Efficiency and productivity change in Islamic and conventional banks: Evidence from the Gulf Cooperation Council (GCC) countries

We examine efficiency in Islamic and conventional banks in the GCC region during 2006-2012 using DEA and a meta-frontier approach. We find no significant difference between Islamic and conventional banks in terms of average gross efficiency. But net efficiency is significantly higher for conventional than Islamic banks suggesting superior performance in terms of technical efficiency (managerial competence and/or scale); type efficiency is higher for Islamic than conventional banks. Thus the Islamic banking business model leads to greater efficiency in the GCC over this period. A meta-frontier Malmquist productivity analysis of efficiency and productivity over time suggests that the financial crisis has been more pronounced in the conventional banking sector. The gap between the group and meta-frontiers widened in the wake of the crisis, but there are signs that this is now narrowing