Management ownership and the performance of Islamic microfinance institutions: a panel data analysis of Indonesian Islamic rural banks

• Published in: International journal of Islamic and Middle Eastern finance and management 2021-11, Vol.14 (5), p.950-966
• Main Authors: Fithria, Annisa, Sholihin, Mahfud, Arief, Usman, Anindita, Arif
• Format: Article
• Language: English
• Subjects: Banks; Boards of directors; Corporate governance; Corporate profits; Data envelopment analysis; Efficiency; Employee ownership; Hypotheses; Islam; Islamic financing; Literature reviews; Longitudinal studies; Microfinance; Ownership; Panel data; Policy making; Profitability
• ISSN: 1753-8394; 1753-8408
• DOI: 10.1108/IMEFM-05-2020-0257

Purpose This study aims to analyse the relationship between management ownership and the performance of Islamic microfinance institutions (MFIs) using panel data from Indonesian Islamic rural banks (Bank Pembiayaan Rakyat Syariah [BPRS]). Design/methodology/approach This study uses unbalanced quarterly panel data from BPRS during the period from 2011 to 2016. Performance, as the dependent variable in this study, is analysed based on three sets of measures, namely, profitability, efficiency and the financing risk. Management ownership, as the independent variable in this study, is represented by ownership by the board of directors (BOD), the board of commissioners (BOC) and the sharia supervisory boards (SSB). Findings The results show that ownership by the BOD and BOC does not have a significant relationship with profitability and efficiency. However, the BOD ownership has a negative relationship with the financing risk and vice versa for the BOC ownership. Additionally, the study reveals that ownership by the SSB plays a positive and significant role in increasing the profitability and efficiency but does not have a significant impact on the financing risk. Originality/value This is one of the first studies to provide empirical results regarding the relationship between management (BOD, BOC and SSB) ownership and the performance of BPRS. The finding reveals that ownership by the SSB is very important to increase the profitability and efficiency of the BPRS. Contribution to Impact This study fills the gap in the literature about Islamic MFIs in Indonesia, especially the BPRS. This research also provides an insight into corporate governance practices and Islamic MFIs’ performance using BPRS data. The findings provide useful information for policy makers and regulators.