Islamic Banks Research Articles

Indonesian Islamic Banks’ Post-Pandemic Profitability Alignment with Sustainability Goals

Purpose — The Islamic banking sector in Indonesia has recovered from the COVID-19 pandemic. Despite the sector’s resilience to the crisis, Islamic banks have lower levels of profitability than their conventional counterparts. They therefore need to optimise profitability as well as implement sustainability practices due to their high reliance on income from intermediary functions and their core principle of protecting life and preventing harm. This study aims to optimise the post-pandemic profitability of Indonesian Islamic banks while seeking to align profitability with sustainable development goals (SDGs). Design/Methodology/Approach — The model is developed based on the combination of linear programming and financial analysis, with constraints considering banking regulations and practices. The model highlights financing product types, financing fields of business, and types of deposit products that contribute to higher profits and support sustainability practices. Findings — The recommended financing product types, financing fields of business, and deposit product types lead to profitability growth of up to 85 per cent, even better than the pre-pandemic performance of Islamic banking and the overall Indonesian banking industry. This research also finds that Islamic banks’ strategy for profit optimisation is consistent with the increasing support for SDGs. Originality/Value — There is a lack of literature discussing the alignment of Islamic banks’ profit optimisation with the SDGs. This study contributes to the literature by aligning the Islamic banks’ profitability strategy with sustainable financing. Research Limitations/Implications — The study is expected to promote the implementation of sustainability practices as well as increase the profitability of Islamic banks, drawing from evidence in Indonesia.

The Influence of Murabahah, Musyarakah, Mudharabah and Qardh on the Profitability of Islamic Commercial Banks

This research aims to determine how the effect of Murabahah, Musyarakah, Mudharabah and Qardh financing on profitability at Islamic Commercial Banks for the period 2017-2021. The research method used in this research is quantitative research method. The data collection method was carried out through documentation using secondary data taken from the financial statements of each Islamic commercial bank in 2017-2021. The sampling method used purposive sampling technique with the analysis technique used was multiple linear regression using the SPSS version 26 application. The results showed that none of the Murabahah variables had an effect on profitability. Musyarakah variable has a negative and significant effect on profitability. Meanwhile, Mudharabah and Qardh variables have a positive and significant effect on profitability. The managerial implication is that Murabahah as the type of financing most often used by Islamic banks provides a relatively stable fixed income because it uses the principle of a fixed margin agreed upon in advance. Musharakah involves joint capital participation between the bank and the customer, where the bank gets a share of the profits or bears the losses according to the agreement. The bank acts as the capital owner (shahibul maal) who hands over funds to the business manager (mudharib) and gets a share of the profits.

Islamic Banks’ Profit and Violations in Murābaḥah Financing

Purpose — This paper investigates the relationship between murābaḥah contracts and the profitability of Islamic banks, explicitly examining how potential Sharīʿah non-compliance issues related to murābaḥah contracts might impact the banks’ profitability. Design/Methodology/Approach — Employing the Generalised Method of Moments (GMM) estimation for fixed effects dynamic panels, this study analyses quarterly data from 2013Q4 to 2023Q1 of the four largest Islamic banks in Saudi Arabia. Findings — The results reveal a positive correlation between the increase in the value of murābaḥah contracts and Islamic earnings. While domestic macroeconomic conditions influence this relationship, international conditions have minimal impact. This investigation meticulously identifies instances of Sharīʿah violations within Islamic banks as they pursue a ‘search for yield’. Originality/Value — Prior studies have fallen short in establishing a definitive association between the profits of Islamic banks and the value of murābaḥah contracts. This research bridges this gap and introduces a novel dimension to the existing literature by illuminating the potential compromises in Sharīʿah compliance when employing murābaḥah contracts. The dual focus on both financial implications and ethical considerations makes this study unique, representing a significant contribution to the ongoing discourse in Islamic finance literature. Research Limitations/Implications — The availability of data on murābaḥah contracts may pose constraints to this study. Practical Implications — The analysis sheds light on various scenarios where Islamic banks may compromise their adherence to Sharīʿah principles in pursuit of higher profits, offering valuable solutions to address and rectify such violations.

