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The X-Efficneicy Of Sudanese Islamic Banks

Multi-outs Multi-inputs Cost Functions Analysis: An Application in Sudanese Islamic Banks

ABD ELRHMAN ELZAHI SAAID

Abstract
Dramatical changes have taken place in the Sudanese banking industry. In 1989 all the operations of these banks conformed to Islamic principles. Previous investigation showed that these banks grew rapidly in terms of assets and liabilities under difficult economic conditions. Their financial operations revealed that they obtained considerable profits despite relatively high risk and severe economic sanctions. However, this success does not always imply the optimality. The study of the optimality involves the measurement of their managerial efficiency. This paper investigates the allocative and technical inefficiency (x-inefficiency) of the Sudanese Islamic banks by using Multi-outs Multi-inputs Cost Functions Analysis for the frist times. Because the previous studies used only single output. For this purpose the basic stochastic frontier approach (SFA) is used. This is accomplished by decomposing the error term into two components, namely random noise (vi) and possible inefficiency (ui). The result of this study showed that the investigated Sudanese Islamic banks were allocatively and technically inefficient. This implies that the Sudanese Islamic banks’ principles have impacted the performance of banking industry in the Sudan. This result has important implications for the government and Sudanese Islamic banks’ management.

1. Introduction
In the recent years the Sudanese Islamic banking industry has experienced widespread changes. In 1989 all the banking practices in the country were made to conform to Islamic principles. These changes have focused on the efficiency implications for the Sudanese Islamic banks. Historically, the Sudanese Islamic banks started their operations in 1979 which was the eve of the most difficult economic and political instability of the country which had serious implications for the performance of...