Islamic banking industry is so prospective over the years. Although depositors mainly locate their funds in long-term deposit but their investment motive is not for long-term perspective, rather it is for regular transactions followed by expectation for short-term return. Islamic banks respond the potential of short-term liquidity needs by releasing most of the funds into short-term financing contracts together with preparing some liquid instruments for regular liquidity demanded. There are three tiers of liquid instruments to mitigate any liquidity problem involving internal and external sources of bank’s liquidity. Lastly, the role of central bank and government completes the liquidity risk management mechanism

This This study aims to investigate the robustness of prediction model by comparing artificial neural networks (ANNs), and support vector machine (SVMs) model. The study employs ten years monthly data of six types of macroeconomic variables as independent variables and the average rate of return of one-month time deposit of Indonesian Islamic banks (RR) as dependent variable. Finally, the performance is evaluated through graph analysis, statistical parameters and accuracy rate measurement. This research found that ANNs outperforms SVMs empirically resulted from the training process and overall data prediction. This is indicating that ANNs model is better in the context of capturing all data pattern and explaining the volatility of RR.

This paper attempts to analyze the economic development and fiscal policy in Indonesia. Especially, it investigates whether Wagner and/or Keynes law(s) of economic development apply in the country and what variables determine the economic growth and fiscal policies. Technically, the paper uses econometric model called Autoregressive Distributed Lag model and Vector Auto Regression model to analyze both short and long run periods. The main finding is that both Wagner and Keynes law(s) occur in the Indonesian economy. Particularly, economic growth is influenced by government expenditures variables, namely employment expenditures, good expenditures and non tax income. Meanwhile, government expenditures are determined by exports of oil, imports and payment of debts. As such, the paper suggests that policy makers use employment expenditures as the fiscal policy variable while imports and exports of oil are the aggregate economy policy variables.

Purpose – The purpose of this paper is to formulate both withdrawal risk and bankruptcy risk to mitigate the risks and to find the equilibrium area of revenue sharing to depositors. Taking the case of the Indonesian Islamic banking industry, this work might benefit the Islamic banks, banking regulators and all stakeholders to manage the risks and maintain the robust development of the industry. Design/methodology/approach – First, the application of revenue sharing ratio in Islamic banks is studied. Withdrawal risk might happen because of the displaced commercial risk and bankruptcy occurs when the banks fail to manage such withdrawal risk. Referring to that, by using a mathematical approach, the formulas of withdrawal risk and bankruptcy risk are created with some underlying scenarios. Finally, mathematical formula and three dimensions area of the equilibrium revenue sharing ratio are developed. Findings – The paper generates the financial mathematical formulas to assess the vulnerable and invulnerable conditions of the withdrawal risk and the bankruptcy and solvency conditions of the bankruptcy risk to be used by decision makers to mitigate the risks. The ultimate output of the paper is the equilibrium area of the revenue sharing ratio, which locates Islamic banks in a proper condition of no withdrawal risk and bankruptcy risk. Originality/value – To the best of the author’s knowledge, this is the first paper trying to analyze the issues under the Indonesian case

Purpose – The purpose of this paper is to propose the Islamic monetary instruments as an Islamic approach for the central banking monetary operation. It is assumed that the central bank may not deal with the uncertain return of the project (asset) and its ultimate monetary policy target is to stabilize the economy by utilizing the excess (idle) liquidity in the economy. This theoretical study benefits the central bank from the assessment of the usage of every proposed Islamic monetary instrument with respected to the monetary operation purposes. Design/methodology/approach – The paper exercises four feasible Islamic monetary instruments based on the characteristics of Sharia contract which suit the nature of the current central banking monetary operation. Every instrument is elaborated mathematically to analyze its monetary impact and the possible reaction of depositors. Finally, the paper suggests the deterministic factors to successfully offer such Islamic instruments. Findings – The exercises find the unique operation of every Islamic monetary instrument. Based on the monetary impact of each instrument, the central bank can now have an alternative monetary policy based on the Sharia principles and operation. Research limitations/implications – The paper has so far found the feasibility of four Islamic monetary instruments. There might be other Islamic monetary instruments which can be viable to be exercised. Originality/value – To the best of the author’s knowledge, this is the first paper trying to exercise the alternative of the Islamic instruments for monetary operation

Murabahah is a dominant financing instrument in most Islamic banks all over the world. However, price volatility of the good being financed opens a chance for entrepreneurs to gain profit by pretending to be default (moral hazard). Assessment on condition triggering such moral hazard and probability of entrepreneurs to take risk of pretending to be default are being analyzed. Finally, Islamic bank can mitigate it through appropriate bank’s investigation and charging some cost as well as penalty.

