Indonesian Financial Services Authority Research Articles

Proposed Model of Sharia Bank Share Ownership through Waqf Funds

This paper presents a feasibility model for Sharia Bank share ownership through Waqf funds as an alternative source of capital. It begins by addressing the problem of insufficient capital stock for Islamic banks in Indonesia. The exploration includes banking regulations by the Indonesian Financial Services Authority, Sharia Waqf laws and regulations by the Indonesian Waqf Board, and literature in the field of Waqf, as well as secondary sources such as books, journal articles, and online resources, particularly those related to Waqf regulation. Conclusions are drawn by analyzing several themes, which are further validated through in-depth interviews and Focus Group Discussions with experts. This paper introduces Cash Waqf as a potential source of paid-in capital for Islamic banks, particularly in Indonesia.

The Effect of Mudharobah Financing, Musyarokah Financing, and Murabahah Financing on BPRS Profitability in Indonesia

This study aims to determine the effect of mudharobah financing, musyarokah financing and murabahah financing on Sharia People's Credit Banks registered with the Indonesian Financial Services Authority (OJK) in the 2017-2021 period. Data is obtained from Sharia Banking Statistics which is a collection of Sharia Commercial Banks and Sharia Units throughout Indonesia, so that what is done is sampling a number of populations. This type of research is descriptive quantitative, which is processed using multiple linear regression with the help of NCSS 2021. The results showed that mudharobah and murabahah financing had no effect on profitability, while musyarokah financing had an effect on profitability.

Analysis of the Financial Banking Intermediary Function on Economic Growth and Poverty in East Kalimantan from 2011 to 2022

Banking intermediation in Indonesia is crucial because it directly affects economic growth to accommodate and channel capital from depositors to debtors to be used for production activities, encouraging economic growth in a region, in a certain period. The increase in economic growth caused by banking intermediation will directly or indirectly affect various aspects, one of which is the poverty rate. This paper aims to look at the effect of banking intermediation on economic growth directly and its effect on poverty levels both directly and indirectly through economic growth in East Kalimantan Province. The dataset used in this study comprises secondary time series data spanning from 2011 to 2022, sourced from the East Kalimantan Province’s BPS (Central Bureau of Statistics) and the Indonesian Financial Services Authority. To analyze these relationships, this study employed path analysis with SPSS 25. The findings of this research revealed that banking intermediation in East Kalimantan Province had a direct impact on economic growth in the same region. However, the relationship between banking intermediation and economic growth in East Kalimantan Province did not have a direct effect on poverty levels in the region. Instead, the influence of banking intermediation in East Kalimantan Province on poverty levels operates indirectly through its impact on economic growth. Keywords: financial intermediary, economic growth, poverty

Perception and Practices of Personal Financial Management among Generation Z in Indonesia

Generation Z, born between 1995 and 2010, is notable for its proficiency with technology, social media presence, expressiveness, tolerance, and multitasking abilities. The advancement of technology, combined with these qualities, raises the possibility that Generation Z will have consumerist tendencies. This study aims to examine Generation Z's perceptions and practices of personal financial management in Indonesia. The research employs a qualitative approach with data collection through literature review. The Significance of Personal Financial Management, Building Economic Stability Through Financial Literacy are some of the major subjects that were investigated. The results revealed that by managing their finances, Generation Z may achieve their goals, protect themselves from uncertainty, and contribute significantly to society. Personal financial management is essential for ensuring financial security and personal well-being. Developing financial literacy in Generation Z is obviously vital to ensuring economic stability. Providing people with the knowledge and abilities to handle their money wisely helps to improve both their financial security and the overall stability of the economy. One of the primary responsibilities of the Indonesia Financial Services Authority, also known as Otoritas Jasa Keuangan, or OJK, is to promote financial literacy throughout the country. Financial literacy is critical for both individual financial well-being and economic stability.

