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A Framework for Islamic Social Banking
No full textDespite recent significant economic downturns, Islamic banking (IB)—banking activity that complies with Shari’ah (or Islamic law)—remains among the fastest growing financial industries in the world. However, a recurrent criticism of IB is that notwithstanding its primary religious purpose and unique products and services, it tends to follow conventional banking in prioritising profits over its delivery of social outcomes. This is an apparent contradiction with core IB religious values of promoting social justice and serving community interests. Among other possible reforms, some critics recommend addressing this more fundamentally through institutional changes, either by internalising selected existing social banking (SB) practices or by establishing a new type of IB dedicated to social purposes, or so-called Islamic social banking (ISB). Unfortunately, no existing framework is available that would serve as a basis for these reforms and it is not clear even whether they are truly warranted. To address this, this thesis begins by examining the theoretical justification for ISB. The thesis then investigates whether IB is actually failing to deliver social outcomes as part of its core purpose. Finally, the thesis considers the prospects for ISB in Indonesia as a case study, and presents a possible banking framework for a yet-to-be-created ISB system.
The first part of the thesis discusses the general development of IB and SB, including their conceptual sources, principles, products, and growth. Given that Indonesia serves as the context for assessing social outcomes in IB, the thesis first compares IB and conventional banking in Indonesia in term of structure, regulation, supervision, and performance. It then provides through a literature review the theoretical underpinnings of ISB. Employing comparative research, the thesis then compares IB and SB. The findings indicate that both types of banking institutions share similar 3P principles (Prosperity, People, and Planet) or the so-called triple bottom line (TBL) in their operations. The thesis then extends the 3P principles to incorporate an additional P (for Prophet) to reflect the ethical guidance of Islamic values. This yields quadruple bottom line (QBL) principles that the thesis proposes as a suitable framework for ISB, including a mathematical formulation to calculate QBL performance. This allows banking practitioners, regulators, and supervisors to assess the social outcomes of Islamic banks through calculating their reactive, defensive, accommodative, and proactive (RDAP) responses.
The second part of the thesis comprises four related empirical analyses of ISB. The first analysis investigates whether social outcomes are a concern for IB in Indonesia. Initially, the thesis identifies key concepts for assessment indicators from four different sources, comprising the existing IB literature, the KLD Index of corporate social performance, the Sustainable Development Goals (SDGs), and the Environment Social Governance (ESG) Scorecard. The results suggest six relevant traits adequately describe IB’s broad social objectives, including religiosity, the environment, society, governance, employees, and customers. Then, using 12 Islamic commercial banks (ICB), 7 Islamic banking units (IBU), and 7 Islamic rural banks (IRB) operating in Indonesia during the period 2015–16 and employing a content analysis, the thesis reveals that social failure is evident in IRBs and half of the ICBs, but only one in the seven IBUs. The thesis concludes that social outcomes are not yet a sufficiently serious concern for IBs in Indonesia, but that social objectives and outcomes have both recently increased in importance.
The second analysis investigates the prospect for the establishment of ISB in Indonesia. The thesis surveys 506 IB stakeholders across six Indonesian provinces and conducts in-depth interviews with 10 Islamic banking experts working in Indonesia. The findings reveal that 42.9% of respondents consider that IB in Indonesia is socially defensive (doing the least that is required in terms of social outcomes), while 6.9% believe that it is reactive (doing less than that required). Of the remaining respondents, 34.8% consider the social performance of IB as accommodative (doing all that is required), and 15.4% see it as proactive (doing more than is required). Most respondents (53%) suggest improvement by combining corporate social responsibility and the existing zakat–waqf system. Only a minority (7.1%) appear to be in favour of the establishment of ISB, whose main feature would be to design an alternative to collateral so that low- and middle-income customers could more readily access bank financing.
