Article Sidebar

Do financing models in Islamic bank affect profitability Evidence from Indonesia and Malaysia
Submitted
January 26, 2023
Accepted
June 20, 2023
Published
June 26, 2023
Download
PDF Review Reports
Statistic
Read Counter : 355 Download : 495

Main Article Content

Abstract

Introduction
Previous literature discussed financing's impact on performance without separating the financing model. Additionally, previous research has used financing in the form of Loans to Total Assets (LTA); a proxy used to assess bank liquidity.
Objectives
This study aims to analyze the influence of financing models on Islamic Banks’ performance in Indonesia and Malaysia.
Method
The study used Indonesia and Malaysia banks for its pioneering efforts in establishing Islamic banking in Southeast Asia. The study collects data from five Indonesian and four Malaysian Islamic banks, with an observation period of 2011–2020. The data analysis used in this study was the Generalized Method of Moment (GMM).
Results
In Indonesia, debt financing has a positive and significant impact on Return on Assets (ROA), while equity financing has a negative and significant impact on ROA; debt financing significantly affects Return on Equity (ROE), while equity financing does not have a significant impact on ROE. In Malaysia, equity financing has a positive and significant impact on ROA, while debt financing does not significantly affect ROA; debt financing has a positive and significant impact on ROE, while equity financing has a negative and significant influence on ROE.
Implications
The results highlight the importance of considering the specific characteristics of each country's Islamic banking industry when formulating financing strategies.
Originality/Novelty
This study highlights unique aspect of financing that contribute to Islamic banks profitability in Indonesia and Malaysia.

Keywords

debt financing equity financing Indonesia Islamic bank Malaysia profitability

Article Details

License

Copyright (c) 2023 Multazam Mansyur Addury

Creative Commons License

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

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
How to Cite
Addury, M. M. (2023). Do financing models in Islamic bank affect profitability? Evidence from Indonesia and Malaysia. Journal of Islamic Economics Lariba, 9(1), 79–96. https://doi.org/10.20885/jielariba.vol9.iss1.art5
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX
Crossref
Scopus
Google Scholar
Europe PMC

References

  1. Adawiyah, W. R. (2015). Framing the risk of Islamic based equity financing: An inside look. Al-Ulum, 15(1), Article 1. https://doi.org/10.30603/au.v15i1.222

  2. Agza, Y., & Darwanto, D. (2017). Pengaruh pembiayaan murabahah, musyarakah, dan biaya transaksi terhadap profitabilitas bank pembiayaan rakyat syariah [The effect of murabaha financing, musyarakah, and transaction costs on the profitability of Islamic rural banks]. Iqtishadia, 10(1), 228–248. https://doi.org/10.21043/iqtishadia.v10i1.2550

  3. Alharbi, A. T. (2017). Determinants of Islamic banks’ profitability: International evidence. International Journal of Islamic and Middle Eastern Finance and Management, 10(3), 331–350. https://doi.org/10.1108/IMEFM-12-2015-0161

  4. Anton, S. G., & Afloarei Nucu, A. E. (2020). The effect of financial development on renewable energy consumption. A panel data approach. Renewable Energy, 147, 330–338. https://doi.org/10.1016/j.renene.2019.09.005

  5. Awirya, A. A., & Rahmayani, K. (2012). The opportunity of profit sharing scheme implementation on moneylender in expanding Islamic banking service, evidence from traditional market in Surabaya, Indonesia. Jurnal BPPK: Badan Pendidikan Dan Pelatihan Keuangan, 4, 01–17. https://doi.org/10.48108/jurnalbppk.v4i0.56

  6. Azad, A. S. M. S., Azmat, S., & Hayat, A. (2023). What determines the profitability of Islamic banks: Lending or fee? International Review of Economics & Finance, 86, 882–896. https://doi.org/10.1016/j.iref.2019.05.015

  7. Azmy, A. (2018). Analisis pengaruh rasio kinerja keuangan terhadap profitabilitas bank pembiayaan rakyat syariah di Indonesia [Analysis of the influence of financial performance ratios on the profitability of Islamic rural banks in Indonesia]. Jurnal Akuntansi, 22(1), 119–137. https://doi.org/10.24912/ja.v22i1.326

