Factors that Influence Revenue-Based Financing in Islamic Banking in Indonesia

Abstract

There are only 13 Islamic banks operating in Indonesia, compared to 102 conventional banks, although it holds status as world’s largest Muslim population. This research focuses on revenue-based financing in Islamic banking whose potential to Indonesia’s economy remains underexplored. This paper analyzes five factors that influence revenue-based financing: profit sharing rate, financing to deposit ratio, capital adequacy ratio, nonperforming financing, and Bank Indonesia Sharia Certificate (SBIS). Using multiple linear regression, this paper examines the data from quarterly financial reports during 2011-2017 of nine Islamic banks as the sample. This paper finds that financing to deposit ratio and SBIS have the positive influence. Regression estimation results shows the model prediction capability of 46.9%, while the remaining 53.1% is influenced by variables outside the model. Future studies might extend observation period and research scope to examine the contribution of revenue-based financing to country’s economy further