The third empirical analysis uses the earlier survey data and tests the applicability of the 4Ps (Prosperity, People, Planet, and Prophet) developed in the first conceptual and theoretical part of the thesis. Multiple regression results suggest that the models created are all highly significant and well reflect the broad stakeholder perspectives on bank performance. Of the four elements, the thesis finds that stakeholders rank Prosperity first, followed by Prophet and then Planet. Case studies of two Islamic banks currently operating in Indonesia and Malaysia, Bank Muamalat Indonesia (BMI) and Bank Muamalat Malaysia Berhard (BMMB), strengthen the application of the new Prophet dimension as a way for Islamic banks to improve their social performance, particularly during periods of financial distress and in response to episodes of unethical behaviour.
In the final empirical analysis, the thesis employs the same survey, but with a different method to assess whether the additional 4P dimension, namely, Prophet, can be justified. The approach adopts 31 constructs from Chapra’s corollaries of Maqasid al-Shari’ah, to be analysed using categorical principal component analysis (CATPCA). Based on the CATPCA result, the thesis confirms that the four dimensions of Prosperity, People, Planet, and Prophet adequately represent these constructs. The approach then validates 13 constructs useful for developing a QBL performance index for sustainable IB. An application to ten selected global Islamic banks reveals that only half of the sample banks are sufficiently sustainable. Overall, Islamic banks perform poorly in terms of Planet (38%) and People (41%) while doing relatively better on Prosperity (53%) and Prophet (63%).
The thesis makes at least three important contributions to the existing IB literature. First, it is the first to theoretically provide and empirically test a possible framework for the future development of ISB, in either Indonesia or elsewhere. Second, the thesis also undertakes a pioneering assessment of the prospects for the establishment of ISB in Indonesia. Finally, the thesis developed a novel and practical QBL Index useful for assessing the sustainability of IB. In turn, these provide at least three main implications for industry policy and practice. First, despite the improving social outcomes of IB in Indonesia, as considered favourably by stakeholders of all kinds, it remains unimpressive. Improvements are required particularly in the areas of the environment, customer benefits, supporting disadvantaged groups, and reaching rural areas. The thesis recommends regulators promote policies and incentives that encourage existing and new Islamic banks in Indonesia to deliver social outcomes. Second, given the Prophet dimension is a central parameter in the QBL framework, the thesis encourages IB practitioners to internalise religiosity in their corporate culture, and for regulators to consider adjusting the existing performance metrics by inserting the religiosity dimension as a point of assessment. Finally, the thesis encourages regulators to provide relevant policies that respond to the QBL assessment reported in this thesis.Thesis (PhD Doctorate)Doctor of Philosophy (PhD)Dept Account,Finance & EconGriffith Business SchoolFull Tex
THE MANAGEMENT OF LIQUIDITY RISK IN ISLAMIC BANKS: THE CASE OF INDONESIA
No full textIslamic banking and finance has shown progressive development all over the world since its inception as a commercial banking model in mid-1970s. Indonesia, as the largest Moslem nation in the world, has initiated some policies to expand the Islamic banking industry in the country.
Similar to conventional banks, Islamic banks face a number of risk areas, which may affect their performance and operations. One of such risk areas is liquidity risk, which shows additional features in the case of Islamic banks. Both the international banking standards and the Sharia guidance suggest that banks should have: robust liquidity risk management policies, a responsive asset and liability committee, effective information and internal control systems and, methods for managing deposits to reduce on-demand liquidity, to manage liquidity risk. The aim of this research, hence, is to analyze the management of liquidity risk in Islamic banks through balancing assets and liabilities with the ultimate objective to recommend policies to improve the management of liquidity risk. This aim is fulfilled in the case of Indonesian Islamic banking industry.
The data collection and analysis method in this research involve triangulation method with a combination of quantitative and qualitative methods to achieve such aim and objective. Particularly, both the performance analysis of the industry and the econometric time series analysis were conducted to analyze the liquidity risk and its management for Islamic banking, which includes the liquidity behavior of banking depositors and Islamic banks. In addition, the primary data through questionnaire survey was also assembled with the aim of knowing the actual practices and problems of managing liquidity risk. It was investigated from the perceptions of Islamic banking depositors and Islamic bankers to shed further lights on the liquidity risk issues, which were not captured in the time-series analysis.