Board gender diversity and cyber security disclosure in the Indonesian banking industry: a two-tier governance context

Purpose This study aims to determine the effect of board gender diversity on cyber security disclosure (CSD) in the banking sector of Indonesia as a developing country that adheres to a two-tier system. Design/methodology/approach This study uses a panel data of 47 banks listed on the Indonesia Stock Exchange from 2014 to 2021. The board gender diversity is measured by three proxies, the proportion of women on the board, BLAU Index value and the critical mass of women. The authors used generalized method of moments estimation to eliminate the simultaneous equation bias. Findings The results show that the women board of commissioners increases CSD, and the women of board of directors/top management team were significantly negative for CSD. Research limitations/implications First, this research was only conducted in the banking sector. The results cannot be generalized to non-financial companies. Second, there is no measurement of the quality of the board from the level of education, experience, expertise and other characteristics of diversity such as age, nationality and religion. Practical implications The study has revealed the need for the government’s role in providing oversight of the presence of women on the board so that banks fully comply with Indonesia Financial Services Authority regulations. Banks should also actively launch policies regarding the presence of women on the board to give a positive effect to stakeholders that women play an important role in decision making. Banks must also adjust the composition of female commissioners with a threshold of two people to maximize their function as supervisors. Originality/value This is the first research conducted on the banking sector in Indonesia as a developing country that adheres to a two-tier system. The results of this study provide evidence that patriarchal culture is still dominant in Indonesia.

Accountability of the Financial Services Authority in Indonesia, Australia, Germany, France and Japan

The FSA is tasked with ensuring that by implementing IFRS, companies are expected to prepare financial statements that reflect relevant, reliable information and allow stakeholders to make better decisions. IFRS covers various aspects of accounting, including recognition, measurement, presentation and disclosure of financial information. These standards provide guidance on how certain business transactions should be recognized in the financial statements, how to measure the value of assets and liabilities, and how to present the information in a clear and structured manner. The type of research is normative, with a statutory approach, conceptual approach and comparative approach. The results show that OJK does not conduct financial reporting in accordance with International Financial Reporting Standards (IFRS), so OJK must improve its financial reporting. The conclusion of this research is that OJK needs to improve the transparency, accountability, and quality of its financial reporting to ensure the fulfillment of obligations to the public and authorities with the Indonesian Financial Services Authority (OJK) can take some valuable lessons from the advantages possessed by the Japanese Financial Services Agency (FSA) in various aspects of financial sector cooperation and supervision.

Do Corporate Governance and Bank-Specific Factors Matter On Banking Financial Performance?

Purpose: This study explores and presents empirical evidence on the influence of self-assessment of bank corporate governance and bank-specific factors on the financial performance of commercial banks in Indonesia. Methodology/approach: We conducted the study on 35 Indonesian public banks listed on the Indonesia Stock Exchange from 2017 to 2021. Using structural equation modeling, a thorough analysis was performed on a dataset of 160 observation samples that were carefully selected through purposive sampling. Findings: This study found that the implementation of corporate governance, which is proxied by the rating of self-assessment of corporate governance, and bank-specific factors significantly affect bank financial performance. The better the corporate governance self-assessment rating, the better the bank's financial performance. Other results indicate that bank-specific factors, as reflected by bank ownership, size, and diversification, significantly positively contribute to bank financial performance. Practical implications: This research aims to provide valuable insights that can support the Indonesian Financial Services Authority (OJK) in implementing effective corporate governance practices. It focuses on enhancing risk management, strengthening the bank's internal capacity, and ensuring compliance with regulations to promote best practices in bank management. Originality/value: This study provides new insight by examining the factors influencing financial performance in the banking sector, focusing on bank-specific factors and the regulatory aspects of Indonesian banking governance.

