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Financial And Social Efficiency On Indonesian Islamic Banks: A Non-Parametric Approach

Author

Listed:
  • Aam Slamet Rusydiana

    (Sharia Economic Applied Research & Training (SMART) Indonesia)

  • Lina Marlina

    (University Tasikmalaya)

Abstract

This paper explores financial and social efficiency in one assessment framework. In order to measure efficiency level of Islamic Banking Industry, this study uses Data Envelopment Analysis (DEA) and Free Disposal Hull (FDH) methods. The results show that the level of financial efficiency of Islamic banks in Indonesia from 2013 to 2018 tends to decrease. On the contrary, the level of social efficiency of Islamic banks in Indonesia has a tendency to increase. Furthermore, the value of social efficiency of Islamic banks in Indonesia was relatively lower compared to the value of financial efficiency. Within the Financial-Social Efficiency Quadrant framework, the study classified two Islamic banks in quadrant 1, three in quadrant 2, two in quadrant 3, and four in quadrant 4. It is imperative for Islamic banks that are in the low level of ‘social efficiency’ to develop a policy to keep in line with the five factors of maqashid sharia apart of maintaining efficiency in order to reach maslahah. For the regulators, the social efficiency measurement framework could be an alternative in considering Islamic bank performance beyond financial efficiency.

Suggested Citation

  • Aam Slamet Rusydiana & Lina Marlina, 2019. "Financial And Social Efficiency On Indonesian Islamic Banks: A Non-Parametric Approach," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 5(3), pages 579-602, November.
    • Handle: RePEc:idn:jimfjn:v:5:y:2019:i:3f:p:579-602
    DOI: https://doi.org/10.21098/jimf.v5i3.1154
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    More about this item

    Keywords

    Financial Efficiency; Social Efficiency; DEA; FDH; Islamic Bank;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P49 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Other

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