The empirical analyses conducted in this research demonstrate: (i) the non optimal organizational structure of Islamic banks to manage liquidity, (ii) the significant demand for liquidity withdrawals from depositors and fragility of Islamic banks to mitigate certain scenarios of liquidity withdrawals, (iii) critical factors explaining liquidity behavior of banking depositors and Islamic banks, (iv) reasons for depositors to withdraw funds from Islamic banks and the non ideal management of funds by Islamic banks and, (v) the limited Islamic money market instruments to manage the demand for liquidity from depositors.
Based on these findings, the research then constructs an integrated and comprehensive program to manage liquidity risk, which consists of three elements: (i) institutional deepening, (ii) restructuring the management of liquidity on the asset and liability sides and, (iii) revitalizing the usage of Islamic liquid instruments. This integrated and comprehensive program of liquidity risk management recommends a better way of managing liquidity risk based on Sharia compliant instruments and international standard banking practice
Islamic banking in Indonesia : new perspectives on monetary and financial issues/ Ismal
No full textxxi, 519 p.: ill, tab.; 26 cm
<Special Feature "Islamic Finance at the Current Stage: Scopes and Issues"> How Do Islamic Banks Manage Liquidity Risk?: An Empirical Survey on the Indonesian Islamic Banking Industry
No full text
The indonesian islamic banking: theory and practices
No full textOverseas investors, academics and Islamic bankers need a lot of information about the Indonesia Islamic banking industry
Islamic banking in Indonesia : new perspectives on monetary and financial issues/ Ismal
No full textxxi, 519 p.: ill, tab.; 26 cm
PENELITIAN TENTANG APAKAH PENERAPAN OTONOMI DAERAH KHUSUSNYA ALOKASI DANA PERIMBANGAN KEUANGAN PUSAT DAN DAERAH (PKPD) DAN NON-PKPD SELAMA TAHUN 2001 TELAH MEMBERIKAN DAMPAK KEPADA PENGENDALIAN MONETER ?
No full textPaper ini akan mencoba membahas dampak penerapan otonomi daerah, khususnya dampak alokasi atau penyaluran dana perimbangan keuangan pusat dan daerah terhadap pengendalian moneter selama periode pertama (tahun pertama) penerapan otonomi daerah. Langkah pertama yaitu mencoba menghitung besarnya alokasi dana perimbangan yang diterima tiap daerah di Indonesia, kedua, kemana dana tersebut dialokasikan/ditempatkan oleh masing-masing daerah (perbankan di daerah), ketiga, apakah ada pencairan dana dan kesimpulan serta langkah-langkah yang dapat diambil oleh otoritas moneter untuk menghadapi pelaksanaan otonomi daerah tahun depan
Model of Islamic Monetary Operation for Liquidity Management in Islamic Banking: Case of Indonesia 2000-2009
No full textThe paper attempts to construct the model of islamic monetary operation for liquidity management in islamic banking. Particularly, the model investigates variables that determine the role of the central bank in managing liquidity. Firstly, it explores the related conventional models and chooses one to find general variables involved in monetary operations for managing liquidity. Secondly, it formulates the islamic model after considering the islamic monetary operation principles, characteristics of both islamic monetary instruments and Indonesian islamic banking industry. Specifically, it models Bank Indonesia’s islamic monetary instrument called Bank Indonesia Sharia Certificate (SBIS). Thirdly, the model points out that the volume of SBIS is influenced by reserves requirement, currency in circulation, and prior auctions of SBIS. It means that the application of islamic OMO is not significantly different from monetary instrument in conventional OMO. Therefore, the paper suggests the issuance of islamic investment monetary instruments to implement the ideal islamic monetary instrument and OMO
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