  8. Baele, L., Farooq, M., & Ongena, S. (2014). Of religion and redemption: Evidence from default on Islamic loans. Journal of Banking & Finance, 44, 141–159. https://doi.org/10.1016/j.jbankfin.2014.03.005

  9. Belkhaoui, S., Alsagr, N., & Van Hemmen, S. F. (2020). Financing modes, risk, efficiency and profitability in Islamic banks: Modeling for the GCC countries. Cogent Economics & Finance, 8(1), 1750258. https://doi.org/10.1080/23322039.2020.1750258

  10. Chowdhury, M. A. F., & Rasid, M. E. S. M. (2016). Determinants of performance of Islamic banks in GCC countries: Dynamic GMM approach. In D. S. Mutum, M. M. Butt, & M. Rashid (Eds.), Advances in Islamic finance, marketing, and management (pp. 49–80). Emerald Group Publishing Limited. https://doi.org/10.1108/978-1-78635-899-820161005

  11. Dang, V. A., Kim, M., & Shin, Y. (2015). In search of robust methods for dynamic panel data models in empirical corporate finance. Journal of Banking & Finance, 53, 84–98. https://doi.org/10.1016/j.jbankfin.2014.12.009

  12. Gassen, J. (2014). Causal inference in empirical archival financial accounting research. Accounting, Organizations and Society, 39(7), 535–544. https://doi.org/10.1016/j.aos.2013.10.004

  13. Ghozali, M., Azmi, M. U., & Nugroho, W. (2019). Perkembangan bank syariah di Asia Tenggara: Sebuah kajian historis [Development of Islamic banks in Southeast Asia: A historical study]. Falah: Jurnal Ekonomi Syariah, 4(1), 44–55. https://doi.org/10.22219/jes.v4i1.8700

  14. Gusmawanti, A., Supaijo, S., Iqbal, M., & Fasa, M. I. (2020). The nexus between FDR, NPF, BOPO toward profitability of Indonesian Islamic bank. Al-Amwal : Jurnal Ekonomi Dan Perbankan Syari’ah, 12(2), 167–180. https://doi.org/10.24235/amwal.v12i2.7155

  15. Hansen, L. P. (2015). Method of moments and generalized method of moments. In J. D. Wright (Ed.), International encyclopedia of the social & behavioral sciences (Second edition, pp. 294–301). Elsevier. https://doi.org/10.1016/B978-0-08-097086-8.42029-5

  16. Harianto, S. (2017). Rasio keuangan dan pengaruhnya terhadap profitabilitas pada bank pembiayaan rakyat syariah [Financial ratios and their influence on profitability in Islamic rural banks]. Esensi, 7(1), 41–48. https://doi.org/10.15408/ess.v7i1.4076

  17. Hasnaoui, H., & Fatnassi, I. (2019). The impact of bank capital on profitability and risk in GCC countries: Islamic vs. conventional banks. Afro-Asian Journal of Finance and Accounting, 9(3), 243–268. https://doi.org/10.1504/AAJFA.2019.100976

  18. Hassan, M. K., & Kayed, R. N. (2009). The global financial crisis, risk management and social justice in Islamic finance. ISRA International Journal of Islamic Finance, 1(1), 33–58. https://doi.org/10.55188/ijif.v1i1.63

  19. Husaeni, U. A. (2017). Determinan pembiayaan pada bank pembiayaan rakyat syariah di Indonesia [Determinants of financing in Islamic people’s financing banks in Indonesia]. Esensi, 7(1), 49–62. https://doi.org/10.15408/ess.v7i1.4542

  20. Hussain, M., Shahmoradi, A., & Turk, R. (2015). An overview of Islamic finance (IMF Working Papers WP/15/120; pp. 1–35). The International Monetary Fund. https://www.imf.org/external/pubs/ft/wp/2015/wp15120.pdf

