Main Article Content
Abstract
Purpose – This study examines the effects and thresholds of mudharabah and musyarakah on the financing risk and performance of Indonesian Islamic banks.
Methodology – Using panel data and quadratic regression analysis, we explore the nonlinear relationships among mudharabah, musyarakah, financing risk, and performance of Islamic banks in Indonesia using a sample of 14 Indonesian Islamic banks during the period to 2008-2020.
Findings – We find that mudharabah is negatively related to financing risk and positively (in the initial stage) linked to Islamic bank performance. Mudharabah will reduce financing risk if the proportion of mudharabah to total loans is in the range of 5.5-12.6%. A proportion of mudharabah below 5.5% or above 12.6% worsens non-performing financing (NFP), loan loss provision (LLP), and Z-score. In contrast, musyarakah is found to be positively (although marginally) related to financing risk and negatively and weakly associated with the performance of Indonesian Islamic banks.
Implications – Our findings have consequential implications for both practitioners and policymakers. Understanding the dual effects of mudharabah and musyarakah can help to implement strategies that optimize investment portfolios, enhance profitability, and minimize risk. For policymakers, these results highlight the need for regulatory frameworks that encourage optimum thresholds of mudharabah financing to mitigate risk while spurring performance.
Originality – This study contributes to the literature by identifying a turning point in mudharabah financing that minimizes financing risk, a realm previously underexplored in Islamic finance. By incorporating this nuanced insight, our study provides a novel perspective on how Islamic banks can attain strategic equilibrium between risk management and performance improvement.
Keywords
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Copyright (c) 2025 Radhita Asfarina Annizar, Eddy Junarsin
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References
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- Abdurraheem, A. A., Alam, Md. M., & Nadzri, F. A. A. (2023). Financing concentration and credit risks: Empirical study on the Islamic banks in Malaysia. Management and Accounting Review, 22(3). https://doi.org/10.24191/MAR.V22i03-18
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- Alzoubi, E. S. S. (2018). Audit quality, debt financing, and earnings management: Evidence from Jordan. Journal of International Accounting, Auditing and Taxation, 30, 69–84. https://doi.org/10.1016/j.intaccaudtax.2017.12.001
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- Saleem, F. T., & Byrd, C. M. (2021). Unpacking school ethnic‐racial socialization: A new conceptual model. Journal of Social Issues, 77(4), 1106–1125. https://doi.org/10.1111/josi.12498
- Saunders, A., Cornett, M., & Erhemjamts, O. (2024). Financial institutions management: A risk management approach (11th ed.). McGraw Hill.
- Sobol, I., Dopierała, Ł., & Wysiński, P. (2023). Is the profitability of Islamic and conventional banks driven by the same factors? —A study of banking in the Middle East. PloS one, 18(8), 1–32. https://doi.org/10.1371/journal.pone.0289264
- Warninda, T. D., Ekaputra, I. A., & Rokhim, R. (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance, 49, 166–175. https://doi.org/10.1016/j.ribaf.2019.03.002
- Zeineb, G. Ben, & Mensi, S. (2014). Does the PLS paradigm Spur the Islamic banks vs conventional banks soundness: Case of the global financial crisis. Journal of Economics and Development Studies, 2(3). https://doi.org/10.15640/jeds.v2n3a13
References
Abbas, A., & Arizah, A. (2019). Marketability, profitability, and profit-loss sharing: Evidence from sharia banking in Indonesia. Asian Journal of Accounting Research, 4(2), 315–326. https://doi.org/10.1108/AJAR-08-2019-0065
Abdurraheem, A. A., Alam, Md. M., & Nadzri, F. A. A. (2023). Financing concentration and credit risks: Empirical study on the Islamic banks in Malaysia. Management and Accounting Review, 22(3). https://doi.org/10.24191/MAR.V22i03-18
Ahmad, M., Ahmad, K., & Bhatti, R. (2023). Assessing the impact of knowledge management factors on digital resources acceptance: A survey of postgraduate students of public sector universities of Punjab. The Electronic Library, 41(5), 617–640. https://doi.org/10.1108/EL-01-2023-0013
Al Rahahleh, N., Ishaq Bhatti, M., & Najuna Misman, F. (2019). Developments in risk management in Islamic finance: A review. Journal of Risk and Financial Management, 12(1), 37. https://doi.org/10.3390/jrfm12010037
Alzoubi, E. S. S. (2018). Audit quality, debt financing, and earnings management: Evidence from Jordan. Journal of International Accounting, Auditing and Taxation, 30, 69–84. https://doi.org/10.1016/j.intaccaudtax.2017.12.001
Ariffin, N. M., Archer, S., & Karim, R. A. A. (2009). Risks in Islamic banks: Evidence from empirical research. Journal of Banking Regulation, 10(2), 153–163. https://doi.org/10.1057/jbr.2008.27
Ascarya. (2017). Akad dan produk bank Syariah (6th ed.). Raja Grafindo Persada.
