A comparative efficiency analysis of interest free financial institutions and conventional banks : a case study on Turkey

Abstract EN

In this paper, we will analyze the comparative performance of the Interest Free Financial Institutions (IFFIs) in Turkey as regards to conventional banks by employing a data envelope analysis (DEA)-type Malmquist Index for the period 1990-2000.

Our analysis will also include the investigation of the sources of efficiency differences and changes such as pure technical efficiency change (improvement in management), and scale efficiency change (improvement towards optimal size).

Alternative approaches like cost, profit, and revenue efficiencies will be incorporated into our analysis as well.

Countries like Turkey present an experimental environment where both interest-free and interest based systems coexist, and where people make their choices on where to hold their savings.

Thus, the Turkish experience will be very useful in identifying the advantages and disadvantages of the interest-free system in order to make its survival and expansion more likely.