Indonesia Insurance Corporate Governance: A Literature Review

The aim of this research is to present and evaluate corporate governance framework for insurance companies in Indonesia based on previous researches related to corporate governance and The Indonesia Financial Services Authority Regulation. We evaluate concerning to governance objectives that include protecting shareholder interests, enhancing shareholder value, ensuring accountability, managing risk, promoting ethical behavior, transparency and disclosure, balancing interests, strategic decision-making, compliance with laws and regulations, efficient operations, long-term sustainability, stakeholder engagement, adapting to change, creating a positive reputation, and facilitating investment. We discuss the corporate governance framework for insurance companies in Indonesia based on the Indonesia Financial Services Authority regulation that states governance structure, corporate governance code, self-assessment & governance report, governance process and corporate governance principles to meet governance objectives. Although every year all insurance companies report corporate governance, but some companies have been stopped by the Authority. This raises research problems for the future relating to why insurance companies that have complied with corporate governance provisions have been stopped by the Authority.

Responding to Islamic finance anomalies in Indonesia: Sharia financial literacy using virtual reality context

Purpose The purpose of this paper is to investigate the process by which the level of immersion in virtual reality-based behavioral simulation (VR-BS) impacts on the non-cognitive and cognitive outcomes. The cognitive outcome is measured using the increase in the level of Sharia financial literacy, while the noncognitive outcome is measured using the behavioral intention to use VR-BS. Design/methodology/approach The method consists of two parts: First, the development of VR-BS, in the context of sharia financial literacy, using the waterfall model. Second, testing the effectiveness of VR-BS using the theory of interactive media effects framework. The participants were 142 students from three secondary schools (two Islamic religious schools and one public school) in Yogyakarta and Central Java, Indonesia. Partial least squares structural equation modeling was used for testing the hypotheses. Findings VR-BS creates a perceived coolness and vividness, which in turn has an impact on increasing the participants’ engagement. Also, the use of VR has an impact on natural mapping, which increases a user’s engagement through its perceived ease of use. As predicted, the user’s engagement affects VR’s behavior, mediated by the user’s attitude toward VR media. VR’s interactivity, however, does not impact on the cognitive aspect. Research limitations/implications The participants were not randomly selected, as the data were collected during the COVID-19 pandemic. As a result, the majority of the participants had never tried VR before this study. The participants, however, were digital natives. Practical implications It is implied from the findings that Islamic financial business actors and the relevant government agencies (e.g. the Indonesian Financial Services Authority [OJK], the Ministry of Education, Culture, Research and Technology and the Ministry of Religious Affairs) should collaborate to best prepare the future generation of ummah by using VR-BS in their joint promotion and education programs. The results of the current study reveal that the use of VR-BS may attract people to engage in Islamic financial activities. By engaging in such activities, or at least engaging in real-life simulations/classes/workshops, people may gradually acquire more knowledge about Islamic finance. Originality/value As predicted, the user’s engagement has an impact on behavior toward VR-BS, which is mediated by attitude toward VR-BS.

MANAGING FINANCING RISK OF ISLAMIC BANKING PRODUCTS IN INDONESIA: A VALUE AT RISK APPROACH

This study aims to assess the potential risk and anticipated returns of equity and debt-based financing products in Islamic banking in Indonesia, represented by the three most prevalent contracts: musharakah, mudharabah, and murabahah. Data was collected from banks' monthly financial reports published on the Indonesia Financial Service Authority (OJK) website from 2014 to 2020, resulting in 82 observations. Data analysis was conducted using the Value at Risk (VaR) method with the variance-covariance approach. Among many methods, VaR is one of the most popular techniques that yields the most comprehensive results in measuring risk and return. The findings reveal that, in general, all equity and debt-based financing yielded stable risk and returns. However, equity-based financing produced higher returns, but also generated higher risks due to its uncertain nature. The results also demonstrate that risk management in Islamic banks improved gradually during the observation period, as indicated by the average score of portfolio combinations. These findings suggest that Islamic banks should balance their product offerings between equity-based financing and debt-based financing while simultaneously strengthening risk management, especially for murabahah products in equity-based financing.