Editorial: Embracing New Horizons

In September 2024, ‘ISRA International Journal of Islamic Finance’ (IJIF) has been rebranded, and its publication is being continued under a new title, ‘International Journal of Islamic Finance and Sustainable Development’ (IJIFSD), following an institutional collaboration between the Islamic Development Bank Institute (IsDBI) and INCEIF University. The collaboration in the publication of IJIFSD marks the interest of both institutions in driving innovative research to create more meaningful real-world impact and support sustainable economic development in societies. The collaboration brings the combined resources and expertise of the two institutions in providing a premier platform for showcasing cutting-edge research by synthesising the principles of Islamic finance and sustainable development practices. While IJIFSD will continue to be published by ISRA Research Management Centre, INCEIF University, it will now have the added leverage of IsDBI to support its sponsorship and ensure its open and free accessibility to readers. The new title incorporates the terms ‘sustainable development’ as a strategic move to align the journal with the evolving landscape of Islamic finance that promotes global sustainability goals and, thus, results in a journal that is broader in scope and coverage. Therefore, besides focusing on the areas of Islamic economics, banking and finance and its related fields—Islamic capital markets, Islamic social finance, takāful (Islamic insurance), Islamic financial law, and Sharīʿah applications in Islamic finance—attention will also be given to the discourse on sustainability and sustainable economic development. With the expanded scope, it is expected that the journal will garner increased appeal to a wider range of authors and readers. It will also be able to reach a wider range of markets that have not yet been served, as well as have greater impact through enhanced citations. The key features of the rebranded journal therefore include: Focus: emerging trends such as green finance, impact investing, financial inclusion. Platform: fostering a community of forward-thinking scholars, researchers, policymakers, and practitioners to share insights on issues of concern. Goal: providing practical solutions for sustainable economic development and showcasing Islamic finance’s role in creating shared prosperity.

The Impact of Corporate Governance on Bank Risk-taking: Evidence of Islamic Banks in Gulf Cooperation Council (GCC) Countries

Purpose — This study investigates the impact of Islamic corporate governance variables on risk-taking within a sample of 31 Islamic banks (IBs) operating in six countries in the Arab Gulf region during the period 2013–2022. Design/Methodology/Approach — The study utilises content analysis and employs two econometric models: the random-effect generalised least squares (GLS) technique and the generalised method of moments (GMM) approach. Findings — The findings reveal that two characteristics of Sharīʿah supervisory boards (SSBs), namely cross membership and knowledge in accounting and finance, have a negative impact on bank risk. However, it is observed that SSB size demonstrates a positive correlation with bank risk-taking, indicating that SSBs face challenges in effectively performing their supervisory role. Furthermore, it is noted that during the pandemic period, banks demonstrated significantly higher levels of credit risk and global risk. Originality/Value — This research provides a valuable addition to the existing literature by conducting the inaugural analysis of the relationship between SSBs and bank risk-taking in the Arab Gulf region, adding to the understanding of Islamic corporate governance dynamics. Research Implications — The study suggests reinforcing the structure of SSBs in IBs in the Gulf Cooperation Council (GCC) countries by appointing members with educational backgrounds in business, accounting, and finance. Furthermore, it supports the idea that the presence of shared scholars in IBs facilitates rational decision-making by SSBs and contributes to reduced risk-taking. Haut du formulaire

Blended Islamic Social Finance-Microtakāful Model

Purpose — This research intends to explore and develop a blended Islamic social finance-microtakāful business model by integrating Islamic social finance (ISF) instruments into the microtakāful framework to enhance its effectiveness and reach. The main objective of integrating these elements is to recommend a sustainable and inclusive financial solution that is in line with the principles of Islamic finance and will address the needs of unserved and underserved segments of the population. Design/Methodology/Approach — This study employed desk research to develop a blended ISF-microtakāful model. It involved reviewing literature to assess existing models and best practices, benchmarking their effectiveness, and analysing successful implementation approaches. Insights were used to create a framework integrating Islamic finance tools with microtakāful, followed by recommendations for a sustainable and inclusive financial solution. Findings — The study portrays a conceptualised blended ISF-microtakāful business model which incorporates ISF instruments into the microtakāful model with an illustration of the business case in the context of the pandemic. Originality/Value — Though microtakāful has been accepted as a mode for providing takāful services to low-income individuals, limited research is available on how it can be blended with traditional ISF instruments such as zakat (obligatory alms), ṣadaqah (voluntary charity), and waqf (Islamic endowment). This makes the model proposed in the research novel. The originality of this research lies in its pioneering exploration of the synergies between ISF and microtakāful, opening up new avenues for research and practical implementation in the field of microtakāful.