  21. IHS Global Inc. (2022). EViews 12 University Edition for Windows. IHS Global Inc.

  22. Indriyanto, T. Y., Iskandar, R., & Deviyanti, D. R. (2018). Pengaruh debt financing dan equity financing terhadap return on equity pada bank syariah yang terdaftar di Bank Indonesia [The effect of debt financing and equity financing on return on equity in Islamic banks registered with Bank Indonesia]. Akuntabel, 15(2), 139–147. https://doi.org/10.30872/jakt.v15i2.4540

  23. Iswanto, B., Pratiwi, A., & Anwar, I. (2023). Measuring the performance of Islamic banks through risk profile, earning, and capital. Ekspansi: Jurnal Ekonomi, Keuangan, Perbankan, dan Akuntansi, 15(1), 1–19. https://doi.org/10.35313/ekspansi.v15i1.4631

  24. Jusni, Aswan, A., Reni Syamsuddin, A., & Taufiq Possumah, B. (2019). Financing profitability optimization: Case study on sharia business unit of regional development banks in Indonesia. Banks and Bank Systems, 14(1), 1–10. https://doi.org/10.21511/bbs.14(1).2019.01

  25. Karamoy, H., & Elly Tulung, J. (2020). The impact of banking risk on regional development banks in Indonesia. Banks and Bank Systems, 15(2), 130–137. https://doi.org/10.21511/bbs.15(2).2020.12

  26. Kepramareni, P., Apriada, K., Putra, I. N. F. A., & Rini, I. G. A. I. S. (2022). The effect of credit risk, capital adequacy ratio, liquidity, operational efficiency, and solvency on the financial performance of BPR in the City of Denpasar. Jurnal Ekonomi & Bisnis Jagaditha, 9(1), 7–14. https://doi.org/10.22225/jj.9.1.2022.7-14

  27. Le, T. DQ., & Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65–73. https://doi.org/10.1016/j.cbrev.2020.04.001

  28. Maulana, A., & Suprayogi, N. (2020). Pengaruh FDR terhadap ROA dengan variabel intervening NPF pada BPRS Indonesia 2011-2016 [The effect of FDR on ROA with the intervening variable NPF in Indonesian BPRS 2011-2016]. Jurnal Ekonomi Syariah Teori Dan Terapan, 6(1), 23–35. https://doi.org/10.20473/vol6iss20191pp23-35

  29. Mokni, R. B. S., & Rachdi, H. (2014). Assessing the bank profitability in the MENA region: A comparative analysis between conventional and Islamic bank. International Journal of Islamic and Middle Eastern Finance and Management, 7(3), 305–332. https://doi.org/10.1108/IMEFM-03-2013-0031

  30. Mubarok, F., Hamid, A., & Arif, M. N. R. A. (2020). Predicting volatility of non-performing financing: Lessons from Indonesian Islamic banking industry. Muqtasid: Jurnal Ekonomi Dan Perbankan Syariah, 11(1), 1–13. https://doi.org/10.18326/muqtasid.v11i1.1-13

  31. Murtiningsih, S., & Tohirin, A. (2023). The influence of some bank financial ratios characteristics on profitability in sharia bank. International Journal of Economics, Business and Accounting Research (IJEBAR), 7(1), 350–365. https://doi.org/10.29040/ijebar.v7i1.8725

  32. Nahar, F. H., Adha, M. A., & Rofiul Wahyudi. (2022). Efficiency in Islamic and conventional banking in Indonesia. Journal of Islamic Economics Lariba, 8(1), 179–195. https://doi.org/10.20885/jielariba.vol8.iss1.art11

  33. Nasokha, F., & Yudiana, F. E. (2022). Determination of profitability with non-performing financing as moderation. JAS (Jurnal Akuntansi Syariah), 6(2), 152–169. https://doi.org/10.46367/jas.v6i2.628

  34. Nazir, A., Azam, M., & Khalid, M. U. (2021). Debt financing and firm performance: Empirical evidence from the Pakistan Stock Exchange. Asian Journal of Accounting Research, 6(3), 324–334. https://doi.org/10.1108/AJAR-03-2019-0019

