Determinants of Profit and Loss Sharing Financing

What is it about?

The dynamics of PLS financing in Indonesia in the short term is influenced by the risk-sharing deposits and bank size variables. In the long term, the growth in PLS financing is more influenced by the shock of PLS financing in the previous period. This further emphasizes the high-risk characteristics of PLS, so that extra careful handling is needed so as not to further increase non-performing financing. It is not surprising that the growth in PLS financing in the last decade has tended to slope. Meanwhile, the growth in PLS financing, which is not affected by interest rate volatility, makes the financial system more stable because banks do not need to reevaluate their balance sheet entries. The PLS scheme also supports the balance of the real and monetary sectors because the disbursement of funds depends on the progress of the business being run. The aspect of religiosity that has no effect shows that Indonesian people in seeing the role of religion are actually relatively moderate. In their religious activities, people do it obediently. At least, it can be seen from the relatively increasing growth of ZIS. However, in interaction with Islamic banks, people still profit-oriented, as indicated by the low average PLS financing growth compared to total credit.

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Photo by Joshua Hoehne on Unsplash

Photo by Joshua Hoehne on Unsplash

Why is it important?

This paper used empirical evidence to show the influence of internal and external factors toward Profit and Loss Sharing financing performance.

Perspectives