Measures of Efficiency in the Takaful Industry of Bangladesh-A Non-Parametric Approach

Abstract

This study aim is to examine the efficiency in the Takaful industry of Bangladesh. Data Envelopment Analysis (DEA) is used to explore the contributions of technical and efficiency changes to the growth of productivity in the Takaful industries of Bangladesh by using descriptive statistics such as mean, median, standard deviation, minimum & maximum and efficiency (Constant Returns to Scale & Variable Returns to Scale) applying the generalized output-oriented Malmquist index for the years 2009-2011. The output-input data consists of a panel of all (06) Takaful companies in Bangladesh. This study utilizes two inputs and two outputs, namely, commission and management as well as premium and net investment income, respectively. In the DEA technique, efficiency is measured by the Malmquist index. The Malmquist efficiency measures have two components: the efficiency change and technical change index. Efficiency change is again combined by pure efficiency and scale efficiency. It is found that, on geometric mean, the TFP of the Takaful industry is mainly due to both efficiency and technical changes where the main source of the efficiency change is scale efficiency rather than pure efficiency. Our finding indicates that in the Takaful industry of Bangladesh, the smaller the size of the companies, the higher the probability for the companies to be more efficient in utilizing their inputs to generate more outputs. We believe our work is beneficial for researchers and practitioners to better understand the Bangladeshi Islamic insurance industry.

Keywords: Data Envelopment Analysis (DEA); Takaful; Malmquist Index; Efficiency; Technical Efficiency; Scale Eficiency; Pure Efficiency.