untitled ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn 255-3216 article history: published : 1 december 2017 keywords: female customers, expanding women’s access to the banking sector (analysis of perceptions, behavior, culture, and social class of female customers towards the effectiveness of working capital financing at islamic banking in palembang) maftukhatusolikhah, siti mardiyah, erdah litriani, and sri delasmi faculty of islamic economics and business, uin raden fatah palembang international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4132 indicates that although the growth and success of female entrepreneurs in doing their business by women and considered them as their promising targets yet. the data show that in indonesia, international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4 133 th comprehensive analysis is required to be a reference for overcoming these issues. comprehend the women’s access and control of development resources. they concern capital sector, for providing wider access for women to the development resources and enabling them to gender equality and women’s empowerment. international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4134 the increase in umkm promoted by women that are financed by islamic banks the increase in market share of islamic banking in indonesia the effectiveness of working capital financing of female customers at islamic banking the increase in national economic growth international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4 135 society. secondly, they have their internal obstacles, in which they assume that they do not need related to women, whereas public ones are addressed to men. as to cause the gender inequality, including in the economic sector. even though it is assumed women receive unequal treatment, in which women experience some disadvantages because of support for gender equality and women’s independence. the cedaw declares several following principles as follows. between women and men. equality of women’s rights, but also their de facto equality, in which the states should also international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4136 women change their roles in their family. it means that they are no longer depending on their than their husband. accomplishment of society’s demands. in reality, their roles in development has established the following table presents variables, dimensions, indicators, and scales of variable measurement employed in this study. understanding: impressions or · be able to absorb · be able to it was measured with by using a comparing · be able to compare, assess, and evaluate an international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4 137 involved to obtain goods and · tenacity and · willingness to · preference independently. it was measured with by using a beliefs, values, customs that behavior as the member of a certain society. society into some sociocultural and demographic variables such as religion, geographical religious beliefs it was measured with by using a customs ethnic groups subculture race, age, gender, and language class, there are some factors and beliefs · how to manage · how to manage it was measured with by using a lower class, middle class, and upper class entrepreneurs goals. infrastructure that has been previously established to produce goods and services in doing anggriawan based on several factors as follows. international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4138 this factor highlights the customers’ irregular rates of payment. npl is the comparison between loan amount and the frequency of arrears. in other words, it shows the number of arrears payment procedures. parameters. other resources, but also the increase in income and the welfare of the program targets. not to showed the same result. it indicates international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4 139 their business. doing their business for more than three years when we interviewed them. it suggests that the female entrepreneurs could be trusted in the management of their business. the validity test of the instruments was carried out to examine the level of validity as reliability test was also done to examine that these instruments were reliable to be used in the meanwhile, the normality test was performed to examine whether this study resulted from analysis as follows. y= a + b1 x1+ b2 x2 + + b e international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4140 international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4 141 palembang. male customers do. perceptions, behavior, culture, and social class so that the research results obtained the financial institutions. international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4142 anggriawan aries. michigan: university of michigan press. . illinois: university of illinois press. cambridge: cambridge university press. . surabaya: universitas airlangga press. . change: a javanese example”, press of harvard university press. . . . seminar . holt, rinehart, and winston. oxford: oxford university press. international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4 143 . salemba empat. cambridge: peabody museum. keluarga di desa wonosalam. . . philadelphia: open university press. mowen, . . cultural anthropology tutorials reagan, ronald. , , , new universitas andalas. hall. , issued on language day, , 2002 . and giroux. international journal of islamic business and economics, 1(2) december 2017, 1 3 1 1 4 4144 internet untitled ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn 255-3216 article history: published : 1 december 2017 keywords: tax amnesty, tax payment compliance taxpayer compliance level in paying taxes. the essence of the tax amnesty is tax forgiveness. this policy is expected to increase the willingness to pay taxes from taxpayers. this study by using simple linear regression. the result of this research influence tax amnesty payment of tax compliance smes batik moslem in district pekalongan (a case study of smes batik moslem in district pekalongan 2016-2017) fani nur arisnawati, sri khayati, and novia zulva international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9118 tax amnesty is a pardon program granted by the government to the taxpayer covering the tax system. more equitable and a more valid, comprehensive, and integrated tax database something that society gives to the company and something the company wants or sought from of tax amnesty policy is expected to increase people’s willingness to pay taxes. tax amnesty is en international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9 119 3.1 data quality test instrument’s precision in measuring what it wants to measure. in determining the feasibility of an to the total score. the following test results of data validity: r vlaue account r table value result 0,000 0,000 0,000 0,000 0,772 0,000 y1.1 0,000 y1.2 0,000 0,000 0,000 0,000 invalid y2.1 0,000 y2.2 0,000 0,000 0,000 0,000 0,001 0,000 0,000 0,000 0,000 0,000 in the table above shows that the validity test on all variables appears that the value of and this variable is deleted. 3.2 test reliability to see the consistency of answers to the statement items given by the respondents. the reliability sps program. the reliability for each of the result variables is presented in the following table: cronbach alpha result reliable awareness of paying taxes reliable knowledge and understanding of tax laws reliable reliable international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9120 can be said all the concepts of measuring variables used in this study is reliable. 3.3 descriptive statistics n minimum maximum mean std. 10 awareness of paying taxes 10 knowledge and understanding of tax laws 11 10 20 3.4 results of analysis and testing hypothesis hypothesis 1 a. normality test test on the residual value of the regression model. normality test results can be seen in the following test images: international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9 121 residual n normal parametersa mean .0000000 most extreme absolute the test results show a normal distributed residual as a result of the pp plot test showing problem. a good regression model should not be correlated between independent variables. model tolerance 1 taxamnesty 1.000 1.000 is performed by regressing the residual absolute value against the independent variable. the model t sig.std. error 1 .020 taxamnesty .071 international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9122 7. model r r square square std. error of watson 1 a .170 model t sig. std. error 1 .000taxamnesty .001 model r r square square std. error of 1 a .170 hypothesis 2: international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9 123 a. normality test test on the residual value of the regression model. normality test results can be seen in the following test images: residual n normal parametersa mean .0000000 most extreme absolute multicollinearity test was conducted to test whether the regression model found a correlation between independent variables. if there is correlation, then there is called multicollinearity problem. a good regression model should not be correlated between independent variables. model std. error tolerance 1 taxamnesty .122 1.000 1.000 is performed by regressing the residual absolute value against the independent variable. the international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9124 model t sig.std. error 1 taxamnesty heterosc uses model r r square square std. error of 1 a model t sig.std. error 1 .000 taxamnesty .122 2.721 and hypothesis 2 is accepted model r r square square std. error of 1 a international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9 125 hypothesis 3 a. normality test test on the residual value of the regression model. normality test results can be seen in the following test images: residual n normal parametersa mean .0000000 absolute .077 model std. error tolerance 1 taxamnesty 1.000 1.000 is performed by regressing the residual absolute value against the independent variable. the results of heteroc y test can be seen from the table 17 below: international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9126 model t sig.std. error 1 taxamnesty model r r square square std. error of 1 a model t sig.std. error 1 .000 taxamnesty model r r square square std. error of 1 a international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9 127 by other variables . a. tax amnesty against awareness of paying taxes 1 the willingness to pay taxes. tax amnesty using self assessment system will incur taxpayers to pay taxes voluntarily. this burdened with unpaid taxes because it will be forgiven. taxpayer will harm the state if it does not pay taxes. b. tax amnesty against understanding tax laws 2 understanding of tax laws. this result is in conformity with research conducted by ngadiman and masses of taxpayers that are not compliant so that taxpayers can begin to submit spt and pay taxes correctly. tax amnesty raises taxpayers willing to submit spt properly and willing to submit spt correctly on tax amnesty also increases the understanding of taxpayers. understanding of this taxpayer c. tax amnesty against a good perception of tax system effectiveness international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9128 or training regarding the tax system to the respondent as a taxpayer. in the end, the respondents research results, can provide a more real picture. to increase. , international journal of islamic business and economics, 1(2) december 2017, 1 1 7 1 2 9 129 . ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 10 april 2019 accepted : 10 may 2019 published : 11 june 2019 keywords: bank performance (roa and roe), non-performing investment(npi),causes of npl doi: https://doi.org/10.28918/ ijibec.v3i1.1618 jel: g20; g21 abstract non-performing investment are the amounts that can not be collected by organization from clients. in bangladesh banking sector is facing severe consequences from lack of collection of non performing loan(non performing investment for islamic banks). emphasizing the significance of the subject the study is undertaken to find out how non performing investment effect performance of islamic banks in bangladesh for five year period from 2012 to 2016.statistical tests such as (descriptive statistics, correlation and regression analysis) are performed to find out the effect non performing investment have on the overall performance of islamic banks. correlation analysis opine negative association of non performing investment with bank performance, bank size and capital adequacy ratio. on the other hand, regression analysis did not found any significant effect of non performing investment with bank performance.. effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh 1 bba,mba, department of finance, university of chittagong,chattogram, bangladesh. 2 assistant professor, department of finance, university of chittagong, chattogram, bangladesh. corresponding email: shafir121@gmail.com2 1. shafir zaman1 2. md. mohiuddin chowdhury2 international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-82 1. introduction in order to be an efficient economic system financial system should be transparent and accountable. banking industry as a life blood of economic system should be efficient. bank performance is satisfactory when banks can satisfy the customers with minimum risk and maximum return. poor performance of banking industry has a consequence on both the economy of a particular country and in the world economy,(khan and senhadji, 2001).among many risks facing by banks the most severe risk is the risk of non-recovery of loans (non performing investments for islamic banks) that are given to borrowers. default loans after a specific period become non-performing loans. nonperforming loans are not a source of earning for banks rather they are loss for banks (hennie, 2003). loopholes in the financial system, lack of inefficiency of management system, political influence are the prime reasons of nonperforming loan. in bangladesh there are almost 58 listed banks. at present the amount of npl is increasing in bangladesh. in 2010 the npl as an outstanding loan was 7.2% and in 2017 september it was 10.7%.the rate of npl ratio is much more higher than other neighbor countries. almost 45000 billion money was written off as npl (islam,m.a,2018).report from bangladesh bank(the central bank of bangladesh) stated that default loan have increased to 74303 crore in 2017 compared to 62172 crore in 2016.default loans as a portion of outstanding loans have also risen to 9.31% from 9.23% in 2017 compared to 2016 (mallick,s.2018).from the statistics it can be noticed that non-performing loan has become a major concern for financial industries of bangladesh specially for banking industry. the study is undertaken to discover how non performing investment effect islamic banks performance by analyzing the research question: do non performing investment effect the performance of islamic banks in bangladesh? although much research on this topic done by researchers are basically related with impact of npl in terms of banks profitability as well as how credit risk effect bank performance there is little work done considering how non perforimng investment can effect the performance of islamic banks. the research aims to remove research gap by studying how npi can effect performance of islamic banks in bangladesh and further opening a field for research in the topic throughout the world. 2. literature review the loans that cannot be collected by banks from customers are regarded non-performing loans. the prime cause that is responsible for non-performed loan is failure to choose potential customer i.e. the customers who can pay loans in right time (chowdhury,h.m.m.).other causes include:poor credit appraisal, high-interest rate, inflation, low amount of gdp (hou,2007).financial institutions especially banks suffer severely as a result of npl. reserves needed to be maintained by banks to guard against npl. increase in npl reduce banks profit which is in turn reduce income of banks. excess npl decreases the money flow in the economy which results in economic recession. for finding out the association between npl and bank efficiency of malaysia and singapore banks a study had been done by (karim, chan and hassan,2010) .the study revealed npi increases as a result of cost inefficiency of banks. to show how credit risk management effect the performance of nigerian banks for 2004 to 2008 (kargi,2011) conducted research. descriptive statistics, correlation and regression analysis were done. the result opined that credit risk had significant relationship with bank performance. further research emphasizing the impact of credit risk on nigerian bank performance for 20042008 by (hamisu,2011) revealed credit risk and bank profitability were significantly related. similar type of study on pakistani banks by (iftikhar,2016) found npl and capital adequacy ratio had significant existence with performance of bank (roa and roe). international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-8 3 a different type of study undertaken on central and eastern european countries for 2009-2012 to explore the association of npl with gdp, inflation and unemployment problem by (skarica,2014) found npl negative relationship with gdp and positive relationship with unemployment rate, inflation. to find out relationship between npl with profitability of nigerian banks for period of 2006 to 2012 research were done by (adebisi and benjamin,2015).the research found roa was insignificantly related with npl but roe was significantly related with npl. for seeing the impact bank-specific factors had with npl on albanian banks for period 20022012 (ali and eva,2015) undertook a study. the result revealed exchange rate and loan growth had positive relationship with bank performance and gdp, interest rate had negative relationship with bank performance. study was conducted to find out the relationship of npl with other factors for period 20082014 in malawian banks by (chimkono, muturi &njeru,2016).the result opined that npl ratio, cost efficiency ratio, average lending interest rate had significant existence with bank performance. to explore how nonperforming loan effect nigerian banks performance a study had been conducted for period 1994 to 2014 by (etale. l,ayunku & etale. e, 2016). descriptive statistics, unit root test, correlation, regression analysis were conducted by researchers. the results found negative association of npl with roce which meant increase in npl cause decrease in firm performance. similar type of study on the nigerian bank for period of 2000 to 2013 was done by (ozurumba,2016). the results found negative relationship between roa and roe with npl.the study opined that this negative relationship was an indicator of danger for sustainability of banks. to find out the effect of npl with net interest on the stock exchange of bangladesh for the period 2008 to 2013(akter & roy,2017) conducted research. the research found significant relationship of npl with net interest margin of banks. further research were done to find the relationship between npl and profitability of ethiopian banks by (balango and rao,2017).the study revealed that npl was negatively associated with profitability . study on kenyan banks with respect to bank performance (roa and roe) and npl were undertaken by (chege and bichanga,2017) for period 2011 to 2015.the study found that nonperforming loan, size of the bank, operating cost and liquidity were significantly associated with bank performance (roa) and capitalization was insignificantly related with bank performance (roa). for exploring how profitability is related with ghana banks (baasi,2018) conducted research for period (2006-2015). the result revealed that npl had negative relation with roe, on the other hand car had positive relation with roe. hypothesis of the study: for the study hypothesis are developed by studying research papers . a study is done on the effect of non -performing loan on the profitability of ethiopian banks by (balango and rao 2017) took non-performing loan ratio as a hypothesis. therefore the first hypothesis of the study is: ho1: there is no relationship between npi with islamic banks performance. ha1: there is relationship between npi with islamic banks performance. bank size is used as an indicator to find out the effect it has with npi. a study made by (chege and bichanga, 2017) studying non-performing loan and financial performance of kenyian commercial banks considered bank size is an indicator. international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-84 the second hypothesis of the study is: ho2: there is no relationship between size of the bank with islamic banks performance. ha2: there is relationship between size of the bank and islamic banks performance. capital adequacy ratio have been used as an indicator to measure the effect of nonperforming loan on ethiopian banks by (balanco and rao,2017) . the third hypothesis of the study is: ho3: there is no relationship between car with islamic banks performance. ha3: there is relationship between car with islamic banks performance. 3. research method the study uses simple random sampling. simple random sampling is used because it gives the chance of every sample being selected. there are eight islamic banks in bangladesh. samples of six islamic banks are being taken for research. the study used secondary data which is collected from annual reports of six islamic banks from 2012 to 2016. 2012 to 2016 period is used because non performing investment during this period have become an area of concern of banks as it has increased to a great level. thirty annul reports of six islamic banks for year 2012 to 2016 are being used for the study. variables used in the study: dependent variable: bank performance (roa and roe). independent variable: size of bank, npi and car. software used to perform tests: ibm spss 20 software is used to do descriptive statistics, correlation analysis and regression analysis. model development: for the study econometric model is used. the model is as follows: y = a +β 1 x 1 + β 2 x2 + β 3 x 3 + € here y= bank performance(roa and roe) a = constant β 1β 3= regression coefficient of independent variables. table 1. variables and their proxies variable symbol proxies roa y net income / total asset roe y net income/ total equity size of the bank x1 logarithm of total asset npi x2 bad debt/investment car x3 (tier 1 capital + tier 2 capital ) / risk-weighted asset error term € 4. results and discussion 4.1 ratio analysis ratio analysis is undertaken to evaluate the overall performance of the islamic banks. international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-8 5 table 2. five-year ratio analysis of roa, roe, bank size, npi, and car year roa roe bank size npi ratio car 2012 1.48 14.28 5.23 3.8 11.69 2013 1.07 11.79 5.28 3.84 12.76 2014 1.04 10.62 5.52 4.39 12.58 2015 0.96 10.68 5.41 4.24 12.77 2016 1.08 13.07 5.48 4.57 11.89 source: annual report of six sample islamic banks from 2012-2016. return on asset: the return on asset can be computed by taking net profit with respect to total asset of banks. roa shows the profitability of banks. in 2012, roa was 1.48%.roa continued to decrease till 2015.in 2016, roa increased to 1.08% .it indicates the good revenue generation of islamic banks to fulfill short-term obligations. return on equity: roe is is found by dividing net income to total equity. the more the roe the better return is for the shareholders investment. in 2012, roe was 14.28% which decreased in 2013 to 11.79%. in 2014 and 2015 roe declined. in 2016, it increased slightly. this indicted external source of funds require higher cost and it decreases profitability for islamic banks . bank size: bank size is calculated by taking the logarithm of total assets. the size of islamic banks were 5.48% in 2016 and it gradually increased from 2012 to 2016. non-performing investment ratio: non-performing investment ratio is calculated by dividing the non-performing investment to total investments.high ratio results in large amount of bad debts which is loss for the banks. islamic banks had the low ratio of npi in 2012. the highest figure of the npi ratio was in 2016. capital adequacy ratio: car shows how bank assets (loans, investments, securities) have been financed by using capital of the banks. it is described as a percentage of a bank’s riskweighted credit exposures. car ensures safety of depositors money as well as financial soundness of banks. capital adequacy ratio of islamic bank increased from11.69% to 12.77% in 2015. in 2016 it decreased to 11.89% which meant the slowdown of islamic banks capital. it shows that capital cannot be used to cover up due dates and risks will be faced by banks in upcoming days. 4.2 descriptive statistics table 3. calculation of minimum, maximum, mean & standard deviation items n minimum maximum mean std. deviation roa 5 .96 1.48 1.1257 .20079 roe 5 10.62 14.28 12.0883 1.58136 size 5 5.23 5.52 5.3840 .12542 npi 5 3.80 4.57 4.1667 .33883 car 5 11.69 12.77 12.3373 .51116 from table-3, the values of range, minimum, maximum, mean and standard deviation can be found. range is found by maximum minus minimum value. highest value is termed as maximum value and lowest value is termed as minimum value. mean represents average value of all observations which is found by dividing all the number of observations. standard deviation measures the risk involved . standard deviation of all variables is low. it can be concluded that less risk involved. international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-86 4.3 correlation analysis table 4. pearson correlation test items roa roe size npi car roa 1 roe 1 size -.669 -.567 1 npi -.577 -.351 .951 1 car -.786 -.910 .216 .003 1 from table -4, correlation analysis of independent variable with dependent variable can be found. independent variables bank size, npi, car are negatively related with dependent variable roa and roe. negative association between bank performance and npl also found by (etale. l, ayunku & etale. e, 2016), (ozurumba,2016) and (balango and rao,2017). negative correlation opines an increase in the independent variable causes dependent variable to decrease and vice versa. it is seen that bank size, npi, car will reduce as a result of the increase in roa and roe and increase as a result of the decrease in roa and roe. 4.4 regression analysis table 5. regression analysis based on roa model summary model r r square adjusted r square std. error of the estimate change statistics durbin watson r square change f change df1 df2 sig. f change 1 .995a .990 .962 .03929 .990 34.48 3 1 .124 2.599 a. predictors: (constant), car, npi, size b. dependent variable: roa table. 6. regression analysis based on roe model summary model r r square adjusted r square std. error of the estimate change statistics durbin watson r square change f change df1 df2 sig. f change 1 .990a .981 .924 .43703 .981 17.12 3 1 .175 2.599 a. predictors: (constant), car, npi, size b. dependent variable: roe in table-5 & 6, regression analysis is done in terms of dependent variable (roa and roe).r value indicates how dependent and independent variables are associated. in case of roa and roe, the value is .995 and .990. the value close to 1 means the bank performance (roa and roe) are positively related with size of the bank, npi, car. r square shows the variation of the independent variable concerning the dependent variable. the value of r square is .990 regarding roa and .981 regarding roe. the result suggests that dependent variable roa and roe can explain 99% and 98.1 % of the independent variables (bank size, npi and car). adjusted r square shows how close the international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-8 7 data fits the line of regression. the respective adjusted r square values are .962 in case of roa and .924 in case of roe.so 96.2% and 92.4% of data fits the regression line. durbin watson statistics give an idea about the consistency of time series data. the standard value is 0 to 4. dw value in case of both roa and roe is 2.599.the value above two opines that data series are consistent and there is no autocorrelation involved. p value in both cases of roa and roe is greater than 0.05 which rejects the alternative hypothesis and indication of no relationship between islamic bank performance with npi. similiar type of result is also found by (adebisi and benjamin,2015) on their conducted research on impact of npl in terms of profitability of nigerian banks. 5. conclusion the study explore how non performing investment effect islamic banks performance. negative effect of non performing investment with islamic banks performance are found in terms of correlation analysis. in regression analysis no effect is found between non performing investment and banks performance. the research creates a scope for researchers to identify the reasons of negative effect of non performing investment with bank performance when correlation analysis is used and also the reason of not finding any effect of non performing investment with bank performance when regression analysis is used with recommendations. references adebisi, j.f.&benjamin, o. 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( 2012-2016). retrieved from http://www.fsiblbd.com/category/annual-report/ hamisu, s.k. (2011). how credit risk impact nigerian banks. zaria, nigeria: department of accounting, ahmadubello university. hennie, v.g. (2003.) analyze and manage of bank risk: a framework for assessing corporate governance & financial risk, 2nd edition. washington dc: world bank publications. hou, y. (2007). experiences of non -performing loans on some banks. 4th afe-qass conference, ineag,doi: issn 2222-1905. ibbl. (2012-2016). retrieved from https://www.islamibankbd.com/abtibbl/financial_report.php iftikhar, m. (2016). credit risk impact on performance of commercial banks in pakistan . university of haripur journal of management (uohjm), volume 1. ,issue 2. islam, m.a. (2018, april 3). causes, consequences and remedies of default loan. financial express. kargi, h.s. (2011). credit risk and its impact on performance of nigerian banks. zaria, nigeria: ahmadubello university. karim, m. z. a., chan s. g., & hassan, s.(2010). bank efficiency impact on npi on malaysia & singapore banks. prague economic papers, 2, 2010. khan, m.s. and s.a. senhadji,(2001). impact of relationship between inflation and growth . imf staff papers, vol. 48, no. 1. mallick, s. (2018, march 18). default loan rises by 12000 crore. dhaka tribune. ozurumba, b. a. (2016). npl impact on nigerian commercial banks performance. research journal of finance and accounting, vol.7, no.16. skarica, b. (2014). non -performing loans and its determinants in central and eastern european countries. financial theory and practice pp. 38(1) 37-59,doi: issn : 2319-7714. social islami bank ltd. (2012-2016).retrieved from https://www.siblbd.com/home/annual_reports shahjalal islami bank ltd.(2012-2016)retrievedfrom:https://www.sjiblbd.com/financial_statements.php. 9bf1d3c2308aa1739f1e237d0e8eafabc2affd979ddaffe6350188bdd86ed2ce.pdf ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 29 july 2018 accepted : 30 august 2018 published : 1 dec 2018 keywords: sharia marketing, customer satisfaction, sharia value https://doi.org/10.28918/ijibec. v2i2.1383 jel: m30; m31 abstract sharia bank of jateng, puwokerto is a sharia unit that was established in 2014, has a big challenge to expand market share both from the competition of islamic and conventional banking in purwokerto city. maximizing sharia marketing is expected to be the strength of sharia bank of jateng which aims to provide customers satisfaction. there are four item in sharia marketing that become guidelines for sharia marketers, rabbaniyyah (theistic), akhlāqiyyah (ethic), al-waqī’iyyah (realistic) and insāniyyah (humanism). in this study, it examines the effect of sharia marketing and how the influence of sharia marketing value characteristics towards customer satisfaction. this research was conducted by distributing questionnaires to 100 customers by using purposive sampling. to find out how far the independent variables can affect the dependent variable, we using multiple linear regression. based on the results of regression analysis that theistic beta values are 0.399, ethical at 0.498, realistic at 0.561, and humanist at 0.262 to customer satisfaction. variables that are very dominant affecting customer satisfaction is realistic variables. testing the hypothesis, it is known that theistic, ethical, realistic and humanist have a positive effect on customer satisfaction in saving at sharia bank of jateng, purwokerto. implementation of sharia value and marketing on customer satisfaction in local sharia development bank of jateng putri dwi cahyani & restu frida utami faculty economic and bussiness, universitas muhammadiyah purwokerto email: putri.dece@gmail.com 138 international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 1. introduction rasulullah taught his people how to give the biggest satisfaction to customer by giving a good example in his business transaction, speak honestly, fair and always made the customer satisfied. rasulullah’s example can be interpreted with nowadays marketing science. sharia bank as service industry is really concern marketing service based on sharia, therefore they can survive in the competition of banking world. according to kertajaya and syakir sula (2006), sharia marketing is a discipline of strategic business that directed the process of creation, offer and value change from one initiator to his/her stakeholder, where the whole process is suitable with islamic principle. there are four characteristic of sharia marketing which become guide for the marketer. according to kertajaya and syakir sula (2006), the characteristics are: rabbaniyyah (theistic), akhlāqiyyah (ethics), alwaqī’iyyah (realistic) and insāniyyah (humanism). sharia bank of jateng, purwokerto branch was officially opened at july 21st, 2014. it serves sharia banking, such as saving, deposit, loan and financial service that suitable with sharia contract. as a new sharia bank, sharia bank of jateng has to compete with other sharia bank and conventional bank to expand its market share. according to the background, the problem of this research can be formed as: do theistic, ethics, reality, and humanism affect the customer satisfaction significantly when saving in sharia bank of jateng? the aim of this study is to acknowledge and analyse the effect of theistic, ethics, reality, and humanism the customer satisfaction when saving in sharia bank of jateng. 2. theoretical framework 2.1. funding criteria in sharia bank sharia banking as service company that have role as financial intermediary has two characters, credible and professional. first, credibility is a value in form of people’s trust to an individual or institution. the credibility of sharia bank consists of (dumairy, 1997 & muhammad, 2002): a. honesty in doing transaction with customer b. willingness to find win-win solution with the customer. c. adhere in obeying and fulfilling applicable legal aspects. d. openness in informing/publishing the progress of financial institution. e. wisdom in handling or solving special problems. f. the vitality of the capital structure of that institution g. the development of the performance in conducting business. second, professionalism is a practical value in the form of reliability in managing an organization and finesse in carrying out activities. a professional financial institution is an organization that institutionally managed well. the professionalism of financial institution consists of (dumairy, 1997 & muhammad 2002): a. the orderliness of organization and institution management. b. the accordance of organisational structure with the activities conducted. c. expertise in doing the business d. system availability in institution mechanism e. dexterity in dealing and responding a problem f. the sufficient availability of human resource g. availability of facilities and infrastructure 139international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 thus, professionalism is the main key in managing sharia financial institution. in addition, a sharia bank must be developed based on sharia values in managerial. moreover, sharia bank has to be developed based on sharia value in managerial activities and operations. 2.2. sharia marketing characteristic the characteristics of sharia marketing consists of some factors, such as theistic, ethics, reality, and humanism (kertajaya and syakir sula, 2006: 28). a. theistic (rabbaniyah) theistic or rabbaniyah is a firm believe that every activity (muamalah) conducted by human is being watched by allah. an individual who do activities with theistic principle will have high belief on sharia law, where he/she believes that sharia law is the fairest law, the most perfect, and the most suitable with every form of kindness, the most powerful that can prevent all of damage, the most capable of manifesting truth and can destroy all of crime. b. ethics (akhlāqiyyah) prioritizing good characters (moral and ethics) in every aspect of its activities. ethics or akhlāqiyyah means every behaviour conducted based on applicable norm and ethics. c. realistic (alwaqī’iyyah) realistic or alwaqī’iyyah means something that is based on reality, without making up something or being dishonest. this character can be understood in heterogenic environment where there is various ethnicity, religion and race. it is rasulullah’s legacy to always being modest and polite to other people. d. humanism (al-insāniyyah) humanism means that sharia arose to lift human’s level. humanism or al-insāniyyah means respecting each other. with humanism value, someone become controlled and balanced, and not being greedy or being happy on other’s misery. 2.3. customer’s satisfaction satisfaction is a form of evaluation about the specialities of product/service where those goods/ service could provide comfort that related with needs fulfilment. satisfaction can be measured by comparing the result of product/service with expectation (philip kotler, 1997). customer’s satisfaction is an evaluation to surprise that attached to product acquisition and/or consumption experience (peter & olson cited by bahrudin and zuhro, 2015). there are some factors that affect perception and expectation of the customer, according to gaspers (nasution, 2005): a. needs and wants that related with customer’s experience on doing transaction with marketer. if customer’s needs and wants are big, their expectation toward marketer will be high. b. customer’s past experience of marketer’s product. c. the influence of customer’s perception gained from their friend’s testimonies about product quality. d. communication through advertising and marketing affects customer’s perception. sharia banks with non-riba operational system, with sharia principle, need a tool to measure performance satisfaction that can count sharia element. performance assessment of sharia bank is conducted with syari’ah maqasid method. this method is developed by oemar mustafa & taib (2009) by adapting sharia literature from the thought of abu zaharah (1997). zahara (1997) 140 international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 classified maqasid syari’ah into three purposes: a. tahdhib al-fard (educating the individual) sharia bank has to provide education and training to its employees, so they will be more competent b. iqamah al-`adl (establishing justice) sharia bank has to ensure that all the fund that they receive and distribute are free from riba, deceit, corruption, gharar, maysir, etc. c. jalb al-maslahah (promotion of public interest) the meaning of jalb al-maslahah is education to increase human’s understanding so they can be happy in the world and afterlife. 3. research hypothesis in this research, hypothesis is found to give guidance and direction the research that conducted. if the hypothesis is not proven, it means that hypothesis is wrong. in this research, that means that the problem can be solved with the righteousness that has been determined from the satisfaction that has been running. the hypothesis from this research are: h1: sharia marketing has positive impact to customer’s satisfaction h2: theistic (rabbaniyyah) sharia marketing characteristic has positive influence to customer’s satisfaction in saving at sharia bank of jateng. h3: ethics (akhlāqiyyah) sharia marketing characteristic has positive influence to customer’s satisfaction in saving at sharia bank of jateng. h4: realistic (al-waqī’iyyah) sharia marketing characteristic has positive influence to customer’s satisfaction in saving at sharia bank of jateng. h5: humanism (insāniyyah) sharia marketing characteristic has positive influence to customer’s satisfaction in saving at sharia bank of jateng. 4. research method data collection method affects to the result of the research. with the right data collection method, the data collected will be relevant and accurate. in this research, the source of data is primary data. data collection method is by using questionnaire. questionnaire is a data collection manner by giving or spreading list of the question to the respondent, therefore they will respond the question list. data analysis technique uses to understand the influence of sharia marketing characteristic to customer’s satisfaction in sharia bank of jateng, purwokerto. the data is analysed using multiple regression analysis, to examine whether there is influence of sharia marketing characteristics (divinity, ethics, realistic and humanist) toward customer’s satisfaction in saving at sharia bank of jateng. this research capitalises regression analysis tool and processed with spss program. the variable of this research are variable x (independent variable) and variable y (variable y). variable x consists of divinity, ethics and humanist. meanwhile, variable y is customer’s satisfaction in saving at sharia bank of jateng. the location of this research is local sharia development bank of jateng at oveste isdiman street, purwokerto sub-district, banyumas district, central java. sampling technique of this research is purposive sampling, where the sample is chosen based on characters. researcher will distribute questionnaire to 100 customers of sharia bank of jateng, purwokerto. 141international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 4.4. concept and operational definition sharia marketing characteristic is a special identity of marketing sharia that distinguished sharia marketing with conventional marketing. sharia marketing has sharia (islamic teaching) element, where the islamic principle attached in every activity that related with company operation. the islamic principle become guidance to a marketer in operating his/her marketing process based on sharia principle. according to herman and syakir sula (2006), there are four characteristics of sharia marketing: a. theistic (rabbaniyah) theistic or rabbaniyah is a belief where humans are always under the watch of allah, the indicators are: 1) saving voluntarily because of the realization of islamic values 2) obeying islamic sharia laws in every activities as marketing 3) marketing strategy, market differentiation and focus on company’s identity where it is always honest and can be trusted (never break promise). 4) no fraud in product marketing and has high moral as work base. b. ethics (akhlaqiah) ethics atau akhlaqiah means all of activities are conducted based on ethics norm that applicable generally. the indicators are: 1) prioritizing moral, ethics and character in every aspect of the activities. 2) being polite and hospitable to all the customers, regardless the religion and ethnicity. 3) being low profile in offering 4) saying greeting to the customers and speak kindly. c. realistic (alwaqī’iyyah) realistic atau alwaqī’iyyahyang means based on reality, not being deceitful, with indicators: 1) mastering knowledge about product that being offered and explain it based on agreement. 2) skilful in giving service. 3) bank has high professionalism and accountability 4) the product of the bank is realistic and can follow the latest development d. humanistic (al-insāniyyah) humanistic or al-insāniyyah means humane, respecting others, with indicators: 1) behaving human, humanistic, caring to others, regardless the status 2) marketers are willing to help customer’s difficulty. 3) willing to listen to customer’s complaint and communicate with customer’s ability. 4) marketer does not perform unjust and misconduct towards all stakeholders. e. customer’s satisfaction customer’s satisfaction is glad or disappointed feeling experienced by someone after comparing product’s performance with their expectation, with indicators: 1) providing product that needed 2) feeling glad after using the service 3) the continuation of using service 142 international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 4) recommend other people about the pleasant experience after using the service. 5. result and discussion the result of validity test on 100 samples collected, with alpha 0.05 is gained r table 0.1661. to determine the validity of the questionnaire, so r which is obtained (r count ) consulted to (r table ). if r count is bigger than r table (r count > r table ), therefore the instrument is valid, and if r-count is smaller than r table (r count < r table ), the instrument is invalid. after validity test conducted with spss, all statement items on variable x, which is sharia marketing characteristics (theistic, ethics, realistic and humanism) and statement items on variable y, which is customer’s satisfaction rated as valid because it has correlation coefficient value above 0.1661. on reliability test, questionnaire items each variable has cronbach alpha > 0.60. table. 1 reliability test result no variable cronbach alpha information 1 theistic 0.802 reliable 2 ethics 0.737 reliable 3 realistic 0.744 reliable 4 humanist 0.819 reliable 5 customer’s satisfaction 0.692 reliable source: data processed based on table 1, we could see that each independent variable (teistis, etics, realististic, humanism) and dependent variable customer’s satisfaction have cronbach alpha value above 0.60. thus, five variables are reliable. table 2 multicollinearity test no variable tolerance< 0.1 (vif)>10 1 theistic 0.732 1.366 2 ethics 0.218 4.583 3 realistic 0.205 4.880 4 humanism 0.663 1.508 source: data processed based on classic defiant test: on multicollinearity test, the value of tolerance of each independent variable is above 0.1 and the value of variance inflation factor (vif) variable is smaller than 10, therefore it can be confirmed there is no multicollinearity among regression model. based on regression analysis above, the formula as follow: y = α + β1x1 + β2x2 + β3x3 + β4x4 +e y = 4.663 + 0.399x1 + 0.498x2 + 0.561x3 + 0.262x4 + e regression formula above can be explain as following: α = 4.663. konstantin value (α)shows positive value amount 4.663. it means if that variabe theistic, ethics, realistic and humanist is constant, thus customer’s satisfaction in saving in sharia bank of jateng increases amount 4.6663 items. β1 = 0.399 theistic variable coefficient regression value shows positive value amount 0.3999, it means that every increase in theistic, cause the increase of customer satisfaction about 0.3999 with assumption that another variable fixed. 143international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 β2 = 0.498 ethics variable coefficient regression value shows positive value amount 0.498. it means that in every increase of variable ethics cause the increase of customer’s satisfaction in saving in sharia bank of jateng, around 0.498, with assumption another variable are fixed. β3 = 0.561 realistic variable coefficient regression value shows positive value in the amount of 0.561. it means that every increase in variable realistic, cause increase in the amount of customer’s satisfaction in sharia bank of jateng, with an assumption of other variables is fixed. β4 = 0.262 humanism variable coefficient regression value shows positive value in amount of 0.262. it means that in every increase in variable humanist, cause increase customer’s satisfaction in the amount of 0.262 with an assumption of other variables is constant. e = standard error. partial test (t-test) is used to understand the influence of each independent variable to dependent variable (ghozali, 2016). the test of each independent variable on dependent variable are following: (1) significant criteria: the level of significance used is 0.05 (5%) with level of trust 0.95 (95%). it is stated as significant if the value of significance α ≤ 0.05. (2) test criteria if t count > t table then h 0 is rejected and h a accepted. if t count < t table then h 0 accepted and h a rejected. table. 3 hypothesis no variable hypothesis t count t table accepted/rejected 1 theistic (h2): theistic (rabbaniyyah) has positive influence to customer’s satisfaction in saving at sharia bank of jateng 4.852 2.47 accepted 2 ethics (h3): ethics (akhlāqiyyah) has positive influence to customer’s satisfaction in saving at sharia bank of jateng 4.174 2.47 accepted 3 realistic (h4): realistic (al-waqī’iyyah) has positive influence to customer’s satisfaction in saving at sharia bank of jateng 4.917 2.47 accepted 4 humanism (h5): humanism (insāniyyah) has positive influence to customer’s satisfaction in saving at sharia bank of jateng 2.708 2.47 accepted source: data processed after f value anova test conducted, simulant test showed with the result of f test counting showed that f count value is amount 22.439. f table value with amount of 2.47 by looking at df1 or k-1, which is the number of variable minus 1 (5–1=4) and df2 (n-k) which the number of sample reduced by the number of variable (100-5=95). the value of f count is greater than f table (f count: 22.439 > f table: 2.47) indicates independent variables simultaneously affect customer’s satisfaction. as for hypothesis that stated “sharia marketing has positive influence to customer’s satisfaction in saving at sharia bank of jateng” is accepted. 6. conclusion according to regression analysis result it is found that beta value of theistic independent variable with amount of 0.399, ethics with amount of 0.498, realistic with amount of 0.561, and humanist with amount of 0.262 toward dependent variable customer’s satisfaction in saving at sharia bank of jateng with assumption another variable are constant. among the four variables, realistic variable has the highest influence in customer’s satisfaction to save in sharia bank of jateng with amount of 0.561. it is suitable with herman kertajaya’s concept where he argued that sharia market cannot be classified as emotional market, considering that the sharia market is very critical in choosing financial institution. furthermore, it is classified as spiritual market. spiritual market is 144 international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 a market that is combining customer’s mundane needs and afterlife needs. this strengthen individual behaviour theory that suitable with sharia economics concept, where customer’s decisions in choosing sharia bank were not made based on material consideration, but emphasizing more on syar’i, faith and the maslahah (benefit) on doing economic activities aspect. as pointed out by adiwarman karim (2009), the general principles of islamic economics in muamalah are tauhid (faith), ‘adl (justice), nubuwwah (prophethood), khilafah (government) and ma’ad (final result). the second variable that influencing customer’s satisfaction in saving at sharia bank of jateng is ethics variable with the amount of 0.498. respect and appreciation attitude also has an important role in attracting customer. as a service company, employee’s ability in akhlaqiah has dominant role, where all of employee’s attitude are based on applicable norm. a customer will trust a financial institution that prioritize moral, ethics and good character in its operational system to reach maslahah (benefit), to invest his/her fund. according to as-shatibi, maslahah (benefit) as a foundation for human life, consists of five things, which are religion (dien), soul (nafs), intellectual (‘aql), family and offspring (nasl) and material (wealth). sharia bank’s customer oriented on mundane and afterlife’s happiness to reach falah and fulfil five needs of maslahah, therefore there will be balance between material and non-material life. the result of data analysis with anova shows that the first hypothesis: sharia marketing characteristics have positive influence to customer’s satisfaction in saving at sharia bank of jateng” can be accepted. the result of data analysis showed that variable theistic (rabbaniyah) has positive influence to customer’s satisfaction in saving at sharia bank of jateng. thus, the second hypothesis is accepted. the result of data analysis showed that ethics variable (akhlāqiyyah) has positive influence to customer’s satisfaction in saving at sharia bank of jateng. thus, the third hypothesis is accepted. the result of data analysis showed that realistic (al-waqī’iyyah) variable has positive influence to customer’s satisfaction in saving at sharia bank of jateng. thus, the fourth hypothesis is accepted. the result of data analysis showed that humanism (insāniyyah) variable has positive influence to customer’s satisfaction in saving at sharia bank of jateng. thus, the fifth hypothesis is accepted. the result of the whole research showed that theistic, ethics, realistic and humanism variable influence customer’s satisfaction in saving at sharia bank of jateng. those things become essential where increasing sharia compliance at sharia bank of jateng will expand the chance to rise the number of customer, because according to this research, independent variable can predict dependent variable. those conclusions resulted in some suggestions, as following: (1) sharia bank of jateng could increase their sharia marketing implementation to increase customer’s trust and their consistency in implementing islamic principle. (2) to the next researcher, it is expected to find another variable that can influence customer satisfaction to institution. (3) to the next researcher, it is expected to analyse all of bank in whole central java area, not just in puwokerto. references adiwarman, k. (2004). bank islam: analisis fiqih dan keuangan. jakarta: pt. raja grafindo. aziz, a. (2016). pengaruh implementasi nilai syariah dan karakteristik syariah marketing terhadap kepuasan nasabah pada bank syariah mandiri kcp ambarukmo yogyakarta. bahrudin, m., & zuhro, s. (2016). pengaruh kepercayaan dan kepuasan pelanggan terhadap loyalitas pelanggan. bisnis: jurnal bisnis dan manajemen islam, 3(1), 1-17. hasanah, k. (2016). pengaruh karakteristik marketing syariah terhadap keputusan menjadi nasabah bmt ugt sidogiri cabang pamekasan. iqtishadia: jurnal ekonomi & perbankan 145international journal of islamic business and economics (ijibec), 2(2) december 2018, 137-145 syariah, 3(1), 26-45. ilyas, r. (2016). etika konsumsi dan kesejahteraan dalam perspektif ekonomi islam. at-tawassuth: jurnal ekonomi syariah, 1(1), 152-172. imam, g. (2005). aplikasi analisis multivariate dengan program spss. semarang: badan penerbit universitas diponegoro. kotler, p. (2002). manajemen pemasaran. edisi milenium 1. alih bahasa: hendra teguh, ronny a. rusli dan benjamin molan. jakarta: pt. prenhallindo. saputra, m. h. (2017). pengaruh karakteristik syariah marketing terhadap kepuasan nasabah pada pt. bank sumsel babel syariah cabang pembantu uin raden fatah palembang.[skripsi] (doctoral dissertation, uin raden fatah palembang). sugiyono, p. d. (2013). metode penelitian manajemen. bandung: cv. alfabeta. sula, m. s., & kartajaya, h. (2006). syariah marketing. jakarta: mizan pustaka. swastha, b., & handoko, t. h. (2000). manajemen pemasaran: analisa perilaku konsumen. yogyakarta: bpfe. tjiptono, f. (1996). strategi pemasaran. edisi kedua. cetakan kelima. yogyakarta: andy offset. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 25 july 2018 accepted : 20 august 2018 published : 1 dec 2018 keywords: halal assurance system, sustainability of halalness, customer satisfaction https://doi.org/10.28918/ijibec. v2i2.1388 jel: g20; g22 abstract indonesia is a country with world most moslem population. thus, among other countries participated in islamic konference organization, indonesia is the biggest on product consumption market. this huge number of moslem is crucial to be considered in business, particularly to the reliability of food product in indonesia. this far, halal products is attributed with a certificate of halalness established by mui (i.e, indonesia ulama committee). however, the monitoring of halal products by companies with halal certificate may not be sustainably conducted by mui, thus it needs a company system assuring that their products are halal. this study used a qualitative approach and was a field research. as a practival resource, this study was conducted in lppom mui (i..e, department of assessment on foods, drugs, and cosmetics by indonesia ulama committee) east java and another place related to this department. the data of this study was collected by participative observation or engaged observation and interview. additionally, documentation in particular to the existing system of halalness by lppom mui east java was also applied. as the result, first, in order to assure the halalness of food products from halal-certified companies, it needed a halal assurance system. second, this halal assurance system was made and applied by halal-certified companies to keep the sustainability of halalness on their products. third, halal assurance system was an effort for customer satisfaction. the urgency of halal assurance system for product reliability moch. khoirul anwar universitas negeri surabaya email: khoirulanwar@unesa.ac.id 120 international journal of islamic business and economics (ijibec), 2(2) december 2018, 119-125 1. introduction in order to provide assurance that foods which people consume is halal and proper for consumption, in particular to moslem, indonesia ulama committee (i.e., mui) makes a policy by organizing a department of assessment on foods, drugs, and cosmetics (i.e., lppom) that function is to monitor and study products of foods, drugs, and cosmetics which in turn providing suggestions toward committee of fatwa to establish halal certificate on products that meet the criteria of halal. this far, lppom mui is passive. that is, this department is about to conduct a study on a product by request from companies who are willing to make their products recognized as halal products, given that act no. 33 year 2014 has not been implemented yet. in short, halal certificate by lppom mui east java is by request from companies, which in turn having an audit on documentation, ingredients, location, and process of production. from such audit, the committee of fatwa mui may define whether or not the product is halal. the validity period of this halal certificate is two years, but for import meats as its validity period is every shipping. the data since 2011 to 2018 (up to august) showed that the number of halal-certified products, both regular proposal and small middle enterprises (smes) cooperated with related instances was 91.676 products, and the total number of halal-certified companies was 4.425. the number of halal-certified products was significantly increasing, especially in 2016. however, the data of halal certificate in 2018 was only up to august although it was commonly counted at the end of the year, particularly for smes. it is based on the following data. table 1. halal products no year the number of halal certificate the number of product the number of companies reg smes total reg smes total reg smes total 1 2011 233 130 363 4649 775 5424 203 130 333 2 2012 307 165 472 3816 606 4422 241 159 400 3 2013 325 29 354 13531 129 13660 325 29 354 4 2014 376 275 651 5897 1496 7393 292 274 566 5 2015 496 389 885 8348 2033 10381 317 373 690 6 2016 589 343 932 22686 2011 24697 461 331 792 7 2017 548 431 979 13061 2930 15991 444 420 864 8 2018 (up to august 2018) 362 129 491 8718 990 9708 301 125 426 total 3236 1891 5127 80706 10970 91676 2584 1841 4425 source: document of lppom mui east java, 2018 looking into the number of halal-certified products, it showed that many food products had not been certified. act no. 33 year 2014 that requires every product registered, spread out, and sold in indonesia to have halal certificate is about to be implemented. of course, it may bring several problems for fodd companies, especially those classified into small middle enterprises (smes). they have limitation on finance and human resources. on the other hand, the government should empower the actors of smes, given the huge number of employees engaged within, and thus, the attempt of poverty alleviation in indonesis may work well. this far, a facility of halal certification cooperated with lppom mui and government intances, in particular to both provincial and local department of industry and commerce has been organized, however, it is merely certification and the smes thought that the process has ended when they 121international journal of islamic business and economics (ijibec), 2(2) december 2018, 119-125 had the certificate. they thought that halal certification was like another licensing (anwar, 2018), whereas it is a kind of continual activities, not only at the beginning, but also sustaining the quality of the product, especially the halalness. being halal and haram is principle in islam, as alquran and hadits clearly get human to have good and halal consumption, as allah saying in al-quran: “oh, mandkind, eat from whatever is on earth [that is] lawful and good and do not follow the footsteps of satan. indeed, he is to a clear enemy” (qs. al-baqarah [2]: 168), as well as allah saying: “oh, you wh have believed, eat from the good things which we have provided for you and be grateful to all if it is [indeed] him that you worship.” (qs. al-baqarah [2]: 172). in addition, allah also said: “and eat of what allah has provided for you [which is] lawful and good. and fear allah, in whom you are believers.” (qs. alma’idah [5]: 88). furthermore, many verses have prohibited mankind consuming haram products, as allay said: “oh, you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than allah], and diving arrows are but defilement from the work of satan, so avoid it that you may be successful.” (qs. al-ma’idah [5]: 90). allah also said: “you are forbidden (to consume) the dead, blood, and the flesh of swine; also flesh dedicated to any other than allah, the flesh of strangled (animals) and of those beaten, that which is killed by falling, gored to death; mangled by beasts of prey, unless you find it (still alive) and slaughter it; also of animals sacrificed on stones (to idols). (you are forbidden) to seek division by the arrows, that is debauchery. those who disbelieve have this day despaired of your religion. do not fear on them, but fear on me. this day i have perfected your religion for you and completed my favour to you. i have approved islam to be your religion. (as for) he sho does not intend to commit a sin but is constrained by hunger to eat of what is forbidden, then surely allah is forgiving, merciful.” (qs. al-maidah [5]: 3). from those all verses, what is defined as halal food is any good food and allowed to eat based on the tenet of islam, which corresponds to al-quran and hadits. ibnu katsir (2000, vi-415) defined the term halal as something good that brought benefits for body and religion, and what was being haram is something bad that brought disadvantages and danger for body and religion. simply saying, marzuki (2014) defined halal food as those allowed by islam to eat based on alquran and hadits. furthermore, the definition of good food (thayib) is any kinds of food that may bring health for body, revealing a willing to eat and not forbidden by al-quran and hadits. if it is not found in al-quran and haditz, it needs more detail and clearer explanation through ijtihad in the form of ijma’ and qiyas toward a common nash that should be more explored by ulama in order to avoid any syubhat (doubt). 2. research method this study is field research. as the practical sources, it is conducted in department of halal certification lppom mui east java and halal-certified companies of food products, as well as another place related to this study. for data collection, it is through observation, interview, and documentary. this study is qualitative, since the data is analyzed in verbal-descriptive manner. in this study, the author would have both qualitative (quality-oriented) and quantitative (quantity-oriented) data collection. therefore, it is classified into qualitative research as it focuses more on meaning along with qualitative data and analysis. toward the quantitative data, it would be organized in quantitative manner withougt being forced to be analyzed qualitatively. this is what the author intended to do in data collection. therefore, the quantitative data would not be counted through evidence for a prediction, but would be used as a supporting phenomenon for 122 international journal of islamic business and economics (ijibec), 2(2) december 2018, 119-125 qualitative analysis in order to bring reliability on its final conclusion. after having data collection, the next stage is analyzing them all. as it is a qualitative research, the data analysis is open-ended and inductive. using inductive manner, the data would be analyzed through descriptive-qualitative way. in this case, the author would apply content analysis as well. it is a scientific analysis on the content of a phenomenon or communication. 3. result and discussion 3.1. the urgency of halal assurance system as mentioned in the document of lppom mui, halal assurance system is an integrated management system structured, applied, and maintained by companies in order to regulate their ingredients, process of production, products, human resources, and particular procedrues for the sake of sustainability on the process of halal production based on the requirement of lppom mui (lppom mui,2018). this definition shows that halal assurance system is an ideal system consisting of various elements that every halal-certified company should have. in simply saying, halal assurance system (i.e., sjh/sistem jaminan halal) consists of several elements, as follow. 120  research as it focuses more on meaning along with qualitative data and analysis. toward  the  quantitative  data,  it  would  be  organized  in  quantitative  manner  withougt  being  forced  to  be  analyzed  qualitatively.  this  is  what  the  author  intended  to  do  in  data  collection. therefore, the quantitative data would not be counted through evidence for  a prediction, but would be used as a supporting phenomenon for qualitative analysis in  order to bring reliability on its final conclusion.  after  having  data  collection,  the  next  stage  is  analyzing  them  all.  as  it  is  a  qualitative  research,  the  data  analysis  is  open‐ended  and  inductive.  using  inductive  manner, the data would be analyzed through descriptive‐qualitative way. in this case,  the author would apply content analysis as well. it is a scientific analysis on the content  of a phenomenon or communication.    3. result and discussion  3.1. the urgency of halal assurance system  as mentioned in the document of lppom mui, halal assurance system is an integrated  management  system  structured,  applied,  and  maintained  by  companies  in  order  to  regulate  their  ingredients,  process  of  production,  products,  human  resources,  and  particular procedrues for the sake of sustainability on the process of halal production  based on the requirement of lppom mui (lppom mui,2018). this definition shows that  halal  assurance  system  is  an  ideal  system  consisting  of  various  elements  that  every  halal‐certified company should have.  in simply saying, halal assurance system (i.e., sjh/sistem jaminan halal) consists  of several elements, as follow.                              figure 1. halal assurance system    3.2. halal assurance system as the guarantee for product reliability  in accordance to its title, this halal assurance system aims to assure that a company’s  products are classified into halal products and have corresponded to the requirement of  lppom mui. it is a kind of necessity since it is impossible for the official of lppom mui  to conduct daily monitoring on product halalness.  in addition, this system is a kind of quality assurance that considers halal as one of  the criteria. thus, halal‐certified products are those corresponding to the criteria of halal  under the provision of mui. similar to another quality assurance which has certification  of  quality  system  on  it,  the  analogue  of  assurance  for  halal  product  is  called  halal  certification. it is a kind of   systematic examination to find out whether a company’s product consistently satisfies  figure 1. halal assurance system 3.2. halal assurance system as the guarantee for product reliability in accordance to its title, this halal assurance system aims to assure that a company’s products are classified into halal products and have corresponded to the requirement of lppom mui. it is a kind of necessity since it is impossible for the official of lppom mui to conduct daily monitoring on product halalness. in addition, this system is a kind of quality assurance that considers halal as one of the criteria. thus, halal-certified products are those corresponding to the criteria of halal under the provision of mui. similar to another quality assurance which has certification of quality system on it, the analogue of assurance for halal product is called halal certification. it is a kind of systematic examination to find out whether a company’s product consistently satisfies the criteria of being halal. the resul of this certification is the recognition of halalness on the tested product based on the provision of mui, in the form of halal certificate. as halal assurance system is classified into quality assurance in the form of halal certificate, following anwar (2017), halal certification by lppom mui is an attempt to protect consumers, particularly moslem, from any haram products that islam has forbid. as commonly seen that islam provides a rule to its follower to consume halal products and forbid them consuming haram ones. moslem consumers need to be protected from any haram products as well (ridlwan, 2017), 123international journal of islamic business and economics (ijibec), 2(2) december 2018, 119-125 as one primary purpose of consumer protection is to make every individual healthy both physic and mental. it is as sidabalok (2010:6) argued that one primary reason addressing why consumers should be protected is for the sake of creating healthy individuals, both physic and mental, as the generation of development, which also implies to maintain the sustainability of national development. the law of halal product assurance (i.e., uu jph) mentions that the assurance of halal product is a legal certainty toward products, and it is proven by halal certificate. the organization of jph aims to (1) provide convenience, safety, security, and assurance of the availability of halal products for every body, and (2) enhance the value-added for companies to produce and sell halal products. 3.3. halal assurance system as a sustainable assurance for product halalness halal assurance system is an integrated management system structured, applied, and maintained by companies in order to control all the ingredients they use, the process of production, the product, the available human resources, and the applied procedures. it is conducted in order to keep the sustainability of halal production under the regulation of lppom mui. maintaining the sustainability of halal production is necessary due to several cases of halalcertified companies which products contain pork within. among those cases, a restaurant using pork in its menu is found. this may be due to the fact that the management does not apply halal assurance system in complete manner (billiocta, 2015). whereas, less restaurants are halalcertified, as the study from halal watch; an official body providing advocation and protection for consumers in case of halal issue. it found that less restaurants had halal certificate. among 3.081 restaurants in indonesia, only 46 of them had halal certificate, or it was only 1.49% (sugianto, 2016). halal assurance system is made and applied optimally by companies in order to avoid any haram products that islam has forbidden to eat, both haram lidzatihi (i.e., due to the ingredients) and haram lighairihi (due to the process of production). there are 11 criteria in halal assurance system, including (1) the policy of halalness that contains company’s policies in keeping their products halal, (2) halal management team consisting of employees with responsibility on product halalness, (3) training and education on halal production by companies toward their employees, (4) every ingredient the companies use, both raw, additive, and processing aid materials, should be halal, (5) the products they produce should not be against the syari’ah regulation, (6) the facility of production should be clean from any najis, both najiz mukhaffafah, mutawasithah, and mughaladhah, (7) the companies should have written procedures of critical activities on halalness, (8) the capability to track on halal-certified products, (9) unqualified product handling, (10) internal audit, and (11) management review to maintain the halalness of product. applying those 11 criteria, halal-certified companies may assure that their products are completely halal based on the standard of lppom mui. therefore, in order to motivate the employees to work properly based on the existing regulation and criteria on halal assurance system, the companies should organize a program of education and training, as well as reward and punishment on them, and thus, the possible risks due to human error may be eliminated, for instance, unqualified ingredients against the list of ingredients recognized by lppom mui, and any other possible risks that may happen (sholihah, 2017). 3.4. halal assurance system provides satisfation to consumers a modern management does not only think on how to get consumers, but also how to maintain them to be customers. one of the ways is by providing satisfaction to consumers (kavanillah, 2018). in general, normasari (2013) defined customer satisfaction as a comparison between services and 124 international journal of islamic business and economics (ijibec), 2(2) december 2018, 119-125 the result the customers perceive with an expectation that both services and result they perceive, at least, should be equal as what they had expected, or even beyond their expectation. it means that customer satisfaction refers to customers’ feeling as the response to the goods and services they receive. halal assurance system is a part of effort to provide satisfaction to customers, in particular to moslem customers. companies that implement halal assurance system is likely to understand the characteristics of their consumers and customers, and it is commonly called customers’ behavior. assael, in anwar (2014), explained that understanding the characteristics of consumers was very crucial for companies in order to produce the appropriate goods and services as people expected, provide a fair price in more interesting condition compared to what other companies have offered. hence, the consumers may completely give their trust on the company. in the perspective of marketing, halal assurance system is a part of syari’ah marketing. kertajaya and sula (2006) defined the term “syari’ah marketing” as a discipline of strategic business that leads to the process of creating, offering, and altering the value of an initiator toward the stakeholders, which all the process is consistent with the value of syari’ah. thus, syari’ah marketing is implemented based on the concept of islam as what nabi muhammad saw has taught. it means that, in the practice of syari’ah marketing, all the processes (creating, offering, and altering the value) should not have things against the principles of islamic muamalah. following anwar (2014), the characteristics of syari’ah marketing which implicitly takes ethics and moral as its priority refers to providing an excellent service to consumers, and in turn, providing satisfaction to the consumers. it is due to psychological factors, such as motivation, perception, learning, trust, and attitude, which may affect the consumers’ selection on buying things. recently, therefore, halal products become a new trend on business, particularly in international commerce (zulkarnain, 2014). the government, through its related departments, facilitates small middle enterprises (smes) to have halal certification with an expectation that they may have capability to compete with big companies that have already had high awareness on halal sertification as well as halal assurance system (anwar, 2017). 4. conclusion in accordance to the discussion and analysis of this study, it concludes that, in order to assure the halalness of food products from halal-certified companies, it needs halal assurance system. it is made and applied by halal-certified companies to maintain the sustainability of their product halalness. it is a way to bring satisfaction to customers. from this conclusion, the author suggests that every halal-certified company, in particular to those in food industry, should pay more attention on halal assurance system, both its manual and implementation, in order to improve the consumers’ trust on their products. acknowledgment this article is the result of research in 2018. the author would like to thank the ministry of research, technology and higher education and lppm universitas negeri surabaya who has 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(2014). tapping into the lucrative halal market: malaysian smes perspective. international journal of business and innovation, 1 (6). 126 international journal of islamic business and economics (ijibec), 2(2) december 2018, 119-125 1 ijibec knowledge and determinants factors in selecting to islamic rural banks egi arvian firmansyah 1, amelia rizky alamanda 2, teguh santoso 3 1,2,3 universitas padjadjaran, jln. dipati ukur no. 35 bandung, indonesia correspondence email: egi.firmansyah@unpad.ac.id abstract the aims of this research are fourfold. first, it aims to identify the source of knowledge of the respondents on islamic rural banks. second, this research aims to study the factors considered important by the respondents in selecting islamic rural banks. third, this research studies the level of knowledge and awareness of the respondents on the products or contracts of islamic rural banks. finally, this paper aims to compare the respondents’ knowledge and awareness based on gender, education level, and period of banking in islamic rural banks. we disseminated questionnaire to 285 customers of islamic rural banks in several cities in west java, indonesia. this research uses descriptive and quantitative methods using a t-test. we found that our respondents attained knowledge in islamic rural banks in college, and the most substantial factor affecting them to choose islamic rural banking is not sharia compliance. in fact, it is the economic factor. qardhul hasan, wadiah, and mudharabah are the three most popular contracts among our research respondents. finally, the level of knowledge and awareness about these three contracts are not significantly different between male and female, between different education levels, and between the banking periods of the customers. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 1 2020 keywords: awareness; bprs; islamic banking; islamic rural banks; knowledge doi https://doi.org/ 10.28918/ijibec.v4i1.1883 jel: g.21, m.39 published : 1 june 2020 mailto:egi.firmansyah@unpad.ac.id 2 international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 1. introduction in indonesia, islamic bank consists of two categories, namely islamic commercial bank (bank umum syariah) and islamic rural bank (bank pembiayaan rakyat syariah or known as bprs). bprs is allowed to run its business after receiving a license from indonesia financial service authority (ojk). in its operation, bprs is not allowed to provide financial services related to payment traffic. bprs cannot either have any branch outside the province of its headquarter, moreover overseas (ojk, 2016). thus, bprs acts as the local bank, serving customers with limited financial services such as saving and loans. this aspect is one of the distinct things that differ bprs from the commercial bank. the research in islamic banking is extensive as has been conducted in several countries (akbar, shah, & kalmadi, 2012; echchabi & olaniyi, 2012; hassan, 2009; islam & rahman, 2017; noman, chowdhury, & arifuzzaman, 2013; saini, bick, & abdulla, 2011). the topics of those research are mostly related to the practice of sharia-compliant commercial banks. as a derivation of islamic banking, it is also worth noting that islamic rural banks play an essential role in the empowerment of society. thus, studying islamic rural banks can help us understand better the aspects related to them. the research focusing on islamic rural banks has been conducted by several scholars as an effort to understand this islamic microfinance institution. fitriah and buchori, in their study, concluded that the third-party fund of islamic rural banks is affected by the proportion of profit and loss sharing with its customers (fitriah & buchori, 2011). so, increasing the ratio of this profit and loss sharing can be taken as a strategy to increase assets (isnandar, firdaus, & maulana, 2016). in terms of banking efficiency and profitability, most of the islamic rural banks in indonesia fell in two categories, namely, those who are highly efficient but less profitable, and those who are less efficient but have high profitability. this result indicates that the efficiency of islamic rural banks in indonesia does not correlate with their profitability (warninda & hosen, 2015). the efficiency of rural banks affects the number of loans provided to small and medium enterprises (anwar, nidar, komara, & layyinaturrobaniyah, 2019). those previous works have provided some insight into islamic rural banks. however, little research had been done to explore the side of customers of islamic rural banks. therefore, this research is trying to do so by first identifying the source of knowledge of the respondents on islamic rural banks. observing these factors allows the managers to have a proper understanding of the effective socialization of islamic rural banks. also, with these data, islamic rural banks are possible to create the right marketing strategy to cater to potential customers. second, this research aims to study the factors considered necessary by the respondents in selecting islamic rural banks. the results of this study will provide an understanding of the reasons why respondents chose islamic rural banks. third, this research studies the level of knowledge and awareness of the respondents on the products or contracts of islamic rural banks. finally, this paper aims to compare the respondents’ knowledge and awareness based on gender, education level, and period of banking in islamic rural banks. thus, it is expected that this research is expected to shed light, adding a gap in the literature of islamic rural banks. the remainder of this paper is outlined as follows. the second part of this paper outlines the research method, while the third part shows the results and discussions. in this third section, descriptive results and hypothesis testing results are presented. the fourth part puts the conclusions and recommendations. international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 3 2. research method this research uses a descriptive and quantitative approach. a descriptive approach was conducted to answer the first, second, and third research hypothesis, while the quantitative approach was done to answer the fourth hypothesis. to answer the fourth hypothesis, we use the t-test. since there are two types of t-tests, the independent t-test was chosen as it is suitable for the research sample in this research, namely to see the mean difference between the two independent groups (kim, 2015). we collected data using a questionnaire, both offline and online versions, distributed to respondents in several cities in west java indonesia. the respondents in this research are customers of sharia rural banks using the financial services of the banks, both lending and saving products. the sampling technique used in this research is convenience sampling because we asked the respondents available at the site, amounted to 285 respondents. convenience sampling is relatively cost-effective and allows researchers to perform faster survey research. this sampling technique has also been used by previous scholars in their studies (amin, hamid, lada, & baba, 2009; iskandar et al., 2015; shaari, hasan, ramesh kumar moona haji, & mior ahmad jafri md, 2013) to make it possible, we first asked for permission from the management of the banks using formal letters before performing the survey. one month before conducting the survey, we sent the letters to the directors of the islamic rural banks. therefore, we found no difficulty in interviewing the respondents inside the bank. moreover, the situation in the islamic rural banks was conducive since the number of daily visitors was small. this research was conducted in two months (august – september) in 2018. design of the questionnaire in this study, we used a three-section questionnaire where the first section asks the knowledge and understanding of the respondents about the islamic rural banks. the first question in this section asks the means, which becomes the source of knowledge for the respondents for knowing the islamic rural banks. we provided ten options that could be selected, either one or more. the second question in the first section asks the understanding of the respondents about the contracts or products available in islamic banking consisting of nine contracts. in this part, we used the likert scale using five points (5 = understand strongly, and 1= do not understand at all). respondents table 1 shows the demography of the respondents participating in our research. the number of male (54 percent) and female (46 percent) is quite proportional. of these two gender groups, one participant (0.35 percent) was 20-25 years old, 34 percent were 26-30 years old, 26 percent were 31-35 years old, 20 percent were 36-40 years old, 11 percent 41-45 years old, and 9 percent were more than 45 years old. it is also shown that 61 percent of respondents graduated from bachelor's degree programs (s1), 22 percent from a diploma program, and 16 percent from high school. none of the respondents graduated from the lower education level. most of the respondents had an experience of 2-5 years as the islamic rural bank customers. the rests had an experience less than two years (29 percent) and above five years (25 percent).. 3. results and discussions demography of respondents table 1 shows the demography of the respondents in our research. although islamic rural banks are not only for muslims, the respondents in this research are coincidentally all 4 international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 muslims. table 1: demography of respondents item frequency percentage of the total sample gender male 153 54% female 132 46% age 20-25 years old 1 0% 26-30 years old 96 34% 31-35 years old 73 26% 36-40 years old 58 20% 41-45 years old 32 11% >45 years old 25 9% education high school 47 16% diploma 64 22% undergraduate (s1) 174 61% banking period (as the customer of respective sharia rural bank) less than 2 years 82 29% 2-5 years 131 46% more than 5 years 72 25% religion islam 285 100% source: processed data (2018) source of knowing islamic rural banks we also asked the respondents about the sources where they earned knowledge of islamic rural banks. for this question, respondents were allowed to answer more than one answer. among the nine statements we provided, the top three sources are their experience of taking islamic economics or banking at college, their company’s decision to use islamic rural bank services, and conventional media such as newspapers, magazines, and television. most of the respondents (17%) answered that they had ever taken at least a course in islamic finance or economics class at college/university. this fact is in line with the previous result shown in table 1, where most of our respondents are categorized as educated people. in fact, according to statistical center bureau, most of the indonesian population aged fifteen years old above have a lower education level where those who can enter college degrees are only about 11 percent (badan pusat statistik, 2018). as most of the respondents graduated from undergraduate and diploma programs, it can be said that the participants in our research are educated persons. this result is similar to (shome, jabeen, & rajaguru, 2018), where most of the respondents had a college degree. international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 5 their exposure to islamic compliance is higher than those who do not have education at the university level. table 2: source of knowing islamic rural banks how did you know the islamic rural banks? frequency percentage of the total sample rank i have ever studied islamic economics/banking at a class/subject 73 17% 1 the company i work for has an account at islamic rural bank 67 16% 2 i knew islamic economics/banking from newspaper, magazine, television 63 15% 3 i have ever studied islamic economics/banking from ustadz (islamic preacher) 62 15% 4 i knew islamic economics/banking from social media 55 13% 5 one of my friends has an account at islamic rural bank 35 8% 6 i knew islamic economics/banking from other media 30 7% 7 i knew islamic economics/banking from the marketing of islamic rural bank 25 6% 8 one of my family members has an account at islamic rural bank 11 3% 9 source: processed data (2018) important factors in selecting islamic rural banks islamic banks, either commercial or rural banks, are believed to be the solution for those who are concerned about sharia compliance banking. regarding this notion, using a five-point likert scale, we provided 14 factors that may be chosen by our respondents. of these 14 factors, two of them are related to islamic-ness. surprisingly, these two factors are not even in the top rank. the first five factors considered by our respondents are not related to sharia compliance. the result of this research is not in line with (ltifi, hikkerova, aliouat, & gharbi, 2016), stating that the customers of islamic banking in tunisia are mostly concerned with sharia compliance. as shown in table 3, their main reasons for selecting islamic rural banks are attractive incentives or prizes, the recommendation of others, excellent staff services, the ability to survive during the crisis, and innovativeness of islamic rural banks’ products. these top five factors have the highest scores, indicating that our respondents are those who already ponder the professional aspect of islamic banks. in the past, customers of islamic banks chosen islamic banks because of the sharia compliance aspect. however, our descriptive results indicated that this idea has shifted where the customers pay close attention to other aspects. table 3: factors in selecting islamic rural banks no what makes you select islamic rural banks? average score rank 1 attractive incentives / prizes 3,57543 1 2 recommendation of family / friends / business partners 3,42857 2 3 good staff services 3,37894 3 4 the ability to survive during a crisis 3,36140 4 6 international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 5 innovative products 3,35087 5 6 high returns 3,34736 6 7 good csr programs 3,26408 7 8 religious employees 3,26315 8 9 location is nearby 3,17894 9 10 good marketing staff 3,17543 10 11 sharia compliance 3,15789 11 12 ability to solve financial needs 3,11578 12 13 a safe place to store money 3,10877 13 14 personal knowledge 3,07368 14 source: processed data (2018) knowledge and awareness of the products or contracts of islamic rural banks in this research, we also try to measure the level of knowledge and awareness of the respondents about the contracts used in islamic rural banks. also, using the five-point likert scale, we asked the respondents to rate their knowledge on nine contracts. the results are shown in table 4 as follows: table 4: knowledge and awareness no contracts average score rank 1 qardhul hasan 3,589473 1 2 wadiah 3,578947 2 3 mudharabah 3,575438 3 4 rahn 3,449122 4 5 musyarakah 3,445614 5 6 murabahah 3,364912 6 7 istisna 3,228070 7 8 bai salam 3,143859 8 9 ijarah 3,049122 9 source: processed data (2018) table 4 shows that the top three contracts, which are the most familiar among our respondents are qardhul hasan, wadiah, and mudharabah contracts. qardhul hasan, also known as a beautiful loan, is a free-interest loan provided by the islamic banks, either private or government-owned banks. in his research, (firmansyah, 2016) stated that governmentowned banks tend to have a higher rate of qardhul hasan than private banks. qardhul hasan is believed to be effective in providing financial assistance to those who are in need, such as farmer or the poor (rahman, 2010; saqib, zafar, khan, roberts, & zafar, 2015; widiyanto, mutamimah, & hendar, 2011). in order the interest-free loan be qualified as qardhul hasan, it must have ten requirements, namely the item of qard is halal, the item in the qard was acquired through permissible way, sincere intention to please allah, no commitment of lender to harass the debtor, no extra or decrease over the principal, no proviso for any other contract for the accomplishment and termination of the former, no stipulation of debtor to provide any kind of facility to the creditor except if it has been the common between them, must not be advanced for the aims which oppose values of sharia, must not be advanced intentionally to anyone aiming to utilize the money for causing destruction, and there should be relaxation and no punishment if the debtor is in a real economic difficulty and does not have anything to pay back the credit (abdullah, 2016). international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 7 wadiah is a contract where the banks act as the custodians of the customers’ fund. the customers deposit their money in the banks without expecting to earn any returns. the banks provide services in the form of custody and others and charge the customers only for these services, not to earn return or profit. this contract is merely a contract of trust (amanah) where the trustee should protect the deposited fund and is not allowed to take any benefit of it (hassan, 2009). mudharabah is a contract where the owner of the capital (shahibul maal) entrusts his or her funds to the entrepreneur (mudharib) who has skills in conducting business, and they share the profits from this cooperation (hassan, 2009). in the case of saving where mudharabah contract is used, the bank acts as the mudharib, and the depositor acts as the shahibul maal. conversely, in the context of financing, the banks play a role as the shahibul maal, and the debtor or businessman requiring funds plays a role as the mudharib. aside from the banking industry, mudharabah contract is also used in the stock market where shareholders or investors act as the shabibul maal, and the issuing firms act as mudharib utilizing the fund for the business purpose. between these two parties, there is a profit and loss sharing mechanism that resembles the mudharabah contract (alam, akbar, shahriar, & elahi, 2017). hypothesis testing knowledge and awareness based on gender using t-test in microsoft excel data analysis tool pack, we performed a t-test to examine whether there is a difference between the two gender groups (male and female) about the understanding of the top three contracts of islamic rural banks, namely qardhul hasan, wadiah and mudharabah as shown in table 4. to do this, we first converted the ordinal data to be internal data using the method of successive internal (msi), also in microsoft excel. thus the following alternative hypotheses in this first hypothesis testing can be formulated as follows: h1: there is a difference in knowledge and awareness about qardhul hasan contract between male and female respondents. h2: there is a difference in knowledge and awareness about wadiah contract between male and female respondents. h3: there is a difference in knowledge and awareness about mudharabah contract between male and female respondents. the calculation result shows that the p-value of the first hypothesis is 0,283. as this pvalue is larger than alpha of 5%, it can be stated that the h1 is rejected, and h0 is accepted. thus, there is no difference in knowledge and awareness about qardhul hasan contract between male and female respondents. the p-value of the second hypothesis is also larger than alpha of 5%, namely 0,375. thus it can be stated that there is no difference in knowledge and awareness about wadiah contracts between male and female respondents. a similar result is also obtained for the third hypothesis as its p-value is larger than alpha of 5%, i.e., 0,697. thus it can be said that there is no difference in knowledge and awareness about mudharabah contract between male and female respondents. as these three hypotheses (h1, h2, and h3) are rejected, we conclude that the level of awareness and knowledge of both gender groups about the islamic financial products is the same. there is no indication that male respondents are more superior to the female respondents, vice versa. these results motivated us to compare the knowledge and awareness based on education level, as shown in the next section. 8 international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 knowledge and awareness based on the education level the difference in knowledge and awareness based on education level was tested using the ttest. we compared the respondents with a bachelor's degree (s1) and non-bachelor degree holders. the following alternative hypotheses in this second part of hypothesis testing can be formulated as follows: h4: there is a difference in knowledge and awareness about qardhul hasan contract between bachelor degree and non-bachelor degree respondents. h5: there is a difference in knowledge and awareness about wadiah contract between bachelor degree and non-bachelor degree respondents. h6: there is a difference in knowledge and awareness about mudharabah contract between bachelor degree and non-bachelor degree respondents. the calculation result shows that the p-value of the fourth hypothesis is larger (0,167) than an alpha of 5%, indicating the rejection of this fourth hypothesis. so we can say that there is no significant difference in knowledge and awareness about qardhul hasan contract between bachelor degree and non-bachelor degree respondents. the p-value of the fifth hypothesis (0,058) is slightly larger than the alpha of 5%, so the fifth hypothesis is also rejected. thus, there is no difference in knowledge and awareness about wadiah contract between bachelor's degree and non-bachelor’s degree respondents. knowledge and awareness based on banking period also employing a t-test in microsoft excel, we tested the difference in knowledge and awareness among our respondents based on their banking period. we hypothesized that those who have longer banking experience would have a better understanding of the products or contracts of islamic rural banks. thus, our hypothesis in this third part is as follows: h7: there is a difference in knowledge and awareness about qardhul hasan contract between respondents who have a banking period of less than one year and those who have an experience of more than one year. h8: there is a difference in knowledge and awareness about wadiah contract between respondents who have banking period of less than one year and those who have an experience of more than one year. h9: there is a difference in knowledge and awareness about mudharabah contract between respondents who have a banking period of less than one year and those who have experience of more than one year. the calculation result shows that the respondents do not have a different level of knowledge and awareness for the three contracts in islamic banking. the seventh, eighth, and ninth hypotheses are rejected as their p-values are larger than the alpha 5%, namely 0,444, 0,941 and 0,617, respectively. therefore, we can say that there are a comparable knowledge and awareness about the islamic contracts between those who are relatively new to islamic rural banking and those who are not, meaning have more experience in this banking. this fact may appear to the surface because the respondents might have already experience of islamic banking. thus, their understanding of the terminologies in islamic banking is not significantly different. 4. conclusion most of the respondents in our research are categorized as educated customers of islamic rural banking for they have a university degree. most of them also had ever taken the course or subject in islamic banking or economics, making them more familiar with the contracts and international journal of islamic business and economics (ijibec), 4(1) june 2020, 1-10 9 every aspect of islamic rural banking. this research also found that the most substantial factor affecting the respondents to choose islamic rural banking is surprisingly not sharia compliance. they tend to see the attractive incentives or prizes offered by islamic rural banking. thus, it seems that the economic factor has been the primary driven in choosing islamic rural banks. recommendation of family, friends and business partners, as well as good service of staff of islamic rural banking, are the critical factors in their consideration. these results, hence, contribute to the theoretical field of the islamic microfinance institutions, whereby the sharia aspect does not always become the primary consideration in selecting an islamic financial institution. the customers of islamic microfinance institutions, specifically in indonesia, may have different motivations from the customers of islamic banks in selecting islamic institutions. we can also conclude that qardhul hasan, wadiah, and mudharabah are the most popular contracts among our research respondents. the level of knowledge and awareness on these three contracts are not significantly different between male and female, between different education levels, and between banking experiences of the customers. these results imply that there should be no segregations or variations of strategies for targeting the current markets because they relatively have similar banking preferences. references abdullah, m. 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(2011). effectiveness of qard al-hasan financing as a poverty alleviation model. economic journal of emerging markets, 3(1), 27–42. 105 ijibec the moderating role of information technology in the performance of baitut tamwil muhammadiyah in central java indonesia usamah1 and hilda lutfiani 2 1 ilmu ekonomi islam, sekolah pascasarjana, universitas airlangga, surabaya, indonesia 2 sultan sharif ali islamic university, islamic economics, bandar seri begawan, brunei correspondence email: izamu65.usamah@gmail.com article info article history: received : 7 june 2021 accepted : 26 october 2021 published : 1 december 2021 abstract this study aimed to analyze the moderating role of information technology in the performance of baitut tamwil muhammadiyah (btm) in central java, indonesia. the target population was members of this islamic microfinance institution. data from 2015 to 2018 in the central java sharia office was used to obtain a sample size of 14 from 21 btms. multiple regression analysis was then applied to analyze this data and explain the relationship between variables. the results showed that independent variables, including car, npf, and bopo ratios are positively correlated with roa (return on assets) of btm, except fdr. information technology system moderation variables including fdr_system and bopo_system significantly and positively affect roa, while car_system and npf_system are negatively correlated with the returns on total assets of the institution. in general, btm should use i.t. for excellent performance and join academics and other stakeholders to increase awareness of the benefits of these computer-based systems in islamic microfinance institutions keywords: btm, roa, car, npf, bopo, fdr, and its doi: 10.28918/ijibec.v5i2.3869 jel: g 21, g 23 international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 2 2021 mailto:izamu65.usamah@gmail.com 106 international journal of islamic business and economics (ijibec), 5(2) december 2021, 105-115 1. introduction utami et al. (2018) established that bmt and btm, the popular islamic financial cooperatives in indonesia have different conventional dimensions. the two are registered by the ministry of cooperatives and smes under act no.25/1992 and adhere to islamic rules (afandi, 2014). seibel (2005) stated that bmt is a commercial and social institution, while btm has a strong commercial orientation. furthermore, usamah (2015) established that the former was founded by muhammadiyah, indonesia's largest modern muslim organization. improving performance and maintaining soundness is crucial for sharia microfinance institutions in indonesia. according to l.j. gitman (2012), btm strives to get a high profit that could give it a competitive edge, attract cheap capital from in-house companies, foreign capital, and partnerships. this increases microfinance profitability, a source of equity that promotes economic growth. ministry of cooperatives and smes issued regulation no. 35.3/per/m.kukm/x/2007 regarding guidelines for financial health assessment of islamic microfinance institutions. zein (2018) stated that this policy monitors capital, productive asset quality, management, efficiency, liquidity, independence and growth, participation, and compliance with sharia provisions from the fatwa institution of the indonesian ulama council. this study evaluated performance based on capital, risk, financing, costs, and assets ratios, as roa (singh et al., 2016). with roa as the dependent variable, proxies used include capital adequacy ratio (car), non-performing finance (npf), financial to deposit ratio (fdr), and operating expenses and operating income (bopo). btm was established on january 5, 1996, in pekalongan and inaugurated by lukman harun, a muhammadiyah leader, and famed islamic fighter. the btm pekalongan, the mother of all btms, has subsidiaries on java islands, sumatra, and kalimantan. it also has microfinance architecture in primary btm (regional), btm center, and parent btm at the center. btm bojong achieved a 5.01 roa in 2015, which is the highest in the history of btms. in 2016 btm bligo recorded an average of 4.7960154598, a decrease of .3039845402. btm bojong recorded a further .2671520366 decrease in 2017 and btm wiradesa .5797203543 increase in 2018. the average btm roa in central java in 2015 was 1.39 and decreased to 1.01 in 2016. in 2017 the figure reduced to 0.91 and 0.73 in 2018, drawing the attention of the institution. btm is now betting on information technology systems to improve its roa. muriu (2011) established that studies aimed at investigating the performance of microfinance institutions are limited, affecting analysis of bopo, car, and npf impacts on microfinance profitability. according to veithzal (2007), bopo, a comparison between operational costs and operating (oeoi) income, measures the efficiency and ability of banks to carry out their operations. a low oeoi occurs when the operating income is higher than operating costs, showing that the bank has a better efficiency ratio. btm uses fdr to assess the financing quantity of third parties, meets deposit withdrawals made, and repays borrowers when due to improve its liquidity. according to horne & jr ( 2005), trade-offs between liquidity and profitability significantly affect the financial performance of institutions. liquidity reduces investment income when organizations hold their funds, while profitability utilizes assets and available funds to yield higher returns. almazari (2014) supported the financial intermediation theory that states high fdr shows a better link between savers and borrowers increasing profitability and financing. international journal of islamic business and economics (ijibec), 5(2) december 2021, 105-115 107 kamir (2010) established that the capital adequacy ratio is the capital to risk-weighted total assets ratio that determines the bank’s financial position. banks with high car have a better efficiency level, implying that they can face unexpected credit risks. btm capital ensures funds are available to avoid risks and maintain its car to a minimum of 8% through customer protection and stabilizing the financial system. btm’s capital adequacy is the ratio between the available capital and the risk-weighted total assets. high car shows the btm is financially healthy; hence can manage credit risks. channeling funds to financial investments can also reduce the credit risks, which are measured with npf. according to al-smadi-wabel (2011), financial institutions should develop lending policies to lower loan defaulting for high profitability. financial institutions use roa as a comprehensive profitability measure (muiru, 2011). expressed in percentage, roa of 5%, 20 %, or more is healthy, implying that the bank is making more profits. hasbi (2015) stated that the capital structure accounts for 43.3% and the alpha of 5% profitability. diknawati (2014) & m. khoirun (2019) supported this, establishing that capital adequacy ratio significantly affects profitability. m. khoirun (2019), warda & widyarti (2015), wulundari & shofawati (2017), and fitriyah &sholikhin (2019) showed that deposit ratio (fdr) significantly and positively affects roa while non-performing financing (npf) has no effects on bank's return on capital. warda & widyarti (2015) supported that operating costs and operating income affect return on assets. diknawati (2014) and fadrul, dan asyari (2018) disagreed with this, stating that operational costs and operating income (bopo) negatively affect return on assets. although muslims are the largest members of islamic mfis, most of them choose where to save or borrow money. masyita & ahmed (2013) stated that their selection bases on non-economic factors, including service quality, convenience, speed, proximity, payment methods, and loan officers, increasing the need for information technology to improve operations. adrian et al. (2019) established that information technology is the success key for companies and smes. information technology mediates resources and technological capabilities to give organizations a competitive advantage, showing the importance of these computer-based systems (jeffers et al., 2008); (nigel p. melville, 2010); (amirbekova, 2016). sravani (2013) revealed that overcoming technology-related problems speeds up the growth of the financial sector. this study supported sowmya & reddy (2018), which stated that integrating information technology (i.t.) into microfinance institutions improves the flow of information, efficiency, and outreach of services. also, it provided empirical evidence on the factors affecting performance (roa) and the information technology system as the moderator. 2. research method the target population for this study was members of the btm syariah center in central java, indonesia. data from 2015 to 2018 available at central java sharia office in jl. mayend s. parman no. 3 183 wiradesa pekalongan was used to collect a sample size of 14 from 21 btms. the members were obtained from central java sharia yaitu, btm wiradesa, btm doro, btm kalibening, btm batang, btm wuled, btm talun, btm kedungwuni, btm kesesi, btm punggelan, btm bligo, btm bojong btm kota pekalongan, btm kaliwungu and btm wonopringgo. 108 international journal of islamic business and economics (ijibec), 5(2) december 2021, 105-115 according to munawir (2001), roa describes the results obtained from the company's financial resources. this ratio determines profit or shu that could be distributed to shareholders or used to obtain information on the returns the company and cooperatives will provide on total assets. the roa formula is presented as follows: roa = %100 assets total after tax shu x source: (ministry of cooperative and micro small-medium enterprises, 2007) the ratio measures the capital adequacy of islamic microfinance institutions, enhancing absorption of reasonable risks (kasmir, 2010). according to the minister of cooperatives and smes, btm kspps should have a healthy car of at least 8%, which can be calculated with the following formula; assets weighted-risk capital weighted car = source: (ministry of cooperative and micro small medium enterprises, 2007) nugroho et al. (2021) stated that npf focuses on stakeholders of islamic financial institutions as the primary sustainability indicator calculated with the following formula: financing total financing performing-non total npf = x 100% source: (ministry of cooperative and micro small medium enterprises, 2007) according to veithzal (2007), the financing to deposit ratio (fdr) shows the bank’s financing amount to its third parties. customer credits may offset the bank's obligation to meet deposit withdrawals and satisfy extended credit (kasmir, 2010). ldr is a ratio between the banks’ credit granted and public funds deposited. a ratio below one shows that the bank satisfied its extended credit with its own deposit. fdr can be calculated with the following formula. fundsparty thirdtotal financing total fdr = source: regulation of the minister of cooperatives and smes in 2007 the efficiency and capability levels of a bank are shown with fdr, whose indicators also take advantage of bopo, a ratio between operating costs and operating income (kasmir, 2010). total expenses total revenue source: (ministry of cooperative and micro small medium enterprises, 2007) this study used spss 20, classical assumption testing, and hypothesis testing to analyze the model equations (ghozali, 2018) as follows: model 1 : roa = α0 + β1 car + β2 npf + β3 fdr + β4 bopo + e model 2 : roa = α0 + β1 (car*sti) + β2 (npf*sti) + β3 (fdr*sti) + β4 (bopo*sti) + e international journal of islamic business and economics (ijibec), 5(2) december 2021, 105-115 109 variables : roa : return on asset (y) car : capital adequacy ratio (x1) fdr : financing to debt ratio (x2) npf : non-performing financing (x3) bopo : cost-efficient (x5) sti : sistem teknologi informasi (z) 3. results and discussion a. descriptive statistics the variable results showed that the value of roa ranged from 0.45 to 2.48, with a mean of 0.9433 and 0.52473 standard deviations. the fdr score ranged from 29.24 to 102.39, with a mean of 66.57321 and 15.14664 standard deviation. bopo had a minimum score of 61.77, a maximum of 119.40, a 88.6437 mean, and a standard deviation of 12.15625. the minimum value car was 0.48, maximum of 30.48, a mean of 8.3130, and the standard deviation of 8.21852. the npf scored a minimum of 1.31, a maximum of 5.67, a mean of 3.2081, and a standard deviation of 1.01733. b. the test of classical assumption 1) the test of normality the results of the normality test with kolmogorov-smirnov showed that the value of asymp value. sig. (2-tailed) was 0.200 greater than the 0.05 alpha (a) value; hence the regression residuals figure was normally distributed. 2) the test of multicollinearity this study used variance inflation factor (vif) and tolerance, a type of multicollinearity test. in the test, tolerance value was < 0.10 and vif > 10, giving a multicollinearity result with a tolerance value > 0.10 and vif to all variables < 10. the results showed the research model had no multicollinearity problem. 3) the autocorrelative test the autocorrelation test results with spss showed that the d.w. value is 1,773, between du = 1,730 and value 4 – du = 2,270. therefore, there was no autocorrelation among residual values in the multiple linear regression data. 4) the test of heteroskedasity in this test, variables significantly and positively affected each other with values > 0.05 (5%); hence no heteroscedasticity problem. c. multiple regression analysis 1) t statistic test table 1: the statistics test indonesian islamic bank b beta tsig constant 2.347 5.441 0.000 fdr .002 0.64 .899 0.372 bopo/oeoi -.017 -.405 -5.225 0.000 car .046 0.626 8.863 0.000 npf_trns -.113 -.220 -3.093 0.003 110 international journal of islamic business and economics (ijibec), 5(2) december 2021, 105-115 source: secondary data that has been processed, 2020 t statistic tests aimed to examine the impacts of fdr, bopo, car, and npf_trans on roa and npf_trans roa_trans btm in central java. the results showed that the coefficient value for the fdr btm model in central java is 0.002, and t is 0.899, as illustrated in table 1. fdr had no effect on roa with a significance level of 0.372. bopo with a significance level of 0.000, the regression coefficient of -0.17, and the t value of -5.255 positively and significantly affected profitability. the car coefficient scored -0.017 with a tvalue of -8.863 and a significance level of 0.000, implying it affects returns on assets. the npf_trans coefficient scored -.113 with a t-value of -0.017 and a significance level of 0.003, implying it positively affects the bank's profits from its assets. the regression equation was arranged arranged as follows roa = 2,347 + ,002 fdr ,017 bopo + ,046 car ,113 npf_trans + e table 2: the statistics test indonesian islamic bank b beta tsig constant 1.642 5.062 .000 fdr .026 .736 7.493 .000 bopo/oeoi .026 -.607 -8.269 .000 car .035 .482 5.280 .000 npf_trns fdr_system bopo_system car_system npf_system -.122 -.028 .018 -.006 .073 -.237 -1.790 1.544 -044 .244 -2.789 -7.789 6.566 -.617 1.327 .007 .000 .000 .450 .190 source: secondary data that has been processed, 2020 roa = 1,642 ,028 fdr_system + ,018 bopo_system ,006 car_system + ,073 npf_system fdr_system variable, which moderates information technology obtained -0.028, the t value of -7.789, and sig. 000, affecting profitability. the bopo_system with a coefficient value of 0.018, the t value of 6.566, and sig. level of 000 has a positive correlation with roa. furthermore, the car_system with a coefficient of -0.006, a t of the value of -.617, and sig. level of .450 and npf_system coefficient that scored .073, a t value of 1.327 and sig. level of.190 negatively affected performance. 2) f statistic test the f test showed that car, npf, and bopo positively affected the performance of btm as illustrated below; table 3: the statistics test model f sig. btm in central java 56.353 0.000 source: secondary data that has been processed, 2020 table 3 above shows btm central java scored an f-number of 56.353 with a international journal of islamic business and economics (ijibec), 5(2) december 2021, 105-115 111 significance level of 0.000 in an f statistics test that used a 5 % significance level. the results also established that fdr, bopo, car, npf_tran, fdr_system, bopo_system, car_system, and npf_system positively affect profitability. 3) coefficient determination test this test aimed to investigate the impacts of fdr, bopo, car, and npf_tran on roa, and the results are presented in the table below. table 4: the statistics test model adjusted r square std error of the estimate btm in central java 0.723 .27623 table 4 above shows the coefficient of determination (adjusted r2) value obtained in btm central java is 0.723. these results show that the four independent variables have a 72.3% ability to explain their correlation with roa and the other 27.7% explanations come from sources beyond the research model. discussion of fdr with a regression coefficient of .026, t value of 7.493, and a significance level of .000 notably affected the performance of btm in central java. a high fdr in this institution indicates stable financing due to more income in profitsharing or margin. the sample size used in this study showed that the average btm fdr declined in 2016 and increased in 2017 and 2018. the 2018 fdr increase affected the roa of several btms in central java, showing that the institution efficiently manages investments. windriya (2019), risalah et al. (2018), primasari (2018), wulandari & shofawati, (2017), m. khoirun (2019), wardana & widyarti (2015), diknawati (2014) and fitriyah & sholikhin (2019) aslo supported this study, stating that fdr significantly affects roa. the bopo or oeoi obtained a regression coefficient of -0.026 and t -8.269 and a significance level of 0.000, meaning this independent variable positively correlates with btm performance. generating high operating income with low operating costs indicates this sharia microfinance institution is efficient and competent. if the company fails to operational costs, expenditure will increase, negatively affecting performance. islamic mfis should strive to achieve a better bopo or oeoi like the btm in central java that increased its profitability. wahyudi et al. (2021),windriya,(2019), risalah et al.(2018), m. khoirun(2019), wardana & widyarti (2015) supported this study, establishing that reducing operational costs and increasing operational income positively affect performance. however, serby (2021) and dicknawati (2014) stated that different bopo results are negatively related to profitability. car with a regression coefficient of 0.035, t value of 5.280, and the significance level 0,000 positively affected profitability of btm in central java. high car shows that btm can effectively handle credit risks because it is in good financial health. wahyudi et al. (2021), risalah et al. (2018), diknawati (2014), and m. khoirun (2019) also stated that capital adequacy ratio positively significantly affects profitability. however, fitriyah & sholikhin (2019) had a different opinion, stating that car is negatively correlated with roa. npf_trans achieved a significance level of 0.007, affecting profitability because of better bopo or oeoi recorded at btm in central java. these results supported wardana 112 international journal of islamic business and economics (ijibec), 5(2) december 2021, 105-115 and widyarti et (2015), wulandari r (2017), which established that non-performing financing is positively correlated with performance. however, fitriyah & sholikhin (2019) disagreed with these studies, stating that npf is negatively correlated with roa. fdr_system and bopo_system have a significance level of .000, implying they affect profitability when used with information technology systems. the car_system with a regression coefficient of -.006, t value of 5.280, and a significance level of 0.540 and npf_system with a 0.073 coefficient, at-value of 1.327 and a significance level of 0.190 negatively affect performance. the moderating variables, including fdr_system and bopo_system, affect roa btm. the results are also in line with the results of research conducted mulla et al. 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(2018). legislation fatwa national sharia board-indonesian council of ulama (dsnmui) in the state economic policy. jurnal cita hukum, 6(1), 71–94. https://doi.org/10.15408/jch.v6i1.8267. effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh shafir zaman & md. mohiuddin chowdhury the effect of fdr, npf, oeoi, and size toward roa (comparative study on indonesian islamic bank and malaysian islamic bank period 2010-2015) anafil windriya factors affecting customer’s bank selection decision: a study on commercial bank in jimma town ethiopia serkalem tesfaye , , mekuanint abera, & tadele mengesh the effect of expert management, professional skepticism and professional ethics on auditors detecting ability with emotional intelligence as modeling variables (study at the makassar city inspectorate) murtiadi awaluddin, nirgahayu, & rulyanti susi wardhani determinant of islamic pension fund in indonesia roikhan mochamad aziz, acep r. jayaprawira, & sulistyowati an analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn :2599-3216 e issn : 2615-420x editorial team editor in chief kuat ismanto. department of islamic economics, iain pekalongan, indonesia managing editor am. hafidz makshum. department of islamic economics, iain pekalongan, indonesia editorial board 1. shinta dewi rismawati. department of islamic economics, islamic state institute of pekalongan, indonesia 2. zawawi abdul wahid. department of islamic economics, islamic state institute of pekalongan, indonesia. 3. murtiadi awaluddin. universitas islam negeri alauddin makasar indonesia. 4. agus fakhrina, department of islamic economics, islamic state institute of pekalongan, indonesia. 5. muhammad shulthoni, scopus 57203621677 international islamic university malaysia 6. asnaini asnaini. department of islamic economic iain bengkulu, indonesia. 7. agus arwani, department of islamic economics, islamic state institute of pekalongan, indonesia. 8. rinda asytuti, department of islamic economics, islamic state institute of pekalongan, indonesia. 9. nafis irhami, department of islamic economics iain salatiga, indonesia. 10. adeel sabir khan, department of project management, szabist, pakistan. 11. umair riaz, id scopus: 57192558531 birmingham city university, birmingham, b5 5ju, uk. 12. happy sista devy, department of islamic economics, islamic state institute of pekalongan, indonesia 13. ahmad ajid ridwan, scopus: 57203842988, islamic economic studies department of economics faculty of economics universitas negeri surabaya, indonesia administration & it 1. aprin yudiarto, islamic state institute of pekalongan, indonesia. 2. nafilah, islamic state institute of pekalongan, indonesia office department of islamic economics, islamic state institute of pekalongan, indonesia corespondence: ijibec@gmail.com jl. kusumabangsa no. 9 pekalongan jawa tengah indonesia http://e-journal.stain-pekalongan.ac.id/index.php/ijibec effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh shafir zaman & md. mohiuddin chowdhury 1 8 the effect of fdr, npf, oeoi, and size toward roa (comparative study on indonesian islamic bank and malaysian islamic bank period 2010-2015) anafil windriya 9 22 factors affecting customer’s bank selection decision: a study on commercial bank in jimma town ethiopia serkalem tesfaye , , mekuanint abera, & tadele mengesh 23 36 the effect of expert management, professional skepticism and professional ethics on auditors detecting ability with emotional intelligence as modeling variables (study at the makassar city inspectorate) murtiadi awaluddin, nirgahayu, & rulyanti susi wardhani 37-50 determinant of islamic pension fund in indonesia roikhan mochamad aziz, acep r. jayaprawira, & sulistyowati 51 60 an analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi 61 69 contents e issn: 2615-420x issn: 2599-3216 av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / international journal of islamic business and economics international journal of islamic business and economics ijibec ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 24 june 2019 accepted : 29 june 2019 published : 30 june 2019 keywords: mudharabah deposits, rupiah exchange rate, inflation doi: https://doi.org/10.28918/ ijibec.v3i1.1797 jel: g20, g21 abstract this study aims to determine the effect of rupiah exchange rate on the us dollar (us dollar) and inflation on mudharabah deposits of islamic banking in indonesia. this research is a descriptive quantitative study with secondary data. this study took samples at islamic commercial banks and islamic business units from january 2013 to december 2017. the analysis technique used was multiple linear regression analysis. before conducting regression testing, the data were tested by classical assumption test, namely normality test, multicollinearity test, autocorrelation test, and heteroscedasticity test. the results in this study are the first rupiah exchange rate has a significant effect on mudharabah deposits in a positive direction. this means that if rupiah exchange rate increases the impact on community activities in investing in mudharabah deposits increases. the second is that iinflation has no significant effect on mudharabah deposits, but has a relationship with a positive direction. this means that if the inflation increases, the impact on community activities in investing mudharabah deposits also increases. third, rupiah exchange rate and inflations are simultaneously affect on the mudharabah deposits of islamic banking in the amount of 59.9%. the implication is that the high rupiah exchange rate situation attracts investors to invest in mudharabah deposits. the increase in the rupiah against the us dollar tends to cause multiplier effect which results in rising prices of commodity goods. high prices of commodity goods cause macro consumption to decrease, too because people tend to be efficient in consumption. an analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharabah deposits in indonesia 1. muhammad tho’in1, 2. iin emy prastiwi2 1 islamic economics, institute of economic science (stie) aas, indonesia 2 islamic economics, institute of economic science (stie) aas, indonesia corresponding email: thoinsyakira@yahoo.com 62 international journal of islamic business and economics (ijibec), 3(1) june 2019, 61-69 1. introduction the growth of islamic banking has always increased from the beginning of the year from the emergence of islamic banking in indonesia. the growth of islamic banking is characterized by the increasing number of islamic banking assets from year to year. figure 1. total assets islamic banking (source: islamic banking statistics, processed 2018) islamic banking continues to experience total assets enhancement from 2012 to 2017 indicating that indonesian people’s interest in islamic banking is increasing. the products both in the collection and distribution of funds in islamic banking are carried out with various islamic contracts. in fund collection products, banks are generally divided into demand deposits, savings and time deposits. one product of islamic banking fund raising is mudharabah deposits. deposits in islamic banking still dominate the set of third party funds (tpf). as of june 2018 the third party funds of islamic banking with a composition of 57.42% of mudharabah deposits, 29.81% savings, 12.77% current account. this percentage is from 348.38 trillion in total dpk (www.ojk.do.id) the total collection of islamic banking mudharabah deposits in 2013-2017 is always increasing. the mudharabah deposit fund product is an investment product that is quite attractive to banks because the period of taking by the customer is longer and determined. therefore that banks try to increase the collection of funds from mudharabah deposits. figure 2. total mudharabah deposits (source: islamic banking statistics, processed 2018) mudharabah deposits are characterized by macroeconomic factors, such as inflation, the bi rate, changes in the rupiah exchange rate against foreign currencies, especially the us dollar, gross domestic product (gdp), and so on. meanwhile, the economic conditions in indonesia in recent years have experienced significant changes. one of the macroeconomic factors experiencing a significant change was the decline in the rupiah exchange rate against the us dollar. the development of the rupiah depreciation against the us dollar can be seen in the following graph. 63international journal of islamic business and economics 3(1) june 2019, 61-69 figure 3. development of the rupiah exchange rate against the us dollar (source: islamic banking statistics, processed 2018) according to sukirno (2004: 38), verdelhan (2010) exchange rate of foreign exchange will determine the return on real investment. the impact on banks in general is that these conditions reduce people’s interest in saving their funds in banks, both savings and time deposits. this situation also has an impact on islamic banking. weakening of the rupiah exchange rate against the us dollar has an impact on rising prices of goods in indonesia, especially imported goods or goods whose raw materials are imported from abroad. according to stiglitz & greenwald (2003) that the rise in prices of some commodities both goods and services as a whole is called inflation (karim, 2012). according to iskandar (2014), gul., irshad & zaman (2011), reinforced by the opinion of anbar & alper (2011), inflation affects the amount of deposits of conventional banks and islamic banking. based on the description of the background above, this research has a novelty where sharia banks that have distinctiveness use the profit sharing system in their deposits (their business) does not affect inflation. 