A REVIEW OF FINANCIAL EFFICIENCY MEASUREMENT APPROACHES IN MALAYSIA’S TAKAFUL INDUSTRY
DOI:
https://doi.org/10.24191/ij.v13i2.11541Keywords:
Financial Efficiency, DEA, SFA, Takaful, PRISMAAbstract
This paper provides a comprehensive review of a financial efficiency approaches and selection on input and output variable to measure efficiency of Malaysia’s takaful sector. The objective of this study is to systematically review the efficiency measurement approaches and identify the input and output variables that most commonly employed in assessing the efficiency of Malaysian takaful sector. Measuring financial efficiency is an important aspect of evaluating the performance and competitiveness of Takaful operators in the Islamic financial industry. The review was conducted by using Preferred Reporting Items for Systematic Review and Meta-analyses (PRISMA) technique to identify, screened, and selecting relevant studies published between 2013 to 2025 using predefined inclusion and exclusion criteria. Based on the review, many researchers have employed various different method to evaluate efficiency, which can generally be divided into two main categories: parametric and non-parametric approaches. The Stochastic Frontier Approach (SFA) is the main parametric approach, whilst Data Envelopment Analysis (DEA) dominates the non-parametric approach. These two methods are the most widely applied in the Takaful efficiency literature. According to earlier studies, the evaluation reveal a lack of consistency in evaluating Takaful efficiency due to the wide variation in input and output variable selection, reflecting a lack of standardization in measuring Takaful efficiency. By synthesizing findings from existing literature, this paper attempts to identify emerging trends, highlight methodological inconsistencies especially in terms measurement approaches and variables utilized to evaluate the financial efficiency of Takaful companies. Through this review, the paper may assist future researchers in gaining better understanding on the financial efficiency measurement approaches used in takaful industry. Ultimately, this paper aims to encourage a more comprehensive and consistent framework for assessing the financial efficiency of the takaful industry, thereby contributing to the refinement of future research design and methodology.
References
Abidin, Z., & Cabanda, E. (2011). Efficiency of non-life insurance in Indonesia. Journal of Economics, Business, and Accountancy Ventura, 14(3), 197. https://doi.org/10.14414/jebav.v14i3.46
Alam, A., Fianto, B. A., Ratnasari, R. T., Ahmi, A., & Handayani, F. P. (2023). History and development of takaful research: A bibliometric review. SAGE Open, 13(3), 1–20. https://doi.org/10.1177/21582440231184852
Alam, A., Ratnasari, R. T., Qolbi, F. A., & Athief, F. H. N. (2022). Efficiency studies of the sharia insurance industry: A systematic literature review. Insurance Markets and Companies, 13(1), 90–101. https://doi.org/10.21511/ins.13(1).2022.08
Alhassan, A. L., & Biekpe, N. (2016). Competition and efficiency in the non-life insurance market in South Africa. Journal of Economic Studies, 43(6), 882–909. https://doi.org/10.1108/JES-07-2015-0128
Ali, C., Habibniya, H., & Keceli, Y. (2021). An efficiency analysis of takaful insurance Industry: A comparative study. Journal of Asian Finance, 8(7), 111–0120. https://doi.org/10.13106/jafeb.2021.vol8.no7.0111
Alshammari, A. A., Alhabshi, S. M., & Saiti, B. (2019). The impact of oil prices and the financial market on cost efficiency in the insurance and Takaful sectors: Evidence from a stochastic frontier analysis. Economic Systems, 43(3–4), 100716. https://doi.org/10.1016/j.ecosys.2019.100716
Ansari, Z. (2022). A review of 20 years of takaful literature using a systematic method. Asian Journal of Economics and Banking, 6(1), 2–25. https://doi.org/10.1108/ajeb-08-2021-0100
Antonio, M. S., Ali, M. M., & Akbar, N. (2013). A comparative analysis of the efficiency of takaful and conventional insurance in Malaysia. The International Journal of Excellence in Islamic Banking and Finance, 3(1), 1–13. https://doi.org/10.12816/0001416
Benyoussef, S., & Hemrit, W. (2019). Measuring the relative efficiency of insurance companies in Saudi Arabia: The case study of takaful vs cooperative industries. Cogent Economics and Finance, 7(1), 1–20. https://doi.org/10.1080/23322039.2019.1590818
Chong, J. K., Lee, H. S., & Liew, P. X. (2024). Is takaful (Islamic insurance) more efficient than conventional insurance? A comparative analysis of the malaysian insurance industry. International Journal of Business and Society, 25(2), 509–529. https://doi.org/10.33736/ijbs.7611.2024
Faruk, O., & Rahaman, A. (2015). Measuring efficiency of conventional life insurance companies in bangladesh and takaful life insurance companies in Malaysia : A non-parametric approach. Management Studies and Economic Systems, 2(2), 129–144. https://doi.org/10.12816/0019398
Handayani, F. P., & Alam, A. (2022). History and development of takaful research : A bibliometric review. March 2022, 1–26.
https://doi.org/10.1177/21582440231184852
Husin, M. M. (2019). The dynamics of Malaysian takaful market: Challenges and future prospects. Journal of Islamic Finance , 2117(Special Issue), 131–137.
