Published date: Nov 19 2024

Journal Title: KnE Social Sciences

Issue title: The 1st International Conference on Creative Design, Business and Society (1st ICCDBS) 2023

Pages: 195–210

DOI: 10.18502/kss.v9i32.17436

Sri Yayu Ninglasarisri.yayu@its.ac.idDepartment of Business Management, Faculty of Creative Design and Digital Business, Institut Teknologi Sepuluh Nopember

Nugroho Priyo NegoroDepartment of Business Management, Faculty of Creative Design and Digital Business, Institut Teknologi Sepuluh Nopember

M. Fikri HimmawanDepartment of Islamic Economics, Faculty of Economics and Business, Universitas Airlangga

Santy Dwi CempakaDepartment of Business Management, Faculty of Creative Design and Digital Business, Institut Teknologi Sepuluh Nopember

This study examines the influence of various Islamic financing mechanisms – mudarabah, murabaha, musharakah, liquidity, and financing risk – on the profitability of Islamic banking institutions in Indonesia from 2011 to 2020. Utilizing a quantitative approach, the research aims to thoroughly assess both the short-term and long-term effects of these variables on the dependent variable, Islamic banks’ profitability. The analysis is based on panel data from the Indonesian Islamic banking sector during the specified period and employs the vector error correction model (VECM) method for data analysis. The outcomes of the estimation tests indicate that each of these variables significantly impacts the return on assets (ROA) of Islamic banks in Indonesia, both in the short and long term, throughout the given period. The findings reveal that changes in mudarabah, murabaha, musharakah, non-performing financing, and financing-to-deposit ratio have led to measurable responses in the ROA of these institutions. This study offers valuable insights into the relationship between Islamic financing components and the profitability of Islamic banks in Indonesia, contributing to a deeper understanding of the financial dynamics in this sector over the past decade.

Keywords: Islamic banks, Islamic financing, profitability, VECM

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