2. literature review and hypoteshis iskandar and firdaus (2014) talk about the influence of interest rates, inflation, and the exchange rate of the rupiah against mudharabah deposits and conventional bank deposits for 2008-2012. the results of this study are: (1) inflation and the interest rate affect significant deposits in islamic and conventional banking. inflation and interest rates negatively affect deposits in islamic banks, but it has a positive effect on conventional bank deposits. this means that the increase in inflation and exchange rates will reduce the amount of deposits in islamic banks; on the contrary this increase will raise the amount of deposits in conventional banking. if there is an inflation which effect on people’s declining purchasing power where the majority of the money needs to fulfill consumption activities, the community automatically withdraws the funds in the bank. if sbi (bank indonesia certificate) interest rate increases, the behavior of the customers is still influenced by the interest rate so that the conditions are inversely proportional to the mudharabah deposits, if sbi (bank indonesia certificate) increases, the people prefer to save their money in conventional banks so that it has an impact on islamic bank mudharabah deposits (decrease). if the level of profit sharing in islamic banks increases, then mudharabah deposits will also increase. similarly, the rupiah exchange rate will affect the deposits of mudharabah deposits. where if the rupiah exchange rate decreases (weakens) against the dollar, it has an impact on people’s purchasing power, purchasing power is reduced so that what happens is the community will withdraw their money in the bank to meet their daily needs (consumption needs). novianto and hadiwidjojo (2014), research in order to analyze various factors that influence the collection of deposits in the form of mudharabah deposits in islamic banks in indonesia in 64 international journal of islamic business and economics (ijibec), 3(1) june 2019, 61-69 2005-2013. analyzed by the vector auto regression (var) method, the results of the study show that inflation has no significant effect on mudharabah deposits. inflation is not very influential in islamic banks because the system uses a system or contract for profit sharing. the society in placing or storing their funds in islamic banks is not only aimed at gaining profit. the enthusiasm for mutual help in kindness and the belief of the muslim community that bank interest containing elements of usury is prohibited is another reason the community places the funds in islamic banks. muliawati and maryati (2016), this study aims to test and analyze the effect of inflation, exchange rates, bi rate and proportional profit sharing from mudharabah deposits at syariah mandiri bank in 2007-2012. the data were analyzed by multiple linear regression (ols) method. the results of this study indicate that the inflation variable does not significantly affect mudharabah deposits. variable exchange rates have a significant negative effect on mudharabah deposits. most people do not make an inflation factors as their determinant in saving or withdrawing their funds in islamic banking in the form of mudharabah deposits, but the exchange rate is just the opposite. maulana (2015) aims to analyze how the effect of profit sharing, inflation and liquidity levels on mudharabah deposits of islamic commercial banks registered with bi in 2011-2014.this study uses multiple linear regression analysis. the results of the partial study show that: inflation has a negative effect and not significant on the amount of deposits from mudharabah deposits 2.1 mudharabah deposits islamic banking products in addition to current accounts and savings which are included in the collection of funds are deposits. unlike the other two types of deposits, where deposits contain elements longer term (maturity) and can be withdrawn after maturity. likewise, interest rates or profit sharing are relatively higher than the two previous types of deposits (goodhart, 2008), (danupranata, 2013), (ali et al., 2012), (yulianto & sholikhah, 2016), (shin, 2008), (hilman, 2016). based on law no. 10 of 1998 concerning changes to law no. 7 of 1992 concerning banking, time deposits are deposits whose withdrawals can be made at certain times according to the agreement between the depositor and the bank concerned. time deposits are deposits with a type or type of predetermined time period. the time period varies from 1, 2, 3, 12, 18 to even 24 months (danupranata, 2013). 2.2 kurs exchange rates according to frankel (2005), k rugman and maurice (2000), allayannis & ofek (2001), amuedo-dorantes & pozo (2004), phylaktis & ravazzolo (2005) the exchange rate is the price of a country’s currency against another country or the currency of a country expressed in other countries’ currencies. according to sukirno (2004: 22), the exchange rate is a foreign exchange value that indicates the amount of domestic currency needed to obtain a unit of foreign currency. according to krugman and maurice (2000), levy-yeyati & sturzenegger (2005), choudhri & hakura (2006), the exchange rate created by market forces will change every time the values of one of the two components of the currency change. a currency will tend to be more valuable if demand becomes greater than the available supply. the exchange rate will be reduced if demand is less than the available supply. 2.3 inflation inflation is the tendency of prices to rise in general and continuously over a certain period. if the inflation rate increases, conventional banking deposits will decline (meija, 2014), (friedman, & schwartz, 2008), (woodford, 2011), (minella et al., 2003). 65international journal of islamic business and economics 3(1) june 2019, 61-69 inflation is a process of continually increasing various prices and generally relating to a market mechanism caused by various factors including the increased consumption of the community or the instability of goods distribution (saragih, 2016). inflation stability is one of the prerequisites for the creation of a continuous economic growth in order to improve people’s welfare. inflation is unstable and the tendency is high has a negative impact on socio-economic conditions in the community. the high inflation making people’s living standards decline due to lower real income. while the volatility of inflation makes economic players faced with conditions of uncertainty. figure 4. research framework in accordance with the objectives of the research and the above framework, the research hypothesis can be formulated as follows: h 1 : inflation affects the growth of islamic banking mudharabah deposits h 2 : the rupiah exchange rate against the us dollar has an effect on the growth of islamic banking mudharabah deposits 3. research method this study uses multiple linear regression analysis. the independent variables in this study are: inflation and the rupiah / exchange rate against the us dollar. the inflation formula used is as follows: inf = (ihk n) – (ihk n-1) x 100% (ihk n-1) inf : inflation ihk n : consumer price index (ihk) month in question ihk n-1 : consumer price index (ihk) previous month while the rupiah exchange rate is measured in the middle exchange rate. middle rate = sell rate + buy rate 2 while the dependent variable in this study is mudharabah deposits. the data used is the development of the number of mudharabah deposits from 2013 to 2017 obtained from the annual islamic banking statistics publication report. jd_m = a + b 1 kurs + b 2 inf + e r where: jd_m = mudharabah deposits a = constant 66 international journal of islamic business and economics (ijibec), 3(1) june 2019, 61-69 kurs = rupiah exchange rate against us dollar inf = inflation b 1, b 2 = regression coefficient e r = error 4. results and discussion regression analysis in this research is a measuring tool to measure how the influence of the independent variable on the dependent variable. in this study multiple linear regression analysis is used to determine the effect of the rupiah exchange rate and inflation on easy-to-deposit deposits. the results of multiple linear regression analysis are as follows: table 1. results of multiple linear regression analysis t test result information t count t table sig. hypothesis result rupiah exchange rate 9,487 2,00247 0,000 accept h a take effect inflation 0,698 2,00247 0,488 accept h 0 no effect source: data processed 2018 4.1 the effect of the rupiah exchange rate on mudharabah deposits the effect of the rupiah exchange rate on mudharabah deposits in islamic banking in indonesia in 2013-2017. the results of the t test on the rupiah exchange variable obtained the probability of sig of 0,000. sig value <0.05 (0,000 <0,05) and t count > t table (9,487> 2,00247) then the decision is h0 rejected and ha accepted, means insignificant which means that inflation does not partially affect mudharabah deposits. the high rupiah exchange rate situation attracts investors to invest in mudharabah deposits. the increase of the rupiah against the us dollar tends to cause multiplier effect which results in rising prices of commodity goods. the high prices of commodity goods cause macro consumption to decrease, because people tend to be efficient in consumption. declining consumption activity results in economic activity, for example the trade sector is sluggish, so people, who have a lot of money, prefer to save money in the bank, usually in the form of deposits. the exchange rate of rupiah has a significant effect on mudharabah deposits in accordance with iskandar and firdaus’s research (2014); which states that the rupiah exchange rate has a positive and significant effect on mudharabah deposits. this result is also incompatible with muliawati and maryati (2016) that the exchange rate has a negative effect on mudharabah deposits. this result is also not in accordance with sukirno’s theory (2004: 38) which states that foreign exchange rates will determine the returns on real investments. the impact on banks in general is that these conditions reduce people’s interest in saving their funds in banks, both savings and deposits. 4.2 effect of inflation on mudharabah deposits the effect of the inflation rate on mudharabah deposits. the results of the t test on the inflation variable obtained the probability of sig of 0,000. sig value <0.05 (0.488 <0.05) and t count < t table (0.698 < 2.00247) then the decision is h 0 accepted and h a rejected, that is not significant which means that the inflation does not partially affect mudharabah deposits. the inflation even though it has no significant effect. this fact relates to transactions in islamic banking which tend to use a profit sharing the system where the small division of the results of the business between the parties that make the agreement depends on the results of the business that really obtained mudharib (manager). 67international journal of islamic business and economics 3(1) june 2019, 61-69 the inflation has no significant effect on mudharabah deposits is not in accordance with iskandar and firdaus’s (2014) study which states that inflation has a significant effect on mudharabah deposits. but this result is also in accordance with the results of the research of muliawati and maryati (2016); maulana (2015); novianto and hadiwidjodjo (2014) which stated that inflation has no significant effect on mudharabah deposits. while the simultaneous test results are as follows: table 2. f test result information f count f table sig. hipotesis result rupiah exchange rate and inflation 45,129 3,158843 0,000 terima h a take effect simultaneously source: data processed 2018 the simultaneous test results with the f test on the variable exchange rate of the rupiah against the us dollar and inflation are obtained by a probability of sig of 0,000. sig value <0.05 (0,000 <0,05) and f count> f table (45,129> 3,158843) then the decision is ho rejected and ha accepted, that is significant which means the rupiah exchange rate against the us dollar and inflation have a simultaneous effect on mudharabah deposits. this test also means that the regression model is appropriate for describing mudharabah deposits. the coefficient of determination test results is as follows: table 3. the coefficient of determination test results (r2) model summaryb model r r square adjusted r square std. error of the estimate 1 ,783a ,613 ,599 17141,433 a. predictors: (constant), inf, kurs b. dependent variable: jd_m source: spss processed data, 2018 based on the table above, the determination coefficient of adj r2 (adjusted r square) is 0.599 or 59.9%. this shows that the rupiah exchange rate and inflation had an effect of 59.9% on mudharabah deposits in islamic banking in indonesia. while the remaining 40.1% is influenced by other variables that are not mentioned in the study. 5. conclusion based on the results of data analysis and discussion, the author draws conclusions that can be drawn from the study of the influence of the rupiah exchange rate and inflation of mudharabah deposits is as follows: the first, the rupiah exchange rate has a significant effect on mudharabah deposits in a positive direction. this means that the increase in the rupiah exchange rate against the us dollar has increasingly had an impact on community activities in investing mudharabah deposits is also increased. the high rupiah exchange rate situation attracts investors to invest in mudharabah deposits. the increase in the rupiah against the us dollar tends to cause multiplier effect which results in rising prices of commodity goods. high prices of commodity goods cause macro consumption to decrease, too because people tend to be efficient in consumption. declining consumption activity results in economic activity, for example the sluggish trade sector, therefore that people who have a lot of money, prefer to save their money in banks, usually in the form of deposits. the second, inflation does not have a significant effect on mudharabah deposits. this 68 international journal of islamic business and economics (ijibec), 3(1) june 2019, 61-69 fact relates to islamic banking transactions which typically use a profit sharing system. the profit sharing system where the small share of the results of the business depends on the results of the business that mudharib (manager) actually obtained. acknowledgment we are as the researchers wan to say many thanks to dr. darmanto, mm as head of stie aas and dr. budiyono, m.si as the coach of the surakarta amaliyah ilmi foundation who has given permission and support for the implementation of this research. references ali, s., hassan, a. a., & kasim, k. 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(2016). the internal factors of indonesian sharia banking to predict the mudharabah deposits. review of integrative business and economics research, 5(1), 210. 30 ijibec the effect of islamic work ethics on organizational commitment, job satisfaction and turnover intentions of islamic microfinance in pekalongan siti aminah caniago1, denny mustoko2 1faculty of economic and islamic business, iain pekalongan email: aminah_caniago@yahoo.com 2university of new south wales email: dennynovian13@gmail.com abstract the purpose of this research is to analyze the effect of islamic work ethics on job satisfaction, turnover intentions and organizational commitment and its three dimensions: affective commitment, continuance commitment and normative commitment. this method of analysis used a simple regression to determine the relationship of independent variables and dependent variables. the analysis used descriptive analysis to present the main characteristic of the samples. islamic work ethic used instrument developed by ali, job satisfaction was measured by dubinsky and harley’s instruments, organizational commitment used instrument by bozeman, perrewe, meyer and the turnover intentions adapted by previous reaserch, hom and griffeth. the collected data was tabulated and analyzed using softwarestatistical package for the social sciences (spss)16.0. this research selects 10 islamic microfinances in pekalongan city. results show that islamic work ethic is positive significant related to job satisfaction, affective commitment, continuance commitment, normative commitment, and negative influence related to turnover intention variable. from this research, the application of islamic work ethics was a solution to job satisfaction and organizational commitment and less contributes to turnover intention. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 1 2020 keywords: islamic work ethic, job satisfaction, organizational commitment, turnover intention doi https://doi.org/10.28918/ijibec.v3i2. 1661 jel: g20, g23 published : 1 june 2020 mailto:aminah_caniago@yahoo.com mailto:dennynovian13@gmail.com international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 31 1. introduction islamic ethic is the principle that distinguishes between right and wrong based on qur’an and sunnah of prophet muhammad saw. islamic work ethic shows that work is a way to increase self employment in economic, social and psychological interests to support social responsibility, social welfare and strengthen trust (ali and al-owaihan, 2008). as a large number of researchers argue that in islamic work ethic, work is an obligation and desirable quality in human needs and need to create strength in individuals or social life (ali and owaihan, 2008). rashid dan ibrahim (2005) state that ethics is the result and outcome of iman and this has been regulated in islam. educated muslims understand the importance of islamic work ethics especially in the modern era, as part of islamic thoughts that are useful and appropriate to be applied in every generation. islamic work ethic views the purpose of working not as merely completing work, but also to encourage personal growth and social relations (hayati, 2012: 273). working in islam is considered as a good in fulfilling needs and is important to build a balance in human life and social welfare (ali, 1987: 575). when an individual achieves what is in line with his expectations, he will feel satisfied and feel his work is meaningful. satisfactory job results will have an impact on individuals to provide their capabilities and want to stay in their organization. this shows that islamic work ethics can encourage satisfaction, commitment and continuity of work (yousef, 2001: 153) and the results, can reduce employee turnover. in general, job performance represents how well an individual can show/ carry out his work. job performance can be defined as all actions/ behaviors where employees do their jobs with pleasure. some researchers try to determine how to measure job performance. mead (1988) states that organizations that show moral direction will plan to produce positive images in the community and form a positive culture of the organization. barutcugil (2004) argues that organizational ethics will get a number of benefits such as effectiveness, responsible workers, effective communication, and competitive advantage. jalil et al. (2010) said that islamic work ethics positively impacts on good organizational functions and puts islamic work ethics in the organization's operations will result a sustainable organizational development, increase customers satisfaction and shown good business representation. ali and al-owaihan (2008) said that the successful achievement of islamic work ethics will lead to better performance and broader adequacy. in addition, many researchers guarantee that islamic work ethic improves the quality and performance of both individuals and organizations (ahmad, 2011: ali and al-owaihan, 2008: husin, 2012: jalil et al. 2010: kumar and rose, 2010). commitment is the individual expression and reflects the fundamental standard values of individual existence. allen and mayer (1990) define organizational commitment as a psychological revelation of an organization in hiring its employees. commitment can be defined as a pressure that connects individuals to relevant actions to achieve certain targets. commitment can be seen from employee loyalty in an organization, motivation to achieve organizational goals involves itself in the organization. meyer and allen (1990) introduced a three-dimensional model of organizational commitment to simplify the concept of organizational commitment, namely affective commitment, normative commitment and continuance commitment that describes emotional bonds, perceived perceptions and sunk costs that are clear in an organization. according to jaros (2007), affective commitment is based on the emotional ties built by workers because of positive work experience. strong affective commitment is a form of worker confidence to stay within an organization. haar and spell (2004) state that workers have strong affective commitment because they hope that their individual social needs are met. continuance commitment is based on the assumption of 32 international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 financial change between workers and organizations (meyer et.al :002). continuance commitment explains the strength of individual intentions to keep working for the organization because of a number of investments such as time, effort and friendship that must be sacrificed when leaving the organization. normative commitment is the feeling of staying in an organization because of an individual's sense of obligation and moral responsibility against the organization. normative commitment is the result of the process of socialization in organizational culture. according to sager et al. (1998: 255), turnover intention reflects the individual desire to leave the organization and seek alternative employment. this is described as the thought of going out, looking for another job, and the desire to leave the organization. robbins (1996: 18-19), explains that turnover can occur voluntarily (voluntary turnover) or involuntary (involuntary turnover). voluntary turnover or quit is the employee's decision to leave the organization voluntarily due to factors of how attractive the current job is, and the availability of other alternative jobs. conversely, involuntary turnover describes the decision of the employer to stop working relationships and is uncontrollable for employees who experience it. according to zeffane (1994), the factors that influence the occurrence of turnover come from external and internal, external factors such as the labor market, and internal factors such as work space, wages, work skills, supervision, personal characteristics of employees such as intelligence, attitudes, past times, gender, interests, age and duration of work and individual reactions to their work. meanwhile, according to mowday in (triaryati, 2002), the factors that can influence turnover intentions include job attitude, personality, biodemographic, economic factors, personal factors, job characteristics, rewards systems, supervision, and group relations. yousef which examines islamic work ethics on muslim employees in the united arab emirates with the title "organizational commitment as a mediator of the relationship between islamic work ethics and attitudes toward organizational change". this study uses islamic work ethics variables, organizational commitment, and attitudes toward organizational change using analysis tools such as path analysis. the results of path analysis indicate that islamic work ethics have a positive influence on commitment and job satisfaction, and are moderators of the relationship between them. so, the more individuals have a high commitment to islamic work ethics (emphasizing hard work, dedication to work, cooperation), the higher perceived job satisfaction, and the stronger the commitment to the organization they have. hayati (2012: 272-277) in "islamic work ethic: the role of intrinsic motivation, job satisfaction, organizational commitment and job performance" also examined islamic work ethics and its relation to intrinsic motivation, job satisfaction, organizational commitment, and performance. as a result, islamic work ethics has a greater influence on intrinsic motivation and organizational commitment, compared to the effect on job satisfaction and performance. so, the islamic principle that is trusted by the individual will be embedded into intrinsic motivation in him, and this intrinsic motivation has the strongest influence on achieving individual job satisfaction. furthermore, rokhman (2010: 21-27) in his research entitled "the effect of islamic work ethics on work outcomes" analyze using instrument from ali (1992: 507-519) that there is a positive and significant influence between islamic work ethics on job satisfaction and commitment, but not significantly on turnover intention. this research states that islamic work ethics is very important and has a strong influence on job satisfaction and organizational commitment. another of previous study that investigated the relationship between nik, at el, (2004) international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 33 investigated the relationships between islamic work ethics and organizational commitment. organizational commitment consists of three dimensions: affective, continuance and normative commitments. the study samples came from 227 employees from several branches local bank. the results show that these dimensions have direct, positive and significant effect with islamic work ethics. specifically, affective commitments has high correlation with the latter than continuance or normative commitment. another study that discussed islamic work ethics was also carried out by salem (2012: 64-78) in "the effects of islamic individuals' ethics on organizational commitments of employees in libyan public banks". this study uses variables of islamic work ethics, affective commitment, continuous commitment, continuous commitment and demographic characteristics using a questionnaire instrument made by yousef (2000: 513-537). the research was aimed at employees of public banks in libya. the results of the regression analysis show that the influence of ethical positive islamic individuals with a level of confidence of 0.05. the results of this assessment indicate that individual islamic ethics have a positive influence on affective commitment, continuous commitment and normative commitment. the concept of islamic work ethics on job satisfaction, organizational commitment and turnover is not limited to literature and research only, but also need to be applied by islamic microfinance institutions. therefore, this study seeks to analyze the influence of islamic work ethics on organizational commitment, job satisfaction and turnover intention in islamic microfinance institutions (lkms) in pekalongan, indonesia. 2. research method 2.1. samples the type of data used in this study are primary data and secondary data. data collection is done throughquestionnaire with islamic microfinance institutions in pekalongan city. 10 sharia microfinance institutions were selected for this study. the 60 questionnaires distributed, there were 53 questionnaires collected (88 percent) but only 49 answers could be used for further analysis. 2.2. variable measurement this research is quantitative research methodwhere the research data in the form of ali (1992 numbers and analysis using statistics. islamic work ethics used instruments developed by: 512). job satisfaction used the dubinsky and harley instruments (1986: 40-41). while organizational commitment used a questionnaire instrument developed by meyer and allen (1990: 6-8) and turnover intentions adapted from previous research (hom and griffeth, 1991: 350-366). the scale of points used is from a scale of 1 (strongly disagree) to 5 (strongly agree). the collected data was analyzed using statistical package for the social sciences (spss) 16.0. while secondary data is obtained from journals, articles, previous research and information from various national and international publications relating to islamic work ethics and related topics. the analysis used descriptive statistics such as frequency and percentage that show the main characteristics of the sample. to analyze hypotheses, this study used simple regression analysis as the main analytical method. from the analysis technique, it can be seen the influence of islamic work ethics on organizational commitment, job satisfaction and turnover intentions of islamic microfinance institutions (lkms) in pekalongan. 34 international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 3. results and discussions 3.1. test validity based on the results of the test validityof the islamic work ethics instrument, organizational commitment consist of affective commitment, normative commitment and continuous commitment, and turnover intention for each statement item using the pearson correlation method using spss software, show that product moment correlation value (rcalculated) for each item the question is greater than the rtable value with a significance level of 5%. so that it can be concluded that the items of the statement are valid and can be used as research instruments. 3.2. test reliability the results of test reliability for all research variables are shown in the table below: table1. research variable test reliability results no variable alpha cronbach criteria description 1. islamic work ethic 0,923 0,7 reliable 2. affective commitment 0,844 0,7 reliable 3. normative commitment 0,828 0,7 reliable 4. continuance commitment 0,822 0,7 reliable 5. job satisfaction 0,807 0,7 reliable 6. turnover intention 0,713 0,7 reliable based on table 1, the alpha cronbach values obtained from all variables were greater than 0.7. therefore it can be concluded that the answers from respondents to these variables are reliable so that the research instruments can be used for further research. 3.3. analysis and discussion of hypothesis test hypothesis test used simple regression. the results of data processing using the spss 15.0 software program are shown in the table below: table 2. results of hypothesis test of islamic work ethics on job satisfaction, organizational commitment (affective, normative and continuance) and turnover intention variable rvalue tvalue coef. const. r rsquare rtable tcalculated ttable islamic work ethic on job satisfaction 0,829 0,688 0,281 10,172 0,67975 0,173 0,130 islamic work ethic on affective commitment 0,816 0,667 0,281 9,692 0,67975 0,442 1,487 islamic work ethic on continuance commitment 0,952 0,905 0,281 21,210 0,67975 0,516 -2,563 islamic work ethic on normative commitment 0,920 0,846 0,281 16.056 0,67975 0,453 0,470 islamic work ethic on 0,683 0,466 0,281 -6,411 0,67975 -17,563 0,172 international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 35 turnover intentions from the calculation data above shows there is a positive relationship between islamic work ethics and lkms job satisfaction in pekalongan. associated with seeing the price of rcalculated(0.829) which is greater than rtable (0.281). in addition, where tcalculated (10,172) is greater than the price of t able (0.67975). therefore h1a accepted is a positive relationship between islamic work ethics on lkms job satisfaction in pekalongan. the rsquare determination coefficient is 0.688 which means that 68.8% of changes in the job satisfaction variable (y1) can be accepted by islamic work ethics (x1). the regression line equation for the islamic work ethics of job satisfaction lkms in pekalongan can be agreed with y1 = 0.173x1 + 0.130. the equation shows the coefficient value of x1 of 0.130, which means that the assessment of islamic work ethics increased by 1 point so job satisfaction would increase by 0.173 points. from the results of hypothesis 1 testing it shows a positive relationship with the ethics of islamic work with lkms job satisfaction in pekalongan. in pekalongan. then there is a positive relationship between islamic work ethics and lkms affective commitments in lkms pekalongan. this indicated by the price of rcalculated (0.816) which is greater than rtable (0.281). in addition, where tcalculated (9.692) is greater than the price of ttable (0.67975). therefore h1a is accepted, namely there is a positive relationship between islamic work ethics on affective commitments in lkms pekalongan. the coefficient of determination of rsquare is 0.667 which means that 66.7% of changes in the variable affective commitment (y2) can be explained by the islamic work ethic (x2). the equation of the regression line influences the ethics of islamic work on lkms affective commitments in pekalongan can be expressed with y2 = 0.442x2 + 1,487. this equation shows that the x2 coefficient value is 1.487 which means that if the islamic work ethic increases by 1 point then the affective commitment will increase by 0.442 points. from the results of hypothesis 2 testing, it shows that there is a positive relationship between islamic work ethics and affective commitment in lkms pekalongan. there is a positive relationship between the islamic work ethics and continuance commitment in lkms pekalongan. this is indicated by looking at the price of rcalculated (0.952) which is greater than rtable (0.281). in addition, where tcalculated (21,210) is greater than the price of ttable (0.67975). therefore h3a is accepted, namely there is a positive relationship between islamic work ethics on continuance commitment in lkms pekalongan. the rsquare determination coefficient is 0.952 which means that 95.2% changes in the continuance commitment variable (y3) can be explained by islamic work ethics (x3). the regression line equation influences islamic work ethics on commitment continuous lkms in pekalongan can be expressed as y3 = 0.516x3 2.563. the equation shows that the x3 coefficient value is -2.563 which means that if the islamic work ethic increases by 1 point then the continuance commitment will increase by 0.516 points. from the results of the hypothesis 3 test, it shows that there is a positive relationship between the islamic work ethics and the continuous commitment in lkms pekalongan. from the calculation data above shows that there is a positive relationship between islamic work ethics and the normative commitment in lkms pekalongan. this is indicated by the price of rcount (0.920), which is greater than rtable (0.281). also by looking at the t price, where tcount (16,056) is greater than the price of ttable (0.67975). therefore h4a is accepted, there is a positive relationship between islamic work ethics on continuous commitment in lkms pekalongan. the rsquare determination coefficient is 0.846, which means that 84.6% of the changes in the normative commitment (y4) variable can be explained by islamic work 36 international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 ethics (x4). the equation of the regression line influence the ethics of islamic work on the normative commitment of lkms in pekalongan can be expressed with y4 = 0.453x4 + 0.470. this equation shows that the x4 coefficient value is 0.470, which means that if the islamic work ethic increases by 1 point then the normative commitment will increase by 0.453 points. from the results of hypothesis 4 testing, it shows that there is a positive relationship between islamic work ethics and the normative commitment in lkms pekalongan. whereas the influence between islamic work ethics and turnover intention shows a negative influence. this is indicated by the price of rcount (0.683) which is greater than rtable (0.281). besides, by looking at the price of t, where tcount (-6,411) is smaller than the price of ttable (-0,67975). therefore h5a is accepted, namely, there is a relationship between the islamic work ethics on the continuous commitment in lkms pekalongan. the rsquare determination coefficient of 0.466 means that 46.6% of changes in the continuous commitment variable (y5) can be explained by islamic work ethics (x5). the regression line equation influences islamic work ethics on commitment continuity in lkms pekalongan can be expressed with y5 = 17,563x5 + 1,0,170. the equation shows that the coefficient value of x5 is as big as that means if the islamic work ethic increases by 1 point then turnover intention will decrease by 17,563 points. from the results of the hypothesis 5 test, it shows that there is a negative relationship between islamic work ethics and turnover intention in lkms pekalongan. 4. conclusion based on the analysis of the processing of collected data, conclusions can be drawn regarding the variable influence of islamic work ethics which is an independent variable on organizational commitment (affective commitment, continuous commitment, and normative commitment), job satisfaction and intense turnover as follows: 1. the first hypothesis test shows that there are positive and significant variables of islamic work ethics on job satisfaction. this explains that the higher the application of islamic work ethics of employees in lkms pekalongan, the job satisfaction will increase. 2. second hypothesis test shows that there are positive and significant variable of islamic work ethics on affective commitment. this explains that the higher the application of islamic work ethics to employees in lkms pekalongan, the affective commitment increases. 3. third hypothesis test shows that there are positive and significant variable of islamic work ethics on affective commitment. this explains that the higher the application of islamic work ethics to employees in lkms pekalongan, the affective commitment increases. 4. the fourth hypothesis test shows that there are positive and significant variable islamic work ethics on continuous commitment. this explains that the higher the application of islamic work ethics to employees in lkms pekalongan, the affective commitment increases. 5. the fifth hypothesis test shows that there are positive and significant effects of variable islamic work ethics on normative commitment. this explains that the higher the application of islamic work ethics to employees in lkms pekalongan, the affective commitment increases. 6. the sixth hypothesis test shows that there are negative and significant influence on the variable islamic work ethics on intense turnover. this explains that the higher the application of islamic work ethics to employees in lkms pekalongan, the higher the turnover intention. international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 37 from the results of this research, it can be seen that the islamic work ethics of employees in lkms pekalongan can improve job satisfaction, organizational commitment (affective commitment, continuous commitment, and normative commitment), and turnover intentions significantly. this research shows that islamic work ethics has a positive and significant effect on job satisfaction. islam is a theological impulse that teaches character education that will affect satisfaction in work. three important and influential things are the social aspects that are applied in organizational life, justice and humility and involvement in economic activities. this research also found that islamic work ethics will significantly affect intense turnover. this means that the application of islamic work ethics to employees in lkms pekalongan will reduce the desire to move to another place. in this research proves that the application of islamic work ethics also increases the organizational commitment of employees in lkms pekalongan both affective commitment, continuous commitment and normative commitment. increasing the affective commitment of employees in lkms pekalongan will have implications for the reduced intense turnover and motivation of employees to make meaningful contributions to the organization. increased continuous commitment will have implications for psychological, physical health and career path so that these employees have physical and psychological prosperity. increasing normative commitment will have consequences on employee productivity such as employee attendance, performance, and ownership of obligations and duties. therefore to improve job satisfaction, organizational commitment and reduce intense turnover, the islamic work ethics can be one of the focus of solutions that can be applied to lkms in pekalongan. suggestions regarding the methods used to improve the islamic work ethics in lkms in pekalongan are as follows: 1. applying the values of islamic work ethics as part of the corporate culture. if there is a culture that is not following islamic values, it can be considered to replace, so that the culture is adapted to the values of the islamic work ethics. 2. applying islamic work ethics as an indicator in measuring employee performance and development. the values contained in islamic work ethics are universal which can be applied to everyone. the value of islamic work ethics can be done to evaluate employee performance. if there are employees who apply the islamic work ethics, then lkms provides appreciation in form of promotions or rewards. the company also provides opportunities and facilities for employees to improve the value of the islamic work ethic in themselves. increasing the value of islamic work ethics such as providing time for employees to pray on time, places of worship and facilities and infrastructure such as a library containing islamic readings. 3. consideration for recruiting employees. the character of prospective employees who have the value of islamic work ethics is considered as an added value because this reflects high job satisfaction, good organizational commitment and low willingness to move to other places. 38 international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 references ali, a. (1987) .scaling an islamic work ethic. the journal of social psychology. vol. 128 no.5:575-583. ali, a. dan al-kazemi, a. (2007). islamic work ethic in kuwait. journal of management development. vol. 14 no. 2: 366-375. ali, a.j. (1992). the islamic work ethic in arabia. the journal of psychology.vol. 126.no.5:507519. ali, a.j. dan al-owaihan, a. (2008). islamic work ethic: a critical review. cross cultural management: an international journal. vol. 15 no. 1: 5-19. allen, n.j., dan meyer, j.p. (1990). the measurement and the antecedents of affective, continuance and normative commitment to the organization. journal of occupational psychology, vol.63: 1-18. bozeman, d.p. dan perrewe, p.l. (2001). the effects of item content overlap on organizational commitment questionnaire and turnover cognitions relationships. journal of applied psychology. vol. 86 no.1: 16-25. daft, richard l. dan marcic, dorothy. 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(2013).measuring islamic work ethics and its consequences on organizational commitment and turnover intention, an empirical study at public sector of pakistan.international journal of management sciences and business research. vol. 2, issue 2. maume, d. j.(2006). gender differences in taking vacation time. journal of work and occupations.vol. 33, no.2:161-190. miller, j.m. woehr, d.j. and hudspeth, n. (2002). the meaning and measurement of work ethic: construction and initial validation of a multidimensional inventory. journal of vocational behavior. vol. 59: 451-489. robbins, s,.p. et al. (2009). organizational behaviour: global and southern african perspectives. 2nd edition. person education: south africa. rokhman, w. (2010). the effect of islamic work ethics on work outcomes. electronic journal of business ethics and organization studies.vol. 15, no. 1:21-27 international journal of islamic business and economics (ijibec), 4(1) june 2020, 30-39 39 sager, j. k., griffeth, r. w., and hom, p. w. (1998). a comparison of structural models representing turnover cognitions. journal of vocational behavior, vol.53: 254-273 salem, zaneb o. (2012). the effects of islamic individuals’ ethics on organizational commitment of employees in libyan public banks. british journal of arts and social science, vol.9 no.i: 64-78. yousef d.a. (2001). islamic work ethic, a moderator between organizational commitment and job satisfaction in a cross-cultural context. personel review, vol. 30 no.2: 152-169. yousef d.a. (2000). organizational commitment as a mediator of the relationship between islamic work ethic and attitudes toward organizational chang. journal of human relations. vol. 53 no. 4: 513-537. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 19 feb 2018 accepted : 14 may 2018 published : 1 june 2018 keywords: production ethics; environmental conditions; batik entrepreneurs. jel: d22 d91 abstract this research aims to find out the influence of ethics in batik (indonesian traditional dyeing designs in clothing) production of muslim entrepreneurs with their environment in pekalongan, central java. the urgency is that the production ethics have a close relationship with waste and environment. this study used primary data from questionnaires filled by muslim batik entrepreneurs. the ols method was applied to analyze the total of 30 samples using spss. in this analysis, there were two things having strong significant correlations to production ethics namely (1) the application of islamic values of the entrepreneurs on environmental sustainability and (2) the acknowledgement of the entrepreneurs regarding to the counseling of batik waste from local government. production ethics of muslim batik entrepreneurs in pekalongan muh izza and tarmidzi faculty of islamic economic and business, iain pekalongan, faculty of islamic sharia law, iain pekalongan, iain pekalongan email: izzastainpkl@gmail.com mailto:izzastainpkl@gmail.com international journal of islamic business and economics, 2(1) june 2018, 3 9 5 040 1. introduction the dilemma of current economic development faced onto two sides. one side of the economic development pursues the welfare of society, and the other is the implications. one of the environmental implications is the unresolved pollution (karsa, 2008). pollution issue becomes a grand topic worldwide, including indonesia called out by national geographic in 2016 as a state of waste emergency (suara merdeka 2017: 5). even though indonesia already has a clear regulation on such matter in the constitution no. 32/2009 about environmental protection and management as well as the regulation of minister of environment no. 13/2012 about implementation guidelines of 3r (reduce, reuse and recycle). the constitution no. 32/2009 states that the environment is defined by the unity of space with all matters, power, circumstances, and organisms including human beings and their behavior, which affect the nature itself, the survival of life, and the welfare of human beings and other organisms (article 1). by this understanding, environment has several elements: (1) human and their behavior, (2) environmental conditions, (3) process of survival and (4) welfare obtained by humans and other creatures. environment is a vital place in the cycle of human life. human cannot live without the environment. therefore, polluting the environment will render direct impact on health, aesthetics, economic losses, and disruption of natural ecosystems (rahmadi, 2011: 3). in the context of local economic growth, producers are required to be responsible and accountable as in the hadith mentioned “every one of you is a leader and every leader will be held accountable for what he leads” (lidwa pusaka, hadith no. 844). from this statement, basic demands for producers are material and moral demands. the material demands will obviously be ruled by existing regulations (hardjasoemantri, 1992) while the moral demands are from perceptions that generate awareness. pekalongan district, central java province is an area with many batik producers. every day, tens of tons of batik fabric and cloth are exported to other regions in indonesia. in pekalongan, simbangkulon (one of administrative villages in buaran sub-district, pekalongan district) is the object of this research based on three reasons: (1) the religiosity where the majority are educated muslims, (2) the large size of batik producers where more than 30 batik entrepreneurs take place (maladzi, july 6, 2017), and (3) the strategic geographical location where the border of the district and the city of pekalongan located. therefore, all of sociological phenomenon are often used as reference and sampling parameters of research. recently, the sick environmental conditions demand the more established research. to find a solution, the anthropocentric paradigm ansich is certainly not enough but requires a pure awareness and spiritual appreciation. each individual must understand religious values and morality (ulumuna, 2012). the awareness to overcome the crisis is crucial, especially by exploring the spiritual religious values such as values of ecotheology. quddus (2012) contends that integral environmental insights of ethical-theologic and ethical-anthropologic dimensions can be the guiding principles in nature management. according to him, the relation between the three poles (god, nature and human) must walk in conformable, balance and harmony. the removal of one of these poles will cause imbalance that leads to environmental exploitation and crises. globally, there is an ecological crisis depicted at least in three forms of environmental degradations: (1) global warming, (2) depletion of the ozone layer, and (3) acid rain (quddus, 2012). thus, the religious sensitivity is needed and expected to generate modern ecological solutions holistically. from the perspective of religion, the solution regarding to the issue of environmental reality can be formulated for the benefit and maslahah of all people. international journal of islamic business and economics, 2(1) june 2018, 3 9 5 0 41 this research formulated the perspective of muslim batik entrepreneurs in simbangkulon, pekalongan regency, related to production ethics with environmental insights. the ethical influence of batik producers on environmental conditions in pekalongan was analyzed using simple linear regression model. in addition, this study also analyzed the correlation between production ethics and environmental conditions. 2. research methods this study used ordinary least square (ols) from simple linear regression analysis to investigate the effects of production ethics with environmental insights of muslim businessmen in simbangkulon, pekalongan. this method is the mostly employed by researchers in analyzing the relationship between variables. the simple formula of linear regression can be written as follows: (1) where y is the dependent variable, x is the independent variable, a is the constant, b is the regression coefficient (slope), and e is the size of standard error. in practice, this method requires several tests before processing the regression model. some of classical assumption tests are tests of data validity, data reliability, normality, multicollinearity, heteroscedasticity and autocorrelation. this study made muslim batik entrepreneurs located in simbangkulon, pekalongan district, as research objects. data were collected by distributing questionnaires to respondents from may to august 2017. a total of 30 samples were collected for analysis. variables assigned were ethical production with environmental insight as independent variables and environmental conditions as a dependent variable. among the respondents, there were 8 females (26.7%) and 22 males (73.3%). based on the education level, there was one (3.3%) respondent not graduating elementary school, 6 people (20%) graduated from primary school, 10 people (33.3%) graduated from junior high school, 10 people (33.3%) graduated from senior high school, and the rest of 3 people (10.0%) had a bachelor degree. from marital status, there were 17 people (56.7%) already married, and the rest of 13 people (43.3%) were single. there were 16 respondents (53.3%) not having children, 3 respondents (10%) with one or two children, and 8 respondents (26.7%) with more than three children. then, in terms of age, 50% of respondents were aged between 21-30 years, 30% were between 31-40 years, and only one respondent was more than 60 years old. moreover, 8 out of 30 respondents (26.7%) had a background in islamic boarding school. based on the motivation, 13 people (43.3%) categorized financial problems as their motivation, 33.3% intended to create employment, and those continuing the family business were 23.3%. then, the results of questionnaires from respondents also indicated that the majority of muslim batik businessmen (73.3%) were not aware of 3r information. this was unfortunate because the knowledge of 3r is substantial to preserve the environment. also, 70% of respondents said that they did not possess a waste shelter for the residues of the batik production indicating that they did not understand the importance of shelter waste production. furthermore, 93% of respondents also stated that their batik waste was not reprocessed or reused rather directly dispose it to the river. then, the majority of respondents (93.3%) mentioned that their batik waste was not made into handcrafts. analysis of production ethics applied by muslim batik entrepreneurs using questionnaires was distributed and collected to attain the answers based on their own perception and to international journal of islamic business and economics, 2(1) june 2018, 3 9 5 042 determine the frequency regarding to the production ethics with environmental awareness and environmental conditions using likert scale, where the scales weighed as follow: a) answer 1 for stating very bad. b) answer 2 for stating bad. c) answer 3 for stating quite well. d) answer 4 for stating good. e) answer 5 for stating very good. an overview of variables affecting the ethical production with environmental insight is described as follows. the average muslim batik entrepreneur stated that the understanding of ethics in producing batik was “good”, then the islamic teachings on environmental sustainability was also “good”. answers to the question of muslim batik entrepreneurs in terms of application of islamic teachings on sustainability was also “good”. meanwhile, the understanding of the impact of batik waste, from production process, of muslim batik entrepreneurs was “quite well”. also, the understanding of muslim batik entrepreneurs about 3r information was “quite well”. then, the understanding of muslim batik entrepreneurs associated with the direct disposal of batik waste carelessly to the river was “bad”. batik entrepreneurs had a “good” understanding on the availability of shelters of batik waste. their understanding on recycling batik waste was “quite well”. the acknowledgement of respondents about the role of local government in handling batik waste was also “quite well” while the understanding of muslim batik entrepreneurs about the government counseling about batik waste was “good”. 3. results 3.1. validity test and data reliability validity test was performed to determine the accuracy of the instrument representing the purpose or the content of measurements. this study employed standard data validity based on critical value table of pearson correlation. as commonly known, the number of samples (n) used was 30 thus the degree of freedom is 28 (n-2). then, r table obtained for pearson correlation coefficient (product moment) with significance level 0.05 was equal to 0.361. therefore, if the correlation of the calculation was more than 0.361 then the conclusion was valid, and vice versa. table 1 shows the results of data validity test based on answers from respondent. table 1. data validity test questions r calculated r table sig. value explanation x 1 0.509 0.361 0.00 valid x 2 0.548 0.361 0.00 valid x 3 0.772 0.361 0.00 valid x 4 0.401 0.361 0.03 valid x 5 0.481 0.361 0.01 valid x 6 0.737 0.361 0.00 valid x 7 0.693 0.361 0.00 valid x 8 0.574 0.361 0.00 valid international journal of islamic business and economics, 2(1) june 2018, 3 9 5 0 43 x 9 0.509 0.361 0.00 valid x 10 0.751 0.361 0.00 valid y 1 0.716 0.361 0.00 valid y 2 0.650 0.361 0.00 valid y 3 0.610 0.361 0.00 valid y 4 0.796 0.361 0.00 valid y 5 0.455 0.361 0.01 valid y 6 0.855 0.361 0.00 valid y 7 0.675 0.361 0.00 valid from table 1, it can be seen that on the significance level of 0.05 the validity test indicated the value of r calculated > r table for all items specified that the all research items were valid. then, this study utilized the cronbach alpha test to see whether the measurements yield consistent results by using spss. reliability test was done by comparing the actual and minimum values (0.6) of cronbach alpha. in other words, if the cronbach alpha value calculated from spss was greater than 0.6 then it is concluded that the questionnaire was reliable, and vice versa. table 2 shows the cronbach alpha test output from spss. table 2. data reliability test variables cronbach’s alpha explanation production ethics 0.783 reliable environmental condition 0.793 reliable based on the results of reliability test in table 2, it is recognized that the cronbach’s alpha was equal to 0.783, hence it can be concluded that the research instruments measuring the variable of production ethics with environmental awareness were reliable. table 2 above also describes the value of cronbach alpha of 0.793 for environmental condition measurement variable, thus the variable was reliable as well. 3.2. items affecting production ethics based on table 1 above, it is clearly presented that there were 10 instruments in production ethics variables. the relationship strength between each instrument and production ethics (x) is explained as follow: 1) the correlation coefficient between x 1 (understanding of production ethics) and production ethics was 0.509 indicating that the understanding of production ethics had a strong positive correlation with the production ethics. 2) the improvement in islamic teachings related to sustainability (x 2 ) had a strong significant correlation to production ethics with a coefficient of 0.548. 3) application of islamic teachings (x 3 ) had a strong significant correlation as well to production ethics with a coefficient of 0.772. 4) the understanding of the muslim entrepreneurs on dire impact of waste (x 4 ) had a fairly strong, significant correlation with production ethics with a coefficient of 0.401. international journal of islamic business and economics, 2(1) june 2018, 3 9 5 044 5) the understanding of muslim businessmen on 3r information (x 5 ) had a strong, significant correlation with production ethics with a coefficient of 0.481. 6) the understanding of muslim entrepreneurs on disposing batik waste into the river (x 6 ) had a strong, significant correlation with production ethics with a coefficient of 0.737. 7) the understanding of muslim entrepreneurs on batik waste shelters (x 7 ) had a strong, significant correlation with production ethics with a coefficient of 0.693. 8) the understanding of muslim entrepreneurs on recycling batik waste (x 8 ) had a insignificant correlation with production ethics with a coefficient of 0.574. 9) the understanding of muslim entrepreneurs on local government responsible in handling batik waste (x 9 ) had a strong, significant correlation with production ethics with a coefficient of 0.509. 10) the understanding of muslim entrepreneurs on the local government counseling about batik waste (x 10 ) had an insignificant correlation with production ethics with a coefficient of 0.751. from the explanation above, the conclusion is that the indicators of production ethics (items affecting production ethics) were correlated positively and significantly to production ethics. in addition, the items influencing production ethics did not have weak correlations with production ethics. the items correlating the lowest to production ethics were the comprehension of muslim batik entrepreneurs (1) on the dire impact of batik waste and (2) on 3r information. then, there were two items with strong and significant correlation to production ethics: (1) the application of islamic values of environmental sustainability and (2) the understanding of muslim batik entrepreneurs on the counseling of batik waste management held by local government. 3.3. items affecting environmental conditions meanwhile, the relationship of instruments on environmental conditions (y) can be explained as follows: 1) increasing the role of muslim entrepreneurs in preserving environment (y 1 ) was associated strongly and significantly with environmental conditions (coeff. = 0.716). 2) the increase of dire impact of batik waste on the environment (y 2 ) was correlated strongly and significantly with environmental conditions (coeff. = 0.650). 3) the sense of justice from batik waste production (y 4 ) was associated very strongly and significantly with environmental conditions (coeff. = 0.796). 4) the surrounding environmental conditions (y 5 ) had a strong and significant correlation with environmental conditions (coeff. = 0.455). 5) the water condition of the river in surrounding environment (y 6 ) was associated very strongly and significantly with environmental conditions (coeff. = 0.855). 6) the condition of the well water in the neighborhood (y 7 ) was associated very strongly and significantly with environmental conditions coeff. = (0.675). from the explanation above, it can be concluded that all independent variables (items affecting environmental conditions) were correlated positively and significantly with environmental conditions. furthermore, conditions of river water had the highest correlation to environmental conditions which is equal to 0.855. international journal of islamic business and economics, 2(1) june 2018, 3 9 5 0 45 3.4. the effect of production ethics on environmental conditions this section discusses the implications of production ethics on environmental conditions. regression analysis is commonly used to determine the effect of independent variables (x) on the dependent variable (y). the independent variable x was the production ethic including ten (10) questions mentioned above while the dependent variable y represented the environmental conditions including seven (7) questions. meanwhile, the method commonly used to estimate the regression model is the ordinary least square (ols). in practice, this method requires several tests before applying regression model. some of the usual classical assumptions are as follows: 1) normality test the normality test aims to test whether in the regression model, residual variable has a normal distribution. this study used kolmogorov-smirnov test to conduct normality test. table 3 shows the spss output from the kolmogorov-smirnov test. table 3. normality test unstandardized predicted value n 30 normal parametersa mean 23.4333333 std. deviation 1.83808530 most extreme differences absolute .124 positive .124 negative -.092 kolmogorov-smirnov z .677 asymp. sig. (2-tailed) .750 based on table 3, the kolmogorov-smirnov z value was 0.677, and asymp. sig. (2-tailed) was 0.750 greater than 0.05 so it can be concluded that the data was normally distributed. 2) multicollinearity test multicollinearity test is performed to test whether the independent variables are correlated each other. if there is a correlation, multicollinearity problem exists in the model. in a proper regression model, independent variables should not be correlated each other. multicollinearity can be seen from (1) the value of tolerance and its opposite (2) variance inflation factor (vif). the cutoff value used to indicate the presence of multicollinearity is when (1) tolerance problem is equal or less than 0.10 and (2) vif more than 10. if not violating the criteria of tolerance level and vif, it can be concluded that there is no multicollinearities between independent variables in the model regression (santosa, 2005). international journal of islamic business and economics, 2(1) june 2018, 3 9 5 046 table 4. multicollinearity test model unstandardized coefficients collinearity statistics b std. error tolerance vif 1 (constant) 1.022 2.276 production ethics .657 .066 1.000 1.000 a. dependent variable: environmental conditions from table 4, the tolerance value was equal to 1.00 while the vif value equal to 1.00. so it can be said there was no multicollinearity problem between variables of production ethics and environmental condition. 3) heteroscedasticity test the heteroscedasticity test aims to test whether in the regression model there is a variance inequality of residuals from one to another observation. to test heteroscedasticity, this study used glejser test. table 5. heteroscedasticity test model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 4.802 4.244 1.131 .267 production ethics -.079 .116 -.127 -.680 .502 a. dependent variable: res2 based on table 5, it is known that the significance value was 0.502 greater than 0.05. therefore, it can be concluded that there was no heteroscedasticity. 4) autocorrelation test the autocorrelation test aims to test whether in the linear regression model, there is an autocorrelation between the sample error in period t with the sample error in period t -1 . this study used durbin watson test for autocorrelation test. table 6. autocorrelation test model r r square adjusted r square std. error of the estimate durbin-watson 1 .882a .779 .771 1.528 1.668 a. predictors: (constant), production ethics b. dependent variable: environmental conditions to know the existence of correlation can be explained as follows. if the durbin watson number is below -2 then there is a positive autocorrelation, if the durbin watson number is between -2 to +2 then there is no autocorrelation, and if the durbin watson number is above +2 then there is negative autocorrelation (santosa, 2005). from table 6, the value of durbin-watson was 1.668 stating that there was no autocorrelation problem. international journal of islamic business and economics, 2(1) june 2018, 3 9 5 0 47 spss output showed that the classical assumption test of least squares method to analyze the regression model. in table 7, the regression had been successfully performed, thus conclusion presented was accountable. table 7 below shows the estimation coefficients of the regression model to analyze the effect of ethics owned by moslem batik producers on environmental conditions. table 7. regression coefficient model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 1.022 2.276 .449 .657 production ethics .657 .066 .882 9.924 .000 a. dependent variable: environmental conditions from table 7, it can be identified that the regression coefficient b shows an effect of ethical production on environmental condition. the linear regression equation based on the result above can be written as follows: (2) where e is the error term. from the linear regression model in equation (2), conclusions are explained as follow. the production ethics had a regression coefficient of 0.657 stating that for a unit increase in this variable, it was predicted to increase the environmental condition by 0.66 units when other variables were constant. in other words, production ethics of muslim batik entrepreneurs in simbangkulon, buaran, pekalongan had a positive influence on the environmental condition as much as 0.66 points. using 0.05 significant level, it is concluded that the coefficients of the ethical variables of production differed significantly from zero because the p-value was equal to 0.000. table 8 below shows the determinant coefficient. table 8. determinant coefficient model r r square adjusted r square std. error of the estimate 1 .882a .779 .771 1.528 a. predictors: (constant), production ethics b. dependent variable: environmental conditions table 8 shows that the r-square value was 0.779 meaning that 77.9% of production ethics of muslim batik entrepreneurs can be explained by environmental conditions in pekalongan. meanwhile, the remaining 22.1% of the production ethics of muslim batik entrepreneurs was influenced by other variables. 4. discussion environmental problem, from time to time, always brings us fascinating ideas, from classical to transcendental ideas. the classical idea is that environmental problems are the results of human actions (surah arrum [41]: 40). in america, this discussion surfaced in the 1960s. rachel carson (1962), lynn white (1967), and garett hardins (1968) have addressed the issue of environmental crises and analyzed some of the causes of the global environmental crisis. one of the causes was international journal of islamic business and economics, 2(1) june 2018, 3 9 5 048 the anthropocentric paradigm, placing human as center of the universe where the dominant and significant causes were rooted from exploitative and consumptive behavior of mankind (walker, 2009). meanwhile, the transcendental idea invited humans to re-preserve, put and take care into the nature. this view raised ethics and religion as solutions to environmental crisis currently occurring. akhtar (1996), marsuki (2012) mentioned that the future religious agenda urgently needed is to establish sustainable development. where religion has a vital role to persuade humans to preserve the nature they occupy (marsuki, 2012: 28). indonesian intellectuals capture the term of environmental crisis in several terms of discussions, (1) islamic ecoethics, is a term to explain how the islamic economic views the environment. the function of islamic ecoethics is the role of environmental ethics influencing ecological economics, which leads to the inspiration of green economy (amhar, 2013), (2) ecotheology, is an understanding of islam against the environmental crisis derived from the dalil of naqliyah (argument based on the quranic texts/verses). sacred cosmology dalil of naqliyah can contribute positively as guiding principles of nature management. contributions of religion are based on several ecotheology principles i.e. the principles of taukhīd (unity of all creation), amānah-khalīfah (trustworthiness-moral leadership), and ākhirah (responsibility) (quddus, 2012), and (3) environmental ethics, this word is used as a basis for scope differentiation between term of ecology in ecological economics and the term of environment in environmental economics. from such perspective, research on environmental crisis still continues since it has influences on environmental condition of human. 5. conclusion from the description above, this study generates following conclusions. the production ethics with environmental insights applied by muslim batik entrepreneurs in simbangkulon, buaran. pekalongan were as follows. the majority of muslim batik entrepreneurs were unaware of basic knowledge of production ethics including 3r information, the availability of waste shelters, the processing of waste, and batik waste turned into handcrafts. then, there were five indicators of production ethics depicting the good understanding of muslim batik entrepreneurs i.e. the understanding of ethics in producing batik (x 1 ), the understanding of islamic teachings on environmental sustainability (x 2 ), the application of islamic values of environmental sustainability (x 3 ), the understanding of waste shelters (x 7 ) and the understanding of the existing counselling about batik waste held by local government (x 10 ). furthermore, muslim batik entrepreneurs had a poor understanding of batik waste dumped to the river (x 6 ). items affecting the ethics of muslim batik producers in simbangkulon, buaran, pekalongan were indicated by a positive and significant correlations between the indicators of production ethics and the ethics of the entrepreneurs. it was known that two indicators had a very strong significant correlation to production ethics i.e. the producers’ application of islamic values to environmental sustainability and the understanding of the entrepreneurs upon the batik waste counselling from local government. then, there were two things also strongly correlated with environmental conditions i.e. the community justice regarding to batik waste (y 4 ) and the understanding of surrounding river water conditions (y 6 ). the implications of production ethics of muslim batik entrepreneurs in simbangkulon, buaran, pekalongan can be elaborated as follows. production ethics variable had a very strong positive significant correlation on the environmental condition variable that was equal to 0.779 (77.9%). then, for every unit increase on the variable of production ethics was expected to improve the environmental condition variable value by 0.66. in other words, the increase of the comprehension of muslim batik entrepreneurs on production ethics was directly positively proportional with the improvement of the surrounding environmental conditions. international journal of islamic business and economics, 2(1) june 2018, 3 9 5 0 49 the limitation of this study was the small size of sample used, where only 30 respondents answered the questionnaire correctly. another limitation was that the variables included is limited, thus not generating maximum analysis. hence, for further research it is recommended to use larger sample size and more independent variables (x). meanwhile, based on the results of this research, some suggestions can be given related to the ethics of moslem batik producer production and environmental conditions in simbangkulon administrative village, buaran sub-district, pekalongan district: (a) it is required to increase the basic knowledge of production ethics, especially the insight on how waste can impact the surrounding nature, (b) it is substantial for local government to provide information on 3r (reduce, reuse, and recycle) to batik entrepreneurs in pekalongan, and (c) it is prominent for government to conduct socialization or counselling in order to educate batik producers on how to manage their batik waste properly, and (d) it is vital 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(1967). the historical roots of our ecologic crisis. science, 155(3767), 1203-1207. microsoft word 6-olauu (146-155).docx 146 ijibec highlighting the links between islamic accounting and the cash waqf oluwaseun sulaiman saidu corresponding email: sulaimanibnsaidu@alumni.manchester.ac.uk servitude consulting, machester, england, united kingdom abstract the paper explores and ultimately highlights the link between the two concepts via a diachronic approach, tracing the islamic institution of the cash waqf and its book keeping activities thereby garnering sufficient evidence to conclude that the islamic accounting is in fact an old concept as it has been used in the accounting for cash waqf in the ottoman times and in relatively recent times. implication wise, understanding the accountability rudiments relative to islamic institutions would go a long way in bolstering these institutions and ensuring their survival intergenerationally. the aim of the research is therefore to highlight the link between islamic accounting and the cash waqf. the paper chiefly employs a diachronic i.e. a historical methodology, uses a qualitative/phenomenological approach and therefore qualifies as a documentary as well as an archival research. as far as results of the paper is concerned, the paper has demonstrated the use as well as application of islamic accounting in medieval times and modern parlances as far as cash waqfs are concerned, attesting to its relevance for such voluntary redistribution and wealth management institution. in fact, the waqf, an age-long institution would not have been able to see the light of the day without thorough accounting. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 3 no 2 2019 keywords: cash waqf, stock waqf, islamic accounting, islamic institution, islamic economic and financial history doi https://doi.org/10.28918/ijibec.v3i2. 1404 jel: h10, m41 published : 10 nov 2019 147 international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 1. introduction a radical developmental offshoot and extensive modification of the traditional waqf, the cash waqf has evolved to be an important phenomenon in today’s voluntary re-distribution and wealth management discourse. as with any wealth related phenomenon, there are accountability issues. these accounting procedures, processes and conventions are indispensable for the operation, management as well as continuity of the waqf institution. islamic accounting naturally renders itself to the accounting task of the cash waqf institution as it is arguably an islamic conception. the author is aware that islamic accounting as well as the cash waqf are widely perceived as new concepts in today’s islamic finance discourse. while this might be particularly true for uninitiated students of islamic economic and financial history, but as for informed historians this is a fallacy. the study therefore set out to highlight the link between islamic accounting and the cash waqf so as to strengthen the powerful institution of waqf in today’s world. the study of islamic accounting has actually been widely studied by economists, as conducted by napier (2009); ibrahim & yaya (2015); and velayutham (2014). in their analysis, i did not see a serious effort to link islamic accounting and cash waqf in their studies. vice versa, in several studies of cash waqf, islamic accounting is not so well reviewed. we can see as researched by ibrahim, amir & masron (2013) who only see cash waqf as one of the economic development instruments of muslims; ahmad (2015) who analyzes cash waqf only with a normative approach. against this backdrop, the paper will highlights the use of islamic accounting in medieval and modern times, tracing the development of the cash waqf, exposing islamic accounting as a form of accounting, showing how accounting for the cash waqf has been done in the medieval times as well as in modern times relative to specific waqf mandate(s). the paper concludes with a statement on the indispensability of islamic accounting as far as the cash waqf is concerned. the author is aware that islamic accounting is largely construed as a recent phenomenon, nevertheless, accounting for the ottoman cash waqfs as the paper demonstrates is nothing but islamic accounting.. 2. research method this research belongs to the type of library researh by making islamic accounting and cash waqf as the main object of study discussed. this research data is taken from various literatures that contain islamic accounting and cash waqf. i will tend to analyze the object of research with a normative and historical approach. . 3. results and discussions 3.1. the legitimacy of waqf narrated ibn `umar: “umar bin khattab got some land in khaibar and he went to the prophet (saws) to consult him about it saying, "o allah's messenger (saws) i got some land in khaibar better than which i have never had, what do you suggest that i do with it?" the prophet (saws) said, "if you like you can give the land (corpus) as endowment and give its fruits in charity." so `umar gave it in charity as an endowment on the condition that would not be sold nor given to anybody as a present and not to be inherited, but its yield would be given in charity to the poor people, to the kith and kin, for freeing slaves, for allah's cause, to the travellers and guests; and that there would be no harm if the guardian of the endowment ate from it according international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 148 to his need with good intention, and fed others without storing it for the future (with a view to becoming rich)” (sahih al-bukhari 2737: book 54, hadith 24). deducible from the above is that the traditional waqf which the prophet acceded to was an endowment of a physical asset exhibiting perpetual characteristics as well as purpose permanence and clarity. this cannot be however categorically said about the cash waqfs as their legitimacy did not come directly from the prophet and their would-be inherent corpus characteristics are questionable. in essence cash is not and has never been the underlying asset for a waqf (keles, 2001). the cash waqfs became prominent during the ottoman caliphate in the 1300’s following an islamic ruling opinion by an imam called zufar in the eight century. 3.2. cash waqfs; its evolution and meaning the corpus of a cashwaqf is cash. in other words, a waqf whose endowment primarily consists of cash is indeed a cashwaqf. operationally, the corpus i.e. cash is invested and the proceeds used in line with the endowers wish and directive, in most cases for charitable purposes. with specific reference to the ottoman cash waqf, the waqf is initiated when a seemingly affluent individual wishing to dedicate his wealth declares his intention publicly through approved legal channels. once the endowment is made, the cash is invested through a process called istiglal, in modern terminologies; a sort of lease, buy back arrangement. such arrangement entails a fund seeking entrepreneur relinquishing his ownership/usufruct right to his property e.g. house, to the waqf in exchange for working/investment capital he needed. the obtained fund is invested by the entrepreneur and this arrangement remains in force for a specified period of time usually a year. thereafter, the entrepreneur can request to assume usufruct rights on the hitherto relinquished property for a rental fee in favour of the waqf which is to be paid for as long as the capital obtained from the waqf is still with him. in most cases, the entrepreneur returns the capital obtained from the waqf within a year and his thus entitled once again to the ownership rights of his property. this process is replicated comprising of a number of fund seeking entrepreneurs and as such the returns emanating from such arrangement constituted the mega profit of the waqf which is then channelled to philanthropic purposes as stipulated by the endower. of course, administrative cum management expenses and other overhead expenses are taking into consideration before the waqf funds are disbursed or better still the endower’s wish(es) is/are carried out. through this process, the corpus (cash) is somewhat maintained and sometimes enhanced if the trustee or waqf management decides to augment the existing corpus by adding some of the profit which are not disbursed. essentially, the waqf was able to protect the corpus, ensure continuity and consequently able to generate income from the property of the entrepreneur who obtained his much needed capital for investment. worthy of note is that the waqfs could not come together in the name of financial cooperation to lend out cash endowments, this restriction helped them preserve their identity as social services organizations as opposed to commercial ones. the entire process is pictorially represented below; 149 international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 figure 1.a classical ottoman cashwaqfkey 1-corpus (cash);2aproperty (ownership rights);2bcash (investment capital);3cash;4a transfer of usufruct right on property;4b-rentfromusufruct for a specified period;5acash (corpus returned);5b-ownershiprights returned;6enhanced waqf subject to management decision to plough back profit or disbursement to waqf purposes less waqf overhead or running cost;isale;iilease;iiibuy back; ivistiglal. the institutionalization as well as development of the cash waqf was not without controversies. the opposers of the cash waqf contended that; lending out the capital to entrepreneurs was tantamount to desecrating allah’s property and as such a sacrilege, this somewhat relates to the corpus immovability argument, they also contended that the istiglal process meant that the endower was not permitted to rescind his decision and revoke his waqf, it was also advanced that the cash waqfs intricacies somewhat attacks the very foundations cum applications of the law of inheritance. another contention was that the corpus i.e. cash is invested through interest bearing mediums as well as the contestable and controversial bay alinah. in fact, the controversies dragged to the later part of the fifteenth century when a consensus was reached in the ottoman empire and the waqf was legalized by the then sultan, murat the 3rd. (cizakca, 2011). the triumph of the cash waqf and its accompanying legality made it quite popular during the ottoman times and subsequent periods. for example, it is reported that approximately 46.13 percent of the entire operational waqfs from the middle of 15th century to middle of 16th century in istanbul were indeed cash oriented. similarly in the 1700’s the number of operational cash waqfs was 761 in bursa from which over 10 percent of the populace benefited from credit facility extensions. even the anatolia and the european regions of the caliphate were not left out as the cash waqfs were visible. particularly in the 1500’s, the ottoman’s cash waqfs had become the first choice of wealthy individuals with high liquidity interested in endowments (mandeville, 1979) and were so pervasive that concerns about the supplanting of traditional bank functions by the waqfs and the erosion of individual wealth became pronounced. this was because over half of the endowments in the period were cash constituted (cizakca, 1995). as far as its socio-economic impact was concerned, baskan (2002) reports that the impact of the cash waqfs was mainly felt in sectors such as; social services including social amenities and infrastructural facilities, judiciary, education, agriculture and religious affairs whilst the unhabitat (2005) submits that the cash waqf was instrumental to requisite credit and financial service provision. international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 150 despite its popularity and apparent usefulness in the ottoman period, the cash waqf did not gain prominence in other contemporary muslim territories as it is believed to harbour or disguise interest transactions operationally, and remained debated. while some jurists opine that its use is a matter of derived demand; a potent mechanism for wealth protection and enhancing flexibility in philanthropic investments channels, hence very pragmatic and economically feasible. (cizakça 2000, 2004, mandeville 1979), some argued that the cash waqfs were indeed legal and the returns accruing to the waqfs were indeed profits and not interest thereby upholding the verdict of the ottoman’s. eventually, the popularity of the cash waqf was short lived and its use waned owing to hostile state take-overs which encouraged banking. (cizakca, 2011) however, there has been a resurgence of the cash waqf (sait and lim, 2006) especially with the advent of the incorporated cash waqf otherwise called stock waqf in recent times. 3.3. islamic accounting defined shahul (2009) defines islamic accounting as “the ‘the accounting process’ which provides appropriate information (not necessarily limited to financial data) to stake holders of an entity which will enable them to ensure that the entity is continuously operating within the bounds of the islamic shari’a and delivering on its socioeconomic objectives”. he is of the opinion that it is indeed an evaluative tool for muslims who are conscious of their accountability duty to the creator. while they are both concerned with information provision, islamic account is believed to be different from conventional accounting in four major ramifications; the rationale behind information provision, information of interest, mannerism in obtained information measurement, valuation recording, communication and the target users (shahul, 2009). 3.4. medeival islamic accounting for cash waqf unexpectedly, sophisticated book keeping was a fundamental feature in medieval times especially in cities where waqf was instituted. mannan (1992) reports that as far back as the 1400’s and 1500’s useful and relevant records of waqf assets were kept in municipal jurisdictions and that great care was taken by the endowers, courts cum relevant authorities to protect and preserve such information. he further asserted that many of these information are still available for public scrutiny in isfahan, istanbul, damascus, cairo, jerusalem, fez, amongst other cities. also providing relevant information were the waqf census registers. cizakca (2004) reveals that the census register of the 1500’s and 1700’s contained standardized entries of data on quite a number of endowments and that the structure, contents and manner of recording remain largely unchanged for over two and a half centuries. waqf accounting registries as well as registries of the conditional awqaf were also in existence. they provided ample information regarding the quantum of money a waqf possess, duration of capital building or accumulation, manner of accumulation, additions to capital and investments in percentages, debtors and owing(s) to the waqf as well as the nature of loans and purpose of such loans. specifically, the record entries spelt out detailed and rich information, such as amount of loan, the name of the debtor, nature of loan extension whether with deed, acknowledgement or guaranty, commentaries on waqf income and expenditures, debt or loan dates and maturity, delivery dates, explanation showing when the debts are paid back, debt/loan and other investment recouping proceedings including forceful takeovers and sale of debtors assets. this information were usually matched with each accounting entry. kurt (1998) also reports that there were recordings of estates of the deceased as well as manner of estate distribution among heirs 151 international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 including court decisions on matters concerning them most of which were domiciled in the sharia courts. fee registries were also maintained by the courts which provided information on charges paid by claimants to the court. this helped the waqfs to account for court expenditures. a.) the name of the waqf and the purpose for which it was established b.) the name of the neighbourhood cum district, in which the endowment was registered.c.)the name of the trustee. d.) the time period covered by the census. e.) original capital of the waqf. f.) later additions to the capital of the waqf either by individuals or by other waqfs. g.)the balance of the new capital thus formed. h.)the return obtained from the investment of the endowed capital at the end of the year. i.) the purpose for which the annual return was designated j.)the names of the borrowers.k.)the amount of capital they borrowed. l.) the neighbourhood where the borrowers lived. m.)the religious denomination of the borrowers and n.)gender. register record of a typical ottoman cash waqf. source: ottoman archives. bearing in mind the workings of the cash waqf, accounting for ottoman cash waqf entailed a single-entry method in the accounting convention. this is a relatively easy and simple accounting method. daily income and expenditure were recorded with explanations. the corpus (cash) of the cash waqf was denominated in qurush and para. the yearly accounting entry was simply to subtract all expenditures from the income generated from the corpus and the remainder (if any) added to the corpus, of course, after the wish of the owner has been carried out. summarily, this is shown below; annual fiscal position of the cash waqf = endowed capital + (incomes expenditures) "the account of the revenue and expenditure of the muslim endowments for the purpose of (assisting) the avariz and nuzul taxes for the (residents of the) orhangazi district of the city of bursa during the trusteeship of esseyidhalil aga, the trustee of the said endowment from the year 1200 in hegira (1785) until the end of zilhicce of the same year”. this particular cash waqf was endowed with an initial capital of 2377.5 grus. to this, the "profit" of the previous year was added which increased the capital to 2544 grus. later, we have three other awqaf further contributing to this 2544 grus. the first contribution, 50 grus, was provided by the waqf of the aysehatun for the purpose of reciting the mevlid. the second one, 85 grus, came from the waqf of hakim hatun, for the same purpose. finally, the third contribution, 50 grus, also came from the waqf of hakim hatun this time, for the purpose of buying candles for the orhangaziwaqf. the total capital of the endowment thus, increased from the original 2377.5 grus to 2729 grus, a total addition of 351.5 grus. this enhanced capital of 2729 grus was then distributed as credit to 20 individuals. these investments generated a return of 257.5 grus, murabaha fi sene-i kamile, which represented 9.4 per cent of the invested capital. out of this return of 257.5 grus, a total of 86.5 grus were spent to assist the payment of avariz and nuzul taxes, to recite the mevlid, to buy candles, to pay the trustee and the bookkeeper, and for miscellaneous expenses. the remaining 171 grus was called the ziyadeezmasraf and was added the following year to the capital of the endowment.” a typical ottoman cash waqf accounting entry source: cizakca (2004). international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 152 cash waqf accounting records and related information e.g. waqf deeds were normally in one document but in some cases separate records were kept. also book of payables were also kept. the payables book provided invaluable information. information such as; the list of assets of the waqf, incomes and expenditures; the present waqf income or earnings, magnitude of loans made by the waqf, amount of additions to capital and investments, nature of charges made by the waqf on its properties , names of the guarantors, can be seen in the book of accounts. a sort of audit in the form of inspections was regularly carried out to determine the true financial positions and modus operandi of the waqf. the cash waqf censuses proved particularly useful for this purposes as the regular inspections and comparison of both past and current accounting records were documented in them. a typical cash waqf census provided information such as; the endower of the waqf , the date of registration and waqf inception, type and amount of properties, annual income obtained from these properties, annual expenditures by day, month and year, income-expenditure totals and where available, the difference between them. these records cover definite year periods. a.)names and addresses of people who borrow money from the waqf.b.)amount of money borrowed, payback time, lending period. c.) the specifications of properties hypothecated. d.)the specifications of real property hypothecated. e.) sale of properties or goods, after collecting the receivables of foundations paying the money left to the owner in the case of default on the credit. f.)determination of information about the guarantor, if there is a guarantor for the debt, and lending after “kefilvezaminiz” (guarantor, surety) promise is taken. g.)in the case that the debt is not paid back, records showing that receivables of the waqf have been taken from guarantors if available, and if the guarantor had died before the foundation collected the debt, receivables have been collected from the estate of the guarantor. information provided in a typical book of payables source: ottoman archives. specifically, regarding the recognition of income and expenditure, items such as philanthropic bequests, taxes taken from agricultural products, revenues of businesses operated by waqf, rental incomes majorly from land, bath revenues, revenue from mills and factories constitute income streams for the cash waqf institution. depending on the endowers instructional mandate, expenditures of the waqf cut across service payments, catering for the poor, salaries and wages of workers and managers which were disbursed monthly, quarterly, bi-annually or annually, building maintenance including repairs, lighting etc. subject to funds availability and priorities of the waqf, religious related payments, festivities related payments, educational development expenses such as payments to scientists, health related spending including medicine supplies to nursing homes and alms houses supports. such expenditures were recorded as expenditures to waqf account (kurt, 1996). 3.5. modern islamic accounting for cash waqf with specific reference to the cash waqf whose objective cum endowers wish is to empower small and medium enterprise (sme), the profit and loss (pls) paradigm becomes pertinent and instrumental in allocating resources between surplus and deficit units. essentially, the cash waqf institution acts as surplus unit with capital while the sme acts as the deficit unit, a fund seeking entity with business idea or acumen but with no capital. both the 153 international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 sme’s and the waqf institution benefit as they get requisite funds for business ventures and returns on investment respectively, which helps business continuity as well as corpus preservation and endowment purpose permanence so long as profits are made. the quantum of partnership investment relationship between the sme’s and the cash waqf institution however depend on cash available at the waqfs disposal. to this end, a typical contemporary cash waqf focusing on sme’s would have corpus, income streams and expenditure items as follows; single or pooled cash endowment from endowers which could be individuals, institutions at the inception or during the perpetual life of the waqf institution, usufruct rights granted by individuals as well as corporate entities on its assets to the cash waqf institution which generates income for the institution, investment deposits in returns or profit remitting giving institutions such as islamic banks, dividend and capital gains arising from securities investment in e.g. capital market, profit (loss) from “safe” business partnership, administrative as well as management expenses, endowers wish implementation cum beneficiaries settlement and capital augmentation activities. the modern accounting for cash waqf is identical to accounting for nonexpendable fund, a form of fiduciary fund. fiduciary funds constitute funds in the coffers of public sector organizations through a formal trust relationship agreement in which the fund holder acts in trust or agency capacity on behalf of an endower or donor. under the arrangement, the funds or capital are provided by the donor to the public institution who invests it or expends its proceeds in accordance to trust agreements (engstrom& hay, 1996). nonexpendable trust funds are essentially trust funds governed via statutory laws and individual trust agreement .under which principal(s) must be maintained. their accounting therefore requires a capital maintenance approach where revenue and expenses will be treated on an accrual basis. income received, on which the public institution concerned has no spending rights is recorded in the nonexpendable trust fund. similarly, real trading investment activities, rental, business as well as other commercial activities that generate incomes and/or represent additions to capital are also recognized in such fund accounts. (engstrom& hay, 1996) taking a cue from the nonexpendable trust fund whilst considering the mandate of the cash waqf focusing on sme’s, typical accounting entries of a cash waqf fund would be; a.) cash received from donator recorded as “revenues-grant”. b.) when the cash capital of waqf fund used in investment activities is recorded as investment. c.) income streams from cash waqf investment activities are entered as “revenues-investment income”, which is used for paying administrative expenses, beneficiaries and add up the initial funds. operating statement of the fund would consist of revenues from corpus as well as revenue from investment while assets of waqf fund will include items such as cash, investments and investment income receivable. . 4. conclusion by and large, the paper has demonstrated the use as well as application of islamic accounting in medieval times and modern parlances as far as cash waqfs are concerned, attesting to its relevance for such voluntary redistribution and wealth management institution. in fact, the waqf, an age-long institution would not have been able to see the light of the day without thorough accounting. the current resurgence as well as continued existence of the waqf institution is indeed a testimony that islamic accounting has lived to expectation in the information dissemination business within the purview of sharia and is a sine qua non if the institution must continue to exist. the author is of the opinion that there is no scientific distinction in objective, between the accounting for waqf in the ottoman’s and in recent times. international journal of islamic business and economics (ijibec), 3(2) december 2019, 146-155 154 thus, the clamour for islamic accounting in recent times relative to islamic institutions including the cash waqf is to a great extent unnecessary and it is arguably a case of old wine in new bottles. references ahmad, m. 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(2014), "“conventional” accounting vs “islamic” accounting: the debate revisited". journal of islamic accounting and business research, 5(2), 126-141 38 ijibec the intention of millennial generation in paying zakat through digital payments muhamad daniyal al athar1, m. nur rianto al arif 2 1,2 universitas islam negeri syarif hidayatullah jakarta, jl. jl. ibnu sina 4, pisangan, kec. ciputat tim., kota tangerang selatan, banten 15419 email: 1danial177alathar@gmail.com, 2 nur.rianto@uinjkt.ac.id abstract the zakat management organization (opz) is currently making innovations following technological developments, making it easier to pay zakat through digital payments. one of the groups of people who use digital payments is the millennial generation. the millennial generation is also known as the generation that likes things that are easy and related to technology. this study aims to analyze how the millennial generation intends to pay for zakat through digital payments. the method used in this research is logistic regression. the results showed that the variable trust, perception variable, and convenience variable had a significant influence on the intention of the millennial generation to pay zakat through digital payments, while knowledge and motivation had an insignificant effect. this research result implies that opz must make a convenient application for the millennial generation in making zakat payments digitally.. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 1 2021 keywords: zakat, the millennial generation, digital payment, logistic regression doi:https://doi.org/10.28918/ijib ec.v5i1.3675 jel: l25, l31 article info article history: received : 15 april 2021 accepted : 1 may 2021 published : 1 june 2021 mailto:danial177alathar@gmail.com mailto:nur.rianto@uinjkt.ac.id https://doi.org/10.28918/ijibec.v5i1.3675 https://doi.org/10.28918/ijibec.v5i1.3675 international journal of islamic business and economics (ijibec), 5(1) june 2021, 38-47 39 1. introduction the rapid development of technology is the background for the industrial revolution 4.0. the european parliamentary research service states that the industrial revolution occurred four times. the first industrial revolution took place in england in 1784. at the end of the 19th century, the second revolution took place. next, the third revolution took place in 1970 (davies, 2015). the fourth revolution was announced a priori because the actual event had not yet occurred and was still in the form of ideas. changes that are happening today have made business people make innovations so that their products and services can be integrated with technology. digitalization in all sectors, including the industrial sector, must be carried out to survive in the global era. along with technological advances and the 4.0 industrial revolution, in indonesia, the use of the internet is growing and developing. according to the indonesian internet service usage association (apji), the number of internet users in indonesia increases every year. based on the results of the apji survey and the indonesian polling, the number of internet users in indonesia in 2018 increased by 27.91 million (10.12%) to 171.18 million people. this data means that the penetration of internet users in the country has increased to 64.8% of the total population (apji, 2019). according to plunkett (2008), the internet is the preferred means of support in the global economic trading system because of its strategic role in expanding markets worldwide. as many as 71 percent of internet users have bought a product online or through e-commerce and payment through digital payments. digital payments in indonesia continue to increase from year to year. the large population and increasing e-commerce in indonesia are accelerating digital payment transactions in the country. every year in indonesia, there is an increase in digital transactions. the volume of digital transactions in 2010 only reached 41,060,149 million transactions, with a total nominal transaction of idr 981,296,980,076 billion. but in 2020, the volume of digital transactions will increase to 4,625,703,561 billion, with a total nominal transaction of 204,909,170,021,918 trillion. based on population projections for 2015-2045, according to the inter-census population survey (supas) results in 2015, indonesia's population will reach 269.6 million by 2020. this figure consists of 135.34 million men and 134.27 women. as many as 66.07 million people are in the non-productive age category (0-4 years), then 185.34 million people are in the productive age group (15-64 years), and 18.2 million people are in the unproductive age group ( 65+ years). currently, indonesia is entering the era of the demographic bonus, where the number of productive age population is more than the unproductive age. due to the increasing number of internet users and digital payments in indonesia every year. so, digitizing payments is the main focus in order to increase the potential for zakat in indonesia. in 2019, the state of indonesia, with the largest muslim population globally, has the potential for zakat reaching rp. 233.8 trillion (puskas baznas, 2020). the development of zakat in indonesia changes dynamically from time to time, both in terms of regulations, institutions, collection, and distribution processes. this change is, of course, based on the needs and demands of zakat stakeholders. towards 2020, the condition of zakat in indonesia is racing towards better management. we can observe this from the various innovations that are being and have been carried out by the opz (zakat management organization), including efforts to integrate zakat management with technology through digital-based service processes, harmonization of national zakat integrated data systems, and the formulation of research-based strategic policies in the 40 international journal of islamic business and economics (ijibec), 5(1) june 2021, 38 – 47 management of zakat. (puskas baznas, 2019). the zakat institution has made collection efforts by digitizing it through two platforms: internal and external (puskas baznas, 2018). for the internal platform, opz has digitized collection services using several facilities, including the opz website. apart from going through the website, opz has also developed an android-based application to collect zakat funds from muzakki. nilawati & rijal (2020) state that online zakat payments are quite effective and efficient in increasing zakat income. for external platforms, opz collaborates with external platform providers. first, the ride-hailing platform from indonesia, namely gojek. through his company's unit called gogive. baznas, dompet dhuafa and rumah zakat have collaborated with the ride-hailing platform to collect zakat funds. second, opz utilizing crowdfunding. one of the crowdfunding platforms used is kitabisa. third, baznas, as the coordinating institution for opz, formed zakathub. transactions using e-wallets or digital wallets have become a trend in society to carry out various transactions. thus, opz has collaborated with e-wallet platforms to provide non-cash zakat payment facilities, such as gopay, linkaja, and ovo, in receiving zakat payments. with more than 260 million, with more than 85 percent of the population being muslim, indonesia certainly has a significant number of potential millennial muzakki. the millennial generation, as described in the thematic gender statistics report (2018) by the ministry of women's empowerment and child protection (kemenpppa), are those born in the early 1980s to 1999 (baznas outlook, 2020). the baby boom generation plus veterans are only 11.27 percent of the total population, then generation x is 25.74 percent, and generation z is 29.23 percent, while the millennial generation is more than all generations 33.75 percent of the total. indonesian residents. the use of financial technology in zakat collection has been proven to absorb the potential of zakat from millennials. baznas in indonesia's 2019 zakat outlook states that the trend of digital zakat payments has been implemented since 2016. this implementation increased zakat collection by 19.66 percent in 2017 compared to absorption in 2016. in line with the 2019 indonesian zakat outlook, santoso (2019 ) said that digital or digitalization in zis could increase public trust, which impacts increasing zis collection. the digitization of zakat can make it easier to educate the indonesian people about zakat, infaq, and sadaqah, mostly muslims. rohim (2019), by transforming into the use of channels in digital fundraising, zakat management and collection programs can be carried out better and educate the public about the obligation to give zakat. however, in 2018 opz realized online zakat to increase zakat income from the millennial generation, it still cannot be maximized. this fact is evidenced in saragih's (2018) research showing that the millennial generation (generation y) trusts zakat more directly to mustahik rather than giving it to opz. saragih (2018) mentions why muzakki who directly choose zakat are because they feel more affectionate than giving it to opz. furthermore, they do not need to pay additional fees, they already know the actual condition of the mustahik, and finally, there are still many mustahics that baz / laz has not reached. the security factor will be one of the determining factors for muzakki in paying zakat using a digital platform (khotimah & larasati, 2019). the potential for zakat from the millennial group in 2020 can be reflected by the potential for zakat income among those aged 25-40 years. assuming more than 80 percent of indonesia's population is muslim, and the number of millennials increasing in 2020, there will be a significant potential for zakat. this data is a challenge for opz to realize. in addition international journal of islamic business and economics (ijibec), 5(1) june 2021, 38-47 41 to the potential for income zakat, the millennial generation also has excellent potential to provide other islamic funds such as infaq, waqf, and alms. at least this potential can be measured from indonesia's achievement as the number one country in terms of donating according to the world giving index (2019). of course, this will be a challenge for opz to capture and realize the opportunities of the millennial generation in donating. the level of zakat literacy will affect the intention of muzakki to pay zakat through digital payments (kasri & yuniar, 2021). there are still not many studies related to the intention of the millennial generation to pay zakat through digital payments, so this will be the main contributors to this research. therefore, this study aims to analyze how the millennial generation intends to pay zakat through digital payments. in addition, this study also aims to analyze the level of use of digital payments in zakat payments for the millennial generation. 2. method this study used a non-probability sampling technique with a purposive sampling method and obtained a sample of 100 respondents. all respondents are those who have made zakat payments through digital payments or cash and will make zakat payments through digital payments or in cash with the age range of respondents from 20-40 years. the questionnaire was distributed to 100 millennial generation in the jakarta area. the analysis technique used by the author is a quantitative research method, using a logistic regression analysis model. this study uses logistic regression because the dependent variable is qualitative in the form of two decision choices. this is the main reason for choosing the logistic regression technique in this study. the feasibility of the regression model was assessed using the hosmer and lemeshow's goodness of fit test. this model is to test the null hypothesis that the empirical data fits or fits the model. then, perform the overall model fit test to find out whether all the independent variables in the logistic regression simultaneously affect the dependent variable and finally do the determination coefficient test to see how much influence the independent variables and the dependent variable partially. the independent variables used in this study were knowledge, belief, perception, motivation and convenience. the dependent variable in this study is intention. the mathematical equation of logistic regression is as follows: 3. result and discussion respondents taken in this study are the millennial generation of dki jakarta who are muslims and will or have already paid zakat through digital or cash payments. the samples taken were 100 respondents. based on table 1, it is explained that as many as 68% of respondents chose to pay zakat in cash and as many as 32 percent of respondents chose to pay zakat through digital payments. this shows that most respondents still use zis cash payments. maulidina & solekah (2020) state that there are still many muzakki who distribute zakat directly compared to through opz. 42 international journal of islamic business and economics (ijibec), 5(1) june 2021, 38 – 47 table 1. number of respondents based on payment methods table 1 shows that as many as 28 percent of respondents use ovo to pay zakat, 25 percent of respondents choose bank transfer, as many as 21 percent of respondents pay zis through kita bisa, as many as 8 percent of respondents choose to pay zis through go-give, as many as 6 percent of respondents choosing through link aja, as many as 5 percent of respondents pay zis through tokopedia, 3 percent of respondents use dana to pay zis, as many as 3 percent of respondents pay zis via the opz’s web and as much as 1 percent of respondents pay zis through youtap. figure 1. number of respodent based on digital payment method figure 2 shows the chi-square value of 13.723 with a significance of 0.056. based on these results, because the significance value is greater than 0.05, it can be concluded that the model is able to predict the observation value or it can be said that the model is acceptable because it matches the observation data. table 2. hosmer and lemeshow test chi-square df sig 13.723 7 0.056 table 2 is a display of the comparison of the difference in the value of -2 log likelihood which consists of constants only and -2 log likelihood which consists of constants and independent variables. the difference follows the chi square distribution. the chi square value is 24.731 with df 5. based on table 3, it is obtained a significance value of 0.000 because this value is less than 5%, it can be concluded that knowledge, trust, perception, motivation and ease simultaneously influence intention. table 3. comparison of value from -2ll chi-square df sig. step 1 step 24.731 5 .000 block 24.731 5 .000 model 24.731 5 .000 table 3 shows that the value of nagelkerke r square is 0.250, which means that the variability of the dependent variable that can be explained by the independent variable is 25% while the remaining 75% is explained by other variables outside the research model, such as variables, subjective norms, control of behavior, income, education, religiosity and method amount percentage cash 68 68% digital payment 32 32% total 100 100% international journal of islamic business and economics (ijibec), 5(1) june 2021, 38-47 43 others. table 4. coefficient determination -2 log likelihood cox & snell r square nagelkerke r square 133.457 0.180 0.250 table 4 shows that the results that affect the millennial generation's intention in choosing zis payments through digital payments are trust, perception and convenience. the results of the research in table 5 show that the knowledge variable has no effect on the intention of the millennial generation to pay zakat through digital payments. these results contradict the results of research conducted by huda & ghofur (2012), saad et al. (2016), and martono et al. (2019). table 5. logistic regression result variable coefficient se sig. constant. -6,218 2,702 0,021*** knowledge -0,230 -0,611 0,706 trust 1,170 0,592 0,048** perception 1,526 0,629 0,015** motivation 0,633 0,682 0,353 convenience 1,434 0,711 0,044** note: significance level *(10%), **(5%), ***(1%) the results of the logistic regression analysis in table 5 also show that the trust variable has a significant effect on the intention of the millennial generation to pay zakat through digital payments. if paying zakat through digital payments is trustworthy, the tendency of the millennial generation to pay zakat through digital payments can increase. in this study, the results of the trust variable support the results of research conducted by martono et al. (2019), usman et al. (2020), and syafira et al (2020) that the trust variable has an influence on the interest in paying zakat. muzakki's trust is influenced by the reputation of the zakat management organization (mukhibad et al., 2019). accountability of zakat organizations have a positive influence on the muzakki paying behavior (nurkholis & jayanto, 2020). table 5 also shows that the perception variable has a significant effect on the intention of the millennial generation to pay zakat through digital payments. if the perception of paying zakat through digital payments is good, then the tendency of the millennial generation to pay zakat through digital payments can increase. kurniaputri et al (2020) also found similar results where intentional behavior will determine people's decisions to pay zakat through digital platforms. perceived subjective norms and behavioral control will influence the intention to give infaq and shadaqah (kharisma & putri, 2020). andam & osman (2019) finds that attitude, descriptive norm, and moral norm have a positive relationship with the zakat intention. one of the positive perceptions of zakat management organizations is due to promotions carried out using public figures. antonio et al (2020) state that one of the things that increases public interest in paying zakat is the use of public figures by opzs. perceptions arise from the information obtained by muzakki, that digital zakat payments will make the obstacles or barriers to information smaller (hanadi, 2020). muhammad & saad (2016) also found that attitude and moral reasoning had a positive impact on zakat intention among businessmen in kano nigeria. the results of the logistic regression analysis of the motivational variables in table 5 show that there is no influence on the intention of the millennial generation to pay zakat 44 international journal of islamic business and economics (ijibec), 5(1) june 2021, 38 – 47 through digital payments. in this study, the results of the motivation variable contradict the results of research conducted by majid (2017), kamaruddin et al (2015) and rizkia et al (2014). this can occur due to the lack of socialization carried out by opz on zis payments based on digital payments. this study also shows that the convenience variable has a significant effect on the intention of the millennial generation to pay zakat through digital payments (see table 5). if paying zakat through easy digital payments, the tendency of the millennial generation to pay zakat through digital payments will also increase (kasri & yuniar, 2021). in this study, the results of the convenience variable are similar to the findings of ichwan (2020), sukoraharjo (2018), and karmanto & baskoro (2020) that the convenience variable affects the interest in paying zakat. one of the challenges faced with digital zakat payments is that internet access in indonesia is still uneven (utami et al, 2020). rachmat et al (2020) stated that there are several other factors that determine the behavior of gen y muslims in the use of digital zakat payments. these factors are performance expectations, business expectations, social influences, facilitation conditions, hedonic motivation, price values, habits, and safety. mobilization of zakat payments through opz can be done by increasing awareness and willingness to pay zakat and the use of technology (doktoralina et al, 2018; sedjati et al, 2018). one of the awareness of paying zakat by the community is built through video public service advertisements (bawono & erlangga, 2019). in addition, the digital zakat campaign through the institution's official social media needs to be increased (hudaefi & beik, 2021). tantriana & rahmawati (2018) recommends zakat management organizations to further promote zakat payments digitally to increase the literacy about zakat. because literacy will have implications for the higher intention of muzakki paying behavior (yusfiarto et al., 2020). 4. conclusion this research shows that the millennial generation pays more zakat in cash or directly by 68 percent, while 32 percent pays through digital payments. this is due to the lack of knowledge and motivation possessed by the millennial generation regarding zakat payments through digital payments. there are many choices of services to pay for zis through digital payments. this research concludes that the millennial generation prefers to use ovo services to pay zakat through digital payments. the empirical results obtained show that the trend of zis payments in the future will rely on digital payments. therefore, each opz must be able to adapt to this trend, including being more active in enhancing the features contained in this digital payment service. millennials will feel more comfortable using digital payments in every economic activity, including zakat payments.. references andam, a. c., & osman, a. z. 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(2020). literacy and intention to pay zakat: a theory planned behavior view evidence from indonesian muzakki. international journal of zakat, 5(1), 15-27. 11 ijibec analysis of the effect of macroeconomics on net assets value (nav) of sharia mutual funds in indonesia hilyatun nafisah1, supriyono 2 1,2,faculty economy and business uin syarif hidayatullah jakarta email: hillhilyatunnafisah@gmail.com, supri1101.sy@gmail.com abstract net asset value (nav) is a measure of investment performance for sharia mutual funds derived from the entire value of the mutual fund portfolio fewer liabilities. this research aims to analyze the effect of the rupiah exchange rate, inflation, jakarta islamic index (jii) and bank indonesia sharia certificate (sbis) on net asset value (nav) of sharia mutual funds. the object in this research consisted of 5 companies registered with the financial services authority (ojk) from 2012-2019. panel data regression analysis was used to test the hypothesis in this study. a random effect is used to determine the differences in the effect. the result of this study concluded that rupiah exchange rate, inflation and jii and sbis effect on nav of sharia mutual funds simultaneously. partially, an unstable rupiah exchange rate is considered to have an impact on the company's production factors and affect the validity of the stock price; this causes investments no longer be attractive to investors, thereby reducing the value of investments that have an impact on the declining mutual fund nav. inflation decreases the real income of people with fixed income will also reduce the value of wealth in the form of money so that people will prefer to invest their money in the form of real assets that will result in reduced investment in the financial and capital markets and lower the nav value of islamic mutual funds. jii describes the performance of stocks which are one of the portfolios of sharia mutual funds. if the jii index value rises, then the increase in the portfolio of sharia mutual funds that share type will also rise which will have an impact on the increase in the nett asset value of sharia mutual funds. sbis does not affect the sharia mutual funds nav. the relationship between sbis and the sharia mutual fund nav as well as the relationship between interest rates and stock prices is negative or in the opposite direction. if interest rates rise at an adequate level, investors will try to move their investments from stocks to deposits. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 1 2020 keywords: rupiah exchange rate, inflation, jii, sbis, nav doi https://doi.org/10.28918/ijibec.v3i2. 