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1 – 10 of 32The purpose of this paper is to analyze individual financing instruments and portfolios of instruments, and find the location of the most efficient portfolio financing. The…
Abstract
Purpose
The purpose of this paper is to analyze individual financing instruments and portfolios of instruments, and find the location of the most efficient portfolio financing. The Indonesian Islamic banking industry is very promising with four dominant financing instruments, namely, Mudarabah, Musharakah, Murabahah and Istishna. Each instrument has unique pattern of return, expected return and risk. Moreover, the variances of two, three and four financing instruments suggest the importance of identifying the most prospective financing instruments. Further, the most efficient portion of the most prospective financing is determined by constructing an efficient portfolio financing frontier.
Design/methodology/approach
Technically, it uses risk and return theory to compute risk, return and variance of an instrument and set of financing instruments. In addition, it uses an efficient portfolio frontier curve to locate all combination of the most progressive portfolio financing and finds the most efficient portfolio financing.
Findings
It finds some interesting finding with regard to the pattern of return, characteristics of a financing instrument and groups of financing instruments. The most essential finding of the paper is the location of the most efficient portfolio financing.
Research limitations/implications
The information and finding of this paper benefit the Indonesian Islamic banking industry to optimize the performance of an individual and groups of financing instruments. Particularly, for the most progressive financing instruments, it proposes the combinations of portfolio financing which give optimum output.
Originality/value
To the best of author’s knowledge, this is the first paper trying to analyze and construct an efficient portfolio financing frontier of the Indonesian Islamic banking industry.
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This paper attempts to construct Islamic gracious monetary instruments namely Qardh hassan, Waqf and Gift central bank certificates. The certificates do not only function as…
Abstract
Purpose
This paper attempts to construct Islamic gracious monetary instruments namely Qardh hassan, Waqf and Gift central bank certificates. The certificates do not only function as monetary instruments per se, but also give economic and social benefit for the public such as the needy. However, the central bank and its counterparts still need to manage the funds professionally to produce profit, maintain the values of the funds and prevent business losses. As such, this theoretical study aims to offer alternative Islamic monetary instruments for the central bank to manage liquidity and especially to improve the welfare of the people.
Design/methodology/approach
The paper exercises three Islamic gracious monetary instruments (Qardh hassan, Waqf and Gift central bank certificates) for both investment based (Mudarabah and Musharakah) financing and trading based (Ijarah and Murabahah) financing. Every instrument is elaborated mathematically to analyze its economic impact, treatment of profit and loss coming from the business and status of the funds. Finally, the paper compares every gracious certificate and explains the terms and conditions to use them optimally.
Findings
The exercises find unique characteristics, operations and contribution of every Islamic gracious monetary instrument to the economy. Based on economic impact, nature of the contracts and management of the funds, the central bank can now have alternative Islamic monetary instruments to be offered to the generous depositors to improve the welfare of the people particularly the needy.
Research limitations/implications
The paper only assesses the feasibility of three Islamic gracious monetary instruments. There might be more alternatives of Islamic gracious monetary instruments to be considered and elaborated.
Originality/value
To the best of author's knowledge, this is the first paper to try to exercise the alternative of the Islamic gracious monetary instruments.
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Datien Eriska Utami, Irwan Trinugroho and Bruno S. Sergi
We empirically investigate the determinants of sukuk issuance type in Indonesia to issue either ijarah sukuk or mudharabah sukuk. We include sukuk characteristics, sharia-related…
Abstract
We empirically investigate the determinants of sukuk issuance type in Indonesia to issue either ijarah sukuk or mudharabah sukuk. We include sukuk characteristics, sharia-related factors, and firm characteristics, provide empirical evidence on the determinants of sukuk issuance type by incorporating sukuk-specific factors, firm-specific factors, and sharia compliance variables, and address the role of Sharia Supervisory Board, as the sharia representative of firm compliance for sharia products, in the issuer’s choice of sukuk type. By studying 88 sukuk issuance in Indonesia from 2009 to 2017, we find that firm profitability and the sharia compliance level have a significant effect on the probability of issuing mudharabah sukuk. Some other factors’ characteristics including sukuk yield, firm age, and inflation rate are also found to have a significant effect.
