The purpose of this study is to determine the position of financial performance, the position of bankruptcy rates of Islamic banks, as well as compare it with conventional banks. This study also compares the accuracy of the bankruptcy predictions of the Islamic banks versus conventional banks using the Altman Z-Score method with the calculation of the financial services authority (OJK). This research compares two methods. First, the Financial Services Authority Regulation Approach (OJK Regulation No. 8/POJK.03/2014 which refers to Bank Indonesia Regulation No. 9/1/PBI/2007) aims to determine the position of financial performance. Second, the Altman Z-Score model which aims to find out the position of bankruptcy in Islamic and conventional banks. This study provides the finding of the position of the financial performance level and bankruptcy level of sharia and conventional banks. Based on the Financial Services Authority Regulation Approach, the position of Islamic banks performance level is ranked 3, and the position of conventional banks is ranked 1. While based on Altman Z-Score method, the risk of bankruptcy of sharia banks CBGB 2 is in the position of the gray zone, and conventional banks CBGB 2 is in the safe zone. These results prove that both Altman Z-Score method and the Financial Services Authority Regulation Approach can provide the same prediction result.

Islamic banking fall on stagnation of financial performance in 2011 after successfully overcoming the financial crisis in 1998 and 2008, as though the Islamic banking sector had only run in place and had no clear purpose in developing the Islamic finance business. The purpose of this study is to clarify the variables that predispose financial performance, as well as predict the decrease and increase of financial performance. This study uses an Artificial Neural Network (ANN) model to find out the variables that affect financial performance and predict the decrease and increase of financial performance of sharia and conventional banking for the next five months. This research generates the variables which affect the financial performance of sharia banking and the prediction of financial performance over the next five months. The variables which affect the level of financial performance of sharia banking affected dominantly by inflation, although the results of conventional banking are the same but not too significant. This shows that sharia banking CBGB (Commercial Bank – Group of Business) 2 is very vulnerable with macroeconomic factors compared with conventional banking. ANN predictions produce an average of 80% success in predicting performance over the next five months.

Manajemen risiko likuiditas sangat penting bagi bank syariah khususnya terkait dengan keunikan operasional bank syariah. Melalui investigasi kepada tiga bank umum syariah (BUS) nasional, paper ini mengukur praktek manajemen risiko likuiditas bank-bank tersebut dengan membuat indeks manajemen risiko likuiditas. Indeks tersebut mencakup sisi asset dan liability bank syariah termasuk praktek kebijakan manajemen risiko likuiditas yang mereka lakukan. Hasil analisa indeks ini menunjukkan tingkat kriteria “baik” analisa indeks per komponen memberikan gambaran yang beragam.

This study attempts to identify dominant factors for banks to issue sukuk and emission features. Applying interviews and Analytic Network Process, this paper Found that the sub-elements which are dominant in influencing IB less interested in issuing sukuk, namely: averse selection/amount cost of fund (management), investment rating companies (investor), the results of using sukuk funds (regulation) and profitability condition (finance). Meanwhile, the sub-elements which are dominant in determining the features of the issuance of sukuk are: macroeconomic condition (emission values), expectations of investors (return)), the contract and the structure of sukuk (collateral), managing mismatch (period), and company liquidity (payment term). The method used in this reseach is the Analytic Network Process (ANP). This study will identify the aspects of emission factors and features.

