REVIEW MATERI RDC 1

Posted by FOSEI UNSOED

5/26/2019

REVIEW MATERI RDC

The Determinants of Maqashid Shariah Based Performance of Islamic Bank in Indonesia

(Siti Amaroh, Institut Agama Islam Negeri Kudus)

In English Language

Pemateri : Dian Purnomo Jati, S.E., M.Sc.

Disusun Oleh : Suci Fauji Astuti (Research Departement)

Abstract

This study aims to examine the determinants of maqashid shariah based performance of islamic bank in Indonesia. The data was extracted from the published annual audited reports of islamic banks in Indonesia during period 2014-2017. This research used correlatiom and multiple linear regression analysis to examine the proposed hypotheses. Maqashid shariah based performance waas proxide by maqashid index. The proposed factors as determinants of maqashid shariah based performance are profit loss sharing financing, cost efficiency, and risk taking behaviour. The result of this research revealed that provit sharing financing positively influences maqashid shariah based performance. But risk  taking behaviour has a negative impact. Cost efficiency does not influence maqashid shariah based performance. The implication of this finding is that islamic banks should have commitment to realizze maqashid shariah through increasing their profit loss sharing financing in the mudharabah and musharakah modes.

Keyword: Maqashid Shariah, Profit Sharing, Cost Efficiency, Risk

Background

Western economy paradigm is based on economic freedom, self-interest, maximizing profit, and market force domination (Din&Ibrahim, 2006). The implication of economic freedom puts capital owners to gain the most benefit in the economic system. western economicsts have recognized that capitalst system impact on variety of issues such as inflation and unemployment (Sukirno, 2000).

Islam offers economic concepts that put human behaviour based on the spirit and norms of Qur’an and Sunnah (Misanam, Suseno, & Hendrieanto,2008). The ideal economic system leads people to achieve to objectives of the sharia in the happiness and well-being are essential not only in the world but also the hereafter. Therefore, the islamic economic system is designed for the purpose of achieving economic, social, and divine in the integrated system.

Research Problem

Performance is a benchmarks of islamic bank to determine growth and find out position in industry. Internal of banks and stakeholders such goverment can use it to specipy regulation and carry out supervisory actions. Some appraisal methods have been used to evaluate banks’ performance and formulated in certain standard such as CAMEL and CAMELS. The CAMEL method assesses performance using capital, asset quality, risk management, earning, and liquidity parameters, while market sensitivity to risk is added in the CAMELS method. However, those valuation methodes only consider finanacial indicators as measurement of islamic banks performance and not fully represent maqasid shariah.

Research Objectives

Some muslim scholars have begun to conceptualize the adequate method for measuring the performance of islamic bank. One method was developed from abu zahrah as carried out by Mohammed & Taib (2015) and also Mohammed et al. (2015) and then known as Maqashid Index (MI). In that model, some objectives were formulated and derived into elements and ratios. Based on the background, this paper will examine factors that determine maqashid shariah based performance. Some researchers found that profit loss sharing (PLS) financing, cost efficiency, and risk taking behaviour are factors that affect it.

Theoritical Review

Maqasid shariah is formed from maqasid (purpose or objective) of shariah (islamic law). The maqasid shariah theory was built gradually over centuries with sources of statements in the book of ushul al-fiqh until it was formulated in islamic law (Lamindo,2016). Definitely, maqashid shariah is the ideals and goals of shariah that includes standards, criteria, values, and guidelines derived from revelation to be applied in solving humanity’s problem and also as guideline in life (Ladin&Furqoni,2013)

Mohammed & Taib (2015) also developed islamic banking performance based on maqasid al-shariah framework in 24 selected banks with Abu Zahrah’s theory.three objectives were used in those model consists of education (tahdhib al-fard),  justice (iqomah al-adl), and public interest (maslahah). In line with the model, performance of islamic bank was calculated with a number of elements and ratios through weighted system to find maqasid index (MI).

                The same process is repeated for Weighted Ratio (WR) for Objective 2 [WR (02)] and Weighted Ratio (WR) for Objective 3 [WR (03)].

                The total overall Weighted Ratio (WR) for the three Shari’ah objectives for each bank constitutes its individual Maqasid Index (MI). Thus,

MI = WR (O1) + WR (02) + WR (O3)                                                                             (2)

                In the other words, the Maqashid Index (MI) for the individual bank is the sum of its weighted ratios in respect to Objective 1, Objective 2 and Objective 3.

Research Methods

                This study evaluated the annual reports of the 11 islamic commeersial banks in in the period 2014-2017. Applying panel data research sample is taken by purposive sampling with the following criteria : (1) islamic banks in this study are islamic commersial banks; and (2) publishing annual reports during 2014-2017. The consolidated annual reports collected from official website of islamic commersial banks in indonesia.

                Data will be examined using multiple regression analysis. Several classical assumptions also be analyzed before hypotheses testing. The basic model of multiple regression is used to test hypotheses as in the following model:

Research Methods

Result and Discussion

Conclusion & Discussion

                This study result some findings that there are significant influece of PSR and CRAR on MI. PSR positively influences MI and indicateds that the higher PLS financing increase maqasid shariah based performance of islmaic banks in Indonesia. CRAR negatively influences MI so that this finding indicate the higher risk taking behaviour decreases maqasid shariah based performance. While CIR does not influence MI and indicates that cost efficiency does not contrbute to maqasih shariah based performace.

                This paper also concludes some important points. First, islmic bank in Indonesia necessary to extend profit loss sharing financing to strengthen the existence of maqasid shariah. Second, islamic banks banks in Indonesia need to concider for decreasing the murobahah domination to balance others contract and to follow the islamic banking principles in their contribution into real sector. And third, islamic banks have to allocate for working capital and investment to maintain banking stabillization and considered crisis as an external factor that can disturbance their performance.