  35. Omar, M. A., & Inaba, K. (2020). Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis. Journal of Economic Structures, 9(1), 37. https://doi.org/10.1186/s40008-020-00214-4

  36. Purwasih, H., & Wibowo, W. (2021). The determinants factors of profitability Islamic bank in Indonesia. Jurnal Muara Ilmu Ekonomi Dan Bisnis, 5(1), 89–98. https://doi.org/10.24912/jmieb.v5i1.10023

  37. Rizal, F. (2016). Pengaruh capital adequacy ratio, non performing finance dan operational efficiency ratio terhadap profitabilitas bank pembiayaan rakyat syariah [The influence of the capital adequacy ratio, non-performing finance and operational efficiency ratio on the profitability of sharia people’s financing banks]. Muslim Heritage, 1(1), 179–196. https://doi.org/10.21154/muslimheritage.v1i1.501

  38. Sari, M. D., Bahari, Z., & Hamat, Z. (2016). History of Islamic bank in Indonesia: Issues behind its establishment. International Journal of Finance and Banking Research, 2(5), 178–184. https://doi.org/10.11648/j.ijfbr.20160205.13

  39. Setiawan, A., & Muchtar, S. (2021). Factor affecting the capital adequacy ratio of banks listed in Indonesia Stock Exchange. Jurnal Ekonomi, 26(1), 153–169. https://doi.org/10.24912/je.v26i1.733

  40. Shafee, N. B., Suhaimi, S., Hashim, H., Mustafa, M. A., & Mohd, S. N. H. (2021). The profitability of commercial banks in Malaysia. Studies of Applied Economics, 39(10), Article 10. https://doi.org/10.25115/eea.v39i10.5337

  41. Sholihin, M., Andari, D., Sholihin, M., & Andari, D. (2022). Islamic banking and Islamic accounting in Indonesia: History and recent development. In N. M. Alsharari (Ed.), Banking and accounting issues (pp. 1–15). IntechOpen. https://doi.org/10.5772/intechopen.103654

  42. Sondakh, J. J., Tulung, J. E., & Karamoy, H. (2021). The effect of third-party funds, credit risk, market risk, and operational risk on profitability in banking. Journal of Governance and Regulation, 10(2), 179–185. https://doi.org/10.22495/jgrv10i2art15

  43. Staikouras, C. K., & Wood, G. E. (2004). The determinants of European bank profitability. International Business & Economics Research Journal (IBER), 3(6), Article 6. https://doi.org/10.19030/iber.v3i6.3699

  44. Sudarsono, H., & Shiddiqi, J. S. A. (2021). Equity financing, debt financing, and financial performance in Islamic banks. Muqtasid: Jurnal Ekonomi Dan Perbankan Syariah, 12(2), 89–104. https://doi.org/10.18326/muqtasid.v12i2.89-104

  45. Sufian, F. (2009). Factors influencing bank profitability in a developing economy: Empirical evidence from Malaysia. Global Business Review, 10(2), 225–241. https://doi.org/10.1177/097215090901000206

  46. Sufian, F. (2010). Does foreign presence foster Islamic banks’ performance? Empirical evidence from Malaysia. Journal of Islamic Accounting and Business Research, 1(2), 128–147. https://doi.org/10.1108/17590811011086723

  47. Sun, P. H., Hassan, M. K., Hassan, T., & Ramadilli, S. M. (2014). The assets and liabilities gap management of conventional and Islamic banks in the organization of Islamic cooperation (OIC) countries. Applied Financial Economics, 24(5), 333–346. https://doi.org/10.1080/09603107.2013.877568

  48. Susanti, N., & Herawati, S. D. (2019). The affect of external and internal factors on banking profitability. International Journal of Innovation, Creativity and Change, 6(6), 235–243. https://www.ijicc.net/images/Vol6Iss6/6620_Susanti_2019_E_R.pdf

  49. Taufika, Y., Raneoc, A. P., Ghasarmad, R., & Adame, M. (2020). Profitability determinants of Islamic private-owned banks and conventional state-owned banks in Indonesia. International Journal of Innovation, Creativity and Change, 11(2), 432–450. https://jcwww.ijicc.net/images/vol11iss2/11227_Taufik_2020_E_R.pdf

