EFFICIENCY AND PERFORMANCE ANALYSIS OF ISLAMIC BANKING IN PAKISTAN: A STOCHASTIC FRONTIER

Abstract

This study employs a stochastic frontier analysis to examine the efficiency and performance of Islamic banking in Pakistan. Islamic banking has witnessed significant growth in recent years, presenting a unique financial system based on Sharia principles. Assessing the efficiency and performance of Islamic banks is crucial for understanding their contributions to the overall financial sector and identifying areas for improvement. By employing a stochastic frontier analysis, this study estimates the technical efficiency and productivity of Islamic banks in Pakistan while accounting for both random noise and inefficiency. The findings shed light on the efficiency levels of Islamic banks, the factors influencing their performance, and the implications for enhancing their effectiveness in supporting economic growth and financial stability.