Allocative and technical inefficiency in Sudanese Islamic banks using cost functions

Abstract EN

Dramatical changes have taken place in the Sudanese banking industry.

In ١٩٨٩ all the operations of these banks conformed to Islamic principles.

Previous investigation showed that these banks grew rapidly in terms of assets and liabilities under difficult economic conditions.

Their financial operations revealed that they obtained considerable profits despite relatively high default risk and severe economic sanctions.

However, this success does not always imply the optimality.

The study of the optimality involves the measurement of their managerial efficiency.

This paper investigates the allocative and technical inefficiency of the Sudanese Islamic banks.

For this purpose the basic stochastic frontier approach (SFA) is used.

This is accomplished by decomposing the error term into two components, namely random noise (vi) and possible inefficiency (ui).

The result of this study showed that the investigated Sudanese Islamic