Purpose – The paper attempts to analyze the volatility of returns and expected losses of Islamic bank financing. In particular, it takes the case of Indonesian Islamic banking industry. Design/methodology/approach – The paper uses Value at Risk (VaR) approach to compute the volatility (risk) of returns and expected losses of Islamic bank financing. In particular, it uses variance-covariance method to calculate VaR of multi-asset portfolios (groups of equity-, debt- and service-based financing). Findings – First of all, equity and debt-based financing produce sustainable returns of bank financing. Moreover, they are also very resilient during unfavorable economic conditions. Second, the performance of service-based financing is very sensitive to the economic conditions. Lastly, VaR computation on the volatility of returns and expected losses of bank financing finds that risk of investment and expected losses are well managed. Practical implications – The paper demands Islamic banks to keep intensifying equity-based financing rather than only debt-based financing and improve the banking services to support the performance of service-based financing. Originality/value – To the best of the author’s knowledge, this is the first paper to assist the volatility of returns and expected losses of the Islamic banking financing in Indonesian

Purpose – Islamic banks need to manage depositors’ deposit withdrawals in a well manner in order to be able to optimize depositors’ funds in their portfolio financing. Taking into account the Indonesian Islamic banking industry as a study case, this paper attempts to analyze the depositors’ withdrawal behavior. Moreover, it also analyzes the responses of Islamic banks to mitigate such deposit withdrawals. Design/methodology/approach – First, the paper accommodates the flow of funds of the Indonesian Islamic banking operations. Second, it formulates a liability side model of the competitive Islamic banking industry referring to some ideas from the conventional models. Then, the paper uses linear probability model (LPM) to identify depositors’ withdrawal behavior and to analyze the responses of Islamic banks to mitigate deposit withdrawals. Findings – It is found that depositors withdraw their money if: Islamic banks do not generate incomes from their financing; interest rate goes up; and total deposits tend to decrease. As such, Islamic banks have to anticipate this withdrawal behavior by doing two actions: reserving some liquidity and adjusting return sharing ratio to depositors. The output of this paper should benefit the policy markers and Islamic banks to understand depositors’ behavior in withdrawing money and determine appropriate policies to manage it. Originality/value – The best of author’s knowledge, this is the first paper trying to analyze the depositors’ withdrawal behavior with LPM model taking into account the Indonesian Islamic banking industry.

In Indonesia, Islamic banking shows a progressive performance with a robust performance of banking indicators. Its operations engage non bank financial institutions, Islamic money and capital market and takaful (Islamic insurance) with the ultimate target of financing the real sector and improving the economy. However, there are still some challenges to be solved in particular the small market share, lack of human resources and, lack of product development. Some recommended actions are proposed in the paper to mitigate those problems and foster the development of the Islamic banking industry.

Purpose – The purpose of this paper is to analyze and evaluate the present liquidity management in the Indonesian Islamic banking industry. It also proposes an integrated and comprehensive program of liquidity risk management which captures and assimilates the whole aspects of the issue and brings the industry into a better way of managing liquidity risk based on sharia principles. Design/methodology/approach – The paper first examines the organizational structure of Islamic banks and Islamic windows in managing liquidity. Second, it investigates the characteristics of the depositors, their investment behaviors and expectations followed by the banks efforts and policies to manage the liquidity. Then, it identifies the potential liquidity problems and Islamic liquid instruments. Finally, it proposes an integrated and comprehensive program for managing liquidity. Findings – The paper suggests institutional deepening; restructuring the liquidity management on the liability and asset sides; and revitalizing the usage of the Islamic liquid instruments, in the integrated program. Originality/value – This is believed to be the first paper to propose a liquidity management improvement program in the Indonesian Islamic banking industry.

Purpose – The purpose of this paper is to assess liquidity risk management (LRM) practices in Indonesian Islamic banking industry during the period 2000-2007. Design/methodology/approach – The paper constructs the LRM index (100 scale) which is composed of individual index of asset side; liability side; LRM policies; and the overall LRM index. Findings – The index produces a “good” grade for the liquidity management practices in the Indonesian Islamic banking industry, represented by three Islamic banks which capture 82 percent of the total market share of the industry. However, the breakdown of the index of every Islamic bank suggests various achievements. Research limitations/implications – It is found that the practices of LRM are not optimal yet based on some considerations explained in this paper. Further progressive actions have to be taken by the regulators and all industry’s players to improve the LRM practices. Originality/value – To the best of the author’s knowledge, this is the first paper trying to assess how good the LRM in Indonesian Islamic banking is.

Financial performance as a measuring instrument to know the process of implementing financial resources owned by the company. The Covid-19 pandemic has impacted the banking sector, resulting in poor financing due to debtors' disbursements as a result of the large number of people losing their jobs and difficulties in financing payments. This research aims to analyze the financial performance of Islamic Banks during the Covid-19 pandemic, using records of annual financial statements from 2011 to 2020 through Multiple Linear Regression testing and linearity testing of the model used Ramsey test. As a result of this study, the results of the t test found that the Capital Adequacy Ratio (CAR), Operating Costs to Operating Income (BOPO), Financing to Deposit Ratio (FDR) had a positive and significant effect on financial performance (ROA) while Not Performing Financing (NPF) had a negative and insignificant effect on financial performance (ROA). Furthermore, simultaneously capital adequacy ratio (CAR), Operating Costs to Operating Income (BOPO), Financing to Deposit Ratio (FDR) and Not Performing Financing (NPF) significantly influenced the financial performance (ROA) of Sharia banks in Indonesia