1661 jel: g.21, m.39 published : 1 june 2020 mailto:hillhilyatunnafisah@gmail.com mailto:supri1101.sy@gmail.com 12 international journal of islamic business and economics (ijibec), 3(2) december 2019, 11-20 1. introduction investment is an activity carried out with a commitment to several funds or other resources carried out in the present, intending to obtain several benefits in the future. investments that are following islamic teachings are, of course, investments made in the real sector and must be following islamic sharia principles. one place for investors to invest and finance following sharia principles is in the islamic capital market. islamic capital market (islamic stock exchange) is an activity related to the trading of sharia securities of public companies related to the issuance of securities, as well as professional institutions related to them, where all products and operational mechanisms are running not in conflict with muamalat islamiyah law (hamid, 2009). over the past 20 years, the capital market in indonesia has shown rapid development. this capital market has seen from the increase in demand for the main instruments of capital market activities such as stocks, bonds, foreign exchange (fardiansyah, 2002). one investment instrument in the islamic capital market that is experiencing rapid development is islamic mutual funds. sharia mutual funds are a container used to collect funds from the public (financiers), and then invest in securities portfolios by investment managers and following the provisions of regulations and laws that have been determined principally by allah swt. sharia mutual funds are an attractive investment for people who want to invest the following sharia because these investments tend not to require significant capital and do not take up investor time (rahman, 2015). one measure of islamic mutual fund investment performance is net asset value (nav). the nav is derived from the full value of the mutual fund portfolio and reduced by liabilities. nav is one of the benchmarks in monitoring the results of sharia mutual fund portfolios. the development of sharia mutual funds can have seen in the following table 1: table 1 development of sharia mutual funds in indonesia years number of shariah mutual funds total sharia mutual funds nav (rp. billion) 2012 58 8.050,07 2013 65 9.432,19 2014 74 11.158,00 2015 93 11,019,43 2016 136 14.914,63 2017 182 28.311,77 2018 224 34.491,17 2019 262 48.471,93 source: otoritas jasa keuangan judging from its performance so far, sharia mutual funds can be categorized as one of the potential sharia-based investment instruments and have prospects that will continue to grow. however, the excellent performance of sharia mutual funds so far has not always promised this investment to be in a safe position, a slight change in the economy can directly affect the performance of sharia mutual funds. according to hamid (2009), changes in economic, political conditions, including social and security conditions at home and abroad can affect company performance, including companies that have gone public / listed on the stock exchange. these macroeconomic variables will affect the effects included in the mutual fund portfolio. factors that suspected international journal of islamic business and economics (ijibec), 4(1) june 2020, 11-20 13 of influencing the performance of islamic mutual funds include the rupiah exchange rate, inflation, the jakarta islamic index (jii) and the bank indonesia syariah certificate (sbis), where the exchange rate and inflation are considered as a reflection of the economic situation of a country while jii and sbis have considered as a reflection of the state of the money market and capital market. table 2 exchange rate growth, inflation, jii, sbis and sharia mutual fund nav 2012-2019 years nab (%) kurs (%) inflasi (%) jii (%) sbis (%) 2012 8.99 9.22 4.3 6.39 4.80 2013 9.15 9.44 8.38 6.37 7.22 2014 9.32 9.47 8.36 6.54 6.90 2015 9.31 9.57 3.35 6.40 7.10 2016 9.61 9.54 3.02 6.54 5.90 2017 10.25 9.52 3.61 6.63 5.20 2018 10.45 9.59 3.13 6.53 6.87 2019 10.79 9.55 3.32 6.53 5.90 source: otoritas jasa keuangan, bank indonesia kraugman (2005) states that fluctuations in currency exchange rates against foreign currencies significantly affect the investment climate in the country, especially the capital market. this evidenced by the increase in the exchange rate during the study period, followed by an increase in nav in the same year (table 2). putratama (2007) states that the rate of inflation harms the nav of islamic mutual funds if the impact of inflation reduces consumption and purchasing power. however, the data presented in table 2 does not show this, there is any inconsistency between the relationship of inflation with the sharia mutual fund nav in 2014-2015 when the inflation rate falls, and the nav also decreases. noviayanty (2016) states that jii is very influential on nab performance fluctuations because jii is a sharia index which is used as a benchmark to measure the performance of an investment in shares on sharia basis. table 2 shows that jii fluctuations sometimes have positive effects such as in 2013-2016 and also harmful in 2012-2014 on nav, therefore further research is needed to find out the extent of jii's influence on nav. putratama (2007) and arisandi (2009) stated that the relationship between sbis and sharia mutual fund navs was negative. so if sbis decreases, nav increases. however, this is not in line with the results of table 2 in 2012-2013, where the value of sbis and nav both increased. this research is a development from previous studies. the variables used in this study are kurs, inflation, sbis, jii, and focus on the net asset value of mixed sharia mutual funds. this research conducted from january 2012 to july 2019. the period of 2012 chosen because it was a transitional year for sharia mutual fund supervision from bapepam-lk to the financial services authority (ojk), whereas 2019 was a year of transition in indonesian political conditions that made the economy unstable and had an impact on the investment climate. the period of the year was chosen to see how the influence of kurs, inflation, jii as indicators of the economy, and sbis as one of the sharia monetary instruments in influencing changes in nav of sharia mutual funds. sharia mutual funds sharia mutual funds according to the mui no.20 / dsn-mui / ix / 2000 mui national fatwa (dsn) are mutual funds operating according to islamic sharia principles and principles, both in 14 international journal of islamic business and economics (ijibec), 3(2) december 2019, 11-20 the form of a contract between the financier as the owner of assets (shahib al-mal / ran almal) with investment managers as representatives of shahib al-mal, and between investment managers as representatives of shahib al-mal and investment users. sharia mutual funds are the same as conventional mutual funds which aim to raise funds from the public which are then managed by investment managers have invested in instruments in the capital market and money market. such instruments are like stocks, bonds, foreign exchange and short-term debt instruments (commercial paper). the investment instrument has chosen in the sharia mutual fund portfolio categorized as halal. it is said as halal, if the party that issues the investment instrument does not do business that is contrary to islamic principles, does not make usury or lend money. only securities that categorized as halal can included in the portfolio of islamic mutual funds. besides, in terms of managing mutual funds and sharia also based on islamic principles, which do not allow the use of investment strategies that lead to speculation. mutual funds are an alternative investment for the community of investors, especially small investors and investors who do not have much time and expertise to calculate the risk of their investment. mutual funds designed as a means to raise funds from people who have capital, have the desire to invest but have limited time and knowledge (sutedi, 2011). there are four types of mutual funds based on their investment portfolios, namely: (1) money market funds are mutual funds that invest 100% in money market securities. this mutual fund has the lowest risk level; (2) fixed income fund (fix income fund) is a mutual fund that invests at least 80% of its assets in the form of debt securities. this mutual fund has a relatively higher risk than money market mutual funds; (3) equity fund is a mutual fund that invests at least 80% of its assets in the form of equity. this mutual fund has a higher risk than the two previous types of mutual funds; (4) mixed mutual funds (discretionary funds) are mutual funds whose investments are in equity securities and money securities. net asset value (nav) is one measure of the performance of islamic mutual fund portfolios. nav is obtained from the sum of the entire portfolio of mutual funds and reduced by liabilities. nav can formulate as follows: rupiah exchange rate foreign exchange rates are the price of the unit of currency in units of other currencies. exchange rates determined in the foreign exchange market, where different currencies are traded (samuelson, 2004). changes in exchange rates are usually called appreciation and depreciation. the depreciation of a country's currency makes the prices of its goods cheaper for foreign parties, assuming all other conditions remain (cateris paribus). conversely, if an appreciation of a country's currency causes the price of its goods to be more expensive for foreign parties assuming all conditions are fixed (kraugman, 2005). if in conventional terms foreign exchange rates are known as foreign exchange, then in islam the foreign exchange rate is called al-sharf. in the al-munjid fi al-lughah dictionary, alsharf means selling money for other money. al-sharf means the addition, exchange, avoidance, or sale and purchase transactions. thus al-sharf is the exchange of currencies, both between similar currencies and between different currency types (sholihin, 2010). there are four types of foreign exchange transactions, namely: (1) spot transactions, i.e. transactions of buying and selling foreign currencies for delivery at the time (over the counter) or settlement no later than two days. the law is permissible, because it considered a cash transaction, whereas a two-day period is considered an inevitable settlement process navt = (mvat – liabt/nsot) international journal of islamic business and economics (ijibec), 4(1) june 2020, 11-20 15 and is an international transaction; (2) forward transactions, i.e. transactions of buying and selling of foreign currencies whose value determined at present and enforced for the future, between 2 x 24 hours up to one year. the law of this transaction is haram, because the price used is the agreed price (muwa'adah) and the delivery is done in the future, even though the price at the time of delivery is not necessarily the same as the agreed price, unless done in the form of a forward agreement for needs that are not can avoid (lil hajah). (3) swap transaction, which is a contract of buying or selling foreign currencies at a spot price combined with a purchase between selling the same foreign currency as the forward price. this transaction law is haram because it contains elements of maysir (speculation); (4) option transactions, i.e. contracts to obtain rights to buy or sell rights that do not have to be carried out on several foreign exchange units at a specific price and period or end date. the law of this transaction is haram because it contains elements of maysir (speculation). according to madura (2001) when a country's currency is depreciating, and other things fixed, investors are diverting their investment by buying shares; consequently, the demand for shares rises and so does the stock price. otherwise, if a country's currency experiences appreciation, the demand for shares will go down, and so will the share price. the exchange rate of the rupiah against the us dollar has a positive relationship with the return of shares traded by issuers engaged in imports in the sense that the higher the exchange rate, the higher the return generated by the stock market. when the rupiah depreciates against the us dollar because at the time of export, the profits obtained are in dollars so that the company's profits increase, this causes an increase in the company's performance so that the price of shares sold on the stock market increases, where this will eventually result in increased returns obtained by investors. likewise, the relationship between the exchange rate of the rupiah and nav, if the exchange rate rises, shares will also increase, of course, will increase the nav of islamic mutual funds because one of its portfolios is in the form of shares inflation inflation is a state of the economy characterized by rapidly rising prices that have an impact on the decline in purchasing power, often also followed by a decrease in the level of savings funds or investment due to increased public consumption and only a little for long-term savings (sholihin, 2010). inflation caused by several things such as natural inflation, namely inflation that occurs due to natural causes such as drought, floods, tsunamis. which causes the supply of goods and services to decrease when demand is constant or even rising, which results in price increases. the second is human error inflation, which is inflation caused by human error such as corruption. inflation causes a decrease in real income in people with fixed income, reduces the value of wealth in the form of money, and worsens the distribution of wealth. in general, inflation can result in reduced investment in a country, encourage an increase in interest rates, encourage speculative investment, the failure of development, economic instability, the balance of payments deficit and the decline in the level of social welfare. according to islamic economists, inflation is terrible for the economy because (i) it causes disruption to the function of money, especially to the function of savings (saving value), (ii) weakens the spirit of saving and attitudes toward saving from the community (decreasing marginal propensity to save), (iii) increasing the tendency to shop especially for non-primary and luxury items (increasing marginal propensity to consume), and (iv) directing investment in non-productive things such as hoarding wealth such as land, buildings, precious metals, foreign currencies at the expense of investment towards productive activities such as 16 international journal of islamic business and economics (ijibec), 3(2) december 2019, 11-20 agriculture, industry, trade, transportation and others (karim, 2014). hifdzia (2012)argues that inflation does not affect the nav of islamic mutual funds. it concluded that the sharia mutual fund nav is not dependent on inflation. jakarta islamic index (jii) according to martalena (2011), the jakarta islamic index (jii) is a sharia index consisting of 30 shares that accommodate investment conditions in islam or an index based on islamic sharia. in other words, this index includes sham-shares that meet the investment criteria in islamic law. jii is the latest index developed by the jakarta stock exchange (jsx) in collaboration with danareksa investment management to respond to information needs related to islamic investment. mursyidin (2010) argues that jii has a significant and positive influence on the nav of mutual funds sharia. jii as one of the places where investors know what types of shares permitted in sharia and do not contain prohibited elements, then jii becomes an index that can be calculated by investors in choosing shares to be selected according to sharia. the increase in jii reflects the company's improved performance so that it has the potential to earn more revenue. increased corporate income will cause an increase in return for the results of islamic mutual funds. therefore, people will invest their funds through sharia mutual funds in the hope of obtaining a higher return. in other words, the improved performance of shares in jii will spur increased funds in sharia mutual funds, especially sharia shares, which could cause the total nav of sharia mutual funds to obtained. bank indonesia syariah certificate (sbis) according to bank indonesia regulation number 10/11 / pbi / 2008, bank indonesia sharia certificates (sbis) are securities based on short-term sharia principles in rupiah issued by bank indonesia. sbis issued as one of the instruments of open market operations in the context of monetary control conducted based on sharia principles. for islamic banks, sbis can be used as an investment tool, as is bank indonesia certificate (sbi) in conventional banks. the contract used in sbis is also a contract, which is an agreement or commitment (iltizam) to provide certain rewards (reward / iwadh / ju'l) for achieving the results (natijah) specified in a job. bank indonesia determines and provides rewards for issued sbis. sbis issued through an auction system where the parties entitled to participate in the auction are sharia commercial banks (bus), sharia business units (uus) and brokers acting for and on behalf of bus and uus. however, bus and uus can only participate in the sbis auction if they meet the financing to deposit ratio requirements set by bank indonesia. sholihah (2008)states that sbis does not affect the sharia mutual funds nav. it concluded that the nav of reksadana syariah does not depend on sbis. in recent years, sbis has shown a decline. shows that islamic banks prefer to expand their financing because it gives better results compared to the sbis bonus/reward level obtained. this condition reflects the expansion of islamic bank financing, which is getting better. generally shows that the development of the real sector is more a consideration of investment in islamic banks than in money market conditions. 2. research method this research included in quantitative research. the scope of this study is to look at the effect of exchange rates, inflation, jii, and sbis on the net asset value (nav) of islamic mutual funds during the period january 2012 to july 2019. the data taken is monthly data. while the type international journal of islamic business and economics (ijibec), 4(1) june 2020, 11-20 17 of data that the authors use in this study is time series data and cross-section data. the sampling technique in this research is to use judgment sampling. this study uses panel data regression analysis using eviews version 9 and microsoft excel 2013 computer programs. sharia mutual funds used in this study are aaa amanah syariah (pt. aaa asset management), mandiri investa syariah berimbang (pt mandiri manajemen investment), cipta syariah balance (pt ciptadana asset management), sam syariah berimbang (pt samuel aset manajemen), and trim syariah berimbang (pt trimegah asset management). 3. results and discussions table 3 random effect method variable coefficient std. error t-statistic prob. c 0.961278 0.421368 2.281324 0.0230 exchange rate? 0.295555 0.042617 6.935133 0.0000 inflasi? -0.009700 0.002965 -3.272027 0.0011 jii? 0.607059 0.059906 10.13354 0.0000 sbis? 0.006289 0.003633 1.731223 0.0841 r-squared 0.491323 mean dependent var 0.376358 adjusted r-squared 0.486801 s.d. dependent var 0.131560 s.e. of regression 0.094247 sum squared resid 3.997093 f-statistic 108.6617 durbin-watson stat 0.194649 prob(f-statistic) 0.000000 based on the results of random effects, known that partially (t-test) macro variables that significantly influence the performance of islamic mutual funds are the exchange rate (0.0000), inflation (0.0011) and jii (0.0000). while the sbis variable (0.0841) did not significantly influence the performance of islamic mutual funds. simultaneously (f test) the independent variable (0.000000) has a significant effect on the nav of sharia mutual funds so that the regression model can be used to predict the dependent variable. the exchange rate is a macroeconomic variable that also influences the stock price validity because an unstable exchange rate is considered to have an impact on the company's production factors. exchange rates that continue to fluctuate certainly have an impact on the economy, both positive and negative. one of the negative impacts is that if the exchange rate decreases, production costs will increase and the company's debt will increase, so that the revenue share will decrease, causing investment to no longer be attractive to investors, thereby reducing the value of investments that have an impact on declining mutual fund nav. while the positive impact of the decline in the exchange rate gave its blessings for several sectors including ponds, companies engaged in the tourism industry, marine and fisheries, palm oil farming, and several other sectors, that is because their production costs in rupiah tend not to impact the increase in the dollar, while their demand calculated in dollars (herlina, ratna, & nandari, 2017). causes an increase in company performance so that the price of shares sold on the stock market increases, where this will eventually result in 18 international journal of islamic business and economics (ijibec), 3(2) december 2019, 11-20 increased returns obtained by investors. if the domestic currency increased against foreign currencies, the purchasing power of the people would increase so that the ability of the people to invest will increase. besides, according to lm theory in macroeconomics, if the money supply rises, interest rates will go down, causing savings to fall and investment to rise. economically, if the exchange rate appreciates, the price of our country's currency is higher for foreign parties, and vice versa if there is depreciation. if our currency depreciates the money supply will increase, if it appreciates, the money supply will decrease. what causes if the exchange rate increases (in nominal terms), the sharia mutual fund nav as one of the investment instruments will also increase. rupiah exchange rate will have a positive impact on the development of islamic capital markets such as islamic mutual funds, which is reflected by an increase in sharia mutual funds nav (madura, 2001). inflation has adverse effects such as will reduce the real income of people who have a steady income, inflation will also reduce the value of wealth in the form of money so that people will prefer to invest their money in the form of real assets that will result in reduced investment in financial markets and capital markets which means it will reduce the value of sharia mutual funds nav as an investment instrument in the islamic capital market in indonesia. moreover, vice versa when the inflation rate falls, people will start flocking to increase investment in the financial sector, one of them in the islamic capital market, this will later increase the value of the nav sharia mutual funds (lestari, 2019). according to mursyidin (2010), jii has a positive effect on the nav of islamic mutual funds. jii describes the performance of stocks which are one of the portfolios of sharia mutual funds. if the jii index value rises, then the increase in the portfolio of sharia mutual funds that share type will also rise which will have an impact on the increase in the net asset value of sharia mutual funds. according to sholihah (2008), sbis does not affect the sharia mutual funds nav. the relationship between sbis and the sharia mutual fund nav as well as the relationship between interest rates and share prices is negative or in the opposite direction. if interest rates rise at an adequate level, investors will try to move their investments from stocks to deposits. in other words, there will be a stock sell-off which will result in a decline in share prices and vice versa. likewise, what happens to sbis and nav, if sbis offers an adequate level of profit-sharing, investors will move their investment from sharia mutual funds to sharia deposits so that the nav from sharia mutual funds will decrease, and vice versa. in recent years, sbis has shown fluctuations. shows that islamic banks prefer to expand their financing because they provide better results than the sbis bonus/reward level obtained. generally shows that the development of the real sector is still a consideration for investment in islamic banks compared to money market conditions. panel data regression equation nabit = 0.961278 + 0.295555 kurst – 0.009700 inflasit + 0.607059 jiit + 0.006289 sbist + εit the constant of 0.961278 shows that if the independent variables (kurs, inflation, jii, sbis) on i observation and the t period are constant, the nav of the mutual fund sharia is 0.961278. kurs constant is 0.295555. if kurs in the t period increases by 1%, it will increase the nav of the islamic mutual fund in the t period by 0.295555 if other independent variables are considered constant. inflation constant of 0.009700. if inflation in the t-period rises by 1%, it will reduce the nav of sharia mutual funds in the t-period by 0.009700 if other independent variables are considered constant. jii constant is 0.607059. if jii in the t-period increases by 1%, it will increase the nav of sharia mutual funds in the t-period by 0.607059 if international journal of islamic business and economics (ijibec), 4(1) june 2020, 11-20 19 other independent variables are considered constant. sbis constant of 0.006289. if sbis in the t-period increases by 1%, it will decrease the nav of sharia mutual funds in the t-period by 0.006289 if other independent variables are considered constant equation regression models of each sharia mutual fund table 4 random effect cross-section random effects (cross) aaa--c 0.109999 ciptadana--c -0.220634 mandiri--c 0.250431 sam--c -0.189720 trim--c 0.049924 the constant of 0.109999 shows that if the independent variables (kurs, inflation, jii, sbis) in the t period are constant, then the nav of the mutual fund aaa amanah syariah fund is 0.109999. the constant of 0.250431 shows that if the independent variable in the t period is constant, the nav of mutual funds mandiri investa syariah balanced value is 0.250431. the constant of -0.220634 shows that if the independent variable in the t period is constant, the nav of mutual funds syariah syariah balance is -0.220634. the constant of -0.189720 shows that if the independent variable in the t period is constant, the nav of mutual sam sharia mutual funds is -0.189720. the constant of 0.049924 shows that if the independent variable in the t-period is constant, the nav of the balanced trim sharia mutual fund is 0.049924 4. conclusion panel data regression results show that rupiah exchange rate, inflation and jii and sbis effect on nav of sharia mutual funds simultaneously. partially, an unstable rupiah exchange rate is considered to have an impact on the company's production factors and affect the validity of the stock price; this causes investments no longer be attractive to investors, thereby reducing the value of investments that have an impact on the declining mutual fund nav. inflation decreases the real income of people with fixed income will also reduce the value of wealth in the form of money so that people will prefer to invest their money in the form of real assets that will result in reduced investment in the financial and capital markets and lower the nav value of islamic mutual funds. jii describes the performance of stocks which are one of the portfolios of sharia mutual funds. if the jii index value rises, then the increase in the portfolio of sharia mutual funds that share type will also rise which will have an impact on the increase in the net asset value of sharia mutual funds. sbis does not affect the sharia mutual funds nav. the relationship between sbis and the sharia mutual fund nav as well as the relationship between interest rates and stock prices is negative or in the opposite direction. if interest rates rise at an adequate level, investors will try to move their investments from stocks to deposits. 20 international journal of islamic business and economics (ijibec), 3(2) december 2019, 11-20 references arisandi, t. d. 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(2011). pasar modal syariah. jakarta: sinar grafika. 1 ijibec incentive zakat agency mechanism, a comparison between indonesia and malaysia dodik siswantoro1*, mohammad soleh nurzaman1, abdul ghafar ismail2, agus munandar3, and sri nurhayati1 1 faculty of economics and business, universitas indonesia, kampus ui depok 16424, indonesia 2 faculty of economics and muamalat, universiti sains islam malaysia, bandar baru nilai, 71800, malaysia 3 faculty of economics, universitas esa unggul, jakarta 11510, indonesia *corresponding email: dodik.siswantoro@ui.ac.id abstract the objective of the research is to compare the incentive zakat agency mechanism between indonesia and malaysia. in indonesia, private institutions are permitted to collect zakat and have the agency to support zakat collection, while in malaysia only state institution collects zakat. to enhance zakat fund collectability, they need agencies located in specific institutions. however, both countries share a similar mechanism of incentive zakat agency allocation. the method of the research is based on a qualitative study. some respondents are questioned and interviewed on a specific topic of incentive zakat agency mechanism. the result shows that the agency mechanism in private zakat institutions in indonesia is more flexible than malaysia. the agency is authorized to get zakat allocation to be disbursed to surrounding zakat recipients and develop the allocation report. on the other hand, a zakat rebate can be a supporting factor for muslims to pay zakat more in malaysia than in indonesia. this is the first study which compare the incentive zakat agency mechanism between indonesia and malaysia. most of previous research does not investigate and compare the zakat incentive. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 1 2021 keywords: zakat, mechanism, agency, incentive, allocation doi:https://doi.org/10.28918/ijibec.v 5i1.3067 jel: l33, p51 article info article history: received : 3 november 2020 accepted : 3 may 2021 published : 1 june 2021 https://doi.org/10.28918/ijibec.v5i1.3067 https://doi.org/10.28918/ijibec.v5i1.3067 2 international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-15 1. introduction the issue of zakat fundraising is still an interesting topic as not all muslims are aware of the obligation of zakat payment. many factors may cause why muslims do not pay zakat. however, zakat is one of the five pillars of islam which must be conducted by a muslim or otherwise they are not classified as muslim (nurhayati & siswantoro, 2015a). the mechanism of zakat collection must be improved to get a much zakat fund. this must be supported by a good system like tax collection. previously, muslims only paid zakat as obligatory worship and charity and endowment as advisable worship. at that time, zakat can be taken forcefully in the age of umar bin khattab. then, tax and customs are considered as a supplementary income source for the state (siswantoro, 2012). different countries have applied different types of agencies for zakat collection. the agency is operated (a) under a ministry in such countries as saudi arabia and kuwait; (b) under the government in such countries as malaysia and brunei; and (c) in a mixed type in such countries as indonesia and singapore. however, malaysia and indonesia share similarities in zakat fundraising which involve communities to be a partner for collection and distribution of zakat fund. incentives are given in the form of zakat fund allocation distribution for a community agency. in malaysia zakat payers can deduct their tax payment, while in indonesia zakat can only deduct the taxable income. this payment is valid even though zakat payers give it to community zakat agencies (munandar et al. , 2019). zakat collection in malaysia in 2016 was 2.5 billion rm (8.7 trillion idr), while in indonesia, it was 3.6 trillion idr in 2016 (baznas, 2016; migdad, 2019). malaysia was 2.4 fold zakat collection compared to indonesia. however, total population in malaysia is only 10% from indonesia. this research aims to compare the incentive zakat agency mechanism between indonesia and malaysia. no previous research is found in this case, while zakat fundraising is an important issue in some muslim countries. most of previous studies only discussed zakat agency management (owoyemi, 2020; widiastuti, wahyuningsih, & indrawan, 2016), accountability and transparency of zakat agency (nikmatuniayah, marliyati, & a, 2017) in a single country. to contribute to fill this gap, this paper compares incentive zakat agency mechanism between indonesia and malaysia. some countries organize zakat collection and distribution because of its importance for social welfare (obaidullah, 2016). the optimal collection and distribution reduce the disparity between the rich and the poor. for that, some countries enhance the tax benefits such as tax deduction to incentivize zakat collection (widiastuti, mawardi, robani, & rusydiana, 2018). some empirical evidence revealed that tax deduction regulation affects the tax payment level (munandar et al., 2019). a high rate of zakat collection leads to sufficient resources to alleviate poverty and minimize economic injustice. for that, a high collection of zakat correlates with equal zakat distribution (ridwan, 2016). for this issue, zakat institutions should implement good governance for increasing public trust and zakat collection (amalia, 2019). some countries like malaysia and indonesia involve communities to be partners for collection and distribution. unfortunately, the different regulation between malaysia and indonesia provides different incentives and zakat collection. finally, zakat rebate can be an important factor for zakat payment in malaysia rather than in indonesia (nurhayati & siswantoro, 2015; siswantoro & nurhayati, 2012). zakat fund management structure has some such characteristics as centralized, decentralized, distributed, delegated, coordinated, supervised, isolated and integrated. indonesia practices the delegated type like that in egypt, international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-13 3 libya, while malaysia practices the decentralized characteristics like uea, yemen, and arab saudi (lubis, ridho lubis, & almaarif, 2019). however, both countries have similarities in zakat rebates and management. zakat would be effectively managed if it is under a government structure (dodik siswantoro, 2017). fundraising in the government and private sectors has different types. the government’s zakat institution would take zakat from the salary of state employees, while private zakat institutions would create an innovative program and accountability (kholis, sobaya, andriansyah, & iqbal, 2013). other institutions like the zakat unit of wonoketinggal village is combining two models of fundraising, namely direct and indirect fundraising. the first is more effective since the upz (zakat unit) has received support from the local government. they actively collect zakat from farmers (ridwan, 2016). the latest developments of islamic charities and their role as the major non-state actors in indonesia’s field of social welfare shows that islamic charity is no longer primarily associated with social welfare and social justice but increasingly with economic gain (kailani & slama, 2019). zakat management and credibility have contributed to the development of the zakat institution. this condition is also supported by the community as a mutual contribution (cokrohadisumarto, zaenudin, santoso, & sumiati, 2019). 2. methods the research method is based on a qualitative study that employs cases in indonesia and malaysia. two malaysian zakat institutions, including zakat units and zakat payers in malaysia, were interviewed. in indonesia, two zakat institutions, zakat units, and stakeholders participated in the research. the analysis would identify the comparison of incentive zakat agency mechanisms in indonesia and malaysia. both countries may share similar characteristics as they rooted in the same tradition of melayu ethnic. the main difference is that indonesia was under dutch colonialization while malaysia was under british colonialization with different legal systems and monarchies. the research method of data collection is information gathering from the zakat agency website about the coverage structure of zakat institution, zakat unit listing, category, payment, sharing ratio, and waiting type, zakat rebate. the data analysis is comparing coverage structure, listed in registered zakat institution, category of zakat unit, payment type, waiting time, sharing ratio, and zakat rebate for zakat unit in indonesia and malaysia. the research has applied trustworthiness to ensure the reliability and validity aspects. validity includes credibility and transferability, credibility by choosing competent resources and triangulation and transferability by description. reliability consists of dependability by saving and analyzing data and confirmability by providing research phases. 3. result and discussion the analysis of the issue of zakat fundraising incentive for zakat unit in indonesia and malaysia would be discussed in some topics as follows (see table 1). 4 international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-15 table 1. comparison of zakat unit mechanism no description indonesia malaysia 1 coverage structure national, provinces, city/regency (state and private) state 2 listed in registered zakat institution not all listed mostly listed 3 category zakat unit zakat unit: varied 4 payment type government: fully private: partly full 5 waiting time government: 5 days private: none tentative (almost three months) 6 sharing ratio flexible (30% in general, 100% in specific cases) flexible (50% in general) 7 zakat rebate taxable income deduction tax deduction source: research data (2019) a. coverage structure of zakat institution the structure of zakat institutions in indonesia consists of three levels: national, provincial and local. this includes private and state zakat institutions. the requirements of private zakat institution for national level the minimum zakat fund collection is rp50 billion in one year; at the provincial level it is rp20 billion in one year; and at the local level, it is rp3 billion. besides, they must have three branches in their sub-regions. such terms and conditions do not apply to the state zakat organization as they can establish any zakat institution without any requirements. in aceh province, the structure of zakat is similar to that of other provinces, but they have a smaller structure until the district (kampong). in indonesia, the zakat unit is called unit pengumpul zakat (upz). upz can range from masjid to soes zakat institutions which were transformed to zakat unit due to the regulation. any illegal zakat collection without permission would be fined up to rp500 million and sentenced up to 5 years based on the act no. 23/2011 on zakat. the issues here are: 1) there would be conflicts in the level of province and city/regency for state zakat institutions as they share similar coverage. 2) conflicts may also occur among zakat institutions as they share similar zakat coverage. the issue here is double zakat receivers if zakat institutions share have similar coverage in zakat distribution. therefore, masjid as a zakat unit plays an important role in distributing zakat to the precisely needy and poor (see figure 1). each masjid has smaller coverage for zakat distribution. meanwhile, to empower people and the economy, masjid may have limitations to carry out this program. international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-13 5 figure 1. masjid as zakat unit in indonesia source: research data (2019) in malaysia, states have different authorities to collect and disburse the zakat fund. to raise the zakat fund, some agents are based on online, bank, company, university, and school. each state may only collect and disburse zakat fund in their community in their state. b. zakat unit listing in indonesia, the list of zakat units is not always available in zakat institution information such as website and brochure. this presents a problem for zakat payers who want to give their zakat as zakat rebate as it is only given if zakat is paid under the registered zakat institution including zakat unit. only under the registered zakat institution can the payment of zakat be claimed for zakat rebate (zakat as taxable income deduction). therefore, there is a way to check if the zakat unit is under zakat institution or otherwise. table 2 shows that only baznas west java provides zakat units. table 2. zakat units in baznas west java no upz address 1 upz pemerintah provinsi jawa barat jalan diponegoro no.22, citarum, bandung wetan, kota bandung 2 upz kanwil kemenag jawa barat jalan jendral sudirman no.634, dungus cariang, andir, kota bandung 3 upz universitas padjadjaran bandung jl. raya bandung sumedang km.21 jatinangor,sumedang 4 upz universitas siliwangi tasikmalaya jalan siliwangi no.24, kahuripan, tawang, tasikmalaya 6 international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-15 5 upz universitas majalengka jl. k.h. abdul halim no. 103, majalengka kulon, majalengka 6 upz universitas ibn khaldun bogor jalan kh sholeh iskandar km.2, kedung badak, tanah sereal, kota bogor 7 upz rsud al ihsan baleendah jl. ki astramanggala, baleendah, bandung 8 upz prodi manajemen dakwah uin sgd jalan a.h. nasution no. 105, cipadung, cibiru, kota bandung 9 upz universitas singaperbangsa karawang jalan hs.ronggo waluyo, puseurjaya, telukjambe timur, karawang 10 upz gerakan muslimat indonesia jl. gading utama tim. no.2, cisaranten endah, arcamanik, kota bandung 11 upz (pui) jawa barat jl. sandang no. 1 cirengot kel. sukamulya kec. cinambo kota bandung 12 upz gpl kln 69 jawa barat 13 upz puskopsyah jawa barat 14 upz yayasan darul aslan ihwany gang maksudi iv no 16 rt 003/003 panjunan astanaanyar kota bandung 15 upz forum komunikasi kelompok bimbingan haji (fk-kbih) jawa barat kantor mui jawa barat jl. ll re. martadinata no 105 bandung source: https://baznasjabar.org/content/unit-pengelola-zakat (2020) in malaysia, zakat units which are called agents or assistants are registered in zakat institution information. therefore, zakat payers would choose the closest zakat unit to give their zakat fund. this would ease and enhance the reliability of zakat payers as they would give zakat to the right place. figure 1 shows the list of zakat units of zakat selangor, while the zakat unit of pusat pungutan zakat (ppz) can be seen in appendix 1. https://baznasjabar.org/content/unit-pengelola-zakat international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-13 7 8 international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-15 figure 1. zakat unit in zakat selangor brochure in zakat selangor, an agency can distribute zakat as well especially in university and school. the beneficiaries are students from related zakat units. this, however, would create a sense of belonging to the institutions where students study. c. category in indonesia, the zakat unit can collect and disburse the zakat fund. by regulation, the zakat unit is under act no. 23/2011. zakat unit is only mentioned under the government zakat institution at the levels of sub district (kecamatan) and village (kelurahan). based on the government regulation no. 14/2014, the government zakat institution can establish zakat units in any places such as government offices, companies, schools, and masjids, at the national, provincial, and local levels. zakat unit only collects zakat funds based on that regulation. upz is also supervised by the national zakat institution (baznas). this refers to the regulation of the ministry of religious affairs no. 30/2016. detailed regulation on the zakat unit is elaborated in the national zakat institution regulation no. 2/2016. zakat units can also distribute zakat funds after they fully transfer to the zakat institution. the maximum distribution is 70%, while masjid can distribute 100% of the zakat fund (article no. 35). international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-13 9 however, the zakat units under private zakat institutions are not explicitly regulated, but it is permissible to establish a zakat unit. meanwhile, in malaysia, there are two types of institutions. they only collect the zakat fund (penology amil) and collect and disburse the zakat fund (ejen). each state has different regulations on the zakat unit. zakat only collects and distribute in the specified state, and no across zakat distribution is allowed. d. payment, sharing ratio, and waiting time malaysia indonesia agency government institution mechanism 1 2 3 1 2 3 assistance private institution mechanism 1 2 1 2 figure 2. zakat mechanism type in indonesia, the mechanism of zakat fund payment to zakat institution can be classified into private type and government type. in private type, zakat units can only give partial zakat funds to the zakat institution. for example, zakat units can collect rp100 million. then they only give rp 30 million to the zakat institution. there is no waiting time as the zakat unit only gives a part of zakat to the zakat institution. in general, zakat units can only give 30% or less to the zakat institution based on the agreement of both parties. in government type, all zakat funds must be given to zakat units. if there are some distributions, zakat units can propose to the zakat institution. it takes about 5 days for the zakat fund to be distributed to zakat units. the maximum portion that zakat units can distribute is 70% for institutions and 100% for the masjid. this can be applied to any zakat unit institution. in the case of malaysia, zakat units must give fully rp100 million and in return, zakat units will get rp50 million. the amount includes the 6.5% portion for the amil (zakat zakat unit zakat institution zakat recipients zakat unit zakat institution zakat recipients zakat unit zakat institution zakat recipients zakat unit zakat institution zakat recipients 10 international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-15 manager) in general. in indonesia, the maximum portion for amil (zakat manager) is not explicitly stated in the agreement. zakat units have to wait for around 2 months. this process continues so that the fund would come to zakat units any time since the first transfer. the mechanism of zakat fund type among zakat units, zakat institutions and zakat recipients can be seen in figure 2. e. zakat rebate zakat rebate can be an incentive for zakat payers as they give zakat to the registered zakat units. in indonesia, zakat payment can deduct taxable income. the process usually takes place after annual tax payment. when zakat payers want to propose a zakat rebate, they must propose restitution by filling the tax report. over tax payment would be paid after the restitution process. table 3 shows the difference between taxable income deduction and tax deduction. in malaysia, zakat deducts tax directly. for example, a muslim pays zakat of rm15, while his tax is rm30. therefore, he would have to pay tax only rm15 in that month. in malaysia, zakat rebates can be conducted anytime within a year. table 3. comparison of zakat rebate description zakat as a tax deduction zakat not as taxable income deduction zakat as a taxable income deduction taxable income 100 100 100 zakat 15 15 15 tax (rate 30%) 30 30 25.5 total paid 30 45 40.5 4. conclusion incentive zakat mechanism can be classified into two parties: (a) zakat units are legalized and authorized to distribute zakat fund to the surrounding areas that would create a sense of belongings to zakat payers and result in a zakat rebate; (b) zakat institution would also get bigger zakat fund from zakat units. zakat institution would get partial funds from zakat units. this would increase the coverage of potential zakat. in general, the participation of zakat units in the collection and distribution of zakat funds would benefit the surrounding community. in the long run, all zakat recipients would be covered by zakat units. this can be the originality of the research. the limitation of this study is only from public information and only comparing coverage structure of zakat institution, zakat unit listing, category, payment, sharing ratio, and waiting type, zakat rebate. for that, the data analysis is comparing coverage structure, listed in registered zakat institution, category of zakat unit, payment type, waiting time, sharing ratio, and zakat rebate for zakat unit in indonesia and malaysia. future research should broaden the information and also confirming the information by interviewing the officers from the zakat unit from both countries. also, next study should broaden and deepen the information analysis by empirical analysis. funding statement this work was supported by kementerian riset dan teknologi/badan riset dan inovasi nasional under grant penelitian terapan unggulan perguruan tinggi nomor: nkb311/un2.rst/hkp.05.00/2020. international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-13 11 references baznas (2016). 2017 indonesia zakat outlook. jakarta: baznas. cokrohadisumarto, w. bin m., zaenudin, z., santoso, b., & sumiati, s. 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(2016). fund management strategy in baznas zakat (amil zakat national agency) east java. international journal of islamic business ethics. https://doi.org/10.30659/ijibe.1.2.161-170 appendix 1 list of zakat unit in pusat pungutan zakat ejen firma m.a.t.a (percukaian) bil syarikat nama 1. aim wangsa consultancy (gst no.: 001218437120) no. 31-1, jalan 3/27b seksyen 10, wangsa maju 53300 kuala lumpur en. abd aziz b abu bakar tel : 012-3210848 / 03-41426896 emel : aimwangsa@gmail.com 2. hi-kay consult sdn bhd (gst no.: 001189081088) lot 3.62, tingkat 2, medan mara jalan raja laut 50350 kuala lumpur pn khalijah bt awang tel: 03-26914916 emel : hikayconsult.com.my 3. ltax secretarial sdn bhd (gst no.: 001774522368) no. 11-2, jalan pantai murni 2 pantai dalam, 59200 kuala lumpur en. mohammad astura b yusop tel : 03-22413100 emel : myltax@yahoo.com 4. metasco services sdn bhd (gst no.: 001028653056) no. 17-2, jalan 2/27f, seksyen 5 klsc wangsa maju, 53300 kuala lumpur en. musa b othman tel : 03-41426820 emel : metasco_services@yahoo.com 5. mh accounting & management services (gst no.:? -?? ) 31-1, jalan 3/27 b, seksyen 10, wangsa maju, 53300 kuala lumpur pn. mimi hiryani bt ahmad tel : 012-3210848 03-41426896 emel : aimwangsa@gmail.com 6. mns management & consultants sdn bhd (gst no.: 000662470656) e-1-12, tingkat 1, residensi bestari, taman ukay bestari, 68000 ampang, selangor en. mohamed mustafa b zubir tel : 03-41617799 emel : mnsmgt89@gmail.com 7. peninsular corporate consultant sdn bhd (gst no.:) 240 a, jalan bandar 13 pusat bandar melawati 53100 kuala lumpur en. muhammed zuber b hashim tel : 03-41052959 emel : pnp_peninsular@yahoo.com 8. green team consultant sdn bhd (gst no.: 000128385024) 2770-a, jalan changkat permata taman permata, 53300 kuala lumpur en. zulkefly b omar tel : 03-4107 7615 emel : greenconsultant2000.@yahoo.com mailto:aimwangsa@gmail.com international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-13 13 9. ra excell management sdn bhd (gst no.: ) no. 18-1b, jalan pandan 3/10 pandan jaya, 55100 kuala lumpur pn. rosnah bt nayan tel : 03-92812061 emel : raexcellsb@yahoo.com.my 10. rda management consultancy sdn bhd (gst no.:) 136-1, tingkat 1 jalan pahang, 53000 kuala lumpur en. danial b badderon tel : 03-40249899 emel : rdamcsb@yahoo.com 11. rosdelima & co (gst no.: 000155979776) no 68-3 blok h, platinum walk danau kota jalan langkawi 54200 kuala lumpur pn rosdelima bt mohd ali jaafar tel : 03-41432725 emel : admin@rosedelima.com 12. zailan & associates (gst no.: 000820035584) suite 2-1-45, 1st floor , wisma rampai jalan 34/26, taman sri rampai setapak, 53300 kuala lumpur en. zailan bin mohamed tel : 03-4022 6778 emel : admin@zailanassociates.com 13. zalghani & co (gst no.: 001782591488) c5-1, 1st floor, jalan selaman 1 dataran palma 68000 ampang, selangor en. mohd zalghani b hassan tel : 03-4270 7033 emel : zalghani@streamyx.com 14. kinabalu consultancy services (gst no.:) lot u0031, 1st floor jalan okk awang besar p.o. box 81862, 87028 w.p labuan en. abdul latif bin samadi tel : 087-415 057 emel : kcs_fns@hotmail.com ejen firma audit bil syarikat nama 1. a. razak & co chartered accountants (af 0842) (gst no.: 000377511936) no. 51-2d, 2nd floor jalan pandan 3/10 pandan jaya, 55100 kuala lumpur en. abd razak bin haji nazahdin tel : 03-92829032 emel : artaxconsultants@gmail.com 2. atarek kamil ibrahim & co chartered accountants (af 1300) (gst no.: 002118160384) no. 89-3, jalan 2/27f pusat bandar wangsa maju (klsc) 53300 kuala lumpur en. wan idris bin wan ibrahim tel : 03-41426515 emel : anas@tarek.com.my 3. mnzwaj associates (gst no.: ) no. 28a, wisma waja jalan kota raja e27/e hicom town centre, seksyen 7 40400 shah alam, selangor en. mohd nasri ismail tel : 03-5191 7334 emel : info@mnjwaja.com mailto:anas@tarek.com.my 14 international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-15 4. aftaas taxation services sdn. bhd. rampai business park, aftaas 2, jalan rampai niaga 2, 53300 kuala lumpur tuan haji tarmili bin dulah khusni tel : 03-4143 9330 emel : aftaas@aftaas.com 5. salihin consultanting group sdn bhd (gst no.: 001161469952) no. 555, jalan samudra utara 1 taman samudra, 68100 batu caves, selangor en. salihin bin abang / pn. hartini bt md musa tel : 03-61874678 emel : info@salihin.com.my 6. mohd nizarudin & co (gst no.: ) no. 8-3b, tingkat 3, plaza citra jalan citra, 43000 kajang, selangor en. mohd nizaruddin bin muhd isa tel : 03-41083302 emel : mncaccounts@yahoo.com 7. abu bakar rajudin & co (gst no.: 001874354176) suite a, resort business suite 18-2, jalan kampung attap 50460 kuala lumpur en. pn akma / pn maimun tel : 03-2273 3588 emel : burnsrajudin@gmail.com 8. qissra profesionals sdn. bhd. (gst no.:) no. 1-35, jalan prima sg 2 prima gombak 68100 batu caves, selangor pn siti khadijah tel : 019-2621361 emel : khadjah_taas@yahoo.com.my 9. khalil & co chartered accountants (nf 1062) (gst no.: 000815448064) no. 319-b. lorong kedah, melawati square taman melawati, 53100 kuala lumpur en khalil makmon tel : 03-41473439 emel : khalilmnz@gmail.com ejen lain – lain bil syarikat nama 1. al naqiy islamic solution sdn bhd (gst no.:) d-0-8, plaza damas jalan seri hartamas 1 50480 kuala lumpur en. admi shazman bin ismail zauri tel : 03-6201 1062 emel : hadirofiee@alnaqiy.com 2. capaian aspirasi sdn. bhd. (gst no.:) s10, podium 1, menara ansar, no. 65, jalan trus 80000 johor bahru, johor ustaz ismail tel : 07-222 4002 emel : ismailma@jcorp.com.my 3. euro asia corporate services sdn bhd (gst no.) 28-3-2, jalan semarak api 3,diamond square off jalan gombak 53100 kuala lumpur rudy kurniawan tel : 03-40236061 emel : shera@euroasia.com.my international journal of islamic business and economics (ijibec), 5(1) june 2021, 1-13 15 4 as-salihin trustee berhad(gst no.: 000362414080) 101 & 201, blok a, business centre no. 10, jalan ss 6/1, kelana jaya 47301 petaling jaya, selangor telefon: 03 7880 9595 faks: 03 7880 8190 e-mel: general@as-salihin.com 5. angkatan koperasi kebangsaan alaysia berhad (gst no.: 001056964608) wisma ungku a. aziz jalan ss 6/3, peti surat 8797, pejabat pos kelana jaya, 46798 petaling jaya, selangor tuan haji azhar hamzah tel : 03-78846789 6. koperasi remisier bumiputera malaysia berhad (gst no.: 002118160384) room 26 tingkat 5 tower one rhb centre, jalan tun razak 50400 kuala lumpur hani raihan ikhwan tel : 019-3899556 emel : hani@malaysianchartist.com mailto:general@as-salihin.com 59 ijibec do funeral funds managed by informal institutions comply with microtakaful principles? achmad firdaus1, erwita triana dewi2, ratna komalasari3 institut agama islam tazkia1, institut agama islam tazkia2, padjadjaran university3, email: achmad.firdaus@tazkia.ac.id1, erwita.dewi@bni-life.co.id2, ratnakomalasari11@gmail.com3 abstract research on funeral funds on a homeowner association has never been performed before. meanwhile, previous studies on the funeral fund in insurance companies, 'rukun kematian,' and mosques are used as a reference. the research aims to analyze whether the funeral funds managed by informal institutions correspond with the micro takaful principle. method is a descriptive analysis is used by comparing the survey in two groups, namely residential and village areas, of 31 communities spread across java island. the research variables developed include calculation, collection method, and amount of funeral fund contribution, alongside the calculation and amount of benefits. although the funeral funds' variables have not fulfilled the micro takaful principle, there are interesting findings. these include that the calculation of contribution for the two groups, namely the residential and village areas, is performed by mutual agreement through community deliberations. in the village, the collection method is by direct payment from members of the public to the officers, which is different from the residential areas, where it is picked up by the officers. furthermore, the amount of funding contributions to the community in the villages is around rp. 3.001 and rp. 5,000, while the total is over rp. 10,000 in residential areas. the informal funeral funding scheme (iffs) has become a mutually beneficial culture of indonesian society, which fosters strong humanity and brotherhood. this scheme can be formulated in micro-takaful cooperatives to ensure that the benefits trickle down for every member of the community, including muslims and non-muslims. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 1 2021 keywords: micro takaful, funeral fund, informal mirco takaful. doi:https://doi.org/10.28918/ijib ec.v5i1.3574 jel: i1, r2 article info article history: received : 17 march 2021 accepted : 25 may 2021 published : 1 june 2021 mailto:achmad.firdaus@tazkia.ac.id mailto:erwita.dewi@bni-life.co.id mailto:ratnakomalasari11@gmail.com https://doi.org/10.28918/ijibec.v5i1.3574 https://doi.org/10.28918/ijibec.v5i1.3574 60 international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 1. introduction in the event of death, the family runs the risk, including the costs of arranging the remains, funeral, post-burial, and living expenses for the persons left behind (holbert, 2002). the cost of handling comprises bathing the body, which includes buying shroud, boards, and others, while the burial costs entail caring for the funeral, paying grave burrows, transportation, etc. (dercon et al., 2006). after the funeral, some indonesian people hold a prayer between families and neighbors, and this activity also requires money, as does the living expenses for families left behind, such as tuition fees, and other related costs. according to woodthorpe et al. (2013), closer attention needs to be paid to the issue of financial support for funerals, the limited amount of literature, and the mortality rate, which increases simultaneously with the elderly population. meanwhile, research from south africa showed that funeral costs are a huge expense for poor households (roth, 2001), as the households in the study spent about 15 times the average monthly income. hougaard & chamberlain (2015) also noted that the high cost in this country is due to the belief that funerals are a dignified activity and should be given priority, hence, including food and transportation for the attendees. lii (2007) stated that south african participants do not go through a medical examination process for the insurance funeral fund products, and the companies can apply a waiting period of up to six months for the benefits of natural and not accidental death. meanwhile, a delay of the premium paid due to financial difficulties does not result in a cancellation of the policy. a policyholder yet to pay is given one month, and the grace period is extended by a month for each valid year, with a maximum of six months for policies longer than one year. roth (2001) explained that the funeral fund in africa is provided through a non-profit scheme that features rotating savings and credit associations (rosca). in malaysia, the fund is provided by the mosque council to cover expenses and benefits related to the funeral of muslim family members (ismail et al., 2019) and is a part of the al-khairat scheme. conversely, managing funerals and death funds can be a family business in the us, and the methods and management offered are more professional and scalable (austin, 2018). funeral funding in indonesia is provided by either government, private, informal institutions, or the family. meanwhile, the management of funerals is usually performed by families of people who die on family-owned burial grounds. the government provides burial management through the regional or central division on grounds owned by them. hence, the management and tariffs relating to funeral costs are controlled by the local or central government regulations. conversely, the burial grounds offered by private parties is owned by domestic property companies, which also regulate the management and funeral. table 1 shows the funeral costs incurred by the private sector in indonesia and the data, shows the high cost of caring for corpses. table 1. funeral costs by government and private parties name of funeral management kind of management cost of funeral san diego hills private rp 37 million – rp 1.4 billion al azhar memorial garden private rp 43.5 million – rp 929.2 million raudhatul jannah private rp 39.1 million – rp 209.7 international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 61 million dinas pemakaman kab. bogor governmen t rp 630 thousand – rp 2.1 million dinas pemakaman kota bogor governmen t rp 1.2 million (average) dinas pemakaman kota depok governmen t rp 500 thousand (average) source: processed from various sources, 2020 subsequently, the local government social services set the provisions regarding the types and amounts of benefits from funeral funding offered by them. the compensation for death is in a regional regulation (perda), which includes kediri (kediri mayor regulation, 2020), and gresik (regulation of the regent of gresik, 2017). others are padang (regulation of the mayor of padang, 2015), tulang bawang (regulation of the regent of tulang bawang, 2018), south tangerang (regional regulation of the city of south tangerang, 2018). funeral funding can also be provided by social security or informal micro-insurance (roth, 2000; hougaard, c, and chamberlain, d, 2011). these schemes can subsequently be categorized as micro-takaful, which is defined as an alternative to micro-insurance services with an islamic contract for an underprivileged community. it is born from a mutual agreement to help (ta'awun) in recovering from the risks of loss or certain calamities that befall the community (jaenudin et al., 20018). the main benefit of micro takaful in its implementation is executing allah's religion ى َعاَل َ ت َو ُ ه َ by manifesting ta'awun in virtue and piety. these are meant to bring good ُسْبَحان fortune to the muslim community and safety from the ugliness and consciousness of the individual roles and responsibility. consequently, ta'awun for an ummah is a manifestation of personality and the foundation in fostering the life of the people (qs al-ma'idah, 5: 2). ibn kathir explained that allah ta'ala asked his servants who believed to always help one another in righteousness, through the term, al-birru, meaning benevolence, and to leave all forms of reneging, through at-taqwa. a form of al-birru is helping families or relatives that are overwritten by the ordeal through death. meanwhile, the practice of micro takaful involves giving financial advice and benefits to society. whoever leaves advice to his brother and abandons him is, in essence, a deceiver and not their defender, as a consequence of loyalty is advising and helping in virtue and piety. hence, ta'awun in micro takaful entails realizing the consequences of wala '(loyalty) by muslims, according to allah's word ى َعاَل َ َو ت ُ ه َ .(qs al-tawbah, 9: 71)ُسْبَحان the management of funeral funds has been implemented by almost all homeowner associations in indonesia, making it interesting to observe, with the underlying reason for their existence being that poor families require help in the event of death. meanwhile, rt / rw management is the first party to receive reports from residents and needs a death compensation assistance scheme. they work together to raise funds for financing funeral expenses, which may be collected weekly or monthly. funeral funds managed by rt / rw aims to help residents and are one of the ta'awun management practices used to help the community (jaenudin et al., 2018). the scheme is managed by rt / rw, according to allah's orders, which urge people to work together or ta’awun in virtue and piety and forbid mutual worship in sin and hostility. previous studies on the management of funeral funds by informal institutions include ismail et al. (2019), prasojo et al. (2017), asrifah (2013), jirhanuddin et al. (2016). ismail et al. (2019) researched the practice of funeral fund (al-khairat) managed by mosque 62 international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 administrators in selangor state, malaysia. some of the variables observed were member size, benefit schemes, marketing, and investment, using a research sample of 20 funds. subsequently, almost all the al-khairat funds were discovered to have been operating for more than 10 years with membership sizes of 100 to 700 participants and an average of about 500. additionally, prasojo et al. (2017) researched the practice of managing ta'awun funds at the al-hijriyah mosque in kerobokan village, badung regency, where each member pays a fee of rp 100,000/kk/year to the manager. the study had a more varied magnitude and method compared to the findings in the “rukun kifayah kerobokan (rkk).” the form of contribution was determined by deliberation and was consistent with the rkk case study findings. compensation for funerals can be claimed through submission to the “rukun kifayah kerobokan” head, and the benefits cover the costs for bathing, covering, and praying. the study found that the form of compensation provided could be money, groceries, body equipment, or rice, and the rkk reports management transparency every three months. therefore, funeral funds are managed by informal institutions, as well as the al-hijriyah mosque in kerobokan village (prasojo, et al., 2017). this scheme was named “rukun kifayah kerobokan” (rkk) and they explained that the management had not routinely made reports regarding compensations for death. furthermore, asrifah (2013) researched funeral funds managed by an insurance company, pt. bni life insurance, which handles death benefits, with various planning options for 1, 3, and 6 months. the members subsequently receive death benefits along with the profit obtained from the investment returns of b'life wadi'ah. also, jirhanuddin et al. (2016) conducted similar research on an informal institution, called "rukun kematian." the scheme aims to ease the burden on the heirs in managing bodies, funerals, and administrative arrangements in local governments. the study discovered that rukun kematian does not fully apply the principles of ta'awun during the distribution of compensation. this community organization applies the principle of a 3month waiting period. then, the members receive benefits after 3 months of membership, while those that experience the risk of death during the waiting period cannot obtain compensation. however, this is against the principle of providing help or ta'awun. this research differs in several ways compared to previous studies, particularly ismail et al. (2019) and prasojo et al. (2017), which were conducted on the operators of funeral fund management, namely mosques. research by ismail et al. (2019) was performed on mosques in selangor, malaysia, prasojo et al. (2017) in kerobokan village, badung regency, and jirhanuddin et al. (2016) on rukun kematian. research by asrifah (2013) was performed on formal funeral fund management, specifically insurance companies. meanwhile, this study aims to analyze how the concept of funeral fund scheme as part of micro takaful is carried out by the homeowner association. funeral funds managed by the homeowner associations certainly have many differences. they are motivated by the diversity of indonesian customs and cultures, as well as the financial capacity of the group. therefore, these differences in habits, culture, and environment are reasonably suspected to result in differences in the management of funeral funds in villages and residential areas. studies on the appropriateness of the rt / rw funeral fund management for the implementation of the ta'awun fund, as well as the differences and similarities between residential and village areas, are important for residents. the management of the body is "fardhu kifayah" and this is important for rt / rw administrators to understand. international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 63 based on the background, this research aims to analyze whether the funeral funds managed by informal institutions in residential and village areas correspond with the micro takaful principle. the problems to be resolved are calculation, collection method, and amount of contributions of the funeral fund, alongside the calculation and amount of benefits. 2. method this research uses comparative and descriptive methods to conduct a causal analysis of the factors that cause the emergence of a phenomenon (baumgartner et al., 2011). the comparative study is performed without a hypothesis, and the most striking feature of this research form is that the incident under investigation is already happening. hence, it traces back the chronology of the events being examined to find a causal relationship, such that the generation of predictive answers indicates belonging to the hypothesized comparative study. conducting a comparative study begins with defining the research problem, followed by a literature review, and the formulation of assumptions to perform the basic procedures of comparative studies. then, the subjects and relevant data sources are chosen, and the collected data are compiled and classified, according to the study purpose. these categories are formed by exploring the nature, relationships, or similarities of the research object data. finally, the data is ready to be analyzed, validation techniques are performed, and the analysis is carried out. subsequently, the study used a random sampling technique with the sample of households in the two regions represented by a questionnaire that was submitted to the head of the rt / rw or community leader in charge of managing the neighborhood funeral funds. meanwhile, primary data was collected through questionnaires, by taking a sample representing the homeowner associations of residential and village areas as the scope and the smallest community structure. then, google form questionnaires were uploaded on the link https://forms.gle/61fqdajsjjimyhoe7 and distributed through wa groups, email, facebook, and other social media platforms. the questionnaire was answered by the chairman of homeowner associations or officials with authority. data was also collected through notes and audio recordings to simplify and support the processing and analysis, while the sample collection was for 1 month period from 12 june to 12 july 2020. to obtain the expected amount of data, this study used slovin's random sampling with the formula: furthermore, the population included all the rt / rw and community leaders in java island, with an expected sample size was 84, while the collected data was processed via the description and stratification. the description was performed to describe the questionnaire results, which were further analyzed through a narrative, and the stratification was by grouping the interview data results according to the village and residential areas. 3. result and discussion with a target of 84 samples, this study managed to collect data from 31 respondents, https://forms.gle/61fqdajsjjimyhoe7 64 international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 meaning 37% of the target was covered. although the number did not meet the target, it was better than previous studies, as research by prasojo et al. (2017) used 1 sample, which al-hijriyah mosque, kerobokan village, north kuta district, badung regency. asrifah (2013) and jirhanuddin et al. (2016) also used 1 sample each, comprising pt. bni life insurance jakarta and rkm puntun, palangka raya, respectively, while ismail et al. (2019) utilized 20 samples from mosques in selangor state, malaysia. the data collected was processed and analyzed by dividing the two groups, namely the residential and village areas. this was unlike previous research by prasojo et al. (2017), asrifah (2013), jirhanuddin et al. (2016), and ismail et al. (2019), which did not perform a comparative analysis of these two communities. subsequently, the respondents' residences were 62%, 15%, 14%, and 9% living in west java, dki jakarta, banten, and east java, respectively. the east and south areas of dki jakarta comprised 50% of the respondents each, while the west java region consisted of 45%, 20%, and 5% in bogor, depok, and garut, respectively, alongside 15% each in bandung and bekasi. furthermore, the east java region was composed 33% in gresik and 67% in malang, while banten comprised 25% in pamulang and serang each, alongside 50% in tangerang. the data showed that 49% of the respondents lived in residential areas, while 51% were village residents. a. calculation of contribution according to figure 1, 72% of the respondents in the village had calculations of the contribution and 28% did not, while 47% from the residential area had them and 53% did not. the data above shows that there was a predominant method of calculating funeral fund contribution in the management of rt and rw in the village. however, this number does not yet indicate that the literacy of this management in the calculation process. figure 1. calculation of funeral fund contribution sources: processed data table 2 shows the data of the village area respondents of the contribution calculation, where a proportion of 56% explained that it used a mutual agreement at a community meeting. conversely, 25% proposed the rt and rw management meeting, then determination at a meeting of all residents, while the remaining 19% chose the meeting of residents only. conversely, 47% of the residential area respondents that answered had contribution calculations, where 53% explained that it employed mutual agreement at a community meeting. however, 33% chose the proposal at the rt and rw management meeting, international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 65 followed by determination at a meeting of all residents, while 13% selected the meeting of all residents. table 2 also shows that the determination of contribution calculations is made through community meetings in both areas, with 53% and 56% outcomes for the resident and groups. this fact shows that calculating contributions of funeral funds are not through actuarial techniques but via an agreement with the deliberation method, as stated by prasojo et al. (2017). table 2. method of funeral fund calculation method resident village 1 agreement at a neighborhood meeting 53% 56% 2 proposing at the rt and rw management meeting, then determining at a meeting of all residents 33% 25% 3 meeting all residents 13% 19% sources: processed data b. collection method of funeral fund contribution the predominant method of funeral fund contribution in residential areas was performed by officers, at a proportion of 65%, 29% was handed over by community members, while 6% were positioned in a place and picked up. however, this third method of contribution was paid with rice and not cash. conversely, direct payment of the contribution by the community members to the officers was dominant in the village area and performed by 67%, 28% was picked up, while the remaining 6% was kept in front of the house to be picked up by the manager. this finding shows that officers actively collect funeral funds from community members in residential areas, which differs from village areas, where the members actively visit the officers. this visitation habit corresponds with the study by prasojo et al. (2017), where the participants came to the rkk head to pay contributions. meanwhile, there is a common tradition in both residential and village areas, involving the collection of the funeral fund by the officer after placement in a mutually agreed site, usually in front of the house. the contribution is usually in the form of rice rather than cash. subsequently, this finding is different from previous studies by prasojo et al. (2017), asrifah (2013), jirhanuddin et al. (2016), and ismail et al. (2019) who found that the payment was solely in cash. furthermore, 34% of the residential area respondents stated that the amount of rice was not determined, while 33% each gave answers of as much as 1 cup and between 501 grams -1 kg. conversely, 43% in the village area stated that the amount was more than 1kg, 29% responded that it was voluntary, while 14% each stated 1 glass and between 251 -500 grams. this data shows that the villagers are predominantly able to pay funeral funds with rice weighing more than 1 kg/month, whereas the residential area respondents give rice contributions without any provisions. c. amount of contribution fund the payment in residential areas was predominantly more than rp 10,000, as stated by 66 international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 59%, and rp. 3,001 5,000, according to 24%. however, 6% each paid below rp. 3,000 and between rp. 7,501 10,000, while the remaining 5% paid the contribution voluntarily. in the village, 55% of the respondents gave between rp. 3,001 and rp. 5,000, 17% between rp. 7,501 10,000, 11% offered more than rp. 10,000, while the remaining 17% was voluntary. this data shows that residential areas pay more funeral funds than the villages. there were differences in the ability to pay contributions, as the residential communities had more capabilities than the rural areas. the contribution paid by the residential community was equal to that of the ‘rukun kematian’ members at idr 10,000 / month (jirhanuddin et al., 2016). it was almost similar to that by rkk members at idr 100,000 / year (prasojo et al., 2017). meanwhile, the highest contribution of funeral funds was rp 10,000/month or rp 120,000/year, which was below the contribution managed by mosques in selangor. according to ismail et al. (2019), more than 50% of al-khairat contributes rm 50/year or an equivalent of rp. 176,000/year. the lowest contribution was 26% by rp. 3,001 –5,000 or an equivalent of rp. 36,01260,000 / year. this amount was much smaller than the contribution managed by mosques in selangor, which was rm25 / year or equivalent to rp. 88,454.5. although the difference between malaysian and indonesian contributions and benefits is relatively high, this study did not include the purchasing power parity variable. hence, the comparison has not been able to capture the benefits provided by the respective amounts of contributions and benefits. furthermore, the collected funds were entirely for benevolence and funeral expenses, and this finding corresponds with the al-khairat fund management in selangor, where there is no investment policy. al-khairat or charity funds, which can also be part of social insurance for the sick, are managed by the mosque committee and any member who wants coverage is asked to voluntarily contribute (ismail et al., 2019). d. calculation of funeral fund benefits about 59% of the residential area respondents predominantly have calculations of the funeral fund benefit, while the remaining 41% do not. conversely, 83% of the village have calculations of the benefits, while 17% do not, showing that this community possesses greater understanding in calculating the benefits of the funeral fund compared to residential areas. however, this amount does not show that the rt and rw management in the village has literacy in this calculation process, as indicated by the respondents.' the analysis showed that 54% of them use the 'deliberation with the rt / rw management' method. conversely, 33% apply the 'proposed at the rt and rw management meeting, followed by determination at the residents,' while 13% employ the 'meeting of all residents' method. this finding corresponds with studies by prasojo et al. (2017), where the determination of funeral fund benefits was by the rkk manager, as well as asrifah (2013) by insurance management. however, it differs from ismail et al. (2019), where three mosques were shown to have criteria for determining benefits, according to the takaful principle. in residential areas, 56% employed the 'proposed at the rt and rw management meeting' method, 25% used the 'proposed at the rt / rw meeting and determined through community meetings,' while 19% applied the 'determined at the meeting of all residents.' consequently, the data showed that agreeing on the funeral fund benefits through a meeting of the rt / rw management as the determining party is sufficient for the village international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 67 and residential areas. e. amount of funeral fund benefit the amount of funeral fund benefit received by the heirs in the village area was dominantly between rp. 500,000 1,000,000, as stated by 50%, between rp. 1,000,001 3,000,000, according to 11%. meanwhile, 17% receive voluntarily, 16% obtain below rp 500,000, while 6% are given between rp. 3,000,000 – 5,000,000. the number of benefits from funeral funds in residential areas was relatively the same as in villages. subsequently, 56% of the respondents in residential areas obtained monetary benefits between rp. 500,000 rp. 1,000,000, 20% got between rp. 1,000,000 rp. 3,000,000, while 24% were paid voluntarily. meanwhile, these amounts were smaller than the total compensation of idr 1,500,000 idr 2,000,000, according to jirhanuddin et al. (2016). it was also different from prasojo et al. (2017), which found that participants received benefits through services, such as the process of bathing, dressing, and praying for the body. meanwhile, ismail et al. (2019) discovered that the benefits received by participants were similar to prasojo et al. (2017) and also included transportation services to funeral sites and offerings of prayers. f. recommendations the micro takaful concept is a mutual guarantee of individual contribution to an insurance fund managed optimally to increase the prevention of risks and strengthen the security of members. subsequently, the informal funeral funding scheme (iffs), as part of the micro takaful concept is performed by the homeowner association by collecting a few funds from the members. for a long time, this association has practiced iffs as a means of helping members of the community that have suffered death. iffs is a cooperative scheme that embodies the spirit of takaful. the muamalat teachings displayed by the contracts are based on partnerships, as stated by jaenudin et al. (2018), and include mudharabah, wakalah, waqf, wakalah bil ujrah, musyarakah, and mudharabah musytarakah. for instance, during the use of mudharabah contracts in iffs, participants' donations can be managed by the homeowner association. figure 2 subsequently explains the underwriting process. figure 2. iffs simple contribution this program is assumed to provide compensations of rp 5.000.000 per person for 68 international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 their family welfare assistance and funeral costs, according to the stipulated provisions. therefore, communities, especially low-income groups, will greatly feel the impact of micro takaful benefits and the ta'awun concept. the collection methods of database information from the target groups, called scheme participants include: a. members of the homeowner association categorized as poor have a status that is determined from time to time. b. the recipients of this scheme's benefits are dependents on the death event of the head of their household. c. the following will be considered as recipients of the benefits and each family will be given an amount of rp 3.500.000 or 5.000.000. this scheme still requires deep work to deepen the penetration into the community, and the public awareness needs to be part of the virtues of contributing to the benefits. consequently, this will have a direct impact on raising the living environment by providing services and assistance to the community. hence, the role of the local government to appeal to the public about the importance of being a participant in iffs is required. community leaders, ulama, chairmen of mosque committees, and homeowner associations are important parts of iffs success. they are required to convince the community and entrusted to make iffs well equipped as a new product for the transformation of micro cooperatives, and also by attending relevant courses and training. therefore, this program requires stakeholders to follow procedures that correspond to the micro takaful-related regulations stipulated by the government. 4. conclusion the funeral funds managed by homeowner associations were shown to not fulfill the takaful principle, as observed through the variables of calculation, collection method, and amount of contribution fund, alongside the calculation of and amount of benefits. meanwhile, a unique finding was that the contribution payments were by giving rice, as well as cash, as observed in almost all research objects in the residential and village areas. research findings of funeral fund management between village and residential areas as shown in table 3. table 3. comparison between residential and village areas village residential 1 calculation of contribution mutual agreement at a community meeting a mutual agreement at a community meeting 2 method of collecting the funeral fund contribution the contribution is paid directly to the officers by the community members contribution collection is performed by officers 3 amount of contribution fund between rp. 3,001 and rp. 5,000 more than rp 10,000 4 calculation of funeral fund benefits deliberation with the rt / rw management proposing at the rt and rw management meeting, then determination at a meeting of all residents international journal of islamic business and economics (ijibec), 5(1) june 2021, 59 70 69 5 amount of funeral fund benefit between rp. 500,000 rp. 1,000,000. between rp. 500,000 rp. 1,000,000 this study suspects that the method of calculating takaful through money may not sufficiently or fully accommodate this form of compensation. another argument states that a development strategy that involves the private and public sectors is needed to accelerate the management of funeral funds and provide more maslahah (austin, 2018). in residential areas, the officers actively collect funeral fund contributions from community members, unlike villages, where the members actively visit the officers. furthermore, there is a common tradition in both areas, as the fund is collected through placement in a mutually agreed site, usually in front of the house, where the officer will collect the contributions, which are in the form of rice not cash. references asrifah, a. pengelolaan dan pemberian santunan duka. maliyah, 3(2), 148477. austin, d. w. 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(2013). putting'the grave'into social policy: state support for funerals in contemporary uk society. journal of social policy, 42, 605. microsoft word 2-diriba (90-103).docx 90 ijibec determinants of graduate youth unemployment (a case study in west shoa zone, ethiopia) 1. diriba ayele gebisa 2. negash geleta etana corresponding email: dirayele@gmail.com ambo university ethiopia keywords: unemployment; graduate youth; binary logistic regression; odds ratio doi https://doi.org/10.28918/ijibec.v3i2. 1573 jel: a10, m50 published : 10 nov 2019 abstract today, youth unemployment is a common agenda and a critical issue of all countries; particularly in developing countries. in ethiopia, lack of employment opportunities for educated young people is a critical development challenges facing the country. the objective of this study was to identify the determinants of graduate youth unemployment. to answer the research objective data was collected by a structured questionnaire from 312 samples of respondents, wherein a snow ball sampling technique was used and data was analysed using mixed research design, descriptive and casual design; where a binary logistic regression model used to examine the relationship between dependent and independent variables. the result indicated that amongst the nine variables of the determinants of graduate youth unemployment; education, number of graduates, work experience, career advice, market information, family income, aspire to the low-income job, and education quality, all were significantly affected unemployment rate except entrepreneurial ability. as a result, based on these findings, it can be recommended that there is a critical need for government, ngos and all other stakeholders to work on these determinants to reduce graduate unemployment. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 3 no 2 2019 91 international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 1. introduction the all countries can face particular macro-economic problems at different times. among the fundamental macro-economic problems the recently rising and threatening the whole nation is the problem of youth unemployment, particularly graduated youth unemployment. youth unemployment is a fundamental problem facing and challenging the social, political and economic activities of all countries. according to msigwa and kipesha, (2013) an active and qualified youth has the potential to change the social and economic development of the country if they are well managed and involved in all important sectors of the economic activities of the country. however, youth those have ample potential to influence and change the socioeconomic activities of counties becoming a major policy challenge for all nations in the world due to unemployment problem. unemployment is becoming sources of complex and significant crises such as rising crime rates and violence, dependence on family, low self-esteem, poor social adaptation, depression, and loss of confidence that devastate and hamper the socio economic development of the country (kabaklarli et al, 2011). as ilo (2001) defined, unemployment is a condition of being without work but actively seeking available job at the prevailing wage level in the given period of time; while graduate unemployment is a type of unemployment among people holding academic degrees (saptakee, 2001). graduate unemployment is caused by countless of factors some of which involve a difference between aspirations, skills, and self-concept of graduates and employment opportunities available to them (sampson, 1992). several studies have conducted various studies in different parts of the world and investigated different factors and their impacts on youth unemployment. according the investigations made, the study done by assad & levison (2013), baah-boateng (2016) on reasons of employment inadequacy for youth identified low rate of job creation and increasing environmental threats as major factors for youth unemployment. muhammedhussen (2016) show that youth unemployment’s dream to create their own job is constrained highly by shortage of finance and lack of work place. similarly, the result of msigwa & kipesha (2013), bayrak & tatli (2014), baldry (2015), ndyali (2016), nyarko, baah-boateng, & nketiah-amponsah (2015) identified gender, location, education, skills, and marital status as important factors for youth employment. further, kakwagh & agnes (2010) and asmare & mulatie (2014) also revealed that increasing population growth, a high degree of geographical mobility, lack of employable skills, and low participation of youth in decision-making processes and the perception of policy makers were the primary factors for high youth unemployment rate. the developing countries are more victimized than others and ethiopia has its own long history of unemployment than any other countries. ethiopia is a poor agrarian country with per capita income of usd 350 (world bank, 2011). however, recently the country has been started to register an encouraging economic growth and significant reductions in poverty (woldehanna, hoddinott, and dercon, 2008). in the same way, the economist (january 6, 2011) reported that ethiopia had ranked as the fifth fastest growing economy in the world through the periods 2001-2010 and forecasted to grow at 8.1% during 2011-2015. in spite of the recently started promising economic growth still the rate of underemployment and unemployment remained high and becoming the serious socio-economic problems of the country (bimal & kayak, 2014). some of the limited studies that addressed the employment challenges in ethiopia made by (wb, 2007; nzinga & tsegay, 2012; and yohannes & missaye, 2014). then based on the reviewed literature, some of the common predictors that influence graduate youth unemployment were: the number of graduated youth, family economic performance, levels of education, entrepreneurship skills, access to job information, quality of education, the international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 92 absence of career advice, aspires to low income jobs and work experience. hence, the purpose of this study was to investigate determinants of graduate unemployment. 2. research method this this research used a mixed research design means descriptive and casual design. the descriptive design employed using descriptive statistics such as frequency mean and cross tab and casual design employed binary logistic regression to investigate the impact of the various independent variables under the considerations on the dependent variables. for this study, primary data was collected from unemployed and employed graduated youths based on the data at the end of 2008 e.c and used the questionnaire as data collection instrument. the populations of the study were 11,595 unemployed graduated youth registered in zonal labor and social affairs office of west shoa zone at the end of 2008 e.c. from this population 346 sample size calculated using yemane taro formula (1967) by using 95 % confidence level & 0.05 precision levels and the sampling techniques used were systematic and snowball sampling system. but from the total sample calculated only data collected from 312 were edited and analyzed. this study used a binary logistic regression model. the particular model was chosen by the researchers’ based on the behavior of the dependent variable; where the dependent variable is categorical variable with two groups (employed & unemployed which valued as 1 & 0 respectively). the researchers had chosen the cumulative logistic regression model for its easiness and more significant interpretation of odds ratio; even though the logit model yield similar parameter estimates (gujarati, 2004). therefore, the binary logistic regression model of a dichotomous dependent variable which is takes either 1 or 0 value depending on y is used. the probability that the outcome is present (probability of success) will be given by: we obtain the odds of success as: in logistic regression analysis, it is assumed that the explanatory variables affect the response through a suitable transformation of the probability of the success. the transformed variable, denoted by logit (π) is the log-odds and is related to the explanatory variables as: where = (β0, β1, β2… βk) are the model parameters and = (x1, x2… xk) are explanatory variables. the above equations give suitable representations of the success probability, odds, & log-odds. indeed, these representations facilitate interpretations of parameter estimates. the parameter refers to the effect of xi on the log odds that y = 1, controlling the other x’s in the model. finally employed model was:* gus=β0+β1ng+β2el+β3eship+β4ca+β5alj+β6we+β7fi+ β8ji +β9qe where: 93 international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103  gus=graduate unemployment status  β0=the intercept,  ß1-9 is the coefficient to be estimated.  ng= number of graduate  el=education level  ership= entrepreneurship  ac= career advise  alj= aspire to low income job  we=work experience  fi= family income  ji= job information  qe=quality of education data analysis: data was analyzed using descriptive statistics cross tab and binary logit regression using spss v.20.. 3. results and discussions the descriptive statistics of the demographic characters of the respondents and the distributions of the major variables under considerations were as follows: table 1. respondents’ demographic characteristics item category frequency % gender male 167 53.50% female 145 46.50% total 312 100% level of education level 1-4 210 67.31% ba 102 32.69% total 312 100% graduate unemployment status employed 76 24.36% unemployed 236 75.64% total 312 100% source: computed from surveyed data as shown in the above table, out of the total respondents, 167(53.5%) of them were male and the remaining 145(46.50%) of them were female. the gender ratio of the respondents was fairly equally represented in the sample. similarly, the distribution of level of education of the respondents shown on the same table 1, were 210(67.31%) of them were academically from level 1-4 and the rest 102(32.69%) of them were held ba degree. the results show that out of the total respondents, the majority about 67.31% of the graduated unemployed were from level 4. table 1 also display the distribution of the status of graduate unemployment, from table 1, 76(24.36%) of the respondents were employed and 236(75.64%) of them were unemployed. this shows that the majority, three-fourths, of the graduated youth unable to be employed. 3.1. descriptive analysis of factors influencing graduate youth unemployment table 2. gender and education distribution by graduate unemployment status international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 94 category graduate unemployment status total x2 sig employed unemployed gender male 48(15.38%) 119(38.15%) 167(53.53%) 3.747 0.053 female 28(8.97%) 117(37.5%) 145(46.47%) total 76(24.36%) 236(75.64%) 312(100.0%) education level level 1-4 24(7.69%) 186(59.62%) 210(67.31%) 58.288 0.000 ba degree 52(16.67%) 50(16.02%) 102(32.69%) total 76(24.36%) 236(75.64%) 312(100%) source: computed from survey data table 2 presents gender and education distribution by graduate unemployment status. this objective was to investigate whether there is a relationship between gender and status of graduate unemployment; level of education and graduate unemployment status a cross tab between the variables done on table 2 above. the cross tabulation indicate that males were more employed 15.38 %, compared to females 8.97% graduated and also 38.15% % of the males graduated were unemployed compared to 37.5 % of the females graduated. this shows the existence of an association between gender difference and unemployment status. also the pearson chi-square shows the existence of a major variance between graduated males and females status in unemployment, where the p-value is 0.053 at the p < .05 level. this is the fact that males are less restricted by family and culture to go freely where they like compared to female in actively searching for opportunities. similarly, the cross tab made between level of education and unemployment status also show that only 7.69% of respondents from level 1-4 of educational status employed compared to 16.67% of respondents employed in ba degree, or 59.62% of the respondents within level 1-4 education status were unemployed compared to 16.02% of the respondents with education status of ba degree holder. also, the chi-square test further revealed that there is a statistically strong relationship between education level and unemployment condition at 5% probability level. the findings showed the inverse and significant relationship between the levels of education. this means that unemployment status means as education level increases unemployment decreases. table 3. number of graduate and work experience distribution by graduate unemployment dependent variable numbers of graduate in the market total test small large x2 sig graduate unemployment status employed 28 48 76 25.545 0.000 % 8.97% 15.38% 24.35% unemployed 27 209 236 % 8.66% 66.99% 75.65% total freq. 55 257 312 % 17.63% 82.37% 100% dependent variable work experience needed total x2 sig low high graduate employed 38 38 76 95 international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 source: computed from survey data table 3 indicate numbers of graduates in the market, which is about 82.37% of the respondents indicated that a large number of graduate youth in the market to find jobs. only 17.63% of respondents indicated that low in number this may be in case of fields. the result of the cross tab also shows that out of 82.37%of the respondents were unemployed as a result the large number of graduate which constitute around 66.99% compared to small 8.66%. as indicated in table 3 the chi-square test also shows the significant statistical relationship between work experience needed and unemployment status. among the key factors that responsible for the unemployment of graduated youth one of the major variables is absence of work experience. as shown in table 3, 63.46% of the respondents indicated that different job vacancy announced at different times needed high work experience rather than a fresh graduate with zero experience. only 24.36% of respondents indicated that the job vacancy needs low work experience. the result of the cross tab also shows that 75.64% of the respondents were unemployed as a result of the lack of high work experience compared to 24.36% of those employed with high work experience requirement. the chi-square test also shows the significant statistical relationship between work experience needed and unemployment status. table 4.career advice and job information distribution by graduate unemployment dependent variable career advice provision. total test low high x2 sig graduate unemployment status employed 23 53 76 15.152 0.000 % 7.37% 16.99% 24.36% unemployed 132 104 236 % 42.31% 33.33% 75.64% total freq. 155 157 312 % 49.68% 50.32% 100% dependent variable job information available total x2 sig low high graduate unemployment status employed 41 35 76 0.395 0.530 % 13.14% 11.22% 24.36% unemployed 137 99 236 % 43.91% 31.73% 75.64% total freq. 178 134 312 % 57.05% 42.95% 100% source: computed from survey data unemployment status % 12.18% 12.18% 24.36% 35.852 0.000 unemployed 38 198 236 % 12.18% 63.46% 75.64% total freq. 76 236 312 % 24.36% 75.64% 100% international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 96 career advice is important especially for unemployed graduate youth. provision of a good career advice for unemployed graduate youth energizes to search better job, rather than merely being employed in any organization or motivate them to start their own job freely rather than searching to be employed in private or public organization. as table 4 shows, that among the respondents, 49.3% of them replied that they acquired low career advice about 42.31% unemployed and the remaining 50.32% replied that they got high career advice, which is about 33.33% unemployed. similarly, the cross tab shows that 16.99% of graduated youth with high career advice employed compared to 7.37% of graduated youth are employed with low career advice, or only 43.91% of graduated youth are employed with low career advice compared to 31.73% of graduated youth unemployed with high career advice. the chi-square test also shows the significant relationship between career advice and graduate youth unemployment level. labor market information plays a significant role in maintaining the efficiency of the labor market. labor market information is scarce, and is not available to all job seekers. improved accessibility to information more requires the availability of facilities as transportation, availability of newspaper where the job to be announced and internet facility. for graduated youth from poor families and those living in the remote rural area further from better facilities getting job information is unusual. table 4 shows; that the availability of labor market information also influences the level of graduated youth unemployment. in table 4, 57.05% of the respondents replied that there was low availability of labor market information and 42.95% of them replied there was highly available market information for graduated youth. then we can conclude that as job information was available unemployment is decreasing. but the chi-square test is 0.53, which means there is no statistically significant relationship between the labor market information and graduated unemployment status. table 5. family income and aspire to job distribution by graduate unemployment dependent variable family income/economic performance total test low income medium income x2 sig. graduate unemployment status employed 19 57 76 43.052 0.000 % 6.09% 18.27% 24.36% unemployed 160 76 236 % 51.28% 24.36% 75.64% total freq. 179 133 312 % 57.37% 42.63% 100% dependent variable aspire to join low salary/income jobs. total x2 sig. low interest high interest graduate unemployment status employed 29 47 76 89.656 0.000 % 9.29% 15.07% 24.36% unemployed 213 23 236 % 68.27% 7.37% 75.64% total freq 242 70 312 % 77.56% 22.44% 100% source: computed from survey data 97 international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 table 5 indicates that there is a strong correlation between the employments of graduated youth and their family economic/income level. unemployment and family’s level of income have a marked two ways relationship, where household income is higher unemployment rates lower and the vice-versa. table 5 display, 57.37 % of the respondents were from the family of low economic performance and the remaining 42.63% were from medium family economic performance. besides, the frequency distributions the cross tab between family economic performance and the unemployment status of the graduated youth. the result show that, 18.27% of employed graduated youth were from the family of medium economic performance compared to 6.09% of employed graduated youth from low-income earner, or only 68.27% unemployed from the family of low-income earner compared to 24.36% of unemployed graduated youth from the family of medium economic performer. the variables are statistically significant at 5% level of significance. employment status also influenced by aspires of graduate to join low salary/income jobs. as indicated in table 5, 77.56% of the respondents had a low aspiration to join low salary jobs from this about 68.27% was unemployed while the remaining 22.44% % had a high aspiration to join low salary jobs and from this about 7.37% was unemployed and the left 15.07% employed. this result shows that the relationship is statistically significant at 5% level. table 6. entrepreneurship and education quality distribution by graduate unemployment variables employed unemployed t-value value sig. value n mean sd n mean sd 2.66 0.167 entrepreneurship 76 3.1 0.31 236 2.98 0.34976 quality of education 76 2.89 0.325 236 2.31 0.432 10.73 0.001* source: computed from survey data * is significant at less than 5% probability level. sd = standard deviation poor quality of education and graduation of students without acquiring enough knowledge and understanding the contents and objective of the curriculum designed and lack of desired theoretical and practical knowledge created high unemployment problem in ethiopia (british council, 2014). similarly, the emphasis is given by ethiopian government to high education coverage regardless that the education quality created poor education quality that made graduated student incompetent relative to the requirements of the labor market (guarcell & rosita, 2009). table 6 shows; the mean of 2.89 of response of employed graduated youth education quality was more than the mean.2.31, the response of unemployed graduated youth education quality. the result showed that the mean score of the employed graduated youth are positive and significance at less than 5% level of significance. therefore, it can be concluded that low quality of education leads to high unemployment status. the other variable that influences the graduated youth unemployment is their entrepreneurship ability. table 6 shows, that the mean response of employed graduated youth entrepreneurship ability is 3.1 compared to 2.98 mean response of unemployed graduated youth entrepreneurship ability. the t-value, 0.167, is not statistically sufficiently significant at 5% level of significance. therefore, one can generalize that entrepreneurial ability of graduated international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 98 youth is not significantly related to graduated youth unemployment status. this means that whether the graduated unemployed youth have enough entrepreneurship skills or not, it does not matter to be employed or not. 3.2. binary logistic regression results as mentioned in the methodology section logic model was chosen to identify the causes of graduate unemployment in the target area of study. the correlation of the independent variable was conducted so as to test whether the problem of co-linearity exists or not. thus, it was found that there was no significant multi-co-linearity issue between the examined explanatory variables. the log likelihood ratio also tested and presented as follows. 3.3. model summary table 7. model summary -2 log likelihood cox & snell r square nagelkerke r square 131.753 .497 .742 source: analysis result in general, -2log likelihood (-2ll) is a measure of badness of-fit, illustrating error remaining in the model after accounting for all independent variables. the -2ll of 131.753 shows that there is no major error left over in the model. the model summary provides some approximation of r2 statistic in logistic regression. cox and snell r2 or nagelkerke r2 is an analogous statistic in logistic regression to the coefficient of determination r2in linear regression, but not close analogue. cox and snell’s r2 attempts to imitate multiple r2 based on likelihood. in this study, cox and snell r2 indicate that 49.7% of the deviation in the dependent variable was explained by the explanatory variables. nagelkerke r2 in the table 7 is 0.742 that shows 74.2% of the variability in the dependent variable using of graduate unemployment method was explained by the explanatory variables. 3.4. multy-co-linearity table 8. multi-co-linearity model co linearity statistics tolerance vif edl .893 1.120 ng .895 1.117 we .888 1.126 ca .951 1.052 lmi .973 1.028 fi .915 1.093 atlj .864 1.158 ership .954 1.049 qe .810 1.234 dependent variable: graduate unemployment status source: analysis result 99 international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 abbreviations  edl=educational level  ng=number of graduate  we=work experience  ca=career advice  lmi=labor market information  fi=family income  atlj aspire to low job/income  ership=entrepreneurship  qe=quality of education multi-co-linearity might push up standard errors; but until there is not any perfect multico-linearity there is no bias if regression estimates will be used. for the purpose of the problem of perfect multi-co-linearity among the variables, variance inflated factors (vif) are estimated and displayed in the above table 8. for this particular study, variance inflation factor for all variables tested and resulted below 10; showing that there is no signal of colinearity that does influence the main variable of interest in a model. therefore, it can be concluded that multi-colinearity is not a problem in the data. baum (2006) explained that near co-linearity that doesn't affect the key variable of concern in a model cannot be a difficult issue and can be ignored. 3.5. binary logistic result table 9 binary logistic results variables b s.e. wald sig. exp(b) edl 3.106 .674 21.263 .000* .045 ng 1.153 .674 2.921 .087** 3.167 we 2.223 .673 10.901 .001** 9.234 ca -1.529 .583 6.874 .009* .217 lmi -.934 .560 2.788 .095** .393 fi -2.680 .643 17.377 .000* .069 atlj -4.098 .750 29.850 .000* .017 ership -.061 .839 .005 .942 1.063 qe -4.162 .812 26.298 .000* .016 source: analysis result * =significant at 0%, **= significant at 5%, ***= significant at 10% table 9 presents the calculated logistic model. the logistic regression coefficients, sig, wald, and odds ratio for each of the independent variables are shown in table 9. the “sig” column conveys the significance (or p-value) of all variables whereas β values show the trend of the association of a specific independent variable to the dependent variable. on the other side, exp (β) column denotes the odds ratio. using 0.05 and 0.1 level of significance as a standard for the test of statistical significance, the coefficients of all the variables are statistically significant, except entrepreneurship. as a result, the study reveals that education level and graduate youth unemployment have a positive relationship. the odds ratio of being unemployment rises by .045 as a unit individual graduate from higher education and gets a certificate increase. this may be because of individuals’ job preference; the presence of high competition in the government sectors and the slow growth of the private sector as compared to the number of youth graduates per year. the results confirm the study of (nganwa, assefa, & mbaka, 2015) that shows having an education certificate did not guarantee employment. likewise, the reason why unemployment rates is higher for educated young is absence of resources to support full-time job search in international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 100 ethiopia like many other developing countries unlike the situations in latin american countries (godfrey, 2003). similarly, nebil, gezahegn & hayatet (2010) revealed that low level of education is a reason for unemployment in ethiopia. also the result of study made by broussar & tekelesilassie (2012) show that youth with grater education were less likely to be unemployed. this shows that the labor demand has not been able to accommodate in terms of number and diversified graduating students with different skills. the number of graduates and unemployment has a positive relationship from table 9, which means that as the number of the graduates increases in the selected area, unemployment also increases. the results indicate statistically significant relationship at 10% level of significance. for this variable, the odds ratio is 3.167. this implies that a 1 percent increase in the number of graduates the unemployment increase by 3.167 times. table 9, further provided that if all other variables are being fixed, the odds of a graduate youth with low work experience to be unemployed were approximately 9.23 times higher than those of youth having work experience. this implies that a graduate youth who has a relatively low work experience is more likely to be unemployed, compared to those with adequate job experience. the result is statistically significant at (p <0.001) at 1% level; and the result confirms the conclusions of duong & vanet (2005) and hassen (2005). the study has also shown the existence of inverse relationship between career advice and unemployment. the odd ratio was .217. this implies that as a 1% decrease in career advice result to 21.7% increase of graduate youth unemployment. as a result, the relationship between access to job information and graduate youth unemployment was negative and statistically significant at 10% level. the odds ratio was .393. this implies that as access to job information decrease by 1% the probability of graduate unemployment is increased by 39.3%. the result shows that lack of access to job information significantly affect youth unemployment status. regarding the relationship between family income and youth unemployment status, the results show that individuals from low-income families are more unemployed compared to those from high-income families and the results are statistically significant at a 1% level of significance. the odds ratio of unemployed graduate youth decreases by .069 if their families are high economic performance. the result is because of the fact that graduated youth from high and middle income families are in better position to search jobs from everywhere available without finance limitation or able to start their own business with minimum initial capitals. the result confirm the finding of (amanuel, 2016) that show graduated youth whose family is poor are more likely to be unemployed related to those from better income family. aspire to the job and graduate unemployment has a negative relationship and the odds ratio was .017. this implies that as the interest too low income decreased by 1% the probability of graduate unemployment increase by 1.7 %. the result goes with the finding of serneels (2004) that stated people prefer earning wage informal employment in public or private sector than self-employment due to the fear of hard work and risk of self-employment. as revealed in table 9 there was a negative relationship between entrepreneurship skill and unemployment. but it is not significant since the p-value is greater than 0.06 (0.942>0.05). this implies that as entrepreneurship ability increase by 1% the probability of unemployment may be decreased by 1.063 as odd ratio reports. this may be in case of any graduated individuals not needing to have entrepreneurial ability, but they can create job opportunities for graduates. according to un habitat (2003) people are driven to make their own jobs because of the low probability of getting jobs in the labor market. 101 international journal of islamic business and economics (ijibec), 3(2) december 2019, 90-103 table 9 also display the statistically significant (p = 0.00 < 0.05) and inverse relationship between quality of education and graduate youth unemployment. similarly, the odds of welltrained graduate youth being unemployed were .016 times lower than those of less quality. the results support the findings of gebeyaw (2011) that concluded the inverse relationship between training and unemployment. the implication of this result is that, training is one of the important strategies for decreasing youth unemployment. 4. conclusion based the aim of the study was to investigate the determinants of graduate youth unemployment in west shoa zone, ethiopia. the study used mixed research design, descriptive and casual design; a binary logistic regression model used to examine the relationship between dependent and independent variables. the conclusions from the results of the descriptive analysis show that the existence of close association at 5% level of significance between gender difference and unemployment status, the inverse and significant relationship between the levels of education and unemployment, significant and positive statistical relationship between work experience needed and unemployment status, and significant relationship between career advices and graduate youth unemployment level; whereas insignificant statistical relationship between the labor market information and graduated unemployment status; entrepreneurial ability of graduated youth and graduated youth unemployment status at 5% level of significance. on the other hand, before the analysis of the binary logistic regression, the researchers checked the existence of the problem of multi co-linearity and proved that there was no significant multi-co-linearity issue between the explanatory variables under investigations. therefore, the results of binary logistic regression show that out of the nine explanatory variables, eight variables including number of graduate, job information and work experience are significantly related to unemployment rate at 5% level of significance; whereas education level, career advice, aspire to low income job, family income, and quality of education are statistically significant at 0% level of significance; however entrepreneurial ability is not significantly related to unemployment rate at 5% level of significance. generally, the results of this research, reinforce the earliest well-known education and knowledge theory introduced by ibnu khaldun in islamic economics regarding labor. ibnu khaldun stressed the professionalism, skills and specialization that must be possessed by workers to get the right position. further, the result support human capital theory that proved education could support smooth employment and rise employment wages by enhancing people’s distribution efficiency. acknowledgement first of all we would like to express our deepest gratitude to the staff of west shoa zone workers and social affairs office for their heartily support during data collection. our special thanks also go to respondents for sacrificing their valuable time in filling the questionnaire. references abshoko, a. d. 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(2010). youth unemployment in nigeria: causes and related issues/les problèmes du chômage des jeunes au nigéria: causes et questions associées. canadian social science, 6(4), 231-241. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 17 february 2018 accepted : 12 may 2018 published : 1 june 2018 keywords: service dominant logic; islamic religiosity; shariah value logic; islamic marketing. jel: g21 g41 abstract to analyze shariah value logic as the role mediating in the relationship between npd innovation and npd performance. we purposed shariah value logic as mediating role in this study. the questionnaires will be given to only the managers of lkms (the board of shariah micro finance) in pekalongan, indonesia with total 246 responden from 24 lkms (baitul maal wa tamwil, baitul tamwil, kospin jasa shariah, and kspp shariah). shariah value logic significantly affect to customer brand trust. research limited in muamalah, future research can exploring in ebadat. lkms adapted shariah value logic to get customer brand trust. shariah value logic as the new variable and theory concept. indirect, npd innovation positive significantly affect to npd performance with shariah value logic and customer brand trust are as mediating role. shariah value logic to enhance npd performance mansur chadi mursid doctoral graduade programme in management science, economics and business faculty, jenderal soedirman university and iain pekalongan email: mansurchadimursid@gmail.com mailto:mansurchadimursid@gmail.com international journal of islamic business and economics, 2(1) june 2018, 2 7 3 728 1. introduction studies have provided various perspectives on the performance effectof product innovativeness, and several scholars have argued that product innovativeness positively affects new product performance (mishra, kim, & lee, 1996; atuahene-gima, 1996; hultink & robben, 1995; fang, 2008, warren, 2017). conversely, several studies have indicated that product innovativeness is negatively associated with newproduct performance. buyers may be averse to new productswith a high degree ofinnovativeness because of a heightenedpotential of social, performance, or financialrisks that accompany thepurchase of such products (calantone et al., 2006; sethi, 2000). several studies have also observed that product innovativeness does not influence new product performance (calantone et al., 2006), unidentified (santos, et.al., 2013), whereas other evidence supports the hypothesis that a negative effect occurs (cooper, 1979; fu & jones, 2008). extant metaanalytic reviews, huang & tsai (2014) reported the significant and positive association of product innovativeness with new product performance (henard & szymanski, 2001; szymanski et al., 2007). according to rogers’s (2003) innovation diffusion theory, buyers within a population may have distinct preferences regarding innovativeness. thus, the product innovativeness–performance relationship may be ambiguous. conversely, we observed that the performance association of product innovativeness vanishes when considering the shariah value logic and customer brand trust as intermediary variables.new product innovativeness, and new product performance by constructing a mediated moderation or moderated mediation as research gap in this study. npd performance np performance has been measured in different ways (gotteland and boule, 2006). driva et al. (2001) reported that all the performance measure in product development can be grouped into three main categories. the first category is the time which comprises average time to market, on-time delivery and schedule adherence. npd performance (lee, 2008) is often referred to as the extent to which the new product has achieved its expected performance, including profit margin, return on assets and return on investment. the second category is the cost which includes total project cost against budget, profitability analysis (performance against objectives), product cost, actual to predicted profit on products, product development cost as percentage of turnover and margin analysis. the third category was stated as the number and nature of engineering change requests per project, adherence to original product specification and field trials which were described as quality and customer. o’dwyer and ledwith (2009) grouped np performance measures under five categories, (1) market-level measures; (2) financial measures; (3) customer measures; (4) product level measures; and (5) timing measures. nevertheless, amongst the five categories, customer and financial measures were termed “core success/failure measures” (griffin and page, 1993; im et al., 2003). godener and soderquist (2004) identified seven areas of measurement that were related to npd which are financial performance measurements, customer satisfaction measurements, process management measurements, innovation measurements, strategic measurements, technology management measurements and knowledge management measurements. sherman et al. (2005) utilized six performance variables in their investigation. of these six variables, product prototype development proficiency, product launch proficiency and design change frequency were processoriented performance variables. while variables like market forecast accuracy and technological core competency fit were grouped as performance competencies, the only standalone variable was product development cycle time. ledwith and o’dwyer (2009) reported that new product performance is measured in terms of market-level measures, financial measures, customer acceptance measures, product-level measures and timing measures. liu et al. (2005) identifed international journal of islamic business and economics, 2(1) june 2018, 2 7 3 7 29 three performance measures are as follows, (1) new product life cycle; (2) new product sales and profits; and (3) time to market for new product. we adapt the npd performance measures proposed by akroush (2012) in the present study, two npd performance measures are as follows financial performances, and customer performance. npd innovation innovation is vital to the survival of modern corporations (ko, to, zhang, ngai, & chan, 2011). rogers (1983) defined an innovation asan idea, practice, or object that is perceived as new by an individual or other unit of adoption. a product, service, or process can be the subject of innovation (bhoovaraghavan and vasudevan 1996).schumpeter (1934)classifies innovations in two types: (1) radical and (2) incremental. radical innovations are those originating from the process of creative destruction, a term coined to explain technological or market paradigm breakthroughs, shifting to something completely new and that can be represented by a product or a process. product innovativeness refers to the level of perceived newness,originality, and uniqueness of a product (garcia & calatone, 2002). for any organization, npd innovation is crucial in achieving the success. vinayak & kodali (2014) proposed six elements npd innovation, (1) product innovation; (2) process innovation; (3) market innovation; (4) service innovation; (5) behavioral innovation; and (6) managerial innovation. product innovation is often referred to as the novelty and meaningfulness of new products introduced to the market in a timely fashion (wang and ahmed, 2004). product innovation is critical to product success which in turn is highly related to sustainable business success, providing great opportunities for businesses in terms of growth and expansion into new areas (cooper, 2000; henard and szymanski, 2001). process innovation refers to the introduction of new production methods and new technology that can be used to improve production processes (wang and ahmed, 2004). maravelakis et al. (2006) emphasized that process innovation may result in product innovation and likewise product innovation may force process innovation, an inference that product innovation and process innovation are strongly correlated. in our study, process innovation constructs have been taken as those related to product development process issues concerning production methods and the distribution cycle. market innovation is the newness of approaches that organization adopts to enter and exploit the targeted market, i.e. innovation related to market research, advertising and promotion as well as identification of new market opportunities and entry into new markets (wang and ahmed, 2004). market innovation is central to product innovation and likewise, product innovation maintains a central focus for product newness. here, we refer to market innovation in the context of novelty of market-oriented approaches. similarly, service innovation refers to the differences and novelties that can be built into the dimensions of intangible service offerings (zolfagharian and paswan, 2008). in service innovation, activities are undertaken to deliver core services so as to attract more consumers (oke, 2007), which in turn tend to create a new revenue streams. behavioral innovation in the organization is directly related to the people and their practices. here, innovation is brought in to the social system of an organization like focusing on the innovative practices, culture, the overall internal receptivity to new ideas and innovation adapted by individuals and teams in the organization. managerial innovation practices focuses more on leadership/senior management’s role in building the organizational structure, administrative processes and enabling the human resources toward an innovative culture. in the present study, management strategy on innovation, administration or leadership innovation, focus on feasibility studies or risk-taking attitude of management, support for knowledge management, organization’s characteristics and motivation of people to innovate were taken as constructs of managerial innovation. international journal of islamic business and economics, 2(1) june 2018, 2 7 3 730 customer brand trust trust is the belief that an exchange partner is honest, reliable, and is interested in the welfare of the other party (doney and cannon 1997; morgan and hunt 1994). brand is not only a symbol but also an entity (something that has unique and distinct existence) which can be easily recognized and promise certain values (nicolino, 2004). brand is actually a reflection of promises about the product promoted by producer to the consumer about the product’s quality. hence, there needs to be a trust in the brand. in branding, trust is the willingness or the want of consumers in facing the risk associated with the notion that the purchased brand will provide a positive or favorable results (lau and lee, 1999). according to keller (2003), brand lowers the risk in using the product. consumers often interact with brands as if the brand is human, thus the similarities between the consumer selfconcept to the brand can build trust towards the brand. trust involves the willingness of a person to behave particularly because of the belief that its partner will deliver what he/she expected, and an expectation that is generally owned by someone that the word, promise or statement of other people can be trusted. it is the emerging force of customer retention, because the trust can create a relationship exchange with great value to both parties. herbiniak (in morgan and hunt, 1994) stated that relationship, which is characterized by trust, is highly valued on parties with a desire to commit or bind themselves to a particular relationship. commitment is prone to change without involving trust aspects. therefore, trust in the brand became the basis of ongoing relationship in maintaining valuable and important relationships created by the existence of the trust. trust in the brand is the customer’s trust behavior toward the shariah product. trust creates exchange relationships that are highly valued (morgan and hunt 1994). definition of trust provided by moorman, zaltman, and deshpande (1992, p. 315) and morgan and hunt (1994: 23). chaudhori & holbrook (2001) define brand trust as the willingness of the average consumer to rely on the ability of the brand to perform its stated function. brand trust was measured as a four-item index based on five-point ratings of agreement (1 = very strongly disagree, 5 = very strongly agree) with the following four statements: “i trust this brand,” “i rely on this brand,” “this is an honest brand,” and “this brand is safe.” shariah value logic service science is the study of service systems and of the co-creation of value within complex constellations of integrated resources (spohrer et al., 2007, 2008). service is the application of competences (knowledge and skills) by one entity for the benefit of another (vargo and lusch, 2004, 2006). this definition provides a fresh perspective for understanding economic phenomena, by implying that value is created collaboratively in interactive configurations of mutual exchange. it centers on the participants, processes, andresources that interact to create value in service systems. so value and value creation are at the heart of service and are critical to understanding the dynamics of service systems and to furthering service science. but value is an elusive term. marketing basics highlight the importance of understanding different consumer segments and relating to their needs (kotler and armstrong, 2006). mirroring the holistic view of islamic legislation through its prime underpinning objectives (maqasid ash-shari’ah) and seeing islam not only as a culture but as creed (‘aqidah), worship (‘ebadat), interactions (mu’amalaat), and morality (akhlaq), elbassiouny (2014) attempted to set a humble precedent aimed at presenting amacromarketing view(see p. 46) of the potential implications of islamic marketing according to the macro-level and integrated approach of the spirit and heart of islam, namely the sources and goals of islamic shari’ah. overall depiction of the transcendental values integration model discussed in el-bassiouny (2014). international journal of islamic business and economics, 2(1) june 2018, 2 7 3 7 31 the “maqasid ash-shari’ah” of preservation of self, intellect, posterity, wealth, and faith represent the soul of islamic legislation that permeate its inherent value system, and offer a broad framework for actions and deeds consistent with its morals, priorities, and ideals (el-bassiouny, 2015). based service dominant logic (vargo & lusch, 2006) and islamic religiusity (el-bassiouny, 2015), we proposed measure in the present study as shariah value logic with the following five statements, (1) create values religiusity to stakeholders; (2) use a spiritual brand character; (3) prioritization of values religiusity; (4) co-creation business based shariah values; and (5) create values religiusity system, preservation of self,intellect, posterity, wealth, and faith. proposed model and hypotheses figure 1 introduces the paper’s proposed model and its related hypotheses. 43  figu re 1. pro pose d re sea rch m ode l h1 h2/h7 h3/h6 h4 h5 systems and to furthering service science. but value is an elusive term.    marketing  basics  highlight  the  importance  of  understanding  different  consumer  segments and relating to their needs (kotler and armstrong, 2006). mirroring the holistic  view  of  islamic  legislation  through  its  prime  underpinning  objectives  (maqasid  ash‐ shari'ah) and seeing islam not only as a culture but as creed (‘aqidah), worship (‘ebadat),  interactions (mu'amalaat), and morality (akhlaq), el‐ bassiouny (2014) attempted to set a  humble precedent aimed at presenting amacro‐marketing view(see p. 46) of the potential  implications of islamic marketing according to the macro‐level and integrated approach of  the spirit and heart of  islam, namely the sources and goals of  islamic shari'ah. overall  depiction  of  the  transcendental  values  integration  model  discussed  in  el‐bassiouny  (2014).    the “maqasid ash‐shari'ah” of preservation of self, intellect, posterity, wealth, and  faith represent the soul of islamic legislation that permeate its inherent value system, and  offer a broad framework for actions and deeds consistent with its morals, priorities, and  ideals  (el‐bassiouny,  2015).  based  service  dominant  logic  (vargo  &  lusch,  2006)  and  islamic  religiusity  (el‐bassiouny,  2015),  we  proposed  measure  in  the  present  study  as  shariah  value  logic  with  the  following  five  statements,  (1)  create  values  religiusity  to  stakeholders; (2) use a spiritual brand character; (3) prioritization of values religiusity; (4)  co‐creation  business  based  shariah  values;  and  (5)  create  values  religiusity  system,  preservation of self,intellect, posterity, wealth, and faith.    proposed model and hypotheses  figure 1 introduces the paper’s proposed model and its related hypotheses.              according to the model, we proposed seven hypotheses, (1) npd innovation is positively associated with shariah value logic; (2) shariah value logic is positively associated with npd performance; (3) npd innovation is positively associated with customer brand trust; (4) customer brand trust is positively associated with npd performance; (5) shariah value logic is positively associated with customer brand trust; (6) npd innovation is positively associated with shariah value logic and customer brand trust through shariah value logic; (7) shariah value logic is positively associated with customer brand trust and npd performance through customer brand trust. 