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This paper aims to contribute to literature on managing Islamic micro financing by formulating and evaluating the implementation of internal control system for Islamic micro…
Abstract
Purpose
This paper aims to contribute to literature on managing Islamic micro financing by formulating and evaluating the implementation of internal control system for Islamic micro financing. It also aims to investigate the implementation of an internal control system for financing activities practiced by Baitul Maal wat Tamwil (BMT), a special micro finance organization, in Indonesia.
Design/methodology/approach
First, the paper introduces the concept of internal control system. Second, an internal control system for Islamic financing is formulated. Primary data that relate to the implementation of an internal control system for financing activities are obtained through a direct survey using questionnaires. The data are then analyzed using descriptive statistic and qualitative analysis to find the implementations of the internal control system.
Findings
BMTs in Indonesia have implemented an internal control system for their financing activities. The rank of the implementation is: information and communication; monitoring; control environment; risk assessment; and control activities. This study also indicates that the implementation of authorization and consultation to the Shariah Supervisory Board was low.
Research limitations/implications
The respondents of this study are small in number. However, the findings are valid and reliable.
Originality/value
To the author's knowledge, there is a lack of scholars' attention on the implementation of internal control especially for Islamic micro financing. Therefore, this study will provide insight to the literature on how to manage Islamic micro financing efficiently and effectively.
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This paper aims to illustrate theoretically and empirically the decision and result of strategic alliance between baitul maal wa tamwil (BMT) and Islamic banks as a relationship…
Abstract
Purpose
This paper aims to illustrate theoretically and empirically the decision and result of strategic alliance between baitul maal wa tamwil (BMT) and Islamic banks as a relationship based on trust, mutual-trustworthiness and commitment. This paper also identifies the basic criteria for the resilience of a strategic alliance, the challenges and the barriers in a strategic relationship along with managerial and operational implications.
Design/methodology/approach
In this study, we have chosen to use the confirmatory approach through a structured questionnaire by means of field survey to 131 BMT spread throughout Central Java and Yogyakarta. From the total sample, 89 BMT fulfilled the sampling criteria, that is: has operated for a minimum of two years and does not experience any financial difficulties during those two years; has done a financing contract with an Islamic bank; channels some of its funds to micro, small and medium enterprises; and is in the form of a cooperative, and not a micro financial institute. Data treatment uses the method of listwise deletion. Data analysis uses equation model with the software LISREL version 8.80. To validate the result of data analysis, we have also run a focus group discussion with Directorate of Syariah Banking, Bank of Indonesia, and in-depth interviews with BMT parent cluster (Inkopsyah).
Findings
This research shows that commitment contributes positively in achieving the financial goals of an alliance. Coordination and initial agreement has a positive and significant influence in forming commitment from BMT and trust from Islamic banks. Other than coordination and initial agreement, the trust given by Islamic banks also came from the social capital owned by BMT.
Originality/value
The trust and commitment will assist the building of strategic alliance between Islamic banks and BMT. Apart from financial purposes, the alliance between the two will also encourage natural knowledge-sharing.
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Apriani Dorkas Rambu Atahau and Tom Cronje
The purpose of this paper is to determine the impact of loan concentration on the returns of Indonesian banks and examines whether bank ownership types affect the relationship…
Abstract
Purpose
The purpose of this paper is to determine the impact of loan concentration on the returns of Indonesian banks and examines whether bank ownership types affect the relationship between concentration and returns.
Design/methodology/approach
This research uses heuristic measures of concentration: The Hirschman–Herfindahl index and Deviation from Aggregated Averages are applied to Indonesian banks across all sectors. The data covers the pre and post global financial crises periods from 2003-2011 for 109 commercial banks in Indonesia. Panel feasible generalised least squares analysis was applied.
Findings
The findings show that loan concentration increases bank returns. The positive effect of concentration on returns tends to be more significant for domestic-owned banks. In addition, the interaction effect shows that the positive effect of concentration on returns is less for foreign-owned banks.
Research limitations/implications
The Indonesian central bank changes to the reporting format of sectoral loan allocation by banks since 2012 in terms of the Indonesian Banking Statistics Details of Enhancement matrix requires separate data analysis for 2012 onwards. The findings of this paper could be enhanced by more detailed data like interest rate expenses and bank level sectoral non-performing loans data.
