Islamic Banking Institutions Research Articles

What Drives the Profitability of Islamic Banks?: Insights from Indonesia Using the Vector Error Correction Model (VECM) Approach

This study examines the influence of various Islamic financing mechanisms – mudarabah, murabaha, musharakah, liquidity, and financing risk – on the profitability of Islamic banking institutions in Indonesia from 2011 to 2020. Utilizing a quantitative approach, the research aims to thoroughly assess both the short-term and long-term effects of these variables on the dependent variable, Islamic banks’ profitability. The analysis is based on panel data from the Indonesian Islamic banking sector during the specified period and employs the vector error correction model (VECM) method for data analysis. The outcomes of the estimation tests indicate that each of these variables significantly impacts the return on assets (ROA) of Islamic banks in Indonesia, both in the short and long term, throughout the given period. The findings reveal that changes in mudarabah, murabaha, musharakah, non-performing financing, and financing-to-deposit ratio have led to measurable responses in the ROA of these institutions. This study offers valuable insights into the relationship between Islamic financing components and the profitability of Islamic banks in Indonesia, contributing to a deeper understanding of the financial dynamics in this sector over the past decade. Keywords: Islamic banks, Islamic financing, profitability, VECM

The Impact of Service Quality and Product Attributes on Customer Satisfaction in Islamic Finance

This study investigates the impact of service quality and product attributes on customer satisfaction within the context of Islamic finance. Utilizing a quantitative approach, data were collected from 500 customers across various Islamic banking institutions. The findings reveal that both service quality and product attributes significantly influence customer satisfaction, with service quality demonstrating a stronger correlation. Notably, aspects such as employee friendliness, responsiveness, and product diversity emerged as critical factors. This research contributes to the existing literature by providing empirical evidence on the importance of service quality in enhancing customer satisfaction specifically in the Islamic banking sector, an area that has received limited attention. The implications of this study are twofold: first, it offers valuable insights for Islamic banking institutions to refine their service delivery and product offerings, thereby fostering greater customer loyalty. Second, it highlights the need for continuous assessment of customer expectations and satisfaction metrics to ensure sustainable growth in the competitive financial landscape. This study lays the groundwork for future research on the interplay between service quality, product attributes, and customer satisfaction in Islamic finance.

Enhancing Regulatory Frameworks for Islamic Banking Institutions: Comparative Study Between Indonesia and Bahrain

This research analyzes and compares the regulatory frameworks governing Islamic Banking institutions in Bahrain, and Indonesia. The study explores how each country has developed its regulatory environment to support the growth and stability of Islamic finance, highlighting the successes, challenges, and areas for improvement. Using a qualitative comparative approach, the research draws on data from document analysis and previous studies to provide a comprehensive understanding of the regulatory landscapes in these countries. The findings reveal that Bahrain has established robust and internationally recognized regulatory frameworks, largely due to their proactive regulatory bodies and collaboration with global standard-setting organizations such as the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organization for Islamic Institutions (AAOIFI). In contrast, Indonesia, despite its significant potential, faces challenges in regulatory implementation and public literacy on Islamic finance. The study concludes that effective regulatory frameworks are crucial for the credibility and stability of Islamic finance, strengthening regulatory oversight, and adopting international standards to ensure consistent and transparent practices. This research contributes valuable insight for policymakers, regulators, and practitioners aiming to improve the regulatory environment of Islamic financial institutions globally.

Pengawasan Pelaksanaan Akad Notaris pada Perbankan Syariah oleh Dewan Pengawas Syariah

The rapid development of Islamic banking institutions must be supported by effective supervision so that operations are more efficient, so the Sharia Supervisory Board was formed by the National Supervisory Board (DSN) to oversee the application of sharia principles in Islamic banking. This research aims to find out the role of the Sharia Supervisory Board in supervising Islamic financial institutions in Indonesia and the Sharia Supervisory Board (DPS) related to supervising the implementation of contracts by Notary. The method used in this research is doctrinal legal research method using secondary data related to Islamic banking. The results of this study indicate that DPS supervision in Islamic banking is not optimal, which has an impact on the supervision of contracts in Islamic banking, as seen from the many problems in Islamic banking in the form of contract violations contrary to sharia principles. The conclusion of this problem is that the Sharia Supervisory Board (DPS) has not optimally carried out its supervision according to its rules to ensure compliance with sharia principles, as supervisors of Islamic banks must oversee every stage of the financing process to ensure the legal protection of their customers.