Financial Accelerator in National Private Banks During COVID-19 Pandemic

This research aims to investigate the effect of liquidity, credit risk, and bank size on the financial accelerator in National Private Banks registered with the Indonesian Financial Services Authority during the period of 2019-2022. The research design uses a causal approach. The population of this study is National Private Banks in Indonesia that are registered by Indonesian Financial Services Authority throughout the research period, 2019-2022, with the total population of 68 banks. This study uses purposive sampling method. There are 56 companies as samples of this study, resulting 224 financial statement data. The data is analyzed by using the Generalized Method of Moments (GMM).The research findings indicate that liquidity has a negative and significant impact on the financial accelerator effect in National Private Banks registered with the Indonesian Financial Services Authority during the period 2019-2022 (significance value 0.041 < α = 0.05).Credit risk also has a negative and significant impact on the financial accelerator effect in these banks during the same period (significance value 0.015 < α = 0.05). Bank size shows a negative but statistically insignificant influence on the financial accelerator effect in National Private Banks registered with the OJK during the period 2019-2022 (significance value 0.865 > α = 0.05).

The sustainability and performance of Bank Wakaf Mikro: waqf-based microfinance in Indonesia

PurposeThis study aims to empirically investigate the sustainability and performance of Bank Wakaf Mikro (hereafter called BWM), which is a waqf-based microfinance in the context of Indonesia.Design/methodology/approachThe authors use several model specifications. The specifications mainly take the BWM’s characteristics and governance into account. The authors use a standard-panel data approach with a fixed-effects model as the Hausman test result favors the fixed-effects model. The authors collected monthly data from the Indonesia Financial Services Authority for the period 2018–2020. The detailed data, 39 BWM enabling us to observe the financial, social and governance elements of BWMs.FindingsThe results reveal interesting findings. The authors find that BWM characteristics, governance and social capital are significant in shaping BWM’s sustainability, performance and risk. Furthermore, the authors find that BWM located in a province with higher lending density has lower performance than those located in a province with lower lending density. The results provide some evidence on how waqf-based microfinance could achieve both economic and social goals. It could provide perspectives for stakeholders in designing microfinance institutions.Originality/valueThis paper is the first to empirically study the waqf-based microfinance institutions in Indonesia by looking at the determinants of performance and sustainability of those institutions.

A Structural Equation Model of Governing Factors Influencing the Development of Sustainable Insurance Product in the Future

Designing and proposing sustainable insurance programs to insurance companies that run their businesses in Indonesia have been one of the insurers’ approaches to creating more stable and certain industry climate. Moreover, the Indonesian Financial Services Authority or OJK encourages financial services sector actors in creating, developing sustainable product innovations, and supporting financing of production activities that can create economic growth, social justice and environmental quality improvement. We conduct survey and analyze whether insurance companies in Indonesia are interested in implementing sustainable finance in insurance industry and developing sustainable insurance products. Participants’ responses depict insurance firms’ paradigm on sustainable insurance. In this study a framework is proposed for governing factors that impact the development of sustainable insurance product in the future such as the level of knowledge, readiness, and current sustainable insurance product development. To clarify the relationships, a structural equation model is utilized to examine the framework fit with the hypothesis for the four latent variables of this study. Acceptable goodness of fit is established for validity of the measurement model. The test of validity is accepted for the structural model in this study. The SEM results conclude that an insurer’s knowledge of sustainable finance principles affects the insurance firm’s readiness to implement sustainable insurance. Subsequently, the insurer’s readiness affects its current level of sustainable insurance product development. Eventually, the insurer’s knowledge and current development in sustainable insurance products have a positive effect on the insurance firm’s willingness to develop sustainable insurance products in the future. Thus, this study provides valuable information about factors affecting the development of sustainable insurance products in the future as a key for a successful implementation of sustainable finance in Indonesian insurance industry.

