A review of financial efficiency measurement approaches in Malaysia’s takaful industry

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.