ISLAMIC BANKING EFFICIENCY AND INCLUSIVE SUSTAINABLE GROWTH: THE ROLE OF FINANCIAL INCLUSION
This paper aims to estimate the efficiency scores of 154 Islamic banks of 32 countries over the period of 2011 to 2017 by deploying the data envelopment analysis and Simar-Wilson double bootstrapping regression techniques and see how financial inclusion and its interaction effect with GDP growth impact on Islamic banking efficiency to promote inclusive sustainable growth. The findings show that the efficiency trends of the Islamic banks in most of the countries are inconsistent in the aftermath of global financial crisis which denotes that the banking industry is still bearing the consequence of that recession. However, Islamic banks in Bangladesh, Malaysia, Mauritia, Qatar, Tunisia, and Sudan are performing efficiently and in spite of having war-affected countries, Islamic banks in Iraq and Palestine, more interestingly, have seen an ascending trend in terms of improving their efficiency level too. The results foreground that to improve Islamic banks’ efficiency, financial inclusion plays a vivid role. Moreover, the interaction effect of financial inclusion and GDP growth suggests that financial inclusion has a great role on sustainable development that makes a positive relationship between inclusive sustainable growth and Islamic banks’ efficiency. Since research on financial inclusion is an ongoing process, this paper contributes to the existing literature and the methodology pertinent to financial inclusion by analysing both the non-bias and bias-corrected efficiency using the more recent data of Islamic banks.
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