Journal of Islamic Monetary Economics and Finance (JIMF)
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The Performance of Indonesian Islamic Rural Banks during COVID-19 Outbreak: The Role of Diversification
Full text linkThis research investigates how Islamic rural banks performed during the Covid-19 outbreak and how diversification is associated with the performance of the banks. Islamic rural banks provide a unique setting because they serve limited customers in a specific region in Indonesia, different from national commercial banks that accommodate all types of customers in all regions. To investigate this issue, we employ panel data of 164 Islamic rural banks dispersed across 23 provinces in Indonesia from 2020q4-2021q3. We find that covid-19 is negatively associated with the profitability of Islamic rural banks, implying that covid 19 has affected all sectors, including banks with niche markets such as Islamic rural banks. We also find that diversification is negatively related to the Islamic rural banks’ performance. This finding suggests that instead of expanding their business scope, Islamic rural banks should focus on their main business activity because their non-financing income is adversely related to their performance. Our finding suggests that policymakers effectively monitor Islamic rural banks to remain focused on their main business activity
Crowdfunding and Islamic Securities: The Role of Financial Literacy
Full text linkThis study investigates the effect of Islamic Financial Literacy (IFL) on the intention of prospective Muslim investors to invest through the Islamic securities crowdfunding FinTech (I-SCF FinTech) platform. Using data gathered from 100 respondents and employing the Partial Least Square – Structural Equation Modeling, we find IFL to have a significant effect on behavioral intention. The results of this study should benefit those involved in the I-SCF FinTech. Further, they point to the need to strengthen product and contract literacy and the importance of supervision and implementation of contracts that are in line with sharia principles through synergy between the Financial Service Authority (OJK) and the crowdfunding FinTech associations as well as relevant stakeholders. 
ESG Activities and Bank Efficiency: Are Islamic Banks Better?
Full text linkIn this paper, we investigate the differential impact of ESG activities on banks’ technical efficiency for conventional and Islamic banks. We employ a Data Envelopment Analysis (DEA) technique to determine the efficiency scores of the banks. Based on a sample of 14 conventional and 11 Islamic banks from 4 countries over the period 2011 - 2019, we find that average DEA-generated efficiency of conventional (Islamic) banks is about 38.8% (42.45%). Baseline Tobit regressions suggest that ESG has an overall positive impact on banks’ efficiency. Further, we analyze the relationship for conventional and Islamic banks separately. We find that the positive effect sustains for conventional banks but turns out to be insignificant for Islamic banks. Our individual ESG dimension-wise analyses suggest that environmental activities positively influence the efficiency of both conventional and Islamic banks, whereas social activities strengthen the efficiency of conventional banks only. We do not find any significant result in favor of governance-related initiatives. Our baseline results survive the robustness test based on Simar and Wilson (2007) two-stage efficiency analysis. Based on our findings, we argue that Islamic banks lack sufficient investment on ESG friendly initiatives. We recommend that Islamic banks increase their awareness of the benefits of ESG practices and pay attention to improve their overall and dimension-wise ESG scores with a goal to improve their banking efficiency
Between Two Crises: Do Islamic Banks Suffer?
Full text linkThis study compares the effects of the Global Financial crisis and COVID-19 pandemic on the Islamic banking sector in the Gulf Cooperation Council (GCC). Using a sample of 32 Islamic banks observed over the period 2006 to 2020, the paper reveals that the two events have different effects on the Islamic banking sector. Overall, Islamic banks are not as profitable and resilient in the COVID-19 pandemic as in the global financial crisis. However, Islamic banks in GCC countries has gained experience and become more efficient and stable over time. The policy implication of this study supports digitalization and the increased prominence of financial technology (Fintech). In addition, monetary authorities in the GCC have to introduce innovative products to help the Islamic banking sector to be more resilient to such crises
Effect of Islamic Financial System Stability on Economic Performance in Indonesia
Full text linkThis study constructs a financial stability index for the Islamic financial system of Indonesia using the dynamic factor model and then links it to economic performance employing a nonlinear autoregressive distributed lag (NARDL) model. The financial stability index constructed from a broad range of macrofinancial variables captures well the 2008-2009 global financial crisis and the 2020-2021 COVID 19 pandemic crisis periods. The most significant results suggest that positive and negative shocks in Islamic financial stability in the long run increase and decrease economic performance, respectively. The quantile regression results also demonstrate that Islamic financial stability is statistically significant throughout all quantiles in promoting economic performance, although it plays a greater role at lower quantiles and diminishes when the economic performance is at a high level. Our results highlight that the stability of the Islamic financial system deepening would positively enhance economic performance.  
