1.0 INTRODUCTIONIslamic banking has been in existence since the 1970`s, and it has shown tremendous growth over the last 30 years. Our beloved Malaysia is being blessed with a sound financial system that has stood its ground, thanks to good regulatory and supervisory oversight. In Malaysia Islamic Banking are the large segment in global financial market where is has been recognized as a viable and competitive form of financial intermediation and shown the rapid expansion and evolution since in this three decades. The Islamic banking in Malaysia differs from Islamic banking in the Gulf and the rest of the world (Samad, 2005). The countries the Islamic banking in Malaysia differs from Islamic banking in the Gulf and the rest of the world (Samad et al., 2005). By Samad mean Malaysia have a big role in running Islamic banking system in this world. The countries first Islamic bank, Bank Islam Malaysia Berhad (BIMB), was established in July 1983. BIMB was established primarily to assist thefinancialneeds of the country'sMuslimsand to further extend its services to the whole population at in Malaysia. The important underlying force that leads to the establishment of this Islamic bank in Malaysia was the elimination of riba that is used for interest. Since then BIMB introduced and marketed various interest free products such as Wadiah ad Dhamana account, Mudarabah, Musharakah and others. Bank's business has expanded over the years. Its assets and deposits have increased from RM 325 million to RM 4,440 million in 1997. The recent survey states that there are more than 160 Islamic financial institutions existing around the world (Dar, 2003). Despite the fact that most Islamic Banks are found within the emerging of Middle-East countries, many universal banks in developed countries have begun to value the massive demand for Islamic financial products. Today in Malaysia, there are a total of 12 Islamic banks and 7 conventional banks with 7 Islamic windows offering Islamic banking services that are governed by Bank Negara Malaysia.The examination of efficiency in Malaysian Islamic banking has significant public Policy implications, especially as inefficiencies have been found to account for around 20% or more of costs in banking (Berger et al., 1993). Bank efficiency literature has largely been dominated by studies with regard to competitive markets, which have been operating on the single traditional banking system. A main stream of such studies has been conducted in the developed economies such as US (Wheelock and Wilson, 1999; Alam, 2001), Australia (Avkiran, 2000; Worthington, 2000) and Europe (Berger and Humphrey, 1997; Fernandez et al., 2002). The production approach is where banks are regarded as using conventional inputs such as labor and capital to generate deposits and loans. Under this approach, outputs are usually measured in units rather than in dollar terms. This approach was considered inappropriate to Malaysian banks where the data is in dollar terms rather than in units.The Malaysian banking sector is faced with the urgent need to accelerate the process to adequately prepare in view of globalization and further leverage on economies of scale by focusing on the objective to ensure that each banking group is of an optimal size. However, it has been noted that sheer size alone will not be sufficient for banks to compete on, as it is critical to create stronger and more efficient banks that can adapt to customer needs. Many studies have addressed the question of whether efficiency varies in proportion with the bank size after consolidation. Scale economies for large banks are often claimed by the banking industry, particularly as a justification for bank mergers. In a study on efficiency of Malaysian banks, Katib (1999) showed that most commercial banks in Malaysia did not operate at constant returns to scale and that technical inefficiencies of various banks were mostly attributable to scale Ineffic iencies over the period 1989 to 1995.

Samad (1999) was among the first to investigate the efficiency of the Malaysian Islamic banking sector. He investigates the relative performance of the full-fledged Malaysian Islamic bank compared to its conventional bank peers. During the period of 1992 to 1996 he found that the managerial efficiency of the conventional banks was higher than that of the full-fledged Islamic bank. On the other hand, the measures of productive efficiency revealed mixed results. He suggests that the average utilization rate of the Islamic bank is lower than that of the conventional banks. Similarly, he found that profits earned by the full-fledged Islamic bank either through the use of deposit or loan able funds, or used funds are also lower than the conventional banks, reflecting the weaker efficiency position of the full-fledged Islamic bank. In contrast, the productivity test by loan recovery criterion indicate that the efficiency position of the full-fledged Islamic bank seems to be higher and bad debts as a percentage of equity, loans, and deposits also show a clear superiority over the conventional bank peers.

WHY STUDY EFFICIENCY AND COMPETITION IS IMPORTANT

An efficient and competition in financial system is important for the development and longer-run growth of the economy. Indeed, a recent comprehensive survey of the research literature suggests that the quality of financial service provision is a key ingredient for economic growth (Dolar and Meh 2002). The study of efficiency and competition important for the Malaysia has a dual financial system, whereby the Islamic and conventional financial systems operate in parallel, efficiency gains can be secured through competition. Since the introduction of Islamic finance in the 1980s, Malaysia has paved its way towards becoming an international Islamic financial centre. The efficiency measurement would also give an indication whether current Islamic banks in Malaysia are ready to face financial liberation. Recent research has considered various aspects of efficiency in Malaysian financial services, particularly in the banking industry. The competition between conventional and Islamic system becoming more tight. Many more products were released by the two systems in order to be main financial system in Malaysia. Another reason is that the efficiency can also be used to investigate the potential impact of government policies on a banks efficiency. The existence of a highly liquid pool of Islamic funds, and with increasingly more demanding Investors, more shariah compliant financing structures have helped to make Islamic financing a variable mode of financing that is comparable to its conventional counterpart. With this advantages that been required by islamic finance system will improfe the efficiancy and competition of the islamic banks, and also it will help to develop large and high competitive bank to support the growth of the global finance system. In other words, regulation, if properly implemented, will enhance competition and make it more effective in the market place.