Disclosure Quality Assessment of Sustainability Reporting Practices in Emerging Countries

Indonesia has become a major force in advancing sustainable finance across emerging countries. One of the reasons was due to the role of the regulator and supervisor of Indonesia’s financial services industry, Indonesia Financial Services Authority, who required, through its regulation, Financial Services Institutions, Issuers and Public Companies to submit sustainable reports to Indonesia FSA and publish them for the public. This study is intended to conduct an assessment on the scope of disclosure presented on the sustainability report submitted by the Indonesian banking industry. The methodology used is qualitative with descriptive analysis. The evaluation was conducted through a desk study by analyzing banks’ sustainability reports available on their websites. The results of the analysis demonstrated that two years before the implementation of the Indonesia FSA sustainable finance regulation, only 28,5% of sustainability reports, which have submitted voluntarily by large commercial banks, are in line with materiality and stakeholders’ engagement principles. After the sustainable finance regulation was implemented, it was found that only 56,6% of the sustainability reports submitted met the materiality and stakeholders’ engagement principles required by the regulation. Therefore, the biggest challenge lies in the effort to promote awareness and understanding on the importance of sustainable finance and the quality of sustainability report disclosure.

Islamic Securities Crowdfunding Based on Indonesia's Islamic and Positive Law Perspective

This paper analyzes Islamic Securities Crowdfunding (SCF) based on Indonesia's Islamic and positive law perspectives. This paper is a descriptive qualitative by using a normative juridical approach that observes the governing or binding law in society with the convergence on Islamic law and regulations of the Indonesian Financial Services Authority (OJK). The findings reveal that the practice of Islamic SCF is allowed by referring to the Qur'an, Hadith, legal maxim, maqasid al-shariah, and syirkah musahamah contract in DSN-MUI Fatwa No.140/DSN-MUI/VIII/2021 issued on August 24, 2021. Furthermore, from the positive law's perspective, Islamic SCF is allowed to operate by referring to POJK No.57/POJK.04/2020, which accommodates to four principal regulations, namely, organizers, crowdfunding services, issuers, and financiers

Legal Reconstruction of Standard Agreements with Exoneration Clauses on Peer-To-Peer Financial Technology Based on Justice Values

This research aims to examine and analyze standard peer-to-peer lending contract agreements with exoneration clauses that are not based on the value of justice. To study and analyze the weaknesses that arise in implementing peer-to-peer lending Financial Technology agreements at this time. To study and analyze the reconstruction of standard agreements with exoneration clauses on peer-to-peer lending Financial Technology based on the value of justice. The method used in this research is sociological juridical. The paradigm in this research is constructivism. The theory used in this study is the Pancasila legal theory of justice as a grand theory, the working theory of law as a middle ranged theory, and the progressive theory as an applied theory. Based on the research conducted, it was found that standard peer-to-peer lending contract agreements with exoneration clauses that are not based on the value of justice are due to overlapping rules, the lack of reach of law enforcement in standard contracts made by Financial Technology institutions, and the influence of globalization which has resulted in the growth of financial institutions. technology is getting out of control. So it is necessary to amend the provisions of the Financial Services Authority Circular Letter Number 13/Seojk.07/2014 in which the financial services business actors are not only entitled to make procedures regarding standard agreements, but it is necessary to regulate the position of Financial Technology institutions in the Republic of Indonesia Financial Services Authority Regulation Indonesia Number 10/Pojk.05/2022 concerning Information Technology-Based Joint Funding Services is clear. It is necessary to regulate information on the process of public complaints against the OJK, especially in the case of Financial Technology institutions. It is also necessary to control sanctions related to Financial Technology that violates the law, especially in standard agreements with exoneration clauses.

Trend Comparison Of Bank Sustainable Financial Statements Based On Assessment Of Economic Aspects, Environmental Aspects, And Social Aspects

The acceleration of unbalanced economic development has an impact on environmental damage and social inequality. This article aims to find out how the trend of comparing sustainable financial statements in banks is based on assessments from economic aspects, environmental aspects, and social aspects. This sustainable financial report is the first time it has been applied to financial service institutions that have been determined based on the regulatory policies of the Indonesian Financial Services Authority. descriptive quantitative is used as a method that helps researchers in conducting research with trend analysis of sustainable financial statements comparison in banking from 2020-2021, at the bank that won the Annual Report Award in the Category of Listed Financial Banking. Research results based shows that economic, social, and environmental damage can be overcome with awareness by each bank in providing financing to consumers who care about these three aspects. This sustainable financial report is so that it can be used by the company as a policy improvement on the awareness of the financial services industry to apply from economic, environmental, and social aspects

