Article Sidebar

Download
Full text PDF
Statistic
Read Counter : 216 Download : 95

Downloads

Download data is not yet available.

Main Article Content

Abstract

Purpose – This study aims to compare the depth of outreach, financial performance, and trade-off between the depth of outreach and financial performance (mission drift) between equity financing and debt-based financing in Indonesian Islamic Rural Banks.
Methodology – We compare the depth of outreach and financial performance using descriptive statistics and explore mission drift comparisons using OLS time series.
Findings – The depth of the outreach comparison shows that debt-based financing performs better. However, equity financing outperforms financial performance. The regression results show mission drift in Musharaka and Multiservice financing, indicating that both sides have mission drift. However, there is no mission drift in Murabaha financing, which constitutes the majority of financing in Indonesian Islamic Rural Banks. Murabaha financing synchronously demonstrates excellent depth of outreach and financial performance.
Implications – Islamic Rural Banks in Indonesia need product innovation in equity financing to obtain a better depth of outreach and avoid mission drift. The simplicity of the practice in Murabaha can be a reference for product innovation in Islamic Rural Banks, while the government can support Indonesian Islamic Rural Banks' product innovation by providing appropriate regulations.
Originality – This study seeks to fill the comparison gap between mission drifts in Indonesian Islamic rural bank financing. There is a limitation in studies of Islamic rural bank financing mission drifts in Indonesia since the comparison of mission drift deals only with Islamic microfinance at a global level.

Keywords

Mission drift depth of outreach financial performance Murabaha

Article Details

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite
Afriadi, F., Pranoto, P., Kurniawaty, E., & Zamzami, R. M. (2024). Islamic rural bank mission drift: Equity financing vs debt-based financing. Jurnal Ekonomi & Keuangan Islam, 10(1), 41–56. https://doi.org/10.20885/JEKI.vol10.iss1.art4
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX
Crossref
Scopus
Google Scholar
Europe PMC