Financial literacy in Saudi Arabian MSMES: Insights from Islamic banks’ customers

This paper investigates the influence of financial knowledge, financial attitude, financial skills, and financial behavior on the financial literacy of Saudi Arabian MSMEs. The sample is 341 MSMEs that are clients of Islamic banking institutions. The paper employs the PLS-SEM method to analyze the collected data. The findings reveal statistically significant and strong positive correlations (p < 0.05) between financial knowledge, financial skills, financial behavior, and financial literacy. This implies that MSMEs with a strong foundation in financial knowledge, proficient skills, and positive financial behaviors tend to exhibit higher levels of financial literacy. Among the variables studied, financial knowledge exerted the strongest influence on financial literacy. This shows the importance of enhancing financial knowledge among MSME owners and managers to improve their overall financial literacy. Interestingly, the study did not identify a statistically significant relationship between financial attitude and financial literacy. This suggests that simply possessing a positive attitude toward finance may not necessarily translate into higher levels of financial literacy without complementary knowledge, skills, and behaviors. By prioritizing these areas, policymakers and Islamic banking institutions can contribute to improving financial literacy levels among Saudi Arabian MSMEs, ultimately fostering their growth, performance, and resilience.

Internal Shariah audit change: an identification of specific Islamic legal maxim in Islamic banking institution

Purpose This paper aims to provide insight on internal Shariah audit change process in Islamic banking institution using sociology of translationin and the identification of specific Islamic legal maxim (ILM). Design/methodology/approach This paper gathered findings using qualitative approach where a single case study was selected. The study began with a preliminary study to assist the selection of the case study and later two phases of interviews done at the institution selected as the case study. Findings This paper has provided insights into the internal Shariah audit practices change using sociology of translation that incorporated ILM as the basis to strengthen the Islamic banking operations by achieving maqasid al-Shariah (MS). The findings of this paper provide distinguished insight on internal Shariah audit change process and ILM. The significance of this study is that a new contribution through exploring the viewpoints of the perception that satisfying the minimum legal requirements of Shariah compliance may not be sufficient for proper Shariah audit in IBIs. Therefore, the existence of ILM within a change process serves as a basis for best practices to be able to achieve MS through the means (wasa’il) used in realising IBIs’ objectives. Originality/value The application of ILM to internal Shariah audit change process that would guide Muslim auditors to be in line with Islamic principles. This paper focuses on the application of ILM to the Shariah audit practices changes as ILM embodied ethical value to the general concept of maslahah (well-being) under MS in the period of post-COVID-19.

The Legal Position of the Indonesian Ulema Council in Applying the Principles of Islamic Law in Islamic Banking Operations in Indonesia

National economic development through the establishment of Islamic Banks is an implementation of Article 29 of the 1945 Constitution of the Republic of Indonesia. The presence of Islamic Banking in the national economy is a strategic legal policy of the government because its operations are based on the principles of Islamic law, namely principles derived from the Qur'an, Hadith, Ijma', and Qiyas. However, in its application, these principles of Islamic law are manifested in the form of fatwas issued by the National Sharia Council-Indonesian Ulema Council (DSN-MUI) as a source of positive law for Islamic banking. Therefore, this study raises legal issues related to the legal position of the Indonesian Ulema Council in the application of sharia principles to Islamic Banking operations in Indonesia. This study aims to analyze and determine the legal position of the Indonesian Ulema Council in the application of sharia principles to Islamic Banking in Indonesia. The research method used is normative research, which provides answers to the problems raised with the perspective of what should be done. The results of the study indicate that the DSN-MUI fatwa has a crucial role as a positive legal basis in the operation of Islamic Banking in Indonesia, although formally it is not a statutory regulation. The implications of this study indicate the importance of recognizing and strengthening the role of the DSN-MUI in the national legal system to ensure compliance of Islamic Banking operations with applicable sharia principles.

The effect of ESG scores on bank stability: Islamic vs. conventional banks

ABSTRACT This paper examines the impact of ESG (Environmental, Social, and Governance) factors on the stability of banks across different continents, focusing on both conventional and Islamic banking institutions. The empirical analysis indicates a positive influence of ESG activities on the stability of these financial institutions. Notably, the study finds that ESG scores significantly enhance the stability of both conventional and Islamic banks. The environmental pillar score, especially within the conventional banking sector, shows highly positive and statistically significant results, highlighting the benefits of environmentally responsible practices. In contrast, the social pillar is positively correlated with stability in the Islamic banking sector, suggesting that active involvement in community service and social responsibility initiatives leads to improved stability. Overall, the study emphasizes the transformative potential of ESG activities in enhancing the stability and valuation of banks by positively influencing both their external perception and internal operations.