Indonesia is a country with a Muslim majority and hence the demand for Hajj (pilgrimage) is increasing especially for SAR (Saudi Arabian Real) currency during the peak hajj season. Unfortunately, the Hajj Financial Management Board (BPKH) as the Hajj (pilgrimage) authority has never hedged the hajj funds including the one based on Sharia (Islamic) principle. Then,in the continues weakening of the rupiah (IDR) exchange rate may invite the exchange rate risk that can affect the hajj funds. In fact, the issuance of Bank Indonesia (central bank) regulations and the National Shari Council’s (MUI) decisions on Islamic hedging is expected to become the guideline and VROXWLRQ IRU VKDULD ¿QDQFLHUVWR KHGJHWKH KDMM SLOJULPDJH IXQGV HYHQWKRXJKWKH\ KDYH QRW XWLOL]HGLW GXHWR the limited knowledge and understanding on Islamic hedging. This study aims to: (1) conduct a dynamic Islamic hedging simulation for the pilgrimage funds based on Islamic principle, (2) to identify the amount of cost savings coming from Islamic hedging, the optimal time and price to apply a dynamic Islamic hedging,and (3) to provide recommendations to BPKH in applying a dynamic Islamic hedging for its pilgrimage funds. Finally, the dynamic VLPXODWLRQRI,VODPLFKHGJLQJ¿QGVWKDWDWKHORQJHUWKHSHULRGRI,VODPLFKHGJLQJWKHJUHDWHUWKHFRVWVDYLQJV (b) the ideal time for Islamic hedging is when the economic condition is less stable such as on 2013-2015 and the IDR weakens against USD about 20%-30% and 40%-50%;(c) the worst time for Islamic hedging is when the IDR increase to SAR such as recent economic condition on 2016-2017 when IDR increase 10%-20% to SAR;(d) The implementation of Islamic hedging needs accurate time especially when IDR to USD and IDR to SAR weaken and the yield of Islamic money market up to 4%-6%, the yield of conventional foreign exchange money market 0.1%-0.4%, and the yield of Saudi Arabian inter-bank overnight market 0.3%-0.6%. Therefore, BPKH needs to PRQLWRUWKHÀXFWXDWLRQRI,'5H[FKDQJHUDWHDJDLQVW86'DQGDJDLQVW6$5DVZHOODV\LHOGVIURPWKHPRQH\PDUNHW instruments before the implementation of Islamic hedging

Purpose – The demand for Saudi Arabian real (SAR) is very high in the pilgrimage (hajj) season while the authority, unfortunately, does not hedge the hajj funds. As such, the hajj funds are potentially exposed to exchange rate risk, which can impact the value of hajj funds and generate extra cost to the pilgrims. The purpose of this paper is to conduct simulations of Islamic hedging for pilgrimage funds to: mitigate and minimize exchange rate risk, identify and recommend the ideal time, amount and tenors of Islamic hedging for hajj funds, estimate cost saving by pursuing Islamic hedging and propose technical and general recommendations for the authority. Design/methodology/approach – Forward transaction mechanism is adopted to compute Islamic forward between SAR and Rupiah (Indonesian currency) or IDR. Findings – based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds. Findings – Based on simulations, the paper finds that: the longer the Islamic hedging tenors, the better is the result of Islamic hedging, the decreasing of IDR/USD is the right time to hedge the hajj funds and, on the other hand, the IDR/SAR appreciation is not the right time to hedge the hajj funds. Research limitations/implications – The research suggests the authority to (and not to) hedge the hajj fund, depending on economic conditions and market indicators. Even though the assessment is for the Indonesian case, other countries maintaining hajj funds might also learn from this paper. Originality/value – To the best of author’s knowledge, this is the first paper in Indonesia that attempts to simulate the optimal hedging of hajj funds.

Purpose – Banks in Indonesia offer two currency-hedging mechanisms to business players to hedge their portfolio against exchange rate risk, namely, Islamic hedging and conventional hedging. Taking into account that Islamic finance stakeholders in Indonesia want to accelerate Islamic hedging transactions, assessing the feasibility of Islamic hedging to serve the business players is very important. Thus, this paper aims to compare the conventional and Islamic currency-hedging mechanisms, particularly to identify which one to be preferred by the business players, identify terms and conditions if Islamic hedging is more preferable, give information regarding the estimated profit and payment of the premium in adopting currency-hedging (both conventional and Islamic hedgings) and prove the workability of Islamic currency-hedging as a new hedging mechanism for the business players. Design/methodology/approach – The paper uses qualitative research methodology by comparing Islamic and conventional hedging and a quantitative research method by using a forward contract formula. Technically, the paper conducts a static simulation of the forward transactions by using both conventional and Islamic hedgings to hedge the foreign exchange (forex) credit received by business players from banks. The forward contract simulation uses US dollar (USD) against Indonesian rupiah (IDR) from December 2003 to February 2019 and the forward premium uses both Islamic and conventional money market rates called PUAB (conventional interbank money market) rate and PUAS (Islamic interbank money market) rate. Findings – The paper finds that Islamic hedging is more preferable to conventional one due to some considerations which are the number of profitable months, the minimum payment of premium and the highest payment of profit. However, even though the Islamic hedging mechanism has the advantage of having a higher Islamic money market rate than the conventional one, the economic condition (particularly the movement of IDR exchange rate) has to be considered as well particularly during the volatile exchange rate movement. Research limitations/implications – The paper has not occupied macroeconomic variables such as inflation, GDP, international trade, as they might influence the movement of IDR exchange rate. In addition, it uses static simulation rather than a dynamic one. Originality/value – This is the first paper assessing both Islamic and conventional hedging mechanisms in the case of Indonesia