References

  1. Ahmad, S., Lensink, R., & Mueller, A. (2020). The double bottom line of microfinance: A global comparison between conventional and Islamic microfinance. World Development, 136, 105130. https://doi.org/10.1016/j.worlddev.2020.105130
  2. Antonio, M. S. (2011). Bank Syariah: Dari teori ke praktik. Gema Insani.
  3. Beisland, L. A., & Mersland, R. (2017). Exploring microfinance clients with disabilities: A case study of an Ecuadorian microbank. Journal of Development Studies, 53(11), 1929–1943. https://doi.org/10.1080/00220388.2016.1265946
  4. Berguiga, I., Said, Y. Ben, & Adair, P. (2020). The social and financial performance of microfinance institutions in the Middle East and North Africa region: Do Islamic institutions outperform conventional institutions?. Journal of International Development, 32(7), 1075-1100. https://doi.org/10.1002/jid.3488
  5. Charitonenko, S., & Afwan, I. (2003). Commercialisation of microfinance, Indonesia. Asian Development Bank. https://www.adb.org/sites/default/files/publication/27539/micro-ino.pdf
  6. Chong, B. S., & Liu, M.-H. (2009). Islamic banking: Inter est-free or interest-based?. Pacific-Basin Finance Journal, 17(1), 125–144. https://doi.org/https://doi.org/10.1016/j.pacfin.2007.12.003
  7. Christen, R. P. (2001). Commercialization and mission drift: The transformation of microfinance in Latin America. CGAP Occasional Paper, 5, 24. http://www.ncbi.nlm.nih.gov/entrez/query.fcgi?db=pubmed&cmd=Retrieve&dopt=AbstractPlus&list_uids=7025802861943087702related:VmIKiHqqgGEJ
  8. Cull, R., Demirgüç-Kunt, A., & Morduch, J. (2007). Financial performance and outreach : A global analysis of leading microbanks. The Economic Journal, 117(517), F107-F133. https://academic.oup.com/ej/article-abstract/117/517/F107/5089387
  9. Cull, R., Demirgüç-Kunt, A., & Morduch, J. (2009). Microfinance meets the market. Journal of Economic Perspectives, 23(1), 167–192. https://doi.org/10.1257/jep.23.1.167
  10. Fan, Y., John, K., Liu, F. H., & Tamanni, L. (2019). Security design, incentives, and Islamic microfinance: Cross country evidence. Journal of International Financial Markets, Institutions and Money, 62, 264–280. https://doi.org/10.1016/j.intfin.2019.08.002
  11. Fauzi, M. (2018). Efisiensi bank pembiayaan rakyat syariah (BPRS) di provinsi Jawa Tengah. Jurnal Ekonomi & Keuangan Islam, 4(1), 31–40. https://doi.org/10.20885/jeki.vol4.iss1.art4
  12. Gonzalez, A., & Rosenberg, R. (2006). The state of microfinance – outreach, profitability, and poverty findings from a database of 2600 microfinance institutions. CGAP World Bank 23529 (2). https://scholar.google.com/scholar?hl=id&as_sdt=0%2C5&q=The+State- +of+Microfinance++Outreach%2C+Profitability%2C+and+Poverty+Findings&btnG=
  13. Gujarati, D. (2014). Econometrics by example. Palgrave Macmillan. Bloomsbury Publishing.
  14. Gutiérrez-Nieto, B., & Serrano-Cinca, C. (2019). 20 years of research in microfinance: An information management approach. International Journal of Information Management, 47, 183–197. https://doi.org/10.1016/j.ijinfomgt.2019.01.001
  15. Hartarska, V., & Nadolnyak, D. (2007). Do regulated microfinance institutions achieve better sustainability and outreach? Cross-country evidence. Applied Economics, 39(10), 1207–1222. https://doi.org/10.1080/00036840500461840
  16. Hermes, N., & Hudon, M. (2018). determinants of the performance of microfinance institutions: A systematic review. Journal of Economic Surveys, 32(5), 1483–1513. https://doi.org/10.1111/joes.12290
  17. Hermes, N., & Lensink, R. (2011). Outreach and efficiency of microfinance institutions. World Development, 39(6), 938-948. https://doi.org/10.1016/j.worlddev.2009.10.018
  18. IP, Wachukwu., JI, Onyema., & SN, Amadi. (2018). Microfinance banking and economic growth of Nigeria. Journal of Finance and Marketing, 2(4), 16-20. https://doi.org/10.35841/finance-marketing.2.4.16-2
  19. Kar, A. K. (2013). Mission drift in microfinance: Are the concerns really worrying ? Recent cross-country results. International Review Of Applied Economics, 27(1), 44–60. https://www.tandfonline.com/doi/abs/10.1080/02692171.2012.700701