2. research methods purposive sampling is applied to this study. the questionnaires will be given to only the customers of lkms (shariah micro finance board) in pekalongan, indonesia with total 199 customer from 13 lkms (baitul maal wa tamwil, baitul tamwil, kospin jasa shariah, and kspp shariah). step analysis consist of confirmatory factor analysis, analysis exogen construct confirmatory, analysis inter endogen construct confirmatory, estimate structural full model, and examine discriminant validity. the constructs include, npd performance, npd innovation, shariah value logic, and customer brand trust. all questionnaire items were measured using a 5-point likert scale ranging from “strongly disagree” to “strong agree”. international journal of islamic business and economics, 2(1) june 2018, 2 7 3 732 table 1. construct, indicator construct, and code research construct indicator construct code npd performance increasing our company’s revenues from new customers increasing our current customers account share increasing our company’s market share increasing our company’s sales volume increasing our company’s net profits increasing our company’s cash revenues overall, our customers are more satisfied with our np/s np fits target customers better increasing our customers’ loyalty attracting more new customers due to our np/s our nps are more successful the marketplace than before our customers encourage other people to buy our nps x 1 x 2 x 3 x 4 x 5 x 6 x 7 x 8 x 9 x 10 x 11 x 12 npd innovation newness/novelty/originality/uniqueness new production methods customer focus/customer relationship management after-sales support services employees individual innovativeness administration/leadership innovation x 13 x 14 x 15 x 16 x 17 x 18 shariah valuelogic create values religiusity to stakeholders use a spiritual brand character prioritization of values religiusity co-creation business based shariah values create values religiusity system, preservation of self, intellect, posterity, wealth, and faith x 19 x 20 x 21 x 22 x 23 customer brand trust i trust this brand this is an honest brand this brand is safe we trust that this lkms keeps our best interests in mind immediate supervisors at timesmust make decisions which seem to be against the interest of the customer we had a trust-based relationship with our subcontractor x 24 x 25 x 26 x 27 x 28 x 29 3. result with regard to construct validity, as recommended by hair et al. (1998), exploratoryfactor analysis (efa) and confirmatory factor analysis (cfa) were used to assessconstructs validity. all the research items were subjected to efa. an index of kaiser’smeasure of sampling adequacy (overall msa = 0,846) and bartlett’s test of sphericity sig. 0,000 suggested that factor analysis is appropriate for analyzing the data.based on eigenvalue greater than 1, the results of efaindicate that the research items loaded on five factors, four relective and one formative (npd innovation). to validate the findings that emerged from using efa, the four factor model wasevaluated by cfa using smartpls 3.0 software as shown in table 3, consist of outer loading, composite reliability (cronbach alpha),and average variance extracted (rho alpha). international journal of islamic business and economics, 2(1) june 2018, 2 7 3 7 33 table 2. vif values dan outer weights npd innovation npd innovation vif outer weights newness/novelty/originality/uniqueness 1,096 0,022 administration/leadership innovation 1,119 0,924** customer focus/customer relationship management 1,115 0,085 after-sales support services 1,185 0,075 employees individual innovativeness 1,199 0,120* new transaction methods 1,102 0,003 ** p < 0,01 * p < 0,05 evaluate outer model for npd innovation shown in table 2. vif values is not between 5 – 10, administration/leadership innovation was significant (p<0,001), andemployees individual innovativeness was significant (p<0,005). table 3. r2 values r square standard deviation t statistics p values customer brand trust 0,059 0,041 1,441 0,075 npd performance 0,076 0,036 2,105 0,018 shariah value logic 0,784 0,023 34,396 0,000 to evaluate inner model using r2, we calculate q2, andgoodness of fit (gof). value of q2 = 0,812 and gof = 0,492. accordingly, research model is fit and robust to examine hypotheses (tenenhaus, 2010). table 4. examine hypotheses relationship coefisien p values h1: npd innovation à customer brand trust h2: npd innovationàshariah value logic h3: shariah value logicàcustomer brand trust h4: customer brand trustànpd performance h5: shariah value logicànpd performance h6:npd innovationàshariah value logicà customer brand trust h7: shariah value logicàcustomer brand trust ànpd performance 0,052 0,885 0,196 0,172 0,178 0,174 0,034 0,367 (0,340) 0,000** (68,923) 0,090 (1,345) 0,027* (1,925) 0,019* (2,008) 0,090 (1,340) 0,156 (1,011) htmt npd performanceà customer brand trust shariah value logicàcustomer brand trust shariah value logicànpd performance srmr d_uls d_g chi-square nfi rms theta 0,244 0,283 0,243 0,065 0,971 0,356 242,319 0,871 0,157 0,000** (3,320) 0,000** (3,452) 0,000** (3,720) * p < 0,05 ** p < 0,01 international journal of islamic business and economics, 2(1) june 2018, 2 7 3 734 direct, indirect, and total effect npd innovation significantly affect toward shariah value logic, and shariah value logic significantly affect toward npd performance. npd innovation significantly affect toward customer brand trust, and customer brand trust significantly affect toward npd performance. table 6 shown direct, indirect, and total effect between research constructs. table 5. direct, indirect, and total effect relationship direct indirect total t statistics p values npdi à cbt 0,052 0,174 0,226** 0,340(1,340)2,670 0,367(0,090)0,004 svl à npdf 0,178* 0,034 0,211** 2,088(1,011)2,745 0,019(0,156)0,003 npdi à npdf 0,196** 0,196* 3,035 0,001 cbt à npdf 0,172* 0,172* 1,925 0,027 npdi à vl 0,885** 0,885** 68,923 0,000 svl à cbt 0,196 0,196 1,345 0,090 ** p < 0,01 * p < 0,05 npdf = npd performance npdi = npd innovation svl = shariah value logic cbt = customer brand trust discussion the npd innovation that formed from six dimensions as a whole, positively affects toward customer brand trust, but only managerial innovation and behavioral innovation are significantly. this indicates that indirectly npd innovation affect toward npd performance.there is a positive and significant effect of npd innovation toward shariah value logic. shariah values are referred to the theory islamic religiosity, developed by el-bassiouny (2015) in the concept of transcendental values integration, states that the process of developing shariah value, especially in the service of a company based on shariah involves value co-creation activities that have a positive impact on marketing activities (in this case supporting research results). vargo (2006) argues that, there is a value creation process in instilling trust in customers when marketing or selling new products resulting from innovation and product development.with regard to mediation variable, as recommended by baron and kenny (1986), in the first order shown that shariah value logic and customer brand trust mediated between npd innovation and npd performance. conclusion the conclusions of the research are the creation of shariah value logic values and the customer brand trust mediating the relationship between npd innovation and 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(2008), “do consumers discern innovations in service elements?”, journal of services marketing, vol. 22 no. 5, pp. 338-352. ijibec organizational support, mustahiq micro-business development and poverty alleviation: a comparison analysis between baznas and laznas budi trianto1*, evan hamzah muchtar2, ade chandra3, masrizal4, tasiu tijjani sabiu5 1,sekolah tinggi ekonomi islam (stei) iqra annisa, pekanbaru, indonesia correspondence email : budi_asamandiri@yahoo.com 2sekolah tinggi agama islam (stai) asy-syukriyyah, tangerang, indonesia email : evan.hamzah.m@gmail.com 3,sekolah tinggi ekonomi islam (stei) iqra annisa, pekanbaru, indonesia email : adec152@gmail.com 4,sekolah tinggi ekonomi islam (stei) iqra annisa, pekanbaru, indonesia email : masrizalrizal95@gmail.com 5yusuf maitama sule university, kano, nigeria email : 17h0346@ubd.edu.bn article info article history: received : 3 april 2021 accepted : 12 august 2021 published : 1 december 2021 abstract this study aims to investigate whether the organizational support provided by baznas and laznas has a positive impact on the success of micro business development programs and poverty alleviation. population in this study are mustahiq who have received empowerment program from baznas and laznas with the total sample size are 89 mustahiq. data were collected using questionnaire with likert scale 1 – 5 and were analyzed using path analysis. the results of this study indicate that the organizational support provided by laznas tends to be better when compared baznas. this study also found an important fact that the mustahiq micro-business development program was able to alleviate poverty. the results of this study imply that to get a maximum result of mustahiq micro-business development, baznas must evaluate and innovate the mustahiq micro-business development program. meanwhile laznas must provide more optimum support for capital assistance and mentoring to get a maximum impact. this is the first study in comparing the micro-business development between baznas and laznas in indonesia. keywords: mustahiq empowerment, micro-business development, poverty alleviation, baznas, laznas doi: 10.28918/ijibec.v5i2.3731 jel: i32, i38, z13 international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 2 2021 116 mailto:evan.hamzah.m@gmail.com mailto:adec152@gmail.com mailto:17h0346@ubd.edu.bn 117 international journal of islamic business and economics (ijibec), 5(2) december 2021, 116-129 1. introduction poverty alleviation is not only a priority for the government of indonesia, but also a serious concern by the united nations. united nations issued a sustainable development goals (sdgs) program which consists of 17 main targets. one of the 17 programs is poverty alleviation. poverty alleviation programs are made a priority because more than 700 million people live in extreme poverty (united nations, 2021). the indonesian government has also issued various programs to alleviate poverty, including rice assistance for the poor (raskin), direct cash assistance (blt) to other non-cash transfers such as labour-intensive programs. the government also encourages each company to set aside a portion of the company's profits for social programs intended for the poor in the company's operations. the government has also begun to optimize the role of zakat organizations in helping alleviate poverty. some scholar like as sadeq, (1997), ben jedidia & guerbouj, (2020) and razak, (2020) argues that zakat as the instrument of islamic wealth in poverty alleviation and redistribution. zakat is also good for social protection for the poor and the needy (bilo & machado, 2020). the government is well aware that as the largest muslim country in the world, it certainly has great potential in collecting zakat funds. according to the results of mapping conducted by the national zakat agency (baznas), the potential for zakat in indonesia reaches idr 233.8 trillion (republika, 2019), even the potential for zakat in indonesia in 2023 according to the global islamic state will reach idr 500 trillion (dompetduafa, 2021). with such a large potential, it will be very helpful in alleviating poverty in indonesia. according to the indonesian central statistics agency (bps), the poverty rate in indonesia in march 2020 reached 9.78 percent or as many as 26.42 million people (bps, 2020). the government can optimize the level of generosity of indonesians in collecting zakat funds. even though in the covid-19 pandemic conditions, the rate of zakat collection actually increased to 46 percent in 2020 when compared to 2019 (kompas, 2020; hudaifi and beik, 2021). this shows that the indonesian people have a good level of obedience in carrying out religious orders and at the same time show a high social spirit. table 1. zakah organization in indonesia (laznas) no zakah organization no zakah organzation no zakah organization 1 rumah zakat 10 al-azhar 19 griya yatim & duafa 2 daarut tauhid 11 baitulmal muamalat 20 darul quran 3 baitul mal hidayatullah 12 lazis-nu 21 baitul ummah 4 dompet duafa 13 global zakat 22 aql 5 nurut hayat 14 lazismu 23 mizan amanah 6 inisiatif zakat indonesia 15 dewan dakwah 24 yatim indonesia 7 yatim mandiri 16 pp islam 25 wahdah islamiyah 8 ukhuwah islamiyah 17 rumah yatim arrohman 26 hadji kalla 9 dana sosial al-falah 18 kesejahteraan madani 27 djalaludin pane source : ppid.baznas.go.id besides baznas, the management of zakat funds in indonesia is also carried out by the national zakat institute (laznas). laznas is a zakat organization managed independently by the community. the existence of laznas really helps the government and baznas in international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 118 collecting zakat funds. laznas's contribution in collecting zakat funds in indonesia reaches 40 percent of the total national zakat revenue (insight, 2019). until 2019, there are 572 zakat management organizations that have been authorized and have obtained permits, consisting of 491 baznas and 27 laznas and 54 lazda. in 2019, the total zakat funds collected will be idr 10.2 trillion, where most of the distribution was allocated for humanitarian social programs amounting to 36.9 percent, for da'wah by 25 percent, for education 19.3 percent, for the economy 13.5 percent and for health as much as 5.2 percent (puskas-baznas, 2021). the presence of two zakat management organizations, namely baznas and laznas, is certainly a challenge for the manager, especially for laznas. they must have a superior program that can be used as a barometer for muzakki to be willing to distribute their zakat funds to their institution, without the trust of muzakki, it is impossible for laznas to continue running the organization's operations. one of the superior programs owned by baznas and laznas is the mustahiq empowerment program. the purpose of empowering mustahiq is to create economic independence for mustahiq and in turn be able to alleviate poverty (trianto, 2020). mustahiq economic empowerment programs through the management of microbusiness units by zakat organizations aims to create economic independently of mustahiq. through this program, mustahiq will get an income to buys daily needs such as food, cloth and others. mustahiq miro-business development usually use a zakah fund scheme, where the mustahik do not need to return the funds. this scheme is often referred to as productive zakah, namely zakah funds obtained by zakah organizations for the poor in the form of business capital assistance. however, there are also zakah organizations that use csr funds in implementing the mustahiq empowerment program (trianto et al., 2018). to obtain maximum results, zakah management organizations provide assistance to mustahiq in the form of business capital support, training support and accompaniment business support. the problems faced in empowering mustahiq between baznas and laznas are relatively the same, first, related to business capital assistance. business capital assistance for mustahiq is relatively small so it is difficult for mustahiq to turn its capital, so that it has an impact on the continuity of their business. second, related to business training. for mustahiq who do not have business experience, the training provided by the zakat institution is not optimal due to the frequency of training and training materials that are deemed inappropriate. the third is related to mustahiq business assistance. almost all zakah management organizations do not have a mustahiq business assistance team that is competent in providing business assistance for mustahiq. besides not having competence, the mustahiq mentoring team is also relatively small and has other jobs in zakat management organizations. these various problems will certainly have an impact on the success of the mustahiq empowerment program. this research aims to determine the level of success of the mustahiq empowerment program carried out by baznas and laznas in pekanbaru city, indonesia. although research related to mustahiq empowerment has been carried out by many previous researchers such as (trianto et al., 2020), (furqani et al., 2018), (fauziyah taufiq et al., 2018), (rahmi adilah et al., 2018), (romdhoni, 2018), (fikriyah & ridlwan, 2018), (ernawati, 2016), (azam et al., 2014), muhamat et al (2013), and (alam choudhury & harahap, 2009), but there has not been study to investigated the mustahiq micro-business development program by comparing baznas and laznas programs and this study was conducted to fill this gap. by knowing the level of success of the program of both, we can international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 119 provide an important suggestion to zakah organizations on mustahiq micro-business development. this study will contribute in the development of zakah organization in indonesia by implementing the theory of organizational support for non-profit oriented organization development by (rhoades & eisenberger, 2002). rhoades & eisenberger (2002) state that the aims of organizational support is to increasing the maximum performance of employee. in the context of mustahiq empowerment program, the zakat organization support will help the mustahiq in build their micro-business well. 2. research method the respondents of this study were the mustahiq who received empowerment programs from baznas pekanbaru city and laznas in pekanbaru city, indonesia. laznas which is the object of research is dompet duafa pekanbaru and rumah zakat pekanbaru. in this study, the sample was determined based on the following conditions: (1) joined an empowerment program in 2016 – 2018, (2). get capital assistance from zakat organizations, (3). get business training, and (4). get business assistance. from the predetermined criteria, the number of samples from baznas is 45 mustahiq and from laznas is 44 mustahiq. the research data were taken using a questionnaire using a likert scale of 1 5. in this study, there are three exogenous variables, namely capital support, training support and accompaniment support. meanwhile, there are two endogenous variables, namely the variable success of mustahiq business and success to alleviate poverty. the following is a empirical model in this study: figure 1. empirical model from the empirical model built in figure 1, two structural equations or formula are generated, namely: 1. y1 = β1 x1 + β2 x2 + β3 x3 + ε…………………………………………………………………..……………(1) where : y1 = endogenous variable or success of mustahiq business variable β3 = path coefficient of exogenous variable x1 β2 = path coefficient of exogenous variable x2 β3 = path coefficient of exogenous variable x3 x1 = exogenous variable or capital support variable x2 = exogenous variable or training support variable x3 = exogenous variable or accompaniment support variable ε = error term training support (x2) accompaniment support (x3) capital support (x1) success of mustahiq business (y1) success to alleviate poverty (y2) international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 120 2. y2 = β1 y1 + ε………………………………………………………………………………………………………….(2) where : y2 = endogenous variable or success to alleviate poverty β2 = path coefficient of exogenous variable y1 y1 = exogenous variable or success of mustahiq business variable the research data were analysed using path analysis. path analysis is a statistical technique that allows users to investigate pattern of effect within a system of variables (allen, 2017). the aims of path analysis is to provide estimates of the magnitude and significant hypothesized causal connection among sets of variables displayed through the use of path diagram (stage et al., 2004). in this study, data were analysed using lisrel 8.8 and spss 26 software. lisrel was developed to perform analysis with latent variables in structural equation modelling analysis (hayduk, 1996), but lisrel software can also be used to perform path analysis tests (hannessy, 1985). 3. result and discussion 3.1. mustahiq demographic the mustahiq empowerment program carried out by baznas and laznas in pekanbaru city has a tend different. in this study, the mustahiq who participated in the empowerment program at baznas were dominated by men, namely 27 people or 60 percent, while the female mustahiq were only 18 people or 40 percent. meanwhile, the mustahiq empowerment program carried out by laznas was dominated by women who reached 35 people or 79.55 percent, while the male mustahiq only amounted to 9 people or 20.45 percent. for more details, see table 2. these results indicate that the patterns and types of mustahiq empowerment in pekanbaru city are different, according to the policies of each zakat organization. table 2. mustahiq gender no. business model total % 1 baznas male female total 27 18 45 60,00 40,00 100 2 laznas male female total 9 35 44 20,45 79,55 100 source: authors finding, 2021 the results of this study also showed that the level of education of the mustahiqs who participated in this empowerment program also tended to be different between baznas and laznas in pekanbaru. the mustahiq empowerment program carried out by baznas is dominated by the level of lower secondary education reaching 18 people or 57.78%, while the mustahiq who have the secondary education level and above are 19 people or 42.22 percent. meanwhile, the empowerment programs carried out by laznas were mostly followed by mustahiqs who had a secondary education level and above which international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 121 reached 23 people or 52.27 percent. meanwhile, 21 people or 47.73 percent of mustahiq have secondary education. table 3. mustahiq educational level no. business model total % 1 baznas elementary school junior high school senior high school university total 11 15 18 1 45 24,45 33,33 40,00 02,22 2 laznas elementary school junior high school senior high school university total 6 15 22 1 44 13,63 34,10 50,00 02,27 100 source: authors finding, 2021 in terms of working capital assistance, baznas and laznas also have a different pattern. baznas tends to provide business capital assistance in cash, where the mustahiq is made a bank account and the funds are transferred through a designated bank. meanwhile, laznas in providing business capital assistance is provided in cash through the purchase of required business equipment. table 4 shows the amount of business assistance provided by baznas to mustahiq in cash of idr. 2,000,000/mustahiq. meanwhile, the business capital assistance provided by laznas if converted into rupiah is idr 4,500,000/mustahiq. the results of this study indicate that the business capital assistance provided by laznas is greater than the assistance provided by baznas. table 4. capital assistance from zakah organization no. zakah institution average amount received number of mustahiq 1 baznas idr. 2,000,000 45 2 laznas idr. 4,500,000 44 source: authors finding, 2021 table 5 shows that the income of the mustahiq family who received assistance from baznas before the mustahiq empowerment program was implemented was rp. 412,582, while the income of the mustahiq family who received the empowerment program from laznas was rp. 290,514. on average, the income of the mustahiq family who received the empowerment program from baznas had a higher income compared to the income of the mustahiq family who received assistance from laznas. after running the empowerment program, there is an income for the mustahiq family of rp. 561,701 for mustahiq from baznas and rp. 569,957. when viewed from the income of the mustahiq family, the two zakat organizations have the same ability to increase the income of the mustahiq family, but in percentage terms the programs implemented by laznas have a higher percentage level of increased income when compared to baznas which is 96.17 percent. international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 122 table 5. average income of mustahiq household before and after empowerment no zakah organization before after increase 1 baznas rp.412.582 rp.561.701 36,14% 2 laznas rp.290.514 rp.569.957 96.17% source : author findings, 2021 3.2. statistics descriptive table 6 shows the minimum, maximum, mean and standard deviation values. the minimum value for baznas is 2.00 in the x2 and x3 variables, while the maximum value is 5.00 in the x1 variable with a mean of 3.53 and a standard deviation of 0.597. this result means that the mustahiq who are respondents to baznas have a tendency to provide sufficient answers. meanwhile, respondents who have affiliation with laznas tend to give better answers, namely agree. this can be seen from the mean value for each research variable where the results are close to the value 4, with the highest standard deviation is the x1 variable which is 0.939 and the smallest is the y2 variable of 0.462. table 6. minimum, maximum, mean and standard deviation, variable minimum maximum mean std. deviation baznas x1 3.00 5.00 3.53 .587 x2 2.00 4.83 3.22 .855 x3 2.00 4.50 3.05 .703 y1 3.17 4.83 3.70 .289 y2 2.80 4.50 3.63 .314 laznas x1 1.89 5.01 4.04 .939 x2 2.48 5.14 3.99 .628 x3 2.38 5.41 4.15 .738 y1 2.84 5.05 3.95 .524 y2 3.09 4.95 4.06 .462 source : authors finding, 2021 table 7 shows the value of the reliability of the data used, where the composite cronbach's alpha value for the two organizations has a value above 0.6. this means that all statement items have a good level of internal consistency. meanwhile, table 8 shows the correlation between variables involved in this study. in baznas, variables that have a pathway relationship have a weak correlation, for example the relationship between x1 and y1 and the relationship between x2 and y1. meanwhile, the variable that has a positive and significant relationship is variable y1 and variable y2. meanwhile, the correlation between variables in the laznas zakat management organization has a positive and significant correlation at α 0.05 and 0.01. table 7. reliability analysis variable cronbach’s alpha individual composite baznas capital support (x1) 0.633 0.733 training support (x2) 0.563 international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 123 accompaniment support (x3) 0.475 success of mustahiq business (y1) 0.773 success to alleviate poverty (y2) 0.793 laznas capital support (x1) 0.870 0.796 training support (x2) 0.725 accompaniment support (x3) 0.710 success of mustahiq business (y1) 0.731 success to alleviate poverty (y2) 0.753 source: authors finding, 2021 table 8. correlation matrix of among variable variables x1 x2 x3 y1 y2 baznas x1 1 x2 0.663** 1 x3 0.665** 0.932** 1 y1 0.025 0.011 0.201 1 y2 -0.37 -0.104 0.078 0.473** 1 laznas x1 1 x2 0.243 1 x3 0.314* 0.794** 1 y1 0.312* 0.704** 0.633** 1 y2 0.395** 0.491** 0.564** 0.669** 1 source : authors finding, 2021 *. correlation is significant at the 0.05 (2-tailed) **. correlation is significant at the 0.01 (2-tailed) in table 9, the vif value for each exogenous variable is presented. according to anderson et al. (1996), the acceptable vif value to avoid multicollinearity is below 10. the test results show that all exogenous variables have a value below 10, meaning that the data in this study are free from cases of multicolinearity. table 9. multicollinearity analysis independent variable vif baznas capital support (x1) 1.83 training support (x2) 7.78 accompaniment support (x3) 7.82 success of mustahiq business (y1) 1.00 laznas capital support (x1) 1.14 training support (x2) 3.33 accompaniment support (x3) 2.87 success of mustahiq business (y1) 2.11 source: authors finding, 2021 international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 124 3.3. path analysis result based on the results of data processing using the lisrel program, empirical facts are obtained that the variable capital support at baznas has a negative and insignificant relationship with the variable success mustahiq business. meanwhile in the laznas organization, although the results are not significant, they have a positive effect, as shown in table 10. therefore the hypothesis proposed in this study for both baznas and laznas cases was rejected (reject h1). the variable training support provided by laznas has a positive and significant effect on the success of mustahiq business and therefore accepts the hypothesis stated or accepted h2. whereas in the case of baznas the variable training support has a negative and significant effect, and therefore reject the proposed hypothesis or h2. a. baznas path diagram b. laznas path diagram table 10. path coefficient relationships path coefficients effect direct indirec t total cr baznas capital support ---> success of mustahiq business -0.04 -0.04 0.48 training support ---> success of mustahiq business -0.44 -0.44 3.51* accompaniment support ---> success of mustahiq business 0.60 0.60 3.95* success of mustahiq business ---> success to alleviate poverty 0.52 0.52 3.40* laznas capital support ---> success of mustahiq business 0.07 0.07 1.13 training support ---> success of mustahiq business 0.46 0.46 3.06* accompaniment support ---> success of mustahiq business 0.11 0.13 0.86 success of mustahiq business ---> success to alleviate poverty 0.59 0.59 5.70* cr* = significant at 0.5 level source : authors finding, 2021 variable accompaniment support at baznas has a positive and significant effect on the variable success of mustahiq business with a coefficient β of 0.60 and therefore the international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 125 hypothesis proposed is acceptable or accepted h3. meanwhile, the variable accompaniment support at laznas although it has a positive relationship, the relationship is not significant. therefore the hypothesis proposed in this study is rejected or rejected h3. the mustahiq empowerment program carried out by baznas and laznas in pekanbaru both have a positive and significant impact on poverty alleviation and therefore the hypothesis proposed is acceptable or accepted h4. in this study, the relationship between the variables built has no indirect impact, so the resulting effect is a direct impact. in table 10, it can be seen that the total impact is the same as the direct impact of each path. table 11 show the summary model for each zakat organization. for the baznas organization model summary, model 1 show that the coefficient determination (r2) just reach .279 or 27,90 percent and model 2 reach .224 or 22.40 percent. meanwhile, the model 1 of laznas the coefficient determination (r2) reach 0.525 and model 2 reach 0.448. table 11. path coefficient – summary model model r r2 adjusted r2 std error of the estimate baznas model 1 .528 .279 .226 .25420 model 2 .473 .224 .206 .27992 laznas model 1 .725 .525 .489 .37445 model 2 .669 .448 .435 .34702 source: author findings, 2021 3.4. discussion the mustahiq economic provision program is an effort to give mustahiq the ability to earn income by running a micro-scale business. to support this program, zakat organizations provide assistance in the form of business capital. the results of this study indicate that the provision of venture capital by baznas does not have a significant impact on the success of the mustahiq economic empowerment program and even has a negative effect with a path coefficient of -0.04. this result contradicts with by muhamat et al (2013) where capital is a factor influencing the success of developing a micro-business conducted by mustahiq. however, boudreaux and nicolaev (2019) emphasize that capital is not the only factor that causes the success of a business, there are other factors that can cause a person's business to be successful, for example entrepreneurial motivation. meanwhile, in laznas zakat organization, capital has a positive effect, but not significant with the path coefficient of 0.07. the results of this study are in line with research conducted by muhammat et al (2013), although the effect is not significant, the capital given to mustahiq to develop their micro-business has a positive effect. this means that the venture capital provided by laznas to mustahiq is very useful for running their business. there are several reasons why the business capital assistance provided by baznas has a negative impact. first, the capital given to mustahiq is relatively smaller when compared to the capital provided by laznas. second, baznas provides business capital assistance in the form of cash so that it provides opportunities for mustahiqs to be used to buy daily necessities such as paying debts or buying food. meanwhile, laznas provides business capital assistance in the form of non-cash, thus closing opportunities for mustahiqs to use outside their micro-business needs. this result implies that the provision of capital in the international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 126 form of cash is not the right thing to give to mustahiq, because it makes it possible for mustahiq to use it outside of his business needs. the results of this study also show that the training variable provided by baznas has a significant effect but has a negative effect with a path coefficient of -0.44. the results of this study are in line with (indarti, 2020) and muhammat et al (2013) where the training program for mustahiq has no impact on success in increasing mustahiq's business. this failure can be caused by several things, first the training program provided by baznas is not in accordance with the needs of the mustahiq. this is because the training provided is more general, even though the training needs for each mustahiq business are different, some require training for marketing, business operational training to customer service training. this is the same as found by (indarti, 2020), that training for entrepreneurs/mustahiq is not in accordance with the needs required by entrepreneurs. meanwhile, the training provided by laznas has a positive and significant impact. the results of this study are in line with research conducted by (rahmi adilah et al., 2018) and (mensah & benedict, 2010) where the training provided has made a positive and significant contribution to the success of the micro-business run by mustahiq. this indicates that the training provided by laznas is in accordance with the needs of the mustahiq in running their micro-business. this study also found that the mentoring program provided by baznas had a positive and significant effect on the success of the micro-business run by mustahiq with a path coefficient of 0.60. meanwhile, the mustahiq mentoring program carried out by laznas has a positive but insignificant effect with the path coefficient of 0.11. this indicates that the mustahiq mentoring program is a crucial program in empowering mustahiq through microbusiness activities. this research is in line with research conducted by fauziyah taufiq et al., (2018). meanwhile, the mustahiq empowerment program through micro-business activities carried out by baznas and laznas was able to alleviate mustahiq poverty with the magnitude of the β coefficient of 0.52 and 0.59, respectively. this indicates that the mustahiq empowerment program through micro-business activities is a program that must be maintained and developed more broadly by baznas and laznas. overall, the results of this study illustrate that in developing micro-enterprises managed by mustahiq, the variables of capital, training and business assistance have an important role in achieving success, although in its implementation, zakat institutions have different results. the results of this study are in line with several previous researchers such as muhamat et al (2013), (indarti, 2020), (rahmi adilah et al., 2018) and (mensah & benedict, 2010) and fauziyah taufiq et al., (2018). however, this study places more emphasis on evaluating the implementation of empowerment programs at governmentowned zakat institutions and community-managed zakat institutions with an organizational support theory approach. from the findings of this study, it provides the fact that the organizational support provided by the zakat institution to mustahiq is very meaningful in the success of the micro business development program run by mustahiq. the results of this study illustrate that the theory of organizational support can be implemented in non-profit oriented organizations such as zakat institutions, especially in running mustahiq empowerment programs in the context of poverty alleviation. however, the implementation of the theory has not been fully implemented, especially by baznas. this is due to several things, including experience in running empowerment programs, limited funding and limited human resources. however, theory organizational support can be implemented properly by laznas. for this reason, it is necessary to have efforts from the management of zakat managers to increase international journal of islamic business and economics (ijibec), 5(2) december 2021, 114129 127 understanding related to organizational support theory so that the organizational support provided provides the results that are expected. 4. conclusion mustahiq micro-business development carried out by zakat organizations in indonesia is one of the agendas to increase mustahiq's income and welfare. the results of this study indicate that the support of zakat organizations in developing the micro-business of mustahiq between baznas and laznas has a different impact. the capital support provided by baznas has a negative effect on the development of the mustahiq business. meanwhile, the capital support provided by laznas has a positive impact even though the impact is not significant. in the baznas zakat organization, the training support provided to mustahiq in running its business does not have a positive effect, it has a negative effect on mustahiq business development. meanwhile, the training support provided by laznas has succeeded in providing a positive impact on the development of the mustahiq business. accompaniment support provided by baznas is able to have a positive impact on mustahiq's micro-business development. meanwhile the accompaniment support provided by laznas had a positive impact, although it was not yet significant. this indicates that the mustahiq mentoring program plays an important role in the mustahiq economic empowerment program. the mustahiq economic empowerment program through microbusiness activities carried out by baznas and laznas has had a positive impact in alleviating poverty of mustahiq in pekanbaru, indonesia. therefore the mustahiq economic empowerment program must be developed better so that it has a wider impact on the poor and the needy in indonesia. however, this research has limitations, which is only conducted in pekanbaru, so the results cannot be generalized for all of indonesia. the implication of research is although the mustahiq economic empowerment program through 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(2020). does the mustahik demographic and sociocultural affect to the successful of poverty alleviation? international journal of zakat, 5(1), 67–81. https://doi.org/10.37706/ijaz.v5i1.208. https://www.republika.co.id/berita/punxdq440/seberapa-besar-potensi-zakat-di-indonesia https://www.republika.co.id/berita/punxdq440/seberapa-besar-potensi-zakat-di-indonesia microsoft word 4-durrahman (117-129).docx 117 ijibec influence of sharia service quality, islamic values, and destination image toward loyalty visitors’ on great mosque of demak 1. abdurrohman kasdi1 2. saifudin2 corresponding email: abdurrohmankasdi@iainkudus.ac.id 1 state islamic institute (iain) kudus, indonesia 2 state islamic institute (iain) salatiga, indonesia abstract the purpose of this study is to examine the influence of sharia service quality, islamic values and destination image toward loyalty with visitors’ satisfaction as an intervening variable, a study on the great mosque of demak tourism. this is field research using a quantitative approach. the data used are primary and secondary data taken with survey method. there are three independent variables, namely: (x1) the quality of sharia service, (x2) islamic values, and (x3) the destination image. the dependent variable (y1)/loyalty and intervening variable (y2) are visitor satisfaction. the population of this study is all visitors or pilgrims of the great mosque of demak in 2018. the sampling technique used is purposive sampling with 167 respondents. the results of this study indicate that: (1) the sharia service quality does not affect the loyalty, (2) the islamic values have a direct positive and significant effect on the loyalty, (3) destination image has a direct positive and significant effect on loyalty, (4) the sharia service quality has no effect on the visitors’ satisfaction, (5) the islamic values have no effect on the visitors’ satisfaction (6) the destination image has a direct positive and significant effect on the visitors’ satisfaction, (7) the visitors’ satisfaction has a direct positive and significant effect on the loyalty, (8) the visitors’ satisfaction does not mediate the relationship between the sharia service quality and loyalty (9) the visitors’ satisfaction does not mediate the relationship between the islamic values and loyalty, and (10) the visitors’ satisfaction mediates part of the relationship between destination image and loyalty. keywords: sharia service, islamic values, destination image, loyalty visitors doi https://doi.org/10.28918/ijibec.v3i2. 1909 jel: g10, m30 published : 10 nov 2019 international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 3 no 2 2019 118 international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 1. introduction as a large country that has rich tourism resources, in the form of natural beauty, rich cultural diversity, and potential of special interest tourism, indonesia is well worthy of being the main tourist destination in the world. indonesia's tourism industry, if developed professionally, will be able to compete better with other countries, especially in the competition over tourist visits and spending as non-oil and as foreign exchange sources. besides the tourism natural beauty, cultural wealth and diversity and potential of special interest tourism, indonesia also has great opportunities in developing religious tourism given its religious population and cultural diversity. one of the tourism potentials that is developing progressively well at this time is the religious tourism and pilgrimage. in java, the graves of religious scholars have long been the object of tourist visits. the pilgrimage tours have great economic impacts and religious development that must not be ignored. the development of religious tourism continues to accelerate, supported by religious passion in indonesia which has an impact on tourists' satisfaction on the sharia services provided. whereas, religious tourism certainly has different markets such as services, islamic values and destination image many previous studies have been conducted on the quality of sharia services, islamic values and destination image such as juniawan who concluded that assurance, reliability, tangible, and empathy has a significant effect on the customers’ satisfaction, but the variables of compliance and responsiveness have no influence on it (juniawan, 2014: 56). meanwhile, according to astuti, in the model, it is known that only reliability and tangibility dimensions that are significant, while others are not (astuti, 2009: 57). according to the analysis of khan et al., it was found that destination image has a positive relationship with tourists’ satisfaction, and service quality has a positive relationship with satisfaction of islamic tourism destinations in malaysia (khan, haque, & rahman, 2013: 1631). qomariyah, in the her research concluded that the service quality did not affect satisfaction, while the institutional image and islamic value had a significant effect on satisfaction . service quality, institutional image and islamic values have no influence on loyalty, while satisfaction has a significant effect on loyalty (qomariyah, 2012a: 177). the findings in rahman's research show that the islamic attributes have a positive relationship on the islamic tourists’ satisfaction and destination loyalty (rahman, 2014: 63). the destinations have a positive effect on satisfaction of islamic tourists but are negative with destination loyalty. from the results of juniawan and astuti's research, it is shown that the reliability and tangibility have a significant effect on the customers’ satisfaction. the compliance also has no effect on satisfaction. then, the similarities between khan, qomariyah and rahman are islamic values and destination image have a significant effect on the tourists’ satisfaction, and satisfaction have a significant effect on loyalty. besides the different results of the research above, the researcher has never found a study that uses carter dimension other than on sharia banks. therefore, to be more varied, further research is needed on the carter dimension in the religious tourism sites as the research object in order to sharpen and deepen the correlation between the influence of sharia service quality on the visitors’ satisfaction and loyalty (kasdi, farida, & cahyadi, 2019: 469–470). referring to the descriptions of the research background this study aims to empirically examine the effects of sharia service quality on the visitors’ satisfaction in the great mosque of demak (masjid agung demak/mad), to empirically examine the influence of islamic values on mad visitors’ satisfaction, to empirically examine the influence of destination image on mad visitors’ satisfaction, to empirically examine the influence of sharia service quality on mad international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 119 tourism loyalty, to empirically examine the influence of islamic values on mad tourism loyalty, to empirically examine the influence of destination image on mad tourism loyalty, to empirically examine the effect of visitors’ satisfaction on mad tourism loyalty, to empirically examine the intervening influence of visitors’ satisfaction between the quality of sharia services and loyalty of mad tourists’ visitors, to empirically examine the intervening influence of visitors’ satisfaction between islamic values and loyalty of mad tourists’ visitors, as well as to empirically examine the intervening influence of visitors’ satisfaction between destination image and loyalty of mad tourists’ visitors. 2. research method this this was a field research using a quantitative approach. the data used were primary and secondary, taken using a survey through the distribution of questionnaire. there were three independent variables in this research: (x1) sharia service quality, (x2) islamic values, and (x3) destination image. the dependent variable of this research was (y1) loyalty, and the intervening variable (y2) was the visitors’ satisfaction. the research population was all the visitors of great mosque of demak in the last one year, with the sample consisting of 167 respondents, selected using random sampling. the hypothesis testing was done using sem-pls. sem-pls was used for more explorative studies. in other words, the pls approach was more suitable to be used for predictive goals (sholihin & ratmono, 2013: 8). the pls approach was used as a measurement tool with the consideration that the measurement scale for the dependent variable and the independent variable used in the study was nominal and ordinal (non-parametric). unlike the sem used in the research that used interval scale, pls was a measuring tool that could be used in the research using ordinal or nominal measurement scale. another consideration in using pls as a measurement tool was that the indicators that made up the constructs in this study were reflexive. the reflexive model assumed that the latent variable influenced the indicators whose direction of the causality relationship was from the construct toward indicator or manifest (sholihin & ratmono, 2013: 9). 3. results and discussions 3.1. theoretical framework quality, according to kotler and keller, is the entire features and characteristics of a product or service that depends on its ability to satisfy expressed or implied people’s needs. meanwhile, service is any action or activity that can be offered by a party to another, which is basically intangible and does not result in any ownership (kotler & keller, 2009: 143). in providing quality services as an effort to achieve customers’ satisfaction, the tourism industry can be guided by the dimensions of service quality. there are five important aspects in analyzing or measuring the quality of services, namely: reliability; responsiveness; empathy assurance; and tangibles (tjiptono, 2008: 175). these five dimensions, if applied in sharia institutions, tend to assess normative matters. addition of dimensions in servqual is intended to make it more in line with the industry and the quality of its services that will be measured. this is very important, because religious tourism has specific characteristics compared to general one; it applies sharia principles in carrying out its activities. one of the dimensions is compliance, which means measuring the company's ability to conform to islamic law and the principles of sharia economics (astuti, 2009: 50). othman and owen conceptually and operationally defined sharia service quality, where each variable is displayed in several dimensions: compliance, assurance, reliability, tangibles, 120 international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 empathy, and responsiveness. if a quality service has been fulfilled for a tourist, it will have a positive impact on his loyalty. every tourist always has high expectations for of what he will visit (juniawan, 2014: 52). these expectations represent the expectations on the services to be provided by service providers. industrial services with islamic nuances certainly have their own characteristics when compared to the general one, so the dimension of compliance becomes very important in maintaining the tourist loyalty. utama research, showed that the service quality has a significant direct effect on the loyalty of the listeners of bali cassanova radio channel(ermayanti, suprapti, & sukaatmadja, 2015: 1496). the results of rahman's research also showed that the service quality has a significant relationship with the loyalty (rahman, 2014: 71). light, keller & calhoun have limited the value as general ideas of the people, who talk about what is good or bad, and what is expected or not. the value influences someone in certain situations. adhered values tend to affect their entire ways of life. the building of islamic economics is based on five universal values, namely: tauhid (faith), ‘adl (justice), nubuwwah (prophethood), government, and ma'ad (results) (hakim, 2012: 68). these five values form the basis of inspiration for compiling sharia economic propositions and theories. from these universal values, three derivative principles are built (multitype ownership, freedom to act, and social justice) which become the characteristics and forerunners of the sharia economic system. above all values and principles, morality concept is built. the moralilty occupies the top position, because it is the objective of islam and da'wah of the prophets. it is this morality that guides economic and business actors in carrying out their activities (karim, 2012: 34). moral values teach humans to behave and act properly based on the norms and right manners (adab), so that they will lead to a peaceful, harmonious and balanced life. thus, it is clear that the values of islamic teachings are the values that will be able to bring people to happiness, prosperity, and safety both in life in the world and in the afterlife. islamic values that are internalized in an industry or business certainly bring its own nuances. additional applications in the form of islamic values provided will be a priority for the tourists in choosing a tourism destination. if they feel that they it is in accordance with what they have believed in, it will allow islamic values to have an impact on the visitors’ loyalty. lawson and baud bovy defined the destination image as an expression of individual knowledge, impression, prejudice, imagination and emotional and thoughts in a particular place (rajesh, 2013: 68). crompton defined the destination image as the sum of one's beliefs, ideas and impressions of a destination. he also stated that destination image is people's beliefs, ideas or impressions about a place (mohamad & ali, 2013: 287). given the tourist destinations, it is possible to define the image as facts of form, slogan images, or writings that make an impression within people's mind and for the tourism promotion and marketing, image is an important factor that influence the demand. the tourists will conduct a post-purchase evaluation in the form of comparing the destination performance based on the expectations they want. the results of post-purchase evaluation are satisfaction or dissatisfaction. satisfaction with the destination image will have an impact on tourists’ loyalty so that the better the destination image, the higher the tourists’ loyalty level. 3.2. general descriptions of respondents the respondents in this study consist of 66.5% male and 33.5% female. whereas according to the age, they are mostly at 21-30 years old as many as 55.1%, 24% visitors aged 31-40, and 4,2% visitors are 41-50 years old, and only 1,8% are above 50. viewed from international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 121 educational level, the visitors who have senior high school diploma is as much as 52.7%, higher education level (universities/ colleges/ academies) as much as 28%, and those having lower level education is only 19 , 2%. according to the occupations, the visitors’ jobs are quite varied. those who still have status as the college students is as much as 21.6%, then the visitors work as the entrepreneurs is 19.2%, working as private / honorary teachers is 18.6%, thos working as the private is 16.8%, those who are still high school students is 13.2%, civil servants (pns) as much as 4.2%, housewives as much as 2.4%, working as the farmers as is 3%, and the visitors who work as the lecturers is 2,1%. 3.3. descriptive-statistics variable table 1. descriptive statistics of research variables variable max min mean std. dev x1 (quality of sharia service) 5 1 4.04 .520 x2 (islamic values) 5 2 4.34 .425 x3 (destination image) 5 3 4.39 .416 y1 (loyalty) 5 3 4.16 .401 y2 (visitors’ satisfaction) 5 3 4.16 .340 from table 1, it is shown that the level of perception of the answers toward the questions is high, mostly at 4 (agree), and the distribution of answers is quite good, with the answer range of 1 (disagree) 5 (strongly agree). 3.4. outer relation or measurement model test table 2. outer/measurement mode construct ave composite reliability cronbach alpha quality of sharia services 0,535 0,965 0,961 islamic values 0,660 0,931 0,913 destination image 0,617 0,927 0,909 visitors’ satisfaction 0,585 0,849 0,761 loyalty 0,570 0,939 0,928 source: primary data 2019. based on sem-pls testing procedure, the evaluation of convergent construct validity uses indicators such as loading factor and average variance extracted (ave), composite reliability, and cronbach alpha. the results of the outer model using the pls 3.0 warp program in the table above show good significance, so that the data can be used in the research. 122 international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 3.5. discriminant validity table 3. correlations among latent variables qss iv di lo vs qss 0,731 0,200 0,011 0,018 0,112 iv 0,200 0,812 0,568 0,538 0,218 di 0,011 0,568 0,785 0,579 0,562 lo 0,018 0,538 0,579 0,765 0,382 vs 0,112 0,218 0,562 0,382 0,755 source: primary data 2019. these results indicate an early indication of the support for the mediation hypothesis, because the mediation relationships require a significant correlation between independent, mediating and dependent variables (sholihin and ratmono, 2013: 73). conversely, the moderation model requires that the moderating variable should not correlate significantly with the independent and dependent variables. 3.6. direct effect testing estimating the direct effect of qss, iv and di against lo (path c): picture 1. direct effect from the results of direct effect testing, it can be concluded that the quality of sharia services has no effect on the loyalty because the significance value is above 0.05, the islamic values affect loyalty, and destination image affects the loyalty, with the significance of p <0.01. 3.7. indirect effect testing estimating indirect effect simultaneously with the pls sem model triangle, namely qss → lo, iv → lo, di → lo (line c ″), qss → vs, iv → vs, cd → vs (path a), and vs → lo (line b): international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 123 picture 2. indirect effect the mediating effect requirements that must be met are: (i) the significant c path coefficient in the model (1), and (ii) the path coefficients of a and b must be significant in the model (2). 3.8. mediation model testing the results of the mediation model testing are presented in the previous section which shows the estimation results of the direct and indirect effect model with the criteria of goodness of fit. table 5. goodness of fit lane direct effect indirect effect koefesien p-value koefesien p-value apc 0,249 <0,001 0,253 <0,001 ars 0,413 <0,001 0,387 <0,005 avif 1,362 <5 1,431 <5 source: primary data 2019. the results above show that the goodness of fit criteria has been met. that is, the apc and ars values are statistically significant and vif is lower than 5 (sholihin & ratmono, 2013: 61). 3.9. influence of sharia quality service on the loyalty 124 international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 the results of the testing using pls 3.0 warp software indicate that the quality of sharia services has a positive but not significant effect on the visitors’ loyalty of the great mosque of demak. this means that the quality of carter sharia services implemented by the great mosque of demak tourism management has not been able to form the loyalty well. zain viewed the customers’ loyalty as a function of past experience (setyawati, 2009: 12). the first time they come to a destination, they will observe carefully from the characteristics of management services, services offered, to the physical characteristics of a destination that surely get attention from them. the evaluation process done by the customers finally forms a destination image. if the results of the evaluation provide a positive image, then they will probably visit it next time. the test results show that the direct effect coefficient of qss on lo (path c) in the model (1) is 0.03, and the value of p = 0.39). this shows that (h1) is rejected, that there is no influence between the sharia services quality on the loyalty. this study accepts the results of the research conducted by salma and ratnasari, kresnamurti and sinambela, aryani and rosinta, ermayanti, et al., as well as qomariah, but rejects fasochah and jatmiko. 3.10. influence of islamic values on the loyalty the test results using pls 3.0 warp software show that the islamic values have a direct positive and significant effect on the loyalty of visitors of the great mosque of demak. this means that the stronger the islamic values instilled by the great mosque of demak tourism management, the higher the loyalty. the islamic economic building, according to adiwarman karimm is based on five universal values, namely: tauhid (faith), ‘adl (justice), nubuwwah (prophethood), khilafah (government), and ma'ad (results). these five values form the basis of inspiration for compiling islamic economic propositions and theories. from these universal values, three derivative principles are built (multitype ownership, freedom to act, and social justice) which become the characteristics and forerunners of the islamic economic system. above all values and principles, the morality concept is built. morality (akhlak) occupies the top position, because this is the goal of islam teachings of the prophets. it is the morality that guides the economic and business actors in carrying out their activities (karim, 2012: 34). the test results show that the iv direct effect coefficient on lo (path c) in the model (1) is 0.34 and significant (<0.01). this shows that h2 is accepted, that there is an influence of islamic values on the loyalty. the results of this study reject qomariah’s research (qomariyah, 2012b). 3.11. influence of destination image on the loyalty the test results using pls 3.0 warp software show that the destination image has a positive and significant effect directly on the loyalty of the visitors of the great mosque of demak. this means that the better the image of the great mosque of demak, the higher the loyalty of the visitors. the destination image, according to lawson and baud bovy, is the expressions of individual knowledge, impression, prejudice, imagination and emotional and thoughts on certain places or sites (rajesh, 2013: 68). the test results show that the di direct effect coefficient on lo (path c) in the model (1) is 0.38 and significant (<0.01). this shows that h3 is accepted, that there is an influence of the destination image on the the loyalty. this study accepts the results of the research conducted by putri, et al., as well as maryam and novasari, but rejects qomariah, as well as lamidi and rahadhini. international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 125 3.12. influence of sharia service quality on the visitors’ staisfaction the test results using warp software pls 3.0 indicate that service quality does not affect the visitors’ satisfaction of the great mosque of demak. this means that the service quality with the carter dimensions of the great mosque of demak has not been able to provide what the visitors expected. the test results show that the sea indirect effect coefficient on vs (path a) in model (2) is 0.16 and p = 0.1. this shows that h4 is rejected, that there is no influence of the sharia service quality on the visitors' satisfaction. this finding supports qomariah’s research but is different from khan, et al., kresnamurti and sinambela, juniawan, aryani and rosinta, fasochah and harnoto, salma and ratnasari, ermayanti, et al., as well as jatmiko. 3.13. influence of islamic values on the visitors’ satisfaction the test results using pls 3.0 warp software show that islamic values have no effect on satisfaction of the visitors of the great mosque of demak. this means that the islamic values of the great mosque of demak tourism management cannot form the visitors’ satisfaction. one of the tools of islamic business institutions to deal with strong competition is by developing various high-quality and more islamic products and services to be offered to the customers. this is the reason for othman and owen to conclude that there is a need for the islamic business institutions to use various islamic service quality programs. othman and owen defined the conceptual and operational aspects of islamic service quality on each variable are displayed in some dimensions: sharia compliance, assurance, reliabilit, tangible, empathy, and responsivness (juniawan, 2014: 53). the test results show that the iv indirect effect coefficient on vs (path a) in the model (2) is 0.12 and the value of p = 0.07. this shows that h5 is rejected that there is no influence between islamic values on the visitors’ satisfaction. the results of this study reject qomariah’s research. 3.14. influence of destination image on the visitors’ satisfaction the test results using warp pl 3.0 software show that the destination image has a direct positive and significant effect on the visitors’ satisfaction of the great mosque of demak. this means that the better the image of the great mosque of demak, the higher satisfaction. the test results show that the di indirect effect coefficient on vs (path a) in model (2) is 0.64 and significant at p<0.01. andreassen & lindestad argued that the natures of intangibility, inseparability, heterogeneity, and perishability of a tourism place cause the tourists to deal with a lack of attributes to evaluate whether it is good or not (raharso, 2008). however, because the decisions must be made, they use the image of a tourist destination as a medium for evaluating. of course, the image that lies within their mind is not always aligned with the real conditions, then leblanc and nguyen stated that the destination image has the potential to influence the competitiveness of a tourism site (raharso, 2008). this shows that h6 is accepted that there is an influence between the destination image and visitors’ satisfaction. this study accepts the results of the research conducted by khan, et al., lamidi and rahadhini, qomariah, maryam and novasari, as well as putri et al, but rejects the research of chen and tsai. 3.15. influence of visitor’ satisfaction on the loyalty the test results using warp pls 3.0 show that visitors’ satisfaction has a positive and significant effect on the loyalty toward the great mosque of demak tourism edestination. this 126 international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 means that the more satisfied the visitors of the great mosque of demak, the higher the loyalty. as a product, they may come back (revisit) or recommend their friends and family as a potential travel destination. in this context, the study of consumers’ loyalty can be applied to the tourism field, where according to dimanche and havitz, tourism is a product or service that is served to the tourists in the middle of increasingly tight destination marketing competition (utama, 2014: 7). the test results show that the vs indirect effect coefficient on lo (path b) in model (2) is 0.24 and the value of p <0.01. this shows that h7 is accepted that there is an influence of the destination image on the visitors’ satisfaction. this study accepts the results of the research conducted by aryani and rosinta, kresnamurti and sinambela, fasochah and harnoto, salma and ratnasari, ermayanti, et al., lamidi and rahadhini, qomariah, jatmiko, maryam and novasari, as well as putri, et al. 3.16. influence of sharia service quality on the loyalty with the visitors’ satisfaction as the intervening variable based on the results of comparison of the direct effect and indirect effect test, it can be seen that the indirect effect test results are not significant. therefore, it is stated that visitors’ satisfaction does not become a mediator between the syaria service quality and the loyalty. this means that the sharia service quality provided by the great mosque of demak tourism management has not been able to meet the visitors’ expectations. the tourists will conduct a post-purchase evaluation by comparing the performance of the sharia service quality based on the expectations they want. the results of post-purchase evaluation are satisfaction or dissatisfaction. satisfaction on the sharia service quality will have an impact on their loyalty, so that the better the sharia service quality provided, the higher their loyalty. the test results show that the qss direct effect coefficient on lo (c) in the model (1) is 0.03 and not significant (p = 0.39). the estimation model (2) shows the kls indirect effect coefficient of lo (c ″) drops to 0.01 and is not significant (p = 0.47), while the influence of sea on vs (path a) is 0.16 and not significant (p = 0.10), the influence of vs on lo (path b) is 0.24 and is significant (p <0.01). this shows that h8 is rejected, that is the visitors’ satisfaction does not mediate the effect of the sharia service quality on the loyalty. the results of this study reject the research of salma and ratnasari, as well as ermayanti, et al. 3.17. influence of islamic values on the loyalty with the visitors’ satisfaction as the intervening variable based on the results of the comparison of the direct effect and indirect effect test, it can be seen that the indirect test results are significant but the β value increases from 0.34 to 0.35. this shows that the requirements to be mediated are not fulfilled, thus it is stated that the visitors’ satisfaction does not become a mediator between the islamic values and loyalty. the tourists will conduct a post-purchase evaluation by comparing the performance of islamic values based on the expectations they want. the results of post-purchase evaluation are satisfaction or dissatisfaction. satisfaction on the islamic values will have an impact on their loyalty, so that the better the islamic values implemented, the more loyal will be the tourists. the test results show that the iv direct effect coefficient on lo (c) in the model (1) is 0.34 and is significant (p <0.01). the estimation model (2) shows that the iv indirect effect coefficient on lo (c ″) increases to 0.35 and remains significant (p <0.01) while the effect of iv on vs (path a) is 0.12 and not significant (p = 0.07), while the influence of vs on lo (path b) is 0.24 and is international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 127 significant (p <0.01). this shows that h9 is rejected, that is the visitors’ satisfaction does not mediate the influence of islamic values on the loyalty. the results of this study accept qomariah’s research. 3.18. influence of destination image on the loyalty with the visitors’ satisfaction as the intervening variable based on the results of the comparison of the direct effect and indirect effect test, it can be seen that the indirect effect test results have decreased. then, it can be stated that the visitors’ satisfaction acts as the mediator between the destination image and loyalty. this means that the better the tourism destination image of the great mosque of demak, the higher the loyalty, but it must be accompanied by high visitor satisfaction (kasdi, 2017: 18–19). the tourists will conduct a the post-purchase evaluation in the form of comparing the destination performance based on the expectations they want to meet. the results of the post-purchase evaluation are satisfaction or dissatisfaction. satisfaction on the destination image will have an impact on the tourists’ loyalty, so that the better the destination image, the more loyal the tourists. the test results show that the di direct effect coefficient on lo (c) in the model (1) is 0.38 and is significant (p <0.01). the estimation model (2) shows that the di indirect effect coefficient of lo (c ″) drops to 0.26 and remains significant (p <0.01), while the influence of di on vs (path a) is 0.64 and significant (p < 0.01), and the influence of vs on lo (path b) is 0.24 and is significant (p <0.01). this shows that h4 is accepted, that the visitors’ satisfaction mediates the influence between the destination image and loyalty. this study accepts the results of lamidi and rahadhini's research, as well as maryam and novasari. 4. conclusion based on the descriptions that have been disclosed in the discussion, some following conclusions are drawn; first, the sharia service quality has no effect on the loyalty to the visitors of the great mosque of demak, shown by the coefficient β = 0.03 and p = 0.39. this means that the quality of carter sharia services implemented by the great mosque of demak management has not been able to form strong loyalty of the visitors. the sharia service quality has no effect on the visitors’ satisfaction of the great mosque of demak, indicated by the coefficient ß = 0.16 and p = 0.1. this means that the service quality with the carter dimension of the great mosque of demak has not been able to provide what the visitors have expected. second, the islamic values have a direct positive and significant effect on the loyalty of the visitors of the great mosque of demak, indicated by the coefficient ß = 0.34 and p <0.01. this means that the stronger the islamic values instilled by the great mosque of demak tourism management, the higher the loyalty of the visitors. the islamic values have no effect on the visitors’ satisfaction of the great mosque of demak, indicated by the coefficient ß = 0.12 and p = 0.07. this means that the islamic values of the great mosque of demak tourism management cannot form the visitors’ satisfaction. third, the destination image has a direct positive and significant effect on the loyalty of the visitors of the great mosque of demak, indicated by the coefficient ß = 0.38 and p <0.01. this means that the better the image of the great mosque of demak, the higher the loyalty of the visitors. the destination image has a direct positive and significant effect on the visitors’ satisfaction of the great mosque of demak, indicated by the coefficient ß = 0.64 and p <0.01. this means that the better the image of the great mosque of demak, the higher satisfaction of the visitors. 128 international journal of islamic business and economics (ijibec), 3(2) december 2019, 117-129 for the last, the destination image affects the loyalty of the visitors to the great mosque of demak, and is mediated partially by the visitors’ satisfaction with a coefficient 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effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn :2599-3216 e issn : 2615-420x editorial team editor in chief kuat ismanto. department of islamic economics, iain pekalongan, indonesia managing editor am. hafidz makshum. department of islamic economics, iain pekalongan, indonesia editorial board 1. shinta dewi rismawati. department of islamic economics, islamic state institute of pekalongan, indonesia 2. zawawi abdul wahid. department of islamic economics, islamic state institute of pekalongan, indonesia. 3. murtiadi awaluddin. universitas islam negeri alauddin makasar indonesia. 4. agus fakhrina, department of islamic economics, islamic state institute of pekalongan, indonesia. 5. muhammad shulthoni, scopus 57203621677 international islamic university malaysia 6. asnaini asnaini. department of islamic economic iain bengkulu, indonesia. 7. agus arwani, department of islamic economics, islamic state institute of pekalongan, indonesia. 8. rinda asytuti, department of islamic economics, islamic state institute of pekalongan, indonesia. 9. nafis irhami, department of islamic economics iain salatiga, indonesia. 10. adeel sabir khan, department of project management, szabist, pakistan. 11. umair riaz, id scopus: 57192558531 birmingham city university, birmingham, b5 5ju, uk. 12. happy sista devy, department of islamic economics, islamic state institute of pekalongan, indonesia 13. ahmad ajid ridwan, scopus: 57203842988, islamic economic studies department of economics faculty of economics universitas negeri surabaya, indonesia administration & it 1. aprin yudiarto, islamic state institute of pekalongan, indonesia. 2. nafilah, islamic state institute of pekalongan, indonesia office department of islamic economics, islamic state institute of pekalongan, indonesia corespondence: ijibec@gmail.com jl. kusumabangsa no. 9 pekalongan jawa tengah indonesia http://e-journal.stain-pekalongan.ac.id/index.php/ijibec effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh shafir zaman & md. mohiuddin chowdhury 1 8 the effect of fdr, npf, oeoi, and size toward roa (comparative study on indonesian islamic bank and malaysian islamic bank period 2010-2015) anafil windriya 9 22 factors affecting customer’s bank selection decision: a study on commercial bank in jimma town ethiopia serkalem tesfaye , , mekuanint abera, & tadele mengesh 23 36 the effect of expert management, professional skepticism and professional ethics on auditors detecting ability with emotional intelligence as modeling variables (study at the makassar city inspectorate) murtiadi awaluddin, nirgahayu, & rulyanti susi wardhani 37-50 determinant of islamic pension fund in indonesia roikhan mochamad aziz, acep r. jayaprawira, & sulistyowati 51 60 an analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi 61 69 contents e issn: 2615-420x issn: 2599-3216 av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / international journal of islamic business and economics international journal of islamic business and economics ijibec ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 10 des 2018 accepted : 26 juni 2019 published : 27 june 2019 keywords: dplk mualamat; correlation regression analysis; asset of dplk muamalat doi: https://doi.org/10.28918/ ijibec.v3i1.1431 jel: g.20, g.21 abstract the research aims to know the variables that affect the assets of pension funds by financial institutions (dplk, pension funds by financial institution) muamalat, which is the performance of bank muamalat as internal factors that described in the variable profit of bank muamalat and third-party funds. the external factors are bank indonesia sharia certificates (sbis, sertifikat bank indonesia syariah) as an indicator of the placement of islamic funds, and profit of dplk muamalat as a religious factor.the method used in this research is done by multiple correlation regression analysis with monthly data starting from april 2008 (since the existence of sbis) until october 2017. moreover, analysis method of hahslm theory is added which is an analysis that approached according to islamic thinking model to provide a benchmark that corresponds to the religious value.the final result of this study emphasizes that all factors, which consist of the internal factors, external factors and religious factors, affect the assets of dplk muamalat. it is interesting to know that the profit of bank muamalat has a negative correlation. that is certainly not in accordance with the existing theory that performance or credibility of the main business (bank muamalat) has a big influence on the performance of dplk muamalat. it is expected that the results of the research is useful for every party, from the regulator party like the financial services authority (ojk, otoritas jasa keuangan), the industrial parties (the other dplk), the company, and the participants of the pension funds by financial institutions. determinant of islamic pension fund in indonesia 1. roikhan mochamad aziz1, 2. acep r. jayaprawira2, 3. sulistyowati3 1. universitas islam negeri syarif hidayatullah email: roikhan.ma@uinjkt.ac.id 2. ief universitas trisakti email: re lexivity.centre@gmail.com 3. dplk muamalat, email: sulisytowati.hahslm@gmail.com 52 international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 1. introduction the understanding of an islamic economic system always refers to a thorough islamic concept or kafah. this islamic approach to the kafah contains the meaning of the exposure of the faith, islam, and ihsan. three things of this discourse are strengthened by the pillars of islam are: 1) syahadat, 2) prayers, 3) zakat, 4) fasting and 5) hajj. the outcome of the pillars in islam is embodied in three basic theories of islamic economics, consisting of 1) theory of tawheed, 2) theory of worship, 3) theory maslahah. implementation of the main pillar of the economy is in line with the development of existing banking in indonesia (aziz, 2017). the grand building theory of the theoretical building of islam and economics is the tim or tauhid-ibadah-maslahah theory, derived from the quran, thus raises the main concept of economic and financial structure division. qs. haji [22]: 78 “so establish prayer and give zakah and hold fast to allah. he is your protector, and excellent is the protector, and excellent is the helper”. the development of islamic economics has been based on linear thinking with a secular approach, separating scholarship with religion so that automatically the meaning of worship is uprooted by itself. the meaning of worship is a natural process in every activity of human life including the economy. instructions concerning worship was given by allah swt and came from kauliyah verse, namely al-qur’an and as-sunnah, and verse kauniyah, namely the universe. banking aims to become an intermediary system and to provide services. the main function of the bank is to collect public funds in the form of savings, demand deposits and deposit products, then channel funds in the form of credit or financing. another function is to provide services related to financial transactions, such as interbank transfers, bank notes, or other financial transactions. bank, as a financial institution engaged in the field of service, must be able to provide the best service, either in the service officer or transaction service type services that can be provided by the bank. m. akram khan, in his book “an introduction to islamic economics” formulates the definition of islamic economics as an islamic economics which aims to conduct a study of the happiness of human life (human falah), which is achieved by organizing natural resources on the basis of mutual cooperation and participation. therefore, akram khan wants to provide normative content in the goals of economic activity, namely the happiness or the success of human life that is not only worldly, but also ukhrawi. islamic banking has a noble function in the economy of indonesia because it is the end of the code of ethics in business and develop the national economy on the basis of noble morals, not allowed to receive funding (savings funds) from illegitimate sources because sharia banking views the property owned by humans is deposit/amanah allah swt, so the way to acquire, manage, and use it must be according to islamic teachings. one form of fund savings, which the way of obtaining and managing it is very beneficial for people, is by managing pension funds. by managing pension funds, people who are no longer productive will still earn income as determined. in the law of the republic of indonesia number 13 of 2003 on employment article 167 paragraph 1, that entrepreneurs may terminate employment of workers/laborers due to entering retirement age, and if employers have included workers in pension programs whose contributions are fully paid by employers then workers / laborers are not entitled to severance pay and so on. this law means that this pension program is very beneficial for entrepreneurs because it does not need to pay severance pay at once but can be paid in installments per month so as not to burden the cash flow of entrepreneurs. according to law no.11 / 1992 it is permitted to establish a pension fund, a legal entity 53international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 that manages and operates a program that promises a pension benefit called the pension fund by financial institution (dplk). bank muamalat as the first sharia bank to run its business activities based on sharia principles, also formed a subsidiary named pension funds by financial institution (dplk) muamalat. this dplk service is not limited to internal employees, but to all levels of society that meet the requirements, both from private agencies and government employees. the research aims to know the variables that affect the assets of pension funds by financial institutions (dplk, pension funds by financial institution) muamalat, which is the performance of bank muamalat as internal factors that described in the variable profit of bank muamalat and third-party funds. 2. literature review to find out how islamic sharia devices affect the formation of an economic system in arab society during the time of the prophet muhammad, we must conduct a serious study of the qur’an, because the qur’an was made as a source of reference in educating and managing society at that time. the qur’an is the word of allah revealed to the holy prophet because it comes from the allknowing god, the qur’an is a perfect and comprehensive book which includes an explanation of aqidah, shari’a, and al-ahkam which includes laws relating to social, economic and political issues. a. qs. al-ma’idah (3: 5) َواْلُمتـََردِّيَُة َواْلَمْوُقوَذُة َواْلُمْنَخِنَقُة ِبِه اللَِّ ِلَغْيِ أُِهلَّ َوَما اْلِْنزِيِر َولَُْم َوالدَُّم اْلَميـَْتُة َعَلْيُكُم ُحّرَِمْت ِلُكْم َوالنَِّطيَحُة َوَما َأَكَل السَُّبُع ِإلَّ َما ذَكَّيـُْتْم َوَما ُذِبَح َعَلى النُُّصِب َوَأْن َتْستـَْقِسُموا ِبْلَْزَلِم ۚ ذَٰ ِديَنُكْم َلُكْم َأْكَمْلُت اْليـَْوَم ۚ َواْخَشْوِن َتَْشْوُهْم َفَل ِديِنُكْم ِمْن الَِّذيَن َكَفُروا يَِئَس اْليـَْوَم ِفْسٌق ۗ ثٍْ ۙ ْسَلَم ِديًنا ۚ َفَمِن اْضطُرَّ ِف َمَْمَصٍة َغيـَْر ُمَتَجاِنٍف ِلِ َوأَْتَْمُت َعَلْيُكْم نِْعَمِت َوَرِضيُت َلُكُم اْلِ فَِإنَّ اللََّ َغُفوٌر َرِحيٌم “prohibited to you are dead animals, blood, the flesh of swine, and that which has been dedicated to other than allah, and [those animals] killed by strangling or by a violent blow or by a head-long fall or by the goring of horns, and those from which a wild animal has eaten, except what you [are able to] slaughter [before its death], and those which are sacrificed on stone altars, and [prohibited is] that you seek decision through divining arrows. that is grave disobedience. this day those who disbelieve have despaired of [defeating] your religion; so fear them not, but fear me. this day i have perfected for you your religion and completed my favor upon you and have approved for you islam as religion. but whoever is forced by severe hunger with no inclination to sin then indeed, allah is forgiving and merciful”. b. qs. al baqarah (2: 275 ) ۚ ذَِٰلَك ِبَنَـُّهْم قَاُلوا الَِّذيَن َيُْكُلوَن الّرَِب َل يـَُقوُموَن ِإلَّ َكَما يـَُقوُم الَِّذي يـََتَخبَّطُُه الشَّْيطَاُن ِمَن اْلَمسِّ ُ اْلبـَْيَع َوَحرََّم الّرَِب ۚ َفَمْن َجاَءُه َمْوِعَظٌة ِمْن َربِِّه فَانـْتـََهٰى فـََلُه َما َسَلَف َا اْلبـَْيُع ِمْثُل الّرَِب ۗ َوَأَحلَّ اللَّ ِإنَّ َوأَْمرُُه ِإَل اللَِّ ۖ َوَمْن َعاَد فَُأولَِٰئَك َأْصَحاُب النَّاِر ۖ ُهْم ِفيَها َخاِلُدوَن “those who consume interest cannot stand [on the day of resurrection] except as one stand who is being beaten by satan into insanity. that is because they say, “trade is [just] like interest.” but allah has permitted trade and has forbidden interest. so whoever has received an admonition from his lord and desists may have what is past, and his affair rests with allah. but whoever returns to [dealing in interest or usury] those are the companions of the fire; they will abide eternally therein”. 54 international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 c. qs luqman (31-34) : أَلَْ تـََر َأنَّ اْلُفْلَك َتْرِي ِف اْلَبْحِر بِِنْعَمِت اللَِّ ِلُيَِيُكْم ِمْن آَيتِِه ۚ ِإنَّ ِف ذَِٰلَك َلَيٍت ِلُكلِّ َصبَّاٍر َشُكوٍر ¤ َوِإَذا َغِشيـَُهْم َمْوٌج َكالظَُّلِل َدَعُوا اللََّ ُمِْلِصنَي َلُه الدِّيَن فـََلمَّا َنَّاُهْم ِإَل اْلبـَرِّ َفِمنـُْهْم ُمْقَتِصٌدۚ َوَما َيَْحُد ِبَيتَِنا ِإلَّ ُكلُّ َختَّاٍر َكُفوٍر ¤ َي أَيُـَّها النَّاُس اتَـُّقوا َربَُّكْم َواْخَشْوا يـَْوًما َل َيْزِي َواِلٌد َعْن َوَلِدِه َوَل َمْوُلوٌد ُهَو َجاٍز َعْن َواِلِدِه َشيـًْئاۚ ِإنَّ َوْعَد اللَِّ َحقٌّ ۖ َفَل تـَُغرَّنَُّكُم اْلََياُة الدُّنـَْيا َوَل يـَُغرَّنَُّكْم ِبللَِّ اْلَغُروُر ¤ ِإنَّ اللََّ ِعْنَدُه ِعْلُم السَّاَعِة َويـُنـَّزُِل اْلَغْيَث َويـَْعَلُم َما ِف اْلَْرَحاِم ۖ َوَما َتْدرِي نـَْفٌس َماَذا َتْكِسُب َغًدا ۖ َوَما َتْدرِي نـَْفٌس بَِيِّ أَْرٍض َتُوُت ۚ ِإنَّ اللََّ َعِليٌم َخِبٌي “indeed, allah [alone] has knowledge of the hour and sends down the rain and knows what is in the wombs. and no soul perceives what it will earn tomorrow, and no soul perceives in what land it will die. indeed, allah is knowing and acquainted.” d. qs. al-bayyinah (98 – 5) َوَما أُِمُروا ِإلَّ لِيـَْعُبُدوا اللََّ ُمِْلِصنَي َلُه الدِّيَن ُحنـََفاَء َويُِقيُموا الصََّلَة َويـُْؤتُوا الزََّكاَة ۚ َوذَِٰلَك ِديُن اْلَقيَِّمِة “and they were not commanded except to worship allah, [being] sincere to him in religion, inclining to truth, and to establish prayer and to give zakah. and that is the correct religion”. 2.1 normative theory based on law no. 11 of 1992 on pension funds, defined as pension funds is a legal entity that manages and operates a program that promises pension benefits. this is different from the pension of government employees (pns) which is regulated through law no. 11 of 1969, for employees who work for the government, which is not the object of this study. broadly and in terms of organizational institutions, pension funds in accordance with law no. 11 of 1992 can be grouped into 2 types, namely (1) employer pension fund (dppk, dana pensiun pemberi kerja) and (2) pension fund by financial institutions (dplk, dana pensiun lembaga keuangan). the employer pension fund (dppk) is a pension fund established by a person or entity employing the employee, as the founder, to provide a definite benefit pension plan or a defined contribution pension program (ppip, program pensiun iuran pasti), for the benefit of some or all of its employees as a participant, and which creates liability to the employer. in addition, there is a profit based pension funds (dpbk, dana pensiun berdasarkan keuntungan), which is the employer pension fund (dppk) that organizes a defined contribution pension program (ppip), with a contribution only from the employer based on the formula attributed to the employer’s profits. while the pension fund by financial institution (dplk) is a pension fund established by a bank or a life insurance company to provide a defined contribution pension program (ppip) for an individual, either an employee or an independent worker separate from the employer’s pension fund or for a bank employee or insurance company the soul in question. type of pension can be grouped into four kinds as follows: (1) normal pension: ie pension benefits for participants, which begin to be paid at the time the participant retires after reaching normal or after retirement pension. (2) accelerated retirement: ie pension benefits for participants paid when the participant retires at a certain age before the normal retirement age. (3) disability pension: ie the pension benefit for the participant, paid when the participant becomes disabled. (4) retirement is postponed: the right to a pension benefit for the participant who stops working 55international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 before reaching the normal retirement age, pending payment until the retirement participant in accordance with the pension plan. the management or management of the pension fund is carried out by the organ of pension fund consisting of the board and the supervisory board of the pension fund appointed by the founder as the employer. the management and board of the pension fund perform the management functions as intended by koontz (1980), namely the planning, administering and supervising of all management activities of the pension fund. the activity is intended to achieve the purpose of organizing the pension fund, which is to connect the livelihood of prosperous pensioners through the payment of pension benefits. the management of the pension fund shall announce the establishment of a pension fund by placing the decree of the minister of finance of the republic of indonesia on the ratification of the pension fund regulations in the state gazette of the republic of indonesia. 2.2 theory the rationale of the h or huda and hope approach is that islam certainly has a genuine standard of methodology that is different from the current existing approach. economic analysis by scientific researchers in formal environments such as campus or research institutes as well as nonformal periodicals such as periodicals of majority magazines using analytical tools. the tool is used to sharpen the analysis carried out in order to pursue the objectives of the formulated analysis. but with the increasing complexity of economic and life problems, it is necessary to inculcate the meaning of worship in the process of analytical tools to make the purpose of economic analysis provides double benefits of the world and the hereafter. for now, the concept of the analytical tools gained appreciation from different points of view. some start from the philosophy of tawheed, some depart from the perspective of maslahah, and some are looking from the meaning of worship. this research method is using the last point of view is the meaning of worship. the definition of h theory of hahslm according to roikhan (2015) is: (1) narrow theory h is defined as a three dominant archetypal theory with a particular context in the five dimensions of the invariant order. (2) widely for the most general use theory h can be interpreted as the basic conceptual theory of creation patterns with a particular relationship. h is derived from the hahslm formula, the hebrew letter quran, also the abbreviation of huda or life. while the meaning of h theory, among others: (1) a whole set/comprehensive system/ integrated section will consist of 3 main elements namely primary (creator/intermediary), secondary (creation/receiver), tertiary (worship/transmitter) which can be positively or negatively charged. (2) the three elements will satisfy the statement that the secondary under the primary will perform tertiary. (man created god for worship). knowing the philosophy of theory h is necessary to deepening ontology which is always associated with islam both literally and maknawi. furthermore, the development of epistemology in islamic institutions is that kaffah present new terminology into a more comprehensive approach. in general, the philosophy of h theory can be sequenced that the background of this theory is the value of islam with a comprehensive concept through a balanced way by ignoring the meaning of worship in life. the difference in approaching between the existing formula and the scriptural formula is the weighting factor. in the conventional approach, the category of outcomes will be emphasized in tangible form or visible physical value, whereas in the religious approach it will emphasize intangibles or more physical perspectives that include religiosity or worship. the sideline will look 56 international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 like the same formula, but when implementing the interpretation, the results of deviation occur. secular scholarship will underlie the data segment of implementation or empirical while islamic scholarship will always include not only empirical but also the amount of religiosity or intangible value. 3. methods the type of research that will be used in this research is descriptive analysis. descriptive analysis aims to provide an overview of the phenomena studied in terms of both quantitative and complete qualitative details and explanations. techniques that will be used are interview, secondary data from bank muamalat and dplk muamalat financial statements, and observation. the data used are time series data in the last 10 years in breakdown to monthly data, about the profit data of bank muamalat; total data of third-party funds of bank muamalat; dplk profit data, outstanding fund data in sbis; as well as data dplk assets or often referred to as nav (net asset value) dplk muamalat. table 1. variables and measurements no variable indicator 1 bank muamalat profit rupiah 2 bank muamalat third party fund total rupiah 3 dplk muamalat profit rupiah 3 sbis return result % (percent) 4 dplk asset rupiah 4. result and discussion the initial stage before the classical assumption test is to make the regression equation of all the variables measured. for all these tests the data is processed using a statistical application called the app eviews. the results of the processed eviews for the initial regression formula are as follows: table 2 – regression model arch-grach variable coefficient std. error z-statistic prob. c 75831.61 22959.93 3.302781 0.0010 profit_bmi -0.271933 0.013027 -20.87439 0.0000 dpk_bmi 0.021046 0.000785 26.81865 0.0000 sbis -0.017882 0.005429 -3.294005 0.0010 profit_dplk 9.201223 4.251161 2.164403 0.0304 variance equation c 3.48e+09 1.19e+09 2.925135 0.0034 resid(-1)^2 0.844223 0.282390 2.989567 0.0028 garch(-1) -0.259851 0.111195 -2.336907 0.0194 r-squared 0.931466 mean dependent var 523243.3 adjusted r-squared 0.926983 s.d. dependent var 314442.2 s.e. of regression 84967.65 akaike info criterion 24.83151 sum squared resid 7.72e+11 schwarz criterion 25.02246 log likelihood -1419.812 hannan-quinn criter. 24.90901 f-statistic 207.7536 durbin-watson stat 0.394894 prob(f-statistic) 0.000000 source: analysis, 2018 57international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 equation result conventional equation: y = a0 + ɛ + a1x1 + a2x2 + a3x3 + a4x4 islamic equation: h = a0 + h + a1s1 + a2s2 + a3s3 + a4s4 dplk = a0 + h + a1 profit bmi + a2 dp3 bmi + a3sbis + a4 profit dplk dplk = 7583161 – 0,271933 profit bmi + 0,021046 dp3 bmi + 0,017882 sbis + 9,201223 profit dplk + 0,664202 + h asset dplk = 7583161 – 0,271933 x1 + 0,021046 x2 – 0,017882 x3 + 9,201223 x4 + 0,664202 + e asset dplk = 7583161 – 0,271933 s1 + 0,021046 s2 – 0,017882 l + 9,201223 m + 0,664202 + h asset dplk = 7583161 – 0.271933 profit bmi + 0.021046 dpk bmi0.017882 sbis + 9.201223 profit dplk + 0.0664202+h where: y = h = asset dplk a = a = 7583161 x1= s1 = -0.271933 profit bmi x2 = s2 = 0.021046 dpk bmi x3 = l = 0,017882 sbis x4 = m = 9.201223 profit dplk formula: y = α + β (x1 + x2 + x3) h = a + h (s + l + m) dplk muamalat = business strategy + dplk assets (internal factors, external, religiosity), such as the following table: table 3. hahslm table h a h s l m profit constant error internal external religiosity source: proceed, 2017 explanation of table above are: dplk muamalat is analogized as a guidance (h), in finding the path (a) is straight (h) is to run its business strategy in growing assets, influenced by human factors (s) in this case is an internal factor of performance of bank muamalat, then the will of allah (l) which is analogized as an external factor of sbis funds, and how to apply as worship (m) in this case is a religious factor in the form of profit from dplk muamalat. 4.1 explanation if bmi profit decreases by 1%, then dplk assets will increase by 0.271933%. in this study, the direction of the result of the equation in the model is not in accordance with the hypothesis. bank muamalat indonesia as the founder of dplk bank muamalat turns out in profitability performance of bank muamalat indonesia. and this situation does not automatically improve the performance of dplk muamalat. on the contrary, when bmi profit decreases, dplk assets muamalat keep 58 international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 growing. in accordance with the principle of the pension fund, the wealth of the pension fund separated from the parent company, it turns out that this is already understood by the community. dplk customers still grow although bank muamalat has decreasing in its profit. the performance of bank muamalat is not directly proportional (inherent) with the performance of dplk muamalat. the results of this research showed the differentiation with the theory that the improvement of the parent company’s performance is in line with the improvement of the performance of subsidiaries. for the third party funds, if this variable increased by 1%, then dplk’s assets increased by 0.021046%. the increase of third-party funds of bank muamalat means that the level of public confidence in bank muamalat is increasing with the increase of trust to muamalat bank. this also gives impact on the level of public trust to dplk muamalat, because of the muamalat increase. for sbis variable, if this variable decreases by 1%, then dplk assets will increase by 0.017882%. sbis is a short-term, safe and guaranteed asset by the government. this instrument is often used by investors for hedging, because of its security. the sbis value, in the position of high value indicates that the condition of the capital market is low, and vice versa. as a retirement institution, dplk muamalat will feel the macro economic impact which is reflected in the downturn of the performance of the capital market. sbis is an indicator in a macroeconomic condition. for dplk’s variable, if this profit rises 1%, then dplk assets will increase by 9.201223%. profit dplk muamalat, in this study, is the main factor or the role variable that has the greatest influence to the amount of assets dplk muamalat. with high profitability performance from an institution, it can have a positive impact on the condition of the company, including assets in it. from the analysis, it can be concluded that third-party fund (dpk, dana pihak ketiga), bank indonesia sharia certificates (sbis) and profit dplk have influence on performance to dplk muamalat. meanwhile, the profit of bank muamalat indonesia has no influence on the performance of dplk muamalat. 5. conclusion of the four variables that we tested, the internal factors of the parent business or the founder affect the dplk assets, namely the bmi profit and third-party funds bmi, but for the profit bmi, the influence is negative. this is certainly not in accordance with the theory that if the parent business profit increased, then the performance of its subsidiary, in this case dplk muamalat, also increased. the decline in bank muamalat’s profit, which turned out to be negatively correlated with dplk’s assets, is an abnormal condition, due to the policy made by the new management of bank muamalat in the form of reserves that have implications for the decline in profit of bank muamalat. although this policy has only been made in the last two years, it has impacted on the correlation regression result for nine years of data. while the external factor, which is the amount of funds in bank indonesia sharia certificates (sbis), has a negative effect on dplk assets, meaning that if the funds in sbis increases then dplk assets decreases. it is logical because if sbsi funds are large, it means allocation for other investments (e.g. dplk) to be down. religious factor in profit dplk also have a positive effect. this is quite certain, because dplk muamalat is dplk which all of the operational activities are managed by sharia (religious factor). from the results of this multiple regression test, globally (f test) can be said that the independent variable has significant effect on dplk assets. and from the test of completeness model (test of goodness of fit), that ability of all independent variable (profit bmi, dpk bmi, profit dplk and sbis) is 97,32%, while the rest of 2.68% explained by other factors not included in model. thus, this model is feasible to be used for policy-making tools. for example, if the management 59international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 wants to increase dplk’s assets, it should strive to increase dplk’s profit and increase the amount of third-party fund (bmk) of bmi. references alam choudhury, m., shahadat hossain, m., & solaiman, m. (2008). a well-being model of smallscale microenterprise development to alleviate poverty: a case study of bangladesh village. international journal of sociology and social policy, 28(11/12), 485-501. aziz, r. m. (2012). new paradigm on sinlammim kafah in islamic economics. signifikan: jurnal ilmu ekonomi, 1(2). aziz, r. m. (2015). hahslm islamic economics methodology. proceeding icosec: developing countries readiness toward global. universitas negeri sebelas maret (uns), solo. baker, a. j., logue, d. e., & rader, j. s. (2004). managing pension and retirement plans: a guide for employers, administrators, and other fiduciaries. oxford university press. bnm (bank negara malaysia), (2010): shariah resolutions in islamic finance, second edition, www. bnm.gov.my. bodie, z. (1989). pensions as retirement income insurance.working paper no. 2917, nber (national bureau of economic research), 1050 massaschussetts avenue, cambridge, ma 02138, april 1989. crossley, t., & jametti, m. (2013). pension benefit insurance and pension plan portfolio choice. review of economics and statistics, 95(1), 337-341. karim, a. (2004). bank islam: analisis fiqih dan keuangan edisi 3. jakarta. raja grafindo persada. khan, m. a. (1994). an introduction to islamic economics (vol. 15). international institute of islamic thought (iiit). manjoo, f. a. (2012). the uk legal reforms on pension and the opportunity for islamic pension funds. journal of islamic accounting and business research, 3(1), 39-56. otoritas jasa keuangan (2017): statistik dana pensiun. jakarta, indonesia. winarno, w. w. (2015). analisis ekonometrika dan statistika dengan eviews edisi 4. yogyakarta: upp stim ykpn. regulations fatwa dewan syariah nasional (dsn) majelis ulama indonesia (mui) nomor 88 tahun 2015 tentang pedoman umum penyelenggaraan program pensiun berdasarkan prinsip syariah. fatwa dewan syariah nasional (dsn) majelis ulama indonesia (mui) nomor 99 tahun 2015 tentang anuitas syariah. peraturan otoritas jasa keuangan (pojk) nomor 15/pojk.05/2016 tentang persyaratan pengurus dan dewan pengawas dana pensiun pemberi kerja dan pelaksana tugas pengurus dana pensiun lembaga keuangan. peraturan otoritas jasa keuangan (pojk) nomor 16/pojk.05/2016 tentang tata kelola dana pensiun. peraturan otoritas jasa keuangan (pojk) nomor 33/pojk.05/2016 tentang penyelenggaraan program pensiun berdasarkan prinsip syariah. undang undang (uu) republik indonesia nomor 10 tahun 1998 tentang perbankan. undang undang (uu) republik indonesia nomor 11/1992 tentang dana pensiun. undang undang (uu) republik indonesia nomor 3 tahun 1992 tentang jaminan sosial tenaga kerja. undang undang (uu) republik indonesia nomor 7 tahun 1992 tentang perbankan. 60 international journal of islamic business and economics (ijibec), 3(1) june 2019, 51-60 25 ijibec a measurement model of successful muslim entrepreneur efri syamsul bahri1 1*, juhary ali 2, mohd mizan mohammad aslam 3 1 lecture sekolah tinggi ekonomi islam sebi, indonesia; student asia e university. email: efri.sb@sebi.ac.id 2 dean, school of management, asia e university, wisma subang jaya, no.106, jalan ss 15/4, 47500 subang jaya, selangor, malaysia. email: juhary.ali@aeu.edu.my 3 professor in security studies, naif arab university for security sciences (nauss), riyadh, kingdom of saudi arabia. email: maslam@nauss.edu.sa *correspondence email: efri.sb@sebi.ac.id abstract approximately 1.4 billion of the world's population lives on less than usd 1 per day, and since 50% of the poorest people are in muslim countries, the solution is to increase successful muslim entrepreneurs. hence, this study aims to create a conceptual model through a literature review and descriptive-qualitative approach. these were employed to determine the indicators of successful muslim entrepreneurs and the expected factors required to provide a positive and significant effect. meanwhile, four factors and indicators, each considered to influence successful muslim entrepreneurs, were identified. subsequently, the results obtained were conceptual papers and hypotheses that required testing to ensure correctness. it was also used to produce new constructs validated for the individuals and communities of muslim entrepreneurs. therefore, this conceptual model is hoped to motivate new, future research and has also been enhanced as a pioneer that has attempted to construct a model for successful muslim entrepreneurs. finally, a conceptual model was created, which is the initial contribution to solving poverty among the muslim population in the world. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 1 2021 keywords: muslim entrepreneurs; capital; knowledge; personality; internal factors doi:https://doi.org/10.28918/ijib ec.v5i1.3611 jel: m1, i31 article info article history: received : 26 march 2021 accepted : 20 may 2021 published : 1 june 2021 https://doi.org/10.28918/ijibec.v5i1.3611 https://doi.org/10.28918/ijibec.v5i1.3611 26 international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 1. introduction a recent article by kareem et al. (2020) showed that around 1.4 billion people in the world lived on less than usd 1 per day. meanwhile, syed and genç (2019) showed that the global muslim population had reached 20% or around 7 billion people, according to the international congress, which discussed islamic economics, finance, and ethics. the study also stated that 600 million people worldwide lived in extreme poverty, including hunger, inaccessible health care, and housing. of this number, 50% were in muslim countries, and on estimation, every one in five of this percentage was muslim. haneef et al. (2014) revealed that poverty was the main problem in countries with muslim populations, while rana et al. (2020) discovered poverty to be relatively higher than in non-muslim countries. this was reinforced by previous research by mohsin (2015), who stated that statistical data in 2009 depicted most of the population living in poverty in muslim countries. in a recent article, abdel mohsin (2020) presented the latest data on widespread poverty in muslim countries obtained from the world bank and the cia, as presented below. table 1. a table showing the poverty conditions in muslim countries from 2015 to 2017 list of countries total population 2017 (millions) percentage of muslim population 2017 (%) percentage of people with living below the national poverty line 2015-2017 (%) indonesia 264.9 87.2 28.1 nigeria 214.0 53.5 46.7 pakistan 207.7 96.5 24.3 bangladesh 170.0 90.4 24.3 egypt 97.5 94.0 27.8 iran 83.0 99.4 n/a turkey 82.3 99.8 13.5 sudan 45.5 97.0 46.5 iraq 40.2 95.7 23.0 marocco 38.3 99.0 15.0 afghanistan 35.5 99.7 54.5 saudi arabia 33.4 97.1 n/a malaysia 32.6 61.3 19.0 yemen 29.8 99.1 54.0 syria 19.3 87.0 82.5 senegal 15.8 96.1 46.7 somalia 11.7 99.8 n/a tunisia 11.7 99.1 15.5 jordan 10.5 97.2 14.2 uae 9.9 76.0 19.5 oman 4.6 85.9 n/a kuwait 2.0 74.6 n/a bahrain 1.5 73.7 n/a source: abdel mohsin (2020) according to the table above, the population of muslims living below the national poverty line in 2015-2017 was 82.5%, 54.5%, and 54% in syria, afghanistan, and yemen, respectively, and 46.7% in nigeria, senegal, and sudan. meanwhile, indonesia had the largest proportion of the muslim population, reaching 87%, with 28.1% of people living below the national poverty line in 2015-2017 (abdel mohsin, 2020). international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 27 however, the conditions above are not in line with the wealth of natural resources owned by muslim countries, which is about 70% in oil, natural gas, gold, and copper (syed and genç, 2019). muhammad, the islamic prophet, provided a solution by increasing the number of successful muslim entrepreneurs, which muhrin (2017) explained by stating that a strong believer was more loved by allah than a weak one. meanwhile, frinces (2012) argued that entrepreneurship plays an essential role in increasing income, improving the community's quality of life, and making a nation prosperous. this has been proven by many asian countries, such as malaysia, singapore, taiwan, hong kong, japan, and south korea, as well as by the united states and european countries (frinces, 2012). david mcclelland stated that a minimum ratio of 2% of the population must be entrepreneurs to achieve prosperity (hutagalung et al., 2019). several previous studies by masuo et al. (2001) and dewi and dhewanto (2012), alongside mohamed and baqutayan (2016), focused on exploring and describing the definition of success and the key factors involved in a family business. furthermore, izza and tarmidzi (2018) investigated the effect of ethics on batik production by muslim entrepreneurs and found a strong correlation with environmental sustainability. in a recent study, rafiki and nasution (2019) produced a reference framework for business success factors for muslim women entrepreneurs. also, issoufou (2019) reported the importance of the young generation of muslim entrepreneurs in overcoming poverty in muslim-populated countries. additionally, anggadwita et al. (2017) studied their intentions and discovered five attributes that contribute to their success. this study identified several factors and indicators influencing successful muslim entrepreneurs, as research discussing the conceptual model is still limited. finally, a conceptual model was created, which is the initial contribution to solving poverty among the muslim population in the world. 2. method this study used a literature review and descriptive-qualitative approach to identify several factors and their indicators that influence the success of individual muslim entrepreneurs. initially, the development of muslim entrepreneurs in indonesia was described, followed by the identification of success indicators. these indicators generated exogenous variables whose selection was purposively performed, such that those in the significant category were chosen. the success factors and indicators affecting muslim entrepreneurs were identified and analyzed based on previous studies. these were the endogenous variables, and their combination with the exogenous factors ultimately produced a latent variable compiled for the model of ssuccessful muslim entrepreneurs. 3. result and discussion this section describes the development of muslim entrepreneurs in indonesia and discusses the indicators and factors of their success alongside the conceptual model. a. development of muslim entrepreneurs in indonesia indonesian muslims have the largest proportion in the world, and a recent article by syafii and harahap (2020) stated that the number reached 87.17% or 232 million. however, the number of entrepreneurs is still far behind that of neighboring countries, and according to antoni (2016), it was below the minimum standard of 2% in 2016. in 2009, 400,000 entrepreneurs constituted 0.18% of the total population (frinces, 2010), with a decline of 28 international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 1.56% in 2013, as stated by steelyana (2013). in a recent article, priambodo and ghina (2020) stated that indonesia's entrepreneurs reached 3.1% in 2018, according to the central statistics agency. nawangpalupi et al. (2016) also indicated that this ratio was lower than that in malaysia and singapore (5% and 7%, respectively). furthermore, hutagalung et al. (2019) explained that, in line with david mcclelland, a minimum of 2% of the population must be entrepreneurs to realize prosperity. frinces (2010) argued that this ratio illustrates that people's purchasing power and proportion of indonesian entrepreneurs above 2% will become the principal capital in the country's prosperity. however, there is still a lack of intention to become entrepreneurs, which has declined since 2013, although it has fluctuated slightly, as shown by the global entrepreneurship monitor (gem, 2018). this is illustrated in the following image. figure 1. the growth of entrepreneurial intentions in indonesia source: afrianty (2019), gem (2018) the figure above shows that the development of entrepreneurial intentions decreased, as it was 39.65% in 2013 and declined five years later to 21.2% in 2018. subsequently, the government and entrepreneurial stakeholders need to be concerned about this issue, as the implication of its continuation is a decline in the number of entrepreneurs. therefore, various efforts must be made immediately. b. indicators of success the indicators of success, which is the ideal of every muslim entrepreneur, should be known. in addition, this is a motivation to clarify the direction of their goals, as their success is generally broader than that of other entrepreneurs. based on the literature review, four dimensions of success for muslim entrepreneurs were discovered: business achievement, financial performance, non-financial performance, and the achievement of maqashid sharia. yaacob and azmi (2012) identified six indicators of success in the business performance dimension viz. income, asset ownership, savings growth, market growth, alongside increased profitability and sales. then, five indicators were used for financial performance, which is the second dimension proposed by salwa et al. (2013): return on assets, return on investment, assets owned, profits, and income. these indicators were obtained from various expert opinions, as listed in table 1, show that they are widely used to measure entrepreneurs’ success, including, in this case, that of muslims. international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 29 the third dimension of success was non-financial performance, which employed three indicators: customer satisfaction, personality development, and entrepreneur awareness. it was adopted from masuo et al. (2001), which was obtained from zinger et al. (2001), rhodes and butler (2004), and most recently, hadi and borhan (2013). finally, the fourth dimension of success, achieving the maqashid of sharia, utilized opinions from zuhdi (2014) and naim et al. (2017), which were adopted from well-known scholars such as imams al-ghazali and al-syatibi, and fulfilled daruriyyat and hajiyyat. fulfilling their daruriyyat includes five factors: guarding the glory of religion (ad-din), guarding life (al-nafs), guarding reason and mind (al-aql), maintaining maruah and descent (al-nasb), and ultimately protecting treasure (al-mal). table 2. identification results of the dimensions and indicators of success no dimension indicator source 1 business achievements the indicators of business achievement comprised revenue, asset ownership, savings growth, market growth, as well as increased profitability and sales. yaacob and azmi (2012) 2 financial performance the indicators of financial performance are return on assets, return on investment, assets owned, advantages, and income. duchesneau and gartner (1990), gadenne (1998), orser et al. (2000), masuo et al. (2001), paige and littrell (2002), (haber and reichel, 2005), norma, md. saad , jarita (2010), nwachukwu (2011), salwa et al. (2013) 3 non-financial performance the indicators of non-financial performance are customer satisfaction, personality development, and entrepreneur awareness. masuo et al. (2001), zinger et al. (2001), rhodes and butler (2004), hadi and borhan (2013), salwa et al. (2013) 4 achieving maqashid of sharia the indicators of achieving maqashid of sharia involve fulfilling their daruriyyat, which comprise maintaining the glory of religion (ad-din), taking care of life (alnafs), guarding the intellect and mind (alaql), maintain dignity and lineage (alnasb), guarding property (al-mal), and fulfilling hajiyyat. zuhdi (2014), mohd naim et al. (2017) adopted from imams alghazali and al-syatibi based on the table above, successful muslim entrepreneurs can be measured more fully through four dimensions, illustrating that it must provide benefits for the individual, their families, society, and nation. the first dimension is business achievement. the results of the tests conducted by yaacob and azmi (2012) found that six business achievement indicators comprised revenue, asset ownership, savings growth, market growth, increased profitability, and sales had a cronbach’s alpha value of 0.9. this indicates that the item in question was very reliable. this is in line with the opinion of kolvereid and isaksen (2017) that business achievement is essential for various company stakeholders. the second dimension is financial performance. this dimension was suggested by salwa et al. (2013), which was adopted from rhodes and butler (2004). meanwhile, several measurement indicators, namely return on assets, return on investment, assets owned, 30 international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 profit, and income, were adopted from various e.q. duchesneau and gartner (1990), gadenne (1998), orser et al. (2000), masuo et al. (2001), paige and littrell (2002), haber and reichel (2005), norma, md. saad et al. (2010), nwachukwu (2011), and salwa et al. (2013). protopappa-sieke and seifert (2010) argue that financial performance is essential for superior and sustainable financial system performance. the third dimension is non-financial performance. this dimension was also suggested by salwa et al. (2013), which was adopted from rhodes and butler (2004). several indicators used in the non-financial performance dimension are customer satisfaction, personality development, and entrepreneurial awareness. these three indicators were adopted from several researchers, such as masuo et al. (2001), zinger et al. (2001), rhodes and butler (2004), hadi and borhan (2013), and salwa et al. (2013). the fourth dimension is the achieving maqashid of sharia. according to shinkafi et al. (2017), the term 'maqasid sharia' (the purpose of sharia) comes from a compound word (word, 'maqsad or maqsid' and the term 'sharia'). the term 'maqsad or maqsid' is an arabic word that refers to 'aim, wisdom, intent or purpose'. then, shinkafi et al. (2017) describe the word 'maqsad or maqsid' as combined with the term 'sharia', which means ‘path’ ‘way’ or ‘a path to watering place’ it also means 'islamic law'. according to zuhdi (2014) and naim et al. (2017), the dimensions of the maqashid of sharia were adopted from imam al-ghazali and al-syatibi. karim (2007), in the latest article rafsanjani (2016), explains imam al-ghazali’s opinion, which states that the maqashid of sharia has three scopes: daruriyyat (primary needs), hajiyyat (secondary needs), and tahsiniyyat (tertiary needs). in the next stage, karim (2010), in indra's latest article (2018), explains the views of imam as-shatibi, which details the happiness of human life both in the world and in the hereafter by fulfilling the five basic goals of maqasid of sharia. therefore, this study identifies the dimensions of achieving maqashid of sharia by fulfilling their daruriyyat, which comprises maintaining the glory of religion (ad-din), taking care of life (alnafs), guarding the intellect and mind (al-aql), maintaining dignity and lineage (al-nasb), guarding property (al-mal), and fulfilling hajiyyat. c. success factors realizing the success of muslim entrepreneurs is essential and an effort to contribute to the nation's prosperity. subsequently, the 2% figure is a reference for a country to implement development, and various programs must be directed to achieve this minimum ratio. based on the literature review, four factors that significantly affect the success of muslim entrepreneurs were identified: capital, knowledge, personality, and internal factors. first, the capital factor originated from a study by muhamat et al. (2013), which explained the meaning of the cash capital needed to run a new business. a test on asnaf entrepreneurship in selangor, malaysia, by muhamat et al. (2013) found that capital significantly affects their success. the second factor was knowledge identified from the results of research by muhamat et al. (2013), which referred to omerzel and antoncic (2008), who stated that knowledge is a determining factor that differentiates entrepreneurs from competitors. therefore, those with better quality knowledge are more efficient and can learn and understand market changes more quickly. muhamat et al. (2013) also explained that, according to yoo et al. (2011), organizations with high-quality knowledge perform better, generate new and valuable products and services, reduce costs, increase sales, improve analytical skills, international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 31 efficiency methods, and performance. consequently, this study found a significant effect of asnaf knowledge on entrepreneurs (muhamat et al., 2013). the third factor was personality, which, according to yaacob and azmi (2012), is one of the main characteristics of a successful entrepreneur and should be great. this research quoted bakar, a. a. (2002), where the word 'personality' was said to originate from the latin word 'persona,' which refers to 'a person's exterior characteristics, including their way of thinking, behavior, and emotions.' yaacob and azmi (2012) found a significant relationship between muslim entrepreneurs' personality and their achievements. one of the main characteristics of entrepreneurial success is the greatness of personality. yaacob and azmi (2012) explained that the origin of the word 'personality' was latin, specifically 'persona,' according to bakar (2002). this term refers to a person's exterior characteristics, including their way of thinking, behavior, and emotions, and the research by yaacob and azmi (2012) showed that the personality of muslim entrepreneurs significantly influenced their achievement. fourth, there were internal factors, which, based on research by hadi and borhan (2013), significant contributed to the success of asnaf entrepreneurs and comprised three dimensions: the practice of religious values, owner characteristics, and management practices. table 3. identification results of the factors of success no factors test result source 1 capital capital significantly affects asnaf entrepreneurs' success. muhamat et al. (2013) 2 knowledge knowledge significantly affects asnaf entrepreneurs' success. muhamat et al. (2013) 3 personality a significant relationship between muslim entrepreneurs' personality and their achievements. yaacob and azmi (2012) 4 internal factors internal factors significantly contribute to the success of asnaf entrepreneurs hadi and borhan (2013) based on the table above, the success factors of muslim entrepreneurs can be measured using four exogenous variables, which were subsequently included in the conceptual model of successful muslim entrepreneurs. the first factor is capital. according to muhamat et al. (2013), capital becomes the main problem when starting a business, especially those without collateral, in applying for financing or credit to banks. for entrepreneurs in the asnaf category, the selangor zakat board (szb) introduced a capital assistance program derived from zakat funds to help asnaf increase income through entrepreneurship (hairi and shamsudin, 2018). the test results by muhamat et al. (2013) show that capital has a significant effect on asnafs’ entrepreneurial success. thus, in the context of muslim entrepreneurs, capital is also important in achieving success. knowledge is the second factor that determines the success of muslim entrepreneurs. this refers to the theory of human capital, initiated by becker (1964) and schultz (1972). becker (1964) and schultz (1972) argue that human capital is in the form of knowledge. the test results of muhamat et al. (2013) found that knowledge has a significant effect on asnaf entrepreneur success. thus, muslim entrepreneurs need to pay attention to the importance of knowledge for their success. 32 international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 the third factor that makes muslim entrepreneurs successful is personality. according to furnham (2008) in setia (2018), personality is a structured and dynamic process within the individual expressed through a particular form of behavior. yaacob and azmi (2012) argue that a great personality is one of the main characteristics of a successful entrepreneur. yaacob and azmi (2012) explain the meaning of personality by referring to bakar’s (2009) opinion. bakar (2009) argues that the word personality comes from the latin word persona, which refers to a person's exterior characteristics, including their way of thinking, behavior, and emotions. the test results of setia (2018) found that one in five personality dimensions had a significant correlation with successful entrepreneurs. the fourth factor that makes muslim entrepreneurs successful is internal factors. hadi and borhan (2013) identified that in asnaf entrepreneurs, three internal factors have a significant influence on their success. the three internal factors consisted of practices of religious values, owner characteristics, and management practices. hadi and borhan (2013) state that the three items of internal factors refer to the commercial triumphs that khadijah has carried out. d. conceptual model a conceptual model of successful muslim entrepreneurs is essential for the partial and simultaneous testing phases to determine the factors that significantly influence this variable. therefore, this model development uses the normal cycle of a study, comprising the description, explanation, and testing performed continuously (meredith, 1993), as presented in the normal research cycle in the following figure. figure 2. the normal research cycle source: meredith (1993) meanwhile, swanson and chermack (2013) argued that a framework is needed to balance theory and practice in applied scientific disciplines. this theoretical framework, which can provide insight into the content and meaning of this research, was produced by identifying several factors and indicators that influence the success of individual muslim entrepreneurs, based on previous literature. after conducting a literature review and analysis, a conceptual model of successful muslim entrepreneurs, consisting of independent and dependent variables, was developed. capital, knowledge, personality, and internal factors were independent, while the success of muslim entrepreneurs was dependent. based on the literature review, the success of muslim entrepreneurs can be influenced by capital, knowledge, personality, and internal factors. therefore, four hypotheses are proposed. 1) capital has a significant influence on successful muslim entrepreneur. (h1) 2) knowledge has a significant influence on successful muslim entrepreneur. (h2) 3) personality has a significant influence on successful muslim entrepreneur. (h3) international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 33 4) internal factors have a significant influence on successful muslim entrepreneur. (h4) a conceptual model consisting of these four exogenous factors and the endogenous variable, namely, the success of muslim entrepreneurs, was obtained from the hypothesis above. therefore, an illustration of the conceptual framework of successful muslim entrepreneurs is shown in the figure below. figure 3. proposed conceptual framework of successful muslim entrepreneur source: author (proceed) the conceptual model generated in this study can be evaluated by testing the four exogenous variables (capital, knowledge, personality, and internal factors) and the only endogenous factor (i.e., the success of muslim entrepreneurs). for the exogenous variables, the four dimensions of the indicators were evaluated. the capital of muslim entrepreneurs can be working capital and investment. working capital is used for operational or routine purposes in cash, inventory, and so on, and is classified as a current asset, while investments in vehicles, machinery, equipment, etc., are fixed. therefore, the existence of islamic social finance and banks is essential for providing capital support to muslim entrepreneurs. knowledge is also essential for these entrepreneurs and is based on the hadith message conveyed by the prophet muhammad that studying is mandatory for muslims, including women. importance is also a concern and one of the dimensions of the human capital theory. 4. conclusion the existence of muslim entrepreneurs is a solution to poverty, unemployment, and other fundamental problems that plague various muslim-majority countries and is the foundation for realizing the prosperity of these nations. therefore, discovering the success of muslim entrepreneurs, as exemplified by the islamic prophet, is essential. as a contribution to this realization, this study identified four success factors of muslim entrepreneurs: capital, knowledge, personality, and internal factors. in addition, the indicators of their success can be measured in four dimensions: business achievement, financial performance, non-financial performance, and the achievement of a maqashid of sharia. based on these four factors and indicators, a conceptual model of successful muslim entrepreneurs was produced, with results that were consistent with the normal cycle of the study that refers to meredith (1993), which consists of description, explanation, and testing 34 international journal of islamic business and economics (ijibec), 5(1) june 2021, 25-37 performed continuously. subsequently, this model can be used for partial and simultaneous testing of factors that significantly influence successful muslim entrepreneurs. this is in line with swanson and chermack’s (2013) opinion, which states that the framework aims to balance theory and practice in applied disciplines. the theoretical framework can also provide insights into the content and meaning of this research. this has been shown by identifying several factors and indicators that influence the success of individual muslim entrepreneurs based on previous literature. the limitation was the use of a literature study method with results from previous research, especially in journals. therefore, further research is needed to test the success of muslim entrepreneurs by completing studies with a theoretical background. acknowledgment the authors are grateful to the supervisors and students at the university and in asia for their knowledge. the authors are also grateful to the team at the center for entrepreneurial and leadership studies, who continued to strengthen their capacity to conduct research. references abdel mohsin, m. i. 