Md. Golzare Nabi^1♣ , Md. Aminul Islam^2,3, Shafiqur Rahman⁴ and Fausta Ari Barata<sup>5

1</sup>Chief Economist Unit (CEU), Bangladesh Bank, Bangladesh
²Universiti Malaysia Perlis (UniMAP), Malaysia
³Daffodil International University, Bangladesh
⁴International Open University, The Gambia
⁵University of 17 Agustus 1945 Surabaya-Indonesia

ABSTRACT

The current study uses the parametric Stochastic Frontier Approach (SFA) with the Maqasid Model, Performance Measures based on Maqasid al Shariah (PMMS) to empirically evaluate the performance of Bangladeshi Islamic commercial banks from 2005 to 2018. In accordance with the SFA model, Islamic commercial banks had an average cost efficiency value of 0.78 between 2005 and 2018, which was greater than traditional state banks' (0.781), but lower than local private banks' (0.879) and international banks' (0.969). This implies that Islamic and other commercial banks can save identical stage of output with the same quantity of resources. Under the PMMS Model empirical evidences show that Islamic banks experienced a low level of performance based on the Maqasid Index which ranges from 19.16% to 23.07%. The current article provides significant information on performance gaps of Islamic commercial banks and its determinants. The regulators, policy makers and managers can adopt necessary policy actions to improve performance of Islamic commercial banks from perspective of cost efficiency and welfare issue.

Keywords: Bangladesh, Cost efficiency, Islamic Bank, Maqasid al Shariah, Stochastic Frontier Approach

^♣Corresponding Author: Dr. Md. Golzare Nabi; Director (Research), Chief Economist Unit (CEU), Bangladesh Bank, Motijheel, Dhaka 1000, Bangladesh; Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Tel: +8801716480146