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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.

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.

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.

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.

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.

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.

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.

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.

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.

To the best of author's knowledge, this is the first paper to try to exercise the alternative of the Islamic gracious monetary instruments.

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.

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.

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.

The respondents of this study are small in number. However, the findings are valid and reliable.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

The purpose of this paper is to assess liquidity risk management (LRM) practices in Indonesian Islamic banking industry during the period 2000‐2007.

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.

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.

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.

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.

The purpose of this paper is to formulate both withdrawal risk and bankruptcy risk to mitigate the risks and to find the equilibrium area of revenue sharing to depositors. Taking the case of the Indonesian Islamic banking industry, this work might benefit the Islamic banks, banking regulators and all stakeholders to manage the risks and maintain the robust development of the industry.

First, the application of revenue sharing ratio in Islamic banks is studied. Withdrawal risk might happen because of the displaced commercial risk and bankruptcy occurs when the banks fail to manage such withdrawal risk. Referring to that, by using a mathematical approach, the formulas of withdrawal risk and bankruptcy risk are created with some underlying scenarios. Finally, mathematical formula and three dimensions area of the equilibrium revenue sharing ratio are developed.

The paper generates the financial mathematical formulas to assess the vulnerable and invulnerable conditions of the withdrawal risk and the bankruptcy and solvency conditions of the bankruptcy risk to be used by decision makers to mitigate the risks. The ultimate output of the paper is the equilibrium area of the revenue sharing ratio, which locates Islamic banks in a proper condition of no withdrawal risk and bankruptcy risk.

To the best of the author's knowledge, this is the first paper trying to analyze the issues under the Indonesian case.

There is a growing body of literature that recognizes the importance of Islamic financial literacy (IFL) while it is at the heart of our understanding of the overall financial system. To date, insufficient attention has been paid to Turkey, the Balkans and other potential Islamic finance hubs like Suriname. In fact, there have been no attempts to examine IFL in those regions or economies. The purpose of this paper is to test and validate the IFL scale developed by Dinc et al. (2021) in an international setting. By doing so, this study elaborates on possible antecedents and levels of IFL across countries and economic systems.

The design of the questionnaire used is based on the principles of Islamic finance and covers all the segments. The total number of collected observations is 3,579. This study uses the confirmatory factor analysis (CFA) to ascertain the factor structure and test the revised scale fit with the original form. Besides, IBM AMOS 25 Graphics is used for calculating the fit indexes for the scale.

The results from the CFA revealed that the scale has a good fit for its original and kept the four-dimensional structure. In addition, it also indicates that the predeveloped IFL scale is valid for different cultures, countries and individuals either having conventional or Islamic financial institutions preferences. Furthermore, results of empirical tests demonstrate that Turkey is significantly higher in Islamic financial awareness, whereas other countries' group is higher on all other subdimensions of the scale. On the other hand, female respondents indicate significantly higher levels of Islamic financial awareness, and male respondents show significantly higher levels of Islamic financial knowledge. Finally, the most prominent finding to emerge from the analysis is that the principles of Islamic finance are well accepted, except for some liberal views on the concept of “interest” (riba).

Because of the diverse demography of the collected sample observations, this revised scale has a homogeneous set of implications. This IFL scale can accurately measure the level of IFL attained by an individual, group, society or nation, as well as suggest necessary actions based on its four-dimensional structure.

This study tests the IFL scale by considering two key elements: increased sample size and vast geographical coverage. To ensure that the developed scale is universal, this study took into account more than 3,000 observations from 28 different countries. These amendments ensure the uniqueness of this paper and its originality.

This study aims to examine the factors that influence profit–loss sharing (PLS) financing in Indonesian Islamic banks from the perspective of Islamic banks’ employees. Islamic banks have important role in influencing the amount of PLS financing distribution through their screening process.

This study uses questionnaires in collecting data that are distributed to the employees who process or handle PLS financing in Islamic banks in Yogyakarta, Indonesia. The independent variables are risk, financing screening process, analysis of financial statement and competency of the employees of Islamic banks. The data are processed using multiple regression.

This study finds that risk, the quality of financing screening process and the analysis of financial statement have positive influence on the PLS financing, whereas competency of employees of Islamic banks does not influence PLS financing.

The results of this study are expected to give contribution to increase the role of Islamic banks in encouraging PLS financing. The adequate screening, controlling and monitoring system in Islamic banks should be strengthened to encourage the quality of financing distributed.

Primary data are used in this study to know the perspective of Islamic bank employees in the financing division on the PLS financing. This study attempts to identify the perspective of employees who have direct relationship with the decision of financing in Islamic banks.