Nexus between corporate governance and FinTech disclosure: a comparative study between conventional and Islamic banks

Purpose This study investigates the impact of corporate governance on FinTech disclosure levels in Jordanian conventional and Islamic banks. It aims to determine whether governance mechanisms affect disclosure practices in the FinTech sector, exploring the interplay between governance and transparency in financial innovations. Design/methodology/approach The research methodology entails a thorough analysis of data from all 15 Jordanian conventional and Islamic banks listed on the Amman Stock Exchange, covering the period from 2015 to 2022. This study uses manual content analysis using a custom FinTech Disclosure Index (FDI) and quantitative analysis with a two-way clustered error regression model. Findings The findings show that corporate governance mechanisms, particularly board size, board meetings and “Big4” audit firms, are crucial in enhancing FinTech disclosure across conventional and Islamic banks. However, Islamic banks consistently show higher disclosure levels than their conventional counterparts, attributed to their distinct governance structures that emphasize ethical governance and transparency. These results indicate an awareness among decision-makers about the importance of business model transformation toward FinTech. Originality/value This study pioneers the introduction of FDI, using it for a novel comparative analysis of FinTech disclosure levels between Islamic and conventional banks. By exploring how various governance structures influence FinTech disclosure, this research provides fresh insights into the interplay between corporate governance and financial technologies in the banking sector.

PENGARUH INFLASI DAN TINGKAT SUKU BUNGA TERHADAP PEMBIAYAAN PADA BANK SYARIAH DI KOTA BANJARMASIN

Purpose: This study aims to determine the effect of inflation and interest rates on financing at Islamic banks in Banjarmasin city. Design/methodology/approach: This research uses quantitative methods. The data used is secondary data and time series. Data sourced from the pages of Bank Indonesia, the Financial Services Authority (OJK), the Central Statistics Agency (BPS) and data from Islamic Commercial Banks which are the objects of this study in the period 2014 to 2023. Findings: Based on the results of statistical data processing, the results of this study indicate that the value of Sig. Inflation variable (X1), amounting to 0.993> 0.05 and the tcount value of 0.009 < 2.571. Sig value. Interest Rate Variable (X2) is 0.066> 0.05 and the tcount value is -2.571 < 2.571. The results of this study indicate that simultaneously the inflation and interest rate variables affect financing at Islamic banks in Banjarmasin City. This can be proven by the value of Fcount 2.825 > Ftable 4.45. Research implications: Based on the research results, it is known that although inflation and interest rates have no effect on financing in Islamic banks, the government must remain effective in controlling macroeconomic activities to maintain the stability of inflation and interest rates, so that economic stability can be guaranteed.

You want my loyalty? Treat me fairly! A study of Islamic banking customers in South Africa

Purpose The purpose of this study is to investigate possible drivers of loyalty amongst Islamic banking customers in Gauteng, South Africa. We ponder the relationships of service fairness (a secondorder reflective construct) with perceived value, satisfaction, and loyalty. Design/methodology/approach Data were obtained from Islamic banking customers in South Africa using interview-administered questionnaires. A total of 350 responses were perceived as being suitable for data analysis. The measurement and structural models were measured through structural equation modelling. Findings Service fairness and perceived value were found to be important drivers of loyalty within this context. Research limitations/implications This study demonstrates that service fairness and perceived value are precursors to the future loyalty intentions of Islamic banking customers. As such, they should be nurtured as key elements of the relationship building process. Practical implications The study guides South African Islamic banks and South African banks with Islamic windows to better understand how service fairness (interactional, procedural and distributive) fosters satisfaction, perceived value and loyalty (attitudinal and behavioural). Originality/value Enhancing comprehension of the relationship between service fairness and customer loyalty, with satisfaction and perceived value playing intermediary roles, represents an unexplored avenue in academic research within the context of Islamic banking in an emerging African market.