  20. Khan, F. (2010). How “Islamic” is Islamic banking? Journal of Economic Behavior and Organization, 76(3), 805–820. https://doi.org/10.1016/j.jebo.2010.09.015
  21. Mersland, R., & Strøm, R. Ø. (2010). Microfinance mission drift ? World Development, 38(1), 28-36. https://doi.org/10.1016/j.worlddev.2009.05.006
  22. Mia, A., & Lee, H. (2017). Mission drift and ethical crisis in micro fi nance institutions: What matters ?. Journal of Cleaner Production, 164, 102–114. https://www.sciencedirect.com/science/article/pii/S2667111523000099
  23. Miah, M. D., & Suzuki, Y. (2020). Murabaha syndrome of Islamic banks: A paradox or product of the system? Journal of Islamic Accounting and Business Research, 11(7), 1363–1378. https://doi.org/10.1108/JIABR-05-2018-0067
  24. Morduch, J. J. (2006). Smart subsidies. Journal of Microfinance/ESR Review, 8.(1), 4. https://scholarsarchive.byu.edu/esr/vol8/iss1/4/
  25. Mulyaningsih, R. O. Y., Nuryantono, N., & Firdausy, C. M. (2016). Trade-off antara kesinambungan keuangan dan jangkauan lembaga keuangan mikro syariah di Perdesaan Jawa Barat. Kajian Ekonomi Dan Keuangan, 20(1), 43–60. https://doi.org/10.31685/kek.v20i1.180
  26. Nugrohowati, R. N. I., & Bimo, S. (2019). Analisis pengaruh faktor internal bank dan eksternal terhadap non-performing financing (NPF) pada Bank perkreditan rakyat syariah di Indonesia. Jurnal Ekonomi & Keuangan Islam, 5(1), 42–49. https://doi.org/10.20885/jeki.vol5.iss1.art6
  27. Olivares-Polanco, F. (2005). Commercializing microfinance and deepening outreach? Journal of Microfinance, 7(2), 47–69. https://scholarsarchive.byu.edu/cgi/viewcontent.cgi?article=1056&context=esr
  28. Quayes, S. (2012). Depth of outreach and financial sustainability of microfinance institutions. Applied Economics, 44(26), 3421–3433. https://doi.org/10.1080/00036846.2011.577016
  29. Reichert, P. (2018). A meta-analysis examining the nature of trade-offs in microfinance. Oxford Development Studies, 46(3), 430–452. https://doi.org/10.1080/13600818.2018.1427223
  30. Rhyne, E. (1998). The Yin and Yang of microfinance. Reaching the poor and sustainability. MicroBanking Bulletin, 2(1) 6–8. https://www.marketlinks.org/sites/default/files/media/file/202009/Rhyne_yingyang.pdf
  31. Rhyne, E., & Otero, M. (2006). Microfinance through the next decade: Visioning the who, what, where, when and how. (5-45). Boston, MA: Accion International. http://livestats.pointloma.edu/sites/default/files/bio_files/microfinance_through_the_next_decade_0.pdf
  32. Robinson, M. S. (2001). The microfinance revolution: Lessons from Indonesia. World Bank Publications. https://openknowledge.worldbank.org/handle/10986/14254
  33. Sam, M. I., Saputra, H., Syihabuddin, A., & Prasetya, A. (2014). Himpunan Fatwa Keuangan Syariah Dewan Syariah Nasional MUI. Penerbit Erlangga.
  34. Serrano-cinca, C., & Gutierrez-Nieto, B. (2014). Microfinance, the long tail and mission drift. International Business Review, 23(1), 181–194. https://doi.org/10.1016/j.ibusrev.2013.03.006
  35. Sudarsono, H., Afriadi, F., & Suciningtias, S. A. (2021). Do stability and size affect the profitability of Islamic rural bank in Indonesia?. Jurnal Ekonomi & Keuangan Islam, 7(2), 105–122. https://doi.org/10.20885/jeki.vol7.iss2.art5
  36. Tamanni, L., & Haji Besar, M. H. A. (2019). Profitability vs poverty alleviation: Has banking logic influences Islamic microfinance institutions? Asian Journal of Accounting Research, 4(2), 260-279. https://doi.org/10.1108/ajar-05-2019-0039
  37. Wasiaturrahma, Ajija, S. R., Sukmana, R., Sari, T. N., & Hudaifah, A. (2020). Breadth and depth outreach of Islamic cooperatives: Do size, non-performing finance, and grant matter? Heliyon, 6(7), e04472. https://doi.org/10.1016/j.heliyon.2020.e04472
  38. Widiarto, I., & Emrouznejad, A. (2015). Social and financial efficiency of Islamic microfinance institutions: A data envelopment analysis application. Socio-Economic Planning Sciences, 50, 1-17. https://doi.org/10.1016/j.seps.2014.12.001
  39. Xu, S., Copestake, J., & Peng, X. (2016). Microfinance institutions’ mission drift in macroeconomic context. Journal of International Development, 28(7), 1123–1137. https://doi.org/10.1002/jid

Most read articles by the same author(s)