Abstract
This research is motivated by the phenomenon of increasing PS/RS and PLS financing and profitability at Islamic Commercial Banks (BUS) in Indonesia during the 2015-2019 period, and experiencing a decline from 2019 to 2020. PS/RS and PLS financing can use mudharabah and musharakah contract schemes. Mudharabah financing is based on profit sharing, while Musharaka is based on profit-loss sharing. This study aims to obtain empirical evidence regarding the effect of non-performing financing and third-party funds on profitability through PS/RS and PLS financing. The population used in this study were all Islamic Commercial Banks in Indonesia in the 2015-2020 period. The data analysis technique used is Partial Least Square with SmartPLS software version 3. The results of the study found a direct effect of non-performing financing on profitability. The results of the study did not find a direct effect of non-performing financing on PS/RS and PLS financing. In addition, third party funds do not have a direct effect on profit-sharing and profitability-based financing. The results also did not find an indirect effect of non-performing financing and third-party funds on profitability.
Highlights
Profit-sharing based financing such as mudarabah and musharakah financing is the main business carried out by Islamic banks, not buying and selling such as murabahah, salam, or istishna'
This study aims to examine whether the increase in profitability and Profit sharing/Revenue sharing (PS/RS) and Profit Loss Sharing (PLS) financing generated by Islamic commercial banks in Indonesia is caused by non-performing financing and third party fund
This study examines the effect of non-performing financing (NPF) and Third-party funds (TPF) on PS/RS and PLS financing
Summary
Profit-sharing based financing such as mudarabah and musharakah financing is the main business carried out by Islamic banks, not buying and selling such as murabahah, salam, or istishna'. Mudharabah and musharakah contracts in Islamic banks were initially regulated in the accounting standards of PSAK 59 concerning Accounting for Islamic Banking. The implementation of mudharabah contracts in Indonesia is regulated in the accounting standards of PSAK and Fatwa DSN 07/DSN-MUI/IV/2000, while musharakah is regulated in the accounting standards of PSAK and Fatwa of DSN 08/DSN-MUI/IV/2000. Islamic banks are the owner of the funds and the customer is the manager. As for musharakah financing, Islamic banks act as passive partners and customers as active partners, both of which contribute to capital (Salman, 2017; and Salman, 2020). Profit sharing/Revenue sharing (PS/RS) is used by mudharabah contract, and Profit Loss Sharing (PLS) is used by musharakah contract
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