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(2001). factors influencing early stage performance in canadian microenterprises. journal of developmental entrepreneurship, 6(2), 129. http://search.ebscohost.com/login.aspx?direct=true&db=bth&an=5047606&site=ehost -live ijibec financial inclusion through zakat institution: case study in indonesia and brunei darussalam ida wijayanti, 1* muhamad nafik hadi ryandono, 2 ana toni roby candra yudha,3 dk hjh saerah pg hj petra 4 1 & 2 universitas airlangga, surabaya, indonesia, airlangga street 4-6, surabaya, indonesia 3 universitas islam negeri sunan ampel, surabaya, indonesia, a. yani street 117, surabaya, indonesia 4 ubd school of business and economics, universiti brunei darussalam, brunei darussalam, tungku link street be1410, brunei darussalam *correspondence email: ida.wijayanti-2018@pasca.unair.ac.id article info article history: received : 16 february 2020 accepted : 25 september 2021 published : 1 december 2021 abstract this research aims to reveal the financial inclusion occurs in zakat institutions within zakat distribution and empowerment program in indonesia and brunei darussalam. this study will deliver zakat distribution and empowerment program held by zakat institutions in two countries and then analyze how are financial inclusion process happened to mustahiq in both institutions. the object of this research are the government zakat institution in two countries, namely indonesia (baznas) and brunei darussalam (bakaz). this study uses a qualitative method within multiple case strategy. data collection in this study was carried out through in-depth interviews with several expert informants of baznas and bakaz and also mustahiq of each institutions. this study shows that there are mustahiq financial inclusion process on empowerment program held by baznas and bakaz by distribution of zakat for consumption and production needs. financial inclusion happened in zakat institution are transferring zakat fund, financing mustahiq business within capital loan, and channeling to financial institutions, so that mustahiq can transform gradually to be bankable and have financial access to scale up their business. keywords: financial inclusion; zakat empowerment program; mustahiq; baznas; bakaz. doi: 10.28918/ijibec.v5i2.3354 jel: d64, f36, h51 international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 2 2021 129 mailto:ida.wijayanti-2018@pasca.unair.ac.id 130 international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 1. introduction islam as a religion that shares goodness to the entire world or said as rahmatan lil alamin, provides various solutions to the problems of human life, including the problem of poverty. according to (pratama, 2015), islam views the rich condition as the favor of allah swt which should be grateful and regard the poor condition as a matter to be avoided and prevented (rijal, 2018). after that, islam served various solutions to alleviate it, including the provision of zakat. islam answers the poverty problem with zakat of, as stated in the qs. at taubah verse 60. indonesia zakat development report (yudha, 2019) says that there are several reasons explains the significance of of zakat in poverty alleviation. first, the allocation of zakat funds has been determined definitively in islamic law (qs. at taubah: 60) where zakat is only allocated for eight groups (asnaf) only, namely: namely: fuqara (indigent), masakin (poor), amilin alaiha (the zakat management), muallafat ul qulub (the person whom his heart being tamed), fir riqab (freed slaves), gharimin (those who owed), fi sabilillah (who fight in the way of allah), and ibn saabil (people who were on the travel). (nurlaelawati, 2010) explains that al quran mentions the indigent (fakir) and the poor (miskin) as first and second group in the list of recipients. they received priority and primacy of the al quran. it shows that overcoming the problem of poverty is the primary objective of zakat (samad et al., 2016). thus, zakat becomes an instrument of poverty alleviation which is pro-poor and self-targeted that emphasize the role of government through a policy of income distribution and equity in favor of the poor (fikriyah & ridlwan, 2018). as has been obligated in the qur'an in the letter at taubah verse 60, since the year nine hijriyah, rasulullah saw began to apply zakat maal as a primary source of income in medina at that time (djatmiko, 2019). according to muhammad (el-brassi et al., 2020), in its historical development, zakat can even transform the social status of the people from mustahiq (people who are entitled to zakat) to be muzakki with the economic empowerment of the people. this success has occurred in the time of caliph umar bin abdul aziz. gradually during his leadership for 3.5 years, the community which originally became mustahiq then transformed into non-mustahiq, which is not eligible to receive zakat. the success of the zakat institution in the process of transformation mustahiq is a proof of the success of their role in eradicating poverty. however, in reality, the current poverty rate in muslim countries is relatively high. statistical economic and social research and training (kusuma & ryandono, 2016) data show that the poverty rate of oki countries reaches 35% or a total of 465 million people, measured by the world bank poverty standard of us $ 1.25 per day per person (wijayanti & ryandono: 2019). from the whole oic countries, according to (muhammad firdaus et al., 2012), there are only 11 countries that have regulations on zakat, in various forms and levels including the presence of supervisors and implementers of zakat collection and distribution. zakat organization development has reached across countries. borneo bulletin, 3 july 2008 in abdullah (2015: 10), explained that in 2006 the southeast asian zakat conference held in kuala lumpur was initiated the southeast asian zakat council, then in 2008 was formed international zakat organization initiated by mabims which consists of malaysia, indonesia, singapore and brunei foreign ministries. this history recall an enthusiasm conducting cross-country zakat studies, and encourage the authors to seek the role of zakat institutions in two oic countries, namely indonesia and brunei darussalam. as stated by jaelani (2015: 15), zakat management and implementation in indonesia and brunei darussalam are unique in terms of zakat distribution and empowerment program to international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 131 tackle poverty. although it has implemented an institutional zakat system, both countries are also still in an effort to alleviate poverty (fatmawati et al., 2020). more specifically, indonesia bears the relatively high poverty rate, which is around 10.7% of indonesia's total population or around 27.76 million people (bps, 2016). even though according to cia world factbook data, the population of indonesia in 2016 reached 258.32 million people or in other words, 87.2% of the population were muslim (yudha, harisah, et al., 2020). whereas brunei darussalam, is a petroleum country whose economic growth is supported by oil and natural gas assets (murniati & beik, 2014). according to (hudaefi et al., 2020), zakat which acts as an instrument to alleviate poverty in the current era, has many advantages over conventional fiscal instruments that already exist. however, supporting instruments are still needed so that the zakat provided can have a sustainability aspect for the life of mustahiq (yalina et al., 2020). zakat optimization requires the support of various parties, including one of them is the effort made by bakaz and baznas to synergize with financial institutions (sukoco et al., 2020). the synergy efforts carried out by baznas, can be seen in the april 27 2017 edition of journal asia, which reports that the national zakat agency (baznas) has begun cooperation with the financial services authority (ojk) in order to improve financial literacy and inclusion. while the synergy carried out by bakaz is building cooperation with islamic banking in terms of the collection and distribution of zakat (ab rahman et al., 2019). the commissioner chairman of indonesia financial services authority, otoritas jasa keuangan (ojk), explained that zakat has a relationship with financial inclusion because it plays an important role in reducing poverty (yudha & lathifah, 2018). through this collaboration, he stated that he would produce several benefits at once (roy & goswami, 2013). first, it will facilitate the process of zakat payment from the zakat payers (muzakki) and help the process of distributing zakat to the recipients of alms (mustahiq). second, providing a wider amount of access to payments and distribution of zakat, infaq and alms (zis). third, increasing the financial inclusion of the community by opening access to financial products and services for muzakki and mustahiq. fourth, expand the function of smart sales agents to conduct financial education and zakat especially for agents who fulfill the requirements, as well as economic empowerment of the surrounding community (ridwan et al., 2019). this statement indicates that there is a multiplier effect on the implementation of synergy of zakat institutions and financial institutions (nastiti & kasri, 2019). thus zakat optimization can occur because there is a synergy of financial institutions so that mustahiq who receives zakat can later be financially inclusive (michelle et al., 2017). finally, the impact generated from zakat can be sustainable. this is the background of the authors to examine a financial inclusion happen through the zakat empowerment program. with the comparative study of the implementation of financial inclusion by zakat institutions in indonesia and brunei darussalam, it is expected to provide output in the form of inputs and references for the management of zakat in indonesia which is more inclusive of finance. so that the impact zakat distribution for mustahiq can then run sustainably and optimally. regarding this background, in this study, the author raised the title, "financial inclusion through zakat empowerment program: in indonesia and brunei darussalam” 132 international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 2. method the research approach used in this research is qualitative descriptive research with case study strategy. case study is a suitable strategy to answer how and why question (yudha, ryandono, et al., 2020). in this case, the research question is about how are the financial inclusion held in indonesia and brunei through zakat empowerment program? so this research use a qualitative case study strategy to answer those question. the data used in this study are primary and secondary information about empowerment program given by zakat institution in indonesia and brunei darussalam. the primary data taken from zakat officer of governmental zakat institution in indonesia and brunei darussalam, and also some zakat recipients (mustahiq) of their empowerment program. they are head of baznas (center commissioner and jatim), head of empowerment program baznas (center and jatim), head of propaz bakaz muib brunei, and also some mustahiq from both countries. then secondary data derived from books, economic journal and articles which are related to research topic, either printed or online. validity test data that have been done in triangulation methods, they are triangulation of source and triangulation of method (yudha, 2020). triangulation of source happened in the in depth interview process with zakat officers in indonesia and brunei darussalam, with information from mustahiq of zakat institution. while the triangulation of method is the way to find that information from informants is same with the information from documents and other informants. after collecting data, the next step is analyze the data to obtain a conclusion. data analysis techniques are done by descriptive and data interpretation is done by content analysis. in conducting this research, the technique was used to determine zakat program. then, after the collected data is classified, the next is the analytical technique to find the pattern of financial inclusion process trough zakat empowerment program then can be deduced. 3. result and discussion 3.1. management of zakat indonesia and brunei darussalam 3.1.1. indonesia indonesia is the fourth most populous country in the world with an area of 1.913.578.68 km2 spread over 34 provinces. based on data from the statistical year book of indonesia (bank indonesia, 2011), population of indonesia amounted to 255.461.700 inhabitants. of the total population of 87% are muslim (olalekan & simmeon, 2015). this figure is much higher when compared to other countries, that is why indonesia said to be a country with a majority muslim population in the world. data from undp (rosadi et al., 2018), states that the indonesian human development index (hdi) is 0.684. the figure shows that indonesia is in the middle position, which is ranked 110 out of 188 countries. economically, indonesia is included in the category of developing countries with various economic potential in it. management of zakat in indonesia, which has the largest muslim population spread across the province, is undertaken by a government-formed body (baznas) and an institution founded by the community (laz). in the formal scope of the state, the government has established baznas which, according to baznas.go.id, is aimed at the national scale of zakat management by badan amil zakat nasional (baznas) and lembaga amil zakat (laz) can run professionally, trusty and transparent, the purpose of zakat management for the benefit and prosperity of the people can be achieved. badan amil zakat nasional (baznas) is the official and the only one formed by the government based on presidential decree no. ri. 8 of 2001 which has the duty and function international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 133 of collecting and distributing zakat, infaq, and shadaqah (zis) at the national level. not only have role as zakat manager and organizer, baznas also acts as coordinator of zakat management of national scale which is confirmed through the act no. 23 of 2011 on the management of zakat. under the act, baznas is declared a nonstructural government institution which is independent and responsible to the president through the minister of religious affairs. thus, baznas with the government is responsible for guarding the management of zakat which is based on: syariah islam, amanah, beneficiaries, justice, legal certainty, integrated and accountability. for the implementation of such duties and functions, baznas has authority to a) collect, distribute, and utilize zakat; b) providing recommendations in the formation of provincial baznas, municipal baznas, and laz; and c) requesting reports on implementation of zakat, infaq, and other religious social funds to provincial baznas and laz. as mentioned before, the management of zakat in indonesia is done decentralized. centralized, zakat regulation and reporting is held by the central baznas located in jakarta, complemented by zakat management at central government agencies. more broadly, zakat management in local government institutions is carried out by the provincial or regency / city baznas. the rest, zakat to the wider community is managed interspersed between baznas and laz. in every province in indonesia there are zakat managers located in one coordination line of the central baznas, namely the provincial baznas. in general, the pattern of zakat distribution and empowerment mustahiq through zakat on baznas done gradually with a special treatment on each mustahiq. the charts that become the reference for the implementation of zakat disbursement by baznas in general, are as follows: source: ryandono and wijayanti, edited (2019) figure 1. baznas empowerment’s pattern explanation of the schematic above is as follows. based on ryandono and wijayanti (2019), the first stage devoted to the very poor category which could not even fulfill their basic needs is given an alms or qardhul hasan scheme. in analogy, first stage is stage of 134 international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 giving fishes to be eaten by mustahiq. because in those poor condition, mustahiq must be assisted to meet basic needs first. the second stage are for those who have been categorized as poor, they were who economically active but still insufficient to fulfil their needs. this vulnerably poor is still given qardhul hasan, but it is expected to enter scheme like those in bmt or syaria micro finance. this point is a starting point of zakat empowerment which zakat officer start to awakening mustahiq to enter real sector. i this part, mustahiq must be taught in advance, not just given a capital but also needs assistance like capacity building so that later results become sustain. the empowerment of mustahiq in baznas is more comprehensively summarized in zakat community development (zcd) program, where in field there are some successful cases, some are still learning, and some have not succeeded. the third stage is micro enterprise development. it is started when mustahiq smes by baznas can stable and bankable then they are possible to develop, in this stage they can enter into the profit-sharing scheme. to overshadow the people who are at this stage still need the role of sharia financial institutions to meet their financing needs, because they are no longer able to receive from the zakat institution. informant from baznas added that the existence of zakat institutions that have tried to enter into al bai (real sector) also still need support from the financial, especially micro finance sector. baznas empowerment program named zcd according to manager of zcd in baznas center, zakat community development (zcd) is a channeling activity by elaborating the fields of education, da'wah, economy, health, and humanity in a comprehensive container community development. the stages of implementation of the zcd program are as follows: 1) the first stage is the pilot stage. baznas conducts the assessment process, conducts the process of compacting the needs of the community, then delves further what the mustahiq wants, and then baznas create a program for them. 2) reinforcement stage, how baznas strengthen mustahiq with program program to be compiled, which will be done together, where the program has been prepared according to the desire and necessity of mustahiq. 3) the third stage is self-reliance is about how mustahiq can be independent, and collaborate with other stakeholders, mustahiq can get the best results from what they do. based on information collected from the website baznas.go.id, it is known that the main juan zcd program is "realization of prosperous and independent society". the specific objectives of the zcd program are: a) growing awareness of mustahiq / beneficiaries about quality life; b) growing participation towards community self-reliance; c) growing social and economic social network; and d) creating a sustainable empowerment program in realizing community welfare and independence. zcd activity began to be applied since 2012, but still few areas in indonesia that apply this zcd. including in one of big province-java province, the zcd program has not been effectively implemented due to several constraints, including human resource constraints and facilities (ryandono & wijayanti, 2019). so that in baznas province like east java they had implemented an empowerment program that is aligned with the pattern of empowerment submitted figure 4.1 above. the program is called a revolving capital loan. the capital loan has been applied since 2006 where one group of mses received a business capital loan with a 1 year return term directly to baznas. then since 2015 this program is more mandated to partners of baznas east java. 3.1.2. brunei darussalam brunei darussalam is a small imperial state located on the northwestern island of borneo (borneo). data from brunei darussalam statistical yearbook (bdsyb, 2015: 1), states that international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 135 the total area of the negara brunei darussalam is 5.765 km2 with a total population of 417.200 people in 2015. the population composition is dominated by malay ethnicity (66%), followed by china 10%), and others (24%) (bdsyb, 2015: 9). the brunei darussalam region is divided into four districts, with densely populated districts being brunei muara (72% of the population), followed by belait area (15%), tutong (11%), and temburong (2%). the level of human development index (hdi) of brunei is high, that is 0.856 higher than indonesia, even it reached 31st place of 188 countries in the world (undp, 2015: 2). of the total population, 66% of the population of brunei is muslim. economically, brunei is one of the highest per capita income countries in asia (abdullah, 2012: 41). brunei's majority economy is sustained by oil and gas output. 3.1.3. the brunei government institution of zakah: bakaz muib the management of zakat in brunei darussalam is conducted centrally under the coordination of the ministry of religious affairs in brunei, namely the islamic council of brunei darussalam or commonly referred to as the majelis ugama islam brunei (muib). fund management zakat is then specifically handled in a single unit under the muib called the badan agihan dan kutipan zakat (bakaz). bakaz is the only government zakat institution responsible for the collection and distribution of zakat in brunei darussalam. in bakaz there is a special unit focused on managing zakat empowerment program known as propaz. propaz is a zakat aid program to the poor asnaf in the form of skills training, skills and guidance implemented by the propaz board under the control of bakaz in cooperation with several royal parties and private companies as service providers. zakat empowerment program given to faqir miskin in a form of zakat assistance are propaz ppb and propaz perantis. in the implementation, propaz perantis and propaz ppb training by doing collaboration with pusat pembangunan belia (ppb) of kementrian kebudayaan, belia, dan sukan (kkbs). propaz ppb held in a year within 9 months, with 3 months of incubation training at pusat pembangunan belia (ppb), 3 months internship in company, 3 months job placing. after it they can also build their own business if they want to. from the data of propaz bakaz (2017), the training given to zakat recipients are including information and communication technology, the art of kulinari and banquet facilities, beauty therapy, the fashion technology and tailoring, and also technical (welding and vehicle body repair, pipe fittings and plumbing, as well as airconditioning and refrigerators). the course choosing is depend on the willingness of recipients, in what course they are interesting. the output of this ppb program is more to make the recipient to be an entrepreneur by their skills. then propaz perantis is a 2 years program that more focus to linked the faqir miskin to the good work by some companies. before do it, propaz will assist them to get the job training from the near companies (with them) for 6 months, and they can have job placing for next 6 months, and if they are good enough for the next year they can make a mou with the company if they can officially work there. after company take that recipients it means that propaz job is done. in both program ppb and perantis, recipient also given a zakat fund as their income. this fund is taken from zakat fund in bakaz to help them fulfill their need, even to empower them. 3.1.4. financial inclusion on zakat empowerment program zakat distribution in muslim countries has two function to help poor people in different financial condition. it can be used to fulfill consumption and production needs of asnaf. consumption needs of poor people can be covered by zakat distribution which functioned as redistribution instrument. this redistribution means the income and wealth of aghniya’ 136 international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 are given to dhuafa’ as alms within qardh al hassan aqad or in baznas model analogy is giving them fish. then for the better condition dhuafa’ who can do the work but their income is not sufficient to fulfil their needs and even vulnerably become poor, zakat can be functioned as microfinance instrument. this microfinance means zakat fund can be given as productive fund to do mustahiq work/business during empowerment program. in baznas model, this function analogy is teaching mustahiq fishing skill and hand them fishing equipment’s. so that mustahiq can learn to take responsibility as a borrower to payback zakat fund using syirkah aqad or qardh. the implementation of zakat distribution on consumption and production fulfilment, needs some participation from related parties to support mustahiq financial inclusion process. on results of in-depth interviews with expert informants at baznas and bakaz, it was found that there were attempts at financial inclusion in zakat distribution by government zakat institution. table 1. financial inclusion through baznas and bakaz zakat institution financial inclusion in zakat distribution financial institution partner indonesia (baznas) central baznas zakat for consumption needs islamic banks zakat for production activity: zcd zakat community development islamic banks, bmt, bprs linked by ojk baznas east java zakat for consumption needs manually zakat for production activity jatim makmur: capital loan islamic banks and bmt brunei (bakaz) zakat for consumption needs manually and islamic banks zakat for production activity: propaz ppb and perantis +additional : capital loan islamic banks source: research result (2020) data compiled from baznas management stated that the financial inclusion done by baznas has different implementation. it is caused by implementation of decentralized on zakat management in indonesia so there are many different factors. in central baznas jakarta which the system has been settled, informant told that zakat consumption has been delivered to mustahiq by bank transfer to their account. but it is not applied yet to province baznas, as to baznas in east java or baznas jatim. informant baznas jatim stated that sometimes zakat officer gave zakat funds directly to mustahiq in reachable location. but if mustahiq location is far from office, distribution of zakat fund would be delivering to municipal baznas or baznas partners in city or rural area and they will give it directly to mustahiq within report mechanism. in terms of productive zakat by empowerment program as what have been planned in baznas system, in this stage baznas task is to train mustahiq during financial inclusion processes. because zakat managers thought that financial inclusion is an important thing to make the zakat impacts more beneficiaries to help mustahiqs. that’s why in baznas empowerment program (zcd), mustahiq smes possibly grow stronger, stable, and bankable, so that they can get further profit-sharing financing from islamic banks, bmt, bprs which are linked by ojk. in other side, implementation of zakat empowerment program in baznas jatim is a bit different. the lack of resources and system cause municipal baznas like baznas jatim did not applied zcd program. in fact, they still gave assistance within capital loan to support mustahiq smes and gradually will adopt zcd program. this capital loan for mustahiq in baznas jatim is mandated to baznas jatim partners from non-governmental organizations (ngo) and foundations. then this ngo will distribute capital loan to mustahiq international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 137 groups during the empowerment program they gave like bookkeeping, accounting, marketing, and so on. baznas partner informant stated that capital loan program is given in 3 years gradually to train them repay their loan, and after the program completed and the assistance will be loaned to other mustahiq groups in need. so that in those 3 years baznas partners optimize mustahiq with many entrepreneur skills so that after program, they can become independent smes and bankable. in bakaz, brunei darussalam, islamic banks have a big role in compilation and distribution of zakat funds. zakat distribution for consumption needs, mustahiq have choices to take zakat fund directly and manually to central zakat office, or can be transferred from islamic banks if they have bank account. islamic banks who become bakaz partners are tabung amanah islam brunei (taib) and bank islam brunei darussalam (bibd). on those participation, islamic banks as bakaz partners are not given amil fund portion but they can get ujrah from administration fee of bank account, bank services, and so on. zakat empowerment program in bakaz brunei named propaz and propaz ppb is done centrally in a training center kkbs, beside that bakaz also give mustahiqs monthly salary during their training in kkbs. the fund given to mustahiq both to fulfill their family daily needs and some of mustahiq also use the rest of it as a capital to run a small business. once they can prove that their business runs well, mustahiq also can proposed capital loan based on productive zakat fund. besides that, brunei government under kkbs also provide financing program named japem to give capital loan to the recommended mustahiq alumnus of propaz or propaz ppb that need to scale up their business. all of this zakat distribution in brunei, whether it is for consumption or production, are all done by bank transfer. so that, the integrated system of central agency of government will easier to transfer the charity fund, as well as they can avoid the over lapping charity fund given by another ministry. this scheme also makes mustahiq easier to access the fund, also to keep save their money in bank as savings. these two kinds of zakat empowerment program held by baznas in indonesia and bakaz in brunei darussalam, have a different type of financial inclusion. as well as the theory of financial inclusion, those two systems have been containing principle of financial inclusion that also contain in zakat empowerment program. there are several principle and benefits of financial inclusion contained in zakat empowerment programs (wahid: 2014), including 1). related to access, especially access to business loan sources, will automatically open business opportunities and/can be used to increase the investment size of small entrepreneurs. 2) second, the opening of networks into the formal financial sector allows the poor to access various types of business loans, utilizing savings options, and utilizing insurance products on soft terms. 3) third, regarding costs, it is intended that the existence of an inclusive financing will reduce the costs of repaying loans that must be borne by the low income poor, 4) fourth, it can utilize accounts that have been integrated with various government programs, thus facilitating and securing funds society. here we can infer that both zakat in baznas and bakaz have already fulfill all the principle and benefits of financial inclusion through zakat distribution and empowerment program. baznas and bakaz have proven that zakat institution also brings financial inclusion process when they delivered zakat on consumption and production needs of mustahiq. in zakat for consumption distribution, even though baznas jatim distribute manually but mostly central baznas and bakaz have done within bank transfer which means mustahiq became literate and open access into islamic banks facility. in zakat for production activity, along with empowerment program, both baznas and bakaz also 138 international journal of islamic business and economics (ijibec), 5(2) december 2021, 129-141 provide capital loan or financing mustahiq smes whether in qardh or syirhkah aqad. this process aims to train business skills and responsibility of mustahiq to repay those capital loan, then they can sustain in doing their business and become bankable. after that, hopefully they can access facility of islamic financial institution and gradually scale up their business. so that they can cut those vicious cycle of poverty, transform as no longer mustahiq or even transform into muzakki. this islamic charity institution in zakat instrument practically can answer mustahiq needs by financial inclusion that most of them are un-bankable which most of banks institution would not attach them, and right after zakat empowerment program they are targeted to be bankable and financially included. so it can be said that zakat institution is actually an islamic financial inclusion’s institution. 4. conclusion zakat institution in indonesia (baznas) and brunei (bakaz) have done financial inclusion process during their distribution on consumption needs and productive activities for mustahiq. most of zakat institution have done bank transfer to distribute consumption zakat which made mustahiq became literate and open access into islamic banks facility. in productive zakat along with empowerment program, beside using bank transfer, both baznas and bakaz also provide capital loan or financing mustahiq. this process aims to train business skills and responsibility of mustahiq to repay those capital loan, so that mustahiq can transform gradually to be bankable and have financial access to scale up their business. based on those facts, zakat institution has contained four principles and functions of the financial institution. so, it can be said that zakat institution is an islamic financial inclusion's institution. this research suggests indonesian government to support the integrated system of zakat program like have been started in brunei, as well as other zakat institution to always do the betterment for zakat management. and for other researcher, there are many opportunities to creating concept about islamic financial inclusion from zakat or other islamic charity instrument. the further research about this area is always needed to support the islamic economic development in indonesia and around the world. acknowledgment we would like to thank you for all informants who have been participate in interview and give valuable contributions to this 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(2020). peer to peer lending system in hifdul maal perspective: evidence from he fintech company of investree. jurnal ekonomi syariah teori dan terapan, 7(8), 1585–1597. https://doi.org/10.20473/vol7iss20208pp15841597. effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh shafir zaman & md. mohiuddin chowdhury the effect of fdr, npf, oeoi, and size toward roa (comparative study on indonesian islamic bank and malaysian islamic bank period 2010-2015) anafil windriya factors affecting customer’s bank selection decision: a study on commercial bank in jimma town ethiopia serkalem tesfaye , , mekuanint abera, & tadele mengesh the effect of expert management, professional skepticism and professional ethics on auditors detecting ability with emotional intelligence as modeling variables (study at the makassar city inspectorate) murtiadi awaluddin, nirgahayu, & rulyanti susi wardhani determinant of islamic pension fund in indonesia roikhan mochamad aziz, acep r. jayaprawira, & sulistyowati an analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn :2599-3216 e issn : 2615-420x editorial team editor in chief kuat ismanto. department of islamic economics, iain pekalongan, indonesia managing editor am. hafidz makshum. department of islamic economics, iain pekalongan, indonesia editorial board 1. shinta dewi rismawati. department of islamic economics, islamic state institute of pekalongan, indonesia 2. zawawi abdul wahid. department of islamic economics, islamic state institute of pekalongan, indonesia. 3. murtiadi awaluddin. universitas islam negeri alauddin makasar indonesia. 4. agus fakhrina, department of islamic economics, islamic state institute of pekalongan, indonesia. 5. muhammad shulthoni, scopus 57203621677 international islamic university malaysia 6. asnaini asnaini. department of islamic economic iain bengkulu, indonesia. 7. agus arwani, department of islamic economics, islamic state institute of pekalongan, indonesia. 8. rinda asytuti, department of islamic economics, islamic state institute of pekalongan, indonesia. 9. nafis irhami, department of islamic economics iain salatiga, indonesia. 10. adeel sabir khan, department of project management, szabist, pakistan. 11. umair riaz, id scopus: 57192558531 birmingham city university, birmingham, b5 5ju, uk. 12. happy sista devy, department of islamic economics, islamic state institute of pekalongan, indonesia 13. ahmad ajid ridwan, scopus: 57203842988, islamic economic studies department of economics faculty of economics universitas negeri surabaya, indonesia administration & it 1. aprin yudiarto, islamic state institute of pekalongan, indonesia. 2. nafilah, islamic state institute of pekalongan, indonesia office department of islamic economics, islamic state institute of pekalongan, indonesia corespondence: ijibec@gmail.com jl. kusumabangsa no. 9 pekalongan jawa tengah indonesia http://e-journal.stain-pekalongan.ac.id/index.php/ijibec effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh shafir zaman & md. mohiuddin chowdhury 1 8 the effect of fdr, npf, oeoi, and size toward roa (comparative study on indonesian islamic bank and malaysian islamic bank period 2010-2015) anafil windriya 9 22 factors affecting customer’s bank selection decision: a study on commercial bank in jimma town ethiopia serkalem tesfaye , , mekuanint abera, & tadele mengesh 23 36 the effect of expert management, professional skepticism and professional ethics on auditors detecting ability with emotional intelligence as modeling variables (study at the makassar city inspectorate) murtiadi awaluddin, nirgahayu, & rulyanti susi wardhani 37-50 determinant of islamic pension fund in indonesia roikhan mochamad aziz, acep r. jayaprawira, & sulistyowati 51 60 an analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi 61 69 contents e issn: 2615-420x issn: 2599-3216 av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / international journal of islamic business and economics international journal of islamic business and economics ijibec ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 14 march 2019 accepted : 15 april 2019 published : 11 june 2019 keywords: ability of auditors; management expert; professional skepticism; professional ethics; emotional intelligence doi: https://doi.org/10.28918/ ijibec.v3i1.1567 jel: m41, m42 abstract this study aims to examine the effect of management experts, professional skepticism and professional ethics on the auditor’s ability to detect fraud with intelligence emotional as a moderating variable. this research was conducted at the makassar city inspectorate. this research is an explanatory study with a quantitative approach. the study used a saturated sample method with a sample of 25 people. analysis data in this research using multiple regression analysis with absolute difference value. the results of multiple analysis show that management experts, professional skepticism and professional ethics have a positive and significant effect on the auditor’s ability to detect fraud. the result of the analysis show that emotional intelligence is able to moderate expert management and professional skepticism towards the auditor’s ability to detect fraud, while emotional intelligence does not moderate professional ethics on the auditor’s ability to detect fraud.. the effect of expert management, professional skepticism and professional ethics on auditors detecting ability with emotional intelligence as modeling variables (study at the makassar city inspectorate) 1. murtiadi awaluddin1 2. nirgahayu2 3. rulyanti susi wardhani3 1 program pascasarjana uin alauddin, h.m.yasin limpo no.36 samata-gowa, sulawesi selatan 2 fakultas ekonomi dan bisnis islam uin alauddin makassar, h.m.yasin limpo no.36samata-gowa, sulawesi selatan 3 fakultas ekonomi, universitas bangka belitung, kampus terpadu ubb, kelurahan balunijuk, kecamatan merawang, kepulauan bangka belitung, indonesia. *correspondent author: murtiadi.awaluddin@uin-alauddin.ac.id. 38 international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 1. introduction an audit is an independent audit process examining the financial statements of an organization to provide a reasonable opinion or opinion regarding its fairness and suitability with generally accepted accounting principles (nur, emrinaldi, julita, 2014 & adrian, 2017). the auditor is divided into two namely internal auditors and external auditors. internal auditors are employees who audit various elements within an entity that employees have complied with all entity policies efficiently. while employee auditors have complied with all entity policies efficiently. whereas the external auditor is a separate audit from the entity to ensure that the policy has been carried out in accordance with established standards. an auditor has the duty to carry out an audit of an entity’s financial statements and provide opinions or opinions on the account balance in the financial statements whether it has been presented fairly in accordance with financial reporting standards or generally applicable accounting principles and financial reporting standards or accounting principles generally accepted and the standards have been implemented consistently. in indonesia, cheating on government agencies does not only involve people who have high positions but also those who are under them, and not only in the central government but also within the local government (anggriawan, 2019; hartan, 2016). given the importance of the tasks carried out by the internal auditor / inspectorate, it is necessary to ensure that the tasks and functions carried out can be carried out properly. expertise and technical skills to carry out checks are certainly a very significant thing in carrying out these tasks. with the support of competencies and audit techniques as well as other competencies from the formal and informal levels of education and experience in audit practice, the auditor must be able to collect and evaluate the evidence used to support the assessment given (awaluddin, 2013). the process of recording financial transactions is usually done manually and requires carefulness and carefulness of the workforce (girinatha surya & sari widhiyani, 2016). where the financial statement information will be used as the basis for management decision making. the financial statements presented must be completely free of material misstatements and the financial statements are prepared in accordance with generally accepted accounting standards (adnyani, atmadja & herawati, 2014). management of state finances as well as the private sector is inseparable from the risk of fraud. various cases of fraud such as corruption, financial report manipulation, and asset fraud can also occur in the government environment (sugiarto, 2016; arsendy, 2017). in order for fraud to be minimized, of course companies or government agencies need effective and efficient ways to improve internal control (hartan, 2016). fraud or fraud is increasingly prevalent in various ways that continue to grow so that the auditor’s ability to detect fraud must also be continually improved, however, the auditor is required to remain able to detect fraud if fraud occurs in carrying out his audit duties (anggriawan, 2014). one factor that can be considered or possessed by an auditor to strengthen its ability to detect fraud is the expertise of an auditor. audit must be carried out by someone who has sufficient technical expertise and training as an auditor. expertise is an important element that must be owned by an independent auditor in order to become a professional workforce. auditor expertise is considered as someone who has extensive knowledge, education and high skills. according to drupadi (2015) and pertiwi and budiartha (2017) an auditor’s expertise in auditing reflects the level of knowledge, experience, and education that the auditor has. (sari and ruhiyat (2018) and (faisal and sari, 2018) state that expertise itself means the ability to apply knowledge to problems that are generally faced and resolve these problems without the need to re-learn extensively and meaningful assistance from other parties. the expertise of an auditor, the ability possessed by the auditor will be more accurate. with his expertise, the auditor is able to learn actively, process 39international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 information that is relevant and able to predict and detect fraud and errors so that it can affect the quality of the audit produced later. the auditor uses the skill of his professional skepticism when giving his opinion. in order for the given opinion to be appropriate, the auditor requires all sufficient competent evidence and to obtain this skepticism a skeptical attitude is needed (silalahi, 2013). according to adnyani, atmadja and herawati (2014) professional skepticism is interpreted as an attitude that is not easy to believe in audit evidence presented by management, an attitude that always questions and evaluates critical audit evidence. an auditor with high flight hours as well as the usual finding fraud may be more careful in detecting fraud than auditors with low flight hours (anggriawan, 2014). kartikarini and sugiarto (2016) in their research showed that the higher the professional skepticism that the auditor has, the more desire to find out about the red flags around him. research (noviyanti, 2008) also shows that auditors with an identification-based level of trust if given a high fraud risk assessment will show higher professional skepticism in detecting fraud, whereas in auditors with calculus-based trust levels, the level of fraud risk assessment will not be high. affect his skepticism. in contrast to research conducted by rahayu (2016) where professional skepticism does not affect the auditor’s ability to detect fraud because, (1) there are differences in the level of skepticism between senior auditors and junior auditors (2) fraud perpetrators are considered brave and have high intellectual property, and have sophisticated ways. the basic thing that must be considered by auditors is ethics in profession. according to ariyanto (2010) professional ethics is needed by each profession to gain trust from the public, such as the profession of auditors. futri and juliarsa (2014) professional ethics includes a standard of attitudes of members of the profession that are designed to be as practical and realistic as possible, but still idealistic. each auditor must adhere to their professional ethics so as not to deviate from the rules in completing his client’s financial statements. if an auditor is unable to carry out his duties in accordance with ethics, the permission of the auditor can be revoked as is the case with a public accountant. auditor performance is not only seen from perfect work ability, but also the ability to master and manage oneself and the ability to build relationships with others. this ability by daniel goleman is called emotional intelligence or emotional intelligence that will give an influence from within a person. goleman (2009) through his research said that emotional intelligence accounted for 80% of the determinants of success, while the other 20% was determined by iq (intelligence quotient). emotional intelligence is a capability in managing our responses and emotions when dealing with other people, situations, interaction problems, and stress conditions, so that we get effective results or our understanding of others so that we can manage all situations and can interact with win-win ways (wijayanti, 2012). emotional intelligence is the ability to recognize one’s own feelings and other people’s feelings, motivate themselves, and manage emotions well in themselves and in relationships with others (choiriah,2013). related to emotional intelligence in acting, someone will know to place themselves in a social environment, understand how to act in everyday life. the quality of audits conducted by the makassar city inspectorate is still in the spotlight because there are still many cases of fraud that have occurred. as the city’s internal supervisor, the inspectorate has carried out several prevention of fraudulent actions by carrying out the data updating follow-up activities along with the skpd in order to follow up on all previous findings. the completion of the follow-up results of the inspection results will be evaluated and monitored on an ongoing basis by the makassar city inspectorate, so that activities like this really require professional and higher-skilled auditors to prevent even more fraudulent acts. 40 international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 the nature of the regional inspectorate functions as an internal government auditor who has the task of carrying out general supervision activities of the regional government and other tasks given by the regional head. so that various forms of fraud such as fraud cases or corruption cases that occur not only can be anticipated, but can also be resolved in the area, especially through the maximum role of the regional inspectorate because fraud committed by regional officials will later have an impact on the community itself. 2. literature review 2.1 cognitive dissonance theory this theory was introduced by leon festinger in 1957. this theory says that humans basically like consistency, therefore humans will tend to take attitudes that do not conflict with each other and avoid taking actions that are not in accordance with his attitude. dissonance means there is an inconsistency. cognitive dissonance means that psychological conditions are unpleasant which arise when in humans there is a conflict between two cognitions or conflicts between behavior and attitudes. cognitive dissonance theory also helps to explain whether the auditor’s professional skepticism is affected or not by the fraud risk assessment that is set by his supervisor, even though the auditor actually has a low level of trust in the client (noviyanti, 2008). 2.2 attribution theory attribution theory was proposed by fritz heider in 1958. in this study attribution theory is used to explain conclusions or decisions made by auditors. attribution theory basically wants to explain the causes of other people’s behavior. is the behavior caused by internal dispositions (eg motives, attitudes, etc.) or by external circumstances (kartikarini and sugiarto, 2016). internal disposition is factors that come from within the individual, while external conditions come from the environment outside the individual. in the context of auditing, attribution theory is widely used by researchers to explain auditor judgment, performance appraisal, and decision making by auditors. attribution is related to valuation and explains how an auditor behaves. the auditor’s ability to detect fraud a lot is determined by internal attribution, where the factors that determine the ability more come from within the auditor. ability can be formed through one’s efforts, for example by seeking knowledge, maintaining independence, and increasing attitudes of professional skepticism. chen, kelly and salterio (2012) and kartikarini & sugiarto (2016) mention that attribution theory can answer questions about social perception but also at the same time relate to self-perception. the auditor when dealing with the red flag when conducting an audit, will try to find the cause and make conclusions about the red flags. an auditor’s self-perception plays an important role in deducing whether red flags lead to symptoms of cheating or just an error. 2.3 management expert management expert is an important element that must be owned by an independent auditor in order to become a professional workforce. auditor expertise (management expert) is considered as someone who has extensive knowledge, education and high skills. management expert is a person or organization that has expertise in a field outside of accounting and auditing, and that expertise can be used to help him in carrying out the tasks he is given (tuanakotta, 2015). according to drupadi (2015) an auditor’s expertise in auditing reflects the level of knowledge, experience, and education that the auditor has. trisnahningsih (2010) states that expertise itself means the ability to apply knowledge to problems that are generally faced and resolve these problems without the need to re-learn widely and meaningful assistance from other parties. the higher an auditor’s expertise, the better the ability of an auditor in an effort to detect fraud. with his expertise, the auditor is able to learn actively, process information that is relevant and able to predict and detect fraud and errors so that it can influence decisions made by the auditor (artha & herawati, 2014). 41international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 2.4 professional skepticism auditors’ professional skepticism is an attitude in conducting audit assignments (prasetyo, 2015). professional skepticism is considered more important for auditors in assessing audit evidence. skepticism is a critical attitude in assessing the reliability of assertions or evidence obtained, so that in carrying out the audit process an auditor has sufficient confidence in the assertion or evidence he has obtained and also considers the adequacy and suitability of the evidence obtained (anggriawan, 2014). according to hartan (2016) professional skepticism is the attitude of an auditor by always questioning and evaluating critically on existing audit evidence. an auditor who has a professional skepticism will not simply put trust in the client’s explanation relating to audit evidence. the existence of professional skepticism will be better able to analyze the existence of fraudulent acts in the financial statements so that the auditor will increase the detection rate at the next auditing process. 2.5 emotional intelligence emotional intelligence is the ability to face frustration, the ability to control emotions, a spirit of optimism and the ability to establish relationships with other people (khairat, 2017). someone with effective use of emotions in building productive relationships in achieving success in achieving a successful performance. emotional intelligence is an emotional skill that includes the ability to control oneself and have endurance when facing obstacles, being able to control impulses and not be satisfied quickly, able to regulate moods and be able to manage anxiety so as not to interfere with the ability to think, be able to empathize and hope (wijayanti, 2012) so that someone who has emotional intelligence is able to place themselves and act well. 2.6 ability of auditors to detect fraud the ability to detect fraud is a skill or expertise possessed by the auditor to find indications of fraud (anggriawan, 2014). detecting fraud is an attempt to get sufficient initial indications of fraud, while at the same time narrowing down the space for the perpetrators of fraud. in carrying out the role of the audit, the auditor is responsible for planning and carrying out the audit in order to obtain sufficient confidence whether the financial statements are free of material misstatements. with the support of competencies and audit techniques as well as other competencies from the formal and informal levels of education and experience in audit practice, the auditor must be able to collect and evaluate the evidence used to support the award given (awaluddin, 2013). 2.7 previous research herdiansyah, rizki, & sukarmanto (2017) examined the effect of auditor experience, professional and gender expertise on moderate cheating detection professional skepticism. the results of the study indicate that auditor experience, professional expertise and gender have a high influence on fraud detection with professional skepticism as a moderating variable. the results of the study by kartikarini and sugiarto (2016) regarding the effects of gender, expertise and professional skepticism on the ability of auditors to detect fraud. the results showed that gender, expertise and professional skepticism had a positive effect on the auditor’s ability to detect fraud. this is also supported by attribution theory which states that expertise is a part of internal attribution whose existence is largely determined by the factors of the individual including abilities and effort. anggriawan’s research (2014) concerning the effect of work experience, professional skeptics and time pressure on the auditor’s ability to detect fraud (empirical study at the public accountant office in diy). the results showed a positive effect of work experience on the auditor’s ability to detect fraud. there is a positive influence between professional skeptics on the auditor’s 42 international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 ability to detect fraud. there is a negative influence between the time pressure on the auditor’s ability to detect fraud. hartan (2016) examines the effects of professional skeptics, independence and competence on the ability of auditors to detect fraud (empirical study at the inspectorate of the special region of yogyakarta). the higher professional skepticism possessed by auditor increases the auditor’s ability to detect fraud if faced with symptoms of fraud. sari, arwinda., made, & wirakusuma (2018) examined the effect of professional skeptism, ethics, personality types, compensation and experience in fraud detection. the results of these studies indicate professional skepticism has a positive effect on fraud detection. research also shows a positive influence between ethics and fraud detection. compensation also has a positive effect on fraud detection. experience has a positive effect on fraud detection. personality has no effect on fraud detection. the ethics that the auditor has when auditing reports can affect the audit results to be of higher quality. 3. methods the framework is explained in figure 1 below: h 1 h 2 h 3 h 4 h 5 h 6 picture 1 thinking framework based on figure 1 above in detecting fraud committed by auditors, it is also the same as the auditor’s professional skepticism which is the auditor’s attitude in conducting audit assignments where this attitude includes the mind that is always questioning and evaluating critically on audit evidence, because of evidence audit is accumulated and assessed during the audit process, professional skepticism must be used during the process (noviyanti, 2008). and also someone with high emotional intelligence will be more skilled to know which one is right related to the client’s financial statements which will influence auditor opinion. 3.1 hypothesis h 1 : management expert influences the ability of the auditor to detect fraud h 2 : professional skepticism affects the auditor’s ability to detect fraud h 3 : professional ethics influences the auditor’s ability to detect fraud h 4 : management expert influences the ability of auditors to detect fraud in moderating emotional intelligence h 5 : professional skepticism influences the ability of auditors to detect fraud in moderating emotional intelligence management expert(x 1 ) ability of auditors to detect fraud (y)professional skepti-cism(x 2 ) professional ethics (x 3 ) emotional intelligence (m) 43international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 h6: professional ethics influences auditor’s ability to detect fraud in moderating emotional intelligence the type of research used in this study is explanatory research, namely research that aims to test a theory or hypothesis to strengthen or even reject the theory or hypothesis of the results of existing research. explanatory research is fundamental and aims to obtain information, information, data about things that are not yet known by preparing several questions as a guide to obtain primary data in the form of information, information as the initial data needed. this research was conducted at the makassar city inspectorate office located on teduh bersinar no. 6, gunung sari, makassar city. the research approach used in this study is quantitative which uses numbers and with statistical calculations. quantitative research can be interpreted as a research method used to examine a particular population or sample, sampling techniques are generally carried out randomly, collecting and using research instruments, analyzing quantitative or statistical data with the aim of testing predetermined hypotheses. the population in this study were all auditors at the makassar city inspectorate office. in this study, the sampling technique used saturated samples. saturated sample is a sampling technique if all members of the population are used as a sample of sugiyono (2014) in hariyati (2014)). saturated sample techniques are often used when the population is relatively small. another term for saturated samples is census, in the name of all members of the population used as research samples. the type of data used in this study is subject data. the source of this research data is primary data. with the techniques used by researchers in collecting data, namely: by survey method using questionnaire media (questionnaire). to measure the opinions of respondents, the likert scale is used which generally uses five rating points. 3.2 data analysis method the method of data analysis uses descriptive statistics, data quality tests, classic assumption tests and hypothesis testing with the help of computers. 4. result and discussion 4.1 data quality test results validity test, reliability test, normality test, multicolliniearity test, and heterocedasticity have been done, result analisys show there is no problem in the data and also shows normal data and can be processed in the next regression. table 1 determination coefficient test results (r2) model r r square adjusted r square std. error of the estimate 1 ,920a ,846 ,824 105,453 a. predictors: (constant), professional ethics (x 3 ), management expert (x 1 ), professional skepticism (x 2 ) source: primary data processed in 2018 based on table 1 above, the test results of the determination coefficient r value is 0.920 or 92.00%. this means that a strong positive relationship between expert management variables, professional skepticism and professional ethics on the auditor’s ability to detect fraud is 92.00%. from the table above, it is known that the determination coefficient value of r square is 0.846, this means that 84.6% indicates that the auditor’s ability to detect fraud is influenced by expert management variables, professional skepticism and professional ethics. the remaining 15.4% is influenced by other variables that have not been studied in this study. 44 international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 table 2 f test results simultaneous test model sum of squares df mean square f sig. 1 regression 128,407 3 42,802 38,490 ,000b residual 23,353 21 1,112 total 151,760 24 a. dependent variable: ability of auditors to detect fraud (y) b. predictors: (constant), professional ethics (x 3 ), management expert (x 1 ), professional skepticism (x 2 ) source: primary data processed in 2018 based on table 2 above, it can be seen that the multiple regression test shows that the f count is 38.490 with a significance level of 0.000 which is smaller than 0.05, where the calculated f value (38.490) is greater than the f table value of 3.07 (df1 = 4-1 = 3 and df2 = 25-4 = 21), then ho is rejected and ha is accepted. means that the management expert, professional skepticism and professional ethics variables together influence the auditor’s ability to detect fraud. table .3 t test results – partial test model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -1,652 2,284 -,723 ,478 management expert (x 1 ) ,394 ,102 ,476 3,855 ,001 professional skepticism (x 2 ) ,374 ,170 ,279 2,206 ,039 professional ethics(x 3 ) ,326 ,121 ,301 2,690 ,014 dependent variable: auditor ability to detect fraud (y) source: primary data processed in 2018 based on table 3 above, the results of the interpretation of the research hypothesis proposed can be seen as follows: a. expert management influences the ability of auditors to detect fraud (h 1 ) based on table 3 it can be seen that the expert management variable has a t count of 3.855> t table with sig. α = 0.05 and df = n-k, which is 25-4 = 21 t table 1.673 with a significance level of 0.001 which is smaller than 0.05, then ha is accepted. this means that management experts have a positive effect on the auditor’s ability to detect fraud. the results of this study indicate that when the management experts possessed by auditors increase, the auditor’s ability to detect fraud will be better. thus the first hypothesis which states that management experts influence the ability of auditors to detect fraud is accepted. b. professional skepticism affects the auditor’s ability to detect fraud (h 2 ) based on table 3 it can be seen that the professional skepticism variable has t count of 2.206> t table 1.673 with a significance level of 0.039 which is smaller than 0.05, then ha is accepted. this means that professional skepticism has a positive effect on the auditor’s ability to detect fraud. the results of this study indicate that the better the professional skepticism possessed by the 45international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 auditor, the better the auditor’s ability to detect fraud. thus the second hypothesis which states professional skepticism has an effect on the auditor’s ability to detect fraud is accepted. c. professional ethics influences the auditor’s ability to detect fraud (h 3 ) based on table 3 it can be seen that the professional ethics variable has t arithmetic of 2.690> t table 1.673 with a significance level of 0.014 which is smaller than 0.05, then ha is accepted. this means that professional ethics has a positive effect on the auditor’s ability to detect fraud. the results of this study indicate that the better the professional ethics possessed by auditors, the better the auditor’s ability to detect fraud. thus the third hypothesis which states professional ethics influences the auditor’s ability to detect fraud is accepted. table 4 determination coefficient test results (r2) model r r square adjusted r square std. error of the estimate 1 ,952a ,907 ,869 ,91148 a. predictors: (constant), x 3 _m, x 1 _m, zscore: emotional intelligence (m), x 2 _m, zscore: professional ethics (x 3 ), zscore: management expert (x 1 ), zscore: professional skepticism (x 2 ) source: primary data processed in 2018 based on table 4 above, the test results of the detemination coefficient of r square are 0.907 or 90.7%, which means that the ability of auditors to detect fraud can be explained by management expert, professional skepticism and professional ethics with emotional intelligence as a moderating variable. % is influenced by other variables that have not been studied in this study. table 5 f test results simultaneous test model sum of squares df mean square f sig. 1 regression 137,636 7 19,662 23,667 ,000b residual 14,124 17 ,831 total 151,760 24 a. dependent variable: kemampuan auditor mendeteksi kecurangan (y) b. predictors: (constant), x 3 _m, x 1 _m, zscore: emotional intelligence (m), x 2 _m, zscore: professional ethics (x 3 ), zscore: management expert (x 1 ), zscore: professional skepticism (x 2 ) source: primary data processed in 2018 in table 5 above, the results of anova or f test indicate that the calculated f value is 23,667 with a significance level of 0,000 far below 0.05. this means that the management expert, professional skepticism, professional ethics and emotional intelligence variables together or simultaneously affect the auditor’s ability to detect fraud. 46 international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 table 6 t test results partial test model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 19,599 ,651 30,123 ,000 zscore: management expert (x1) 1,079 ,342 ,429 3,158 ,006 zscore: professional skepticism (x2) -,234 ,451 -,093 -,518 ,611 zscore: professional ethics (x3) ,519 ,283 ,207 1,838 ,084 zscore: emotional intelligence(m) ,914 ,420 ,363 2,175 ,044 x1_m 1,466 ,600 ,222 2,444 ,026 x2_m 1,458 ,678 ,222 2,152 ,046 x3_m ,479 ,397 ,109 1,206 ,244 a. dependent variable: auditor ability to detect fraud (y) source: primary data processed in 2018 a. emotional intelligence moderates the influence of management experts on the auditor’s ability to detect fraud (h4) from the results of the absolute difference test shown in table 6 shows that the absx1_m moderating variable has a t count of 2.444> t table 1.739 (df = nk df = 25-8 = 17) with a significance level of 0.026 which is smaller than 0.05, then ha accepted. because the interaction between management expert variables with the auditor’s ability to detect fraud (b2) has a significance level of 0.001 <0.05 which means significant and the interaction between emotional intelligence and management experts on the auditor’s ability to detect fraud (b3) has a significance level of 0.026 <0.05 significant, the use of emotional intelligence variables is included in the quasi moderation category which means that the variables of emotional intelligence include independent variables and variables that moderate the management expert’s ability to detect fraud. this means that the emotional intelligence variable can strengthen the relationship of the expert management variable to the auditor’s ability to detect fraud. so the fourth hypothesis (h 4 ) which states that emotional intelligence moderates management experts on the auditor’s ability to detect fraud is proven or accepted. b. emotional intelligence moderates the effect of professional skepticism on the auditor’s ability to detect fraud (h 5 ) from the results of the absolute difference test shown in table 6 shows that the absx2_m moderating variable has a t count of 2.152> t table 1.739 (df = nk df = 25-8 = 17) with a significance level of 0.046 which is smaller than 0.05, then ha accepted. because the interaction between professional variables skepticism with the ability of the auditor to detect fraud (b2) has a significance level of 0.039 <0.05 which means significant and the interaction between emotional intelligence and professional skepticism on the auditor’s ability to detect fraud (b3) has a significance level of 0.046 <0.05 means significant, the use of emotional intelligence variables is included in the quasi moderation category which means that emotional intelligence variables including independent variables and variables that moderate professional skepticism towards the auditor’s ability to 47international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 detect fraud. this means that the emotional intelligence variable can strengthen the relationship of professional variables skepticism towards the auditor’s ability to detect fraud. so the fourth hypothesis which states emotional intelligence moderates professional skepticism towards the ability of auditors to detect fraud proven or accepted. c. emotional intelligence moderates the influence of professional ethics on the auditor’s ability to detect fraud. from the results of the absolute difference test results shown in table 6 shows that the absx3_m moderating variable has t count of 1.206 <t table 1.739 (df = nk df = 25-8 = 17) with a significance level of 0.244 which is greater than 0.05, then ha is rejected. because the interaction between professional ethics variables with the auditor’s ability to detect fraud (b2) has a significance level of 0.014 <0.05 which means significant and the interaction between emotional intelligence and professional ethics on the auditor’s ability to detect fraud (b3) has a significance level of 0.244 <0.05 means not significant, the use of emotional intelligence variables is included in the predictor category, which means that emotional intelligence variables including independent variables but not variables that moderate the professional ethics of the auditor’s ability to detect fraud. this means that the emotional intelligence variable cannot strengthen or weaken the relationship of professional ethics variables to the auditor’s ability to detect fraud. so the fourth hypothesis (h6) which states that emotional intelligence moderates professional ethics against the ability of auditors to detect fraud is not proven or rejected. 5. conclusion based on the results of the analysis show that the management expert has a positive and significant effect on the auditor’s ability to detect fraud. this means that when the management expert possessed by the auditor increases, the ability to detect fraud that occurs can be better. professional skepticism has a positive and significant effect on the auditor’s ability to detect fraud. this shows that when auditors have a high skepticism, the ability to detect fraud is getting better. professional ethics has a positive and significant effect on the auditor’s ability to detect fraud. this shows that when an auditor has good professional ethics, the auditor’s ability to detect fraud is getting better. the results of the moderation regression analysis with the absolute difference value approach indicate that the emotional intelligence is a moderating variable that strengthens the relationship between management experts on the auditor’s ability to detect fraud. emotional intelligence is a moderating variable that strengthens the 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(2012) ‘peran kecerdasan emosional dan kecerdasan spiritual dalam meningkatkan kinerja auditor.’, jurnal ilmiah mahasiswa akuntansi, 1(2). 50 international journal of islamic business and economics (ijibec), 3(1) june 2019, 37-50 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 31 dec 2018 accepted : 21 march 2019 published : 11 june 2019 keywords: bank selection; convenience factors; financial factors; technology factors; bank image and reputation; service quality doi: https://doi.org/10.28918/ ijibec.v3i1.1486 jel: g.21, f.36 abstract the objective of this study was to examine factors affecting customers’ bank selection decision. the study employs cross sectional survey design and mainly conducted based on data collected through questionnaires and interviews. the sample size of the study was 384. the collected data were analyzed through spss version (20). the descriptive and inferential statistical tools such as mean, percentage, anova, correlation and multiple linear regressions were used to analyze collected data. the regression model summary shows that the all independent variables explain 53.5 % variability on bank selection decision and model explains significant variability of customer bank selection intention by five decision variables. the findings revealed that; out of five factors ,four factors such that: technology factors, service quality factors, bank image and reputation factors, and convenience factors have significant and positive relation with bank selection decision while financial factor has insignificant relation with bank selection decision. as customers place more emphasis on factors like convenience, service quality, technology and bank image and reputation, such factors better to be considered seriously by banks in their marketing strategies which help them to attract new as well as retain the existing customers. factors affecting customer’s bank selection decision: a study on commercial bank in jimma town ethiopia 1. serkalem tesfaye, 2. mekuanint abera 3. tadele mengesha college of business and economics, jimma university email corepondence: meku2031@gmail.com 24 international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 1. introduction banks play a key role in improving economic efficiency by channeling funds from resource surplus unit to those with better productive investment opportunities. it also facilitates trade and payment system by significantly reducing transaction costs and increasing convenience (nca2006). the banking industry has characterized by increasing competition since the early 1980s (blankson, cheng & spears, 2007). this has been the result of a number of interrelated factors such as competition and deregulation that have revolutionized the distribution of many financial services. in other words, an increased competition resulting from a decade of deregulation of the financial services industry has meant that banks find themselves with the task of differentiating their organizations and their offerings as a means of attracting customers. to enhance the role of banks in an economy, competition is an important driving force; without competition, it is improbable to bring about efficiency and foster financial sector development (davidson, 2011). the trend towards globalization has introduced many changes in the economic and business environment all over the world. almost all industries were including the banking sector, in one way or the other are being affected by this trend (goitem, 2011). banks have created diverse products in an attempt to satisfy customers and be highly competitive (moklish, 2009). the increased competition resulting from a decade of deregulation of the financial services industry has meant that banks faced with the task of differentiating their organizations and their products or services as a means of attracting customers (blankson, et al 2007). commercial banks in ethiopia like banks operating in the developed countries are putting more emphasis on providing more facilities and services to their customers (goitem, 2011). as economic environment is rapidly changing and customers are becoming more demanding and sophisticated, it has become important for financial institutions, to determine the factors, which are pertinent to the customer’s selection. therefore, for this sector, the quest lies in determining the basis on which customers, make their selection for a banking service (aregbeyen, 2011). the banking industry appears as one of the most rapidly emerging sector. so it has become increasingly important that banks identify the factors that determine the basis upon which customers choose between providers of financial services. a set of determinant factors that have significant role in bank selection in one nation may prove to be insignificant in another. currently, there are 18 banks in ethiopia, of which 16 are private banks and the rest are government owned banks. even though sharing strong expansion, there are of course prominent variations along with banks in terms of their aggregate size, revenue sources, customer focus, loan concentration, and operational efficiency. with growing competitiveness in the banking industry (gerrardand cunningham, 1997), and similarity of services offered by banks (holstius and kaynak, 1995), it has become increasingly important that banks identify the factors that determine the basis upon which customers choose between providers of financial services. usually, the marketing plans of organizations do fail at implementation due to improper identification of the factors or determinants that consumers consider in selecting who to deal with (devilin and gerrard, 2005). hence, there is need for banks, like other service organizations, to effectively identify the important parameters that attract customer’s attention and help in their choice of banks to do business with. in addition, there is a need for banks to know how customers choose their banks and take measures to attract them before others do. in this regard, the basic aim of the study is to examine the basic motivational factors in customers” bank selection in jimmazone. since bank is a financial institution that manages money and helps in developing the country’s economy, it is important for the bank to understand the customer behavior and demands towards 25international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 the bank products and services. customers are exposed to diversified choices and they are much concerned about the value for money. this means that there are unlimited switching choices (blankson et al, 2007). with growing competitiveness in the banking industry and similarity of services offered by banks (zineldin, 1996), it has become increasingly important that banks identify the factors that determine the basis upon which customers choose between providers of financial service. exploring such information will assist banks to recognize the appropriate marketing strategies needed to attract new customers and retain existing ones (aregbeyen, 2011). a number of studies have been undertaken on the issue of bank selection criteria in line with customers’ preference, why and how they select a particular bank to be served there. a review of literature indicates that; the issue of bank selection process attracted considerable attention in the bank marketing literature, mainly in the usa and some in europe and other regions (christos,et al, 2012; almossawi, 2001; gerrard and cunnigham, 2001; ta and har, 2000; denton and chan, 1991; fragos et al, 2012; wei and lu, 2012;chigamba, 2011).the literature has shown that studies made in the countries other than the usa and europe are quite rare (gerrard and cunningham, 2001). such studies have contributed substantially to the literature on bank selection. their findings may not be applicable to other countries, like ethiopia due to differences in cultural, economic and legal environments. thus, it is better to consider the subject in the context of ethiopia. nowadays the banking industries have been growing rapidly in ethiopia. hence in such growing industry where stiff competition exists knowing the major factors that customers value to select financial service providers is worth studying. but as per the knowledge of the researcher there were only few counted researches done regarding, customer’s bank selection decision in ethiopia. goiteom (2011) and dawit (2013) examined the factors that influence customers banking choices in addis ababa city. goitem (2011) tries to identify the factors that affect customer’s bank selection relative to the gender of the customer’s. dawit (2013) also try to identify bank selection criteria relative to other demographic like age, income, marital status rather than gender. both of them employed simple descriptive analysis in their studies. first of all, this study attempts to full fill literature gaps within the context of ethiopia. secondly, what makes the current study unique is that it has used multiple linear regressions models. in addition to on some variable, there were the inconsistencies of the findings between the previous studies. according to renman and ahmed (2008), moklish (2009), sharma and rao (2010) and aregbeyen (2011) convenience is the most important factor that influence customer bank selection decision. however, some researchers found that there were insignificant relationship between convenience factors and customers bank selection decision (ta & har, 2000; wei and lu, 2014; msweli; naude, 2015 and agarwal,2017).therefore, by taking these in to consideration the aim of this paper examines the basic factors considered by customers when select bank in ethiopia with the particular reference jimma zone and as much as possible try to improve the inconsistence of the previous findings and support one of them. the aims of this study was to examine factors that affect customers’ bank selection decision in banking service in jimma zone. 2. literature review 2.1 literature review in rational choice theory, individuals are seen as motivated by the wants or goals that express their ‘preferences’. they act within specific, given constraints and based on the information that they have about the conditions under which they are acting. at its simplest, the relationship between preferences and constraints has been seeing in the purely technical terms of the relationship of a means to an end. as it is not possible for individuals to achieve all of the various things that they 26 international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 want, they must also make choices in relation to both their goals and the means for attaining these goals. convenience means a product, process or services with easy accessibility, save resources and reduced frustration. a numbers of investigations have been carried out to determine the relationship between convenience and bank selection. renman and ahmed (2008) concluded that the most important bank selection criteria are convenience, bank reputations, quality of a product and others factors. their respondents showed that bank selection criteria like location convenience seem to be influencing the bank selection mostly. convenience is one of the most important variable influencing customer choices among other factors namely customer services, online banking facilities and overall bank environment (moklish, 2009) a study conducted by (rao & sharma, 2010) on bank selection criteria concludes that convenience is an important determinant. factors such as parking facility, free delivery of demand, phone banking, and free home cash delivery suggest that consumers want convenience in banking and they want to save time. convenience is one of the factors that will affect the decision of selecting a bank by customers (aregbeyen, 2011). when a bank location is nearby customer it will be easy for a customer to do their transaction and a bank has convenience location will have an advantage compare to its competitors who do not have convenience location to its clients (william, et al, 2012). convenience is an important factor that will influence bank selection by customers because not every customer might have the same view of convenience (ojan, et al, 2012; robert, et al, 2013).when the location of a bank is nearby with customers home or working place, the customers will more prefer have transaction with a bank. some researchers stated that the citizen would select a bank with more branch offices in the country the more likely. when the number of branch office is more it is more convenience for a customer do their transaction or deal with a bank(hinson, et al,2013). however, some researchers found that there are insignificant relationship between convenience and bank selection decision (ta &har, 2000;wei and lu,2013,agsrwal,2017).when the location of a bank is nearby with customers home or working place will not influence the decision of a customer choosing a bank (wei and lu, 2013). 2.2 service quality factors ta and har (2000) stated that, delivering quality services and products to customers had significant positive influence for success and survival of today’s competitive banking environment. gerrard and cunningham (2001) identify the factors that determine the consumer decisions on choosing their providers of financial services by the similarity of services which offered by bank has become important. according to newman et al (2001) service quality came second in terms of relative importance considered by female customers than a male customer when selecting their banks. those banks, which with more extra services provided were more favorably (cicic, et al, 2004) arsil, et al (2005) also found out that banks which with more extra services provided were more favorably. the results suggest safety of fund; efficient service quality and speed of transactions have significant positive influence on customers’ bank selection decision in order to fulfill satisfaction of customer it is very important to know the customer character and it can be classified into five categories which are intangibility, inseparability, heterogeneity, perish ability and ownership. this is because the view of the service quality from each of the category from different with each other and it will indirectly influence a customer selecting bank (lymperopoulos, 2006). a study which is presented by (safakli, 2007) in bangladesh where there’s a six full-fledged islamic banks found corporal efficiency, confidence, core banking services, and others. the non islamic elements were set as higher priority weights by majority of the respondents. the main 27international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 factors determining consumers’ bank selection are: service quality and efficiency service quality is the most important criteria will influence the result of selecting a bank by customer (moklish, 2009; katircioglu, et al, 2011). when the transaction speed is fast or efficient will reduce the degree of intention switching to others bank. decision of selecting a bank by customers also can be explain by range and quality of services provided by bank. when the services offer by bank is wide will attract attention from customers in decision of selecting a bank (parvin, et al, 2012). 2.3 financial factors findings of safiek et al (2009) reveal that interest paid on savings accounts, interest charged on loans, quick service, reputation and hours of operation are viewed as having more importance than other criteria such as friendliness of employees, modern facilities, and drive-in-service. schmidt et al. (2009) in his study conducted in new york state found that the three most important factors in selecting a bank business customers were lending rates, accessibility of borrowing, and the number of services offered. (2009) found out that the emergence of new technology created a situation where consumers are more aware of market conditions and cause more sensitive towards price and service in their financial services choices. they would compare prices, cost or benefits from the banks that offers the similar products and services and select the bank that they perceive and provides the highest benefits to them with the lowest cost given for their preference (kausar et al, 2009). omo (2011) research on the determination of bank selection concluded that young generations have high expectation on the pricing and product diversity of the bank services, while third party influence have the least votes. roman and anca (2012) studies on the heterogeneity of bank pricing supported this. the result shows that there is heterogeneity in bank pricing in the short run however not in the long run. in the short-run, mortgage rates and firm rates follow the money market however; it may changes in the long run. consumer rates desired a price mark-up and do not exhibit high sensitive towards the money markets rate in the long run. thus product pricing correlation with bank selection may produce difference correlation depends on the time (ksenija and biruta, 2012), (rashid,2012) found out that more than half of the customers prefer better price perceptions and switched their bank selection choices because of that, showing that unfavorable price perceptions create an effect on customer intention to switch. customers would usually demand to have the best product and services at the lowest price from the banks. price of financial institution products and services serve from a customer’s perspective that it must be sacrificed to obtain the banks products or services (robert eta, 2013).saleh et al (2013) also found out that the emergence of new technology created a situation where consumers are more aware of market conditions and cause more sensitive towards price and service in their financial services choices. they would compare prices, cost or benefits from the banks that offers the similar products and services and select the bank that they perceive and provides the highest benefits to them with the lowest cost given for their preference, (turinawe, et al, 2013). this is why price of products and service is found to be an important factor for customer in their bank selections, as customers expect and willing to pay the price for the better product and services quality for it (rob, 2014). 2.4 bank image and reputation there are some common thing that customers will consider when select a bank such as an overall image of bank, goodwill of bank among customers/ reputation, advertisement in mass medias, modern looking / external appearance of the bank, employee dress, transaction security and financial performance (boston, 2001). 28 international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 rehman and ahmed (2008) conducted a survey and show that the most important criteria identified by respondents are bank reputation. robert, aihie, and abednego, (2013) found that financial factors, like safekeeping of funds are quite important in the customers mind. the reason for this is that customers want to be assured that whether their deposit is secure or not in the bank and that, they can trust and stay loyal to the bank that they have selected (wei, and lu, 2013). hinson et al (2013), researches show that security issues are related with the reputation of the bank through the survey from respondents. some respondents said, “through the bank reputation then customers know which bank can be trusted and they personally would not go out for just any bank but has proved overtime”. some of the respondents explained that the prestigious bank is trustable, and conducts any transactions with the reputable bank make them feel safe while compare to the others bank (hinson et al, 2013). 2.5 technology factors technology refers to the modern life information technology that characterized by ever changing evolution to assists and develops a better financial activity in banking industry. poturak (2003) revealed that the opportunity of telephone banking rank is quite low which are forty-seven. lichtenstein and williamson (2006) found out that banks will be better on managing consumer experiences and satisfaction by moving to internet banking if consumers understand such experience involve a process of adjustment and learning and not only with the adoption of new technology. for financial institutions such as banks technology reduced the trouble on manual input on registers and ledgers with customers that were served through checks, pay orders, with the introduction of automatic teller machines (atms) for interacting with consumers, and provide better services (kan and afaki, 2007). banking industry is largely adopted of technology and automation technology in order to improve their competitive advantage in the bank market. staff of banks should discover that the new generations of people enjoy using the advanced technology devices such as atms. this shows that the new generations of customers are preferable to cooperated with the bank which could provide them the more fast, more convenience and easier process to conduct with the bank services rather than the factors which are hospitality, bank premises condition and bank location (kausar, 2009). schmidt, et al (2009) found out that customers are becoming harder to be please this is because they are getting smarter, more sensitive to price, less forgiving, more demanding from bank, and many of the bank competitors provide equal or better offers to them(al-amaj, 2009). technology has a major influence in how banking and financial services are delivered, creating wide range of alternative mechanism such as online banking and atm and reducing the dependence on the branch network as core delivery mechanism (dangolani, 2011). hence, the challenge is not limit to the bank to pleasing and makes the customers satisfied as competitors do the same; the challenge is to produce delighted and customers that would stay loyal. this challenge is the bank needs to increase the financial sophistication of customers now, in order to do that the bank need to use more efficient of information technology and the entry of new aggressive competitor (ksenija and birut, 2012, saleh, et al, 2013). the developments of information technology and communication technology have enabled banks to build large customer database and analyzing data on consumer preferences in a more efficient way. these significant changes, together with technological improvements, could reflects in the fast growing of the banking system, creating high competitiveness and concentration in the banking industry (verhoef and lemon, 2013). 29international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 this study showed that the bank that can offer fast, technology related services such as atms, which is supported by effective staff training, could have the competitive position in the bank market. this shows that the new generations of customers are preferable to cooperated with the bank which could provide them the more fast, more convenience and easier process to conduct with the bank services rather than the factors which are hospitality, bank premises condition and bank location(rob, 2014). 3. method 3.1 conceptual frame work of the study independent variable dependent variable figure1. conceptual framework model source: own survey, 2018 the study was designed to employ cross-sectional studies which had been taking a study within a particular timeframe. the design of the thesis was both descriptive and explanatory research design. both descriptive and explanatory research design was used to achieve the objectives of the research, because descriptive research design was more suitable to detail description of the findings showed in tables and percentages as well as, explanatory research design to help develop insinuations on the relationship between factors affecting customer’s bank selection and bank selection decision. that means association between independent and dependent variables. also both qualitative and quantitative method was used to analyze the data collected from customers and managers. the investigation conducted by both descriptive and inferential research methods. descriptive approaches were employed for the data that the researcher collects from respondents through questionnaire. detail descriptions of the findings were displayed in table’s in terms of frequency, percentage, mean and standard deviation. although, inferential method was used to determine the impact of each bank selection factors on bank selection decision. primary data of the study was information gathered from customers and managers of bank that involved in the study. secondary sources of data were collected from different books, journals, articles and previous researches that related to bank selection decision. the target populations for this study were customers and managers of the selected bank in jimma zone such as, awash international bank, bank of abyssinia, berhan international bank, bunna international bank, cooperative bank of oromia (s.c.), dashen bank, nib international bank, oromia international bank, wagagen and commercial bank of ethiopia customers. the sampling units were 384 customers from 11 banks in jimma zone. to analyze the data, different kinds of statistical methods including descriptive statistics and inferential statistics (multiple linear regressions) were used. in this study multiple linear regression model were used to achieve research convenience factors financial factors service quality factor technology factors bank image and reputation bank selection decision 30 international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 objectives. the basic objective of using multiple linear regression analysis in this study was to make the research more effective in analyzing impacts of independent variables (financial factors, convenience factors, technology factors, service quality factors and bank image and reputation factors) on the dependent variable (bank selection decision). the method is used to study the relation between bank selection factors (independent variables) and the overall customers bank selection decision (dependent variable). gujarati (1995) defines a regression function as follows: regress customer’s bank selection decision on bank selection factors υ = α+ β 1χ1+ β 2χ2+........+ β n χn+ £i……………………………………………...eq. (1) where: y is the dependent variable (customer’s bank selection decision) βn-is the coefficient of independent variables, αis a intercept, where the regression line crosses the y axis xnis independent variables (financial, convenience, technology, service quality and bank image and reputation factors,) £iis error term. these describe as: cbsd = α + β1x 1 + β2x 2 + β3x 3 + β4x 4 + β5x 5 + εi …………………………………….eq. (2) where, β1 is the partial slope for x1 on y x1 ……. β5. cbsd--customer’s bank selection decision (dependent variable) x 1 = convenience factors x 2 = financial factors x 3 = service quality factors x 4 = technology factors x 5 = bank image and reputation factors εi error term multiple linear regression model assumptions was conducted based on a (gujarati, 1995) and (fidell, 2001). checking goodness-of-fit carry significant benefits for the research; because once the model is fitted, it is effective in describing the outcome of variables. 4. results and discussions the returned questionnaires have 100 response rates and sufficient to analyze the data with it. this indicates that;-the bank customers under study were committed to give relevant information to the researcher. summary of findings on respondents profile along five variables: age, sex, marital status, level of education and type of occupation has been presented in the above table. as revealed in the above table, 228 are males and 156 are females which comprise 59.4 percent and 40.6 percent of the customers respectively. the results for respondents age as depicted in the above table specifies that the majority of the vigorous customers (about 36.2 percent) range between 21-35 years of age, while 34.1 percent fall below the age of 20. 20.3 percent are placed between 36-50years and 9.1 percent fall above 50 years. this might be related to the reality that, the age brackets structure the young and dynamic population of ethiopia who are in vital services and can hold bank account. it also shows that the youth populations are superior users of the various banking services than the aged population. in terms of their education 4.5 percent of the customers were under grade 8, 10.9 percent completed grade 9-12, 35.2 percent have a diploma, and the rest 49 percent have degree and above. this education level result indicates that the 31international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 majority customers of the bank have degree and above. so, in order to fill this gap banks should be advertise their product , service and benefit of using bank through mass media and give short term orientation and training to increase the awareness of the people about bank advantage in order to retain the existing and attract new customers. in terms of customers marital status, the results of this study showed that, the majority of respondents (about 50.8 percent) are single, 28.1 percent are married 10.9percent are widowed and the rest 10.2 percent are divorced. on the other hand the occupation of the customer’s shows that most of them are public organization workers which is 36.5 percent, 26.3 percent are private organization workers, where as 9.1 percent are retired and the rest 28.1 percent are include in others group. this shows that the public worker have highly committed to have a bank account than other customers. 4.1 association between independent and dependent variables according to wajahat (2010) before the start of regression analysis it is important to check the correlation test between dependent variable and independent variables. the pearson correlation scale ranges from -1 to +1, any value greater than zero indicates a positive direct relationship between the two variables, which implies that every increase in the independent variable will lead to the increase in dependent variable, while any value less than zero indicates a negative indirect relationship between two variables, that means that every increase in the independent variable will lead to the decrease on the dependent variable (hafiz, 2007). table 1 pearson’s correlation coefficient matrix bank selection pearson correlation 1 decision sig. (1-tailed) .000 n 384 convenience pearson correlation .528* 1 factors sig. (1-tailed) .000 n 384 384 financial pearson correlation .067* -.079* 1 factors sig. (1-tailed) .000 .000 .000 n 384 384 384 technology pearson correlation .341* 256* .-047 * 1 factors sig. (1-tailed) .000 .000 .000 n 384 384 384 384 service quality pearson correlation .258* .299* -.181 * .448 * 1 factors sig. (1-tailed) .000 .000 .000 .000 .000 n 384 384 384 384 384 bank image & pearson correlation .651 * .355* -.029* .414* .212* 1 reputation sig. (1-tailed) .000 .000 .000 .000 .000 .000 n 384 384 384 384 384 384 *. correlation is significant at the 0.01 level (1-tailed) n =384 source: survey result, 2018 correlation is an effect size and so we can verbally describe the strength of the correlation using the guide that (evans 1996) suggests for the absolute value of r: from the above table 10 32 international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 result, it can perceived that bank image & reputation factors, is the most correlated variable with customers bank selection decision (with the r value of 0.651) and it was followed by convenience factors (with the r value of 0.528), 3rdtechnology factors (with the r value of 0.341), 4th service quality factors (with the r value of 0.258) and financial factors (with the r value of 0.067) respectively. table 2 strength of independent variable and dependent variable correlation 0 .00-.19 “very weak” 0.20-.39 “weak” 0 .40-.59 “moderate” 0.60-.79 “strong” 0 .80-1.0 “very strong” source: (endalemamo, 2017) effect of management controlling system practice components on op (the case of hadiya zone cbe) 4.2 multiple linear regression assumptions 4.2.1 factors affecting customers bank selection decision analysis result regression analysis allows the prediction or estimation of the value of one variable (the criterion, dependent, or predicted variable; called as y) from one or more predictor variables (called x) (keith, 2006). researchers (boru, (2015); karshie et al (2015); agarwal (2017) employed multiple linear regression models to determine factors influencing customers bank selection decision. also, the researcher adopted multiple linear regression models to identify effects of five bank selection factors on customer’s bank selection decision. table 3 model summary model r r.squer adjusted r square std. error of the estimate 1 .736a .541 .535 .58126 a. predictors :( constant), bank image and reputation factors, financial factors, service quality, convenience factors, technology factors b. dependent variable: bank selection decision source: survey result, 2018 from table 14, it can be the adjusted r-square value in the model summary tells the goal of fit of the model. adjusted r-square value for this model is 0.535, which means five bank selection factors are able to measure customer bank selection decision at 53.55% percent. however; the remaining 0.465 percent could be some other variables which had not been considered in this study. table 4 anova model sum of squares df mean square f sig. regression 150.528 5 30.106 89.107 .000b residual 127.710 378 .338 total 278.238 383 a. dependent variable: bank selection decision b. predictors: (constant), bank image and reputation factors, financial factors, service quality, convenience factors, technology factors f statistics (89.107) which is used to measure the overall test of significance of the model was presented, since the p-value is 0.00 which is sufficiently and the model is well fitted at 1 percent level of significance, which means p-value (< 0.05). 33international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 table 5 coefficient of factors affecting customer’s bank selection decision model unstandardized coefficients standardized coefficients t sig. 95.0% confidence interval for b b std. error beta lower bound upper bound 1 (constant) convenience financial technology service quality image&reput ation 1.846 .206 8.966 .000 1.441 2.251 .143 .036 .204 3.991 .000 .073 .214 .043 .045 .045 .961 .337 -.045 .131 .070 .028 .118 2.495 .013 .015 .125 .096 .038 .114 2.512 .012 .021 .171 .177 .030 .313 5.895 .000 .118 .236 dependent variable: bank selection decision source: survey result, 2018 4.3 hypothesis test result the five hypotheses have been tested to answer the research questions based on the research problem and objectives. the hypotheses address each bank selection factors such as; convenience factors, financial factors, technology factors, service quality factors, bank image and reputation factors and its impact on customers bank selection decision. the hypothesis test results were presented as bellows. hypothesis 1 there is significant relationship between convenience and bank selection. as the result hypothesis 2 there is a significant relationship between financial factors and bank selection. hypothesis 3 there is a significant relationship between technology factors and bank selection. hypothesis 4 there is a significant relationship between service quality factors and bank selection. hypothesis 5 there is a significant relationship between bank image and reputation factorsand bank selection. 4.4 interview results the purpose of conducting interview in this study is to get additional information about the main factors banks detected by themselves from customers and the responses given by them for those variety factors. in addition to the previous analysis, interviewing the bank manager has also makes the researcher to collect significant information for the study to have such kind of analysis. this interview has been conducted through face to face interview. the interview result has shown that the bank have tried to collect information from customers about the services, facilities and provisions to be improved and all were detected the determining bank variety criteria taken by customers. accordingly, the main types of services, facilities and provisions mostly requested to be improved by the customers were overall speed of service provisions and provision of modern banking services such as atm and card services. 34 international journal of islamic business and economics (ijibec), 3(1) june 2019, 23-36 in relation with the overall speed of service provisions, manger have believed that the only solution would be introducing modern paying or teller machines, interconnected banking systems and computerized service provisions. according to some managers atm can be used to enhance customer service delivery, which could also pave the way for the reduction of the workload on tellers in banking halls. such workload reduction could provide the tellers with opportunities for adequate interaction with customer and also help improve their functional efficiencies and effectiveness in customer service delivery. introducing modern banking technologies and modern visa cards, launching fast broadband internet connections among all branches and having adequately skilled manpower, working with foreign agents, providing all service items for customers, speed, giving satisfactory response for customers, paying interest for fixed deposit accounts monthly and paying interest for chequeaccounts, were some of the main feature manager have forwarded that makes banks competent and preferable than others. 5. conclusions based on the findings of this study there are significant relationship between convenience and bank selection. therefore, a better satisfaction in providing convenience to customers towards accessing their banking needs. customers would sacrifice money in order to save time. agarwal (2017) claims that the convenient location of bank might not have much influence much on decision of choosing a bank by customers. however the result of this study is consistent with the findings of goitem (2011), dawit (2013), aimero (2015) and tesfaye (2017) .they shows that a convenient service and location that meets the needs of the customers will have better edge against other competitors in the market. as a result of this paper, service quality and bank selection has a significant relationship towards customer’s preference on their bank selection. therefore, a better and higher quality of service provided from the bank will gives positive influences and satisfaction to their customers as well as increase the customer loyalty because products and services provided are almost identical and quality of service will gain competitive advantage over others. the findings of this research are consistent with dawit (2013), aimero (2015), agarwal (2017) and tesfaye (2017) where service quality is one of the increasing important factors for success and survival in the banking industry. as the result of this study indicates there were a significant relation between technology factors and bank selection. nowadays technology brings wide range of alternative delivery mechanism such as internet banking, mobile banking and atm which creates a better competitive scene in the economy and ease of access of bank information. this changes the customer’s perspective on how to search and access to banking service more nowadays, and they are more relied on using various technologies that brings them convenience in their daily life often. the result is consistent with aimero (2015) and agarwal (2017). the results of this study show that external appearance and sitting arrangement of the ank has significant effect on customers’ bank selection decision. this 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analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn :2599-3216 e issn : 2615-420x editorial team editor in chief kuat ismanto. department of islamic economics, iain pekalongan, indonesia managing editor am. hafidz makshum. department of islamic economics, iain pekalongan, indonesia editorial board 1. shinta dewi rismawati. department of islamic economics, islamic state institute of pekalongan, indonesia 2. zawawi abdul wahid. department of islamic economics, islamic state institute of pekalongan, indonesia. 3. murtiadi awaluddin. universitas islam negeri alauddin makasar indonesia. 4. agus fakhrina, department of islamic economics, islamic state institute of pekalongan, indonesia. 5. muhammad shulthoni, scopus 57203621677 international islamic university malaysia 6. asnaini asnaini. department of islamic economic iain bengkulu, indonesia. 7. agus arwani, department of islamic economics, islamic state institute of pekalongan, indonesia. 8. rinda asytuti, department of islamic economics, islamic state institute of pekalongan, indonesia. 9. nafis irhami, department of islamic economics iain salatiga, indonesia. 10. adeel sabir khan, department of project management, szabist, pakistan. 11. umair riaz, id scopus: 57192558531 birmingham city university, birmingham, b5 5ju, uk. 12. happy sista devy, department of islamic economics, islamic state institute of pekalongan, indonesia 13. ahmad ajid ridwan, scopus: 57203842988, islamic economic studies department of economics faculty of economics universitas negeri surabaya, indonesia administration & it 1. aprin yudiarto, islamic state institute of pekalongan, indonesia. 2. nafilah, islamic state institute of pekalongan, indonesia office department of islamic economics, islamic state institute of pekalongan, indonesia corespondence: ijibec@gmail.com jl. kusumabangsa no. 9 pekalongan jawa tengah indonesia http://e-journal.stain-pekalongan.ac.id/index.php/ijibec effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh shafir zaman & md. mohiuddin chowdhury 1 8 the effect of fdr, npf, oeoi, and size toward roa (comparative study on indonesian islamic bank and malaysian islamic bank period 2010-2015) anafil windriya 9 22 factors affecting customer’s bank selection decision: a study on commercial bank in jimma town ethiopia serkalem tesfaye , , mekuanint abera, & tadele mengesh 23 36 the effect of expert management, professional skepticism and professional ethics on auditors detecting ability with emotional intelligence as modeling variables (study at the makassar city inspectorate) murtiadi awaluddin, nirgahayu, & rulyanti susi wardhani 37-50 determinant of islamic pension fund in indonesia roikhan mochamad aziz, acep r. jayaprawira, & sulistyowati 51 60 an analysis the rupiah exchange rates effect against the american dollar and inflation against the growth of islamic banking mudharab deposits in indonesia muhammad tho’in , iin emy prastiwi 61 69 contents e issn: 2615-420x issn: 2599-3216 av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / international journal of islamic business and economics international journal of islamic business and economics ijibec ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received accepted published : 20 dec 2018 : 09 april 2019 : 11 june 2019 keywords: islamic bank, roa, chow test doi: https://doi.org/10.28918/ ijibec.v3i1.1426 jel: g.21, f.36 abstract this research aims to analyze the influence of financing to deposit ratio (fdr), non performing financing (npf), operating expenses to operating income (oeoi), firm size toward return on asset (roa). the object of this research are islamic bank in indonesia and islamic bank in malaysia in 2010-2015. another aim is to determine whether there are differences in effects of fdr, npf, oeoi and size toward roa between islamic bank in indonesia and islamic bank in malaysia. multiple linear regression analysis was used to test the hypothesis in this study. chow test is used to determine the differences in the effect. the results of this study concluded that fdr, npf, oeoi and size effect on roa simultaneously, both at indonesian islamic bank and malaysian islamic bank. in indonesian islamic bank, independent variables that influence toward roa are fdr, oeoi and size. in malaysia islamic bank, only oeoa wich affecting toward roa. based on the chow test, can be concluded that there is a significant difference between the indonesian islamic bank and malaysian islamic bank. results of independent t test showed that the average variable that has a different effect between indonesia islamic banks and malaysia islamic banks is size. the effect of fdr, npf, oeoi, and size toward roa (comparative study on indonesian islamic bank and malaysian islamic bank period 2010-2015) anafil windriya vocational school of diponegoro university email: anafilwindriya@live.undip.ac.id 10 international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 1. introduction islam sees that economic activity is part of muamalah, and muamalah are including part of the shari’a. islamic bank is a manifestation of muamalah in economy, both comprehensively and universally, so in islamic banking embedded in it system of islam teachings. the islamic banking industry has a great opportunity as an economic power, because islamic banks are able to survive amid the economic crisis (azwar, 2015). blue print from the asean economic community (aec) on the banking industry, embodied in the asean banking integration framework (abif), will be implemented in 2020. in the ten asean countries, there are six countries that have islamic banks, namely brunei darussalam, indonesia, malaysia, myanmar, philippines, singapore, and thailand. indonesia and malaysia are the countries with the largest number of islamic banks in asean by 2016. the most prominent difference between the sharia banks of indonesia and malaysia is the basis of the country, where malaysia is an islamic state while indonesia is a state with pancasila ideology. malaysia has different characteristics, such as the economic system adopted, the characteristics of the population, the role of the government, the position of the sharia bank in legislation, the madzhab adopted by the majority of its muslim population, and the chosen development strategy (ascarya, 2006). indonesia’s islamic banking industry that has a focus on the real sector becomes an advantage for indonesia. the ability of islamic banks to face the industry competition in the aec becomes a concern. the most important issue is how about the performance and health of islamic banking in each country. financial ratios can be compared between the financial ratios of a firm and other firms in same industry, to see if there are any deviations from the industry average or from the established standard (van horn, 2004). the performance of banks that proxyed by roa is influenced by various variables. this study using four variables as a variable that affecting roa. the variables are liquidity (fdr), financing risk (npf), efficiency (oeoi), and firm size (size). figure 1.1 shows the differences of roa between indonesian and malaysian islamic bank. source: bloomberg, data is processed figure 1.1 differences of roa between indonesian and malaysian islamic bank the movement of roa in malaysian islamic banking in 2010 to 2015 is more stable than the islamic bank in indonesia. the direction of roa in both countries are increased in 2011, then decreased in a row in 2012 until 2015. the average roa in indonesian islamic banking is always decreasing for 5 years from 2011-2015, even in 2015 experiencing negative value, and the average value of roa in malaysian islamic banking which always decrease during 5 year from year 20112015. that problems become interesting problem to be investigated, whether it is due to liquidity, financing risk, efficiency or firm size. the competition between indonesian and malaysian islamic banking in the asean economic community 2020, and difference of ideology of each country are 11international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 the reasons why this study compares the islamic banking in indonesia and malaysia. bank intermediation can effectively if they distribute all sources of funds in the form of credit or financing after they calculated with required reserves and daily liquidity (ascarya, 2010). the function of intermediation is measured by comparing the amount of credit or financing that given to the amount of third party funds that can be collected. islamic bank financial intermediation is measured by financing to debt ratio. financing to deposit ratio that increases indicates the source of funds that owned by banks more productive and then the profit obtained by bank may increase. financial management gives the concept of trade off between profitability with liquidity (van horn, 2012). companies that prioritize liquidity, tend to have idle funds, thereby reducing the chances of obtaining income from investment. for companies that prioritize profitability tend to avoid idle funds and then they maximize asset utilization in the form of investment. according to the theory of financial intermediation, the intermediate function illustrated by the high fdr that indicates the high level of financing so they could increase the return. that statement supported by the research of almazari (2014), muda, et al (2013), mokni and rachdi (2014). the financing risk is due to the default of debtor for some or whole of the financing provided. financing risk is measured by non-performing financing ratio, which is the ratio of total nonperforming financing to total financing disbursed (al smadi and ahmad, 2011). the larger ratio of non-performing financing will cause the bank in high credit risk condition. the high credit risk provides an opportunity for decrease of profit sharing from the financing that has been given by the bank. the bank mitigates these risks by establishing a write-off accounts receivable, if the provisioning of earning assets increases, the expense borne by the bank increases, so there is a negative correlation between non-performing financing and the bank’s profit. according to the credit risk management concept theory, it is mentioned that the high credit risk cause profit decreases. that statement supported by the research of nicolae petria, et al (2015), putranto, et al (2014), muhammad bilal, et al (2013), mawardi (2004), tan sau eng (2013), anggraeni and suardika (2014), akhtar, et al (2011), mokni, r.b.s., and h. rachdi (2014), al-jafari, m.k. and m. alchami (2014). operating expense to operating income (oeoi) is an indicator of efficiency level and bank competency to running the firm’s operations (dendawijaya, 2005). oeoi is the ratio between operating cost divided by operating income. if operating income is higher than operational cost, oeoi value will be lower. low oeoi is a good bank mirror efficiency. according to the theory of fundamental signals that the value of high efficiency of business is a good information or signal for the performance of the bank. banks that operate efficiently bring benefits. if the bank is not able to control the operational costs, then the amount of expenses will increase and cause adverse impact on bank performance. the higher the cost of the bank, the more inefficient operation of operations makes the income is also getting smaller (wibowo, 2013). that statement supported by the research of \petria, et al (2015), almazari (2014), mawardi (2005), and ben khediri karim, et al. (2010). the theory that explains size of the bank with the profitability states that the large bank receive more income than income outside interest income, like provision income, commission income, fees and administrative income, compared with smaller banks (ross, 2010). research about the relationship between the organizational structure and firm size has been done with the result that the greater the bank’s assets, in placing its fund prefer on the securities, placements with other banks, and also can be placed in the central bank (houston, et al 1997) this activity can reducing risks for banks when compared to lending activities. large assets indicate that the company has a large portfolio in the number and variety of investment objects. the greater the 12 international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 amount of investment, the greater the opportunity to earn profits, and the more diverse types of investment objects the more diversified risks so that the possibility of losses can be reduced (mawardi, 2014). the economies of scale theory refers to a situation where output growth is proportionately faster than input. improved yield scale or decreased costs arise due to technological and financial reasons. for example the use of i-banking technology, atms, remittances, foreign exchange transactions can increase revenue. that statement supported by the research of petria, et al (2015), bilal, et al (2013), kunt (1998), karim, et al (2010), muda, et al (2013), al-jafari and alchami (2014), and owoputi, et al (2014). financial ratios can be compared between the financial ratios of a firm and other firms in same industry, to see if there are any deviations from the industry average or from the established standard (van horn, 2004). contingency theory was first proposed by jay galraith in 1973, who argued that: there is no one way to organize, any way of organizing is not equally effective. based on the contingency theory, management control system is different in each organization according to organizational factors and situational factors. comparing islamic banking in different countries, needs to pay attention to the various characteristics of the country that affect its development. indonesia and malaysia are two countries that have different ideology, malaysia embraces the islamic state while indonesia is based on pancasila. other differences between two countries are the economic system adopted, the characteristics of the population, the role of the government, the position of the islamic bank in the legislation, the madzhab adopted by the majority of its muslim population, and the chosen development strategy (ascarya, 2006). contingency theory gives a warning that manager can run the organization according to the will of each. if there are differences in fdr, npf, oeoi, and size values, it will affect the roa differently, so it is worth testing whether there is any difference in the effect on the variable. a few researchers focused on effect fdr, npf, oeoi, and size values, toward roa. there have been limited studies concerned on how about the differentiation effect. therefore, this research intends to the effect fdr, npf, oeoi, and size toward roa, and also the differentiation effect between indonesia and malaysia islamic banking. 2. research method the population of this study are all islamic banks in indonesia and malaysia in the period 20102015. the sample of this research is 4 syariah bank in indonesia and 3 syariah bank in malaysia. the sample shown in table 1. table 1 sample of indonesian islamic banks and malaysian islamic banks malaysian islamic banks indonesian islamic banks affin islamic bank berhad pt bank syariah muamalat indonesia alliance islamic bank berhad pt bank syariah mandiri amislamic bank berhad pt bank syariah mega indonesia pt bank syariah bri source: bi.go.id, bnm.go.my those sample (table 1) are chosen base on data availability on each bank website and in bloomberg. data are sourced from the quarterly financial report published by islamic bank and quarterly balance sheet which obtained from each bank official website and also from bloomberg. table 2 show the summary of operational definition all variable. 13international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 table 2 summary of operational definiton variable operational definition measurement scale roa the ratio between profit before tax toward the average of total asset. (profit before tax / the average of total asset) x 100% ratio fdr the ratio between financing toward third party funds (financing / third party funds) x 100% ratio npf the ratio between non performing financing toward total financing (non performing financing / total financing) x 100% ratio oeoi the ability of bank management in controlling operational expenses to operating income. (total operational expenses / total operating income) x 100% ratio size large scale of a company. log n total asset ratio source: muhammad (2005), machfoedz (1994), and circular letter of bank indonesia number 3/30 / dpnp. this analysis is assisted by the statistical package for the social sciences 23 program or often referred as spss. data in this research that examine by using normality test, classical assumption test, hypothesis test, chow test, and difference t-test. with model equation as follows: model 1 (indonesian islamic bank): roa = α 0 + β 1 fdr + β 2 npf + β 3 oeoi + β 4 size + e model 2 (malaysian islamic bank): roa = α 1 + β 5 fdr + β 6 npf + β 7 oeoi + β 8 size + e variables : roa: return on asset fdr: financing to debt ratio npf: non performing financing oeoi: operating expenses to operating income 3. results 3.1 coefficient determination test / r2 the coefficient of determination or r2 is the ability to predict the effect of the four independent variables (fdr, npf, oeoi, and size) toward the dependent variable (roa). table 3 coifficient determination model adjusted r square std error of the estimate roa (indonesian islamic bank) 0,291 0,339 roa (malaysian islamic bank) 0,176 0,060 source: secondary data that has been processed, 2017. table 2 shows the coefficient determination for each equation. the value of determinant coefficient (adjusted r2) in indonesian islamic bank is 0,291, it means 29,1% of roa variation can be explained by variation of four independent variable that is fdr, npf, oeoi, and size, and 70,1% explained by other reason beyond the model at indonesian islamic bank. the value of determinant 14 international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 coefficient (adjusted r2) in malaysian islamic bank is 0,176, it means 17,6% of roa variation can be explained by variation of four independent variable that is fdr, npf, oeoi, and size, and 82,4% explained by other reason beyond the model at malaysian islamic bank. 3.2 f statistic test the f test that contain the f value is used to see the significance influence of each independent variable on the dependent variable simultaneously. table 4 results of f statistical test model f sig. roa (indonesian islamic bank) 10,011 0,000 roa (malaysian islamic bank) 4,625 0,002 source: secondary data that has been processed, 2017 the results f statistic test of indonesian islamic bank on table 3 shows the value of f 10,011 and at significance level 0,000, which this study uses a predetermined level of significance of 5% it can be concluded that the variables fdr, npf, oeoi and size simultaneosly affect to roa. the f statistical test results for malaysian islamic bank shows the f value is 4,625 and at the level of significance of 0,002, where this study uses a predetermined level of significance of 5% it can be concluded that the variables fdr, npf, oeoi and size simultaneosly affect to roa. 3.3 t statistic test t statistical test is conducted to test whether there is influence of fdr, npf, oeoi, and size toward roa of indonesian islamic bank and malaysian islamic bank. table 5 show the result of t statistic test. table 5 results of t statistics test indonesian islamic bank b beta t sig constant -0,117 -2,607 0,011 fdr 0,019 0,260 2,583 0,012 npf -0,009 -0,017 -0,156 0,876 oeoi -0,027 -0,561 -5,318 0,000 size 1,341 0,262 2,595 0,011 malaysian islamic bank constant -0,002 -0,159 0,874 fdr 0,003 0,119 0,905 0,369 npf 0,051 0,278 2,522 0,014 oeoi -0,028 -0,345 -3,128 0,003 size -0,085 -0,037 -0,280 0,780 source : secondary data processed, 2017. in indonesian islamic bank, shows the coefficient value for the model of fdr is 0,019 and t 2,583 with the significance level of 0,012, that means the fdr variable affects toward roa positive significantly. the value of npf variable regression coefficient is -0,009 and t -0,156 with significance level 0,876 that mean npf has negative influence and not significant to roa. the value of coefficient for oeoi model shows -0,027 with the value of t -5,318 and the significance level 0,000 which means that the oeoi variables are negative and significant to the roa variable, while 15international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 for the coefficient size variable 1,341 with the value of t 2,595 and the significance level 0,011 which means the variable size has a positive and significant effect on roa. regression equations that can be compiled are as follows: δroa = 0,260 δfdr – 0,017 δnpf – 0,561 δoeoi + 0,262 δsize + εt in malaysia islamic bank, shows the coefficient value for the model of fdr is 0,003 and t 0,905 with the significance level of 0,874, that means the fdr variable affects toward roa positive not significant. the value of npf variable regression coefficient is 0,051 and t 2,522 with significance level 0,014 that mean npf has positive and significant influence to roa. the value of coefficient for oeoi model shows -0,028 with the value of t -3,128 and the significance level 0,003 which means that the oeoi variables are negative and significant to the roa variable, while for the coefficient size variable -0,085 with the value of t -0,280 and the significance level 0,780 which means the variable size has a negative and not significant effect on roa. regression equations that can be compiled are as follows: δroa = 0,119 δfdr + 0,278 δnpf – 0,345 δoeoi 0,037 δsize + εt 3.4 chow test differential influence test is done by comparing the sum of square residual values of the overall model with each model separately in indonesian islamic bank and malaysian islamic bank. table 6 restricted residual sum of square model restricted residual sum of square (rss) indonesian islamic bank 9,658 malaysian islamic bank 0,228 indonesian islamic bank and malaysian islamic bank 13,680 source : secondary data processed, 2017 from the rss that has been described, it can be seen that: rss1 (rss indonesian islamic bank) = 9,658 rss2 (rss malaysian islamic bank) = 0,228 rssur = rss1 + rss2 = 9,886 rssr (rss overall model) = 13,680 k (total number of parameters) = 4+4 = 8 n1 + n2 = 89+69 = 158 the chow test is obtained as follows: f = f = f = 14,58 the result of chow test shows f value counted 14,58. the value of f table from df = 158 and k = 4 significance level of 0,05, obtained f table of 2,43. f value is higher than f table, it means that there is difference of influence of fdr, npf, oeoi, size toward roa between indonesian islamic bank and malaysian islamic bank. 3.5 t test the independent sample t-test is used to strengthen the chow test results. the test results on each independent variable can be shown in table 7. (rssr-rssur)/k (rssur)/(n1+n2-2k) (13,680-9,889)/4 (9,889)/(158-8) 16 international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 table 7 test results t-test average independent 2 sample t-test for equality of means t sig. (2-tailed) roa -1.341 0.182 fdr -.588 0.557 npf 1.244 0.215 oeoi -0.098 0.922 size 2.978 0.003 table 7 shows that only sizes that have a significance value of less than 0.05, it is concluded that the average size differed significantly between indonesian islamic bank and malaysian islamic bank. 4. discussion table 8 summarizes the results of the research hypothesis test. tabel 8 summarizes the results of the research hypothesis test no. hypothesis results decision 1a financing to deposit ratio (fdr) has a positive effect toward the profitability of indonesian islamic bank. positive significant accepted 1b financing to deposit ratio (fdr) has a positive effect toward the profitability of malaysian islamic bank positive not significant not accepted 2a non performing financing (npf) has a negative effect toward the profitability of indonesian islamic bank negative not significant not accepted 2b non performing financing (npf) has a negative effect toward the profitability of malaysian islamic bank. positive significant not accepted 3a operational expense to operating income (oeoi) negatively affects the profitability of indonesian islamic bank. negative significant accepted 3b operational expense to operating income (oeoi) negatively affects the profitability of malaysian islamic bank. negative significant accepted 4a firm size has a positive effect toward the profitability of indonesian islamic bank positive significant accepted 4b firm size has a positive effect toward the profitability of malaysian islamic bank negative not significant not accepted 5 there are simultaneous differences in influence of fdr, npf, oeoi, and size variables toward roa between indonesian islamic bank and malaysian islamic bank. there is a difference in influence accepted 4.1 indonesian islamic bank according to the theory of financial intermediation, the higher fdr of islamic banks indicates the higher financing that distributed by banks. large financing can increase the income by profit sharing that obtained by bank. standard value of fdr in indonesia is 78% to 92%. average fdr of the samples bank in the indonesian islamic bank is 93.13%. the value is not too far above the standards set by bank indonesia, so can be concluded that islamic bank which became the object 17international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 of this study has performed the intermediation function well, because it can manage the financing effectively. the non-significant effect of npf toward roa occurs because of the high fdr at some point can indicates an increase of income from financing. average of fdr at indonesian islamic bank is 93,13%, this value is above the provisions of the central bank in indonesia. the increased of financing causes the default loss can be covered by the increase in income from the financing. in addition, not significant relationship between npf and roa can also occur due to cost efficiency beyond the cost of financing (taxes, rental fees, administration, labor), and income increase by financing, so it can closing the revenue decrease caused by npf. statistically the npf value in 2010 to 2013 has too small variations of data, while the variation of data on roa is very fluctuate, so it has insignificant effect between npf toward roa statistically. the value of oeoi in the sample banks in this study has an average value of 87.48%. this study has results that indicate that larger oeois will lead to a decrease in bank profits. oeoi called efficiency ratio, is used as a measure of efficiency and competence of banks carry out its operational activities (dendawijaya, 20005). the results of this study in accordance with the fundamental signal theory where the higher the efficiency, affect the higher the profit obtained. the lower oeoi indicates the high efficiency of operational costs incurred by islamic banks. income bank is influenced by the bank’s efficiency ability to carry out its operations. low oeoi value signifies the bank’s operational activities run efficiently, so the profit obtained by the bank can increase. the results of this study are in line with the theory of economies of scale which states that the cost advantages obtained by firms due to size, output, or scale of operations, with the cost per unit of output generally decreases with increasing scale (moore, 1959). improved yield scale or decreased costs arise due to technological and financial reasons. in the banking only technological reasons that can affect revenue, because the banks do not get discounts on raw material supply. technology can make work more efficient so as to reduce costs. in addition to the existence of technology, the positive effect between size and roa is also due to banks that have a large total assets has a relatively large total financing, so, that income on interest on credit (profit sharing) is relatively large too. 4.2 malaysian islamic bank financing malaysian islamic banking is dominated by portfolio ba’i bithaman ajil (bba) and murabahah (natural centainty contract). cash flow it can be predicted relatively certain because it has been agreed by both parties who transact early in the contract. these contracts offer a fixed and definite return, so they are fixed and predetermined. this product has a very low risk when compared to mudharabah and musyaraka financing, because ba’i have a certainty income, while mudaraba and musyaraka have a risk of default (natural uncertainty contract). this is the reason why malaysian sharia bank still has a high profit even though the financing are not high. malaysian islamic bank invests closely and focuses on bank resilience, so npf does not have a negative effect on bank profit. syariah bank malaysia has an average npf of 2.33% and has a maximum value of 4.59%, it can be said that the value is still at a safe limit. the maximum value of npf of malaysian islamic bank is still below the maximum reference value of npf in indonesia which is 5%. when the npf is still below the tolerance level and can still be controlled, the distribution of financing will not be reduced. financing of malaysian islamic banking is dominated by portfolio ba’i bithaman ajil (bba) and murabahah (natural centainty contract). this product has a low risk compared to products that are natural uncertainty contract. the low value of npf bank syariah malaysia makes npf will not negatively affect profitability. in addition to that reason, malaysian 18 international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 islamic bank also puts its funds on derivative investments in the form of securities, so that its profits can cover losses due to default. the results of this study in accordance with the fundamental signal theory where the higher the efficiency affect the higher the profit obtained. high efficiency is illustrated with low oeoi value. the lower oeoi indicates the high efficiency of operational costs incurred by sharia banks. bank income is influenced by the bank’s efficiency ability to carry out its operations. low oeoi value signifies the bank’s operational activities run efficiently, so the profit obtained by the bank can increase. rajan and zingales (2001) explained that according to the theory of critical resources, the larger the scale of the firm then profitability also increases too, but at a certain point, size will eventually lower the firm’s profit. the theory of critical resources focuses on the control by the owner of the firm on the firm’s resources. factors that determine the size of the firm are total assets, technology, or intellectual property. malaysian islamic bank has a higher size compared to indonesia, because malaysia is supported by its government policy. the malaysian government puts state-owned enterprises funds in islamic banks, and puts a haj savings deposit into a sharia bank. it makes malaysian islamic bank assets increasing. firm size at the bank will require a lot of cost to run its operations, this can reduce the firm’s profit. it can conclude that firm size has no significant effect on roa variable. 