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Item 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.Item 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.Item Bank size as a mediating mechanism between financial soundness and operational efficiency: evidence from Islamic banks in sub-Saharan Africa(Emerald Publishing., 2026) Njogo, Michael Njoroge.; Dallu, Abdallah Mambo.; Korir, Fiona Jepkosgei.Purpose This study examines whether bank size mediates the relationship between financial soundness and operational efficiency of Islamic banks in sub-Saharan Africa (SSA), where the sector remains small despite growing policy relevance. Design/methodology/approach Panel data from 35 Islamic banks (2010–2024) were analysed using bias-corrected Variable Returns to Scale scores from the Simar–Wilson two-stage Data Envelopment Analysis. A panel-based mediation model with two-way fixed effects was employed, with bank size (log of deposits) as the mediator. Findings Financial soundness significantly improves operational efficiency, with asset quality exerting a negative effect and earnings stability a positive effect. However, financial soundness does not significantly influence bank size, and bank size does not significantly affect efficiency once soundness is controlled for. Consequently, the mediation hypothesis is not supported, indicating that scale does not function as a transmission mechanism in SSA Islamic banking. Research limitations/implications The findings caution against consolidation-led efficiency strategies and support policy emphasis on governance, regulatory infrastructure and operational capacity building to enhance inclusive and sustainable Islamic banking development. Originality/value This study provides one of the first empirical assessments from SSA that explicitly tests the mediating role of bank size in the soundness–efficiency relationship. The findings show that scale expansion does not operate as a transmission mechanism, suggesting that scale-driven efficiency strategies may have limited applicability.Item Capital adequacy, risk absorption, and operational efficiency of Islamic in sub-Saharan Africa(University of Turin, 2026) Njogo, Michael Njoroge.; Korir, Fiona Jepkosgei.; Dallu,Abdallah Mambo.Abstract This study examines how capital adequacy shapes the operational efficiency of Islamic banks in Sub-Saharan Africa (SSA), with particular emphasis on its role as an internal risk-absorption mechanism rather than a purely prudential stability buffer. Despite its central role in Islamic banking regulation, the efficiency implications of capital adequacy, particularly in developing and institutionally constrained Islamic finance markets, remain largely unexplored. Based on a balanced panel of fully-fledged Islamic banks in SSA from2010to 2024, the paper employs a two-step empirical approach. Bias-corrected operational efficiency scores are estimated in the first stage using the Simar–Wilson two-stage Data Envelopment Analysis (DEA) framework. In the second stage, we explore the non-linear effects of capital adequacy on efficiency using panel regression techniques, controlling for bank-specific and institutional factors. To address endogeneity, persistence, and reverse causality, a dynamic panel model is estimated using System GMM as a robustness check. The findings indicate non-linear relationship between capital adequacy and operational efficiency. Moderate capital buffers are associated with improved efficiency through higher loss absorption capacity and stabilisation of operating costs, while excessive capitalisation is accompanied by scale inefficiencies and less effective intermediation. These results indicate that Islamic banking exhibits an efficiency trade-off in capital adequacy, as prudential strength beyond an optimal level may limit productivity in resource allocation. The study makes an important contribution to Islamic banking literature by reframing capital adequacy as a channel of structural efficiency and by providing rare dynamic evidence from SSA. This raises policy implications and suggests the need for commensurate capital calibration that balances prudential resilience against operational efficiency for emerging Sharīʿah-compliant banking systems.Item Scale efficiency and technical efficiency in Islamic banks: Evidence from Sub-Saharan Africa(SSBFNET, 2026) Njogo, Michael Njoroge.; Korir, Fiona Jepkosgei.; Dallu,Abdallah Mambo.Abstract This study investigates whether inefficiencies in Islamic banking in Sub-Saharan Africa (SSA) are primarily driven by managerial limitations or by suboptimal scale of operations. While existing studies largely report aggregate efficiency scores, limited attention has been given to decomposing efficiency into its underlying components in emerging Islamic banking systems, particularly within the SSA context. The study employs a balanced panel of 35 fully fledged Islamic banks operating in SSA over the period 2010–2024. Operational efficiency is estimated using a bias-corrected Data Envelopment Analysis (DEA) model under an input-oriented Variable Returns to Scale (VRS) framework. To enhance statistical reliability, the Simar–Wilson bootstrap procedure with 2,000 replications is applied. Efficiency scores are decomposed into pure technical efficiency and scale efficiency to distinguish between managerial inefficiencies and structural scale constraints. The results indicate that overall efficiency levels remain low, with inefficiencies largely driven by scale factors rather than managerial performance. A significant proportion of banks operate under increasing returns to scale, suggesting suboptimal size linked to structural constraints such as limited market depth, fragmented regulatory environments, and underdeveloped financial infrastructure. Although pure technical efficiency shows moderate improvement over time, managerial gains are insufficient to offset these systemic limitations. The findings highlight the need for regulatory harmonization, market integration, and strategic expansion or consolidation to enable Islamic banks to achieve optimal scale and improve operational efficiency in SSA. This study provides one of the first comprehensive efficiency decomposition analyses of Islamic banks in SSA using bias-corrected DEA, offering new insights into the relative importance of structural versus managerial sources of inefficiency in emerging financial systems.