Efficiency Analysis of Modaraba Companies in Pakistan

Abstract

In Pakistan’s economic development Modaraba sector also contribute. It provides heavy machinery and equipment to the small enterprises which are facing financial difficulties in running the business. Modaraba provide shariah based business solutions and different Islamic products like Musharika, Modaraba, Murabaha, Ijarah, Salam etc. As for as the study on modaraba sector’s efficiency is concerned, a very few studies are conducted on that topic and a limited literature available on that topic. This study aims to measure the CE and PE of Pakistan’s modaraba sector from 2010 to 2019 by taking the unbalanced panel data of 30 modaraba firms registered at PSX through the application of parametric method SFA in the first step of analysis. The Input and output variables were selected from the existing literature. This study uses 2 outputs such as Income and Investment while 3 Inputs such as Operating Expenses, Equity, and Liability. In the second step of analysis, it is investigated that how CE and PE scores are affected through the variables also called determinants such as Size, Investment, ROA, Liquidity, and Equity. The results suggest that Size, ROA, Equity has significant impact on TEP while Size, Investment, Liquidity, and Equity has significant impact on TEC.