This paper attempts to assess the demand and supply of liquidity in Islamic banks and to check the resilience of the industry to liquidity pressure. Firstly, it identifies the sources of short-term demand and supply of liquidity. Secondly, it assesses the historical performance of banks to manage liquidity. Thirdly, this paper predicts the short-term future performance and investigates the resiliency of the industry against any liquidity pressure by using ARIMA models and Bayesian technique. The paper finds that the industry has historically managed liquidity very well. Nevertheless, the resiliency against liquidity pressures is not strong enough because it does not perform well when irregular demand of liquidity or a liquidity run occur. As such, this paper suggests to Islamic banks that they intensify education of the public on Islamic banking principles, improve banking facilities, products and services, and optimize bank financing.

According to Islamic law, the Islamic banks deliver return to depositors based on profit and loss sharing principle. Consequently, the return will be uncertain following real business and economic condition. However, this research investigates the phenomenon that Indonesian Islamic banking industry seems to mimic interest rate in generating return to depositors. This investigation utilizes artificial neural networks (ANN) model to examine the importance rate of each macroeconomic variables used. The rate indicates the level of domination or contribution of each variable in determining the volatility of Islamic time deposit return. The research uses ten years of monthly macroeconomic data as independent variables. Additionally, the average rate of return from one-month time deposit of all Indonesian Islamic banks (RR) is used as dependent variable. As a result, the N(9-4-1), a chosen neural networks architecture, found that BIRT and INTR as proxy of interest rate, dominantly affect RR volatility with almost 98% of importance rate. It shows the very high dominance of interest rate in determining RR volatility, as indication of mimicking behavior, rather than remaining variables as proxy of real economic condition.

The 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.

The main aims of this paper are, firstly, to investigate the extent to which Yemen’s banks, in particular its Islamic banks, are applying Risk Management Practices (RMPs) and related techniques to deal with various types of risk, and secondly, to compare and distinguish between the RMPs used in Islamic, national and foreign banks. Semi-structured interviews were conducted to identify the current RMPs in Yemen. The main research instrument was a questionnaire, divided into two sections. The first section covered the following five aspects: understanding risk and risk management, risk identification and analysis, risk monitoring, RMPs, and credit risk analysis. The second section consisted of four aspects: methods of risk identification, risk management, credit risk management, and types of risk. Multinomial regressions and other statistical tools were applied to determine whether there are differences between Islamic banks and other banks in Yemen. Our results revealed that there are significant differences between Islamic and national banks in terms of their understanding of risk and risk management, risk identification and analysis and credit risk analysis. However, there are no major differences found between national and Islamic banks in terms of risk management and RMPs. For Islamic and foreign banks, however, there are significant differences in terms of understanding risk and risk management and risk identification and analysis, but no differences between their risk management, RMPs and credit risk analysis.

Purpose – This paper analyzes the gold Murabahah contract, which tends to be very popular in the Indonesian Islamic banking industry. As the contract is very sensitive to the gold price movement and speculative motive, a comprehensive assessment is done to assess the behavior of the gold price movement, behavior of the investors and the limits of the gold Murabahah contract. It proposes recommendations to manage the gold Murabahah contract and to mitigate its potential risks. Design/methodology/approach – The paper examines the gold price, termination of contract and limitation of the amount of funds in the gold Murabahah transactions by using quantitative formulas, such as variance, expected prices and probability of occurrence. In addition, it includes a qualitative analysis of the historical pattern of daily gold prices in the past 12 years. As such, a combination of both approaches generates a comprehensive analysis and recommendations to policymakers, Islamic bankers and investors. Findings – It finds some interesting outcomes with regard to the behavior of gold prices, behavior of investors regarding the gold Murabahah contract and intention of investors to terminate gold Murabahah contracts prior to their maturity date. Such outcomes become the material for the policy recommendations of the paper. Particularly, it proposes the margin of the Murabahah gold contract, tenor of the contract, down payment and a review of the base gold Murabahah regulation to manage the gold Murabahah contract and to mitigate risks. Research limitations/implications – The paper does not consider macroeconomic variables such as inflation, exchange rate and economic growth which may affect the movement of the world’s gold prices. It does not examine the gold Murabahah contract in other countries, as it is believed that the gold Murabahah contract is very popular only in the Indonesian Islamic banking industry. Originality/value – To the best of the author’s knowledge, this is the first paper examines the gold Murabahah contract in relation to the Indonesian Islamic banking industry