Historical Studies: The Social Life Of Muslim Minorities In The United States

This article describes the history of Islamic civilization in the Muslim minority country of America. The United States is secular but provides opportunities for every religion to grow and develop. The development of Islam in America cannot be separated from the scholars there. The method used in this paper is the Library research method (literature study). The results of this study noted that Islam is very developed in America compared to other religions when many Americans embrace Islam. Several Islamic financial and banking institutions were established in America Finance House Riba in California, which offers home financing based on Sharia principles. In addition, the emergence of Islamic economics and finance in this country was not as smooth as in other countries. Muslim minorities have established large organizations to help each other, such as ISNA, CAIR, and Islamic Relief USA.

Analysis of Factors Affecting the Level of Public Knowledge of Sharia Bank Products

This research aims to describe the factors that influencing people’s insight into sharia banking products. Case study of Deli serdang district. This research using qualitative data analysis public knowledge of sharia banking products in the case study of kab. Serdang Deli. The data collection techniques used were direct interviews obtained from respondenst, researcher interviews with sources and direct observation of the research writer’s objects or places in the community of the Deli serdang district. And also from notes, books, aticels, government reports, books related to research, and to get actual data. Based on research results, not many people know what is a sharia bank and what products are available at sharia banks?. then from the results of interviews, most people are interested in transact with sharia banks, so there is a need for socialization from the banking side sharia in order to increase public knowledge about sharia banks as well as the availability of islamic banking institutions that are closer to public.

Trust, religiosity commitment, and nisbah perception in shaping customer loyalty

This study investigates the factors influencing customer loyalty in Sharia banking, with a focus on trust, religiosity commitment, and the perception of nisbah (profit-sharing ratio). By exploring the interplay between these variables, the research aims to provide insights into the mechanisms driving customer loyalty within Islamic banking institutions. Utilizing partial least squares structural equation modeling (PLS-SEM), data was collected from 212 priority customers of Bank Syariah Indonesia (BSI) in the Jabodetabek region. The study examines the direct and indirect effects of trust on loyalty, the mediating role of religiosity commitment, and the moderating influence of nisbah perception. The findings underscore the significance of trust in fostering customer loyalty in Sharia banking. Trust directly influences both religiosity commitment and loyalty, with religiosity commitment serving as a partial mediator between trust and loyalty. Furthermore, nisbah perception moderates the relationship between religiosity commitment and loyalty, indicating its role in shaping customer loyalty within Sharia banks. The study highlights the importance of transparency, adherence to Sharia principles, and the effective communication of transaction costs and risks in building trust and maintaining customer loyalty. Policy recommendations include prioritizing service improvements, reinforcing halal fund management practices, and enhancing employee competence to better serve priority customers. However, limitations such as restricted interaction with respondents and sample size constraints are possibilities for future research to enhance the robustness of the findings.

AN ANALYSIS OF BUSINESS ZAKAT REPORTING IN ISLAMIC BANKING INSTITUTIONS: EVIDENCE FROM MALAYSIA, INDONESIA AND BRUNEI

The reporting requirements for business zakat accounting in Islamic banking institutions are still in their early stages, with only minimal zakat disclosure currently mandated. Consequently, the disclosure of zakat accounting is insufficient despite its crucial role in enhancing transparency and accountability, building the trust and confidence of the stakeholders, and ensuring compliance with Shariah principles. The primary objective of the study is to analyze zakat reporting requirements and compare them with current business zakat reporting practices in Islamic banking institutions in Malaysia, Indonesia, and Brunei. This study employs a qualitative research approach by examining the annual reports of three selected Islamic Banks, chosen based on the availability and accessibility of their audited financial statements and annual reports for the financial year ending 31 December 2023. A content analysis of the annual reports of Bank Islam Malaysia Berhad, Bank Muamalat Indonesia and Bank Islam Brunei Darussalam Berhad was performed to evaluate the recognition of zakat expenses, the measurement of assets and liabilities for zakat, and the presentation and disclosure of business zakat. The findings are mixed yet interesting. In the absence of approved accounting standards for Islamic financial institutions, Bank Islam Malaysia Berhad has demonstrated full disclosure practices on its business zakat reporting. Whereas, Bank Muamalat Indonesia is still insufficient in reporting the business zakat despite having a proper accounting standard for zakat. For Bank Islam Brunei Darussalam, the business zakat reporting is adequate even though Brunei has only one enactment related to zakat collection and distribution. The measurement, recognition, presentation, and disclosure criteria should be upheld, with additional requirements for full disclosure by zakat-paying business entities. This study proposes the proper establishment of zakat accounting standards to provide comparable and reliable financial information for various stakeholders.