Islamic Banks Stability in Indonesia: Assesing the Role of Islamicity Performance Amidst the Pandemic Challenges

Research Originality: Islamicity performance reflects adherence to Sharia principles, which are fundamental to Islamic banking operations. Research that emphasizes the contribution of Islamicity performance to the stability of Islamic bank requires additional studies.Research Objectives: This research examines the influence of banks’ internal factors, Islamicity performance, and macroeconomic factors on the Islamic bank stability amidst the pandemic challenges using financial intermediation theory.Research Methods:A random effects test was performed on a balanced panel data covering the period of 2017.1-2023.3 on 10 Islamic banks continuously publishing quarterly financial reports.Empirical Results: Credit risk and eficiency affect stability. Higher expenses enhance stability during pandemic. Reserves for uncollectible debt reduce stability. Islamicity performance in profit-sharing financing may reduce stability. Economic growth and inflation negatively affect stability pre-pandemic. Interest rate and dummy variables have positive effects.Implications: These findings imply the significance of preemptive risk management, cost-effective operations, prudent reserves allocation, and regulatory compliance to enhance stability in Islamic bank across varying economic circumstances.JEL Classification: E4, G21, B22How to Cite:Amaroh, S., Masykuroh, E., Husnurrosyidah., & Ali, M., (2024). Islamic Banks Stability in Indonesia: Assesing the Role of Islamicity Performance Amidst the Pandemic Challenges. Etikonomi, 23(2), 317 – 332. https://doi.org/10.15408/etk.v23i2.37269.

Adaptation of Islamic Finance to the Performance of MSMEs in the Halal Food Industry

Research Originality: The findings of this research will contribute to the Islamic finance literature by answering the research gap between the relationship between MSME adaptation of Islamic finance implementation and MSME performance and providing practitionerinsight for policymakers and MSMEs in the halal food industry.Research Objectives: This study aims to determine the adaptation of Islamic finance to the performance of MSMEs in the halal food industry. Research Methods: The method used a quantitative and explanatory approach. The number of samples in this study was 212 MSME units taken by simple random sampling (SRS). The number of samples in this study is based on the needs of the analytical tools used. The analysis technique used is the structural equation model (SEM) approach with the help of the LISREL program.Empirical Results: The main findings show that halal industry MSMEs that adapt to Sharia finance tend to have a higher level of innovation than those that do not. Data shows that financing by Sharia principles enables MSMEs to allocate their resources more effectively, strengthening their ability to innovate in products and services. Innovations carried out by halal industry MSMEs that adopt a Sharia financial approach are more consistent with Sharia values, which leads to increased acceptance by Muslim consumers.Implications: MSME halal industry managers may consider adopting Islamic finance strategies as part of their business plans. This adoption includes using Sharia financing, investing according to Sharia principles, and managing their finances according to Sharia values. Managers also need to actively develop networks and collaborate with other stakeholders, including Sharia financial institutions, educational institutions, and other companies in the halal industry ecosystem.JEL Classification: D14, G21, L25How to Cite:Gunarto, M., & Yanti, P. (2024). Adaptation of Islamic Finance to the Performance of MSMEs in the Halal Food Industry. Etikonomi, 23(2), 369 – xx. https://doi.org/10.15408/etk.v23i2.34271.

Incidence of Cervical Intraepithelial Neoplasia in the Outpatient Department: A Study at Islami Bank Medical College Hospital, Rajshahi

Incidence of Cervical Intraepithelial Neoplasia in the Outpatient Department: A Study at Islami Bank Medical College Hospital, Rajshahi

Does the Merger of the Indonesian Islamic Bank Matter for Its Social Mission of Economic Empowerment?