ROSCAs through the Islamic Community: An Alternative to Enhancing Entrepreneurship and Wealth
Full text linkThe purpose of the study is to analyse the influence of the motives and benefits of participation in Rotating Savings and Credit Associations (ROSCAs) on household wealth and entrepreneurship through mediating community commitment. Structural equation modeling (SEM) was used on the data collected using purposive sampling and a sample of 225 respondents in the provinces of East Java, Central Java, West Java, D.I. Yogyakarta, and D.K.I. Jakarta. The results show that ROSCAs have a direct effect on entrepreneurial intention and may affect household wealth. It is also concluded that ROSCAs can be an instrument of Islamic social finance, as their characteristics are not burdensome to members. They involve the principle of cooperation, and are not affected by interest rates or inflation.
Acknowledgment
The authors would like to thank Bank Indonesia Institute, Bank Indonesia, for the funding that made this study possible
Can Zakat and Purification Be Employed in Portfolio Modelling?
Full text linkThe Capital Asset Pricing Model (CAPM), which has interest rates in its specification, can be deemed non-Shariah compliant. Therefore, the sukuk rate has been proposed to replace these rates in CAPM. This study analyses portfolio modelling by involving two essential elements in Islamic principles, namely zakat and purification. The concept of purification has been applied in the Shariah stock selection process in Indonesia, while at the same time, zakat has been widely socialised in stock investment. The study highlights two models that consider the concept of zakat reduction and the purification factors for portfolios in the Indonesian stock market. According to the robustness tests conducted, the proposed Shariah-compliant asset pricing model developed in this study is valid. Zakat reduction and purification factor integration in mathematical models can be applied in portfolio modelling
Determinants of Work Engagement during Pandemic: The Case of Islamic Banking Workers
Full text linkThis study analyzes the role of emotional intelligence and resilience in work engagement of employees in the Islamic banking industry during the Covid-19 pandemic. To this end, it gathers data from 364 Islamic bank employees. Using the PLS-SEM for data analysis, the results show positive and significant effects of emotional intelligence and resilience on the work engagement. The emotional intelligence also had a positive influence on resilience. This shows that positive forces from within the individual affect the productivity of organizational members during current pandemic. The implication of the results of this study for management is the need for special attention toward developing the positive potential of individuals so that each member of the organization has good emotional intelligence and resilience
Estimation of Zakat Proceeds in Bangladesh: A Two-Approach Attempt
Full text linkThe purpose of this study is to calculate Zakat proceeds in Bangladesh by using both classical and contemporary or alternative Zakat calculation methods. The results reveal that the percentage of Zakat amount to GDP is significantly higher than the average, i.e., 2.5-3%; under the classical and alternative approaches, the Zakat proceeds are estimated as 3.79 and 2.33 percent of GDP, respectively
Shariah-Compliant Firms and Risk Sharing under Pandemic Era
Full text linkIn this paper we analyse the Shari’ah Compliant (here after SC) firms and how do they share the output risk under pandemic era. Firms that are accepted to be SC, have been exposed to financial ratio restrictions (like debt ratios, profit ratio or current assets). For those firm not able to use debt to eliminate the income shocks, It is expected that firms after a negative output shock would be reflected to shareholders. In this paper, we measure to what extent SC firms share the risk of income shocks with the market and shareholders. Under pandemic era, SC firms have been exposed to substantial negative income shocks. For the sake of holding their SC certificates, debt leverage is not considered as an option but dropping (or cutting down) dividend payments would make the firms look bad, if they have not done it before. At this stage, firms that have the flexibility to share their income shocks with both market and shareholders before, i.e, produce more on boom market and distribute more dividends and produce less on recession and distribute less dividends, are performed better – stock prices returned to original levels earlier-during the pandemic area