The Influence of Perceived Convenience and Use of E-Banking on Utilization of Syari'ah E-Banking Services

The rapid development of technology encourages banking services to provide e-banking services. This study aims to investigate the influence of perceived ease and use of e-banking on the utilization of Islamic e-banking. The utilization of Islamic e-banking services among students has not been widely studied, so it is important to understand the factors that influenced it. The study used a quantitative approach with a survey method on 210 UMSIDA and UNISBA students who actively use Islamic e-banking. Data were collected through questionnaires and analyzed using SPSS version 22 analysis. The results showed that the perceived convenience and use of e-banking had a significant effect on the utilization of Islamic e-banking services. These findings can assist Islamic banking institutions in developing more effective strategies to attract and retain students as users of their services. This research also provides a scientific contribution in the field of Islamic banking and marketing studies, and can be a reference for future research on the utilization of Islamic e-banking services among university students. This research also indicates that the perceived ease and use of E-Banking are crucial factors in increasing the utilisation of Islamic E-Banking services.

Optimization of Sharia Banking Regulations in Developing the Halal Cosmetic Industry in Indonesia

This paper examines the role of Islamic banking in developing the Indonesian halal cosmetics industry. The method used includes a qualitative descriptive study through exploratory studies on optimizing the role of Islamic banks in the development of the halal cosmetic industry. The data source uses primary and secondary data through data collection techniques from interviews to literature study. Then, data collection also involves the author's opinion regarding the research issue data analysis, which consists of data reduction, data presentation, conclusions, and verification. Challenges and opportunities in the halal cosmetics industry continue to experience increasingly significant developments that affect the growth and development of the halal cosmetics industry. Therefore, the synergy between Islamic banking institutions, the government, and even related institutions is undoubtedly needed. This needs to be implemented by Islamic banks to optimize regulations and roles in the development of the halal cosmetic industry. First is regulation, followed by the process of preservation and standardization of halal products. Second, the synergy of Sharia institutions for halal industry players can be achieved by providing financing funds, mentoring, and education. Third, the synergy of Islamic banks with educational institutions through inclusive awareness of the halal cosmetic industry in educational institutions.

Analysis Prediction of Financial Distress in Islamic Commercial Banks in Southeast Asia Using the Springate S-Score Method

Financial distress is a condition of financial difficulties before entering the bankruptcy stage, so bankruptcy itself is the impact of financial distress, and the company can no longer be saved. The chaotic economy caused by the COVID-19 pandemic had a negative impact on various sectors, especially Islamic banking institutions, which experienced a decline in financial performance and even experienced financial distress. The purpose of this study is to analyze the prediction of financial distress in Islamic Commercial Banks in Southeast Asia using the Springate S-Score method, as well as to see and determine differences in the level of financial distress in each Islamic Commercial Bank that is used as the research sample. The research method used in this research is quantitative, and the research design used is descriptive and comparative. This study used a purposive sampling technique with a sample of 4 Islamic Commercial Banks in Southeast Asia with a 5 year research period. The data analysis applied descriptive analysis techniques, the Springate S-Score method, and the ANOVA Test. The results of this study indicate that each Islamic commercial bank used as a sample is categorized as distressed based on Springate calculations for the 2017-2021 period, and there are differences in financial distress conditions at each bank.

Islamic Perspective of Gold-Based Investment: The Case of Indonesia

Currently, there are many gold-based investment products, and investors are interested because some of them use sharia labels. Therefore, this study aims to identify and investigate gold-based investments from an Islamic perspective. It is hoped that this research can contribute new findings and enrich existing literature regarding gold investment in Indonesia, providing benefits for Muslim investors and the Muslim community in general. This study used qualitative research methods. Semi-structured interviews were conducted with parties who offer gold-based investment products on a large scale. Additional data sources include documents and manuscripts from the National Sharia Council (DSN-MUI) as well as author analysis. These findings show that not all gold-based investments in Indonesia comply with sharia principles. Only gold murabahah conducted by Islamic banking institutions meets sharia compliance.

Manajemen Dana Bank Syariah Dalam Perspektif Islam

The fundamental precepts of Islamic jurisprudence, which proscribe usury and ambiguity, serve as the cornerstone for the operational framework governing fund management within Islamic banking institutions. Various financial products and services pertaining to fund management, including Islamic financing and trust investment, are structured to afford clientele the opportunity to administer their assets in alignment with Shariah tenets. It is imperative to recognize that fund management within Islamic banks transcends mere technical proficiency, encompassing a profound ethical dimension inherent in the delivery of financial services. The primary objective of this investigation is to elucidate the multifaceted role of Islamic banks as not solely profit-centric entities, but as catalyzing agents of societal transformation, advocating principles of equitable distribution and enduring economic viability. As Islamic banks assume an increasingly prominent position within the global financial landscape, empirical findings underscore their capacity to effectuate positive socio-economic change through adept investment strategies and judicious utilization of technological resources. This empirical inquiry underscores the potential of Islamic banks to foster equitable and sustainable economic development consonant with the precepts delineated in the Quranic scripture, Hadith traditions, and scholarly consensus.

