Journal Articles

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Author: search.filters.author.Korir, Fiona Jepkosgei.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.
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    Catch-up or divergence? Operational efficiency convergence dynamics of Islamic banks in SSA
    (SSBFNET, 2026) Njogo, Michael Njoroge.; Korir, Fiona Jepkosgei.; Dallu,Abdallah Mambo.
    Abstract This study examines whether Islamic banks in SSA exhibit convergence in operational efficiency or whether performance disparities persist over time. Specifically, it evaluates whether less efficient banks catch up with more efficient peers within the region’s emerging Islamic banking sector. The study adopts a two-stage empirical framework using panel data from 35 Islamic banks across SSA over the period 2010–2024. In the first stage, operational efficiency scores are estimated using a bias-corrected Data Envelopment Analysis (DEA) model following the Simar and Wilson two-stage approach. An input-oriented specification under Variable Returns to Scale (VRS) is employed to reflect cost minimization behaviour and heterogeneity in bank size. Bias correction is implemented using a bootstrap procedure to obtain consistent efficiency estimates. In the second stage, convergence dynamics are analysed using sigma (σ) and beta (β) convergence models, alongside conditional convergence regressions incorporating bank size, age, and market concentration. The results reveal significant β-convergence, with the baseline model yielding a coefficient of −0.267 (p < 0.01), while the conditional model confirms robust convergence (β = −0.2836, p < 0.01), indicating that banks with lower initial efficiency improve at a faster rate than more efficient institutions, consistent with catch-up dynamics. However, σ-convergence results show that efficiency dispersion declined between 2010 and 2019 but increased after 2020, indicating that convergence was time-varying rather than uniform. This suggests that while convergence forces exist, structural differences and external shocks continue to sustain efficiency gaps across banks. The findings highlight the need for stronger regulatory harmonization, improved financial infrastructure, and targeted capacity-building initiatives to accelerate efficiency convergence across Islamic banks in SSA.