4.3 comparison between indonesian islamic bank and malaysian islamic bank the results of this study are in line with contingency theory which says that there is no one best way to explain the organization and each way to run the organization its effectiveness is not the same (galraith, 1973). according to schott (1981) the best way to run an organization depends on the characteristics of the environment in which it relates. the most prominent difference between the indonesian islamic bank and malaysian islamic bank is the basis of the country, where malaysia is an islamic state while indonesia is a state with pancasila ideology. malaysia has different characteristics, such as the economic system adopted, the characteristics of the population, the role of the government, the position of the sharia bank in the legislation, the school adopted by the majority of its muslim population, and the chosen development strategy, thus impacting on the different effects on financial ratios. these differences lead to different management controls, and and differences in affect of size toward roa. firm size is obtained from ln total assets, total assets of indonesian islamic bank and malaysian islamic bank has a very significant difference. in the fourth quarter of 2015 total assets of 4 indonesian islamic bank which became the object of this study is rp157.489.214.000.000. total assets of 3 malaysian islamic bank amounted to rm257.451.022.000, or rp 792.972.763.107.695 in rupiah, this value is almost five times greater than total assets of indonesian islamic banks. it is happens because of differences in government policies of each state. the malaysian government is very supportive of the development of islamic banks in the country by placing state-owned enterprises funds and the savings of haj funds in malaysian islamic banks. significant difference in total asset value and proven by t test, it can conclude that the size of indonesian islamic bank and malaysian islamic bank have different averages so have different effect on roa. 19international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 5. conclusions the results of this research concluded that fdr, npf, oeoi and size effect on roa simultaneously, both at indonesian islamic bank and malaysian islamic bank. in indonesian islamic bank, independent variables that influence toward roa are fdr, oeoi and size. in malaysia islamic bank, only oeoa wich affecting toward roa. based on the chow test, can be concluded that there is a significant difference between the indonesian islamic bank and malaysian islamic bank. results of independent t test showed that the average variable that has a different effect between bank syariah bank syariah indonesia and malaysia is size. suggestion for future research is: (1) adding the object of research on syariah bank malaysia is bank malaysia malaysia, bank muamalat malaysia, cimb islamic bank berhad, hong leong islamic bank berhad, maybank islamic berhad, public islamic bank berhad, rhb islamic bank berhad, so the results obtained more general in country of malaysia. (2) adding variables that affect the sharia bank roa such as capital adequacy ratio (car), net operating margin (nom), bank age, and bank ownership so that the adjusted r square becomes larger. acknowladgment i am deeply indebted to my supervisor, dr. h. m. chabachib, m.si., akt., dr. irene rini demi pangestuti, m.e., for warm support, inspiration, and thoughtful guidance. references akhtar, m. f., ali, k., & sadaqat, s. (2011). factors influencing the profitability of islamic banks of pakistan. international research journal of finance and economics, 66(66), 1-8.al smadi, o. m. and ahmad, h.n. 2011. factor affecting bank credit risk: evidence from jordan. journal banking system. al-jafari, m. k., & alchami, m. (2014). determinants of bank profitability: evidence from syria. journal of applied finance and banking, 4(1), 17. almazari, a. a. 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(2008). bank management & financial sevices, mcgraw-hill, 2008: bank management & financial sevices (vol. 1). bukupedia. 21international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 salvatore, d. (2005). ekonomi manajerial (5th ed, book 1). jakarta: salemba empat anthony s. (2000). financial institutions management: a modern perspective. mcgraw-hill college. scott, r. w. (2002). organizations: rational, natural, and open systems. van horne c. james and wachowicz m. john j.r. (2009). fundamental of financial management. jakarta: salemba empat. internet azwar. 2015. industri perbankan syariah menghadapi masyarakat ekonomi asean (mea) 2015: peluang dan tantangan kontemporer. kementrian keuangan. accessed online on september 1st 2016 on http://www.bppk.kemenkeu.go.id/publikasi/artikel/150-artikel-keuanganumum/20434-industri-perbankan-syariah-menghadapi-masyarakat-ekonomi-asean-mea2015-peluang-dan-tantangan-kontemporer www.bi.go.id. accessed online on july 4th 2016 www.bnm.gov.my. accessed online on july 4th 2016 22 international journal of islamic business and economics (ijibec), 3(1) june 2019, 9-22 ijibec travel intention of muslim tourist to visit non-muslim country: a conceptual paper of extended theory of planned behavior (etpb) noveri maulana 1 and mardiansah subhani2 sekolah tinggi manajemen ppm, jl. menteng raya no. 11 jakarta pusat, 10340 correspondence email : nvr@ppm-manajemen.ac.id mba program university of birmingham email : mxs1520@student.bham.ac.id article info article history: received: 6 april 2021 accepted: 10 august 2021 published: 1 december 2021 abstract the purpose of this paper is to analyze the literatures on muslim behavior toward purchasing the halal tourism using the theory of planned behavior (tpb). this paper is analyzing literature which indexed in the scopus indexed publication during 2010-2020. keyword ‘halal tourism’ and ‘theory of planned behavior’ is used in the searching process. there are fifteen paper which suitable with the keywords and proceed to the further analysis using integrative literature review. result analysis proposes several topics for future research regarding the role of religiosity in understanding muslim purchase intention toward halal tourism, the expanded model of tpb which considering the destination image and materialism, and also the research topic on determining halal factors in the certification standard of halal tourism services among tourism practitioners. hence, future research agenda is also discussed as the follow up study of this conceptual paper. keywords: halal tourism, tpb, extended tpb, behavioral intention, religiosity, materialism, destination image doi 10.28918/ijibec.v5i2.37 jel: m31, z32 international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 2 2021 142 mailto:nvr@ppm-manajemen.ac.id mailto:mxs1520@student.bham.ac.id international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 143 1. introduction halal tourism is getting more attention in the last few years and shows a rapid growth among the industries in the past decade. the growing number of muslim travelers have increasing the concern on halal tourism to fulfil the need of this segmented tourist (jia & chaozhi, 2020). however, the study on halal tourism in the academic areas are still remain limited. there are only few research in past decade which have been concerning on analyzing the growth and development of halal tourism (sánchez & moral, 2019a). most of the researches are still proposing the conceptual paper which in early stage of the analysis, and only few articles which have been proposing the empirical result among the study in the area of halal tourism. however, this limitation would give opportunity for scholars to develop any future empirical research in this area. one of the most interesting question is about the implementation of halal tourism in the non-muslim country, such as the trend of muslim tourist from indonesia and malaysia which are popularly visiting japan, korea, and china as their travelling destination (mastercard & crescentrating, 2019). however, the knowledge on halal tourism in the nonmuslim country is still limited. this paper is aimed to develop this proposition, to analyze the motivation of muslim tourist to visit non-muslim country, and to evaluate the halal service attributes that muslim tourist are willing to experience during their travel in the non-muslim majority destination. an interesting construct as the basis motivations of a muslim in doing their activity is based on their religious value which called as ‘niyyah’ or intention. the study of intention in muslim is interesting, especially in determining the motivational factors and value of a muslim in their purchasing behavior. an explanation have been developed through theory of planned behavior (icek ajzen, 1991) as an applicative theory describing the intention of consumer behavior. in tpb, the behavior of a consumer is based on an intention. the model of purchase intention has three antecedents which are attitude (att), subjective norms (sn), and perceived behavioral control (pbc) (ajzen, 1991). those three antecedents are the basis of customer intention which lead the actual behavior. an empirical study of tpb regarding halal purchase intention was conducted by a research of alam and sayuti (2011) in malaysia. in this research, all tpb variables such as att, sn, and pbc have positive impact to purchase intention of halal products in muslim market at malaysia (shah alam & mohamed sayuti, 2011). however, in this conceptual paper, an extended tpb is proposed to explore the antecedents of muslim purchase intention toward halal tourism. unlike the original tpb construct, this research is proposing three additional antecedents toward tpb which are religiosity, destination image, and materialism. religiosity is one of the variables which believed have relations to purchase intention of muslim consumers. some researchers have been analyzing religiosity toward intention such as a research in pakistani’s consumer (mukhtar & butt, 2012). this research found that religiosity has a significant impact to halal purchase intention. however, unlike the common researches which using single construct religiosity, mukhtar & butt (2012) are using two dimensions of religiosity which are the intrinsic religiosity and extrinsic religiosity. both dimensions of religiosity have positive and significance impact toward attitude of halal purchase intention. meanwhile, in the research of tourism, destination image is one of the variables which known influencing the purchase intention. destination image is the perception of the tourist on specific destination which influenced by their affective, cognitive, and conative factor 144 international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 144 (madden et al., 2016). tourists strongly rely on the extrinsic cues of a destination such as image in making their choice. destination image is a mental expression of a tourist’s knowledge, feelings, thoughts, opinions, and overall perception of a particular destination, which results from the evaluation of destination elements and attributes (park et al., 2017). in the context of halal tourism, destination image has empirically proving influencing the purchase intention and satisfaction of muslim tourist (al-ansi & han, 2019). another determinant which applied in this research is the role of materialism in influencing purchase intention of muslim travelers. materialism is the interpretation of individual on pursuing the happiness on the possession of materialistic object. for materialistic individual, the value of an object is beyond its utility, it is the value of its possession which determine the status of individual (raggiotto et al., 2018). in the context of religious society, materialism is also related to the religiosity (taheri, 2016) in predicting the muslim intention on halal brand purchasing (rahman et al., 2017). therefore, in this study, materialism and religiosity are two different variables which predicted to have influence toward purchase intention. this research is aimed to develop the model of extended theory of planned behavior (etpb) in analyzing the travel intention of muslim traveler to visit non-muslim country destination. those three proposed antecedents which are religiosity, destination image, and materialism, are argued to be influencing the attitude toward halal tourism, which impacting the purchase intention of muslim travelers. this extended model of tpb has never been implemented in any previous research and becoming the originality and novel hypothesis of this research. perhaps, the theoretical and contextual gap which has been described in this study could be empirically tested in the future research. 2. method this research is aimed to analyze the travel intention of muslim tourist to visit non-muslim majority country as their travelling destination. the study would be analyzing the determinants of halal tourism which muslim tourist seeks to be their service’s preferences. hence, it will contribute to the tourism industry in targeting the muslim segmentation and also to the development of halal tourism field of study. the motivational factors are related to the degree of the extrinsic and intrinsic motivation, according to the purchase intention construct which have been explained in the theory of planned behavior. the theory have been analyzed as an integrated theory in analyzing the motivational factor of consumer purchase intention in specific behavior (williams et al., 2019). 3. result and discussion the study of intention in muslim behavior is interesting, especially in determining the motivational factors and value of a muslim in their purchasing behavior. an explanation have been developed through theory of planned behavior (icek ajzen, 1991) as an applicative theory describing the intention of consumer behavior. tpb is a completion of theory reasoned action (tra) which has been developed by ajzen (1985) several years before. both theories are focusing in studying the intention of consumer purchase behavior. hussain et al. (2016) has implementing the tra in analyzing the intention of muslim customer in purchasing halal products in pakistan. the research is measuring the impact of halal logo, purchase processing, health consciousness, ingredients, food safety, religious value, and perceived value toward attitude and purchase intention. after gathering data from 500 respondents, the analysis concluded that most factors are influencing the international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 145 purchase behavior except halal logo and health consciousness. both hypotheses were rejected which might be related to the trust issue where majority population in pakistan are muslim, so that the halal logo is not really matter to the purchase behavior. in the other hand, the lower economic status of muslim population in pakistan which also caused the low of awareness of health consciousness in product purchasing behavior (hussain et al., 2016) another empirical study of tpb regarding halal purchase intention was conducted by a research of alam and sayuti (2011) in malaysia. in this research, all tpb variables such as att, sn, and pbc have positive impact to purchase intention of halal products in muslim market at malaysia (shah alam & mohamed sayuti, 2011). there were 250 respondents in this research and multiple regression method was use in the analysis. however, this research is lack of additional variables of the tpb construct as the basis of the research model. all the variables in this research were replicating the tpb model without any modification, addition, or moderation variables among the antecedents. different model was also developed by memon et al. (2019) regarding implementing tpb construct in measuring the purchase behavior of muslim consumer toward halal purchase intention. unlike previous research, memon et al. (2019) are including additional variable, which is religiosity as moderating variable. what most interesting in this research is the result analysis found that religiosity is not significantly moderating the tpb elements to halal purchase intention (memon et al., 2019). in the field of halal tourism, tpb model was also initiated in a research of jeaheng et al. (2019) in analyzing the halal tourism in thailand. the tpb model was modified and measured its impact by the halal friendly attributes of hotel in thailand which served muslim travelers. in this research, halal-friendly attributes such as halal f&b, room facility, prayer facility, muslim privacy, perceived entertainment & recreation, are significantly affect muslim customer satisfaction, both in cognitive and affective evaluations and affect purchase intention (jeaheng et al., 2019). while most researchers are focusing on halal tourism as an industry, this research is focusing to analyzing the physical and non-physical attribute which related to the halal-friendly accommodation. the more hotel owners concern to the muslim-friendly attribute in their hotel, the more satisfy the muslim travelers would be. in the halal tourism industry, halal accommodation is one of the important attributes for the muslim travelers. understanding muslim purchase behavior is believed as an important factor in developing halal tourism industry. the motivational factors of muslim in purchasing halal tourism as their travelling lifestyle could be analyzed by using theory of planned behavior. several researches have been conducted and developed by various researchers in this field of study. however, more empirical researches are still needed to be developed. halal tourism is a concern for muslim consumer in implementing their travelling style. islamic value as their faith and basis for daily activity is believed as the reason behind their preferences. the belief of an individual which related to religious values is called as religiosity. religiosity is one of the variables which believed have relations to purchase intention of muslim consumers. some researchers have been analyzing religiosity toward intention such as a research in pakistani’s consumer (mukhtar & butt, 2012). this research found that religiosity has a significant impact to halal purchase intention. however, unlike the common researches which using single construct religiosity, mukhtar & butt (2012) are using two dimensions of religiosity which are the intrinsic religiosity and extrinsic religiosity. the two dimensional-religiosity have been also analyzed by a research of mokhlis (2009) 146 international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 146 which support that religiosity have influenced consumer behavior. unidimensional religiosity have been significantly impacting the purchasing behavior in the consumer market, which is in this research study located in malaysia, a muslim majority country (safiek mokhlis, 2009). in this study, the research is focusing in measuring the intrapersonal religiosity and interpersonal religiosity which using the religiosity commitment index (rci10). rci-10 is a set of measurement of two dimension of religiosity which measured intrapersonal religiosity with six items, and interpersonal religiosity with four items of measurement (worthington et al., 2003). the use religiosity as variable while measuring purchase intention have been widely implemented by many researchers (el-gohary, 2016; garg & joshi, 2018; memon et al., 2019). religiosity was commonly used as moderating variable to measure the significance of relations between att, sn, and pbc toward purchase intention in the tpb model. however, some researches have not concluded similar conclusion. religiosity was found as nonsignificance moderating variable to halal purchase intention (kusumawardhini et al., 2016; memon et al., 2019). both researches show that religiosity in some context of muslim consumer have no significant impact to halal purchase intention, which might be caused by the homogeneity of the consumer in a region. however, in other research papers, religiosity have been concluded as significance moderating variable (abror et al., 2019; amalia et al., 2020). the research which analyzed religiosity has positive and significant impact as moderating variable of halal tourism and engagement toward satisfaction. data was collected from 450 respondents of muslim tourist in west sumatera, indonesia. this result was also supported by the research’s finding of amalia et al. (2020) which measured the impact of religiosity as moderating variables in the tpb model in the millennials purchase behavior in indonesia. unlike previous research which implementing religiosity as moderating variables, amalia et al. (2020) is measuring religiosity as the independent variables and the three antecedents of tpb model regarding measuring the halal purchase intention. as a result, this research concluded tpb antecedents have significant impact to purchase intention as well as religiosity. moreover, religiosity also has positive and significant impact to attitude, which enhances the purchase intention of muslim’s millennials toward halal product. the focus of destination image is also an interesting topic to develop research of halal tourism. a big question whether halal tourism is implemented in the same way in the muslim country and non-muslim country (jia & chaozhi, 2020) could be raised also as an interesting topic for future research. destination image is the perception of the tourist on specific destination which influenced by their affective, cognitive, and conative factors. tourists strongly rely on the extrinsic cues of a destination such as image in making their choice. destination image is a mental expression of a tourist’s knowledge, feelings, thoughts, opinions, and overall perception of a particular destination, which results from the evaluation of destination elements and attributes (park et al., 2017). in the context of halal tourism, destination image has empirically proving influencing the purchase intention and satisfaction of muslim tourist (al-ansi & han, 2019). another study which focusing in analyzing the impact of destination image towards tpb construct has been conducted by park (2017) to measure the travel intention of chinese student to visit japan as their travel destination. in this study, park (2017) propose four objectives; (1) to explore the effect of the destination image of japan on attitude, subjective norm, and perceived behavioral control; (2) to investigate the respective predictive power of attitude, subjective norm, and perceived behavioral control on travel intention regarding international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 147 travel to japan; (3) to examine the mediating role of travel constraints associated with intentions to travel to japan; and (4) to compare the explanatory powers of travel intention in the tpb and etpb models to see whether the etpb model produces a better prediction. as the conclusion, the etpb which proposed in this research has better explanation on measuring the travel intention of chinese student to visit japan. therefore, this research will also explore the role of destination image on influencing the intention of muslim traveler to visit non-muslim destination. the proposed topic whether muslim travelers consider on halal tourism at the non-muslim destination will be the focus of this study. perhaps, the etpb which proposed in this study is also accepted and have better explanation of this phenomenon. materialism is the interpretation of individual on pursuing the happiness on the possession of materialistic object. for materialistic individual, the value of an object is beyond its utility, it is the value of its possession which determine the status of individual (raggiotto et al., 2018). in the context of religious society, materialism is also related to the religiosity (taheri, 2016) in predicting the muslim intention on halal brand purchasing (rahman et al., 2017). the role of materialism is argued have positive impact toward the attitude of halal tourism. muslim travelers are predicted to have role in determining the purchase intention of muslim tourist toward halal tourism. although taheri (2016) found that there is no relation between materialism to the emotional connection to the islamic tourism, this study has different view on this statement. taheri (2016) has been conducting his research only in the context of ‘umrah’, a pilgrimage journey of muslim to meccas, saudi arabia. meanwhile, in the context of halal tourism, umrah and hajj are not including to this category. therefore, in the context if general halal tourism, this study argues that materialism still has relations toward attitude of halal tourism. this argumentation is similar with the explanation of rahman et al. (2017) in his research analysis. although in some research the dimension of religiosity and materialism are sometimes included, but in this study, we are going to analyze both variables as independent variable in the extended tpb model. therefore, in this study, materialism and religiosity are two different variables which predicted to have influence toward purchase intention. according to lia & chaozhi (2020), as one of the muslim tourist destinations in asia, china has opened their arms to welcome muslim tourist from all over the world. the number of muslim tourist is increasing, but the implementation of halal tourism is still challenging (jia & chaozhi, 2020). however, the chinese tourism practitioners, such as hotel and restaurant owners are welcoming the muslim tourist by providing the halal food and muslim-friendly food. moreover, although specific declaration as halal hotel, several hotels in china have promoting their accommodation as muslim-friendly hotel where they can provide halal food and muslim friendly services to their guests. similar study have been also developed regarding the implementation of halal friendly attributes in the korea tourist objects which increase the muslim traveller satisfaction and their retention to visit korea in the future (han et al., 2019). this research is aimed to analyses this phenomenon. is it really matter for muslim about the halal tourism implementation in non-muslim majority country? does muslim really seeking the muslim-friendly services when they visit a non-muslim destination? or could muslim tourist adapt the non-muslim standardized services in specific destination? those are some basic questions to be asked in this research. the comparison between halal 148 international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 148 tourism and generic tourism has been already analyzed by henderson (2009) in his conceptual paper. he argued that halal tourism will be challenged if the non-halal tourism could provide the special need which can satisfy the muslim tourist. therefore, the concept of halal tourism is still challenging whether it is just a conceptual or an practical approach (henderson, 2009). proposed research model there will be three antecedents to be tested to answer the research questions which have been stated in the previous section. it will analyze the muslim intention to travel to the nonmuslim country. this study will be concluded in several motivational factors which might be caused the muslim to do their travelling activities, especially in visiting non-muslim destination. in this following table, author will describe the result of the literature review among the publication to build the conceptual model in this paper. table 1. previous research no authors method & variables result gap and limitation 1. khan et al. (2016) conceptual paper this paper is argued that there is no clear differences between 'islamic and 'halal tourism. standardization of this services are also debatable. further research in defining the term 'halal tourism' is needed, especially the empirical research. 2. jia & chaozhi (2020) qualitative research, interview with muslim travelers and tourism practitioners in china six aspects of muslim needs in term of halal tourism which are halal f&b, muslim-friendly hotel, transportation, entertainment and shopping, muslim friendly toilet, and good service staff. chinese tourism practitioners are welcome for muslim travellers however only provide limited muslim friendly services. the researchers interviewed 34 respondents (both muslim travelers and chinese tourism practitioners), and still lack of detail in defining the ‘physical and non-physical attributes’ for muslim in supporting the halal tourism preferences. the six aspects which author concluded are still normative and general. 3. sanchez & moral (2019a) literature review from web of science and scopus indexed journals. a systematic literature review which concluded that halal halal tourism is a growing industry but still lack of research in this field of study. need further research in developing the empirical study of halal tourism, especially its relation to digital technology and digital economy. 4. sanchez & moral (2019b) literature review (wos and scopus indexed journals) and the semantic debate on halal tourism is still raising among the scholars and practitioners. however, halal tourism is an early stage of study and need further research to be developed to gain deeper understanding of the international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 149 also expert’s view. halal tourism is focusing on serving the need of muslim consumer regarding their traveling behavior. but, the various interpretation of halal tourism among practitioners and the muslim itself impacting the ambiguity in the practical standards. several muslim-friendly attributes are proposed to be developed to attract this muslim travelers. terminology, concept, and context of its implementation. 5. khan & callanan (2016) critical review paper based on published articles and mass media’s content in uk critique to the use of islamic tourism terminology. certification standard of its ‘sharia’ law and regulation is also arguable. however, the term ‘halal tourism’ most acceptable in the society. further research in defining the term 'halal tourism' and the differences between islamic tourism should be more elaborated. the need of basis terminology should be noticed. 6. yagmur et al. (2019) literature review based on bibliometric database with keyword ‘halal tourism’ the discussion about halal tourism is increasing during 2011 to 2016, but most of the papers are literature review, still lack of empirical research. several topics should be concerned regarding the development of this field of study. need to develop various topic in this field of study. some proposing topic are regarding muslim preferences in travelling, muslim motivation, and the muslim intention toward halal tourism. 7. bogan & sariisik (2019) critical assessment of the published articles in reputable journals. the differences among terminology are based on the muslim’s ‘intention’ and ‘motivation’. halal tourism is related to leisure activity. however, specific need based on islamic values are still obligatory. various this is a literature review article which lack of empirical data. however, the conclusion is giving a highlight regarding the measurement of muslim tourist’s intention to halal tourism and also the practical issue on standardization and 150 international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 150 interpretation of halal tourism caused different implementation in the tourism services. therefore, standardization and certification are needed. certification which could be developed to further research. 8. rodrigo & turnbull (2019) semi-structured interview to 21 muslim tourists in srilanka. in halal holidays, muslim perceived values are influenced by their faith (iman) regarding consuming the tourism services. the need of halal food and other tourism related attributes are very important to satisfy these muslim tourist. author were not clearly stated the attribute which affect the muslim perceived value regarding consuming the halal tourism services. 9. hussain et al. (2016) measuring halal purchase intention using tra model with additional independent variables. survey to 282 respondents in pakistan, measured by sem. 2 variables are rejected (halal logo and health consciousness), meanwhile food processing, ingredients, value, safety concern, religious reason are significantly impacting purchase intention among muslim. in this research, the variable religious factor could be substituted by using ‘religiosity’ which have been widely used in the study of religious value and factors which impact consumer behavior related to religious motivation. 10. alam & sayuti (2011) applying tpb in halal food purchasing. data collected from survey and measured using multiple regression all tpb antecedents (att, sn, pbc have positive impact to purchase intention in the muslim consumer in malaysia. this research is only using basic antecedents of tpb model without any additional variables. need to correlate more variables to the model such as trust and habit. 11. memon et al. (2019) religiosity as moderating variables among tpb model. data collected through survey in pakistan, and measured analysis using attitude and perceived behavioral control have positive and significance impact to purchase intention, meanwhile subjective norms is rejected. religiosity as moderating variable is also rejected. extended model of tpb could be developed by correlating other moderating variables such as country origin. in the other hand, religiosity could be also positioned as independent variable through tpb antecedents. international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 151 pls 12 jeaheng et al. (2019) defining halalfriendly attributes for hotels industry in thailand. data collected by qualitative and quantitative measurement to conclude several attributes. cognitive and affective evaluation as moderating variable to muslim purchase intention regarding halal-friendly hotel. several attribute as independent variables are halal privacy, halal friendly service, halalfriendly facility, and halal food and beverages (jeaheng et al., 2019). this research model has interesting insight to the development of halal tourism study. however, additional construct and theory need to be integrated to measure deeper understanding of muslim intention. the use of tpb model could be also useful. 13 mukhtar & butt (2012) measuring the role of twodimensional religiosity, subjective norms, and attitude toward purchase intention of halal products. data collected from 150 respondent and analyzed using sem. all antecedents of tra model (attitude and subjective norm) are accepted as significant factor toward purchase intention. however, only intrapersonal religiosity has positive impact to intention, meanwhile interpersonal religiosity is rejected. the rejection of interpersonal religiosity toward halal purchase intention is interesting because former research has found different result. further measurement in different sample could be provide another result. additional variable could be also developed into this model, such as specific consumer attitude. 14 abror et al (2019) impact of halal tourism and customer engagement toward satisfaction with religiosity as moderating variable (abror et al., 2019). data collected from 450 respondent in indonesia and analyzed using sem. all hypotheses are accepted. customer engagement and halal tourism have positive and significant impact to customer satisfaction, and religiosity as moderating variable is also accepted (abror et al., 2019). this study has positive contribution do the development of halal tourism study. however, the use of ‘halal tourism’ as independent variable could be extended into detail dimension and attribute, rather than using halal tourism which might be used by other researchers as a construct, not a measured variable. 15 amalia et al. measuring determinants of using tpb constructs, this research concluded the role of religiosity toward purchase intention 152 international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 152 (2020) halal purchase behavior among muslim millennials in indonesia. data collected from 339 respondents and analyzed using pls. that att, sn, pbc and also religiosity have positive impact toward purchase intention. hence, the purchase intention and habits influence real purchase behavior among the respondent has been measured in this study. however, additional path from religiosity to attitude have been also measured. further research needs to analyze the impact of religiosity toward sn and pbc based on the literature review above, this study is proposed a research model to analyze the relations between religiosity, materialism, and destination image toward attitude toward halal tourism which enhance the travel intention of muslim tourist. the basis theory of tpb is implemented in this research, while the three antecedents are the additional variables which originally conducted for this research. this model is trying to fill the theoretical and empirical gap which has been stated in the previous section of the literature review. the proposed model has not been measured in any previous study and researches. although the variables proposed have been conducted in other various researches, the relations among the variables were not yet measured in this specific model. this originality of the model perhaps becoming the novel contribution of this study. moreover, the context of the research in understanding the consumer behavior of muslim travelers is not yet analyzed in the previous researches. hypothesis development the research model above is the proposed model which has been synthesized from various research and former theories. as stated in the previous section, this model is proposed with its novelty, where the theoretical and contextual gap are trying to be answered. the first figure 1. proposed research model international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 153 sub-question of the study is the role of religiosity toward attitude of halal tourism. several researches have been analysed that religiosity have positive impact toward attitude and halal brand purchase intention (amalia et al., 2020; aziz & chok, 2013; kusumawardhini et al., 2016). however, in the halal tourism study, few research have been conducted research to analyse the moderating effect of religiosity toward attitude and purchase intention. although memon (2019) have concluded that there is no moderating effect of religiosity toward attitude and purchase intention, however other researchers were not agree whit this result. religiosity has moderating effect toward tpb construct (kashif et al., 2017) and interpersonal dan intrapersonal religiosity have also impact to purchase intention (mukhtar & butt, 2012). therefore, first hypothesis in this study is built as the following statement: h1a: religiosity has direct impact to muslim’s travel intention h1b: religiosity has impact to attitude toward halal tourism materialism is the interpretation of individual on pursuing the happiness on the possession of materialistic object. for materialistic individual, the value of an object is beyond its utility, it is the value of its possession which determine the status of individual (raggiotto et al., 2018). in the context of religious society, materialism is also related to the religiosity (taheri, 2016) in predicting the muslim intention on halal brand purchasing (rahman et al., 2017). therefore, in this study, materialism and religiosity are two different variables which predicted to have influence toward purchase intention. in the context of tourism, a tourist is assumed has materialistic motive while conducting their purchase intention toward travelling to a specific destination. therefore, the following hypothesis is also proposed in the research: h2a: materialism has direct impact to muslim’s travel intention h2b: materialism has impact to attitude toward halal tourism third sub-question is the role of destination image to attitude toward halal tourism and will enhance the intention to travel. destination image has positive and significance impact to attitude (al-kwifi, 2015). the role of destination image in the tourism research have been elaborated since decades ago. researchers argue that the image of a designated place will have influence to the preference of traveller to their visit intention. therefore, destination image could be an antecedent for the attitude toward halal tourism. in the halal tourism research, tpb construct have been implemented in analyzing the purchase intention of the muslim tourist toward halal tourism. all tpb construct have been significantly influenced the purchase intention, especially subjective norms (hussain et al., 2016; jeaheng et al., 2019). it is empirically proven that destination image have positive relation to attitude toward halal tourism. therefore, third hypothesis will be described as follow: h3a: destination image has direct impact to muslim’s travel intention h3b: destination image has impact to attitude toward halal tourism the growth number of muslim travellers in the world have been increasing in the past few years (mastercard & crescentrating, 2019). however, the need of muslim traveller to fulfil their traveling style have not yet fulfilled with the conventional tourism industry. therefore, halal tourism is introduced (battour & ismail, 2016). several attributes have been elaborated by researchers regarding the motivations of muslim tourist to seek halal tourism availability in their non-muslim destination. the need of halal food and beverages are becoming the top list (han et al., 2019), and also halal facilities such as praying room and muslim-friendly toilet. in the field of halal tourism, tpb model was also initiated in a research of jeaheng et al. (2019) in analyzing the halal tourism at thailand. the tpb model 154 international journal of islamic business and economics (ijibec), 5(2) december 2021, 142-157 154 was modified and measured its impact by the halal friendly attributes of hotel in thailand which served muslim travelers. therefore, in the previous research, extended tpb empirically has better explanation in the context of the halal tourism. therefore, the following hypothesis are proposed: h4: attitude toward halal tourism is mediating the relations between religiosity, destination image, and materialism toward muslim’s travel intention. 4. conclusion this proposed research model is based on the quantitative method which believes that finding the truth is a set of valid and reliable measurement process. in quantitative method, the basic concept of its epistemology is the construct measurement of the research model. hence, current research is the previous research’s gap. the construct building should be based on the structured literature review, where researchers could apply the construct validity and its reliability. therefore, the process of building the research model is important in this study. the topics on muslim purchase intention which have been analysed by some researchers have concluded several antecedents of the causes. unlike the previous research which dominating the tpb construct as the antecedent, this study is proposing the variables religiosity, materialism, and destination image as the antecedents of muslim purchase intention toward halal tourism. therefore, this deductive process is an ontological perspective in this study, where the proposed modelling of the truth is trying to be tested. perhaps, this study will contribute to the study of consumer behavior and will enhance the marketing science in the context of tourism. although this research is a conceptual paper based on review of previous literatures, the model development is interesting to be tested in empirical research in further research. based on this publication, scholar could develop their research agenda in implementing the research model. this research framework could be implemented in the several muslim majority countries to see the consistency of the proposed model. the more empirical research conducted, the more confidence of the extended theory of planned behavior could be generalized in this context. therefore, future research is needed to measure the model. acknowledgement author would like to extend the gratitude and appreciation to the advisor at ppim universitas indonesia, lpdp, and also colleague at sekolah tinggi manajemen ppm for their input and moral support. our appreciation would be also delivered to indonesia halal tourism association for the fruitful discussion during data collection. references abror, a., wardi, y., trinanda, o., & patrisia, d. 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(2003). the religious commitment inventory-10: development, refinement, and validation of a brief scale for research and counseling. journal of counseling psychology. https://doi.org/10.1037/0022-0167.50.1.84. microsoft word 3-lukman (104-116).docx 104 ijibec islamic economic studies driving indonesia's economy: an epistemological perspective r lukman fauroni corresponding email: lukmanf9@gmail.com state islamic institute (iain) surakarta, indonesia abstract this study aims to propose a scientific formula of islamic economics that can foster growth and contribute to the national economy. this study is the result of research studies reinforced empirical data, using a content analysis with epistemological approaches. the study concluded, in epistemological, islamic economic sciences can be developed with the inductive model-empirical character in indonesia and its localities. this formula has two advantages; first, can parse the economic problems of the nation simultaneously and continuously. second, the character of indonesia and its locality to converge with the power of social economic capital owned by the indonesian nation. with the combination, the implementation of sharia economics can promote economic stability and accelerate the pace of its contribution to the national economy. keywords: islamic economics; epistemology; economic problems; stability doi https://doi.org/10.28918/ijibec.v3i2. 1901 jel: a10, a13 published : 10 nov 2019 international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 3 no 2 2019 105 international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 1. introduction the development of islamic economics study in indonesia is faced with two issues. first, the slow growth of sharia economic industry. then, th second, the lack of studies on islamic economics from the perspective of philosophy, especially related to epistemology and indonesian character. both of these issues are possible to be one of the root causes, why the islamic economic contribution on national economic development has not been significant. sharia banking market share from national banks as of june 2018 only reached 5.70% with assets of rp 444.43 trillion and third party funds of rp 348.8 trillion. the third-party funds came from 27.27 million accounts (ojk sharia banking snapshot, june 2018) or else, only 11, 85% of the 230 million total national populations. the number is far from expectations when compared to the potential economic resources, especially muslims. this achievement misses the blueprint projection on the development of the sharia economic industry which has almost passed three decades since 1991. in the scenario of islamic financial master plan, it is expected to reach 20.7% in 2024 (bapenas, 2015: 35). meanwhile, the national economy is faced with the problem of weakening the economy as well as the economies of asian countries. the conflict of americanchinese economic interests influences that situation. the economic condition indicates the instability of economic pillars. the weakening of almost all currencies of asian countries since early 2018 is because of the impact of the interest rate cycle policy in the united states (us) and world oil prices are a real indication. bank of indonesia confirms three causes of weakening, which are the increasing rate of fed's interest, the expansive united states fiscal policy, tax reduction, fiscal deficit, and geopolitical risk, global uncertainty and us-china trade war (hanifah, 2016). in that position, rupiah only slightly won over rupees and pesos, making it the third weakest position in asia (aditiasari, 2018). on july 3, 2018, the rupiah dropped to rp. 14,420 per us dollar and as of september 30 become rp. 14,897 per us dollar. it was due to the fed's interest rates and the global world trade war (ramadhan, 2018). with these economic issues, the study of islamic economics is demanded to contribute more. although the scientific study of islamic economy has been quite intense with the presence of islamic economics on higher education, however, the range of the study is still a lot of stuck-on praxis economics, especially islamic banking, islamic insurance and islamic capital markets. the study of islamic economic strategic institutions based on indonesian characteristics and locality is still not much studied by people. from 150 islamic economic study programs in 2018, the most popular programs are sharia banking, sharia accounting, and sharia business management. while the islamic economic study program which should focused on the development of islamic economy has not been well developed. research on islamic economics to drive the nation’s economy, one of them is research conducted by ozsoy (2016) which provides several solution regarding the country’s economy through islamic economics. previous research that discussed about study of islamic economics also conducted by butta (2014), hamid (2018), juliana et al (2018), and pratiwi (2018). some research does not discuss too deeply the perspevtive of islamic economics, and this paper will discuss more about islamic economics in epistimological perspective in indonesia. under these conditions, how is the development of islamic economics that can encourage the stability of the national economy? this paper offers the development of islamic economics that has the character of indonesia and locality to encourage economic stability. this study is a qualitative study based on the content analysis of several islamic economic references and problems and the problem regarding the lack of strength on the national islamic economic industry. the analysis was confirmed and strengthened by the results of interviews with several practitioners and academics of islamic economics participated. international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 106 2. research method this study is a qualitative study of the philosophy of islamic economics. research is based on empiric data based on literature that is strengthened by the data of interviews with islamic epistemology approach. data collection techniques use documentation and interviews against a number of practitioners and islamic economics academics. the entire data is organized and processed through reduction and data display by following per under the research aims to offer islamic economics that has the character of indonesian economic reality and localities. data analysis using content analysis and trianggulation. 3. results and discussions 3.1. the problem of islamic economics studies all science comes from a worldview of the producers of science that cannot be separated from certain ideologies. wina's circle as a producer of science embarked on the progress of western civilization and revealed its ideology. likewise, baitul hikmah era almakmun baghdad had created a civilization of science that very strong with islamic ideology. incompatibility of western ideology as a producer of science can be a "trojan horse" or a fifth invisible colony. (hidayat nataatmadja, 1983). based on this perspective, the dominance of scientific results of western production will not be overcome but through epistemological studies. in that condition, the study of the epistemology of islamic economics has not been as much as praxis studies, especially in the fields of sharia banking, sharia insurances, and capital markets. even though, epistemology is a theory of science which is able to test the strength and the direction of science. moreover, epistemology also is the study about the process of the development of science and who agreed on the result of the science. rj hollingdale in western philosophy defines, "the theory of the nature of knowledge and how we know (rj. hollingdale, 1993). epistemology questions the basic things about science, its characteristics, its variety, and its relationship with the truth and to test the nature of science and its validity (sudarsono, 1993). according to baqir sadr, the capitalist and socialist economic system were born and developed from the doctrines about economics. thus, islamic economics must be originated and developed from the economic doctrines of the qur'anic traditions which imply empirical descriptive assumptions. the doctrines mainly developed through contextualization with the reality of the community (nurohman, 2012: 246). from this perspective, islamic economics studies is a social science inspired by the values of islamic teachings that are intertwined with local cultures to form the patterns of mutual influence. islamic economics should involve two things; first, as an intense study focusing on the economics reality that has taken place. secondly, as a comprehensive institutional economy that produces a moral economic system of social markets that is full of value-based economics. the success of economy is not limited to the measurement of economic growth, but it must include five (5) aspects: (1) economic and social inclusion or participatory economy, (2) economic independence (3) the quality of life of people with dignity (human dignity) (4) social justice and socio-economic security, (5) sustainable development (rahardjo, 2012). economic development should not only involve the material aspects but cultural and spiritual aspects. based on that perspective, islamic economics is the study of human behavior in resource management, by avoiding bad activities and doing good activities, to achieve safety, peace, and the welfare of human life (falah). in reality, this ideal purpose of islamic 107 international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 economics has not yet been realized. one of the factors is the development of islamic economic studies which is still influenced by: first, the orientation of the needs of the practical aspects of islamic economics including islamic banking, islamic insurance, islamic capital markets. second, the islamization of science over the conventional economics theories. third, it is influenced by islamic economic development models in other countries. fourth, the development of indonesian caharcter-based islamic economic studies has not yet developed. the above tendency causes islamic economics studies to be at a crossroads, especially in the aspects of sources, processes and consensus on the structure of science and its contribution in moving the new economic locomotive (muqorobin, 2004). this is where the importance and strategic study of the epistemology of islamic economics studies are responsive as the development of the civilization that it is originated from. every science will be more developed if along with the progress of civilization for the purpose of improving people's lives (scient for life) (suharto, 2005) with the issues of the western ideology power on one side and four trends above, indonesian islamic economics studies will be appropriate if it is developed from the cultural and ideological roots of the indonesian people. kuntowojoyo (2004) explicitly offers the concept of islamic science, namely islamic studies or islamic scholarship as the science itself islam with its teachings contains and the treasures that have been owned can create a basic of unique islamic science. likewise, the treasures of islam in indonesia which has been integrated in the socio-cultural life as the muslims of the archipelago. islamic economics in indonesia is precisely developed from observing empirical problem of real economic problems in society. the system of production and distribution of goods and services must be based on the reality of the economic needs of the community. referring to abu yusuf, the theory of supply and demand is the result of observation of the needs of the community at that time. ibn khaldun examined empirically and actual economic, social and state problems. likewise ibn taymiyah, ibn rusyd, imam syafii were among the figures who put forward the inductive approach. thus, mainstreaming the empirical or inductive approach in the development of islamic economics meets the strong normative and rational reasons. especially from an axiological perspective regarding the needs of applicable islamic economics studies,, responsive and solutive to the problems of the national economy and even developing countries. entering the third decade, since the momentum of the recognition of islamic economic study programs, islamic accounting in the 1990s, islamic economic studies are still at the normative-idealist level. this approach is easily believed by people but problematic in its application. the gap issues between industry needs, poverty problems, weakness in productivity of the community and the competence of islamic economics study program graduates are still real. bachelor of islamic economics has not fully met the expectations of the national islamic financial industry market needs (rozalinda, 2015). the strength of the idealist normative level, for example, is reflected in abdul mannan's work which positions the islamic economy as an independent science derived from the alqur'an hadith, ijma 'qiyas and other ushul fiqh methodologies, but in its operation, production, consumption, distribution are still inseparable conventional economics, except for the spirit of ethical morals as a basic foundation and action (1997). likewise yulizar (2010), islamic economics is a divine economy, an integral part of the islamic teaching system. the starting point is from allah, aiming for the pleasure of allah whose methods do not conflict with his shari‘at. it was not born as an alternative product to the current system; socialist or capitalist, but it is sunnatullah, which must be applied throughout the history of human international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 108 civilization. through approach, the practical aspects of economic problems are difficult to describe. the book of islamic macro economics by adiwarman karim (2006), is among the most influential books in indonesia. in this book the market balance in macroeconomy, money in islamic economics, economic stability in various systems, economic value of time, inflation, stability of the value of domestic money, exchange rates, monetary policy, the government as the mother of all markets, the government as a large saver, the government as a large buyer and the government as a large investor. in chapter five, it is discussed economic stability filled with many exposures to various views about currencies and ending with the discourse of dinar as a currency that has a more stable value. unfortunately in the effort to implement it, it only strengthens the position of gold as a media that holds a more stable value of money compared to the rupiah. in the discussion of monetary policy, the historical side of islamic monetary policy and its management is presented, the demand for money in islam, the iqtishaduna schools, mainstream schools, alternative schools, monetary sector relations with the real sector and money illusion, without discussion of contextualization and implementation in indonesia. likewise, the book the islamic economy: analytical of the functioning of the islamic economic system, monzer kahf translated by machnun husein, islamic economics analytical study of the function of the islamic economic system. in this book, islamic economics is discussed with scientific logics as developed by conventional economics. kahf (1995) tries to explain macroeconomics with graphs and models of economic equations. the book of islamic economics studies by the p3ei team of the islamic university of indonesia is a third generation book of islamic economics schools published in 2009. this book is considered by many people to be a representative book as a reference. this book was written by munrokhim misanan and a team with the support of bank indonesia. in his study, this book uses a deductive method that is implemented into economic logic to produce economic postulation. postulations are presented in the form of illustrations which are packaged in an implied and expressive presentation in a separate box in each chapter. this book carries the principles of falah and maslahah as axioms of islamic economics that are implemented in all economic functions such as consumption, production, distribution, input markets, general equilibrium and others. efforts to build islamic economic theories and avoid the confusion of conventional economic infiltration are among the strengths of this book. in each discussion, the key concepts from the treasures of islamic economic thought are presented. however, if we consider as a whole, this book is discuss more about microeconomics than macro. in this book, macro economic themes have not been discussed, such as islamic monetary policy based on the money supply. how to maintain the currency rates, how to make the national economy more stable in terms of inflation, unemployment and international balance of payments. how is the implementation of islamic economic development. 3.2. anatomy of the national islamic economic industry most asean countries, including developing countries, have a strong dependence on imported commodities from developed countries. the export activities of these countries have not been surplus and the economic fundamentals are not strong enough. that position caused economic conditions to be susceptible to global economic turmoil. if we compared to asean countries and even asia, indonesia has very rich natural resources. however, when 109 international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 optimizing natural resources relies heavily on the semi-finished goods industry, it has not been able to overcome the dependence on foreign products. likewise, when manufacturing industries such as automotive, electronics, foreign-owned, it creates consequences on the import. within that position, national economic conditions are often vulnerable to global economic turmoil. among the vulnerabilities of the national economy, one of them is the unstable economic fundamentals, as well as economic growth. economic growth is an economic development that causes the production of goods and services by the community can increase. economic growth is determined by the significant increase in goods and services produced. economic growth is calculated from real national income which is real gross national product, based on the prices of goods in force in a certain year. economic growth is a measure of the success of a country in a certain period of time. national gdp per september 2017 is 5.06, an increase of 0.5 compared to the same month in 2016 and an increase of 0.4 compared to september 2015. (lipi, 2018). it shows that there is a decent economic growth. however, the achievement of economic growth has not yet significantly reduced poverty. according to world bank mdgs report, indonesia has succeeded in reducing poverty rates by a total of 446 million in descent from 1990 to 2005. this reduction is still below the expected goals. there were still 918 million poor people in 2015 or roughly 53 million above estimates. on the one hand, this condition is caused by the economic crisis also caused by economic growth that has not pushed poverty reduction. appropriate governmental intervention is needed for the process of accelerating poverty alleviation (ikhsan, 2010). the problem of fluctuations in prices, especially fuel and staples, is the next cause. releasing part of the fuel price, following the mechanism of the global market, can push inflation on one side, weakening people's purchasing power and reducing the economic productivity of the community, especially the lower middle class. macroeconomic stability or price stability affects the level of poverty through several channels; (i) economic growth, (ii) the impact of distribution on household groups and (iii) implications for the development of anti-poverty policies. the weakening of the national economy was affected by the problem of supply-side distribution (producer industries) which stagnated due to the invasion of cheaper imported goods. this has a direct impact on the weakening of the home industry due to lack of demand. in the macroeconomic policy aspect, with a large number of government infrastructure projects being taken over by foreign parties, the economy has weakened further (interview with np, 2018). in such a condition of the national economy, the development of sharia economy is expected to contribute more. support from bank indonesia, ojk, ministry of finance, ministry of religion, ministry of bumn, ministry of cooperatives and smes, coordinating ministry for economic affairs, national sharia council-indonesian ulema council, the actors of islamic finance industry, professional associations of the sharia economic society, the association of islamic economics experts, and universities have not been able to move the sharia economic growth quickly. presence of the national sharia finance committee (knks) which was inaugurated on july 27 2017, by president joko widodo is expected to fulfill that hope. the committee is directed to accelerate coordination and synergy between communities, ministries/institutions and stakeholders for the development of the national islamic financial industry (kominfo, 2017). the overall performance and impact of the islamic economic industry on the national economy is still small compared to the conventional financial industry. the market share of international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 110 sharia banking as of june 2018 is only 5.70% of national banks. its total assets are idr 444.43 trillion, third party funds idr 348.8 trillion and financing idr. 303.54 trillion rupiah. from the total financing of rp. 303.54 trillion new rupiah was absorbed by 5.24 million accounts. meanwhile, national islamic banking third party funds amounting to rp 348.8 trillion came from 27.27 million accounts or only 11.85% of the 230 million population (ojk, 2018). likewise, it is still small compared to malasyia and the gulf cooperation council (gcc) countries or the co-operative councils of the gulf countries namely kuwait, saudi arabia, bahrain, qatar, united arab emirates and oman. these countries have focused on investment banking and capital markets, while the national islamic financial market is still oriented towards retail and segmented bmt (baitul maal wat tamwil) micro-finance institutions, islamic people's financing banks, islamic banking, islamic businesses and capital markets sharia. in this decade, the world's first retail sukuk and shariah online trading system (sots) developed (bapenas, 2015). among the obstacles to the growth of the sharia economic industry is the lack of vision and coordination among various stakeholders. government support for the development of the sharia economic industry has not been sustainable from upstream to downstream. public and business sector awareness of the sharia economy is still low. moreover, the quality and the quantity of sharia economic human resources that still not good enough. the concentration of the islamic economic industry is too focused on the retail market. there is still limited capital for all sharia commercial banks and sharia people's financing banks. the unstable capacity of islamic financial institutions in product variation, price competition, it system facilities, services and distribution. the lack of sharia capital market liquidity, and banking and non-banking capital market liquidity. the lack of supervision in microfinance, and lack of transparency and governance in the islamic religious fund sector, including the fund of hajj, zakat, and waqf etc. the islamic economic industry in most muslim-populated countries does not necessarily increase its growth. many factors are the obstacles to growth, at the level of regulation, practitioners, academics, society and culture. in the aspect of regulation, various obstacles are found. efforts to boost the expansion of the islamic bank market to commercial or corporate businesses are constrained by the regulation that large soe projects can only be financed by state-owned banks. non-bumn sharia banking can only do this through a syndication program between islamic banks that requires a longer process (hp interview, 2018). in the capital aspect, the limited capital of some of islamic banks is a barrier to entering the world financial market. moreover, the sources of bank operational funds originating from non-cheap sources of funds, namely deposits. the limitation of sharia financing guarantor institutions is an obstacle, especially in the aspect of assessing their guarantee capabilities. in the aspect of human resources, it is still limited in quantity and capacity. graduates of higher education in sharia economics, sharia accounting, sharia business management, sharia economic law are still few and have not occupied strategic positions in ministries / institutions, sharia economic industry. until now, human resources practitioners of islamic economics industry are the training/certified products. in this position, a strong commitment is needed from stakeholders in the sharia economy industry to the president (hp, interview, 2018). to strengthen sharia banking, kpps strategy is needed. this is the strategy to strengthen the fields of finance, production, marketing, and human resources. this strategy will provide a significant strength in overcoming banking competition in the era of the asean economic community (mea) (indra, 2017). on the level of society, the culture strengthening is necessary so that the islamic economics can be a strong and deeply rooted business economic 111 international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 ecosystem. the majority of moslem community has not massively cultivated islamic economics, both at the individual, community, and institution level including educational institutions. many are still utilizing and optimizing islamic banks and other islamic business institutions. several parties are still struggling in discourse and understanding differences; islamic banks are no different from conventional banks; islamic banks are not familiar, etc. (apn interview, 2018). there are five fields of islamic economic development must be continuously strengthened; first, strengthening the real sector of the islamic economy through the development of the halal industry. second, improving the efficiency of islamic finance. third, strengthening the islamic economic studies research through improving the quality of human resources in the field of islamic economics studies. fourth, the establishment of the halal product guarantee agency (bpjph) (media finance, 2019: 26). fifth, the developments must be based on indonesian economic characteristics. indonesia is expected to become a global halal hub for the international world. the application of ethical values, governance and regulation, human resources (hr) in the corridor of islamic economics, supports the realization of the guidance of sustainable development goals (sdgs), and technology. sharia economics can not only be measured in terms of financial, but also on the spiritual individual, social community, to the environment. those five fields above, epistemologically focused on strengthening islamic economic studies. a strengthening process that puts forward the inductive methodology based on the characteristics of the national and indonesian economy. the facts of national and regional economic problems must be a reference in every scientific development as well as sharia economic development policies by the government and related stakeholders. with this pattern, islamic economic studies will be easy to apply. besides, the massive sustainable socialization is needed in order to synchronize the perception in islamic economic culture, so that the islamic economy becomes a strong ecosystem. during this time, the program of socialization of islamic products by the fsa is still constrained by the budget, because it only relies on internal contributions of islamic banks. sustainable socialization contains the aspects of islamic economic superiority such as a more profitable economy, full benefits, reassuring, practical, first preaching, business follow, business partners, halal food, halal lifestyle, and others. with this pattern, sharia-based economic awareness will flourish and its service products become easily accessible and massive. unfortunately, bappenas as the "national kitchen" has not included the development of sharia economics as its blue print program. it is more than acting as a facilitator among regulators who will develop islamic economics (interview with cm, 2018). at the level of praxis, the national islamic economic industry has begun to develop into commercial business and international business by opening branches in major cities in several target countries such as commercial businesses that target the government and state-owned projects. furthermore, the islamic economic digitalization program which is the service based on android play store applications, financial inclusion has been carried out to reach some remote areas and increase sharia financial literacy. increased access to regions to drive financial inclusion and improve people's welfare (wibowo, 2018). synergy programs such as the national amil zakat agency, act, are carried out in the context of expanding literacy primarily through the quality of islamic economic education. in the service business sector, such as islamic hotels, there has been significant development. in 2016 indonesia won 12 categories of world halal tourism awards from 16 categories in the world halal tourism award in abu dhabi, united arab emirates. west nusa international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 112 tenggara, aceh and west sumatra have been designated as the main halal tourism destinations (www.tempo.com). in 2018 it reached the second rank of the world halal tourism destination set by the mastercard-crescent rating on the global muslim travel index (gmti). indonesia managed to move up one rank, although it remained below malaysia which was ranked first (www.cnnindonesia.com). thus, the development of the sharia economic industry is experiencing growth and expansion of outreach among the people although not as expected. for the acceleration of growth, the inductive approach of national and local economic characteristics should be put forward in the overall development of islamic economic studies especially through formal education at every level. in islamic religious higher education institutions and general tertiary institutions that open islamic economic study programs, they have started, but islamic economic studies in its various branches are still normative and has not been separated from the shadows of conventional economic scholarship. it is at this point that books on islamic economics are needed from the results of research with an inductive and empirical approach. 3.3. the solution to the inductive-empirical approach according to necati aydin (2013) islamic economics studies is a new paradigm based on islamic world views with an epistemological and theological anthropological approach that departs from microeconomics to cover the crisis of capitalism. the view is to develop islamic economic studies with an inductive approach and have indonesian character. the empirical and experimental studies are needed which can include data and economic models that are grounded from an islamic perspective. epistemologically, according to masudul nature choudhury and hafizah abdul rahimhal this thing is right because islamic economic study is open to various existing studies to fill the gap between conventional economics and islamic economics. furthermore, eri wibowo concludes as an open study and positioning of cultural wisdom as a source of values that influence the shape and practice of economics in society. the economic concepts initiated by the founding father about cooperative economics are metamorphoses of islamic economics that are uniquely indonesian. primary cooperatives based on the real sector of agricultural trade are a form of defense mechanism to fight riba, gharar, speculation, detrimental monopolies. cooperative economics is "the third way" to fight, counter or balance the hegemony of capitalistic economics (wibowo, 2011). with an inductive-empirical study pattern, then the development of islamic economics will be based on the real and applicable economic problems to encourage the acceleration of the contribution of the islamic economy to the regional and national economy. the vulnerability of the national economy as explained earlier, can be used as a starting point in building theories of islamic economics. islamic economic theory emphasizes on strategic aspects, especially islamic macroeconomics. although it is recognized that macroeconomic conditions will be good if the microeconomic performance is already good as well. inductive and deductive paradigms have already competed for so long in the development of various islamic studies. the exclusion of the inductive paradigm by muslim scientists became a precursor to the decline of muslim civilization. even the inductive paradigm has been misunderstood as belonging to the west. for the sake of scientific progress, muslims have no choice but to optimize the inductive paradigm precisely as an epistemological and methodological tool in the development of science, social humanities and islamic sciences (hilmy, 2013). islamic economics study is a more appropriate study developed with an empirical 113 international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 inductive paradigm to become a study that drives and empowers the people's economy. islamic microeconomics is driven by the acculturation of the economic attitudes of individuals, families and companies, especially msmes. while islamic macroeconomics emphasizes on the policy aspects that support the culture of productive economic behavior. islamic economics education in islamic economic study programs at state / private islamic religious universities (ptki) which is now dominated by normative-deductive paradigms, then it must immediately be shifted to the inductive-empirical paradigm. the problem of the decline in national economic stabilization, for example, must be observed in the islamic macroeconomy of at least three things. first, the inflation rate, second, the stability of the unemployment rate, then the third, the balance of the international payments. how does islamic economics provide solutions to these three aspects? what is the right policy in controlling it? what kind of inflation can be tolerated? islamic economics can tolerate inflation caused by the pull of demand caused by increasing public purchasing power. increased purchasing power is meaningful, there is an economic expansion that is strongly driven by the islamic economy. while inflation due to cost-push, means a decline in economic performance (contraction). this inflation is not tolerated by islamic economics. thus, government policies that cause prices to rise because they are triggered by rising costs are not compatible with islamic economics. the policy of "giving up" some fuel prices to the mechanism of the world market, is also not in tune with the guidance of the islamic economy, because it creates a domino effect of rising costs causing an increase in inflation. the problem of national economic dependence on foreigners in meeting the needs of several products must be eliminated, with the spirit of religious nationalism that prioritizes domestic products. religious nationalism is developed from the basic values of islamic economics as the implications of the principle of monotheistic philosophy: equilibrium, moderation, saving (parsimony) and avoiding waste (extravagance). balance between individual and general interests. between rights and obligations as a social economic being (madnasir, 2010). how can the government be able to maintain the value of a currency based on the amount of currency in circulation? how do you manage the imbalance in the international balance of payments, which has declined this year? how the implementation of islamic development economics can encourage national economic growth. development that can reduce unemployment. the model of economic development in developing countries, including indonesia, tends to emulate those from developed countries that do not have the same economic problem characteristics. likewise, there is no similarity in the socio-cultural and political aspects. as a result, not a few of the development programs implemented cannot move the economy of the community. the national economy has at least three characteristics. first, the population is very large, with domicile that is widespread in the regions of the archipelago with a diverse regional economic character. with this character, islamic economics that is developed must be a laborintensive economy based on territoriality and the character of each local economic potential. secondly, the majority of indonesia's territory is agricultural land, forestry, maritime affairs and fisheries. the strength of these lands, is undoubtedly responded to optimally in the development of islamic economics, both on the theoretical and practical levels of financial institutions. islamic banking products are made by adjusting the economic strength of agriculture, forestry, marine, and fisheries. in this context, the government is certainly present actively backing up islamic banking products that are characteristic of the strengths of national and regional economic forces. to be able to update (modify) islamic banking products. international journal of islamic business and economics (ijibec), 3(2) december 2019, 104-116 114 third, the economic characteristics of mutual cooperation, shadaqah economy in a culture with a strong social relationship. indonesian society is a society full of socio-cultural relations in strong communities with diverse locality characters. the celebration of eid fitr, eid adha, hajj, umrah and the celebration of islamic holidays in the archipelago is a very strong socio-economic asset. how can the strength of social-economic asset based on islamic teachings become one of the characteristics of indonesian islamic economic? the socioeconomic asset can be developed into a model of islamic economic production, distribution and also the consumption. this is a real challenge, the development of islamic economics based on indonesian character and locality. 4. conclusion the national economic issues faced by the indonesian people are the real agenda and challenge for the development of islamic economic studies. furthermore, the problem regarding the slow growth and contribution of the islamic economic industry in the world's most populous muslim country. epistemologically, during this time, the level of normative idealism of islamic economics should be changed by promoting an inductive-empirical approach to the problems of the nation's economy both on micro and macro. the diversity of national economy, instability of prices, poverty and unemployment rates, declining international balance of payments, implementation of unproductive economic development models, etc. are an urgent agenda on islamic economics studies. the inductive-empirical construction of islamic economics has two advantages: first, it can solve the nation's economic problems simultaneously. secondly, the development of islamic economic scientific studies formulas that have the characteristic of indonesia and locality, so that they converge with the strength of the nation's socio-economic capital. with this combination, islamic economics studies will accelerate the rapid movement of islamic economic contribution to the national economy. the construction of inductive-empirical islamic economics is also possible to be strengthened by an irfani epistemology that emphasizes spirituality. a benefit of real economic problems will be tested in spirituality aspects. thus, the outward standard of inductive-empirical welfare should also meet its inward standards. references abdullah firman wibowo, direktur utama bni syariah di talk show economic challenges dengan tema fintech dan keuangan islam, metro tv, 5 juni 2018. aditiasari, d. 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(2013). membangun konstruksi keilmuan ekonomi islam. jurnal islamica, 5(1), 175189. 86 ijibec organizational strategic response in implementing the indonesian isfas 109 on accounting for zakat: case of amil zakat agency in bali made aristia prayudi1* and hafiez sofyani 2 1 faculty of economics, universitas pendidikan ganesha, udayana street 11, singaraja, buleleng, bali, indonesia 81116 2 faculty of economics and business, universitas muhammadiyah yogyakarta, jbrawijaya street, bantul, daerah istimewa yogyakarta, indonesia 55183 correspondence email: prayudi.acc@undiksha.ac.id abstract this study addresses an issue of the alternative strategic responses, rather than compliance, to institutional pressure take by a public organization. this study aims to investigate why and how zakat management organizations strategically respond to comply or not to comply with the indonesian statement of financial accounting standards of 109 (isfas 109) concerning accounting for zakat. this study was conducted in national amil zakat agency in bali, and it applies a case study method with interviews, observation, and document review as data collection techniques. the data were interactively analyzed by applying thematic analysis. the results showed that although a majority of the financial reporting processes could reflect the choice of acquiescence responses (compliance) to the isfas 109, other findings revealed the existence of non-compliance responses (compromise-balancing). these non-compliance responses were relating to the context of receiving non-halal funds and the related parties' transactions. it is also found that the existence of this non-compliance behavior can be attributed to the low level of both organizational dependence on its constituents and coercivity of the institutional pressure. this study contributes theoretically by revealing new findings of a significant role of powerful internal actor in shaping the organizational response to institutional pressure. besides, it have practical implications on policy formulation by the indonesian accounting association as a standard-setter body. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 2 2021 keywords: amil zakat agency; institutional pressure; statement of financial accounting standards 109; strategic response; zakat infaq sadaqa (zis doi: 10.28918/ijibec.v5i2.3641 jel: h83, m48, z12 article info article history: received : 5 april 2021 accepted : 28 august 2021 published : 1 december 2021 mailto:prayudi.acc@undiksha.ac.id international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 87 1. introduction previous literature has presented evidence that public organizations are more vulnerable to institutional pressure than those in the private and not-for-profit sectors (ashworth et al., 2009; frumkin & galaskiewicz, 2004). while many researchers focus on the institutionalization process of public organizations, academic debates also arise regarding the forms of response to the institutional pressures they face (abernethy & chua, 1996; oliver, 1991). addressing this gap, this study aims to investigate why and how public organizations respond strategically to institutional pressures in their operational environment. adopting the predictive response framework proposed by oliver (1991), this study focused on the institutional pressure in the form of obligation to implement the indonesian statement of financial accounting standards (isfas) 109 regarding zakat and infaq/sadaqa accounting in one of the districts national amil zakat agency (badan amil zakat nasional) organizations in buleleng regency, bali (hereinafter referred to as aza x regency). this study is critical to conduct by considering several aspects as follows; firstly, there are still inconsistencies in empirical findings related to public organization response to institutional pressure. many research (e.g. akbar et al., 2012; dimaggio & powell, 1983; ridha, 2012; scott, 2008) found that compliance passive behavior is the only response option for public organizations to the institutional pressures they face to gain legitimacy. meanwhile, other research found that organizations can implement more active and varied strategies other than in the form of compliance responses. for example, in the form of financial independence (sanz-menéndez & cruz-castro, 2002), opposition (grafton et al., 2011), or neglect (bjork, 2003). secondly, the organization’s motivation in implementing the accounting rules is still debated. generally, accounting behavior displayed by public organizations can be closely related to their institutional environment (aburous, 2018; falkman & tagesson, 2008; potter, 2005). however, abernethy & vagnoni (2004), macintosh & hopper (2005), and julianto & prayudi (2016) found that accounting policies applied by the organizations are political and aim to fulfill the interests of those who dominate the organization. thirdly, at the practical level, the concept of sharia governance is found to be inadequately implemented at the amil zakat institution (lembaga amil zakat—laz) even though there are zakat core principles and decree of the minister of religion number 333 of 2015 concerning guidelines for granting permits to establish the institutions (abdurahim et al., 2018). in addition, the compliance level and the isfas 109 implementation by zakat management organizations (opz) in indonesia is still low (sofyani, 2019). however, a study by puspitasari & habiburrochman (2013) even found that that laz in indonesia tend to take the initiative to disclose some transactions that are not regulated by the isfas 109. fourth, even though it operates in the largest non-muslim majority community in bali, aza x regency is a zakat management organization with the best program realization rate in the province. however, previous research showed that at aza x regency, there are still problems in zakat management, infaq/sadaqah (zis), in implementing financial management accountability and also related to compliance with isfas 109 implementation 109 (purwanto et al., 2017; zen et al., 2017). interestingly, riandani, prayudi, & dewi (2018) showed that the non-compliance behavior displayed by aza x regency is more based on the inconsistency consideration between several rules in isfas 109 and islamic/sharia law, which is firmly adhered to by the organization management. this interesting finding is further discussed and is the main consideration in choosing the form of compliance behavior with the application of isfas 109 at aza x regency as the analysis unit. 88 international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 in addition, as sofyani (2019) found, theoretical implication in zakat accounting studies in indonesia has become a research gap. he said that in a period of approximately 17 years of zakat accounting studies, most researchers focused on practical aspects and ignored the issue of theoretical development. the institutional theory of dimaggio & powell was suggested by sofyani in the context of zakat accounting research. developing that, this study focuses on institutional pressures in the form of accounting standard implementation in public organizations using institutional theory lens proposed by dimaggio and powell. as stated by m. fuad nasar as deputy secretary of the central indonesian national amil zakat agency, ifsas 109 is a guideline for preparing financial reports that must be applied by national amil zakat agency organizations in all the regions (republika, 2015). it has received approval from the national sharia board of indonesian council of ulama (mui—majelis ulama indonesia) and the sharia accounting standards board. in dimaggio & powell’s categorization, this kind of pressure was in the regulatory category because it comes from the mandate given by the government (akbar et al., 2012; bruton et al., 2010; prayudi & basuki, 2014; wang et al., 2017). this study also adopted the predictive response framework from oliver (1991) which stated that organizations do not always adopt the rules, myths, and expectations of their institutional environment. also, political, personal, and group interests are recognized to play important roles in making a decision related to responses form displayed in the organizations. furthermore, oliver (1991) proposed five categories of organizational strategies in responding to the institutional pressures, namely the form of acquiescing, compromise, avoid, defy, and manipulate. the “acquiesce” response is categorized as a form of passive strategy because it can indicate the organization's submissive behavior and its compliance with institutional pressures. meanwhile, the other four response forms are categorized as more active (clemens & douglas, 2005). besides, each strategy contains specific tactics as described in detail in table 1. oliver (1991) also proposed that certain conditions influence the organization’s options on the available strategic response form. the conditions include (a) the legitimacy level of the perceived institution expectations; (b) aspects of the economic benefits that can be obtained; (c) the degree to which each organization constituent has conflicting institutional expectations; (d) the dependence level of the organization on external constituents; and (e) aspects of the organizational internal political interests. also, there are 10 predictive factors in five different categories as antecedents of the five forms of strategic responses discussed in the previous section. these factors are described in more detail in table 2. next, this study proposed a proposition that response form of compliance with isfas 109 will be displayed by aza x regency, when: p1: the perception of obtaining legitimacy from the regulator and the efficiency increment (economic gain) of the organizational management is high; p2: the constituent diversity level is low and the independence degree of the organization on the interests of external constituents is high; p3: consistency level of the institutional pressure in the form of mandatory isfas 109 application with organizational goals are classified as high and the limitation level of authority by institutional pressure is low; p4: the level of coercivity of control over institutional pressure on the organization is classified as strong however, when these conditions are not met, the aza x regency organization will international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 89 show non-compliance behaviors to the isfas 109 application, ranging from compromising, avoiding, defying, and manipulating. table 1. the strategic responses to institutional pressure strategies tactics meanings acquiesce habit unconscious adherence to rules or values previously assigned or taken for granted. imitate consciously or unconsciously mimicking institutional models (such as successful organizations). comply conscious obedience or self-integration of institutional values, norms, or rules. compromise balance accommodating various demands and expectations from external and internal constituents of the organization. pacify fulfilling institutional demands at the minimum level to ‘please’ external parties. bargain demanding certain agreements to external parties in a negotiated manner. avoid conceal concealing non-compliance by presenting activities as though they are expected. buffer limiting external parties’ access to the technical activities of the organization to reduce the possibility of being evaluated. escape leaving the institutional environment or significantly changing the goals and activities of the organization. defy dismiss ignoring institutional norms and values challenge resisting rules and requirements. attack underestimating or criticizing the institutionalized values and external constituents from which they are based. manipulate co-opt persuading external constituents to be in coalition influence influencing the formation of institutional values and criteria. control dominating constituents and institutional processes. source: oliver (1991) table 2. institutional pressure antecedents and predicted strategic responses predictive factors strategic responses acquiesce compromise avoid defy manipulat e cause legitimacy high low low low low efficiency high low low low low 90 international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 constituents multiplicity low high high high high dependence high high moderate low low content consistency high moderate moderate low low constraint low moderate high high high control coercion high moderate moderate low low diffusion high high moderate low low context uncertainty high high high low low interconnectedness high high moderate low low 2. method this study employs a qualitative research type with a case-study strategy. case study can provide an overview of how social influences on a macro scale will shape structures and processes in certain contexts on a micro-scale (neuman, 2014). this strategy was chosen because it directs the research team to answer “how” and “why” a social phenomenon happens (yin, 2003, 2018) as the main objective of this study. the phenomenon which then becomes the unit of analysis (case) is a form of response from public organizations in the religious sector, namely the aza x regency, to the institutional pressures, namely the obligation to implement isfas 109 related to zakat and infaq/sadaqa accounting. therefore, this study adopted the predictive response framework proposed by oliver (1991) to explain the antecedent factors and forms of an organizational strategic response to the institutional pressures. the data collection methods included an interview, observation, and document study. a semi-structured interview was conducted with six informants, namely (a) head commissioner of aza x regency (bx1); (b) the treasurer of aza x regency (bx2); (c) the operator of aza x regency (bx3); (d) two active muzzaki aza x regency (mx1 and mx2); and (e) islamic religious leaders in district x (tx). informant names were codified to maintain confidentiality. the interview process was carried out face to face by providing open-ended type questions, therefore the informant had the freedom to answer according to their perspectives, experiences, and opinions. furthermore, the interview was conducted at the aza x regency office and the informant's private residence for one to two hours per informant, and the results were recorded with their permission. the interviews were conducted by first contacting and requesting permission from the head commissioner of the aza x regency. the head commissioner was the key informant by considering the central role in the organization and the characteristics of openness, acceptance, and good communication skills. meanwhile, others were determined based on the head commissioner’s recommendations, and consideration of the research needs. table 3. interview guideline predictive factors components explorative questions cause legitimacy acquisition 1. why does the organization apply isfas 109? 2. what are the benefits of isfas 109 implementation for the organization? efficiency enhancement international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 91 constituent diversity level 1. who are the parties involved in isfas 109 implementation in the organization? 2. how are the relationship and interaction patterns between the organization and the parties? dependence degree content objective consistency 1. how are the links between the rules in isfas 109 and the goals of the organization in general? 2. do the rules in isfas 109 accommodate routine operational matters of the organization in the context of accountability for zis fund management? performance limits control coercive 1. how is the monitoring and evaluation mechanism for the implementation of isfas 109 in the organization? 2. how is the application of reward and punishment with the application of isfas 109? response forms 1. how is the application of isfas 109 in the organization? 3. result and discussion 3.1. predictive factors of organizational strategic response perceptions of potential legitimacy and efficiency achievements from the isfas 109 implementation (proposition 1). the description of obtaining legitimacy potential (social stability) was carried out by evaluating whether aza x regency perceived that isfas 109 implementation can increase the organization's capability in effectively and efficiently managing zakat to achieve mandated social goals. article 3 paragraph (b) in the republic of indonesia law number 23 of 2011 concerning zakat (law 23/(2011) states that the management of zakat is aimed at increasing its benefits to bring community welfare and poverty alleviation into reality. the law also regulates the role of aza as an authorized institution to nationally carry out zakat management tasks (article 6) and its functions in terms of reporting and accountability for the implementation (article 7 paragraph (1) letter d). however, the indonesian accountants association (iai) as the accounting standard-setter institution states that isfas 109 is needed to support zakat management transactions by the institutions that are becoming more complex (ikatan akuntan indonesia (iai), 2010). aza x regency admitted that isfas 109 implementation was initially motivated by the mandate from central aza to provincial and regency/city aza throughout indonesia. the mandate was accepted by aza x regency when participating in socialization and training on the operation of the isfas 109-based financial reporting system held by aza bali province at the end of 2016. in this activity, it was conveyed that the central aza had previously coordinated with the ministry of religion as the regulator to agree on the obligation to implement isfas 109 in zakat management organizations throughout indonesia. this confirms that there are regulative institutional pressures addressed to aza x regency. 92 international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 regulative pressure is a form of institutional pressure that arises when relative pillarrelated institutions direct the actors to behave rationally based on sanctions consideration and compliance aspects (scott, 2005). meanwhile, the actors (organizations) that receive the pressures will be motivated to display compliance responses to gain legitimacy and social stability through uniformity of internal structures, including the structure of their financial reporting system. also, the motivation to obtain legitimacy like this appears in the context of the isfas 109 application to aza x regency as implied in the statement in one of the following key informants: “…by implementing isfas 109, it means that we have entered into aza category that obeys the rules of central aza ... [moreover] we have high hopes that the implementation of isfas 109 with all the rules will make us an amil zakat institution that is trusted by the people. … ”—bx1. the interview results showed a perception from the aza x regency that by implementing isfas 109, the organization will be judged to pursue things that are under the demands and expectations of its social environment, which is the realization of management and accountability of better quality zis funds. this is relevant to the legitimacy concept by dowling & pfeffer (1975) that is interpreted as conformity between social values, which can be implicated from organizational activities with behavioral norms accepted by the larger social system. also, legitimacy becomes important for organizations to maintain operational existence and sustainability because it can have consequences on obtaining economic and financial support (akbar et al., 2012). these findings confirm by albu, et al. (2014) which found that the process of adopting international accounting standards (ifrs) in romania is closely related to fulfilling interested parties' legitimacy (stakeholders), namely national accounting standards regulators, accountants, financial report compilers and auditors. it is also consistent with pujianto & asrori (2015) who found that zakat and infaq/sadaqa management organizations in semarang consider the stakeholders' perceptions in recognizing, measuring, presenting, and disclosing zis funds based on indonesian isfas 109. in addition, it confirms syaifuddin (2021) that the implementation of psak 109 by laz is intended to maintain public trust. however, isfas 109 implementation in the zis fund’s management and financial report at the aza x regency is believed to ease the revenue record and expenditure of relative funds to the use of the simba application. this is as stated by the following informants: “…it is easier for us to make details of the income, expenditure items, and accumulate all financial administration programs… it is more detailed so that even one rupiah will not be less from the balance, [because in the system] there is a “red mark” [notification of recording error—author]… in other words, it minimizes errors…”—bx3 “… [isfas 109 implementation] eases the operator to access all data which is then used to explain the muzakki so that aza has a good image in the society…”—bx1. generally, zakat accounting application in zis fund management organizations is indeed directed to ensure the availability of information needed to appropriately, efficiently, and effectively manage zakat funds (nugraha et al., 2018). this is in line with the mandate of international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 93 law 23/2010 on zakat management which emphasizes the purpose of managing funds in increasing the effectiveness and efficiency of services and increasing the benefits of zakat to make community welfare and poverty alleviation into reality. these findings confirmed megawati & trisnawati (2014) related to the economic consequences which have been obtained by aza pekanbaru city because of the isfas 109 implementation. therefore, it can be concluded that the potential level of obtaining legitimacy and increased performance efficiency as causal predictive factors of the strategic response to isfas 109 implementation is in the high category. multiplicity and dependence on external constituents (proposition 2) oliver (1991, p. 162) defined multiplicity as the levels of varying and conflicting expectations given by interested parties to an organization. diversity can affect how organizations respond to institutional pressure because conflicting expectations will limit their ability to agree with certain expectations. in the aza x regency organization, an analysis of the number and types of external constituent groups shows that the diversity level tends to be categorized as low. also, the organization's constituents only range from the regulator (ministry of religion of the republic of indonesia, aza center, aza of bali province), regional government of x regency, the zakat management unit (upz) as well as the muzakki and mustahiq parties. as described in the previous section, the regulator is the main party that becomes a source of institutional pressure for the aza organization and therefore has expectations of organizational compliance in implementing isfas 109. meanwhile, the muzakki were indicated not very aware of the obligation to implement isfas 109 in the aza x regency organization, hence it does not have certain expectations for its application as implied by the interview results as follows: “i have never heard of the [isfas 109 — author] rule… what is clear is that so far my family and i have been able to easily distribute zakat because aza will help distribute it to people who are entitled to receive.” mx1 “i think the zakat management is good ... there are reports that have been made by computer.” mx2 “it seems they (muzzaki author) do not know about isfas 109 ... they know that the process is online, just like that.” bx1 this can represent a conflict of interest absence between significant and influential constituents in the aza x regency institutional environment regarding the obligation to implement isfas 109, therefore it minimizes the possibility of the organization not being obedient in responding to these institutional pressures. however, the interview results showed a low dependence level of the organization on the main constituents as follows: “we, especially in bali, still have no subsidies from the local government for organizational operations. [whereas] after the law was formed, the operation of this [organization] was borne by the regional government. even the position of the commissioner [head of the organization] is equivalent to the rank iiib at his level… yes, the same as the kpu commissioner… ”—bx1. 94 international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 a similar thing was expressed by other informants as follows: “the source of funding for the organization is mainly from zakat funds obtained from the public. none of that from the ministry of religion or central aza. ”bx2. “we submit proposals every year, hence funding [for aza x regency] is included in the apbd, but until now, alhamdulillah, there has been no response. the financial reports that we deposit every three months to the local government are just received without any follow-up response. ”-bx3. oliver (1991) stated that the dependence degree of an organization on certain constituents can be implicated from the number of alternative sources to obtain capital or resources, or the percentage of the total agency budget that is funded by one constituent. the findings in this study showed that constituents that are the source of institutional pressure (central aza) are not sources of obtaining resources for aza x regency. this is true as regulated in government regulation number 14 of 2014 (pp 14/ (peraturan pemerintah republik indonesia nomor 14 tahun 2014 tentang pengelolaan zakat, 2014)) concerning zakat management article 69 paragraph 1, which states that “the operational costs of the provincial and regency/city aza are charged to the regional revenue and expenditure budget and amil right”. however, ironically, the regency x government seems unable to properly carry out the pp mandate 14/2014. therefore, it can be concluded that the multiplicity level of external constituents at aza x regency is categorized as low, with the degree of independence on constituents which also tends to be categorized as low. consistency between implementation of isfas 109 and achievement of organizational goals (proposition 3). institutional pressure in form of an obligation to implement isfas 109 at aza x regency is admitted to be very accommodating to the duties and authorities of the organization in managing and being accountable for zis funds deposited by the community. also, the isfas implementation is recognized as following the objectives of aza x regency as stated in the organization's vision, namely “to become a trustworthy, transparent, and professional amil zakat institution.” likewise, in the organization’s mission statement document, it is stated that aza x regency strives to increase the collection and utilization of regional zakat under sharia provisions and modern management principles, as well as to develop managers who are trustworthy, transparent, accountable, and integrated, that can make zakat data center for the region/ x regency. interestingly, the key informant showed that in the previous periods before the isfas 109 implementation, aza x regency had communicated with aza bali province to provide a better financial management system and following the rules. the request was made to ensure that the demands for accountable and transparent zis fund management are met. this is as stated as follows: “… our aza has many demands. firstly, demands from public accountants because we manage people’s money so that it is not scattered, thereby eliminating the belief of the people to deposit funds to aza. secondly, there is a sharia accountant… therefore, we urge the province how to make a really good system… and it turns out that it is connected to the central [aza] program which makes isfas 109 to be coordinated with international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 95 the center… ”—bx1. “[aza operational] is not limited by isfas 109, because isfas 109 is a guideline that complements other regulations related to the management of zis funds other than law no. 23 of 2011; pp no. 14 of 2014. ”bx2. therefore, it can be concluded that the consistency level of institutional pressure in the form of obligation to implement isfas 109 with the aim of the aza x regency is high and the limitation level on organizational authority by institutional pressure is low. types of controls felt from the implementation of isfas 109 (proposition 4) as stated in the initial discussion, the application of isfas 109 to aza x regency is perceived as an obligation based on regulatory pressure exerted by the central aza. nevertheless, the control environment felt by the regency on the obligation to implement isfas 109 is classified as not too strong. meanwhile, the reward and punishment mechanism which tends to be flexible, implemented by the government and the central aza as the regulator, does not seem too motivating and does not provide incentives for the aza x regency to fully implement the provisions of isfas 109. this is as stated by the informants as follows: “for monitoring, the isfas 109 implementation is carried out by a public accountant who is assigned and financed by the central aza ... with the results of “received conditionally”, “received unconditionally” or “fully received”... finally we received the status" received conditionally "... no sanctions or consequences, only a recommendation to further improve [the quality of financial management]. ”bx1. “we report financially to the regent every three months, we also copy them to the regional office of the ministry of religion, copy them to aza bali province, as well as the ministry of religion in regency x and the zakat management unit ... we just accept the response to the financial report, no follow-up. ”bx3. the interview results showed that there was a higher preference/concern for fulfilling the obligations of fund management under sharia relative to fulfill obligations based on conventional rules (isfas 109). this is implied by the following key informant statement: “audit by public accountants was related to the accuracy of income and expenditure of [zis funds], while the audit by a sharia accountant is related to the distribution accuracy... [if] the public accountant is already good [the results of the financial examination], but by the sharia accountant [is stated] wrong, it becomes a fatal mistake.”bx1. table 4. summary of findings of predictive factors for strategic response of aza x regency predictive factors findings summary conclusion cause • the motivation of legitimacy gain • feeling that they are one of the aza who obeys the rules of the central aza (bx1) • hoping to be a trustworthy amil zakat • the level of motivation to gain legitimacy is high 96 international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 predictive factors findings summary conclusion • the motivation for efficiency enhancement (economic gain) institution (bx1) • easier to manage zis (bx3) funds • more accountable and transparent to muzzaki (bx1) • the level of motivation to achieve efficiency is high constituent • multiplicity level • dependence degree • regulators have expectations of compliance with the implementation of isfas 109 (bx1) • muzzaki did not know about isfas 109 (mx1; mx2; bx1) • no subsidies from local governments (bx1) • no funding from the ministry of religion or central aza (bx2) • there is no response from the local government regarding the funding proposal (bx3) • the level of the multiplicity of the constituents is categorized as low • the degree of dependence of the constituents is low content • consistency of goals • performance restrictions • isfas 109 implementation is under the organization's vision and mission (bx1) • isfas 109 complements the zis management guidelines (bx2) • the level of goals consistency is high • the level of performance restrictions is low control • the coercivity of institutional pressures • no sanctions, only a recommendation (bx1) • there is no follow-up from the regulator on the reported financial statements (bx3) • the level of coercivity to institutional pressure is low predictive factors findings summary conclusion cause • the motivation of legitimacy gain • the motivation for efficiency enhancement (economic gain) • feeling that they are one of the aza who obeys the rules of the central aza (bx1) • hoping to be a trustworthy amil zakat institution (bx1) • easier to manage zis (bx3) funds • more accountable and transparent to muzzaki (bx1) • the level of motivation to gain legitimacy is high • the level of motivation to achieve efficiency is high constituent • multiplicity level • regulators have expectations of compliance with the implementation of isfas 109 (bx1) • muzzaki did not know about isfas 109 • the level of the multiplicity of the constituents is categorized as low international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 97 predictive factors findings summary conclusion • dependence degree (mx1; mx2; bx1) • no subsidies from local governments (bx1) • no funding from the ministry of religion or central aza (bx2) • there is no response from the local government regarding the funding proposal (bx3) • the degree of dependence of the constituents is low content • consistency of goals • performance restrictions • the implementation of isfas 109 is under the organization's vision and mission (bx1) • isfas 109 complements the zis management guidelines (bx2) • the level of goals consistency is high • the level of performance restrictions is low control • the coercivity of institutional pressures • no sanctions, only a recommendation (bx1) • there is no follow-up from the regulator on the reported financial statements (bx3) • the level of coercivity to institutional pressure is low therefore, it can be concluded that the level of coercive control over institutional pressure in the form of the obligation to implement isfas 109 felt by the aza x regency is low. table 4 then presents the summary of the findings related to predictive factors for the strategic response of the aza x regency organization to institutional pressure in the form of obligation to implement isfas 109. there are the motivation of aza x regency to be able to image itself as a trustworthy amil zakat institution (gaining legitimacy) as well as the perception of ease in managing organization fund (increasing efficiency) through the implementation of psak 109. from the ‘constituent’ category, it is found that there are no such varying and conflicting expectations given by interested parties to an organization since the muzzaki are not very aware of the obligation to implement isfas 109 in the aza x regency organization. it is also observed that the implementation of psak 109 is recognized as having a high degree of consistency with organization goals. lastly, the organization feels the less coercive control from regulator as there is no follow-up from the regulator on the reported financial statements. 