The Application of Service Ijarah in Islamic Finance

This research aims to explore the current application of Service Ijarah in Islamic Finance across three major sectors of Islamic commercial finance: Islamic banking, Islamic Insurance, and Islamic capital market. Furthermore, this study identifies potential challenges and risks associated with the use of Service Ijarah by comparing it with alternative Shariah contracts. This research employs a qualitative desk review research method to delineate the practical application of the Service Ijarah. The data was primarily collected from the official websites, product disclosure sheets, and annual reports of Islamic finance and banking institutions in different jurisdictions. Additionally, other secondary sources were used, including Shariah Standards, policy documents, journal articles, and other forms of reports. At least 15 Islamic banks globally have used the contract for financing services such as education, marriage, travel, home renovation, green technology, professional services, and Hajj & Umrah in countries including Oman, UAE, Malaysia, Maldives, Bangladesh, Bahrain, Tanzania, and Nigeria. The contract has yet to be practically applied within the Islamic capital market and Islamic insurance (Takaful). However, there is potential for the structuring of service-based Ijarah Sukuk and the development of Takaful products to cover service-ijarah-based financings. The absence of guidelines on Service Ijarah and the difficulty of finding reliable service providers for custom jobs may present challenges for the banks. This research is expected to be beneficial for industry practitioners seeking to explore a contract that remains relatively underutilised in the Islamic finance field and Shariah and regulatory authorities. It also examines the potential for service-based Ijarah Sukuk and AAOIFI's role in facilitating the development of Service Ijarah-based products.

Promotion Optimization: Effective Strategy to Increase Customer Interest in Gold Pawn at Bank Syariah Indonesia

This research delves into examining how promotional strategies impact customer interest in gold pawning services at Bank Syariah Indonesia KCP Bitung. Given the ever-changing market dynamics and evolving consumer preferences, the adaptability and innovation of Islamic banking institutions play a crucial role. The study concentrates on understanding how promotion influences customer interest in gold pawning, a service offering quick liquidity without requiring the sale of valuable assets. Through quantitative methods, data were gathered from 94 customers via questionnaires and analyzed using simple linear regression. The results indicate that promotional efforts significantly influence customer interest, explaining 61% of the variance. This underscores the significance of employing effective promotional strategies to enhance customer engagement and loyalty. The study identifies various promotional tactics, including advertising, sales promotions (such as discounts and coupons), personal selling (especially through social media influencers), public relations and publicity (e.g., press releases, event sponsorships, CSR activities), and direct marketing (e.g., mail, email, phone, social media). Each strategy's efficacy is supported by recent research, emphasizing the importance of coherent messaging in concise advertising for achieving higher response rates. The findings suggest that bolstering promotional endeavors can markedly increase customer interest and satisfaction, thereby fostering business expansion. Organizations are encouraged to prioritize strategic promotional activities to capitalize on their considerable influence on customer interest.

Antecedents of Islamic credit card adoption in Pakistan: an empirical study based on the decomposed theory of planned behavior

PurposeIn the past three decades, the expansion of Islamic banking has been recognized as one of the most significant financial developments across the world, and to enhance their market share in the highly competitive global banking market, these Islamic banking institutions must continue to be innovative. Credit cards are popularized worldwide; developing countries are also intrinsically motivated to adopt this product for performing financial transactions; however, understanding the factors influencing Islamic credit card (ICC) adoption remains limited, and the ICC still needs to attain adequate market share in the banking sector. Therefore, this study aims to investigate the determinants of ICC in Pakistan.Design/methodology/approachFor empirical estimation, sample data from 499 respondents, including ICC users and individuals willing to use ICC, is utilized through partial least square structural equation modeling.FindingsThe results show that attitude, compatibility, perceived behavioral control and religiosity are positive, while complexity negatively affects ICC adoption. In contrast, social influence, trust and satisfaction are insignificant determinants of ICC’s intention to use in Pakistan.Originality/valueAs a banking service, ICCs are viewed as a new banking product in Pakistan and have limited scope in the literature. Therefore, this study contributes to the existing literature by providing more integrating policy insights to academians and banking managers on ICC service in Pakistan.