Jinn, L. S., Hoe, L. W., & Siew, L. W. (2018). Investigation on the efficiency of financial companies in Malaysia with data envelopment analysis model. Journal of Social Sciences Research, 2018(Special Issue 6), 893–898. https://doi.org/10.32861/jssr.spi6.893.898
Kader, H. A., Adams, M., & Hardwick, P. (2010). The cost efficiency of takaful insurance companies. Geneva Papers on Risk and Insurance: Issues and Practice, 35(1), 161–181. https://doi.org/10.1057/gpp.2009.33
Kamarudin, F., Sufian, F., Nassir, A. M., Anwar, N. A. M., & Hussain, H. I. (2019). Bank efficiency in Malaysia a DEA approach. Journal of Central Banking Theory and Practice, 8(1), 133–162. https://doi.org/10.2478/jcbtp-2019-0007
Kholis, N., & Afifah, Y. N. (2022). Measuring financial efficiency of insurance companies in Indonesia using stochastic frontier analysis approach. Journal of Islamic Economics Lariba, 8(1), 196–212. https://doi.org/10.20885/jielariba.vol8.iss1.art12
Kholis, N., & Rakhmawati. (2022). Efficiency analysis of takaful companies’ performance using stochastic frontier analysis approach: A comparison between Southeast Asia and The Middle East Regions. Millah: Journal of Religious Studies, 21(3), 947–972. https://doi.org/10.20885/millah.vol21.iss3.art12
Lee, H. S., Cheng, F. F., Har, W. M., Md Nassir, A., & Ab Razak, N. H. (2019). Efficiency, firm-specific and corporate governance factors of the takaful insurance. International Journal of Islamic and Middle Eastern Finance and Management, 12(3), 368–387. https://doi.org/10.1108/IMEFM-06-2018-0187
Lutfi, & Suyatno. (2019). Determinants of bank efficiency: Evidence from Indonesian regional development banks using data envelopment analysis. Jurnal Ekonomi Malaysia, 53(3). https://doi.org/10.17576/JEM-2019-5303-05
Mimma Kebahyang, I. F., Bujang, I., Mohamed, N., & Maimunah, E. (2024). Measurement accuracy of inputs and outputs for financial efficiency of Islamic Banks. ASEAN Journal on Science and Technology for Development, 41(2), 180–184. https://doi.org/10.61931/2224-9028.1574
Mohamad Yusof, N. A. (2020). Analysing the technical efficiency of general takaful industry in Malaysia: A non-parametric approach. Platform : A Journal of Management and Humanities, 3(1), 2. https://doi.org/10.61762/pjmhvol3iss1art5927
Muhamat, A. A., Basri, F., & Jaafar, M. N. (2021). A study on the efficiency of general takaful operators in Malaysia: Post implementation of IFSA 2013. Iranian Economic Review, March 2022. https://doi.org/10.22059/IER.2021.83926
Musa, M., Alhabshi, S. M., & Haron, R. (2022). Optimization of solvency margin in family takaful and life insurance institutions in Malaysia: Application of data envelopment analysis. Journal of Islamic Accounting and Finance Research, 4(1), 155–182. https://doi.org/10.21580/jiafr.2022.4.1.8792
Nasir, N. I., Hassan, R., & Ahmad Zamri Osman. (2023). Spectrum of consumer awareness in Islamic finance: Takaful industry In Malaysia. The Journal of Muamalat and Islamic Finance Research, 20(2), 125–134. https://doi.org/10.33102/jmifr.513
Nasution, Z., Salsabila, L., & Setiawan, S. (2022). Efficiency analysis of Malaysian family takaful using stochastic frontier approach. Ekonomi Islam, 13(2), 201–212. https://doi.org/10.22236/jei.v13i2.8604
Nourani, M., Devadason, E. S., & Chandran, V. G. R. (2018). Measuring technical efficiency of insurance companies using dynamic network dea: An intermediation approach. Technological and Economic Development of Economy, 24(5), 1909–1940. https://doi.org/10.3846/20294913.2017.1303649
Salman, S. A., & Kawata, Y. (2022). Muslims’ perception of Islamic insurance ( Takaful ) in Malaysia. Journal of Islamic Finance, 11(1), 51–66.
https://journals.iium.edu.my/iiibf-journal/index.php/jif/article/view/635
Solehudin, I. P. (2025). Efficiency of Sharia insurance companies in Indonesia: A data envelopment analysis (DEA) approach. Multidisciplinary Research Studies in Social Sciences, 1(1), 51–60.
Sukmaningrum, P. S., Hendratmi, A., Rusmita, S. A., & Abdul Shukor, S. (2022). Productivity analysis of family takaful in Indonesia and Malaysia: Malmquist productivity index approach. Journal of Islamic Accounting and Business Research, 13(4), 649–665. https://doi.org/10.1108/JIABR-03-2021-0097
Trinh, L. D. T. (2024). Determinants of efficiency of non-life insurance companies: Evidence from Vietnam. Financial and Credit Activity: Problems of Theory and Practice, 6(59), 223–233. https://doi.org/10.55643/fcaptp.6.59.2024.4551
Yakob, R., Yusop, Z., Radam, A., & Ismail, N. (2014). Financial management efficiency performance of insurers and takaful operators in Malaysia. Jurnal Pengurusan, 40, 25–40. https://doi.org/10.17576/pengurusan-2014-40-03
Zainuddin, S. (2013). An overview of the emergence of takaful: An islamic type of insurance policy. International Journal of Business and Economics Research, 2(5), 112. https://doi.org/10.11648/j.ijber.20130205.13
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Nur Azureen Inchiem, Imbarine Bujang, Sarmila Udin
This work is licensed under a Creative Commons Attribution 4.0 International License.