Practical implications
The findings suggest that a focus strategy provides better returns. Moreover, bank ownership types is an important factor to consider when setting a bank lending policy.
Originality/value
This paper is among the few studies where different measures of loan concentration in combination with measures of return are applied in Indonesia as an emerging Asian country. The research also provides evidence of the impact of concentration on the interest earnings of the loan portfolios of banks in addition to return on assets and return on equity that are generally applied as measures of return in previous research.
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Anwar Puteh, Muhammad Rasyidin and Nurul Mawaddah
Purpose – The purpose of the research is to analyze the efficiency of Islamic banks in Indonesia. The data used in this research are panel data observed from 2012 until 2016. The…
Abstract
Purpose – The purpose of the research is to analyze the efficiency of Islamic banks in Indonesia. The data used in this research are panel data observed from 2012 until 2016. The sampling of this research is conducted on five Sharia banks in Indonesia, that is, Bank Muamalat, Bank SyariahMandiri, BukopinSyariah, BRI Syariah, and Bank Mega Syariah.
Design/Methodology/Approach – The study uses a quantitative method to analyze the efficiency of Sharia banking with formulation of comparison of operating expenses to operating revenues (BOPO).
Finding – The result of this research concludes that Sharia banking in Indonesia has not been efficient during the last five years, that is, 2012–2016. This can be seen from the range of banking efficiency ratio. The average level of Islamic banking efficiency ranges between 89.73% and 94.16%. Bank Muamalat whose range is 94.16% shows the highest average efficiency ratio compared to other Sharia banks. Meanwhile, Bank Mega Syariah maintains the lowest average efficiency ratio that is 89.37%. The five Sharia banks have a high efficiency ratio of over 80%. This shows that Sharia banking in Indonesia is inefficient
Originality/Value – The bank should be able to balance between cost (cost) and revenue. Sharia banks must also be able to create good product innovation in order to increase the collection of funds from the community, such as for competitive outcomes, prizes, or other programs that raise public interest to use the services of Sharia banking.
Research Limitations/Implications – This inefficiency is due to the high bank operating costs compared to the bank’s operating income.
The paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry.
Abstract
Purpose
The paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry.
Design/methodology/approach
The paper uses Value at Risk (VaR) approach to compute the volatility (risk) of returns and expected losses of Islamic bank financing. In particular, it uses variance‐covariance method to calculate VaR of multi‐asset portfolios (groups of equity‐, debt‐ and service‐based financing).
Findings
First of all, equity and debt‐based financing produce sustainable returns of bank financing. Moreover, they are also very resilient during unfavorable economic conditions. Second, the performance of service‐based financing is very sensitive to the economic conditions. Lastly, VaR computation on the volatility of returns and expected losses of bank financing finds that risk of investment and expected losses are well managed.
Practical implications
The paper demands Islamic banks to keep intensifying equity‐based financing rather than only debt‐based financing and improve the banking services to support the performance of service‐based financing.
Originality/value
To the best of the author's knowledge, this is the first paper to assist the volatility of returns and expected losses of the Islamic banking financing in Indonesian.
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The purpose of this paper is to assess liquidity risk management (LRM) practices in Indonesian Islamic banking industry during the period 2000‐2007.
Abstract
Purpose
The purpose of this paper is to assess liquidity risk management (LRM) practices in Indonesian Islamic banking industry during the period 2000‐2007.
Design/methodology/approach
The paper constructs the LRM index (100 scale) which is composed of individual index of asset side; liability side; LRM policies; and the overall LRM index.
Findings
The index produces a “good” grade for the liquidity management practices in the Indonesian Islamic banking industry, represented by three Islamic banks which capture 82 percent of the total market share of the industry. However, the breakdown of the index of every Islamic bank suggests various achievements.
Research limitations/implications
It is found that the practices of LRM are not optimal yet based on some considerations explained in this paper. Further progressive actions have to be taken by the regulators and all industry's players to improve the LRM practices.
Originality/value
To the best of the author's knowledge, this is the first paper trying to assess how good the LRM in Indonesian Islamic banking is.
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