an annual rate of 2.6% over the study period. In addition, results concerning scale economy, based on non-parametric of the DEA method, suggest that Yemen Islamic Banks have a persistent tendency of operating under conditions of increasing return to scale and that these banks have small sizes and could gain more efficiency by increasing the scale of production. The paper recommended improved of productivity through human capital development, the introduction of new technologies and internet banking services (involving automation and computerization) and, most important, through a credible management chosen on the basis of competence and expertise.