Azizah, U., Zulpahmi, Z., Septiani, C., Hanifah, P., & Ghaliyah, A. (2022). Financing, profitability, and profit loss sharing: Evidence from sharia business units in Indonesia. Proceedings of the 3rd International Conference of Business, Accounting, and Economics, ICBAE 2022, 10-11 August 2022, Purwokerto, Central Java, Indonesia. https://doi.org/10.4108/eai.10-8-2022.2320884
Belkhaoui, S. (2020). Financing modes, risk, efficiency and profitability in Islamic banks: Modeling for the GCC countries. Cogent Economics and Finance, 8(1). https://doi.org/10.1080/23322039.2020.1750258
Buchori, I., & Prasetyo, A. (2014). Pengaruh tingkat pembiayaan mudharabah terhadap tingkat rasio profitabilitas pada Koperasi Jasa Keuangan Syariah (KJKS) Manfaat Surabaya. El-Qist: Journal of Islamic Economics and Business (JIEB), 4(1), 706-734. https://doi.org/10.15642/elqist.2014.4.1.706-734
Cooper, D. R., & Pamela, S. (2014). Bussiness researh method. McGraw Hill. https://contents.lspr.ac.id/2022/05/Donald-R-Cooper-Pamela-S-Schindler-Business-Research-Methods.pdf
Farihana, S., & Rahman, Md. S. (2021). Can profit and loss sharing (PLS) financing instruments reduce the credit risk of Islamic banks? Empirical Economics, 61(3), 1397–1414. https://doi.org/10.1007/s00181-020-01912-5
Gazi, Md. A. I., Karim, R., Senathirajah, A. R. bin S., Ullah, A. K. M. M., Afrin, K. H., & Nahiduzzaman, Md. (2024). Bank-specific and macroeconomic determinants of profitability of Islamic Shariah-based banks: Evidence from new economic horizon using panel data. Economies, 12(3), 1–18. https://doi.org/10.3390/economies12030066
Hasan. Z. (1985). Determination of profit and loss sharing ratios in interest-free business finance. Journal of King Abdulaziz University: Islamic Economics, 3, 13–19. https://ssrn.com/abstract=3079239
Hassan, M. K., Khan, A., & Paltrinieri, A. (2019). Liquidity risk, credit risk and stability in Islamic and conventional banks. Research in International Business and Finance, 48, 17–31. https://doi.org/10.1016/j.ribaf.2018.10.006
Islamic Finance Development Report (2021). Advancing economies, Sharia Knowledge Centre https://www.shariaknowledgecentre.id/id/.galleries/pdf/research-publication/icd-refinitiv-2021-islamic-finance-development-report-2021.pdf
Morden, T. (2007). Principles of strategic management. Routledge.
Nurhayati, & Wasilah, S. (2013). Akuntansi Syariah di Indonesia (3rd ed.). Salemba Empat.
Puteri, D. R., Meutia, I., & Yuniartie, E. (2014). Pengaruh pembiayaan mudharabah, musyarakah, murabahah, istishna dan ijarah terhadap profitabilitas pada bank umum Syariah di Indonesia. Akuntabilitas, 4(1), 1. https://doi.org/10.29259/ja.v8i1.8782
Rudianto. (2013). Akuntansi manajemen: Informasi untuk pengambilan keputusan strategis. Erlangga.
Saleem, F. T., & Byrd, C. M. (2021). Unpacking school ethnic‐racial socialization: A new conceptual model. Journal of Social Issues, 77(4), 1106–1125. https://doi.org/10.1111/josi.12498
Saunders, A., Cornett, M., & Erhemjamts, O. (2024). Financial institutions management: A risk management approach (11th ed.). McGraw Hill.
Sobol, I., Dopierała, Ł., & Wysiński, P. (2023). Is the profitability of Islamic and conventional banks driven by the same factors? —A study of banking in the Middle East. PloS one, 18(8), 1–32. https://doi.org/10.1371/journal.pone.0289264
Warninda, T. D., Ekaputra, I. A., & Rokhim, R. (2019). Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently? Research in International Business and Finance, 49, 166–175. https://doi.org/10.1016/j.ribaf.2019.03.002
Zeineb, G. Ben, & Mensi, S. (2014). Does the PLS paradigm Spur the Islamic banks vs conventional banks soundness: Case of the global financial crisis. Journal of Economics and Development Studies, 2(3). https://doi.org/10.15640/jeds.v2n3a13