Research Originality: Economic empowerment through financing Micro Small Medium Enterprises (MSMEs) is one dimension of the social mission of sharia banking in Indonesia. The merger action of Bank of Sharia Indonesia (BSI) raises the question of whetherthe performance of economic empowerment has changed.Research Objectives: This research aims to analyse the differences in the BSI’s performance of economic empowerment during preand post-merger periods and analyse the issues and strategies for improving BSI's post-merger economic empowerment performance.Research Methods: It is a research using mixed method combining a quantitative explorative analysis approach using Wilcoxon Test, and a qualitative one using Analytic Network Process.Empirical Results: This research finds that BSI's economic empowerment performance has increased in terms of the quantity but decreased in terms of proportion in the post-merger period. ANP research demonstrates that risk management is a priority issue for the BSI post-merger period. The social mission of economic empowerment indicates several priority issues, namely, the relatively higher rate of profit margin than interest, the inadequate supervision model, the low rate of risk management literacy, and the relatively higher risk of profit loss sharing (PLS)-based financing. The strategy analysis indicates that policy intervention for BSI’s MSMEs financing is a top priority in improving the performance of its economic empowerment.Implications: This research recommends some recommendations for sharia banks’ MSMEs financing equivalent to the one of conventional banks. Economic digitalization as technological means to widen accessibility of economic empowerment and distribution segmentation focusing more on the halal sector.JEL Classification: A13, G21, G34How to Cite:Isman, A. F., & Hidayah, N. (2024). Does the Merger of the Indonesian Islamic Bank Matter for Its Social Mission of Economic Empowerment? Etikonomi, 23(2), 333 – 352. https://doi.org/10.15408/etk.v23i2.39810.

Legal analysis of derivative transactions in islamic economics

The legal position regarding derivative transactions in Islamic economic practices has attracted significant attention from Islamic financial institutions such as AAOIFI and DSN-MUI. Derivative instruments can be incorporated into the sharia framework as long as they fulfil the core principles of sharia such as being free from elements of riba (interest), gharar (uncertainty), and maysir (gambling). These bodies have issued guidelines and fatwas such as the DSN-MUI fatwa No. 96/DSN-MUI/IV/2015, which permits the use of derivatives for hedging purposes under a number of strict requirements that ensure transparency and fairness and emphasizes that transactions are based on real needs and not speculation. However, implementing these legal guidelines on the ground faces various challenges. Key challenges include correctly applying derivative instruments so that they do not turn into prohibited tools of malicious speculation. Strict supervision and audit systems are needed to ensure compliance with Shariah principles on an ongoing basis, as well as ensuring transparency in the execution of transactions. In addition, in-depth training and education for Islamic finance practitioners is essential to support proper and effective implementation. Thus, the legal position regarding derivative transactions in the Islamic economy is clear and feasible to implement with strict supervision and supported by continuing education.

Pengaruh Human Resource Management dan Leadership terhadap Kinerja Bisnis Bank Syariah (Unit Usaha Syariah)

The research aims to find out how the dependent variables human resources management and leadership relate to the performance of sharia banks (sharia business units). The research method uses a census by sending 20 questionnaires to Islamic banks (Sharia business units) which were carried out in the period July to September 2021. The results of data collection were processed using SPSS version 22 statistics. The research results showed that the dependent variables were human resources management and leadership partially and jointly influences the dependent variable of sharia bank business performance (sharia business unit) which is 82.7%. The implication of the research is that the concept of sharia finance is not only to maximize welfare and consumption through achieving sharia bank business performance but also to maintain a balance between material and spiritual satisfaction (maqashid sharia).

PENGARUH STRUKTUR MODAL, KINERJA KEUANGAN, PERTUMBUHAN DAN UKURAN BANK TERHADAP NILAI BANK YANG TERDAFTAR DI BURSA EFEK INDONESIA (BEI)

This study aims to provide empirical evidence of the influence of capital structure, financial performance, growth, and bank size on the value of Islamic banks listed on the Indonesia Stock Exchange (IDX) using the observation period from 2014 - 2019. Data collection methods using a purposive sampling method using quarterly financial statement data so that the number of observations amounted to 29 observations. The test results show that the ratio of capital structure (DER) and financial performance (ROA) as a proxy for financial performance affect the value of Islamic banks while the growth and size of the company does not affect the value of Islamic banks.