2.0 LITERATURE REVIEW ANALYSIS (1O JOURNAL ARTICLES)

A research conducted by (Kumbhakar and Lovell, 2003). Efficiency measurement is one aspect of investigating a firms performance. Efficiency can be measured in three ways; maximization of output, minimization of cost, and maximization of profits. In general, efficiency is divided into two components. A firm choose as technically efficient if it is able to obtain maximum outputs from given inputs or minimize inputs used in producing given outputs. The objective of producers here is to avoid waste. According to Koopmans (1951) a producer is considered technically efficient if, and only if, it is impossible to produce more of any output without producing less of some other output or using more of some inputs. On the other hand, allocate efficiency relates to the optimal combination of inputs and outputs at a given price. The objective of producers might entail the following: to produce given outputs at minimum costs; to utilize given inputs so as to maximize revenue; and to allocate inputs and outputs so as to maximize profit. This technique of production is widely known as economic efficiency where the objective of producers becomes one of attaining a high degree of economic efficiency

Theoretically, competition is good because it ensures that the costs of production are minimized and at the same time it promotes efficiency (Nickell, 1996). Increased Competition could force banks to operate more efficiently in order to survive. It forces the banks to produce products and provide services that are most demanded by the customers. If they can provide services demanded efficiently and with the least cost there is no reason why they cannot make more profits. Otherwise, they will make lossesand possibly go out of business. A study by Bauer et al. (1993) found little change in average inefficiency, but productivity over the period had deteriorated, which they attributed to deregulation and increases in competition. They, however, did not examine the differences in efficiency and productivity among banks of different sizes and they had excluded the very small banks. Samad and Hassan (2000) applied financial ratio analysis to investigate the performance of a Malaysian Islamic bank over the period 1984 -1997. Their results suggest that in general, the managements lack of knowledge was the main reason for slow growth of loans under profit sharing. Despite that, the bank was found to perform better compared to its conventional counterparts in terms of liquidity and risk measurement (lower risks).

More recently, Hassan (2005) examined the relative cost, profit, X-efficiency andProductivity of the world Islamic Banking industry. Employing a panel of banks during 1993- 2001, he used both the parametric (Stochastic Frontier Approach) and non-parametric (Data Envelopment Analysis) techniques as tools to examine the efficiency of the sample banks. He calculated five DEA efficiency measures namely cost, allocative, technical, pure technical and scale and further correlated the scores with the conventional accounting measures of bank performance. He also found that the main source of inefficiency is allocative rather than technical inefficiency and the overall inefficiency was output related. The results also suggest that, on average the Islamic banking industry is relatively less efficient compared to their conventional counterparts in other parts of the world.

There appears to be a void in literature on efficiencies of Islamic banking. The small number of Islamic banking institutions and the unavailability of data creates difficulty to undertake efficiency analysis. Bashir (1999) pointed that the lack of data on Islamic banks is due to three reasons. Firstly, the Islamic banking institutions usually operate in underdeveloped markets. Secondly, Islamic banks are not obliged to disclose Periodic information, and thirdly, the lack of information agencies specialized inIslamic financial institutions. Bachelors and Wadud (2003) appeared to address these challenges in their study of relative efficiency from the operation of Islamic banking under a dual banking system, as pioneered in Malaysia. Their study utilized DEA intermediation approach to compute IBS efficiency scores for the period 2000-2001. The results indicated that full-fledged Islamic banks tend to experience lower TE due to DRS. The paper also highlighted that a foreign bank with extensive global networks and long-term involvement in the country attained full technical efficiency.

3.0 CONCLUSION

The research summarized in this article suggests that, overall the ten journal articles relating to. Interestingly the performance of Islamic banks can be assessed using financial ratios, which are then translated and analyzed using statistical package for (DEA) in order to measure the efficiency of Islamic banks using output and input approach and also use to study utilized DEA intermediation approach to compute IBS efficiency scores.

REFERENCESAhmad Mokthar, H.S., Abdullah,N., & Alhabshi,S.M. (2008). Efficiency and competition of Islamic banking in Malaysia. Humanomics, 24(1), 28-48.Rosly,S.A., & Abu Bakar,M.A. (2003). Performance of Islamic and mainstream Banks in Malaysia. International Journal of Social Economics, 3(12), 1249-1265.Samad,A., & Hassan, M.K. (1998). The performance of Malaysia Bank during 1984-1997: an exploratory study. International Journal of Islamic Financial Services, 1(3). Available at www.islamic-finance.net Sufian,F (2007). The efficiency of Islamic banking industry in Malaysia, Foreign vs domestic banks. Humanomics 23 (3), 174-192.Batchelor,B,V., & Wadud,M,I.K.M., (2004). Technical and scale efficiency of islamic banking operations in malaysia: an empirical investigation with a longitudinal perspective. Labuan Bulletin of International Business & Finance 2(1), 51-69.Siddiqui,A., (2008). Financial contracts, risk and performance of Islamic banking. Managerial Finance34 (10) 680-694.Ahmad Mokhtar et al., (2006). Efficiency of Islamic banking in Malaysia: a stochastic frontier approach.Journal of Economic Cooperation 27(2) 37-70.Haron,S & Wan Azmi,W.N (2008). Determinants of Islamic and conventional deposits in the Malaysian banking system. Managerial Finance 34 (9) 618-643.Dr. Harun,S & Ahmad,N (2001). The effects of conventional interest rates and rate of profit on funds deposited with Islamic banking system in Malaysia. International Journal of Islamic Financial Services 1(4).Sufian,F (2009). Total Factor Productivity Change of the Malaysian Islamic Banking Sector: An Empirical Study. Journal of Islamic Economics, Banking and Finance,5 (1)