Journal Articles

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Author: search.filters.author.Dallu, Abdallah Mambo.Subject: search.filters.subject.Sub-Saharan Africa

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    Income stability, earnings volatility, and efficiency in Islamic banks: evidence from Sub-Saharan Africa
    (EJIF, 2026) Njogo, Michael Njoroge.; Dallu, Abdallah Mambo.; Korir, Fiona Jepkosgei.
    This study examines the relationship between earnings volatility and operational efficiency in Islamic banks in SSA, addressing a key methodological limitation in the Islamic banking efficiency literature. Conventional Data Envelopment Analysis (DEA), widely used in prior studies, produces upward-biased efficiency scores and invalid second-stage inference when efficiency is linked to stochastic variables such as earnings volatility. This limitation is particularly consequential in Islamic banking, where income streams are structurally volatile due to profit-and-loss sharing and asset-backed financing arrangements. Methodologically, this study demonstrates the necessity of bias correction and applies the Simar–Wilson two-stage DEA framework to obtain statistically valid efficiency–volatility estimates. Using a balanced panel of fully-fledged Islamic banks in SSA from 2010 to 2024, operational efficiency is measured as income-generation efficiency based on non-interest revenue streams. First, operational efficiency is estimated under alternative returns-to-scale assumptions using non-interest operating expenses as inputs and Shariah-compliant non-interest income components as outputs. In the second stage, bias-corrected efficiency scores are regressed on earnings volatility—measured as the rolling standard deviation of return on assets (ROA), which captures earnings volatility relative to asset utilization and aligns with operational efficiency—using truncated regression with bootstrapping. The results reveal a statistically significant negative relationship between earnings volatility and operational efficiency, indicating that earnings volatility weakens Islamic banks’ capacity to efficiently transform operating costs into Shariah-compliant income. Robustness checks confirm the stability of the findings across efficiency specifications. Beyond its empirical contribution, the study shows that efficiency levels reported in prior Islamic banking studies relying on conventional DEA may be systematically overstated in volatile-income environments, with important implications for supervision and policy in emerging Islamic finance markets.
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    Prudential calibration and regulatory infrastructure in emerging Islamic banking systems: evidence and policy implications from Sub-Saharan Africa
    (AREBUS Journal, 2026) Njogo, Michael Njoroge.; Dallu, Abdallah Mambo.; Korir, Fiona Jepkosgei.
    This study addresses the prudential calibration challenge in emerging Islamic banking systems by examining whether prevailing capital, liquidity, and governance thresholds are proportionately aligned with operational productivity. Focusing on Sub-Saharan Africa (SSA), it reframes financial soundness indicators as regulatory design variables rather than isolated performance determinants. The study employs a bias-corrected two-stage Data Envelopment Analysis (DEA) on a balanced panel of 35 fully fledged Islamic banks in SSA over the period 2010–2024. Efficiency scores are estimated under variable returns to scale and subsequently analysed using truncated regression against CAMELS-based prudential indicators. The findings are interpreted through a regulatory calibration framework grounded in efficiency–stability trade-off theory. Results reveal persistent inefficiencies primarily driven by scale constraints rather than managerial deficiencies. Capital adequacy does not exhibit proportional efficiency gains, liquidity strength shows only modest productivity alignment, and asset quality demonstrates a more consistent association with operational performance. The evidence suggests that mechanical prudential reinforcement in structurally shallow markets may yield diminishing productivity returns. The study proposes a proportional prudential calibration approach integrating capital design, liquidity infrastructure development, and governance strengthening to align stability objectives with productive intermediation better. This paper advances Islamic banking research by positioning operational efficiency as a regulatory diagnostic tool and introducing an empirically grounded prudential calibration framework for emerging financial systems.