Optimizing Operational Efficiency in Islamic Banking Integrating Data Envelopment Analysis and Monte Carlo Simulations
Year: 2025
Type: book-chapter
Abstract: Operational efficiency is crucial for the competitiveness and sustainability of banks, particularly in Islamic banking, which adheres to principles such as the prohibition of interest (riba) and asset-backed financing. This study integrates Data Envelopment Analysis (DEA) with Monte Carlo (MC) simulations to evaluate the operational efficiency of Islamic banks. It focuses on three key analyses: assessing Tamweel Bank's efficiency from 2013 to 2023 using historical financial data; generating simulated data with MC simulations to stabilize efficiency estimates; and comparing Tamweel and Alizz Islamic Banks for 2023. Both Constant Returns to Scale (CCR) and Variable Returns to Scale (BCC) DEA models are applied to capture diverse efficiency dimensions. Findings show significant variability in Tamweel Bank's efficiency, peaking in 2019 but declining by 2023. MC simulations provide an aggregated efficiency benchmark, emphasizing the value of combining deterministic and stochastic methods. The comparative analysis highlights an efficiency gap, offering strategic insights for improvement.
Source: IGI Global eBooks
Authors: Muhammet Enis Bulak, Mohammad Ali Chebli
Institution: Üsküdar University
Language: English
Field: Decision Sciences
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4410340503