Economical rights versus God’s rights: criticising of the implementation Shariah economic in Indonesia

PurposeThis study aims to evaluate the impact of Law No. 11 of 2018 on Islamic Financial Institutions in Aceh, Indonesia. It also aims to understand the balance between the economic rights of individuals under Shariah law and the broader concept of God’s rights, as interpreted by this legislation. In addition, the research argues that the implementation of Law No. 11 of 2018 is untimely, with a focus on examining its influence on the cumulative abnormal return (CAR) of Shariah banks and its slight contribution to the direct economic impact.Design/methodology/approachThis study adopts a mixed-methods approach that integrates qualitative and quantitative analyses. The qualitative aspect uses a black-letter law approach for legislative scrutiny, whereas the quantitative aspect assesses economic indicators and firm performance using an event study analysis. The study also includes a two-tailed assessment to test hypotheses related to the law’s direct impact on institutional performance.FindingsThe study reveals that Law No. 11 of 2018 had minimal impact on national-scale corporate performance and a notable increase in poverty indices in Aceh, indicating a potential misalignment between the law’s intention and its economic consequences. The results also show the law’s ineffectiveness in significantly influencing the CAR of Islamic banks, highlighting a clash of norms and a lack of substantial economic substance in the implementation of Shariah compliance.Research limitations/implicationsThis research is geographically and legally focused on Aceh, Indonesia, with a short-term analysis that may not fully capture the long-term impacts. It primarily considers the stock price performance of specific institutions for quantitative analysis and identifies potential clashes and disharmony-in-law implementation from a qualitative perspective.Practical implicationsThe findings suggest the need for legal frameworks that better comply Shariah principles with economic realities. Regional governments should consider modifying policies to balance religious values and economic objectives.Social implicationsThis research highlights the importance of balancing religious obligations with economic rights, indicating that strict interpretations of religious law can lead to adverse socioeconomic effects.Originality/valueThis study is unique in its comprehensive analysis of the convergence between religious law and economic rights, offering insights into the challenges faced in implementing Shariah-based economic policies in diverse economies, such as Indonesia.

From revelation to modern Islamic finance: Islamic commercial law in the UAE as a case study

From revelation to modern Islamic finance: Islamic commercial law in the UAE as a case study

Does diversity in top management and boards affect ESG performance? Evidence from Islamic and conventional banks in the MENA region

Purpose This study aims to investigate the impact of gender diversity in top management teams and boards on environmental, social and governance (ESG) performance. The authors propose a corporate social responsibility (CSR) committee as a moderating variable in this relationship, drawing on resource dependence and legitimacy theories. This study is crucial in understanding the dynamics of gender diversity and its impact on ESG performance in the banking sector. Design/methodology/approach The study examines a sample of Islamic and conventional banks from 10 Middle Eastern and North African countries during 2008–2022. Initial analysis was conducted using fixed effects panel regression, whereas the robustness test used the generalized method of movement dynamic system. Findings The findings, which are significant for both conventional and Islamic banks, indicate that female directors are crucial in promoting ESG performance in conventional banks. In contrast, female executives do not appear to contribute significantly. However, for Islamic banks, neither board nor executive gender diversity significantly affects ESG performance. Moreover, the find that the positive moderating role of the CSR committee is significant only for the nexus between board gender diversity and conventional banks’ ESG performance and for the connection between executive gender diversity and Islamic banks’ ESG performance. Originality/value Despite the widespread belief that gender diversity in top management teams is pivotal in promoting ESG performance, empirical studies supporting these claims are scarce, particularly in the banking sector. The study, therefore, brings a novel perspective to this discourse. These findings have the potential to significantly assist stakeholders in evaluating how gender diversity in top management teams influences banks’ sustainability practices, thereby empowering them to make more informed and impactful investment decisions.

Influence of key ESG factors on Islamic banks’ financial performance: Evidence from GCC countries

With the global emphasis on sustainability, this research highlights the crucial role Islamic banks can play in sustainable development. The study evaluates how Environmental, Social, and Governance (ESG) practices impact the performance of Islamic banks in GCC countries from 2010 to 2021 using the generalized method of moments (GMM) approach to address potential endogeneity in panel data. Our findings show that while the overall ESG score does not significantly impact bank performance, individual ESG components do. The social component positively affects several performance indicators, governance impacts Return on Equity (ROE), and the environmental factor correlates positively with Tobin's Q. Despite the growing focus on ESG principles, their integration in Islamic banking is limited. By improving ESG performance and offering niche market services, Islamic banks can significantly contribute to sustainability. The study advises bank executives, investors, and policymakers to integrate ESG considerations into business and regulatory strategies to enhance the sector's role in achieving sustainability goals.