  50. Trad, N., Rachdi, H., Hakimi, A., & Guesmi, K. (2017). Banking stability in the MENA region during the global financial crisis and the European sovereign debt debacle. The Journal of Risk Finance, 18(4), 381–397. https://doi.org/10.1108/JRF-10-2016-0134

  51. Tumin, M., & Mohd-Said, R. (2010). Performance and financial ratios of commercial banks in Malaysia and China. Int. Rev. Bus. Res. Papers, 7. https://doi.org/10.2139/ssrn.1663612

  52. Utama, A. S. (2018). History and development of Islamic banking regulations in the national legal system of Indonesia. Al-’Adalah, 15(1), 37–50. https://doi.org/10.24042/adalah.v15i1.2446

  53. Verbeek, M. (2017). A guide to modern econometrics (5th edition). John Wiley & Sons, Inc.

  54. Viechtbauer, W., & Cheung, M. W.-L. (2010). Outlier and influence diagnostics for meta-analysis. Research Synthesis Methods, 1(2), 112–125. https://doi.org/10.1002/jrsm.11

  55. Wahyudi, R., Diniyya, A. A., Satyarini, J. N. E., Mutmainah, L., & Maulida, S. (2020). The effect of debt-based financing and equity-based financing on Islamic banks profitability in Indonesia. International Journal of Islamic Business  and Economics (IJIBEC), 4(2), 106–114. https://doi.org/10.28918/ijibec.v4i2.2771

  56. Wahyudi, R., Mujibatun, S., & Riduwan, R. (2019). Debt and equity-based financing, size and islamic banks profitability: Empirical evidence from Indonesia. Iqtishadia, 12(2), 227–239. https://doi.org/10.21043/iqtishadia.v12i2.3539

  57. Warninda, T., Ekaputra, I., & Rokhim, R. (2019). Islamic bank profit-loss sharing financing and earnings volatility. Pertanika Journal of Social Science and Humanities, 27, 229–239.

  58. Widarjono, A. (2021). The role of equity financing on the profitability of Indonesian Islamic banks. Muqtasid: Jurnal Ekonomi Dan Perbankan Syariah, 12(2), 129–143. https://doi.org/10.18326/muqtasid.v12i2.129-143

  59. Yanikkaya, H., Gumus, N., & Pabuccu, Y. U. (2018). How profitability differs between conventional and Islamic banks: A dynamic panel data approach. Pacific-Basin Finance Journal, 48, 99–111. https://doi.org/10.1016/j.pacfin.2018.01.006

  60. Yuan, D., Gazi, Md. A. I., Harymawan, I., Dhar, B. K., & Hossain, A. I. (2022). Profitability determining factors of banking sector: Panel data analysis of commercial banks in South Asian countries. Frontiers in Psychology, 13, 1000412. https://www.frontiersin.org/articles/10.3389/fpsyg.2022.1000412

  61. Yuanita, N. (2019). Competition and bank profitability. Journal of Economic Structures, 8(1), 31. https://doi.org/10.1186/s40008-019-0164-0

  62. Yusuf, M. Y., & Mahriana, W. S. (2016). Faktor-faktor yang mempengaruhi tingkat profitabilitas Bank Pembiayaan Rakyat Syariah (BPRS) di Aceh [Factors affecting the level of profitability of Islamic Rural Banks (BPRS) in Aceh]. IQTISHADIA Jurnal Kajian Ekonomi Dan Bisnis Islam, 9(2), 246–275. https://doi.org/10.21043/iqtishadia.v9i2.1731

  63. Zarrouk, H., Ben Jedidia, K., & Moualhi, M. (2016). Is Islamic bank profitability driven by same forces as conventional banks? International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 46–66. https://doi.org/10.1108/IMEFM-12-2014-0120

  64. Zulkifli, S. (2007). Panduan praktis transaksi perbankan syariah [Practical guide to sharia banking transactions]. Zikrul Hakim.