Pasar Obligasi dan reksadana relatif masih baru di pasar keuangan Indonesia. Namun demikian, perkembangan kedua pasar tersebut cukup menjanjikan baik dari sisi jenis instrumen yang ditawarkan, jumlah investor maupun nilai investasi yang ditanamkan. Pada periode Agustus - Desember 2005 lalu,kedua pasar tersebut mendapat tekanan yang cukup berat dan hampir menumbangkan perusahanperusahaan sekuritas besar karena besarnya jumlah likuiditas yang ditarik investor (redemption). Paper ini mencoba menganalisa kejadian yang menimpa pasar obligasi dan reksadana tersebut baik sumber tekanan yang utamanya adalah berasal dari faktor makroekonomi dan faktor pasar, besarnya dampak redemption sampai ke langkah-langkah penyelematan yang ditempuh pemerintah (Bank Indonesia, Bapepam, dll) Ke depannya, para pelaku pasar termasuk para investor harus lebih mendapat edukasi yang benar dan positif mengenai investasi di pasar obligasi maupun reksadana. Selain itu, regulator juga diharapkan dapat mematangkan perkembangan kedua pasar melalui peraturan-peraturan yang mendukung termasuk proses komunikasi peraturan-peraturan tersebut kepada seluruh pihak terkait di pasar obligasi maupun reksadana

Purpose – The Indonesian Islamic banking industry is very promising, but there has been no analysis of the optimal and decreasing growth rate of the industry. Information regarding these is essential for policy makers, Islamic bankers and all related parties to guide the future development of the industry and sets up proper plans and strategies. The paper aims to explore the optimal and decreasing growth rates of the industry and in so doing contribute to the current literature on the Indonesian Islamic banking industry. Design/methodology/approach – The paper first reports on the performance of the Indonesian Islamic banking industry, before explaining conditions where the Islamic banking industry is believed to be still immature. Third, in order to identify the optimal and decreasing growth rates, the paper estimates the future performance of the industry by using ARIMA models to identify periods where the growth rate is at optimal and decreasing points. Then, on the basis of a number of assumptions and statistical simulations, the analysis broadens to become qualitative in nature by determining the optimal numbers of Islamic banks to be established in the future. Findings – The paper generates some important findings. First, the optimum growth rate of the market share (0.12 percent) is predicted to occur in December 2012; the market share in that month is estimated to be 5.75 percent. Second, although the market share keeps growing, the paper finds the rate of increase to be slow, and in October 2018, it becomes negative, at 0.004 percent. The estimated market share in that time is 11.63 percent. Finally, the optimal number of Islamic banks in December 2012 is shown to be 23 and in October 2018, 24. Research limitations/implications – Qualitative information on the months of the optimal and decreasing growth rates and quantitative information on the optimal number of Islamic banks to be established are significant information for policy makers, Islamic bankers and other related parties. The information is likely to be important in relation to their efforts to develop the Islamic banking industry, to anticipate decreasing growth in the industry and to establish new Islamic banks. More generally, the paper helps the related parties to direct and guide the future development of the industry. Originality/value – To the best of the authors’ knowledge, this is the first paper that attempts to establish optimal and decreasing growth rates in the Indonesian Islamic banking industry, or the optimal numbers of Islamic banks to be established in the future

Purpose – The purpose of this paper is to analyze individual financing instruments and portfolios of instruments, and find the location of the most efficient portfolio financing. The Indonesian Islamic banking industry is very promising with four dominant financing instruments, namely, Mudarabah, Musharakah, Murabahah and Istishna. Each instrument has unique pattern of return, expected return and risk. Moreover, the variances of two, three and four financing instruments suggest the importance of identifying the most prospective financing instruments. Further, the most efficient portion of the most prospective financing is determined by constructing an efficient portfolio financing frontier. Design/methodology/approach – Technically, it uses risk and return theory to compute risk, return and variance of an instrument and set of financing instruments. In addition, it uses an efficient portfolio frontier curve to locate all combination of the most progressive portfolio financing and finds the most efficient portfolio financing. Findings – It finds some interesting finding with regard to the pattern of return, characteristics of a financing instrument and groups of financing instruments. The most essential finding of the paper is the location of the most efficient portfolio financing. Research limitations/implications – The information and finding of this paper benefit the Indonesian Islamic banking industry to optimize the performance of an individual and groups of financing instruments. Particularly, for the most progressive financing instruments, it proposes the combinations of portfolio financing which give optimum output. Originality/value – To the best of author’s knowledge, this is the first paper trying to analyze and construct an efficient portfolio financing frontier of the Indonesian Islamic banking industry.