Analysis of the Operational Efficiency of Islamic Banks Using the Data Envelopment Analysis Approach: Examining the Level of Relative Efficiency among Islamic Banks

Abstract

This study aims to analyze the operational efficiency of Islamic banks and examine their relative efficiency levels using the Data Envelopment Analysis (DEA) approach, complemented by a qualitative inquiry. The research adopts a qualitative descriptive–exploratory design to provide an in-depth interpretation of efficiency outcomes generated by DEA and to explain underlying managerial and operational factors influencing performance differences among Islamic banks. This design is selected to capture institutional contexts and decision-making processes that cannot be fully explained by quantitative efficiency scores alone. The study is conducted within a national Islamic banking system operating under a unified regulatory framework to ensure contextual consistency. Data are collected through in-depth interviews with nine key informants, consisting of operations managers, risk management officers, Sharia compliance managers, and branch managers, selected purposively based on their strategic roles and professional experience. The findings reveal significant heterogeneity in operational efficiency among Islamic banks, with only a small number operating on the efficiency frontier, while most exhibit technical inefficiencies related to resource utilization and intermediation processes. The study recommends strengthening managerial capacity, optimizing operational processes, and enhancing the effectiveness of Sharia-compliant financial intermediation to improve efficiency and competitiveness in the Islamic banking sector.