3.2. organizational strategic response: the isfas 109 implementation the application of isfas 109 concerning the accounting for zakat and infaq/alms at aza x regency is represented in the implementation of the principle of financial reporting. from the principles of recognition and measurement, aza x regency is observed to have applied the principles following isfas 109. an interesting point was found related to the application of the recognition and measurement principle of non-halal funds in the aza x regency. as described in isfas no. 109 paragraph 32, received non-halal funds are from activities that are not under sharia principles, including from current accounts or interest from conventional banks (ikatan akuntan indonesia – (iai), 2010). furthermore, paragraph 33 of 98 international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 isfas 109 also states that the received non-halal funds are recognized as non-halal, which are separate from zakat, infaq/alms, and amil funds. meanwhile, non-halal assets are channeled accordingly to sharia. in practice, until now aza x regency has never been willing to accept these funds because aza is very adherent to sharia law, which prohibits the management of non-halal funds containing ‘riba’ (usury). this is as stated as follows: “… regarding non-halal funds, it is not wrong to make regulations such as disclosing them because we understand that this is to clarify transactions. but for aza x regency itself, we still haven’t and hope that we will never manage non-halal funds, and we hope that there are no urgent conditions that will make us manage these funds. because as we know that non-halal funds or what we now know as funds that contain an element of ‘riba’ (usury) are strictly prohibited by islam except in very urgent conditions.”bx1. related to the principles of presentation, at aza x regency, zis funds are reported in received and distributed funds, meanwhile, amil funds are presented in form of amil cash reports. the financial statements have been presented based on isfas 109. however, with the consideration that several accounts are still not understood by amil, financial statement preparation still does not follow those stipulated in isfas 109. aza x regency has prepared financial statements based on isfas no. 109 with components as (a) statement of financial position; (b) fund change report; (c) report on changes in assets under management; (d) cash flow statement, and (e) notes to financial statements. finally, from the principles of disclosure, at aza x regency, several discrepancies were found in applying the principle of disclosing zakat funds as regulated in paragraph 35 of isfas 109. firstly, there was no policy disclosure regarding the priority scale of zakat distribution. secondly, for the fair value determination method, amil recognizes an amount that is not recognized as a non-cash asset but as cash. thirdly, the amil party did not disclose the nature of the special relationship between amil and mustahiq, because the amil party had never distributed zakat funds to mustahiq which had kinship or special relationships. meanwhile, regarding the third nonconformity, this policy was taken by considering the rules of sharia law as revealed below: “so far, we have never had a special relationship. even though, i'm sorry, nephew… if we can afford it [financially], then come here, we will refuse. so [this distribution of zakat funds] is indeed valid proportionally and under sharia. ”bx1. in general, the behavior of implementing isfas 109 by aza x regency related to recognition and measurement principles as well as presentation principles in the financial reporting process reflects strategic response options in the form of acquiescence towards perceived institutional pressures. however, there are indications of organizational noncompliance behavior when dealing with the context and situation of receiving non-halal funds and related relationship transactions. implicitly, aza x regency expressed receipt rejection of non-halal funds and special relationship transactions even though the rules in isfas 109 have facilitated the procedures for their recognition and measurement under urgent conditions. this can imply that there are efforts to accommodate internal parties’ interest of the organization who always adhere to the islamic sharia principles relative to institutional pressure by regulators. therefore, referring to oliver's framework, this form of strategic response can be categorized into compromise behavior in a balanced strategy. international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 99 these findings confirm the accuracy of the predictive factors for oliver's (1991) strategic response according to the proposed research proposition. in aza x regency, it was found that not all conditions that lead to the form of compliance can be fulfilled in the context of implementing isfas 109. also, the degree factor of organizational dependence and control level coercivity gave by institutional pressure on aza x regency is categorized as low. following oliver's (1991) strategic response framework, this condition can lead organizations to respond to institutional pressures with the choice of non-compliance behavior (grafton et al., 2011) as empirically found in aza x regency. also, the superiority of authority and competence of the head commissioner can be a significant factor for the organization to choose a particular response displayed. from the interview results, it is clear that the head commissioner has a stronger preference for the application of islamic sharia rules relative to the isfas 109 application. furthermore, the existence of central actors in the organization is believed to play a role in determining the strategic decisions of the organization, including responding to the institutional pressures (abernethy & chua, 1996; albu et al., 2014). this is also predicted by oliver (1991) that the initiated strategic framework needs to consider the existence of cohesive organizational beliefs and internal cultures as a triggering factor for non-compliance behaviors against institutional pressure. table 5. presents a summary of the findings related to response forms of isfas 109 implementation at the aza x regency. table 5. the findings summary related to response forms of isfas 109 implementation at aza x regency. principles of financial reporting provisions in isfas 109 aza x regency’s response category recognition and measurement receipt recognition of zis when cash or other assets are received recognition of zakat funds received from muzakki as an addition to zakat funds recognition of zakat funds received in the amil fund classification for the amil portion and zakat funds for the non-amil portion measurement of the number or percentage of portions for each mustahiq recognition of zakat funds when the muzakki determines the mustahiq who must receive zakat distribution through amil recognition of impairment of zis assets recognition of zis funds distributed to mustahiq as a deduction from zis funds recognition and measurement of receipt of nonhalal funds and assets approve (comply) approve (comply) approve (comply) approve (comply) approve (comply) approve (comply) approve (comply) compromise (balancing) 100 international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 presentation presentation of financial statements separate presentation of zis funds and non-halal funds approve (comply) compromise (balancing) disclosure disclosure of zakat fund transactions related to a) zakat distribution policies; b) the policy of sharing between amil funds and non-amil funds for the received zakat; c) the method of determining the fair value used to receive zakat in the form of non-cash assets; d) details of the amount of zakat fund disbursement, and e) a special relationship between amil and mustahiq compromise (balancing) 4. conclusion this study aims to investigate why and how public organizations strategically respond to institutional pressures in their operational environment. this was conducted on institutional pressure in the form of the obligation to apply isfas 109 concerning accounting for zakat and infaq/sadaqa at religious public organizations, namely the national zakat agency (aza) in x regency in bali province. the results showed that there were variations in the levels of predictive factors for organizational strategic responses to institutional pressures as proposed by oliver (oliver, 1991). in aza x regency, the level of motivation to gain legitimacy and the perception of achieving efficiency (economic gain) is categorized as high, while the level of constituent diversity and the degree of organizational dependence on constituents is low. however, the consistency level of institutional pressure with the objectives of aza x regency is high and the limitation level of organizational authority by institutional pressure is low. finally, the level of coercive control over institutional pressure in the form of the perceived obligation to implement isfas 109 is low. meanwhile, although the majority of the organization's financial reporting processes can reflect the response options of approving and compliance, other findings showed non-compliance (compromisebalancing) behavior related to isfas 109 implementation to aza x regency, especially in the context of receiving non-halal funds and special relationship transactions. this study makes an important contribution to the existing literature. firstly, it provides empirical evidence of institutional pressure's role in shaping organizational behavior, in this case, the behavior of applying national accounting standards. secondly, the results complement the findings of previous studies that focus on administrative public organizations (for example, local government organizations) because they were carried out in professional institutions (in the religious sector) which were also vulnerable to regulatory pressure. thirdly, this study generally confirmed the accuracy of the predictive factors for strategic responses proposed by oliver (1991) with new findings that there is a role for internal actors as significant determinants of organizational response choices to institutional pressure. besides, this study can have practical implications for policies formulation by the indonesian accounting association as the standard-setter in the country regarding matters that need to be regulated (or reregulated) in isfas 109, especially regarding non-halal funds. also, the involvement of related parties, for example, the indonesian ulama council, the sharia supervisory board, and other parties are deemed necessary for the formulation in isfas 109 to be applied without any hesitation with islamic sharia application (roziq & yanti, 2015). this study, of course, has some limitations; therefore, the findings need to be carefully interpreted. unlike in previous research (e.g. abernethy & chua, 1996; albu et al., 2014; international journal of islamic business and economics (ijibec), 5(2) december 2021, 86-104 101 clemens & douglas, 2005; grafton et al., 2011) which compared the form of strategic responses in several organizational units, this study was limited to only aza regency organization in bali province. this can have consequences on the quality of predictive accuracy as proposed in the strategic response framework (grafton et al., 2011). however, this study has succeeded in uncovering non-compliance indications with institutional pressures due to the existence of strong internal beliefs and culture in organizations that receive these pressures, as expected by oliver (1991: 173). therefore, further research can develop a unit of analysis in several organizational units dominated by professionals who tend to maintain communal beliefs and independence in performance (abernethy & vagnoni, 2004; 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road, nowshera, pakistan mubashir@northern.edu.pk abstract the thing which needs to be considered in a pandemic is the economic sector recovery mechanism as a result of the pembatasan sosial skala besar policy, this research aims to build and develop an economic recovery program which is ideal for micro-businesses adopt especially pesantren in semarang city, namely smart tren program. this research uses an exploratory qualitative approach. data sources were obtained through observation, interviews and literature studies. the implementation of the smart tren program is expected to: (1) increase the trust of existing customers and gain new potential customers; (2) renew the application of sophisticated technology in marketing; (3) expand the market share of its superior products; (4) increasing the competitiveness of islamic boarding schools in empowering the economy of the people. the success of this program will be determined by the seriousness of each stakeholder in carrying out this program in five stages, including: (1) data collection on the membership of islamic boarding schools in semarang city; (2) registering an account on the smart trends program as a buyer and a seller; (3) the product curation to ensuring that the products to be displayed in the smart trends program have good quality and clear and complete product information; (4) searching, ordering, paying, and shipping products from the required pesantren business unit. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 1 2022 keywords: people's economy; adoption of digital marketing; modern islamic boarding school doi: 10.28918/ijibec.v6i1.3692 jel: o14, z12 article info article history: received : 21 april 2021 accepted : 23 march 2022 published : 1 june 2022 mailto:astuti_sda@dsn.dinus.ac.id mailto:herry.subagyo@dsn.dinus.ac.id mailto:risanda.abe@mail.unnes.ac.id mailto:mubashir@northern.edu.pk 64 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 1. introduction the spread of virus due to covid-19 pandemic which has been taking place since december 2019 has continued to expand, including in indonesia. things that need to be considered when a pandemic case occurs is an effective recovery mechanism, especially in economic sector which was shaken by the large-scale social restriction movement or psbb (pembatasan sosial berskala besar) which was implemented in several areas including in central java province. central java province was ranked third after dki jakarta province and east java inactive cases reaching up to 60.514 cases or 10,5 per cent. this psbb policy is an anticipatory step from the government to break the chain of the spread of covid-19 in indonesia, but the consequences will directly affect macroeconomics performance (pakpahan, 2020). in this case, pesantren empowerment sector is the focus of attention of the government considering the potential possessed by pesantren in socio-economic sector, especially in empowering people (umat) (fatoki & asah, 2011). the large number of pesantren and santri shows potential of the pesantren to play its role (ryandono, 2020; zaki et al., 2019). this is confirmed by data from the kementerian agama republik indonesia (2020), the number of islamic boarding schools in indonesia has reached 28.961 boarding schools, with a total of 2.645.344 santri, where the number of students who live at boarding schools is 1.442.283 santri and who do not live at boarding schools as 1.203.061 santri. in terms of the distribution per province, central java province is in fourth place under west java; banten and east java with the highest number of islamic boarding schools as 3.787 islamic boarding schools with 298.874 students, while semarang city is in sixth position in central java province with 183 islamic boarding schools and 8.977 students (see figure 1). figure 1. distribution of islamic boarding schools in indonesia, 2020 source: (kementerian agama republik indonesia, 2020) in practice, even in normal conditions, the business units carried out by islamic boarding schools often experience various obstacles and difficulties in running their businesses, especially in post-pandemic conditions. so, the impact of covid-19 pandemic in this pesantren business unit has potential to reduce purchasing power, a quiet market segment, and other constraints in the production and distribution process (shafi, liu & ren, 2020; mawani, et al., 2021). furthermore, various adjustments are required by this business unit in running its business in order to survive macroeconomic uncertainties, prevent international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 65 bankruptcy and increase its competitiveness (hardilawati, 2020). one of them is an alternative solution that can be utilized by pesantren business units by implementing a technology-based marketing system to maximize existing marketing strategies. semarang city government can initiate the adoption of a digital marketing program with the term smart tren, in order to increase digital marketing on superior products produced by islamic boarding schools’ business units in semarang city. mapping the benefits and costs of both social and economic in the process of adopting digitalization in managing business units is a strategic step for strengthening the community-based economy especially for pesantren business units (see table 1). table 1. mapping the benefits and costs of digital adoption in pesantren business units benefits cost economy social economy social development of the entrepreneurial skills of students maintain the trust of the community and partners in the ability of the pesantren business unit increase the cost of education due to the addition of a digital entrepreneurship curriculum generating social jealousy for other pesantren business units that have not adopted digital operational support for pesantren business units increasing the independence of students to prepare for the future increasing the burden of digitalization investment reducing the authority or spirit of pesantren as an islamic religionbased education increased purchasing power improve literacy understanding in digitization increase the brand image of the pesantren business unit source: (effendi et al., 2020; hasanatina et al., 2020) starting from existing problems background, it encourages the exploration of smart tren program as a digital marketing process that will be adopted by business units as an effort to survive post covid-19 pandemic. so hopefully, it can be a foundation in a competitive, superior and creative business sustainability. the application of digital marketing at this strategic level as a complement to traditional marketing and business strategies is becoming more comprehensive (qashou & saleh, 2018). necessary things to be prepared is program integration with government in preparing this program in an ideal way, considering technology is also one of the biggest obstacles for business people (budiantoro et al., 2018) . so the purpose of this study is to develop and compile an ideal smart tren program in digital marketing programs adoption in business units at semarang city. in accordance with problems, the objectives of this study are: 1) obtain problems from people in micro and small business sector in semarang city; 2) obtain modeling concepts from the ideal smart tren adoption; 3) gain benefits that pesantren business unit gets when it adopts this smart tren program. this study has two benefits, academic benefits and practical benefits. first, this study can contribute to development and understanding management knowledge, especially 66 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 in empowerment management, henceforth it can be developed into economics knowledge related to the linkage program planned by semarang city government in pesantren economic empowerment through pesantren business units so that in the future it will be able to be competitive, independent, prosperous, and cultured based on the values of religiosity. through this proposal, it is hoped that it will be able to provide a comprehensive overview so that the output will get an optimal model and a description of the empowerment concept scope that will be carried out by semarang city government to the pesantren business unit. the second, this study are important considerations and input for semarang city government, especially badan perencanaan pembangunan daerah kota semarang, bidang penelitian, dan pengembangan ekonomi (semarang city regional development planning agency, research and economic development sector), to be able to take various implementation steps in making policies and making regulations that can become foundation for sustainable development management of pesantren business units through integrated economic empowerment of pesantren with multiplier effects that can improve the economy of the people, so people become more prosperous, independent and cultured based on religious values. 2. method research approach this study used a explorative qualitative approach method with basic consideration of being able to comprehensively identify the adoption process related to digital marketing for pesantren business units in semarang city as a form of economic recovery during covid19 pandemic. the type of data used is a combination of primary and secondary data that will support this study in formulating smart tren program modeling as digital marketing adoption as well as conducting business development through various kinds of training in pesantren business unit in semarang city. sources of data in this case study, data obtained through observation (field research), interviews and other literature studies. research flow and conceptual framework in the research flow scheme, it starts from pesantren business unit potential in semarang city. so that semarang city government provides strategic solutions in smart tren program model as a form of digital marketing adoption for pesantren business unit actors in semarang city who are potentially affected by covid-19 pandemic (see picture 1). international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 67 picture 1. conceptual framework for smart tren program in the adoption of digital marketing programs to pesantren business units actors source: (santoso et al., 2020), modified the modeling of smart tren program as digital marketing adoption was initiated by semarang city government so that hopefully the pesantren business unit can spearhead the operational management and development of pesantren infrastructure independently. in this case, objects selection from pesantren is due to the vision and intention of running a strong business, which is supported by human resources, land, raw materials, and broad market potential. through the adoption of this program, hopefully that the marketing system and digital-based business strategy run by business unit actors in semarang city will be effective. so that in the end there was a strengthening of the business of pesantren in fighting upon covid-19 pandemic which made it easier to access data and expand market reach. the hope is that it can build pesantren independence through economic empowerment by selecting commodities that are salable in the market, providing training, mentoring and digital marketing. research focus the focus of this research is the adoption of digital marketing in pesantren business units in the city of semarang which is carried out by the semarang city government through the semarang city regional development planning agency, research and economic development sector in collaboration with several other agencies involved in the empowerment of pesantren. this program is part of a solution initiated by the semarang city government in empowering pesantren business units to survive the covid-19 pandemic and keep up with technological developments to support the creation of technology-based smart cities. this is a factor of renewal and can serve as an example for other city or district governments in central java province and in other provinces in empowering the pesantren economy. so it is hoped that the pesantren's business unit will be able to be competitive, independent, prosperous, cultured and based on religious values. 68 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 analysis tools the analytical tool used is a business canvas model that is considered appropriate in designing business models, including compiling a sharia-based financing model initiated by the semarang city government for pesantren business units who have the potential to create superior products (tjitradi, 2015). this is confirmed by osterwalder & pigneur (2010), where the business canvas model will show a logical picture of a business model and how an agency creates, delivers and captures a value. the way of thinking from this canvas is by dividing the business model into nine main components, where the components are on the right side (showing creativity) and on the left side (showing logic), among others (see table 2): (1) customer segment; (2) customer relationship; (3) customer channel; (4) revenue structure; (5) value proposition; (6) key activities; (7) key resource; (8) cost structure, and (9) key partners. table 2. the nine main components of the business model canvas no component definition 1 customer segments this component plays a role in determining the segmentation of the target customers who want to be served or ignored from the developed model. customer segmentation can also be determined from behavior, profession, age, gender, income, and geographic location. because essentially without customers, the organization will not be able to survive long. 2 value proposition components that can predict the needs of customers that have been previously identified through the customer segment. the thing that needs to be underlined is the value or value that is the core of business activities that can solve and meet customer needs (this is what determines why business products deserve to be chosen). 3 channel the component describes how to reach its customers using all communication channels, distribution from sales. so the main thing is how the organization communicates with its customers and conveys its value proposition well. 4 customer relationship components describe the relationship between the organization and its customers either personally, benefiting a particular organization or community, or automatically or "self-service." conducting relationship building with customers helps get new customers or retain old customers. 5 revenue streams components that represent the path of receipt of money received from each customer segment. so that the inflow of funds will show how the organization earns income, with the aim that the organization can survive in running its business unit. 6 key resources components indicate the primary resources related to the most critical assets in determining the successful operation of the business model. this enables organizations to create and exceed value propositions, streamline revenue streams and maintain customer segments. 7 key activities components that describe the organization's main activities to support the success of the business model, especially sending value propositions to customers. each organization has different main activities depending on the type of business model. 8 key partners the component that determines the key to the partnership is to explain the network of suppliers and partners in the business model. the importance of making critical partnerships in order to optimize the business model, reduce risk and obtain optimal resources compared to its competitors. 9 cost structure the component that contains a cost structure that can describe all costs incurred by the company in carrying out its business model operations. international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 69 sumber: osterwalder dan pigneur (2009); dewobroto (2012); wardhanie dan kumalawati (2018); herawati, lindriati, dan suryaningrat, (2019) 3. result and discussion the multiplier effect caused by the covid-19 pandemic has affected the development of islamic economy in indonesia, such as the halal product industry, the islamic financial industry and the expansion of sharia businesses through pesantren business unit (prusty, anubha, & gupta, 2021). therefore, the management of the pesantren business unit is highly dependent on the existence of santri or voluntary social donations. the various operational needs of the pesantren business unit require information technology support in order to be more effective and efficient in carrying out every transaction. in order to respond to this, an appropriate strategy is needed in facing the era of digitalization by the pesantren business unit, such as (1) commitment to increasing investment in the development of digital skills carried out by the pesantren business unit; (2) it is necessary to implement a prototype of new technology, so learn by doing is needed; (3) explore forms of collaboration with industry, academia, and the public in the adoption of digital marketing programs for pesantren business units actors; (4) compiling an educational curriculum that begins to be included in human digital skills. the dominant muslim population in indonesia is 209,12 million or 87 percent of the total population, which is one of the opportunities that can be used to make the adoption of digitalization successful in pesantren business units (bps, 2020). however, there are still various kinds of obstacles that must be faced by pesantren business units, such as (fajri, 2020): (1) mindset to develop of the pesantren business unit has not been optimal, although the entrepreneurial movement is increasing, this is still the last option; (2) the cultivation of expertise in doing digital-based entrepreneurship is still weak; and (3) lack of ability to do business, including the ability to make decisions that can support the economy of the people. looking from the perspective of the problems faced by pesantren business units in semarang city, so they can be classified into internal and external problems (see table 3). the internal problems that exist in this pesantren business unit stem from limitations in terms of the pesantren's own business unit, which is closely related to existing capabilities, competencies and resources (information and knowledge), so that it has an impact on the process of compiling and implementing its business strategy. meanwhile, external problems arise from various problems faced from outside the business unit that have the potential to sustain the business. table 3. internal and external problems of pesantren business units internal aspects external aspects weakness in doing business innovation threats from similar imported products diseconomies of scale which are influenced by limited production capacity so that the selling price is relatively high the low contribution of external parties in supporting the development of the pesantren business unit limited capital owned difficulty in expanding the market limited availability of raw materials needed in the production process policy in business unit development has not been responsive the low ability of human resources which affects the low quality of products that are limited process of financing formal financial institutions, due to low financial 70 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 not yet optimal literacy low literacy and technology implementation the low condition of infrastructure has resulted in high distribution costs and selling prices source: primary data, 2021 (processed) at present, the main problems faced by pesantren business units are (see picture 2): (1) pesantren business units in a region not yet integrated; (2) funding sources that only focus on santri (student); and (3) the low contribution to the economic independence of the people and the nation. picture 2. problems mapping in pesantren business units sumber: (bank indonesia dan universitas airlangga, 2019), modified overview of smart tren program in semarang city the smart tren program is a digital marketing adoption program for pesantren business units initiated by the semarang city government and has full authority over the semarang city cooperative and micro business office (dinas koperasi dan usaha mikro). this program is carried out in an integrated manner with an online single submission which is useful for minimizing errors in the implementation of the established modeling system. the semarang city government will collect data on pesantren business units routinely who become business partners, so that their development can be monitored comprehensively and can provide input also direction for the policy-making process related to the strategic plan of the pesantren business unit. this program is expected to become a role model based on ta'awun mutual relations international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 71 so that the empowerment process of the people can be optimal by utilizing the extensive network of pesantren business units supported by the use of appropriate technology. the smart tren program mechanism is carried out comprehensively starting from registration, training, mentoring, product exhibition, financing and digital marketing as a medium of promotion for superior products from the pesantren business unit (see picture 3 and table 4). picture 3. smart tren program flow source: (jasmadi, 2020), modified table 4. overview of the smart tren program adoption scheme stages function mechanism data collection data collection on the membership of islamic boarding schools in semarang city • the pesantren business unit applies to a member of the smart trend program at the nearest sub-district office by bringing the registration requirements. • the sub-district office verifies data and inputs data into the smart trends program system. • the sub-district office prints the membership card and submits it to the pesantren business unit, and explains the rights and obligations as a member. responsible party: district office smart trends program account registration registering an account on the smart trends program as a buyer • the buyer (regional organization or individual) registers a smart trends program account as an administrator and enters the requested identity • data verification by the semarang city cooperatives and micro business office • the buyer logs in by entering the registered username and password to make a purchase transaction • to make it easier, you can download the smart trends program application on the playstore or appstore so that it can be used anytime and anywhere. responsible parties: regional organizations and individuals registering an account in the smart trends program as a seller • the seller (islamic boarding school business unit that has been registered as a member) registers a smart trend program account as a seller • data verification by the semarang city cooperatives and micro business office • the seller logs in by entering the registered username and password to make a purchase transaction • uploading superior products from the pesantren business unit that will be sold (name, description or details and product images) • to make it easier, you can download the smart trends program application on the playstore or appstore so that it can be used anytime and anywhere • the semarang city cooperatives and micro business office will provide information related to the curation of the superior products of the pesantren business unit in the smart trend program responsible party: pesantren business unit that has been registered as a member 72 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 product curation ensuring that the products to be displayed in the smart trends program have good quality and clear and complete product information • after the pesantren business unit uploads its superior product, it will be verified by the semarang city cooperative and micro business office. • the pesantren business unit that passes the verification will bring a sample of its product to the semarang city cooperative and micro business office for curation. • the curator will take product photos, inspect, present packaged products, and even taste the taste for evaluation and suggestions if needed, so that product quality is guaranteed. • the curator declares that he has passed or is rejected from the product of the pesantren business unit and returns the assessed product to his pesantren business unit. responsible party: semarang city cooperatives and micro business office ordering, shipping and paying for products searching, ordering, and shipping products from the required pesantren business unit • buyers log in using their username and password into the smart trends program and search for the products they need • after getting the product, the buyer places an order for the required product. • the invoice received by the pesantren business unit and verify that the product order is capable or available for the buying and selling process. • the semarang city cooperatives and micro business office change the status of "message" to "accepted" and will be sent to the buyer's account. • the buyer makes an advance payment, and the product order will be carried out. • the pesantren business unit works on the order and is ready to send it to the buyer according to the invoice received • the buyer receives the product he has ordered from the system and signs the receipt of the goods on the invoice. • buyers make payments to the pesantren business unit • the semarang city cooperatives and micro business office changes the status of "accepted" to "completed" and will be sent to the buyer's account. responsible parties: buyers, sellers, and the semarang city cooperatives and micro business office sumber: jasmadi, (2020), dimodifikasi synergy in managing business units is one of the keys to success, so maximizing the adoption of the smart tren program can enable business units to work effectively and efficiently based on the socio-economic strength of pesantren (see picture 4). the multiplier effect of this program is contributing to solving economic problems and the independence of the people and the nation. international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 73 picture 4. management of pesantren business units souce: (dardak, 2019; zaki et al., 2019) modified business units that will become business partners of the smart tren program are required to register once a year per june each year. it should be done based on consideration as a new academic year for education in islamic boarding schools. the registration mechanism that must be carried out by pesantren business unit is relatively easy by preparing and submitting all the required documents to online selection system for smart tren program that has been prepared by the semarang city government. to maximize the benefits of this program, pesantren business units that have difficulty accessing the smart tren program system can apply for convenience in the online registration process by coming to the sub-district office closest to the pesantren business unit location with complete requirements (see table 5). table 5. criteria and administrative requirements for pesantren business units to join the smart tren program no criteria no requirement 1 semarang city residents (proven by semarang city ktp) 1 photocopy of nspp (nomor statistik pondok pesantren islamic boarding school statistics number). 2 17 to 55 years old 2a financial reports of pesantren business units for the last three months (for operating business units). 3 minimum education is sd or mi or equivalent 2b submission of business idea proposals that will be produced by the pesantren business unit (for business units that will operate) 4 must register at least one representative from santri of 3 photocopy of iumk or sku from the pesantren business unit 74 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 the pesantren 5 compile and submit a proposal for the development of a pesantren business unit 4 latest photo of the pesantren and its business units (front view or the pesantren logo). 5 photocopy of assignment letter from the head of the boarding school 6 photocopy of valid certificate of good behavior 7 photos of superior product units produced from the pesantren business unit 8 health certificate from a doctor or public health center 9 application letter to the semarang city government to apply for a business partner in the smart tren program 10 application letter to the bprs to apply for financing source: (dinas koperasi dan usaha kecil provinsi jawa barat, 2021), modified. every pesantren that has various fields carried out by pesantren business unit, such as services, fashion, food, beverages, agriculture, crafts, animal husbandry, fisheries, trade have the right to submit their superior products to participate in this smart tren program. the flow of registration starts from completing the required document and administrative requirements, followed by an interview test as a way to confirmation of the submitted data. those pesantren business units that pass the selection will be contacted by the smart tren program admissions committee via e-mail, telephone, or stated on the website. make sure the e-mail address or telephone number is active so that participants can view information on the smart tren program online selection system. there are two categories in the smart tren program, including (dhofier, 2011): (1) startup training, which is intended for pesantren business units that have not had a business for three days; (2) scale-up training, which is needed for business units that have been running for seven days. this program is not only aimed at existing business units, but pesantren business units that are not yet running but have ideas or ideas related to superior products that will be produced can apply for this program registration. the training location is carried out in one of the selected pesantren business units. furthermore, business assistance programs will be carried out, superior product exhibitions both online and offline until financial assistance. the adoption scheme is compiled by the semarang city government in a systematic and comprehensive manner so that the smart tren program can run optimally. in addition, the implementation can make easier way for buyers and sellers to make transactions and create a sense of security and comfort in conducting transactions (see picture 5). international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 75 picture 5. schematic of smart tren program adoption source: bank indonesia dan universitas airlangga (2019), modified the process of adopting the smart tren program has go through a long journey so this becomes a challenge for the semarang city government through the semarang city cooperative and micro business office (dinas koperasi dan usaha mikro) so that hopefully its benefits can be enjoyed by the pesantren business unit optimally. step by step is prepared comprehensively so that the modeling of the smart tren program can be ideal. islamic boarding school empowerment concept empowerment concept is based on etymology which comes from basic word "power" means strength and ability. in this case, it means trying to facilitate socially and economically weak groups of people in various ways, such as providing education related to their potential development, making training programs so that these groups are able to get out of the previously experienced state of powerlessness (arfah & samiha, 2020; effendi et al., 2020). the success of empowerment program can be seen from fulfillment of the principles that must be met, including (purnomo et al., 2020): (1) trying to position with an equal relationship on the basis of the knowledge, expertise and experience a person has with institutions that carry out community empowerment programs; (2) trying to stimulate the self-reliance of the community as the basis for participatory empowerment that is planned, implemented, monitored and evaluated so the goal will be optimal; (3) trying to respect and prioritize someone's potential related to independence so there is no need to depend on other parties; and (4) trying to plan empowerment programs in a sustainable manner, until eventually someone can be independent and more empowered. the context of empowerment for micro and small business actors must be in accordance with their needs, both in ideals terms of technical or institutional so they are expected to be able to contribute optimally to the economy (bhaat & kim, 2017). pemberdayaan (in english, “empowerment”), as giving authority or power to people from weak categories or in this case not and / or disadvantaged. in addition, the context of empowerment is a strategic tool for updating and improving performance, raising awareness, encouraging, motivating the potential of organizational, government and business actors including in the pesantren business unit (astuti et al., 2020). the important thing, in determining the ideal empowerment concept to increase the competitiveness of the pesantren business unit, starts from defining what it is and how the criteria for pesantren business unit that are generally accepted. however, the obstacle is the absence of standard definitions and divisions related to the boundaries of pesantren in indonesia (astuti et al., 2020). empowerment in industrial revolution 4.0 era or disruptive 76 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 innovation era which emphasizes the concept of digitalization because in this period the digital economy, artificial intelligence, big data and robots began to emerge (morris et al., 2005). the form of implementation is carried out comprehensively in various industrial fields, including in product marketing. as one of the leading sectors in semarang city, business units run by islamic boarding schools have begun to take advantage of digitalization in the marketing sector of their products through the adoption of the smart tren program. efforts to succeed in this program need to involve all stakeholders both internally (students, alumni, branch madrasah, and assignment teacher affairs) and externally (regulators, academics and practitioners). the success of this program is determined by the synergy of three aspects, namely (dardak, 2019): (1) santripreneur (student human resource development in entrepreneurship); (2) pesantrenpreneur (strengthening pesantren institution as an economic power to produce quality halal products); (3) sociopreneur (synergy between pesantren alumni and the community around pesantren as a socioeconomic empowerment effort). the semarang city government is seriously preparing well so that empowerment through this pesantren business unit can be optimal. hopefully, each pesantren business unit can produce a product that create socio-economic independence, capacity development, production and distribution technology, marketing based on an innovative and strategic technological. all pesantren in semarang city that will participate in this program are selected through a selection which will be given an integrated coaching program later to increase their competitiveness, business development and also synergize to build potential business network to become an independent pesantren. the process of adopting this program is also being renewal in smart cities development in semarang city by economic empowerment of pesantren, so that it can contribute to build an ideal program adoption model. in line with this, the smart tren program has become a forum for 183 boarding schools and 8,977 students in semarang city. the technical aspects in adopting this program, in addition to entrepreneurship training, capital, packaging design and marketing on various online platforms, this program is also in the form of an electronic catalog that presents various sources of information related to superior economic products or activities from each pesantren that offer comprehensively ranging from lists, types, technical specifications and product prices. the management of this program is carried out by dinas koperasi dan usaha mikro (office of cooperatives and micro enterprises) in semarang city so that it’s non-commercial in nature, means that the transaction manager for incoming orders is directly forwarded to the pesantren business unit without being charged a penny. there are five stages that must be followed systematically as a medium in the process of adopting the smart tren program, including (see picture 6): international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 77 picture 6. roadmap of smart tren program adoption source: barua (2020) modified information: 1. comprehension education phase this phase is a process of renewing the knowledge possessed by sdi in the pesantren business unit. the pesantren business unit indirectly carries out reforms in internal and external aspects so that it becomes a solution to the problems faced by the pesantren business unit. there are two emphases at this stage that is seeking and processing the information required in the process of adopting the smart tren program. mastery of these two aspects can minimize uncertainty in the decision-making process in adopting them. 2. understanding initiation phase this phase is the initial preparation for the adoption process in the smart tren program. internal factors are based on the environment of the pesantren business unit so it shows self-awareness in the process of adopting the pesantren business unit. all information that will be used in the adoption process comes from the pesantren business unit itself, such as: (1) readiness of information technology; (2) quality and quantity of sdi; (3) ability in financial management. while the external factors referred to the environment outside the pesantren business unit that supports the adoption process of the smart tren program, including: (1) availability of government policies; (2) market potential (market share); (3) industrial competitiveness. the selection of appropriate information can provide input on how this adoption process can be carried out in order to facilitate the activities of pesantren business units, especially in conducting digital marketing based on electronic catalog media. so that the collaboration of internal and external factors can optimize the adoption process of the pesantren business unit. 3. adoption decision making phase this phase is a decision-making process for the pesantren business unit, with various basic considerations, among others: (1) ease of product marketing; (2) easy access to data; (3) expanding market share. hopefully that the greater the benefits obtained from the adoption of the smart tren program, there will be more business units that can implement it. this program is useful for conducting digital exposure to survive in a sluggish economic condition due to the covid-19 pandemic. 4. adoption result phase this phase is the result that can be obtained if the pesantren business unit adopts the smart tren program. one of the advantages offered by the smart tren program is the transformation from conventional management to digital management so it can 78 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 overcome management constraints with high adoption costs. the ease of searching for the desired product through the internet network is an added value of the smart tren program, so that consumers only need to enter the keywords for their business products or the name of the pesantren business unit including the origin of the pesantren on the search page. this is influenced by the expansion of market share, increasing market share, increasing customer trust. 5. follow-up phase this phase contains a form of evaluating the adoption of the smart tren program as well as adjusting the design for optimizing the adoption of programs carried out by pesantren business unit that can run their operations with digital technology updates in order to increase the number of orders, effective promotional media, ease in getting consumers even outside semarang city. therefore, the pesantren business unit was able to survive in a sluggish economic condition due to the covid-19 pandemic. business canvas model smart tren program given the importance of managing a digital-based pesantren business unit, the adoption of the smart tren program is considered appropriate. so that in the future, an indepth study and analysis will be carried out, one of which is by using the business canvas model so that it can maximize the benefits of the smart tren program service (see picture 7). key partnership • semarang city regional development planning agency (badan perencanaan pembangunan daerah kota semarang) • semarang city office of cooperatives and micro enterprises (dinas koperasi dan usaha mikro kota semarang) • pesantren business unit key activities • development or maintenance of the smart tren program platform • strengthening the role of stakeholders involved in managing the smart tren program. value proposition • providing digital marketing services through the smart tren program platform to pesantren business units that are already business partners • development of islamic boarding school business units in the form of startup and scale-up training • providing business assistance programs, online and offline superior product exhibitions to financing assistance customer relationship • local government officials • it (platform) • socializing the benefits of the smart tren program to pesantren in semarang city customer segments pesantren business unit: • located in semarang city • in accordance with the terms and smart tren program • business sector that is lawful and in accordance with islamic law • does not conflict with the concept of sustainable development • follow all the stages in the adoption of the smart tren program key resources • computer and website infrastructure • offline managerial skills (utilization and development of operational management of pesantren business unit) channels • external parties in the pesantren business unit • internal parties in the pesantren business unit revenue streams • services to pesantren business units in digital marketing in order to expand market share and a people-based economy cost structure • development and maintenance costs for platforms and infrastructure international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 79 picture 7. business model canvas in the smart tren program source: (dewobroto, 2012; herawati et al., 2019; wardhanie & kumalawati, 2018) 4. conclusion the smart tren program, which was initiated by the semarang city government and under the authority of the semarang city cooperative and micro business office (dinas koperasi dan usaha mikro), is being an alternative solution in overcoming ongoing problems faced by pesantren, especially in the current covid-19 pandemic conditions. the involvement of various stakeholders is a determinant of the success of the program, this is due to changes in stigma that occur among the community, where pesantren is a religion-based education program that expands its activities in the economic sector. in addition, this program also initiates an increase in the competitiveness of pesantren in the islamic education industry by utilizing the sophistication of digital technology, this will have a significant positive impact because through times pesantren in semarang city also expand their education sector towards the economy of the ummah (society). the significant progress made by these pesantren has also had a positive impact on the image of the semarang city government as a manager at the national level, so that this can make semarang city being the main reference for another district / city governments in indonesia for developing pesantrenbased education programs. this program is expected to become a role model based on ta'awun (mutual relations) so that the empowerment process of the people can be optimal by utilizing the extensive network of pesantren business units supported by the use of appropriate technology. there are two categories in the smart tren program, including: (1) startup training, which is intended for pesantren business units that have not had a business for three days; (2) scaleup training, which is needed for business units that have been running for seven days. the semarang city government can carry out the management of this program by online single submission so it can minimize misapplication made by the parties involved, besides this online system provides an opportunity for the semarang city government to monitor the progress of program partners and show transparently the process of empowering pesantren as a new basis for sharia-based economic development of the society which has potential to improve indonesian economy. the limitation of this research is that not all pesantren in semarang city can be well organized due to incomplete government data and also limited infrastructure to support the implementation of the smart tren program in these pesantren. in the future, hopefully that more parties are willing and able to contribute more significantly in encouraging the role of the district or city government in empowering pesantren-based economic digitization programs such as providing various business financing program models that can be absorbed by the pesantren business unit sector, thereby providing a multiplier effect on the various parties involved. • hr costs and operational costs 80 international journal of islamic business and economics (ijibec), 6(1) june 2022, 63-81 references arfah, a., & samiha, y. t. 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(2019). business model and islamic boarding school business development strategy (case study islamic boarding school sido giri pasuruan, east java). kne social sciences, 3(13), 602–618. untitled ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn 255-3216 article history: received : 10 august 2017 accepted : 20 august 2017 published : 1 december 2017 keywords: strong correlations of sharia market to conventional market: evidence from indonesia stock exchange yadi nurhayadi and nuryadi wijiharjono e-mail: e-mail: international journal of islamic business and economics, 1(2) december 2017, 8 7 9 788 islamic economic system. meanwhile, islamic economic system is based on islamic economics that must obey the principles promote professionalism, competence and good corporate governance universally besides ethical international journal of islamic business and economics, 1(2) december 2017, 8 7 9 7 89 rd, research are mutual support, but others are opposite. meanwhile, hussein examines the impact of the ethical screening on the performance ofthe international journal of islamic business and economics, 1(2) december 2017, 8 7 9 790 shariah shariah investors to international journal of islamic business and economics, 1(2) december 2017, 8 7 9 7 91 x line isgiven by x given the sample xi, yi i = 1, 2, ..., }, 0 and 1 with formulas, 2 11 2 111 1 n i i n i i n i i n i i n i ii xxn yxyxn b xbyb 10 then x and y r. yyxx xy ss s r international journal of islamic business and economics, 1(2) december 2017, 8 7 9 792 where n x xs n i in i ixx 2 1 1 2 n y ys n i in i iyy 2 1 1 2 n yx yxs n i i n i in i iixy 11 1 the values of r are . if the valueof r is close to +1, it means that between x and y r x and y have then r2 r2 ythatcan be accounted x yin our sample isaccounted for x. x1 and x2 variable is as dependent variable y 22110ˆ xbxbby x1, x2, y i 0, 1, 2 by solving n i i n i i n i i yxbxbnb 11 22 1 110 n i ii n i ii n i i n i i yxxxbxbxb 1 1 1 212 1 2 11 1 10 international journal of islamic business and economics, 1(2) december 2017, 8 7 9 7 93 n i ii n i i n i ii n i i yxxbxxbxb 1 2 1 2 22 1 211 1 20 r2 r2 = n y y nyyxbyxbyb n i in i i n i i n i ii n i ii n i i 2 1 1 2 2 10 22 0 11 1 0 of the mounth. there are six scenarios for this research: y = jii, bivariate analysis. y = jii, bivariate analysis. 1 x2 y y = issi, bivariate analysis. y = issi, bivariate analysis. 1 x2 y x y x y international journal of islamic business and economics, 1(2) december 2017, 8 7 9 794 international journal of islamic business and economics, 1(2) december 2017, 8 7 9 7 95 x y x y x y x y x1 x2 and jii as y x1 and x2 x y x y international journal of islamic business and economics, 1(2) december 2017, 8 7 9 796 as x1 x2 y x1 and x2 sharia screening in correct applied. international journal of islamic business and economics, 1(2) december 2017, 8 7 9 7 97 sharia 63 ijibec halal assurance system (has) 23000 perspective george robert terry hery purwanto1, ahmad rofiq2, mashudi3 1lecturer, central java al-qur’an science university in wonosobo, indonesia 2 professor, ph.d., islamic university of walisongo, indonesia 3phd, islamic university of walisongo, indonesia email: unsiqhepu@gmail.com abstract a company's success in achieving its predetermined goals is possibly resulted from its good managerial skills in planning, organizing, mobilizing, and controlling. many companies then look for a model or system to achieve those goals. halal assurance system (has 23000) is one expert management system used as a model by many companies in implementing the halal production processes. the has 23000 concept certainly has the management constructions, such as management functions. this library research used a descriptive-qualitative approach. the results showed that there were 11 criteria in has 23000 related to the management functions based on the perspective of george robert terry consisting of planning function, organizing function, mobilizing function, controlling or supervising function, etc. the theoretical approach proposed by george robert terry on management functions was used to analyze those contained in has 23000 and show the novelty when compared to those conducted by the previous researchers. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 2 2020 keywords: has 23000, management, george robert terry doi:https://doi.org/10.28918/ijib ec.v4i2.2988 jel: m.15, m.20, m.54 article info article history: received : 20 oct 2020 accepted : 24 nov 2020 published : dec 2020 mailto:unsiqhepu@gmail.com https://doi.org/10.28918/ijibec.v4i2.2988 https://doi.org/10.28918/ijibec.v4i2.2988 64 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 1. introduction halal assurance system (has) 23000 is a mandatory guideline for every producer in fulfilling halal certification requirements in indonesia. the aim of implementing this guideline is that the production process is always guaranteed its halalness on an ongoing basis by the provisions of the food assessment institute for drugs and cosmetics (lppom-mui). (lppommui, 2008) there are 11 criteria in provisions of the halal assurance system (has 23000) that must be met by producers to obtain halal certification. the eleven criteria are interrelated, starting from making halal policies, having a halal management team, training and education, production processes to management reviews. the halal assurance system which consists of 11 criteria is an integrated management system consisting of a series of processes and principles in management. (lppom-mui, 2012a) which are the eleven criteria in has 23000 include a planning function, an organizing function (organizing), movement function (actuating), and an oversight function (controlling). halal assurance system (has) 23000 as a management guideline for companies or producers that will or already have halal certificates for their products. it shows that the company has to implement integrated management science properly and correctly by placing management functions appropriately, besides how to implement the has 23000 concept itself so that it can be used. (susihono et al., 2020) the word function in the big indonesian dictionary defined as a use for something explains that the nature of the function can show partially the usefulness of a thing itself. the functions contained in management are something that explains the usefulness of what is meant in planning, organizing, mobilizing, and controlling. however, if these functions are seen as a management system, they cannot be separated or related to one another. several previous researchers focused their research on how to implement has 23000 in a company or focused their trends on how to fulfill the application of has 23000 as a guide in halal certification procedures. halal assurance system (has) 23000 is very interesting to study from various approaches, this is evident that many studies use has 23000 analysis as research material, including this research also using the has concept as an option. the has concept that researchers analyzed is different from previous researchers. this study analyzes the has 23000 management construction from the perspective of george robert terry's management function theory. in other words, the writer tries to take pictures from the side of the building structure and composition used in compiling the halal assurance system in terms of the management function theory approach according to george robert terry. how do the eleven criteria arranged in has 23000 reflect the functions in a management system, be it a planning function, an organizing function, a movement function, and a supervisory function it's like muhammad abiyyu et.al's research in analyzing production process activities using a value chain model or referred to as porter's value chain, a model invented by michael porter is used to help analyze specific activities that can create competitive value and advantage for the organization. (reed, 2009) these activities are divided into two types of activities, namely primary activities dan supported activities. these activities are divided into two types of activities, namely primary activities and supported activities. this porter theory divides the 11 activity criteria in has 23000 into two parts, namely the primary activities section consisting of inbound logistics, operations, outbound logistics, marketing, and service, while the secondary or supported activities section consists of procurement, human resources management, technology development, infrastructure. this concept international journal of islamic business and economics (ijibec), 4(1) december 2020, 63-80 65 shows a very significant difference in seeing the management concept of has 23000 according to george robert terry who divides the 11 criteria halal production process into four functions of management, planning, organizing, mobilizing, and monitoring. another study, namely putra aviva et.al, uses the integrated management system (smt) theory approach or commonly called publicly available specification 99 (pas 99). (sanz-calcedo et al., 2015) published by the british standard institute is a management system that can be used within the framework of designing an integrated management system by combining iso 9001, iso 22000, has 23000. smt describes several requirements in several management systems into six specifications, namely fourth, organizational context specifications, fifth, leadership specifications, sixth, planning specifications, seventh, support specifications, eighth, operating specifications, ninth performance evaluation specifications. the smt theory approach used by aviva et.al to parse the 11 criteria in the halal management system has23000 has a different perspective with george robert terry's management function theory that divides it into four management functions. regarding how the has23000 building in terms of management function theory becomes a focus for the author of the current analysis with a qualitative, descriptive approach, and george robert terry's theory of management functions as an analytical tool. therefore this study is a research that finds novelty in terms of analysis of the 23000 halal assurance system (has) from the management side, especially management functions according to george robert terry. 2. research method this study uses panel time dimensions, namely sharia commercial banks in indonesia in the period 2013 to 2017. this type of research uses research design to test hypotheses, namely by testing the dependent variable, namely the performance of the maqashid sharia index which is influenced by characteristics of sharia supervisory board (ssb) with indicators of reflection on the number of ssb members, double positions of ssb members, number of ssb meetings, and educational background of ssb members. this research indicator refers to previous studies such as mukhibad (2019), endraswati (2017), almutairi & quttainah (2016), mollah & zaman (2015), kholid & bachtiar (2015), muttakin & ullah (2012), farook et al. (2011), and ghayad (2008). the dependent variable of this study is the maqashid sharia index. the maqashid sharia index can be defined as the level of the bank in achieving its objectives. the maqashid sharia index in this study took a measurement developed by mohammed et al. (2008). according to mohammed et al. (2008), the purpose of islamic banks will be right if they are derived from the objectives of sharia. the steps in measuring the performance of maqashid sharia are as follows: 66 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 population and samples the population used in this study are all islamic banking companies in indonesia. sampling in this study using purposive sampling technique. purposive sampling where there is a determination in sampling, so there are certain criteria in determining the sample. the criteria are as follows: (1) islamic banking financial institutions, namely sharia commercial banks registered at bank indonesia. (2) the sharia commercial bank publishes annual financial reports in the period 2013-2017 consistently and has been published on the website of each islamic bank. (3) islamic banks have the required data related to the measurement of the variables used for research during the period 2013-2017. by using purposive sampling, this study obtained 11 islamic banks from panel data of 55 (11 x 5 years). international journal of islamic business and economics (ijibec), 4(1) december 2020, 63-80 67 technical data analysis data were analyzed using the partial least square (pls) approach through smartpls version 3.0, stages. data analysis techniques include: factor analysis, validity and reliability assessment, r2 and q2 assessment, and hypothesis testing. 3. results has 23000, which is an integrated management system, is prepared, implemented, and maintained to regulate various materials, production processes, human resources, and procedures to maintain the sustainability of halal products as required by lppom mui. (anwar, 2018) has 23000 or the halal assurance system (sjh) is applied to all companies to meet the requirements for halal certification, including places for the food industry, medicine including cosmetics, restaurants and catering, rph, as well as the service industry. the main purpose of implementing the halal assurance system is to ensure that a product is kept halal and provides certainty for muslims in consuming and using halal products. (slamet rusydiana & marlina, 2020) the principles in implementing the halal assurance system must be based on honesty, trust principles, participatory principles, and persistence, or consistency. has23000 as a guideline that must be made and owned by every entrepreneur who wants to obtain halal certification is a concept created by lppom mui since january 12, 2012(lppom-mui, 2020). as a commitment to maintaining consistency of production during the validity period of the halal certificate, and as an implementation of the provisions of the indonesian ulema council (mui) that has become the first halal certification body in indonesia and is trusted both at the national and international levels as well as a credible halal certification agency supported by certificates accreditation of sni iso / iec 17025: 2008 for halal laboratories and sni iso / iec 17065: 2012 and dpls 21 for halal certification bodies from the national accreditation committee (kan). even recognized by the united arab emirates accreditation body (esma) until lppom mui's age has touched 31 years. (lppom-mui, 2020) has23000 book launched and inaugurated by the vice president of the republic of indonesia budiono in conjunction with the 23rd anniversary of the lppom-mui anniversary. (lppom-mui, 2012b) this is an important event where has 23000 began to take effect and also recognized and adopted by the world's halal institutions, especially those members of the world halal food council (whfc) which until now has 45 members from 26 countries. including the indonesian government and requires a halal certification for products circulating and traded in the territory of indonesia (uu nomor 33 tahun 2014, 2014), based on law number 33 of 2014 concerning halal product guarantee through the halal product guarantee agency (bpjph) under the ministry of religion of the republic of indonesia. (uu nomor 33 tahun 2014, 2014) since the enactment of law number 33 of 2014 concerning halal product guarantee, it has been approximately six years since bpjph has not been able to carry out its functions as mandated by law. even in the halal certification procedure, especially regarding the requirements for obtaining halal certification, it still uses the guidelines made by lppom mui, namely the has23000 document. (bpjph, 2019) this shows that has23000 is a crucial guideline in halal production processes for entrepreneurs who want to obtain a halal certificate and can be accepted and implemented. substantially, in has 23000, the eleven criteria must be met by every producer in implementing this halal assurance system. the first is halal policy. the halal policy made in writing is stipulated by top 68 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 management in a guideline as a company committed to producing halal products consistently. including containing rights, obligations as well as company rules including rewards, and punishments on how all procedures are guided by the rules of halal service as the basis for the preparation and application of the halal assurance system. top management is obliged to disseminate these guidelines to all parties related to and with an interest in the company. (lppom-mui, 2012a) this halal policy is a company's commitment to managing its company to always maintain the halalness of its products and maintain company performance, this is important because it will affect subsequent processes, such as the policy of providing training and education which will be influenced by the corporate governance system. (brahmana et al., 2018) the second is the halal management team, top management arranges its personnel as a halal management team consists of all parts related to critical activities and also has the clarity of both duties, authorities, and responsibilities as a team that handles the entire halal production process and procedure. provision of the necessary resources. both for the preparation, implementation, and evaluation of a better halal assurance system is a task that must be done by top management. one of the methods in increasing the effectiveness of the management team apart from conducting training is by increasing team cohesiveness. (bachroni, 2011) the third is training and education, which carry out both internal and external training that must be followed, especially training related to competence and knowledge of halal production processes as shown by lppom mui. the time for an internal audit train is at least once a year while external for two years. in this case, the company must have a written procedure regarding the implementation of training for all employees or employees who handle critical activities. the training must be scheduled until the employee has competencies that meet the passing criteria. this training and education must always be documented as evidence that the company has carried out training and education. (lppommui, 2012a) the fourth is ingredient, it is ensured that the manufacturing materials for the product to be certified are free from materials that are haram and unclean. companies must also have documents including manual supporting documents for all materials to be used, except for materials that are certain of safe materials and are not contaminated with haram substances. the company must also have supporting documents for all materials used in addition to procedures or sops so that the validity period is maintained. making decisions on choosing raw materials that are by sharia provisions and maintaining the quality of the ingredients is an important activity of the halal management team, the support system for selecting raw materials can be used the weighted product method. (ruhiawati & romdoni, 2020) fifth namely product, products must be clear and there should be no contamination with smells or tastes that are potentially haram or have been declared haram according to the mui fatwa. the use of a brand or name on a product to be certified is prohibited from using a name that intersects with something that is forbidden, including worship that deviates from islamic sharia. products that have the same brand in circulation must be fully registered to obtain a halal certificate. (lppom-mui, 2012a) the sixth is a production facility, which includes the first processing industry. it's mean production facilities must ensure that there is no cross-contamination with unclean/unclean materials/products. production facilities can be used interchangeably to produce certified products and noncertified products as long as they do not contain ingredients derived from pigs/their derivatives, but there must be procedures that ensure no international journal of islamic business and economics (ijibec), 4(1) december 2020, 63-80 69 cross-contamination occurs. the second is restaurant/catering/kitchen covering the kitchen is only devoted to halal production; serving facilities and equipment are only dedicated to serving halal products. the third is the slaughterhouse. covering slaughterhouse facilities are only dedicated to the production of halal animal meat. the location of the slaughterhouse must be isolated from the pig's slaughterhouse. if the deboning process is carried out outside the slaughterhouse, it must be ensured that the carcass only comes from the halal slaughterhouse; the butcher tool must meet the requirements. (lppom-mui, 2012a) production facilities are also important to consider an efficiency system as part of a production facility in order to maintain profit margins. (ohmori & yoshimoto, 2020) the seventh, namely critical activity written procedures, companies must have written procedures regarding the implementation of critical activities, namely activities in the production chain that can affect the halal status of the product. critical activities can include the selection of new materials, purchasing materials, checking incoming materials, product formulation, production, washing production facilities and supporting equipment, storage and material and product handling, transportation, display, visitor rules, menu determination, stunning, slaughter, adjusted to the company's business processes (processing industry, slaughterhouse, restaurant/catering/kitchen). written procedures for critical activities can be integrated with other system procedures as found by teti istiasih at.al in the food technology journal. (estiasih et al., 2019) the eighth is searchability. written procedures to ensure traceability of products that are certified to originate from materials that meet the criteria (approved by lppom mui) and are produced in production facilities that meet the criteria (free from pork / their derivatives) must be made by the company including if the company in coding or labeling the ingredients must clear and accountable. one of them is to trace whether the material or product is halal or not, a traceability method can be used with the interpretive structural modeling approach. (haryono & handayani, 2018) ninth, namely handling of products that do not meet the criteria, the handling of products that do not meet these criteria must be kept and written procedures must be made by the company to handle products that do not meet the criteria, namely not being sold to consumers who require halal products and if they are already sold, they must be withdrawn. all documented. (lppom-mui, 2012a)tenth, namely internal audit, internal audits carried out by companies must be carried out by making written procedures in implementing the halal assurance system. internal audits are conducted at least every six months and carried out by competent and independent internal auditors. the results of the internal audit are not only submitted to the party responsible for each activity but also submitted to lppom mui in the form of a periodic report every 6 (six) months. the audit results must have the necessary corrective actions and have a time limit with the aim of being able to solve the problems of the findings with consequences that will not happen again. the entire review process with existing evidence must be properly documented. (lppom-mui, 2012a) internal audit can be carried out by several methods such as what pika mustika at.al did in his research at pt. ipb.(mustika et al., 2016) the eleventh is management review. management review is carried out by top management, which is carried out at least once a year if it is needed more than once a year to assess the effectiveness of has implementation and formulate continuous improvements. the parties responsible for each critical activity must be informed of the results of the evaluation. a time limit should be set for completing the evaluation results. all evidence from this management review must be properly documented. (lppom-mui, 2012a) 70 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 management review can be started from the selection of the management team as the start of the halal production process. personnel in the halal management team who have the capability can be obtained through external selection in addition to internal selection. external selection can be done as in the research of diana aqmalia at.al in the journal gadjah mada international journal of busines. (aqmala & ardyan, 2019) indonesia halal training dan education center (ihatec) explains the 11 (eleven) criteria if it is understood in each field. then, criteria 1, 2, and 3 are pre-requisites for has implementation, criteria 4, 5, and 6 are the contents of has implementation. criteria 7, 8, and 9 is a procedure that must be done in has. criteria 10 and 11 are evaluation actions of has implementation. the indonesia halal training and education center (ihatec) also describes in general management the cycle of the halal assurance system (has 23000). there are 4 (four) stages, namely planning, implementation, monitoring, and evaluation, as well as corrective actions, as in the following figure. (ihatec, 2017) source: ihatec_sjh 2017 rev. 1 picture 1 the halal assurance system cycle george robert terry defines management as the activity of each individual in a group that gives all its efforts optimally through various pre-planned actions to achieve organizational goals. when described as a whole, management consists of the knowledge possessed so that it knows what to do, determines how to do and understands what must be done, also can evaluate everything that has been done. this management is defined by george robert terry as a process of achieving a predetermined goal. (robert terry, 2019) in general, almost all figures define management as a science or art of moving or managing existing resources to achieve predetermined goals. for example, sofyan syafri harahap defines management as a process that utilizes existing people and resources to achieve predetermined organizational goals. (suparningsih et al., 2018) another figure is hasibuan, who defines management as a science and art to manage and make the best use of human and other resources to achieve goals. (daeng, 2018) management is also defined by monitoring & evaluasi corrective action application planning international journal of islamic business and economics (ijibec), 4(1) december 2020, 63-80 71 manulang as an art as well as a science from planning to monitoring all available resources to achieve predetermined goals. (janan asifudin, 2017) world figures such as henry fayol also define management as a process that starts from planning, managing the organization, moving, and controlling what is done to achieve goals and describes management into 5 (five) functions. (manajemen et al., 2015) james a.f stoner also defines management the same as the previous character. (kiwang et al., 2015) thus george robert terry in defining management very much colored the opinions of figures and even used as a reference for management figures in the world, especially regarding management science until then george robert terry was dubbed the "father of management science" george r terry, who during his life was dedicated to teaching, writing, and researching for the development of management science and modern business was born in the superpower of the united states in 1909 and died in 1979 where his phenomenal work, which was used as a reference for world figures written was "principles of management."(daniel a.wren, 2008) george robert terry then reiterated that management is a science and art in a process carried out by an activity or activities that are formed from several main function processes. the main functions are then referred to in management as management functions. (robert terry, 2019) it is in this process that management functions are carried out optimally to achieve organizational goals effectively and efficiently. (candra wijaya, 2016) management functions by george robert terry in his book "principles of management" consist of 4 (four) main functions, namely planning, organizing, actuating, and controlling (poac). (zanah & sulaksana, 2016) in contrast to henry fayol in his book general and industrial management divides management functions into 5 (five) functions, namely planning, organizing, directing, coordinating, and controlling. (casmudi, 2016) likewise, james a.f stoner, who in his book entitled management divides management functions into 4 (four), namely as follows: planning, organizing, leading, and controlling. (setiawan, 2017) although in its development the management functions have changed, it can't be separated from the four basic management functions of george robert terry. management fundamentals theory written by george robert terry and l.w. rue with the ticoalu translation published in 2019 uses management functions into five functions. namely; planning, organizing, staffing, motivating, and controlling (pomc). (robert terry, 2019) however, what it means is that staffing is included in the organizing function, and motivating is included in the mobilizing function. in detail, george robert terry's management functions in his book principles of management are as follows; first, planning function. the first function is a planning function where the stages in this planning are carried out, among others, first setting goals or a series of goals starting with decisions about the wants or needs of the organization or workgroup. second, to formulate the current situation, at this stage information is needed, especially about financial and statistical data, which is obtained through communication. the third is to identify all the facilities and obstacles and to measure the ability of the organization to achieve its goals and the fourth is to develop a plan or series of activities for the achievement of goals or to develop various alternative activities to achieve goals, to assess the best and most satisfying alternatives. george robert terry specifically details this planning activity as follows(robert terry, 2019) determine the current condition of the organization by conducting an internal audit. survey the organization's environment, setting goals, perform calculations of possible future events, carry out activities and sources of direction, evaluation the planned activity action considerations, make changes to planning 72 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 by the results of supervision, always communicate during planning. the details of the activities in the planning function show that the organization in achieving its goals requires preparation in advance and measures the ability of the organization so that this process requires universal and integrated thinking. (zaidir & listiawan, 2020) good and detailed planning will make it easier for organizations to achieve goals effectively and efficiently. the second is the organizing function, in principle, organizing is a series of activities that unite all existing resources into integrated parts and are easy to coordinate so that the goals from the organization can be achieved precisely and quickly. george robert terry describes the organizing function in the following activities. (robert terry, 2019) identify the work to be carried out carefully. distribute tasks or labor for everyone, assign each position for each assigned task, determine the requirements for each determined position, create units of position groups that are linked to a leadership model, distribute work, authority, and responsibility for the activities to be carried out, make organizational changes by the results of the evaluation, carry out intensive communication during organizing. this organization has the meaning as a forum or space for executing all activities within the decision-making authority so that all available resources can be used effectively and efficiently to achieve organizational goals. (santoso, 2019) the organizing function by george robert terry and l.w. rew also includes the personnel function or staffing where the scope of the staffing function in the organization is needed to place human resources or employees according to needs or (the right man on the right place) so that the achievement of organizational goals can be done effectively and efficiently. as for the details of this staffing function according to goerge. r. terry,(robert terry, 2019) determine personnel needs, optimizing all employees in every activity, make a selection of good employees, make changes to human resources that have been placed based on the results of evaluation and supervision. (purwanto et al., 2020) the third is the actuating function. sukarna stated in his book, fundamentals of management, the function of movement according to george robert terry, quoted from the book principles of management. "actuating is setting all members of the group to want to achieve and to strike to achieve the objective willingly and keeping with the managerial planning and organizing efforts”.(ibrahim et al., 2018) important variables in this movement include leadership that has the capability, attitude, and good morale of all people involved, communication skills, giving motivation such as good incentives, supervision, and also the creation of discipline for all parties. george robert terry and l.w. rew motivating are closely related to the executors or employees in the organization who carry out all the activities of all parts of the organization and this motivation is also needed for them so that in carrying out their duties they always have enthusiasm in completing their responsibilities properly and correctly. this function, according to george robert terry, consists of the following activities, (robert terry, 2019) convey organizational goals to subordinates, create work implementation standards, provide training and guidance to subordinates to achieve work standards, provide wages based on job performance, give appreciation and punishment proportionally, changing the implementation of motivation by the results of monitoring and evaluation. the fourth is the controlling function, supervision is carried out so that all activities and activities from planning to implementation can be carried out in a welldirected and controlled manner. this supervision is needed in every organization because supervision is an important factor as a way of maintaining the direction of activities and all activities so as not to deviate from what has been previously determined. this supervisory international journal of islamic business and economics (ijibec), 4(1) december 2020, 63-80 73 function is the last action of managers in an organization. (candra wijaya, 2016) george robert terry formulates the activities in the supervisory function as follows,(robert terry, 2019) establish supervisory standards, assess the results of supervision and implementation standards, carry out corrections to mistakes, make changes to the methods of supervision according to the results of the supervision. the halal assurance system document which consists of 11 criteria that constitute an integrated management system should be based on management principles that determine the success of achieving goals. in management principles which as a whole are the driving force of all activities as a management function, when analyzed in management science george robert terry's perspective so that has 23000 includes management functions, namely the planning function, the organizing function, the movement function, and the control function. has 23000 from the perspective of management function theory, is the composition or composition of management functions that are implemented into the 11 criteria in the halal assurance system or has 23000 in each of the criteria. therefore the composition or composition of each management function, namely the planning function, the organizing function, the mobilizing function, and the supervisory function which are implemented into each of these 11 criteria can be analyzed as follows, halal policy. the halal policy is included in the planning function because, in the halal policy, there is an element of planning in making guidelines regarding the company's commitment to producing halal products consistently, planning regarding rights and obligations as well as company rules including rewards and punishments regarding how all procedures are guided by halal principles. it can serve as the basis for the preparation and application of the halal assurance system. halal management team, this criterion has a meaning in management as a stage where a company or organization selects and compiles the required human resources into one container that has responsibility for the implementation of halal production activities from planning to carrying out supervision, then in management, these criteria enter into organizational and staffing functions as detailed by george robert terry in the organizing function (staffing). training and education, these training and education criteria are the third criteria in has 23000 where this criterion is a guideline that must be carried out by companies to provide training and education to all employees involved in halal production. these employees have competence in carrying out all halal production activities(yanthy et al., 2020) then, the management function described by george robert terry is a detailed function of mobilization in the function of motivation. in the function of motivation, one of which is to carry out training for employees so that they have the skills needed by work standards, namely carrying out the entire halal production process. ingredients, the materials referred to in the halal assurance system guidelines are that all uses of production materials must be clear from materials that are halal and not contaminated with non-halal materials. this criterion also requires keeping records of all materials used in halal production activities. thus, if it is analyzed into one of george robert terry's management functions, specifically it cannot be categorized as planning, as organizing, or as a movement or as controlling. but, precisely the fourth criterion regarding this material in management covers all management functions, namely planning, organizing, mobilizing, and controlling because the criteria for this material are meant to be a whole series of production activities aimed at converting inputs into outputs by the objectives, namely halal products. (herizer, j. & render, 2012) in management science, this material criterion becomes a separate study, namely the production function or more specifically as 74 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 the science of production management. according to e.f.l. brech, the material is meant as a medium-term goal that must be managed by the production department. product, as the fifth criterion, the halal assurance system guidelines intend that the products produced (including the use of brands) must be halal products whose position is not mixed with haram products. for this reason, when analyzed using george robert terry theory, it is actually not only part of a management function, but also includes all management functions, this is because "product" is a series of products that has the same criteria as the fourth criterion regarding use. materials, so that in management science is a production function or production management(assauri, 2004) which includes functions of planning, organizing, mobilizing, and supervising. the production facility, the guidelines for the halal assurance system or has 23000 as meant by the 6th criterion, namely production facilities, are all facilities, both premises, equipment, and equipment, must be completely free from non-halal materials or non-halal contaminants. this production facility is a requirement of all production activities used, (nasihien et al., 2017) therefore production facilities are not specifically included in the five management functions according to george robert terry but are also interpreted more comprehensively as a production function as stated by e.f.l. brech(brech, 1976) namely that production facilities must be adjusted to the specifications, namely halal products. a written procedure for critical activities, it is explained in the halal assurance system that all activities or activities related to critical points of halal production must be recorded coherently from the beginning to the end of production so that if there is any doubt about the halalness of the product it will be easy to find problems and solve them. then these criteria can be categorized into monitoring functions or control systems. george robert terry defines it as a controlling function, namely that supervision is carried out by following predetermined standard indicators so that it can be easily taken corrective action and clarification if there are deviations. (robert terry, 2019) searchability and traceability is an activity in the halal assurance system that is made in the form of records of halal production activities and can be used to assist management in tracking the production process so that it will be easy to find what materials are used during the production process. this criterion is in the analysis of goerge's management function. r. terry can be categorized as a controlling or controlling function. where these criteria indicate that there is a process carried out as an effort to guard the production processes with various important notes that can be used as an effort to control the production process carried out. in line with george robert terry, siagian also defines almost the same thing, namely that control or supervision includes the observation process from production planning to distribution whether it is by a predetermined production plan or not. (siagian, 2003) handling of products that do not meet the criteria, products that do not meet the halal criteria must be handled properly. management must establish procedures for handling these products so that they are not misused. the handling of products like this is an act of unused production that must be done appropriately. therefore, when analyzed using the management function of george robert terry, it is a formulation of the supervisory function. (robert terry, 2019) the same thing was conveyed by volunteers who said that the supervision process included correcting irregularities carried out in the right way or action. (sukarna, 2011) internal audit. an internal audit is carried out to supervise all halal production activities in the company which is useful to see whether the process or product produced international journal of islamic business and economics (ijibec), 4(1) december 2020, 63-80 75 has met the halal criteria or not. internal audit is also often referred to as the act or activity of internal monitoring and evaluation, which is carried out from the plan, implementing activities to completion of activities. (awaluddin et al., 2019) this criterion is part of the supervisory or control function formulated by george robert terry. internal audit as supervision is defined by sawyer, whether the goals of the organization have been achieved effectively or not, and whether internal policies, in particular, have been implemented or not. (sawyer. lawrence b., 2005) management review. this criterion is carried out by management in the process of halal production activities to evaluate the entire process and production whether it is by halal standards and criteria or not, if some processes or activities are not suitable and cannot be implemented then it becomes important to evaluate in this section part of management that is difficult or cannot be carried out while still seeking solutions according to halal criteria, it is clear that this is a management function that carries out the evaluation function, by george robert terry it is included in the control or controlling function. this section can also review the overall implementation of has 23000, starting from the preparation of halal policies, preparation of the halal management team, implementation of training, education, selection and use of materials, production, facilities, traceability, and auditing capabilities. based on the description of the analysis above, a simple grouping is carried out in each function according to the work from the pattern of the has 23000 criteria. eleven criteria in the halal assurance system (has) 23000 are included in management construction as follows: table 1 halal assurance system (has) 23000 george robert terry perspective no criteria management function information p o a c 1 halal policy √ included in the planning function because these criteria are the initial concepts in the implementation of halal product activities 2 halal management team √ it is an organizational function because this criterion the selection of employees who will be used as a team is the duty of the staffing function and the personnel arrangement function that is in the organizing function. 3 training and education √ training and education are management functions in providing motivation that is in the function of mobilizing so that employees who carry out tasks have the ability and competence. 4 ingredients √ √ √ √ the materials used in halal production are a production function that specifically translated into production 76 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 management science which has all management functions. 5 product √ √ √ √ the product is the final result or output of halal production and the final goal of the results of halal activities. it's also a production function that is also specifically translated into production management science which has all management functions. 6 production facility √ √ √ √ production facilities used in halal production are also included in the production function category which consists of planning, organizing, mobilizing, and controlling functions 7 written procedure for critical activities √ written procedures are a function of control or supervision. 8 searchability √ traceability is a function of control or supervision. 9 handling products that do not meet the criteria √ the handling of products that do not meet the criteria is a process of the supervisory function that follows up on products that do not meet the halal criteria for corrections. 10 internal audit √ internal audit is part of the supervisory function which is the work of the internal monitoring and evaluation division. 11 management review √ management review is the result of evaluation as part of the control or supervision function. (processed data of 2020) the table shows a brief description of the eleven criteria by grouping each criterion into george robert terry's management functions. included in the planning function group are the criteria for halal policies, materials, products, and production facilities. the organizing function group is the criteria for the halal management team, ingredients, products, and production facilities. the movement function groups are materials, products, production facilities, training, and education. the supervisory function group includes materials, products, production facilities, critical activity is written procedures, traceability, handling of products that do not meet the criteria, internal audits, and management reanalysis. on the criteria for materials, products, and production facilities in the description of has 23000 each do not stand partially from one of the management functions. however, these criteria are a series of production processes that cover all functions in the science of production management(arnett & madhavaram, 2012) in simple terms, it can be seen in the following figure: international journal of islamic business and economics (ijibec), 4(1) december 2020, 63-80 77 source: processed data of 2020 picture 2 has 23000 in management functions value chain porter theory as used by abiyyu et.al in grouping 11 criteria consists of two parts, the primary activities section includes criteria for materials, products, production facilities, written procedures for critical activities, traceability and handling of products that do not meet the criteria, the secondary part activities covering halal policy criteria, halal management team, training and education, internal audit, management review. likewise with putra aviva et.al's research with the integrated management system approach which divided the 11 has23000 criteria into organizational specifications, leadership specifications, planning specifications, support specifications, operating specifications, and performance evaluation specifications. 4. conclusion management as both an art and a science to move people to use all resources effectively and efficiently to achieve the goals that have been set are the needs of every organization and company. automatic management has been used by both small organizations and large organizations. the use of management as a process in individual and group activities raises the various functions required in the implementation of management. it is known that has 23000 which consists of 11 criteria, some of which are a function of management which can describe in each function, and part of it is a management function specifically contained in production management, namely a production function which covers all management functions as a whole. the results of the analysis in this study concluded that the 11 criteria in has 23000 were divided into management functions as follows, criterion 1 is a planning function, criterion 2 is an organizing function, criterion 3 is a function of movement, criteria 4 to 6 are a production function that includes all management functions (poac) and finally criteria 7,8,9,10 and 11 are control functions or supervision. so it can be concluded that the has 23000 halal assurance system covers all management functions, especially from the perspective of george robert terry. this study certainly has many limitations, especially in the discussion of describing has 23000 in a management science review. meanwhile has 23000 is an integral and universal management system concept, so that further studies can be carried out from various aspects of the approach as well as from various disciplines, such as how the has has 23000 planing organizing actuating criteria 1, 4, 5, 6 criteria 2, 4, 5, 6 criteria 3, 4, 5, 6 criteria 4, 5, 6,7,8,9,10 and 11 controllin g 78 international journal of islamic business and economics (ijibec), 4(2) december 2020, 63-80 23000 can be implemented with integrated management systems theory or other theories. researchers say many thanks to those who have helped so that this research can be completed, especially thanks to the supervisors references anwar, m. k. 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(2016). pengaruh fungsi manajemen terhadap kepuasan kerja karyawan. 4(2), 157–166.http://jurnal.unma.ac.id/index.php/ag/article/view/419 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 26 july 2018 accepted : 10 august 2018 published : 1 dec 2018 keywords: management ownership; management ownership; institutional ownership; corporate social responsibility; profitability, company’s value. https://doi.org/10.28918/ijibec. v2i2.1250 jel: m50; m59 abstract this study is aimed to identify the effect of management ownership, institutional ownership, corporate social responsibility (csr), profitability to the company’s value. in this study, the company’s value is using proxy of price book value (pbv). the samples were taken from 18 goods consumer industry companies which are registered in the bei on 2013-2016t. whilst the data of the research was 72 samples and after cash-wised into 67 samples. the analysis method used for this study is multiple regression analysis. based on this study’s result, it is resulted that the management ownership, institutional ownership, csr, profitability is simultaneously having positive effect on the company’s value. csr has positive effect on the company’s value positively, profitability has positive effect on the company’s value significantly. the effect of management ownership, institutional ownership, corporate social responsibility and profitability to the company’s value (a study on the companies of consumed goods industry on the idx 2013-2016) akhmad darmawan, ainun nisa, & sri rejeki universitas muhammadiyah purwokerto & iain purwokerto email: akhmaddarmawan@ump.ac.id. & bujeki19@gmail.com. 108 international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 1. introduction a company is an organization that combines and organizes all resources with the objectives to produce goods or services to be sold. the main objective of all companies is to boost company’s value. elevating a high company’s value is the long term goal that should be achieved by the company that will be reflected by the stock price’s movement since the invertor’s assessment towards a company can be analyzed by the movement of stock price that is transacted in the public stock exchange. a high company value will enable the market (investor) believe that not only to the company’s current performance, but also a company’s prospect in the future. a company’s high value can also increase the shareholders’ prosperities so that they will invest their capitals in that company (haruman, 2012: 1-2). management ownership is the proportion of shareholder from the management party that actively participated in the decision making of a company. by the ownership of a large management will effectively monitor the company’s activity (trisnabudi, 2015: 3). the ownership of stock management is the regular stock ownership of the managerial possessed by the management. with the stock ownership by the managerial, it is expected that manager will act accordingly with the wills from the principal since manager will be motivated to elevate performances and further be able to increase company’s value. by increasing share ownership by management will align the position of managers with shareholders so that management will be motivated to increase the value of the company (susanti, 2014: 1). the other structure of ownership that is also influences the company’s value is the institutional ownership. where in that institutional ownership, generally act as the company’s supervisor. institutional ownership is a condition where an institution owns the stock within a company. that institution can be in the form of government’s institution, private institution, domestic or foreign (wahidawati, 2010: 25). the bigger the institutional ownership gets, the more efficient is the utilization of the company’s assets and it is expected to also act as precaution against the waste made by the management party. institutional ownership is the proportion of share ownership at the end of the year owned by institutions, such as insurance, banks or other institutions (tarjo, 2012: 3). corporate social responsibility (csr) as the form of the company’s responsibility to the environment and social where the company is located. csr is a discourse that enables the company not only obligated or operated for the shareholders but also socially responsible to the stakeholders. employer has to monitor the operational of the economy system to fulfil public’s expectation. this means, in its turn, the production economy must be completed in such way so that it can increase the social welfare –overall welfare. social responsibility, in the final analysis implies a public attitude towards resources for the economy and people, and the resources used are not only limited to personal and corporate interests, but to broader social goals (mardikanto, 2014: 86). profitability ratios are ratios that describe the company’s ability to generate profits through all its capabilities and resources, namely those derived from sales activities, asset use and capital use. profitability ratios or profitability ratios can be utilized as a tool to measure the level of effectiveness of management performance. good performance will be reflected through the success of management in generating maximum profits for the company (hery, 2014: 192). profitability ratio is using proxy of retun on equity (roe) as a measure of corporate profitability. through these financial ratios, it can be seen how successful the management of the company is in managing its assets and capital to maximize the value of the company. the measure of the success of achieving this reason is the roe number that has been achieved. the greater roe reflects the company’s ability to generate high profits for shareholders (nurhayati, 2012: 2). 109international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 2. literature review and hypothesis 2.1. company’s value sholichah (2015: 5) stated that company’s value is the perception of investors towards a company that is often associated with the stock price. a high stock value enables a high company’s value. share price is the price that occurs when a stock is traded on the market. this can be proven by the presence of companies that go public on the indonesia stock exchange that conduct stock split. therefore, stock prices must be made as optimal as possible. this means that the stock price must not be too high or too low. very cheap stock price can adversely affect the company’s image in the eyes of investors. there are several concepts in the assessment, namely: (1) value is determined for a certain time or period; (2) value must be determined at a reasonable price; (3) assessment is not influenced by a particular group of buyers. myers (1977) (in sugiarto, 2009: 64-65) a company empowers two types of assets, namely tangible assets where returns are not affected by subsequent investments, and opportunities for growth where returns are substantially achieved by subsequent discretionary investment. in certain environments (particularly in conditions of financial difficulties), where shareholders control investment decisions and cover the overall cost of the project, only a portion of the increase in company value is received. if this happens, the benefits of investing in growth opportunities will go to the lenders, this opportunity becomes less attractive for companies that are reluctant to run the project, although the project might produce a positive npv (so companies tend to underinvest). the problem of changing assets and underinvestment reduces the value of the company. the value lost as a result of this obstacle is acknowledged as the agency cost of debt. 2.2. the effect of management ownership to the company value the presence of different interest between managers and shareholders resulted in the emergence of conflict commonly called agency conflict. this potential conflict of interest causes the importance of a mechanism that is applied to secure the interests of shareholders. the oversight mechanism for management raises a cost, which is named as agency costs, hence, one way to reduce agency costs is by the ownership of shares by management (trisnabudi, 2015: 3). the correlation between managerial ownership and company value is called non-monotonic correlation that occurs by the presence of incentives own by managers and they try to align the interest with the external ownership by increasing the stock ownership if the company value is increased. the separation of ownership and management (control) will create problems, since the interests of the owner and manager (the party receiving the assignment and authority) are not always in line. ownership management is a condition that implies a manager possesses stock within the company or this manager also plays the role of stock holder. these parties are those who sit on the board of commissioners and the board of directors of the company. managerial ownership is where management has a proportion of shares from the companies they manage. with a proportion of the company’s shares held by management, this will make management feel the benefits of the decisions taken. thus, it can be concluded that management ownership variables have a significant positive effect on firm value which means that high management ownership results in maximum management performance, so that ownership of shares owned by the board of directors, management, managers can improve the mechanism of company value (susanti, 2014: 15). h1: management ownership have insignificant negative effect on the company’s value. 110 international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 2.3. the effect of institutional ownership to the company’s value institutional ownership has an essential role in minimizing agency conflicts that occur between managers and shareholders. the presence of institutional ownership is also considered as to be able to become a monitoring mechanism for any decisions taken by management. this is because institutional investors are involved in strategic taking, thus, it is not easy to believe in the actions of manipulating corporate profits (dewi & sanica, 2017: 5). institutional ownership is also considered as to be able to become the mechanism of monitoring to all decisions taken by the management. this matter is caused by the institutional investors are involving in the strategic decision making, thus, it is not easy to easily believe in the actions of manipulating corporate profits (saridewi, et al, 2016: 7). institutional ownership has several benefits as listed: (a) professionalism in analyzing information to test the reliability of information; (b) strong motivation to conduct solid supervision of activities that occur within the company. institutional ownership has an essential meaning in monitoring management to manage the company. the greater the ownership by financial institutions gets, the greater the strength of voice and the drive to optimize the value of the company. elevating institutional ownership enables the function of supervision to be effectively conducted and enable effective supervision management as well as enabling the management to be more careful in gaining and managing loans (debt) because the increasing amount of debt will lead to financial distress. therefore, by this matter, it can boost the company’s value since it prevents the waste by management. thus, it can be concluded that institutional ownership variables have no significant positive effect on firm value, meaning that institutional ownership that only focuses on current earnings, can reduce the share price volume which results in a decrease in the value of the company (susanti, 2014: 15). h2: institutional ownership has a significant negative effect on the company’s value. 2.4. the effect of csr to the company’s value csr is a form of action that starts from the company’s ethical considerations that are directed to revise the economy, which is accompanied by an improvement in the quality of life of the surrounding community and society more broadly. that change in the level of public’s awareness creates the company’s new awareness that running the csr is pivotal. and the factor that influences the implementation of csr is commitment of the company’s leader, size, and company’s maturity, as well as the regulation and taxation system managed by the government. it seems that the debate on the agreement on the meaning of csr itself ends in its implementation which is often not implementable and even tends to be just rhetoric as a competitive strategy by companies to appear ethical but without losing its economic benefits. impressing the implementation of csr because it has been poorly implemented, then the company has to judge the losses experienced by many parties through good actions, namely programs for the local community (mardikanto, 2014: 197-198). the company is aware that its success in achieving the objectives is also influenced by the community or society around the company, asides from internal factor only, because this csr program is a necessity that must be conducted along with the emergence of various demands from the surrounding community. this means that, there has been a shift in relations between companies or corporations with surrounding communities or communities. one of the efforts that can be completed by the company to establish good partnership relationships with the community around the company is through the community relations program (cr) which is a method of interacting with communities that are interrelated with the operations of the organization. with the csr program, there will be many benefits for corporate and community (mardikanto, 2014: 111international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 199). csr can contribute to financial performance. this is because in decision making, companies must consider various social and environmental issues if the company desires to maximize the long-term financial results that can further increase the value of the company. the broader social disclosure carried out by the company in the annual report turns out to have an influence on the volume of the company’s stock trading where there is a surge in trade around the annual report publication so as to increase the value of the company (susanti, 2014: 9). h3: csr has a significant positive effect on the company’s value 2.5. the effect of profitability to company’s value the profitability ratio is using proxy of through the roe as the company’s profitability measurement. roe is also named as profit of the equity, in several references it is also named as total asset turnover or total asset’s circulation. this ration identifies how far a company utilize its resources to be able to give profit on the equity (fahmi, 2014: 83). roe ratio measures the company’s ability to produce net income based on particular capital. this ratio is a measure of the profitability seen by shareholders. a high figure of roe implies a high profitability level. ratio roe does not calculate dividend or capital gain for shareholder. thus, this ratio is not a return measurement (rate of return) that is received by actual shareholder (hanafi, 2016: 42). profitability is using proxy of roe as a measure of the company’s profitability that measures the effectiveness of the overall use of the company’s equity. the measure of profitability is used to measure the ability of a company to make a profit on certain levels of sales, assets, and share capital. profitability objectives are related to the company’s ability to get high profits so that investors and shareholders will continue to provide capital for the company. therefore, it can be concluded that the profitability variable has a significant positive effect on the value of the company, because investors can find out what percentage of return on capital is in the company. one form of analysis is to look at the value of roe (nurhayati, 2012: 7). h4: profitability has significant positive effect on the company’s value. 3. research method 3.1. types and approach the type of research used is quantitative data. quantitative data is a study that has the purpose to test or verify theory, putting the theory deductively into the basis for research discovery and problem solving (indriantoro & supomo, 2014). the population in this study is the consumer goods industry company listed on the indonesia stock exchange in the 2013-2016 period with a total sample of 18 companies. where the target population is a company listed on the idx (indonesia stock exchange) which publishes company value. the sampling method used in this study is purposive sampling where the sample will be taken based on certain criteria. the criteria used in sample research are: (1) consular goods industry companies listed on the indonesia stock exchange in a row during 2013-2016; (2) companies that issue consecutive annual financial statements for 2013-2016. (3) companies that publish data on management ownership, institutional ownership, csr, profitability. (4). companies that issue annual financial statements that experience profits in a row during 2013-2016. 3.2. operational definition and variable measurement company’s dependent variable value the company’s value can be reflected in terms of financial report analysis in the form of financial ratio and in terms of the changes in stock price. in this study, the company’s value can be 112 international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 measured by using price book value (pbv) (harmono, 2017: 114). pbv can be formulated as below: pbv = price per share sheet number of total book value of common stock remark: number of total book value of common stock = total equity number of outstanding stock independent variable a. management ownership management ownership is the percentage of stock’s ownership by directors, management, commissioner, as well as each party that directly involves within the company’s decision making. (susanti, 2014: 10). mo = stock owned by manager, director and management x100% total of outstanding stock b. institutional ownership institutional ownership is a company stock owned by an institution or institution such as insurance companies, pension funds, or other companies (susanti, 2014: 10). the concentration of ownership on outsiders has a positive effect on the value of the company. io = stock owned by institution or other company x100% total of outstanding stock c. csr csr that is obtained from the company’s annual financial report. the disclosure of csr in this study is using 78 items that are divided into 6 themes. there are 78 items from 7 themes which are environment, energy, health, and employer’s safety, other employer’s matters, product, community’s involvement and general. that seventy-eight items are further adjusted accordingly to the themes so that the disclosure of these themes are expected to be different. csr is measured by utilizing dummy variable: score 0: if the company does not disclosure the items on the list of questions score 1: if the company disclosures the items on the list of questions csd = n k remark: csd : company’s disclosure index n : number of fulfilled disclosure items j k : number of all items that might be fulfilled d. profitability the ratio of profitability is using proxy of roe. among all fundamental ratios seen by investor, one of the most important ratio is the roe. roe indicates whether the management increases the company’s value to the acceptable level. to obtain the value of roe, hanafi (2016:42) calculated by the formula: 113international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 roe = aftertax net income x100% owner’s capital 4. result and discussion 4.1. population and sample the population used in this study is a consumer goods industry sector company listed on the indonesia stock exchange (idx) in the period 2013-2016. the sampling of the company in this study was carried out by purposive sampling technique, namely the sampling technique with certain considerations or criteria. based on the process of sample’s selection by using purposive sampling technique, it is resulted 72 samples data within the period of 2013-2016. nevertheless, there were data that was impacted from the classical assessment test issue, therefore the researcher conducted the standardized case-wise diagnostic with the deviation standard of 2,8. the profitability data is subjected to heteroscedasticity, thus, the sample becomes 69. 4.2. descriptive statistic table 1. result of descriptive statistic n minimum maximum mean std. deviation management ownership institutional ownership csr profitability company’s value valid n (list-wise) 69 69 69 69 69 69 .00 .04 .46 .00 .28 .48 .96 .60 .34 8.27 .0595 .6723 .5294 .1320 2.5080 .11926 .21105 .02959 .08180 2.05612 source: attachment 8 based on table 4.2. with a sample of 69 companies. variables of management ownership with 0.00 as the minimum value and 0.48 as the maximum value. the average management ownership is 0.0595 with 0.11926 as the standard deviation. variable of institutional ownership is 0.04 and 0.96 as the maximum value. the average institutional ownership is 0.6723 with 0.21105 as the deviation standard. variable of csr is 0.463 as the minimum value, and 0.60 as the maximum value. the average of csr is 0.5294 with 0.02959 as the deviation standard. variable of profitability is 0,00 as the minimum value, and 0.34 as the maximum value. the average profitability is 0.1320 with 0.08180 as the deviation standard. variable company’s value is 0.28 as the minimum value and 8.27 as the maximum value. the average company’s value is 2.5080 with 2.05612 as the deviation standard. 4.3. classical assumption test based on the one-sample kolmogrov-smirnov normality test, it indicates that data are normally distributed which is reflected on the significance value that is more than 0,05 (5%). based on the multicollinearity test by using tolerance value and its opposite variance inflation factor (vif) indicates that tolerance value is > 0,10 and vif < 10, then it can be concluded that regression model is free and multicollinearity. based on the heteroscedasticity test by using glejser test, it is resulted 114 international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 that heteroscedasticity does not occur since the value is significant by > 0,05. based on the autocorrelation test by completing durbin-watson test (dwt test) is free from auto-correlation since the number of dw is between -2 to +2 indicates there is no auto-correlation. table 2. result of classical assumption test model unstandardized coefficients standardized coefficients t sig. b std. error beta (constant) man. ownership 1 ins. ownership csr profitability -9,516 2.82 -3,373 .001 -1,709 1.481 -,099 -1,154 .253 -,414 .866 -,042 -,478 .635 18.488 4.812 .266 3.842 .000 19.821 1.731 .789 11.452 .000 a. dependent variable: company’s value based on the above table, it can be seen that multiple regression equation is: y = –9.516 –1.709x1 –0.414x2 +18.488x3 +19.821x4 4.4. match test model a. t he coefficient of deter mination (r2) the coefficient of determination (r2) is mainly measures how far a model’s ability to explain the dependent variable’s variation. the value of coefficient determination is between zero and one. table 3 result of determination test model r r square adjusted r square std. error of the estimate 1 .845a .713 .695 1.13477 a. predictors: (constant), profitability, csr, man. ownership, institutional ownership a. dependent variable: company’s value based on the results above reflects that the coefficient of determination that shows the adjusted r square value of 0.695, which means that the independent variables are management ownership, institutional ownership, csr, profitability can affect the value of the company as a dependent variable of 69.5%. while the remaining 30.5% is explained by other variables outside this research. b. test f simultaneously table 4 result of test f model sum of squares df mean square f sig. regression 1 residual total 20.,067 4 51.267 39.812 .000b 82.414 64 1.288 287.480 68 a. dependent variable: company’s value this f test is used to measure the effect of management ownership, institutional 115international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 ownership, csr, profitability simultaneously having significant positive to the company’s value. based on table 4.9 it is resulted value f calculated as 39.812 and table f is 2.75, thus, it is known that f is counted > 39.812 > 2.75 with the significant level of 0.000. which means that the level of significance is 0.000<0.05 then ho is rejected and ha is accepted. this indicates that management ownership, institutional ownership, corporate responsibility, and profitability simultaneously have significant positive effect to the company’s value. based on the table 4.7 it is resulted t calculated as -1.154 and the value of significance is 0.253 which means > 0.05 and t table = 1.66901, thus, tcalculated as -1.154 < ttable 1.66901 and the value of significance is > 0.05, then, management ownership has insignificant negative effect to the company’s value, therefore, it can be stated that the hypothesis is rejected. this indicates that managers possess personal interests that tends to be fulfilled compares to the achievement of company’s objectives. this study does not support the one conducted by susanti (2014), sholichah (2015), trisnabudi (2015), vitalia (2016), that management ownership has significant positive effect to the company’s value. however, this study supports the one conducted by wida and suartana (2014), hidayah (2015), resulted that management ownership has insignificant negative effect to the company ’s value. based on table 4.7 resulted t calculated as -0.478 and the significant value is 0.635 which means > 0.05 and t table = 1.66901 so tcalculated as -0.478 < ttable 1.66901 and the significant value is > 0.05 so institutional ownership has insignificant positive effect on the company’s value, thus, it can be stated that the hypothesis is rejected. the high and low stock ownership by institutional investor has no correlation with the high and low company’s value. this study does not support the one conducted by susanti (2014), adnantara (2013), dewi and sanica (2017), which resulted that institutional ownership has insignificant positive effect to the company’s value. nevertheless, this study supports the one conducted by sofyaningsih and hardiningsih (2011), that is resulted institutional ownership has insignificant negative effect to the company’s value. based on table 4.7. it is resulted that t calculated as 3.842 and the significant value is 0.000 which means < 0.05 and t table = 1.66901, thus, tcalculated as 3.842 > ttable 1.66901 and the significant value is < 0.05 thus, csr has significant positive effect to the company’s value, therefore, it can be stated that the hypothesis is accepted. the high company’s social disclosure will be positively responded by investors so many investors invest on that company which resulting company’s value is increased. this study supports the one conducted by susanti (2014), zarlia (2014), saridewi et all (2016) with the study ’s result is significant positive effect to the company ’s value. based on table 4.7 it is resulted that t calculated as 11.452 and the significant value is 0.000 which means < 0.05 and t table = 1.66901 so t calculated as 11.452 > ttable 1.66901 and the significant value is < 0.05 thus, profitability has significant positive effect to the company’s value. the better the company pays the return to the shareholder, the more increase the value of the company, so investors are able to know how much percentages the return of their capital in that company. this study supports the one conducted by nurhayati (2012), hemastuti (2014), mardiyati (2012) samosir (2017) mahendra et all (2012) prasetyorini (2013) that profitability has significant positive effect to the company’s value. 5. conclusion based on the analysis that has been conducted, it can be summarized that; (1) management ownership, institutional ownership, csr (2) profitability simultaneously has significant positive 116 international journal of islamic business and economics (ijibec), 2(2) december 2018, 107-117 effect to the company’s value; (3) management ownership has insignificant negative effect to the company’s value; (4) institutional ownership has insignificant negative effect to the company’s value; (5) csr has significant positive effect to the company’s value; (6) profitability has significant positive effect to the company’s value. the limitation of this study is that the sample used is only the consumer goods industry sector listed on the indonesia stock exchange (idx) so that it is less representative for all companies in indonesia. this study’s period was carried out during 2013-2016 with 72 research samples and after case-wise 69 research samples. the company pt mayora indah tbk (myor) experienced a stock split. stock split is the breakdown of the number of shares into a larger number of shares by using a proportional nominal value per share in proportion. pt mayora indah tbk (myor) to carry out stock split with a ratio of 25: 1 or from the previous idr 500, (five hundred rupiah) per share to idr 20, (twenty rupiah) per share. trading after the stock split was conducted on august 4. on that date, the trading volume sharply increased to 10.56 million shares from the previous day only 79,483 shares. the latest transaction volume was recorded at 1.82 million shares. the effect of stock split on stock price volatility is that an increase in stock price volatility after the stock split can be caused by price discreetness and bid ask spread percentage for low value shares. this study only uses management ownership variables, institutional ownership, csr, and profitability to determine the value of the company. referring to the conclusions above, the following suggestions are formulated: (1). for companies, it is advisable to pay attention to management ownership, institutional ownership, csr and profitability to increase company value. (2). for further research, it is expected to increase the number of research samples by expanding the type of company for example by adding various industry sectors in the indonesia stock exchange (idx), and extending the research period and adding variables such as leverage and size that can contribute to the value of the company so that conclusions can be drawn better. references adnantara, k. f. (2013). pengaruh struktur kepemilikan saham dan corporate social responsibility pada nilai perusahaan. buletin studi ekonomi. 18(2):112. adnantara, komang fridagustina. 2013. pengaruh struktur kepemilikan saham dan corporate social responsibility terhadap nilai perusahaan: jurnal buletin studi ekonomi 18(2):112. dewi, k. r. c., & sanica, i. g. 