By applying the non-parametric Data Envelopment Analysis (DEA) method, this paper attempts to investigate the efficiency of Malaysian Non-bank Financial Institutions (NBFIs) during the period of 2000-04. The results suggest that the merchant banks have exhibited mean overall efficiency of 78.1%, while the finance companies' mean overall efficiency was 91.3%. The results suggest that during the period of the study, pure technical inefficiency, rather than scale inefficiency, has largely resulted in Malaysian NBFIs' overall inefficiency. Examination of the sample of 80 observations over the five-year period revealed that while, on average, 28.75% of all Malaysian NBFIs were operating at Constant Retuns to Scale (CRS), the majority, i.e., 71.25%, were scale inefficient (operating at Decreasing Returns to Scale (DRS) or Incresing Returns to Scale (IRS).
Given
the substantial task of a non-bank financial sector, it is worth raising the issue,
why it matters. In particular, since Gerschenkron (1962) classic study emphasized
the role of the banking systems in the economic development of Germany, France
and Italy in the 19th century, it may appear that the need for a non-bank financial
sector is largely redundant in specific circumstances of the developing economies.
However, there are two main reasons why the existence of Non-bank Financial Institutions
(NBFIs) matters: one concerns economic development and the other relates to financial
stability.
In
the first place, banks offer assets (deposits) that claim to be capital certain.
If this promise is to be honored, then there must be limits to the range and nature
of assets that a bank can reasonably take on to its balance sheets. Notwithstanding
the existence of universal banking in many parts of the world, (that is, banks
also engaged in securities market activities), this consideration implies that
bank-based financial system will tend to have a smaller range of equity-type assets
than those with a more broad- based structure, including a wide range of NBFIs.
More generally, NBFIs play a range of roles that are not suitable for banks and
through their provision of liquidity, divisibility, informational efficiencies
and risk pooling services they broaden the spectrum of risks available to investors.
In this way, they encourage and improve the efficiency of investment and savings.
Through the provision of a broader range of financial instruments, they are able
to foster a risk management culture by attracting customers who are least able
to bear risks and fill the gaps in financial services that otherwise occur in
bank-based financial systems. |