Relationship between Islamic bank consumptive financing and gross regional domestic product in Indonesia, 2016-2020

IntroductionPrevious literature discussed financing's impact on performance without separating the financing model.ObjectivesThis study uses the consumptive financing data of Islamic commercial banks, inflation rate, and population as independent variables, and the GRDP of 33 provinces in Indonesia as the dependent variable. MethodThe study used Indonesia and Malaysia banks for its pioneering efforts in establishing Islamic banking in Southeast Asia. The study collects data from five Indonesian and four Malaysian Islamic banks, with an observation period of 2011–2020. The data analysis used in this study was the Generalized Method of Moment (GMM).ResultsThe results of this study explain that the consumptive financing of Islamic commercial banks has a negative insignificant effect on GRDP in Indonesia, the inflation rate has a negative insignificant effect on GRDP in Indonesia, and the population has a positive and significant impact on GRDP in Indonesia. Consumptive credit in conventional banks and consumptive financing in Islamic banks account for more than 45% of total financing. ImplicationsThe Indonesian Financial Services Authority should adopt policies to maintain the growth of Islamic Bank productive financing, that is, working capital and investment financing, because Islamic bank consumptive financing has a negative effect on GRDP in IndonesiaOriginality/NoveltyThis study has a unique feature compared with previous studies that use consumptive financing at Islamic banks with inflation and population variables to analyze the contribution of the local economy to gross regional domestic product.

Market share and efficiency: Causality test in Indonesian general insurance industry

This study aims to analyze the relationship between market share and technical efficiency in the Indonesian general insurance industry. The data for the period 2010-2020 is used, which was obtained from the Indonesian Financial Services Authority (OJK). The results show that efficient companies emerged from the category of industry possessing comparatively higher and lower market shares. Furthermore, the panel Granger-causality test indicates a one-way direction of causality, where only the market share has an impact on the technical efficiency score. The panel regression using the Feasible Generalized Least Square (FGLS) model shows that market share has a negative impact on technical efficiency scores. Other variables, such as the age of the industry, merger, and acquisition are listed in the stock exchange and do not have a significant effect on the efficiency score. Based on the aforementioned findings, it can be inferred that the quiet-life hypothesis is applicable within the Indonesian general insurance sector. Consequently, the government must foster competition among the businesses operating within the industry.

Post-Issue of Sustainability Report: Does Market Valuation Improve?

Following the increased concern on sustainability reporting in Indonesia, this study attempts to investigate whether the issuance of sustainability report is able to provide positive impact on bank reputation and market valuation. We use a set of unbalanced panel data that consist of 43 Indonesian listed banks throughout 2010-2018 while our analysis is performed with panel data regression using STATA statistics software. Overall, the findings demonstrate that environmental disclosure provides positive impact on market valuation while economic and social disclosure do not. We also find the mediating role of bank reputation between the link of environmental disclosure and market valuation. By splitting the observation period into pre and post sustainable finance roadmap implementation, we find that economic disclosure holds significant contribution to increasing market valuation in the period before sustainable finance roadmap implementation while social and environmental disclosure demonstrate positive effect in the period when sustainable finance roadmap is implemented. This study, however, still contains limitation due to the use of content analysis in assessing sustainability report quality that may contain subjectivity issue. Further studies can obtain external assurance from independent experts in this subject. The use of quantitative-qualitative mixed method may also be a solution to solve this issue. This study provides several implications. Firstly, this study supports the regulation from the Indonesia Financial Service Authority to increase the participation of Indonesian banks in sustainability reporting in which the implementation must be followed with high regulation enforcement. We also suggest the practice of sustainability reporting for Indonesian listed banks as it gives considerable benefit in higher market valuation. This research addresses the gap in Indonesian literature that is limited on determinant study by providing more insights on how sustainability reporting provides on higher bank reputation and market valuation.