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(2016). struktur kepemilikan, kebijakan dividen terhadap nilai perusahaan dengan kebijakan hutang. jurnal ilmu dan riset akuntansi, 4(6). microsoft word 5-nurhadi (130-145).docx 130 ijibec the importance of maqashid sharia as a theory in islamic economic business operations nurhadi corresponding email: alhadijurnal@gmail.com islamic institute of al-azhar pekanbaru riau abstract this article discusses the urgency of maqashid syaria in the operation of islamic economic business. the rapid development of islamic economics and finance in the contemporary era, many problems have arisen, such as hedging, sukuk schemes, repos, syndicated financing between islamic banks or with conventional banks, restructuring, indent property financing, ijarah maushufash fiz zimmah, multi financing use, credit card, bargain, net revenue sharing, gold installments, gold investment and other new cases. the application of wisdom of the maqashid shari`ah is an elaboration of the great maqashid (goal), namely hifzu almal (safeguarding wealth) and fulfilling the purpose and mashlahah of wealth. maintaining and maintaining the intentions of these assets sometimes in terms of how to get it (min janibi al-wujud) or in terms of maintaining assets that are already owned (min janibi al-‘adam). hifzu al-mal is a family of methods in the field of muamalah, this method is translated by maqashid syari`ah ammah (general purposes) and maqashid khassah (special purpose) also called maqashd juz’iyyah, which is very numerous and countless. maqashid khassah is the result of istiqra' of the scholars towards the texts and the laws of shari'ah and results in certainty (qath'i) that this shari'a establishes it as a goal that has consequences and implications. so in the operation of sharia economic business the wisdom of maqashid sharia is that the benefit must be secured and based on shariah principles, even though the islamic economic business transactions by establishing the benefits that are in accordance with the sharia and the proposition as well as the interfaith of the minkum (the pleasure of the same pleasure) in accordance with the sharia agreement, even though the law is debated, for example bai ad-dayan contract, bargaining contract and others. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 3 no 2 2019 keywords: urgensity; wisdom of maqashid; operational theory; business; islamic economics doi https://doi.org/10.28918/ijibec.v3i2. 1635 jel: a10, m21 published : 10 nov 2019 131 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 1. introduction there is an objective or purpose (maqashid) of allah behind islamic ruling in the system of islamic finance as the requirement for a human to interact with each other (mu'amalah). there are several means (wasail) that enable humans to get the maqashid. because of its importance, maqashid then used as one of the qualifications to become a certified ijtihad and fatwa expert. so that the fatwa products can be under the purpose and intent of allah in setting the sharia law (sahroini & karim, 2016; nasuka, 2017). likewise, in the scope of sharia business and finance, the existence of maqashid sharia, becomes a means of synergizing between nash and market interests (situation), to ensure that market interests are the actual interests (maslahat), that economic interests are the interests of many communities (benefits), and that business interests are long-term interests according to the maqashid muamalah formulation (business or economy) (johan, et al., 2018). according to al-syatibi, as quoted by ibn asyur, also oni sahroni, that maqashid sharia is the maslahah or benefit and welfare of humanity both in the world and the hereafter. meanwhile, according to the scholars of ushul fiqh, defining maqashid sharia with the intended meaning and purpose in presenting law for the benefit of mankind (sahroini & karim, 2016; johan, et al., 2018). generally speaking, it can be concluded that the maqashid sharia is a concept to understand the intention and purpose of sharia values that implicitly put in the qur'an and hadith, as god almighty has set for mankind to achieve world prosperity (happiness) and the hereafter (mutakin, 2017; sulaeman, 2018). the implementation of maqashid sharia can be seen from the relation of maqashid sharia to the daily life of the society especially in the aspect of business (buying and selling). buying and selling is one type of economic transaction, islam as a religion of rahamatan lil ‘alamin (a mercy to all creation) is also discussed the things related to buying and selling transaction according to the provisions of shari'a (depkpos, 2018; zaki & cahya, 2015). it is not enough for academicians and practitioners of islamic business banking and finance institutions to only know about the muamalah fiqh and its implementation, but there is the more important thing, which is to understand the science of ushul fiqh (maqashid sharia) (ridwan, 2016). the religion scholars agree that ushul fiqh occupied a very important position in the study of sharia. according to imam al-syatibi (d.790 h), in the book al-muwafaqat, it is said that comprehend the study of ushul fiqh is something that is dharuri (very important and absolutely necessary), because through this study, we can find the content and purpose of each of the arguments of the shari'a (al-qur'an and hadith) as well as how to implement the sharia propositions in real life (ishaq, 1997; nasuka, 2017). according to imam al-amidi in the book alihkam fi ushulil ahkam, it is explained that a person who does not master the study of usul fiqh, then his religious knowledge is unreliable, because there is no way to learn the law of allah (sharia) except throughlearning the study of ushul fiqh (al-amidi, 1991; johan, et al., 2018). ibn asyur argued that the study of sharia maqasid should be a separate study without being associated with the study of ushul fiqh. however, the majority of scholars still classify it in ushul fiqh studies. the most important discussion in ushul fiqh among them is maqasid sharia. maqashid sharia is also called as the core in the study of ushul fiqh. therefore, maqashid sharia occupies a very important position in formulating islamic economics, creating islamic banking and financial products, even discussing many muamalah problems, such as muamalah al-ahwal al-syakhsiyah, shiasah, and qadhaiyah (yatimin, 2012; sulaeman, 2018; nasuka and subaidi, 2017). the scholars of ushul fiqh agreed that the study of maqashid sharia is the main requirement in doing jijtihad to address various issues of economic and financial life in this international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 132 challenging era. maqashid sharia is not only necessary to formulate macroeconomic policies (monetary, fiscal, public finance), but also to create sharia banking and financial products and other microeconomic theories. maqashid sharia is also important in making the regulation of islamic banking and islamic financial institutions that are currently in force in the community (mysharing, 2018; zaki & cahya, 2015). according to fathi al-daraini in his book al-fiqh al-islam al-muqarin ma'a al-mazahib, he said that the maqashid sharia is the main knowledge and has future projections in the framework of developing the theory of ushul fiqh (al-daraini, 1412 h/1992 m). therefore according to him maqashid sharia is a single or separate study. in this case, he is he agrees with the idea of ibn assyria (mawardi, 2010; rizky, 2017; thariqudin, ny). in conducting ijtihad, a mujtahid should master the study of maqashid sharia. ‘abdul wahhab khallaf in his book usul fiqh firmly stated that sharia texts cannot be understood well and correctly except it is studied by someone who understands the maqashid sharia and asbabun nuzul (the historical background of the verse) (wahab, t.th). most of the successes in extracting the law on islamic economics from the postulates of the koran and hadith, is largely determined by the study of maqashid sharia which can be examined from the arguments of tafshili (al-quran and sunnah) (mysharing, 2018; johan, et al., 2018). besides being an important factor in determining and creating sharia economic products, maqashid sharia can also play a dual role (social control and socio-economic instrument) to benefit all of the community. furthermore, maqashid sharia can provide philosophical and rational dimensions of islamic economic law products that are produced in the contemporary islamic economic ijtihad activities (rizky, 2017; nasuka and subaidi, 2017). maqashid sharia will provide a rational and substantial mindset in viewing islamic banking agreements and products. through the maqashid sharia approach, the sharia banking and financial products can develop very well and can respond to rapidly changing business developments (mysharing, 2018; johan, et al., 2018). in the acceleration of the development of islamic economics and finance in the contemporary era, there are many problems raising, such as hedging (swap, forward, options), margin during contruction (mdc), profit equalization reserve (per), trade finance and all of its problems, many of hybrid contracts cases, money market inter bank instrument, sukuk schemes, repos, syndicated financing of sharia banks or conventional loans, restructuring, indent property financing, ijarah maushufash fiz zimmah, hybrid take over and refinancing, forfeiting, overseas financing, unscured loan (kredit tanpa agunan, kta schemes), multipurpose financing, restructuring, indent property financing, ijarah maushufash fiz zimmah, hybrid take over and refinancing, forfeiting, overseas financing, kta schemes, multi-purpose financing, restructuring, indentional property financing, ijarah maushufash fiz zimmah, hybrid take over and refinancing, forfeiting, overseas financing, kta schemes, multipurpose financing, credit card design, ijarahmaushufashfizzimmah, hybrid take over and refinancing, forfeiting, overseas financing, kta schemes, multi-purpose financing, credit card design, ijarah maushufash fiz zimmah bargaining, net revenue sharing, gold installments, gold investment, as well as a number of new cases that continue to emerge (zaki, 2015; sulaeman, 2018). all cases and the efforts of ijtihad against the economic and financial complexity of sharia today that are constantly changing and developing require a diluted analysis of philosophical and substantive analysis contained in the concept of maqashid sharia (mysharing, 2018; johan, et al., 2018). without maqashid sharia, then the understanding of islamic economics, financial and islamic sharia will be narrow. it is difficult to develop and reduce negative doctrine that islam is incompatible with the advancement of time. without maqashid sharia, an expert in islamic 133 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 economics and practitioners will not be able to understand islamic economics well. without maqashid sharia, islamic banking and financial products, regulations, fatwas, fiscal and monetary policies, will lose their islamic substances. without maqashid sharia, the developing fiqh of muamalah and the regulation of financial institutions will be formulated rigidly. as a result, the development of banking and financial finance will be difficult and slow to develop. without an understanding of maqashid sharia, the supervisor of regulators will easily blame the truth of auditing islamic banks. without maqashid sharia, then the regulator (supervisor) will easily reject the innovative products that have been entirely met islamic requirement procedures. without the understanding of maqashid sharia, then the regulation about sharia psak (statement of financial accounting standards) will be ambiguous, rigid, and experienced a fatal error (zaki, 2015; febriadi, 2017; zaki & cahya, 2015). the essence of maqashid sharia will create the fiqh of muamalah which is elastic, flexible, vibrant and can always be in line with the current development (shalihun li kulli zaman wa makan) (yanti, 2016; nasuka & subaidi, 2017). the implementation of maqashid sharia will make islamic banking and micro islamic finance develop faster and creatively create new products so that they are not inferior to the products of a conventional bank. this can be seen in the growth of islamic business in malaysia and other countries (syafi'i, 2012; nasuka, 2017). this understanding of maqashid sharia starts from an understanding (mastery) of various disciplines, such as ushulfiqh, philosophy, tarikh tasyrifil muamalah, philosophy of islam, ulum al-quran and translation, ulum al-hadith, and mushtalah al-hadith, qawaid fiqh, rules of ushul fiqh, and rules of arabic language. therefore, knowledge of maqashid sharia become a very important requirement in conducting a contemporary sharia economic ijtihad (mysharing, 2018; johan, at.all., 2018). the growth of the economy and sharia business today can be seen increasingly rapidly, especially in indonesia. for example, the establishment of several islamic financial institutions, such as islamic banking, islamic insurance, islamic capital markets, islamic mutual funds, baitul mal wat tamwil, islamic cooperatives, islamic pawnshops and others (ramadhani, 2016). sharia economics and business are not only in the form of the above institutions, but also cover a very wide range of aspects, such as macro and microeconomics and other economic problems (dasuki, 2011; sulaeman, 2018). regarding the problems of islamic economy and business, so that developments remain in line with sharia principles, the involvement of islamic economic scholars becomes important, such as jijtihad providing solutions to financial-economic problems that arise both in the level of micro and macro, designing sharia contracts for the needs of business products in various sharia financial institutions to oversee and guarantee all sharia banking and financial products are conducted according to sharia law (agustianto, 2018). therefore, according to the opinion of the writer that the concept of maqashid sharia is very important to be implemented as a theory of study in sharia economics and business related to the current issue, so that the economic wheel in the midst of society is truly in accordance with the maqashid sharia as the expectations of all people human (dasuki, 2011). the main principles in the formulation of islamic economics and the formulation of fatwas and financial products are maslahah/benefit (agustianto, 2018; johan, et al., 2018). 2. research method this library research focuses on the urgency of hikmah maqashid in running islamic business. it uses descriptive analysis, which describing social actions towards the researched phenomena (hardijan, 2006). the writer uses juridical qualitative approach to collect descriptive data (soerjono, 1986). the data are divided into primary data, secondary data and international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 134 supporting data. in analyzing the data, the writer uses content analysis, which collects the data from books (manuscripts), articles, journals, magazines, newspapers, recording and other written sources related to the research. 3. results and discussions 3.1. maqashid sharia in islamic economics the implementation of the maqashid shari`ah is an elaboration of the great maqashid (the goal) namely hifz al-mal (preserve property) and fulfilling the purpose and mashlahah of properties. preserving and maintaining the intentions of these assets sometimes in terms of how to get it (min janibi al-wujud) or in terms of maintaining assets that are already owned (min janibi al-‘adam). hifzu al-mal is a group of rules in the field of muamalah, this method is translated by maqashid shari`ah amah (general purposes) and maqashid khassah (special purpose) also called maqashd juz'iyyah, which is very numerous and countless (general purposes) and maqashid khassah (special purpose) is also called maqashd juz'iyyah, which is very numerous and countless (general purposes) and maqashid khassah (special purpose) is also called maqashd juz'iyyah, which is very numerous and countless (sahroini and karim, 2016; sulaeman, 2018). maqashid khassah is the result of istiqra 'of the scholars towards the nash and the laws of shari'ah and results in certainty (qath'i) that this shari'a sets it as a goal that has both consequences and implications (raisuni, 2003). the following is an explanation of the application of maqashid amah and khassah in islamic economics, namely (nurhadi, 2018). 3.2. maqashid al-ammah (general purpose in economics and business) maqashid ammah in doing business or interact with other humans means that every agreement must be clear. every business agreement must be known by the contract parties so as not to cause disputes between them. to achieve this target, the maqashid sharia enforces tausiq (binding) provisions in muamalah maliah covenants such as the provision that every transaction must be recorded/noted (al-kitabah), witnessed (isyhad) and may be guaranteed (hamid, 2013; nasuka & subaidi, 2017). the discussed hifzu al-mal to is implemented with the provisions of taustiq (binding) in the contract of mu'amalah maliyah such as the stipulation that every transaction must be recorded (kitabah), witnessed (isyhad) and may be guaranteed by the parties of a voluntary agreement (hasani, 1416 h). limited knowledge about the technical dimensions of goods can be supported by believing certain standard provisions set by something authoritative. the standard of an item becomes a means to build equality between a seller and buyer. every agreement must be fair because this is maqashid ammah in doing business. among the fair principles applied in business are the responsibility of contract actors to fulfill their rights and responsibility, such as investing in good and professional ways, channeling them in a halal manner and fulfilling their property rights obligations (hamid, 2013; febriadi, 2017). among the means used by the shari'a to achieve a just goal are to give charity and not to waste property. based on this maqashid, there are a number of islamic provisions, including the messenger of allah forbid eating the meat of himar ahliyah (local donkey) because it is the provision of muslims in the khaibar war, also the messenger of allah forbiding food monopoly, as umar said: سقوقنا في حكرة meaning: "may not there is a monopoly in our market" (hasani, 1416 h; johan, et al., 2018). 135 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 every commitment must be in accordance with the agreement. it is a part of the maqashid ammah of business. allah swt says in surah al-maidah paragraph 1 (depag, 2015). this paragraph emphasizes the obligation to fulfill every agreement in the contract, including business contracts. therefore each contract contains the rights and obligations of each party. every business agreement will be successfully determined by the commitment of the parties in fulfilling each agreement of the business contractb (hasani, 1416 h). every law protects ownership rights, including the business maqashid. the scholars agree that unjustly taking other people's property is forbidden. therefore, allah almighty gives punishment for every crime against property (ta'addi ala amwal) (sahroini & karim, 2016; nasuka, 2017). stuart p. green argues that an ordinary crime is closely related to the assessment of common-sense morality (nurhadi, 2018; sulaeman, 2018). insider trading should be criminalized because it is based on cheating behavior. receiving or requesting bribes must be criminalized because it is based on disloyalty behavior. fraud and perjury have subtle differences with our moral norms towards deception and lying (bisnia, 2007; sahroini & karim, 2016; zaki & cahya, 2015). there are two witnesses to the ta'adudi (crime), namely: a predetermined sentence (had) such as a penalty against theft (sariq). the second is ta'zir punishment (a sentence that has not yet been determined) (hamid, 2013). each agreement contract must be following sharia law as the principal of the business maqashid. in the theory of the contract, the transfer of property rights (tamlik) there are five objectives (maqashid sharia) in terms of whether a contract is valid or not. the five maqashid are distribution (rawaj), clear (wudhuh), mantained (hifz), stable (tsabat) and fair (‘adl) (hamid, 2014; sahroini and karim, 2016). each property must be distributed. this maqashid is very ammah, as the property must be distributed and can be enjoyed by all levels of society in the form of consumption or distribution (nurhadi, 2018). there are several means used to achieve this (tadawul) distribution objective which involves: (sahroini & karim, 2016; johan, et al., 2018): 1). islam requires a contract, both a business contract (mua'wadhah) or a social contract (tabarru') so that each properties can change hands from one party to another. 2). islam allows contracts that contain a bit of garar such as the salam contract as rikhsah (relief) so that assets can be transferred with this contract. 3). islam prescribes agreements that are luzum without choice unless they agreed upon the conditions in the contract. 4). islam forbids the hoarding of property and money because if money is not in circulation, it will cause disruption of financial, commercial and social balance, as allah says in surah al-hasyar verse 7, which means: any properties obtained from the spoils of war (fai’) given by allah to his messenger (from property) who comes from the inhabitants of the cities is for allah, for the apostles, relatives, orphans, the poor and those who travel, so that the property does not circulate among the rich people. what the prophet gave you, then accept it and leave what he forbids, and fear allah. verily, allah is severely punished (depag, 2015). islam forbids any form of riba practice because it eliminates the sympathy attitude of the riba actors towards others and because all the purpose is to get purpose from so many people, including from the property of poor people. this is contrary to islamic law in building togetherness based on islamic brotherhood (ukhwah islamiyah) (hamid, 2013). if comparing the purpose of forbidden riba and permissibility of investment and gain profits, then it can be concluded that the purpose of prohibiting riba is to avoid laziness in investing assets and cooperation in world affairs (mu'amalah) (hasani, 1416 h). 6). islam forbids gambling because it is harmful to the production in the community, paralyzing human resources so that investment objectives are not achieved because the property is concentrated only in the hands of gamblers. this can be a dangerous distribution and does not create any production including international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 136 moral implications such as hostility and envy (sahroini & karim, 2016). 7). fulfilling the desire for property by facilitating the legal provisions related to the practice of muamalah (human interaction), with the method of al-ashlu fi al-mu'amalah al-ibahah. the element of it is to transfer ownership, eliminate it, take it (handover), combine it, make an agreement or allow it (hamid, 2013; johan, et al., 2018). every servant is obliged to work and produce. this is a maqashid that is very urgent for the benefit of muslims. among maqashid sharia, it is the obligation to work and produce (nurhadi, 2018; nasuka and subaidi, 2017). this obligation is based on istiqra 'to the proposition that gives a definite answer explained that work and production is mandatory, according to the word of allah swt surah al-mulk verse 15 which means: he is the one who made the earth easy for you, so walk in all directions and eat some of your provision from him. and only to him you will be (returned after) resurrected (depag, 2015). the provisions of the shari'ah require working to obtain property or earn money then to make a living and manage their ownership so that their product can be distributed for profit. the right of ownership in the shari'a is as long as it is obtain through the halal work. the ownership objects that are regulated in the shari'a are: 1). having physical goods (milk al-yad) and 2). having benefits (sahroini and karim, 2016; nasuka, 2017). therefore, it is forbidden to hinder and make it difficult for the owner of the goods to manage and utilize their goods because it is against the maqashid sharia to protect one's ownership rights from legal (masyru') work (hamid, 2014; johan, et al., 2018). each servant must invest property and invest with the mudharabah contract. property investment is one of the purpose set by god as an effort to find and develop wealth to make a profit. the scholars agree that investment in legal assets is mandatory, as long as in the sharia corridor, both individuals and groups (sahroini and karim, 2016). working is mandatory to create maqashid hifzu al-mal min janib al-wujuh (protecting the interests of properties from the aspect of providing assets). 2). using profits or results following the shari'a both for world spending or the afterlife without exaggeration and waste. 3). if there is an excess of assets after being used up, funds must be sought not to be stockpiled because it is prohibited in the shari'a, both arguing with sharia nashs and maqashid sharia, which is to develop properties and prepare the strength of the ummah to deal with enemies (hamid, 2014; febriadi, 2017). in the book of ihya ‘ulumuddin, imam ghazali condemns people who like to hoard properties without being rotated in the real sector (nurhadi, 2018). by his words (adiwarman, 2007; gozali, t.th): which means: if someone hoard dinars and dirhams, it is a sin, because these actions will not be useful for themselves and others. while it is supposed to be beneficial among people as a form of human interaction business (muamalah) (sahroini & karim, 2016). maqashid syariah mudharabah can be seen in two ways, namely: 1). if someone has a property and can manage it, the benefits for themselves by also giving charity to the poor. all business risks are borne by themselves. 2). if unable to manage it, it is prescribed to cooperate or syirkah which aims to help others and strengthen the relationship of each other (hamid, 2014; nasuka, 2017). the most important thing is the cause and effect of a business process is the inevitability of the business actors and the parties who make a transaction and are determined to make collaboration (karim and sahroni, 2015; boug, n.y; sahroini & karim, 2016). every person who does business must balance the benefits and risks (al-kharaj bi adhdhaman). this business theory is a principle in muamalat at the level of qath'i (sure) through the arguments of the nashs and istiqra ', based on the rule of ushul and the fatwa of ijthad of the scholars. rasulullah saw forbide selling goods that are not yet a become a property or 137 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 responsibility of a person, and food that has not been handed over (taqabud) (nurhadi, 2018; johan, et al., 2018). the cooperation agreement between the investor and the recipient of capital must match profits and risks under any circumstances. the application of the principle of al-kharaj addhaman, in this case, is very logical and clear. kharaj is profit while dhaman is responsibility for loss/damage. both parties must bring mutual benefits and maintain responsibility for losses (sahroini & karim, 2016; nasuka & subaidi, 2017). in fact, the property is not damaged and business does not lose, while risk in doing business is real, both parties have the right to take kharaj ad-dhaman (hamid, 2014). in the above qard agreement there are only two choices: choosing dhaman by giving loan qard alhasan without interest, and choosing kharaj by surrendering the funds like venture capital, so he is entitled to profit and bears the risk of loss (hamid, 2014; sulaeman, 2018). 3.3. maqashid al-khassah (special purpose in economics and business) maqashid khassah in economics and business include maqashid prohibiting riba, maqashid of the difference between buying and selling riba, maqashid prohibition of riba qardh, maqashid prohibition maisir, maqashid khiyar in buying and selling maqashid of giving charity/zakat. maqashid prohibits riba buyu'. the scholars have differents opinion regarding its legal status. the difference lies in the illat of ribawi goods (karim and sahroni, 2015). some say this illat riba is a currency (yunus, 2001; fatah, 2000), some are food (yunus: 2013; fatah, 2000), buyu' is riba arising from the exchange of similar goods of different quality or quantity or different the time of delivery (not cash), this kind of riba was formerly called riba fadl (nurhadi, 2018). the forbidden riba has the purpose (hikmah / maqashid) that is to avoid gharar in buying and selling transactions because this sale or exchange contains gharar, namely injustice for both parties for the value of each item exchanged. this will cause injustice, also lead to conflict (adiwaraman, 2004). another maqashid is that money is not made into a commodity that is traded so that money produce money and does not produce goods, this is very much in accordance with the economic maqashid farthest from gharar and riba (sahroini & karim, 2016; johan, et al., 2018). maqashid prohibits the practice of talaqqi rukban. this prohibition is in accordance with the hadith of rasullulah which means: the prophet forbids the practice of talaqqi rukban (bukhari, 38). ruban means the party who imports the goods, while talaqqi is the party who encounters the seller of the commodity and buys it from them before the seller enters the market . the wisdom of the ban on talaqqi rukban is that supply and demand continue to meet, resulting in a healthy market and a fair price. whereas talaqqi rukban, on the other hand, will not meet supply and demand, then there will be an unhealthy market and unfair prices (sahroini & karim, 2016; zaki & cahya, 2015). maqashid prohibits gharar. gharar is a trait in muamalah which results in part of its principle becomes uncertain (mastur al-qaqibah) (aaoifi, 2010). in its implementation that the two parties in the transaction do not have certainty of the goods that are the object of the transaction both related to quality, quantity of price and time of delivery of goods. so, the second party is disadvantaged (karim and sahroni, 2015). gharar occurs when changing a certain thing to be uncertain (adiwarman, 2011). gharar is haram, a transaction containing gharar also included, the prophet said that means: the prophet forbids the sale and purchase containing gharar (muslim: 156; bukhari: 264). imam nawawi explained that the hadith above international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 138 explained the important principle in chapter muamalah (business) which manages unlimited problems (bahrain, 2010; nasuka, 2017). the examples of buying and selling gharar are selling quantity. it is a practice of selling calves in the womb, buying and selling quantities ie ijon, gharar prices ie buying and selling houses 1 unit margin of 20% or 2 units 40% and buying and selling pending ie selling lost items (adiwarman, 2011; johan, et al., 2018; nasuka & subaidi, 2017). this can lead to disputes and hostility. maqashid prohibits gharar means that there are no parties to the contract who are disadvantaged because they do not get their rights and there is no dispute and hostility (rahman, 1996; sahroini & karim, 2016). this is following economic theory, namely an equitable agreement. the classic example in this problem is reducing scales and measurements and explaining undue quality/deception (sahroini & karim, 2016; sulaeman, 2018). maqashid hadis gharar (abdul, 1992). this is listed in the hadith of the holy prophet as follows, which means: the prophet forbade the buying and selling of gharar and al-hashah (muslim, 1513). we intellectually understand this hadith, so some actual trading practices may be forbidden such as selling grain in the ground, whereas gharar here is on goods that can be counted (raisuni, 2003; febriadi, 2017). maqashid prohibited ba'i al-inah. this is in accordance with the hadith of the holy prophet, which means: ibn umar narrated, that the prophet said: if a person is really stingy of dinar and dirham, buying and selling 'inah, following the tails of the cows and leaving jihad in the way of allah, then allah will send calamity and will not withdraw it unless they recommit themselves to their religion (hr. ahmad, 4593). the prohibition has maqashid and the wisdom of avoiding the hajani ribawi transaction (manipulation) to do the forbidden practice of riba or practice savings and loans interest with the sale and purchase mode (bahrain, 2010; adiwarman, 2011; sahroini and karim, 2016; karim and sahroni, 2015). maqashid khilafiyah ba'i al-‘inah. in this matter, there are several different opinions from the scholars. the majority of scholars forbid it, such as sahabat, tabiin, mazhan hanafiyah, malikiyah and hanabilah (nurhadi, 2018). al-marghinani in the hanafi school explains the forbidden ba'i al-inah (marginani, 2017), ad-dardiri maliki scholars also hold the same opinion (shawi, n.y). likewise al-khiraqi, the hambali scholars forbade this (qudamah, n.y). whereas some syafiiyah fuqaha reinforces ba'i al-inah, they argued with the ijtihad principle method, that is, in muamalah, what is seen is zhahir and not intention (al-ibratu bil alfazd la bil maqashid). this is also reasonable with the expression of the shafi'ite imam in al-umm: ونكل we surrender their intentions to allah swt" (nurhadi, 2018). thus if it is not" هللا الي قصودهم justified by the shafi'i school it is also justified because the intention of the buyer is money not goods. the scholars forbid it because this is an attempt to halt the practice of interest-bearing loans (nurhadi, 2018; nasuka, 2017). maqashid of the prohibition of ba'i al-inah is to avoid ribawi hilal transactions (manipulation) to do riba in the practice of savings and loans, this has been explained in the aaoifi standard (karim & sahroni, 2015). maqashid prohibition of buying and selling receivables (ba'i kali bi al-kali) is ba'i ad-dain bi ad-dain or ba'i nasi’ah bi an-nasi’ah. it means selling credit (not cash) at a non-cash price, all prices and objects of the transactions are non-cash transactions (karim and sahroni, 2015). the evidence which is based on this is the hadith of the prophet (pbuh) which means: ibn umar (may allah be pleased with him) said rasulullah saw said that he forbade the sale and purchase of receivables at a non-cash price (hr. daruqutniy: 3061; hakim: 2343). ijma 'ulama agreed that based on the hadith forbidding bai al-kali bil al-kali and the contract becomes fasid/damaged. maqashid from the prohibition of not cash into cash in order to achieve the purpose of buying 139 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 and selling to get money and goods (qudamah, t.th; syaukani, t.th; manzur, t.th; rusdy, t.th; zaki & cahya, 2015). maqashid khilafiyah ba'i ad-dain lighairi al-madin bi tsamanin hal. the scholars have different opinions about the law. the religious scholars (the opinion of the diligent hanfiyah, syaf'iyah, hanbilah & zhahiriyah) the law is absolutely forbidden both the buying and selling of salam or others (nurhadi, 2018; nasuka and subaidi, 2017). according to hanfiyah the receivables are mal hukmi which cannot be handed over to the seller (al-misri, 2001; hammad, 2001; faddad, 1421h; sattar, 2004; sahroini & karim, 2016). regarding the prohibition, the scholars based on the hadith of the prophet (s) of the nasa'i abu daud adan ahmad and alhakim, as well as the decisions of the islamic jurisprudence organization of the oic and nadwah al-baraka (nadwah, 2006; sulaeman, 2018). meanwhile, malikiyah believed that the contract happened to ribawi goods. it must fulfill the requirements of buying and selling ribawi goods in order to avoid the riba of buying and selling (buyu' riba). the credit must be paid in cash. if you buy salam, then the transaction must not be in the same currency. if the same sex is not allowed with the same amount and goods other than money (sahroini & karim, 2016). the opinion of imam ahmad (in one narration), one of the opinions of syafiiyah, ibn taimiyah and ibn qayyim argues that this transaction is absolutely permissible, both buying and selling salam or others. in this case the author is more likely to follow the opinions that allow it (sahroini & karim, 2016; johan, et.all., 2018). maqashid prohibition of ikhtikar (suwikyo, 2015). the definition of the syafii and hambali is to hoard goods that have been purchased when prices are increase to sell them at a higher price when needed by residents or many people (karim & sahroni, 2015; sahroini & karim, 2016). operationally the monopoly or ihtikar (manipulation of market in supply) is a seller or producer reducing the supply of product prices to rise. ihtikar is usually done by making entry barriers that is preventing the seller or other producers from entering the market and he is the solo player in the market (monopoly) (syarbaini, n.y). monopoly causes prices to become expensive, because the amount of goods is small and is controlled by monopolists, which can also reduce the production needed by consumers or the general public, this violates the benefits and also being prohibited (team iiit, 1997). in this case umar bin kahttab had banned monopoly acts like this, which is سوقنا في حكرة ال meaning (nurhadi, 2018): there should be no monopoly in our market (hasani, 1416 h). because it is very dangerous. the scholars like ibn qayyim explained, that this responsibility belonged to the ruling power at the time, in order to intervene in monopolists selling goods needed by the general public so that the market price would stabilize (team iiit, 1997; sahroini & karim, 2016; sulaeman, 2018). maqashid prohibition of ba'i najasiy. it is a prohibition of market manipulation in demand, that is if a producer (buyer) creates a fake demand as if there is a lot of demand for a product so that the selling price of the product rises. for example in the stock market, forex market and others. in a variety of ways such as issues, orders, and others (sahroini & karim, 2016). maqashid ban bai najasi is one mode of deception in business that harms other business partners, damages market prices and causes hostility between market participants (sahroini & karim, 2016; febriadi, 2017). maqashid ba'i atain fi bai’ah (two in one). this is a condition where a transaction is enclosed by two contracts at once, resulting in uncertainty (gharar) regarding which contract should be used (valid). in fiqh studies it is called baiatain fi baiah (karim & sahroni, 2015; sahroini and karim, 2016; nasuka, 2017). this prohibition is in accordance with the hadith of the prophet (pbuh) which means: from abu hurairah, he said, the prophet actually forbade two contracts in one contract (hr. tirmizi). according to nazih hammad, the substance of the international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 140 practice of two in one is isythirat aqdin fi aqdin or do one contract with two contracts or not with a contract (bahrain, 2010). the terms of the first contract make it uncertain (gharar) including the price of goods becomes unclear, the profit will become unclear (bahrain, 2010). this contract contains ta'alluq (the contract is hanging/uncertain) because the two contracts are interrelated, then one contract depends on the other contract (sahroini and karim, 2016; nasuka & subaidi, 2017). maqashid prohibited bribery (risywah). this prohibition is based on the qur'anic text and the hadith in surah an-nisa verse 29 (suwikyo, 2015), which means: o you who have believed, do not take your neighbor's wealth by way of vanity, except by the way of trade that applies with equal love among you. and do not kill yourself; truly allah is the most merciful to you (depag, 2015). the word trading which comes from the word trade, is very broad in meaning, all buying and selling, leasing, importing and exporting, wages for wages, and all of activities which give rise to the circulation of property including that in the commercial sector (hamka, 1983; johan, et al., 2018). what is permissible in consuming the property of others is by trading in a "good pleasure" (good fo each other) relationship between you (both parties). although willingness is something that is hidden in the heart, but the indicators and signs can be seen. ijab and qabul, or whatever is known in customs as handover are forms used by law to show willingness (nurhadi, 2018). based on this verse, imam syafii argues that buying and selling is not legal according to the shari'a but if there is accompanied by words that signify agreement, whereas according to imam malik, abu hanifah, and imam ahmad it is sufficient to handover the goods between each other because such actions can already show or signify mutual agreement (bahreisy, et al, 1990; johan, et al., 2018). the scholars have different opinions regarding to what extent the good pleasure can be measured. one group said that the perfect effect of willingness to both parties was after they parted after the contract. according to syaukani, what was counted as buying and selling was the good pleasure, with willingness, but not necessarily with words, even if actions and gestures that have shown, then it is sufficient. while imam syafii and imam hanafi require the contract as proof of good pleasure (halim, 2006). the ridha is a hidden action that cannot be seen, so that it necessary to show the sign of ridha through the contract (halim, 2006; sulaeman, 2018). the sura surah an-nisa 29 above is confirmed in the hadith of the prophet said from ibnu. umar ra, which means: narrated from ibn umar, he said the messenger of allah condemned the perpetrators of bribery and recipients of bribes (hr. abu daud; tirmizi; ibnu majah; hakim; ahmad). the riswah is an action of giving something to another party to get something that is not his right (saqar, 1994), the essence of riswah is to justify the means to get something (wealth or position) that is desired (lust) even though it has to wrong others. in general, these risks are in the form of doing something that is prohibited by applicable law or to speed up getting something that should be obtained later (takes time) (sahroini & karim, 2016). the maqashid behind the prohibition of riswah is so that everyone gets their rights, wages, achievements, according to their work, productivity, real contribution and real charity. another maqashid is that every work is done in an ihsan (professional) manner based on his ability. it also aims to prohibit everyone from idling, usually the lazy riswah perpetrators at work (sahroini & karim, 2016). the company manager doing riswah is a person who knows that he does not have the skills and ability to assume the position, he can only get a position this is by giving bribes to certain parties to get the position (al-misri, 2001: qardawi, 1994; nasuka & subaidi, 2017). giving something to someone in order to avoid being harmed by himself, this is permissible (qardawi, 1994). giving voluntarily without being promised and required (sahroini & karim, 2016; zaki & cahya, 2015). 141 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 maqashid khilafiyah in the management of non-halal funds. the scholars have different opinions about the recipient and non-halal objects or parties, which are: (nurhadi, 2018; nasuka, 2017): 1). the majority of scholars believe that non-halal funds are only for public facilities (al-mashalih al-ammah) such as the construction of highways, toilets, clinic, security post, bridges and others. 2). other scholars such as yusuf al-qardawi and al-qurrah said that non-halal funds may be channeled to all social needs (seventh al-khair), both public and nonpublic facilities such as poor consumptions including community empowerment programs (karim & sahroni, 2015). the opinion above is based on the proposition of nash and maqashid, namely; 1). mashlahat, which is non-halal fund is the public property not belonging to a particular person, it may be channeled to the poor and those who need them and non-halal funds for their owners and lawful for the recipient, both the poor, social institutions, educational institutions and others, both of which are opinions yusuf qardawi. 2). aaoifi standards, haram for their owners, are not permitted to be used, either to pay taxes or for other needs, even in a hilah way (bahrain, 2010). furthermore, in accordance with the method of fiqh, which means: any income that cannot be owned, then the income cannot be given to others (sahroini & karim, 2016). maqashid forbids setting the price (tas'ir). rasullulah saw forbidding to set the price as the hadith, which means: "people say:" o messenger of god, prices begin to be so expensive. set the price for us! "the messenger of allah said," indeed, allah is the one who set the price, who provide you wealth, and i truly hope to meet alah in the condition that none of you are seeking (recompense from) me for an injustice involving blood or wealth "(hr. abu daud; ibn majah). malikiyah interprets this hadith based on benefit, which is to set prices to protect the interests of traders who sell their goods in accordance with the rules of supply and demand. then the price determination for them is the real injustice (hamid, 2014; johan. et. all, 2018). maqashid determines the size and the scales (suwikyo, 2015). rasulullah saw explained the rules of the determination of the size and scales in a hadith narrated by abu daud which means; "the measurement of the scale is the scale of the makkah expert, and the size of the measure is the measurement of the madinah expert" (hr. abu daud). the target of this hadith is to equate the standard scales and measurements with a valid measure, using other measurements such as the size of the kilogram as a reference for the scales (qardawi, 1994; sulaeman, 2018). maqashid contracts in fiqh. muhyiddin ahmad said, that the purpose of the contract varies according to its type, the purpose of the contract is a pillar of the building of a contract, so that with the existence of the contract the purpose is achieved. therefore, goals are important because these will affect certain implications (dimyauddin, 2010; nasuka, 2017). the purpose of the contract will be different for each different contracts. for the sale and purchase agreement, the purpose of the contract is to transfer ownership of the goods to the buyer by submitting the sale price. in an ijarah agreement (leasing), the purpose is the transfer of ownership of the value of the benefits of the goods in the presence of rental wages. the motive owned by a person does not affect the contract building. the contract will remain valid as long as the motives that are contrary to the syara 'are not expressed verbally in the procession of the contract (dimyauddin, 2010). then all financial transactions are in accordance with the contract and its purpose in order to create and maintain justice between the two contract parties (sahroini & karim, 2016; zaki & cahya, 2015). maqashid contract of sale and purchase. this contract is allowed in islamic law to meet the buyer's intention to have goods and services also fulfill the seller's desire to gain profit (sahroini & karim, 2016; febriadi, 2017). maqashid presents witnesses in transactions, this is international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 142 for the benefit of imam ghazali in interpreting verse 282 surah al-baqarah verse 282 (depag, 2015) is that if syar'i does not require a witness to be fair, then we will still require it because syar'i enforces the syahadat which is istbut al-huquq (assigning one's rights) and huquq cannot be determined by a fasiq person (nurhadi, 2018; nasuka & subaidi, 2017). maqashid sharia records the debts. allah says in surah al-baqarah (2) verse 282, which reads, which means: o you who have believed, when you contract a debt for a specified term,write it down (depag, 2015). prohibition of taking advantage through riba and the orders of charity can give the impression that the qur'an does not sympathize with people who store the property or hoard it (nurhadi, 2018). that wrong impression is erased through this verse, which essentially instructs to preserve property by writing even a small amount of debt and witnessing it. if that impression were true, surely there would not have been such detailed demands regarding the preservation and writing of the number of debts (sihab, 2005). sufyan ats-tsauri narrated from ibn abbas, "this verse was revealed to be related to the matter of salam (lend the money) until a certain time. god said, "you should write it" is a command from allah to record an archive. the command here is a guidance, not mandatory (rifai, 1999). this verse states that the debt and non-cash business transactions are carried out in a good way so as not to cause slander, by writing or recording amounts of debts and accompanied by thirdparty witnesses (oni & karim, 2016). the record of maqashid on the debt were in the opinion of ibn assyria. he commented on the differences in scholars regarding the law of recording debts, some consider sunnah and some require it. the aim is to bind the parties to the contract and anticipate hostilities (khusumah) that may occur due to unrecorded debts that caused a person to fail to pay (hasani, 1416 h; johan. et. all, 2018). maqashid forbids wasting properties. this is contained in the qur'an surah al-isra verses 26-27, as follows, which means: 26. and give to families who are close to their rights, to the poor and those who are on the way of their journey and do not waste (your possessions) excessively. in fact, the spenders are devils and the devils are very disbelievers to their lord (depag, 2015). the essence of surah al-isra 'verses 26-27 ordered the obligation to fulfill the rights of close family, poor people and people who are on the journey. the verse stipulates that they must provide assistance, help and fulfill their basic needs, and the verse prohibits wasting properties. then the purpose of this prohibition is not to waste property, the existence of assets will be protected and can be distributed according to the above recommendations (hasani, 1416 h; nasuka, 2017). the maqashid is to spend properties fairly, and make the efficient and smart consumption of the property, so those excess assets can be used for infaq and charity in the way of god (business, n.y; sulaeman, 2018). maqashid orders to leave buying and selling transactions when the friday prayer is approaching. this is explained by allah swt, in the qur'an surah al-jumu'ah verse 9 (nurhadi, 2018: 80), which means: o believers, when called to perform friday prayers, then hasten to remember allah and leave the transaction of buying and selling. that is better for you if you understand (ministry of religion, 2015). the above fact is not actually prohibiting the substance of buying and selling, only ihtiyati caused by buying and selling transaction that enable a person to come late to the prayer so that their praying process is not perfect or he might skip it due to the enjoyment of doing business (raisuni, 2003; hasani, 1416 h; nasuka & subaidi, 2017, oni & karim, 2016; johan. et. all, 2018) . maqashid obligation to give zakat (charity). allah almighty says in surah at-taubah verse 103, which means: take zakat from some of their properties, through this zakat, you cleanse and purify them and also pray for them. verily, your prayers (become) peace of mind for them. and allah is all-hearing, all-knowing (depag, 2015; al-qatthan, 1964; shaykh, n.y). these words 143 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 emphasize that zakat is prescribed for a specific purpose, which is to get used to giving charity (sahroini & karim, 2016; sulaeman, 2018). from the explanation above, the importance of maqashid sharia to be the operational basis of islamic economic institutions is to lie on the benefit and competitiveness of the agreement between transaction actors. it can be done by considering on the benefit of the muktabarah or goodness which supported by sharia or the proposition, either the general or specifically or qias proposition (jali and khafi). for example is the contract of bai innah, bai dayan, tawaruk, and others which is in malaysia, it is justified and allowed, but in indonesia it is still under debate. 4. conclusion the implementation of maqashid shari'a in the operation of islamic economic business is extremely needed. in human interaction (mu'amalah), the beneficial economic business becomes a key stage for the sustainability of the transaction. therefore, the implementation of maqashid shari'ah is actually an elaboration of the great maqashid (the purpose) which is called as hifzu al-mal (preservation of property) and fulfilling the purpose and mashlahah of the properties. sometimes, preserving and maintaining the purpose of these assets here are in terms of the way to get it (min janibi al-wujud) or in terms of maintaining assets that are already our possession (min janibi al-‘adam). hifzu al-mal is a group of methods in the field of muamalah, this method is translated by maqashid syari`ah ammah (general purposes) and maqashid khassah (specific purpose) also called as maqashd juz'iyyah which is very numerous and countless. maqashid khassah is the result of istiqra' of scholars towards the nash and the laws of shari'ah which results in certainty (qath'i) that these laws are set as a goal that has consequences and implications. in the operational implementation of sharia economic business, the benefit must be following the shari'a proposition, which is the islamic economic business transaction. then it can be done by prioritizing the benefit according to sharia and the proposition as well as antaradhi minkum (mutual pleasure) that in line with the sharia agreement, although the law is still being debated. for example the bai adad dayan contract, bargaining contract and others. references abdullah, m. y. 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(2012). an analysis of islamic banking performance: maqashi index implementation in indonesia and jordania. iium institute of islamic banking and finance. journal of islamic finance, 1(1), 12-29. bahreisy, h. s. (1990). tafsir ibnu katsir. surabaya: pt bina ilmu. blaug, m. (t.th). ekonomic theoriy retrospect. cambridge: cambridge universisty press. darsuki, a. (2011). maqashid syariah dan maslahah dalam ekonomi dan bisnis syariah. yogyakarta: uii press. departemen agama ri, (2015). al-qur’an dan terjemahanya. semarang: toha putra. faddad, a. (2000). al-bai’ ala as-shifah. jeddah: al-ma’had al-islami al-buhits wa at-tadrib. febriadi, s.r. (2017). aplikasi maqashid syariah dalam bidang perbankan syariah. amwaluna: jurnal ekonomi dan keuangan syariah, 1(2), 231-245. hamka. (1983). tafsir al-azhar. jakarta: pustaka panjimas. hammad, n. (2011). ba’i ad-daian bi ad-dain qadhaya fiqhiyah maliyah mu’alirah. damaskus: dar qalam. hasan, h. h. (t.th). maqashid al-syariah fi al-hidayah al-iqtishadiyah. majalatu dirasat iqtishadiyah islamiyah, esidi 2, juz vi, irt-idb. hasani, i. (1995). nazhariyat al-maqashid ‘inda al-imam ath-thahir bin alur. kairo: internasional institute of islamic though (iiit). johan, s. m., et.all. (2018). konsep hikmat al-tasyri’ sebagai asas ekonomi dan keuangan bisnis islam menurut ali ahmad al-jurjawi (1866-1961) dalam kitab hikmat al-tasyri’ wa falsafatuhu. al-fikra, 17(1), 147-189. karim, a. (2004). bank islam, analisis fiqih dan keuangan. jakarta: rajagarapindo persada. karim, a. & sahroni, o. (2015). riba, gharar dan kaedah-kaedah ekonomi syariah. jakarta: rajawali pers. karim, a. (2011). ekonomi mikro islami. jakarta: rajagarfindo persada. khallaf, a. w. (t.th). ilmu ushul fiqh. kairo: maktabah al-ilmiyah. mawardi, a. (2010). fiqh minoritas fiqh al-aqlliyat dan evolusi maqashid as-syaia’ah dari konsep ke pendekatan. yogyakarta: lkis. mutakin, a. (2017). hubungan maqashid al syari’ah dengan metode istinbath hukum. analisis: jurnal studi keislaman, 17(1), 113-136. wahyuono, j. & aldo. (2018). maqashid syariah dalam ekonomi, keuangan dan perbankan syariah. retrieved 23 august 2018 from: http://mysharing.co/maqashid-syariahdalam-ekonomi-keuangan-dan-perbankan-syariah/ nasuka, m. (2017). maqāṣid syarī’ah sebagai sebagai dasar pengembangan sistem, praktik, dan produk perbankan syariah. diktum: jurnal syariah dan hukum, 15(1), 1-10. 145 international journal of islamic business and economics (ijibec), 3(2) december 2019, 130-145 nasuka, m., & subaidi, s. (2017). maqāṣid syarī’ah sebagai koridor pengelolaan perbankan syariah. iqtishoduna: jurnal ekonomi islam, 6(2), 222-260. nurhadi. (2018). konsep hikmat al-tasyri’ sebagai asas ekonomi dan keuangan bisnis islam dalam kitab himat al-tasyri wa falsafatuhu karya ali ahmad al-jurjawi (1866-1961). doctoral dissertation – postgraduate program uin suska riau. qardawi, s. y. (1994). al-halal wa al-haram. kairo: al-maktabah al-islami. rahman, a. (1996). doktrin ekonomi islam. yogyakarta: dana bhakti wakaf. raisuni, a. (2003). al-firk al-maqashidi, qawa’iduhu wa dhawabituhu. beirut: dar al-hadi. ramadhani, r. & evi mutia. (2016). analisis perbandingan kinerja perbankan syariah di indonesia dan malaysia ditinjau dari maqashid shariah index. simposium nasional akuntansi xix, lampung, 1-24. ridwan, r. (2016). legislasi hukum ekonomi syariah dalam bingkai hukum nasional indonesia. al-risalah, 16(1), 95-111. saqar, s. a. (1994). ahsan al-kalam fi al-fatawa wa al-ahkam. kairo: darul al-gad al-arabi. shihab, m. q. (2005). tafsir al-misbah. ciputat tangerang: lentera hati sulaeman, s. (2018). signifikansi maqashid asy-syari’ah dalam hukum ekonomi islam. diktum: jurnal syariah dan hukum, 16(1), 98-117. syahroni, o., & karim, a. a. (2016). maqasid bisnis dan keuangan islam: sintesis fikih dan ekonomi. jakarta: pt. raja grafindo persada. tim iiit. (1997). musthalahat al-fiqh al-mali al-mu’ashir. kairo: iiit. yanti, i. (2018). quo vadis peradilan agama dalam pengembangan hukum ekonomi syariah di indonesia. al-risalah, 16(02), 255-267. zaki, m. & cahya, b.t. (2015). aplikasi maqasid al-syariah pada sistem keuangan syariah. jurnal bisnis dan manajemen islam, 3(2), 312-327. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 10 feb 2018 accepted : 11 may 2018 published : 1 june 2018 keywords: cash waqf; management; anp; indonesia waqf jel: h30, h55 abstract this research is aim to identify the priority factors that being barrier to develop the practice of cash waqf in indonesia using analytic network process (anp) method. here is also offered some solutions for the problems identified. anp is a mathematic theory that allows one to deal systematically with dependence and feedback and that can capture and combine tangible and intangible factors by using ration scale. result show that the problems appeared in managing cash waqf in indonesia divided into 4 important aspects, there are: human resource aspect, trust aspect, system aspect, and sharia aspect. the rank for most priority problems to less priority based on the priority result are: 1) trust problems (whereas the most priority for this sub-criteria is donators’ lack of trust), 2) sharia problems (is unfulfilled waqf covenants), 3) human resource problems (is misappropriation of waqf funds, 4) system problems (is weak of management systems). strategies that can be built to develop the practice of cash waqf in indonesia based on the priorities are: 1) more computerized cash waqf management, 2) the development of waqf education institutions, 3) more comprehensive fund manager quality improvement, 4) transparency and accountability in every step. elaborating cash waqf development in indonesia using analytic network process aam slamet rusydiana and abrista devi researcher at smart indonesia, ibn khaldun university bogor, west java email: aamsmart@gmail.com mailto:aamsmart@gmail.com international journal of islamic business and economics, 2(1) june 2018, 1 1 32 1. introduction in the context of legislations in indonesia, waqf is defined specifically by determining the meeting point of various opinions of classical fiqh scholars. this is seen in the definition of waqf in law number 41 of year 2004 on waqf. waqf is defined as a waqif legal act to separate and/or hand part of one’s belongings to be used forever or for a certain period of time in accordance with his/her interests for worship or general welfare according to syariah. waqf is one of islamic laws related to people’s lives as ijtima’iyyah worship for public interest as a devotion to allah swt (fathurrohman, 2012). moreover, islam has institutional preparation to acquire fund so the poor can be independent. for this purpose, waqf can be done in addition to alms mandatory payment and other voluntary payment contributions. so if waqf is developed and managed productively, it can be an alternative for poverty reduction. according to muhammad (1997), the first person who introduced cash waqf in the history of islam was imam az-zufarin the 8th century ad, one of the scholars among the madhzab hanafiyyah. he states that cash waqf should be invested through mudharabah and the profits should be allocated for al-a’maalalkhairiyyah (social aid). this is supported by imam bukhari and ibnu syihaab azzuhri. imam bukhari states that ibnu syihaab az-zuhri allows dinar and dirham waqf by making those dinar and dirham as business capital, and the distributing the profit for waqf. this cash waqf is an issue discussed by fikih scholars. imam nawawi from the syafi’iyyah states: “and our friends are in dispute over waqf with money (dinar or dirham). people who can lend dinar and dirham, allow using waqf with them, and those who may not lend them, disallow waqf” (al-majmu’, 1980). fanani (2011) explains that az-zuhri makes a fatwa that people are encouraged to use dinar and dirham waqf for the construction of preaching, social and education facilities of muslims at that time. permission for cash waqf is stated by most madhzab hanafi and some scholars of madzhab syafi’i. according to muhammad (1997) among classical scholars, cash waqfwas an issue of khilafiyyah (disagreement). this started due to common tradition for people to only use their fixed assets for waqf. due to this tradition, some scholar were baffled when they heard the fatwa published by a friend of abu hanifah named muhammad abdullah al-anshaari who states that waqf in cash, such as dinar or dirham, or in measured commodities is allowed. what baffled them was the change of the main function of the money from being a medium of exchange into a medium of wakaf rental. al-anshari answers: “we invest the fund using mudharabah method, and the profit is given for charity. we sell the food, we distribute the price using mudharabah businesses then give the profit for charity”. hanfiyyah scholars suggest that cash waqf depends of local tradition. for example, if a place has a tradition or custom to pay waqf using money, then cash waqf in that location is legitimate, but illegitimate in other locations. however, the fatwa of hanfiyyah scholars on the permission of cash waqf is revealed in the fatwa of al-anshari, one of the students of the friend of abu hanifah, in which he states that it’s allowed to pay waqf using commodities which are weighed or dosed (muhammad, 1997). fanani (2011) states that the reasons for scholars to disallow cash waqf include, first, money of medium of exchange runs out after one use. moey can only be used spending it until it disappears. meanwhile the point of waqf is sustainability of the products of fixed capital, not running out after one use. therefore, the requirement of waqf properties is permanent and durable, not disposable. second, dinar and dirham are mediums of exchange used to facilitate trade, not to be taken advantage of and rented. international journal of islamic business and economics, 2(1) june 2018, 1 1 3 3 however the scholars who forbade cash waqf were refuted by scholars who allowed it, including, imam malik, imam ahmad bin hambal, and ibnu syihab az-zuhri (of thesyafi’iyyah). wahbah az-zuhaily states that hanafiyyah allows cash waqf because money substance which can be used as business capital is durable and has many benefits for people, which is by being businesses capital using mudharabah system. wadjdy and mursyid (2007) state that in making a fatwa which allows cash waqf indonesian ulama council (mui) considered the opinions of great scholars such as: imam az-zuhri who allows cash waqf by making money business capital the distributing the revenue to mauqufalaih. mutaqaddimiin ulama madzhab hanafi (classical scholar of the hanafiyyah) allows waqf as an exception based on istihsan bil ‘urf. abu tsaurof the syafi’iyyah narrates imam syafi’i that cash waqf is allowed (jaiz). according to cizakca (1998), history has proven that cash waqf has been popular since the time of bani mamluk and ottoman empire. even at the beginning of islam, cash waqf has been allowed by scholars. however, cash waqf started to have significant influence in 16thcentury ad in the ottoman empire. al-arnaut states that the development of istanbul can’t be separated from cash waqf which was wildly spread so that it became trade center. this is proven by historic documents found in 1464 ad, which a hundred years later became the habit of people of istanbul. according to cizakca (1998), m.a. manan revives the concept of cash waqf in social investment bank limited (sibl) in bangladesh which is conducted using cash wakaf cerificate instrument mechanism. he gives an alternative solution in solving the welfare crisis of muslims. compared with immobile property waqf, cash waqf has greater chance for modernization. cash waqf is waqf in the form of money which is then managed productively by nazhir, and the result is used for waqf. it means someone who wants to do cash waqf should invest, then the profits is used for waqf for mauquf alaih. in indonesia, bmm, indonesian waqf saving, and pkpu have tried to be the nazhirof cash waqf, but there are still many concepts and applications (fanani, 2011). studies on issues and solutions of waqf have been conducted by previous researchers. fathurrohman (2012) in his research titled “wakaf dan penanggulangan kemiskinan (studi kasus pengelolaan wakaf di kabupaten bandung jawa barat) states that there are many problems faced in managing waqf lands productively in bandung regency, such as some waqf lands are used as worship facilities and some has non-strategic locations. moreover, nazhir’s knowledge and understanding on waqf rules are lacking. in this condition, waqf lands are difficult to be managed productively in accordance with islamic laws and legislations in effect because the nazhir aren’t professional and has difficulty in funding the management expenses. waqf properties should be managed and developed productively as an alternative to help reduce poverty. meanwhile, shalih (2007)states that the role of waqf is important to maintain five pillars of maqashid syari’ah, which is maintaining religion (hifzhuddiin) so waqf plays a role in cleansing the heart of a waqif to worship allah only, and not to worship wealth. so, he’ll avoid stinginess and greed and grows a sense of togetherness and love which will bring him to hifzhunnafs (caring for the soul), hifzhunnasab (caring for the off springs), hifzhulmaal (caring for wealth), and hifzhul ‘aql (caring for reasons) by establishing foundations and educational institutions to spread and develop knowledge to produce a generation of muslims who are competent in all fields, whether syar’iorscience and other knowledge. the other research on waqf and cash waqf done by alias et.al (2015), aziz, et.al (2013, bahroni (2012), harun et.al (2016), aziz et.al (2014) and also pitchay et.al (2014). for the example, harun et.al (2016) thought that the high education in malaysia has to more explore the waqf benefit in the education so it can improve the high education to be better. waqf in the education sector is international journal of islamic business and economics, 2(1) june 2018, 1 1 34 also relevant with the result obtained from ahmad & hassan (2015). by using research object in ye education sector of sub-desert africa, ahmad & hassan (2015) thought how important the waqf role to pay education sector in africa. this reseach is the experience benchmark of al-azhar university in cairo egypt and some university in malaysia as the best example. it is also the same in gontor islamic boarding school in indonesia (bahroni, 2012). in practice, waqf in indonesia today faces complicated issues because it’s generally nonproductive waqf and the operational expense burdens the society. this illustrates a waqf condition which, using a term by mundzirqahf, is direct waqf instead of productive waqf. it means waqf gives direct services to the society, instead of waqf provided for production. in terms of cash waqf, waqf institutions don’t only act as religious rituality. they can touch humanitarian aspects by empowering their potential for public welfare to the best of their ability. therefore, the author was interested in studying cash waqf. although basically all waqf issues should be solved, it’s important to determine priority issues due to limited resources, whether funding resources, or time of waqf institutions or agencies. determining priority issues will also help waqf managers or nazhir in making strategic plans and making some priority agendas. based on the background above, the formulations of the problems are as follows: (1) what are priority issues of cash waqf fund management in indonesia based on anp method framework? (2) what are the solutions and strategies which can be offered for the issues based on priority scale? 2. methods this research is using primary data which is obtained by doing in-depth interview with experts and practitioners to understand the problem comprehensively. in order to synthesize the problems and make it in priority, second meeting (interview) with experts and practitioners is needed to complete pair-wise questionnaires. in order to choose respondents in this research is by considering their understanding about cash waqf development problems in indonesia. the amount of respondent consists of five experts and practitioners related to the topic discussed. there is no maximum or minimum quotes to choose respondent, the most important things to be considered is they must have good ability and good understanding about waqf and cash waqf problem. this study applies anp methodology in three steps. first, questionnaires and in-depth interviews with scholars, experts, practitioners, and regulators of waqf and cash waqf are conducted to fully comprehend the real problems and identify factors on the object. second, the results of the preliminary stage are used to develop an appropriate anp network and relevant questionnaires to glean the necessary data from experts and practitioners of cash waqf. third, anp analysis is applied to set priority alternative solutions and policy strategies in order to formulate optimal policy recommendations. analytic network process (anp) is a mathematic theory that allows one to deal systematically with dependence and feedback and that can capture and combine tangible and intangible factors by using ration scale. anp as a general theory of relative measurement is also used to derive composite priority ratio from individual ratio scale reflecting relative measurement of interconnected elements within control criteria. anp is a new approach in decision making process that provides general framework in treating decision without making any assumption about independency of elements in higher level from elements in lower level and about independency of elements within the same level. moreover, anp uses network without having to determine level as in hierarchy used in analytic hierarchy process (ahp), which is a starting point of anp. the main concept of anp international journal of islamic business and economics, 2(1) june 2018, 1 1 3 5 is influence while the main concept of ahp is preference. ahp with its dependency assumptions on clusters and elements are a special cases of anp (saaty, and vargas, 2006). for islamic economics research, the application of anp can refer to rusydiana and devi (2013). anp has relatively simple axioms which carefully restrict the scope of a problem: a. reciprocal. this axiom requires that if p c (e a , e b ) is a paired comparison of elements a and b with respect to their parent, element c, representing how many times more the element a possesses a property than does element b, then p c (e b , e a ) = 1/p c (e a , e b ). for instance, if a is 4 times larger than b, then b is one forth as large as a. b. homogeneity. this axiom states that the elements being compared should not differ by too much, else there will tend to be larger errors in judgment. the verbal scale of anp ranges from one to nine, or about an order of magnitude. c. this axiom states that individuals who have reasons for their beliefs should make sure that their ideas are adequately represented for the outcome to match these expectations. to construct anp model in phase 1, based on theoretical and empirical literature reviews of the problem, open questionnaires are asked to practitioners from various waqf and cash waqf experts from various institutions, universities, and consulting firms. follow-up is conducted through in-depth interviews to garner more detailed information to be able to comprehend the real problems. to quantify and measure the anp model or network in phase 2, pair-wise questionnaires are drawn based on final anp network designed in phase 1, which has been automatically formed in superdecisions software. to make sure that the questionnaires are worked effectively within allowable inconsistency, questionnaire testing is conducted to respondents. in this step, modification to questionnaires might be needed to improve effectiveness to gather appropriate data (ascarya, 2011). a. geometric mean in phase 3, results or synthesis of anp network in superdecisions software for each respondent can be generated. the data are then exported to excel worksheet to be manipulated to produce the desired outputs. to produce scientific ‘consensus’ results, geometric means of all respondents’ responses are calculated, re-inputted to anp network in superdecision software and resynthesized. this is the formula of geometric mean (ascarya, 2011): (3.1) b. rater agreement kendall’s coefficient of concordance can be calculated to assess the agreement among respondents. finally, interpretation of detailed (individual) and overall (geometric mean) results is completed to be able to draw conclusions and to propose policy recommendations. kendall’s coefficient of concordanceis identifying (w;0 < w≤ 1). w=1 show perfect agreement among respondent (ascarya, 2011). to calculate kendall’s (w), the first step is to give a rank for every answer and sum it. here are the formulas: (3.2) mean result from total ranking is: (3.3) international journal of islamic business and economics, 2(1) june 2018, 1 1 36 the sum of deviation quadratic (s) is calculated by the formula: (3.4) and then, kendall’s w deducted: (3.5) if w results is (w=1), we can conclude that all of respondents have perfect agreement, otherwise when the results is (w=0), it shows that there is no agreement among the respondent neither it has various answers (ascarya, 2011). 3. result and discussion based on the identification of indonesian cash waqf development problems, solutions, and strategies above, an anp network structure was developed: 9  3. result and discussion  based  on  the  identification  of  indonesian  cash  waqf  development  problems, solutions,  and strategies above, an anp network structure was developed:                                                   figure 4.1. anp network model  the  results  obtained  showed  a  statistical  consensus  of  the  experts  and  practitioners in relation to problems, solutions, and strategies in the development of cash  huma trust system sharia training scholarships monitoring system reward/punishment dissemination education waqf conditions selection waqf law support development of siw database validation gcg application dps formation perception building covenant knowledge tabarru’-grant strategy transparency and accountability computerization of waqf management quality development development of waqf edu. inst. resolving waqf development problems in indonesia huma trust system sharia work quality knowledge misappropriation personal interest not prioritized not trusted individual foundations not trustworthy waqf laws information system database management no dps dispute unfulfilled covenants naming problems solutions figure 4.1. anp network model international journal of islamic business and economics, 2(1) june 2018, 1 1 3 7 the results obtained showed a statistical consensus of the experts and practitioners in relation to problems, solutions, and strategies in the development of cash waqf in indonesia. in figure 4.2below, the problem priority results showed that trust is the highest priority problem which has caused an arrested development of cash waqf in indonesia at 29.54%. this is followed by sharia problems (27.92%), human resource problems (24.37%), and system problems (18.14%) as the last priority. the results of the rater agreement for problem clusters show that w=0.053, which means that 5% of the respondents agree that the priority problem of the development of cash waqf in indonesia is trust. in contrast with the problem cluster, the solution which is the priority in the development of cash waqf in indonesia is the sharia aspect at 30.07%, followed by system (25.11%), human resources (23.56%), and finally trust (21.24%). the results for rater agreement for the solution cluster showed w=0.102, which means that 10.2% of the respondents agree that the priority solution for the development of cash waqf in indonesia is within the sharia aspect. the results of the problem and solution clusters can be seen in the figure below. figure 4.2.the results of the problem synthesis of problems and solutions in the development of cash waqf in indonesia based on the synthesis results of the experts’ opinion above, the most important problem in the development of cash waqf in indonesia is trust. this suggests that the waqf donators do not completely trust the waqf managers to manage their donations in the form of cash. some of the causes of the low trust in waqf managers could be the low quality of the waqf managers’ work performance, the occurrence of corruption and misappropriation of waqf funds, the lack of cash waqf education for donators and the divided sharia opinion of whether the cash waqf covenant is halal or not, etc. the results of this study also show that in order to overcome these problems, the main solution is to resolve the sharia aspect. this means that the cash waqf is no longer a dispute among ulema’ and the regulators have decided on the legality of the cash waqf covenant and formulated it in good regulations (laws), the donators’ trust would grow and they would donate their wealth in the form of cash waqf. international journal of islamic business and economics, 2(1) june 2018, 1 1 38 therefore, the discrepancy between the results of the priorities between problems and solutions are actually in harmony as the donators’ trust issue needs to be resolved by formulating a regulation or law pertaining to waqf, especially its sharia aspect. as a result, the donators would feel more assured that the waqf funds are allocated in a way that is clearly halal and trustworthy. for a more detailed explanation, the following figure will describe the results of the synthesis in each sub-criterion cluster. figure 4.3.the synthesis results of sub criteria in the development of cash waqf in indonesia international journal of islamic business and economics, 2(1) june 2018, 1 1 3 9 the figure above shows that the priority problem in the trust aspect is the lack of donators’ trust at 42.21%, followed by the fact that cash waqf is not considered a priority at 29%, the domination of individual foundations at 17.76%, and the last is the untrustworthiness of the waqf fund managers at 11.01%. the rater agreement for the trust issue sub cluster is w=0.510, which means that 51% of the respondents agree that within the trust aspect sub-criterion of the development of cash waqf in indonesia, the main priority is the donators’ lack of trust, followed by the fact that cash waqf is not considered a priority, the domination by individual foundations, and the untrustworthiness of the fund managers. the main priority problem in the system aspect is the weak managerial system at 32.27%, followed by the non-valid waqf database at 31.58%, the weak waqf law at 22.52%, and finally the weak information system at 13.61%. the rater agreement for the system problem sub cluster is w=0.1183, which means that 11.83% of the respondents agree that, based on the priority, in the system aspect sub criterion of the development of cash waqf in indonesia, the ranking is: first, the weakness of the managerial system, second, the non-valid waqf database, third, the weakness of waqf laws, and finally the weakness of the information system. the main priority problem in the human resource aspect is waqf fund misappropriation at 35.86%, followed by the fund managers’ low work quality at 24.21%, the lack of knowledge about waqf at 20.32%, and the last is personal interest at 19.59%. the rater agreement for the human resource problem sub cluster is w=0.0846, which means that 8.46% of the respondents agree that based on the priority, in the human resource aspect sub criterion of cash waqf development in indonesia, the ranking is: first, waqf fund misappropriation, second, the weak work performance of fund managers, third, the lack of knowledge about waqf, and last, personal interest. the main priority problem in the sharia aspect is unfulfilled covenants at 33.69%, followed by tabarru’ fund investments at 25.34 %, the lack of sharia supervisors at 24.14%, and finally covenant dispute at 16.80%. the rater agreement for the sharia problem sub cluster is w=0.1428, which means that 14.28% of the respondents agree that based on the priority, in the sharia aspect sub criterion of the development of cash waqf in indonesia, the ranking is: first, unfulfilled covenants, second, the investment of tabarru’ funds, third, the lack of sharia supervisors, and finally the covenant dispute. the following figure elaborates the results of the synthesis of the solutions for the development of cash waqf in indonesia. international journal of islamic business and economics, 2(1) june 2018, 1 1 310 figure 4.4.the synthesis results of the solution sub criterion of the development of cash waqf in indonesia the figure above shows that the priority solution in the trust aspect is dissemination at 33.97%, followed by the selection of prospective waqf fund beneficiaries at 27.26%, education at 21.99%, and last, the total waqf conditions for donations at 16.76%. the rater agreement for the trust solution sub cluster is w=0.2069, which means that 20.69% of the respondents agree that the solutions for the trust sub-criteria of the development of cash waqf in indonesia based on the ranking is dissemination, selection of the prospective waqf fund beneficiaries, education, and total waqf conditions for donations. the priority solution for the system aspect is the support from waqf regulations/laws at 44.06%, followed by the development of a waqf information system at 24.78%, the validation of the database system at 20.11%, and the last priority is the application of good corporate governance international journal of islamic business and economics, 2(1) june 2018, 1 1 3 11 at 11.03%. the rater agreement for the system solution sub cluster is w=0.804, which means that 80.4% of the respondents agree that the solutions for the system sub-criteria of the development of cash waqf in indonesia based on the ranking is: the support of waqf regulations/law, followed by the development of a waqf information system, the validation of the database system, and the application of good corporate governance. the priority solution for the human resource aspect is conducting training programs about waqf and the management of waqf funds at 33.46%, followed by the development of a financial monitoring system at 26.62%, the application of a reward and punishment system at 19.98% and the last priority is scholarships at 19.94%. the rater agreement for the human resource solution sub cluster is w=0.1102, which means that 11.2% of the respondents agree that the solutions for the human resource sub-criteria of the development of cash waqf in indonesia based on the ranking is: conducting training programs about waqf and waqf fund management, followed by the development of a financial monitoring system, the application of a reward and punishment system, and scholarships. the priority solution for the sharia aspect is changing the term “tabarru’” to “grant funds” at 33.55%, followed by the explanation of the covenants at 32.48%, undivided perceptions at 21.01% and the last priority is the need for a dps (dewan pengawas syariah-sharia supervisory board) for waqf institutions at 12.95%. the rater agreement for the sharia solution sub cluster is w=0.37.95, which means that 37.95% of the respondents agree that the solutions for the sharia sub-criteria of the development of cash waqf in indonesia based on the ranking is: changing the term from “tabarru’” to “grant funds”, followed by explanation of the covenants, an undivided perception, and the need for a dps (dewan pengawas syariah-sharia supervisory board) for waqf institutions. the following figure will summarize the results of the strategy synthesis of the development of cash waqf in indonesia. figure 4.5.the results of the strategy synthesis for the development of cash waqf in indonesia based on the figure above, it can be seen that the strategy which is the highest priority in cash waqf development in indonesia is computerization of waqf fund management at 29.35%, followed by the development of waqf education institutions at 28.77%, the improvement of waqf fund managers at 24.32%, and last is transparency and accountability at 17.54%. the result of the rater agreement for the trust solution sub cluster is w=0.1346, which means that 13.46% of the respondents agree that based on the priority levels, cash waqf development strategies in indonesia are: first, computerization of waqf fund management, second, development of waqf education institutions, third, improvement of waqf fund managers, and last, transparency and accountability. international journal of islamic business and economics, 2(1) june 2018, 1 1 312 4. conclusion the results of this study show that the problems occurring in the development of cash waqf in indonesia consist of 4 important aspects, i.e.: trust, human resources, system, and sharia. the analysis of the problems as a whole resulted in a priority list as follows: 1) trust problems (the first priority for the trust sub-criterion is the donators’ lack of trust), 2) sharia problems (unfulfilled waqf covenants), 3) human resource problems (misappropriation of waqf funds), and 4) system problems (the weaknesses in the managerial system). as for the solution priorities which are believed to be able to solve the problems in developing cash waqf are: 1) sharia solutions (changing the term “tabarru’” to “grant funds”, 2) system solutions (waqf regulation/law support), 3) human resource solutions (conducting training programs about waqf), and 4) trust solution (dissemination). the strategies that could be employed in developing cash waqf based on their ranks are: 1) computerization of waqf fund management, 2) development of waqf education institutions, 3) improvement in waqf fund management quality, and 4) transparency and accountability. some suggestions and recommendations that the author would like to make are: a. there should be a mutual agreement among decision-makers in supporting and promoting the effort to develop waqf institutions, especially those involved in cash waqf. b. this study should help broaden academic studies related to waqf. prioritizations of problems and solutions for the development of cash waqf should give accurate input for all the related parties of what problems should be dealt with first and which solution is best. c. further studies using a similar approach (anp) are suggested in order to increase the number of respondents from related parties which are considered as knowledgeable of waqf issues in indonesia. 5. references affandi, a. & diah. n., n. 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(2010), “the analytic hierarchy process and analytic network process: an overview of applications”, management decision, vol. 48, issue 5, pp. 775-808. suhadi, (1995). “pengembangan tanah wakafdalamrangkapelaksanaanundangundangpokokagraria di kabupatenbantul yogyakarta”.dissertation at gajah mada university, indonesia. unpublished. https://scholar.google.com/citations?view_op=view_citation&hl=en&user=pidhnx4aaaaj&citation_for_view=pidhnx4aaaaj:u-x6o8ysg0sc https://scholar.google.com/citations?view_op=view_citation&hl=en&user=pidhnx4aaaaj&citation_for_view=pidhnx4aaaaj:u-x6o8ysg0sc https://scholar.google.com/citations?view_op=view_citation&hl=en&user=pidhnx4aaaaj&citation_for_view=pidhnx4aaaaj:u-x6o8ysg0sc https://scholar.google.com/citations?view_op=view_citation&hl=en&user=pidhnx4aaaaj&citation_for_view=pidhnx4aaaaj:u-x6o8ysg0sc https://scholar.google.com/citations?view_op=view_citation&hl=en&user=pidhnx4aaaaj&citation_for_view=pidhnx4aaaaj:u-x6o8ysg0sc untitled ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn 255-3216 article history: published : 1 december 2017 keywords: examine the main factors that hinder customers to access a the respondents. the interview involves seven experts in the study reveals that, the religious factor is perceived eligibility, and availability factors. the study indicates that identifying financial exclusion and islamic microfinance as an alternative to enhance financial inclusion hartomi maulana dan khoirul umam email: international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6100 heavily on informal sector for their livelihood. they are predominantly microenterprises which are rakyat , a special loan program large enterprises followed by small enterprises this indicates that microenterprises have thus aims to empirically examine the variables that hinder customers from accessing in east java province, indonesia. the is an important step in the common a study in nigeria conducted by adewale et are perceived these barriers to validate the constructs. also to the culture and belief systems of the poor muslims which stunt its reach in predominantly muslim remain, international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 101 in terms of gdp growth, indonesia has recorded an increasing trend over the last two the income and monetary poverty measures do not always capture the true picture of poverty in international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6102 eventually be unemployment. reduce the unemployment rate. since the significant number of poor in indonesia especially east java depends heavily important role in translating into poverty reduction. these types of enterprises are dominant of the existence of msmes as a foundation of economy for capabilities enhancement and poverty alleviation is indisputable. literature indicates many factors that causes financing barriers. among the common as financing barriers factors. some muslim perceived that conventional financial products balances required by them to open accounts frequently are found to be too high, and also accounts international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 103 at least four documents in order to open the accounts, such as identification card, letter of recommendation, income slip, and valid address. another barriers to financial inclusion in in developing countries to apply loans as they are required to pledge their personal assets as secured assets. explains some factors that may . international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6104 the instruments. international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 105 affordability eligibility accessibility availability religious factor financing barrier factors bmt as islamic microfinance and its roles in addressing barrier access to finance concept of bmt and and using the roles of islamic microfinance in addressing barriers access to finance and , to absorb charity such as and provides for a sustainable source of funds. according to the islamic international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6106 and as one of the way in absorbing and or or ijarah with their client. and , to be accessed by the poor as the scheme only allocated to them. and international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 107 and provided may contain any elements which are prohibited by islam. these elements include as the rural clients who are predominantly muslim women. as the religious values are contrary to the in the countries where the muslims are predominant in society. this asserted by some islamic scholars who argue that religious and cultural norms in muslim countries may drive the preference may verbally express a preference for islamic products simply to demonstrate religiousness. this international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6108 with regard to 3.1. barrier access to finance number of strong loadings. however, there is no found for cross loading and eigenvalue indicators that contains and ‘no fairness of the product’. the nature of the highly loaded variables on this factor suggests that it can be named international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 109 this result indicates that religious grounds appears as the most barrier factor to access some which something 1 2 religious accessibility eligibilty availability contains contains gharar .721 no fairness of the product annual fees open & maintaining acc. imposing high interest rate requiring a minimum amount to open an account .722 having no atm outlet in nearby area requiring complicated people below 21 years excluded not providing loan for small amount not providing payment services for small amount group eigenvalue percent of variance international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6110 interest rate, expensive fee and high minimum balance requirement. third factor procedures’, and ‘having no atm outlet in nearby area’. the nature of the highly loaded variables on this factor suggests that it can be labelled as ‘accessibility barrier’ factors. this factor contributes the results of the factor analysis as presented in table 1 showed that the variables which have services. not providing loan for small amount’, 3.2. financial inclusion and islamic microfinance international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 111 r1 master ass. manager r2 master manager master phd 10 years in teaching and research islamic economics phd manager master research r7 phd 10 years in teaching islamic economics conclusion. these feature the themes that were explored from the research respondents interviewed. the themes were formed based on these themes theme 1: dual missions of islamic microfinance (or bmt) establishment in indonesia; incorporating social and commercial seeking concept of social and commercial viewpoint with regard to in accordance with shariah is done with good governance. and social mission which as side with its is characterised as an islamic he cited that: such model that is worried by capitalist system small number but this involving of large international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6112 small was developed in indonesia has two mission, social or called as mission or called as was agreeing with the second respondent stand for . it comes from two words, namely social program and which mean is named of but actually commercial combine where itself is a process of social role which it can be collected from social fund such as , charity, etc. while has establishment which collect and distribute as well as provide missions i.e., business and social, two such as providing higher theme 2: suitable and acceptable alternative for enhancing financial inclusion moneylenders international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 113 you i say yes... one is conducted to provide training program, etc in order to could he said: is not instantly process and it must be combined is concentrated i because poor people if they wish to conduct they must go to directly. on other hand, the poor is exclusively concerned course i important dealing with poor contractual. high interest this was what was said by respondent four in his words: most are not interested to deal with them as they have no valuable collateral, have low . to strengthen the above provides stated: viewed capitalism system who has a big capital has a power. power and will be controlled moreover, respondent seven reemphasised as follows: is interacted to microenterprises are concentrated international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6114 funds such as and funds and be distributed lending technique in order to technique repayments in order to missions, i.e., social and business can funds from islamic philanthropy source of funds such as , and charity. transmission of poverty in nigeria, unpublished phd thesis, iium . the mit press, cambridge, , 4 , . . . . international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6 115 evidence from panel data. . london: sage. learning. database. , www. . , th , cgap , . usa: sage . irti idb sesric international journal of islamic business and economics, 1(2) december 2017, 9 9 1 1 6116 . open university press, england. , . . . microsoft word 1-maulidizen (73-89).docx 73 ijibec ibn khaldun's economic thought; the fair tax and its relevance to the modern economy ahmad maulidizen corresponding email: ahmadmaulidizen@tazkia.ac.id department of shariah business and management, stei tazkia bogor abstract this research is motivated by ibn khaldun's thoughts on taxes. according to ibn khaldun, if the tax is too low, the government cannot carry out its function, if the tax is too high, the fiscal pressure becomes too strong, so the profits of traders and producers decrease and their incentives to work are lost. the purpose of this study is to find out the concept of tax management that is fair to ibn khaldun's perspective to build a modern economy that is just and to know how the relevance of taxes according to ibn khaldun with today's modern economy. this research method uses library research methods with a type of descriptive qualitative research. the data source consists of the muqaddimah as a primary source, work or theory that discusses primary material as a secondary and complementary material from primary and secondary materials as tertiary materials. the approach in this study is a historical and philosophical approach. the method of data collection uses existing literature and analysis of data used by analysis and hermeneutical content. this study concludes that the concept of a fair tax perspective ibn khaldun is a tax drawn from taxpayers in accordance with the ability of taxpayers to pay it and tax withdrawal money must be used properly and fairly, according to ibnu khaldun when the tax burden is light, people have incentives to try to be more active. therefore, the business world is developing, which leads to greater satisfaction among the people because of the low tax burden, while tax revenues will also increase, judging from the overall source of tax land, ibn khaldun's thinking about taxes is very relevant when applied to modern economic conditions nowadays, where the economic conditions are less stable, the condition of society is increasingly difficult, the prices of expensive necessities of life add to the difficulties of people's lives. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 3 no 2 2019 keywords: fair tax management; economic thought ibn khaldun; islamic economics doi https://doi.org/10.28918/ijibec.v3i2. 1661 jel: g20, g21 published : 10 nov 2019 74 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 1. introduction the enormous contribution of the muslims to the continuity and development of economic thought in particular and world civilization in general, has been ignored by western scientists. western economic textbooks seldom mention the role of these muslims. according to chapra (2001), although some errors lie in the hands of muslims because they do not adequately articulate the contributions of muslims (karim, 2004: 8) understanding the islamic economic system is not enough only through technical socialization, but also the background and history of the development of the economic thinking of muslim scholars. the scarcity of the study of the history of economic thought in islam is very unfavorable because, throughout islamic history muslim thinkers and leaders have developed various economic ideas in such a way that they require us to regard them as the originators of the true islamic economy. islamic economics developed gradually as a field of interdisciplinary science which became the subject of the study of jurists, philosophers, philosophers, sociologists, and politicians, a number of prominent muslim scholars, such as abū yūsuf (182 h), al-syaibānī (189 h), abū ̒ ubaid (224 h), yaḥyā bin ʻumar (289 h), al-mawardī (450 h), al-ghazālī (505 h), ibn taimiyah (728 h), alsyāṭibī (790 h), ibn khaldun (808 h), and al-maqrizi (845 h), have contributed greatly to the survival and development of world affairs, especially economic thought, through an evolutionary process happened for centuries. the background of these muslim scholars was not a pure economy at that time, the classification of scientific disciplines had not been done yet they had expertise in various fields of science and perhaps this factor which caused them to carry out an interdisciplinary approach between economics and the fields of science they had previously studied. this approach they do not focus solely on economic variables alone, these scholars consider the welfare of mankind to be the end result of the long interaction of a number of economic factors and factors. other factors, such as moral, social, demographic, and politics (chapra, 2001: 150). the economic concept of muslim scholars is rooted in the law originating from the qur'an and the hadith of the prophet. it is the result of the interpretation of sharing islamic teachings that are eternal and universal, some of general commands and principles for individual actors and society, and encourage their people to use the power of reason they think. during the 14 centuries of islamic history, there have been continuous studies of various economic issues in the sharia view, most of these issues are buried in some islamic legal literature which certainly does not pay special attention to economic analysis, however, there are some records of muslim scholars who have discussed various specific economic issues in a long time, even among them showing a very interesting insight into economic analysis (chapra, 2001). islam as a true religion (dīn al-ḥaq) becomes a guide and guidance for mankind. the teachings of islam not only regulate the problem, but also the relationship between humans vertically, but also horizontally. islam regulates matters related to human life in mu’amalah, including trade transactions and other activities that support continuity and meaning of human life for peace and human happiness (kurniawan, 2014: 1). allah does not allow humans to mutually abuse one another, allah expressly forbids the act of wrongdoing on himself, also on all his creatures. among the forms of tyranny that are almost evenly distributed in our homeland is the implementation of a taxation system that is imposed on society in general, especially muslims, arguing that the property is returned for the benefit and common needs. while for those who have "money" in droves to ensure some of their property to get "severance pay" in the future. what an irony, the difference in the use of assets that are opposite. at present indonesian muslims are still subject to a double burden, namely paying zakat and paying taxes. this dualism of collection will in turn make it difficult for property owners or international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 75 income owners. with the enactment of law 38 of 1999 and law no. 17 of 2000, there is an explicit acknowledgment of the difference between zakat and tax. the enactment of the two laws clearly separates between the obligation to fulfill zakat for muslims and tax obligations for taxpayers. how should you put both of them? (maulidizen ahmad, 2017). taxes and zakat are two public fundraising instruments. tax is defined as an instrument of collecting funds used by the government to finance the running of the government. one of them is to finance some infrastructure projects and various facilities needed by the indonesian people. taxes can also be used for social purposes such as handling natural disasters. while zakat is defined as an instrument of collecting funds that have been established by allah in the quran for muslims with certain provisions of greatness. in contrast to taxes, the use of zakat funds is more limited. zakat can only be used for the benefit of eight groups (asnaf) in the quran. one of them is for the poor, in other words, zakat is only intended for social purposes (choudhury, 2018b). the tax collected by the state to its people based on arbitrariness, tyranny, not maslahah which in the span of the history of civilization known as muks, tribute, is collected based on zalim authority which is non-sharia tax which means that it is not in line with sharia principles. the jurists from the classical period, the middle to the modern era, have paid serious attention to taxation. among the several classical scientific ideas that discussed this matter was ibn khaldun. ibn khaldun has a clear vision of how political, economic, moral and social factors operate in a dynamic and interdependent pattern to encourage the development or overthrow of a society. in the process of discussing this issue, he made a number of important contributions to economic theory (chapra, 2001). ibn khaldun firmly emphasized the role of the private sector and the government in developing the economy. for him, the state is also an important factor in production. with its expenditure, the state is able to encourage production and with taxes it can reduce production. ibn khaldun has emphasized the principle of taxation very clearly in the muqaddimah. ibn khaldun concluded that "the most important factor for creating a favorable business atmosphere is to alleviate as much as possible the tax burden on business people, with the aim of promoting the business world by providing a guarantee of greater profits." this he explained as follows: "when the tax burden is light, people have incentives to try to be more active. therefore, the business world is developing, which results in greater satisfaction among the people because of the low tax burden, while tax revenues will also increase, judging from the overall source of tax land, he further said: as time goes on, the needs of the state will increase and the rate of taxation will also increase so revenues will be the same. if this increase is gradual, people will get used to this atmosphere, but in turn there will be a negative impact on incentives. the business world will suffer losses and decline, as well as tax revenue. thus, a prosperous economy at the beginning of the dynasty receives higher tax returns from a lower tax rate, while a depressed economy will receive less tax revenue due to a higher tax rate (amirabedini, 2014). he explained the reason by saying: "know that acting unfairly against other people's property will reduce their willingness to seek life and gain wealth and if the unwillingness to obtain life continues, they will stop working. the greater the pressure, the greater the impact on their work effort and if the people do not want to make a living and stop working, the market will stagnate and people's conditions will deteriorate. tax revenues will also decrease. therefore, he supports justice in taxation (chapra, 2001). ibn khaldun has contributed production theory, value theory, marketing theory, and cycle theory, the macroeconomic theory of taxes and public expenditure combined into a coherent general economic theory. based on some of the problems and thoughts described above, it seems that the history of islamic economic thought is very long and the theories in the islamic economic system are very diverse and also islamic economic 76 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 thinkers who contribute to the progress of the world economy, therefore, the authors feel interested in explore the treasures of classical scholarship of islamic economics thinkers, one of them is ibnu khaldun by conducting research on fair tax management according to economic thought of ibn khaldun (choudhury, 2018a). study of ibn khaldun’s economic has been actually studied, including mc caffrey (2014), mujahidin (2018), jaafar & ismail (2017), choudhury (2018), choudhury (2016), gusfahmi (2007), amirabedini (2014), maulidizen (2017). however, this studies did not specifically about tax in ibn khaldun’s perspective. this study will explain specifically the concept of tax management according to ibn khaldun’s perspective. the problems in this study are: (1) how is the concept of fair tax management on ibn khaldun's perspective? 2. how is the relevance of fair taxe management ibn khaldun's perspective with today's modern economy?. and the research objectives are: (1) to describe the concept of fair tax management on ibn khaldun's perspective, and (2). to analyze the relevance of the concept of fair tax management on ibn khaldun's perspective with today's modern economy. 2. research method this study is a library research, namely the authors do data mining by studying and studying a number of literature or library materials in the form of concepts, theories and others related to problems in research. the author explores knowledge more deeply by knowing the studies that have been conducted by other researchers. the author examines theories that have developed and are relevant and look for methods that are appropriate to the problems discussed with a qualitative approach. data collection method is a library survey and then analyzed by content analysis, and hermetic method. 3. results and discussions 3.1. biography of ibn khaldun ibn khaldun, whose full name is ʻabd al-raḥmān abū za’id wali al-dīn ibn khaldun was born from tunisia at the beginning of ramadan 732 h or coincides with may 27, 1332 ad based on his genealogy, ibn khaldun still had blood relations with wail bin hajar, one of the leading companions of the prophet. the family of ibn khaldun who came from hadramaut, yemen, is well-known as a family that is knowledgeable and up-to-date and occupies various high-ranking state positions (choudhury, 2018a). like the tradition that was developing at that time, ibn khaldun starting lessons from his own biological father. after that, he went to the leading scholars, such as abū ʻabd allāh muḥammad bin al-ʻarabī, abū al-ʻabbās aḥmad ibn al-qushshar, abū ̒ abd allāh muḥammad al-jiyānī, and abū ̒ abd allāh muḥammad ibn ibrahim al-abilī, to study various science, such as arabic grammar, hadith, jurisprudence, theology, logic, natural sciences, mathematics and astronomy. as a member of the aristocrat family, ibn khaldun was destined to occupy the highest position in the state administration and take part in almost all political disputes in north africa. but because of the influence of spanish culture that had been inherent in family life and himself for a century, ibn khaldun was never a "full member" from the community and still only be an outside observer from his world. at this time, the east world was ruled by an international aristocratic technocrat who grew art and science. if there are people who are members of this elite group, either because of their descent or education, they will be offered high ranks and important technical positions by kings and sultans who hire their services. along with revolutions and wars, salaries offered, and personal connections, they traveled from one city to another international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 77 following a conqueror or to escape punishment. ibnu khaldun is a member of this elite group, both because of heredity and education. in 1352 ad, when he was twenty years old, he had become a master of the seal and began his political career which continued until 1375 ad. his life journey varied. however, whether in prison or palace, in a state of rich or poor, being runaway or minister, he always takes part in political events in his day, and always keeps in touch with other scientists both from muslims, christians and jews. this indicates that ibn khaldun never stopped learning. from 1375 ad to 1378 ad, he retired at gal'a ibn salamah, a castle in oran province, and began writing world history with the muqaddimah as his first volume. in 1378 ad, because he wanted to find material from books in various large libraries, ibn khaldun obtained permission from the hafsid government to return to tunisia. there, until 1382 ad when he left for alexandria, he became a professor of law. the rest of his life was spent in cairo until he died on march 17, 1406 m (choudhury, 2018). men born in tunisia at 1 ramadan 732 h.27 may 1332 ad are known as historians and fathers of islamic sociology who memorized the koran from an early age. as an expert in islamic politics, he is also known as the father of islamic economics, because his thoughts on logical and far-reaching economic theory have been put forward before adam smith (17231790) and david ricardo (1772-1823) put forward economic theories. if we talk about a scholar on this one, it is indeed quite unique and amazing. he is the one who should be said to be the founder of social science. he was born and died during the holy month of ramadan. his full name is wali al-din ʻabd al-raḥmān bin muḥammad bin muḥammad ibn abī bakar muḥammad bin al-ḥasan who later famously referred to as ibn khaldun. dr. bryan s. turner, professor of sociology at the university of aberdeen, scotland in his article "the islamic review & arabic affairs" in the 1970s commented on the works of ibn khaldun. he stated, "the social and historical writings of ibn khaldun were the only one of the intellectual traditions which were accepted and recognized in the western world, especially the sociologists in english (who wrote his works in english)." very popular writing is the preamble (preliminary) which is the most important book about social science and is still being studied today. even this book has been translated in various languages (astuti, 2015) here ibn khaldun analyzes what is called 'social symptoms' with reasonable methods which we can see that he masters and understands these social symptoms. in the second and third chapters, he talks about the symptoms that distinguish between primitive society and modern society and how the system of government and political affairs in society. chapters two and four talk about the symptoms related to the way humans gather and explain the influence of the factors and geographical environment on these symptoms. chapters four and five, explain about the economy in individuals, communities and countries. while the sixth chapter talks about pedagogics, knowledge and knowledge and tools. it is truly amazing that a work in the 14th century completely explained things about sociology, history, economics, science and knowledge. he has explained the formation and disappearance of countries with historical theory. ibn khaldun strongly believes that basically countries stand dependent on the first generation (founding fathers) who have the determination and strength to establish a state. (kashif, ur rehman, & grigoriou, 2018) then, followed by the second generation who enjoyed the stability and prosperity left by the first generation. then, there will come a third generation that grows towards peace of pleasure, and is persuaded by material so that little by little the spiritual buildings are weakened and the country is destroyed, both due to internal weaknesses and because of the attack of strong external enemies who always monitor their weaknesses . there are some important notes from here that we can take lesson material from. that ibn khaldun upheld science and did not 78 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 underestimate history. he is a researcher who is relentless with a broad base of knowledge and knowledge. he always pays attention to community. apart from being an important official, he is also a productive writer. (kashif et al., 2018) even the imperfections in his writing are complete and renewed with time and patience needed. so that his work is truly quality, which is adapted to situations and conditions. because of his brilliant thoughts, ibn khaldun was seen as the foundation of the islamic social and political sciences. the basic education of the koran applied by his father made ibn khaldun understand about islam, and actively sought knowledge other than islamic sciences. as a muslim and hafidz of the qur'an, he upholds the greatness of the koran. as said by him, "know that qur'anic education includes religious symbols that are accepted by muslims throughout the islamic world. because of that the qur'anic education can seep into the heart and strengthen faith. and the teachings of the quran should be prioritized before developing other sciences (chapra, 2001). 3.2. the life journey of ibn khaldun first phase; period of education, this first phase was passed by ibn khaldun in tunis in a period of 18 years, namely between 1332-1350 ad. like the traditions of muslims at that time, his father was his first teacher who had traditionally educated him, teaching the basics of islam. besides his father, ibn khaldun also studied various scientific disciplines from his teachers in tunis. second phase; practical political activities, the second phase was passed by ibnu khaldun in various places such as in fez, granada, baugie, biskara and others, within a period of 32 years between 1350-1382 m. ibn khaldun's first career in the field of government was as sahib alalamah (a signatory), in the government of abu muhammad ibn tafrakhtn in tunis at the age of 20 years (maulidizen, 2017). the beginning of this career was only undertaken by ibn khaldun for approximately 2 years, then he traveled to biskara because in 1352 ad tunis was attacked and controlled by amir abu za'id, ruler of constantine and grandson of sultan abu yahya al-hafsh. when abu inan became king of morocco, ibn khaldun tried to approach him in order to promote himself to a higher position. sultan abu inan even appointed him as the secretary of the sultanate in fez, morocco. it was in this city that ibn khaldun began his career in the world of practical politics, namely in 1354 ad. the third phase: academic activity and justice, this period is the last phase of ibn's journey khaldun, this phase was spent in egypt for approximately 20 years between 1382-1406 m. arrived in cairo, egypt on january 6, 1983. during this time the mamluk dynasty was in power. the progress of civilization and political stability at that time made ibn khaldun more interested and his work al-muqaddimah was a magnum opus or the arrival of his work earlier than the author so that his arrival was welcomed happily by academics, this is where ibn khaldun's new assignment. ibn khaldun gave lectures at egyptian educational institutions, such as al-azhar university, qamhiyah law college, zhahiriyyah college and sharghat musyiyyah high school(maulidizen, 2017). 3.3. ibn khaldun's works during his lifetime, ibn khaldun had made book is kitab al-i’bār wa dīwān al-mubtada’ wa al-khabār fī al-aʻyān wa al -aʻrab wa al-aʻjam wa al-barbar wa man, 'asrahum min zawi as-sulṭān al-akbar. this work consists of three books divided into seven volumes, including: (a) muqaddimah (one volume) it is an introduction to the book al-‘ībār, the book contains a discussion of social phenomena, including in them economic activities. (b) al-‘ībār (four volumes) the book contains a description of the news about the arabs, their generation and their countries since the beginning of the creation of a mini-style until the time of ibn khaldun. in it, also briefly mentioned the nations and famous countries that had international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 79 lived during the arab nation, for example the nabataans, syrians, persians, the children of israel, coptic, greek, roman, turkish and european nations. (c) at-ta’rīf bi ibn khaldun (two volumes) this book is an autobiographical book from ibn khaldun, then he describes most of the events that he experienced during his lifetime. in addition to expressing his personality, there are disclosures of figures who have an important role in the political life of the islamic world at that time, especially in the maghreb region. ibn khaldun's greatest work is al-‘ībār (world history). this work consists of three books divided into seven volumes, namely the muqaddimah (one volume), al-‘ībār (4 volumes), and atta’rīf bi ibn khaldun (2 volumes). broadly speaking, this work is a general history of the lives of arabs, jews, greeks, romans, byzantines, persians, goths, and all nations that were known at that time. like most writers in the fourteenth century, ibn khaldun mixed philosophical, sociological, ethical, and economic considerations in his writings. every now and then, a poem illuminates his writing. however, ibn khaldun is actually very organized and always follows a very logical path. in the muqaddimah which is the first volume of al-ibar, after praising history, ibn khaldun tried to show that historical errors occurred when the historian ignored the surrounding environment. he tried to find the influence of the physical, non-physical, social, institutional, and economic environment on history. as a result the muqaddimah is primarily a book about history. however, ibn khaldun elaborated on the theory of production, value theory, distribution theory, and cycles of theory all of which merged into a coherent general economic theory which became its historical framework. the muqaddimah of ibn khaldun, as we have seen, has been published on paper, "written black on white", since 1382 but ibn khaldun then has added and changed necessary things in his work, until approximately year 1402.26 actually ibn khaldun had started his career in the field of writing wrote since his youth, when he still demanded science, and then continued when he was active in the world of politics and government. the results of his famous works include: 1. the book of the muqaddimah, which is the first book of the book al-‘ībār, which consists of the muqaddimah section (introduction). this long introductory book is the core of all the problems, and it was this book that raised the name ibn khaldun to be so fragrant. the theme of the muqaddimah is its social symptoms and history. the muqaddimah of ibn khaldun, as we have seen, has been published on paper "written black and white", since 1382 but ibn khaldun then has added and changed necessary things in his work, until about the year 1402 (gusfahmi, 1982). actually ibn khaldun had started his career in the field of writing wrote since his youth, when he still demanded science, and then continued when he was active in the world of politics and government. the results of his famous works include: (a) the book of the muqaddimah, which is the first book of the book al-‘ībār, which consists of the muqaddimah section (introduction). this long introductory book is the core of all the problems, and it was this book that raised the name ibn khaldun to be so fragrant. the theme of the muqaddimah is the social symptoms and history. (b) kitab al-‘ībār, wa dīwān al-mubtada’ wa al-khabar, fī ayyām al-ʻarab wa al-'ajam wa albarbar, wa man asharuhum min dzawi as-sulṭanī al-akbar. (early and latter-day history books and archives covering political events regarding arabs, non-arabs, and barbarians, as well as the great kings who were with them), who later became famous with the book 'ibar, which consisted of three books: the first book, is the muqaddimah, or the first volume which contains: society and its essential characteristics, namely government, power, livelihood, livelihood, expertise and knowledge with all causes and reasons, books the second consists of four volumes, namely the second, third, fourth, and fifth volumes, 80 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 which describe the history of the arabs, their generations and their dynasties. in addition, it also contains a review of famous nations and their contemporaries, such as the syrians, persians, jews (israelis), greeks, romans, turks and franka (europeans). then the third book consists of two volumes namely the sixth and seventh volumes, which contain the history of the languages of barbarian and zanata which are part of them, especially the kingdom and the maghreb states (north africa). (c) the book of “at-ta’rib bi ibn khaldun wa riḥlatuhu syarqan wa gharban” or briefly referred to as at-ta’rib, and by western people called autobiography, is the final part of the book of al-ibar which contains some chapter about the life of ibn khaldun. he wrote his autobiography was systematically using the scientific method, because it was separated in chapters, but interconnected with one another (gusfahmi, 1982) in addition to the work mentioned above, ibn khaldun actually has other works such as; burdah al-bushairi, about logic and arithmetic and some resumes of jurisprudence. while there are still two works of ibn khaldun that still have time to preserve, namely an overview written by ibn khaldun with his own hands, this is entitled lubab al-muhashal fī ushul al-dīn. and the book syifā al-sail fī tahdzib al-masat, written by ibn khaldun while in fez, was the first work to speak of scholastic theology and the second work discussed conventional mysticism. ibn khaldun had a large number of students, both at the time he taught in tunisia at al-qasbah university and at teaching in cairo (al-azhar and elsewhere). among his most important and famous students include: great historian taqi al-dīn aḥmad ibn ʻalī al-maqrizi author of the book al-sulūk li ma'ififah duwal al-mulūk. in this book, al-maqrizi revealed that our teacher abu za’īd ʻabd al-raḥmān ibn khaldun came from maghrib and taught at al-azhar and received good reception from the public. 3.4. tax in islamic economy etymologically, tax in arabic is called the term dharibah, which comes from the words ا -ب -ب which means: obliging, determining, determining, hitting, explaining or imposing, etc (yakub, 1982:815). in althe qur'an, the word with the root word da-ra-ba is found in several verses, among other things, “we then impose on them insult and humiliation”. dharaba is a form of the verb (fiʻil), while the noun form (ism) is dharibah (ة ), which can mean burden. dharibah is mufrad ism with its plural form is dharaib (ائب ). he is called a burden, because it is an additional obligation for property after zakat, so that in its implementation it will be felt as a burden (heavy picks). in for example usage, taxation service called maslahah adh-dharaib (ائب .(مسلحة ال in language and tradition, dharibah in its use does have many meanings, but the scholars use the phrase dharibah to refer to the assets collected as an obligation. this is evident in the expression that jizyah and kharaj are collected in dharibah, ie compulsorily even some scholars say kharaj is dharibah. so dharibah is the property that is compulsory collected by the state for besides jizyah and kharaj, even though both of them are can be categorized dharibah (gusfahmi, 2007). there are three scholars who provide a definition of tax, namely (a) yusuf qardhawi, tax is an obligation stipulated by taxpayers, which is remitted to the state in accordance with the provisions, without getting a return from the state, and the proceeds to finance general expenses on the one hand and to realize some economic goals , social, political and other objectives to be achieved by the state, (b) gazi inayah believes: tax is an obligation to pay cash that is determined by the government or an authorized official that is binding without any specific compensation. this government regulation is in accordance with the ability of the international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 81 property owner and is allocated to meet food needs in general and to meet the political and financial demands of the government, (c) abdul qadim zallum believes: tax is a property that is required by allah, to muslims to finance various needs and expenditure items which are indeed required of them, at the condition baitul mall has no money or property. taxes according to contemporary terms are people's contributions to the state treasury (government) based on the law so that they can be forced without immediate remuneration. there are other terms similar to tax or adh-dharibah including: a. al-jizyah (tribute that must be paid by the scribes to the islamic government). al-kharaj (land tax owned by an islamic state) c. al-„usyur (customs clearance for non-muslim traders entering islamic countries) (gusfahmi, 2007). based on the above terms (al-jizyah, al-kharaj, and al-usyur), we get that the actual tax is required for non-muslims to islamic government as a guarantee of security. so when the tax is obliged to the muslims, the scholars of the age of companions, tabi 'in until now different opinions in reacting. 3.5. fair tax system criteria in order to be fair to the jurists who support taxation, it must be stressed here that they actually only consider the "fair" tax system, which is in line with the spirit of islam. according to them the taxation system will be fair if it meets three criteria. first, taxes are imposed to finance expenditures that are actually done to realize maqashid, secondly, the tax burden must not be too rigid faced with the ability of the people to bear and distribute equally to all those who can afford to pay; and third, the collected tax funds are spent honestly for the purpose for which tax is required. a taxation system that does not meet these three criteria is seen as oppressive and acclamation is condemned (chapra, 2000). all khulafa ar-rashidin, especially umar bin khattab, ali bin abi thalib, and umar bin abdul aziz reportedly have emphasized that taxes must be collected with justice and mercy, not allowed to exceed the ability of the people to pay, nor to make them unable to fulfill their basic daily needs. abu yusuf argues that a good tax system will not only increase revenues, but also increase the development of the state. imam mawardi argues that a fair tax system will provide justice to its payers and state treasury; taxing too much will cause injustice to people's rights and too little to be unfair to the state treasury. looking at the objectives of social justice and equitable distribution of income, the progressive tax system seems to be in tune with islamic goals. however, it must be stressed that from the discussion of the jurists, what is relevant for modern life is the right of the islamic state to impose taxes with justice. is an opinion that is not realities if the taxation of muslim countries must now be limited only to tax land that has been discussed by the jurists. the situation has changed and it is necessary to complete the tax system by including the reality of change, especially the mass need for social and physical infrastructure for a developing country and an efficient modern economy and a commitment to realize the maqashid in today's context. while completing the tax system, we need to think that the system must not only be fair, but also must produce, without adversely affecting the drive to work, savings and investment, and adequate acceptance to enable the islamic state to carry out its responsibilities effectively (chapra, 2000). 3.6. the opinion of scholars about paying taxes the zakat law, namely law number 38 of 1999 concerning the management of zakat (hereinafter referred to as uupz) was passed in jakarta on september 23, 1999 during the administration of president b.j. habibie. this is the first time in the history of the government 82 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 to regulate the link between zakat paid by the community as an executor of religious obligations and taxes paid to the state which are a state obligation for every citizen (anshori, 2006). the tax term in islamic law literature basically cannot found. tax is not a system of levies known in islam. because the tax has never been charged by the islamic government to muslims. muslims are only required to pay zakat when they arrive at their nishab and to nonmuslims they are obliged to pay jizyah, kharraj, and usyr. taxes in the sense of "modern terms (modern state)" are terms that are equated with something that is collected from the people in the phases of islamic government. like zakat which he calls spiritual tax, kharrat and usyr also called tax. those who identify zakat, jizy’ah, kharraj, and usyr as tax because they have similarities in terms of burden or obligation but without looking at whom it is required (said, 2014). there are several scholars who disagree about the inside tax law islam is given as follows: first opinion: scholars who allow to pay taxes (1) sheikh ulaith, in his fatwa from the maliki school it was stated, that he once gave a fatwa concerning people who had livestock that had reached their nishab. the person is charged money every year, but not in the name of zakat. can the person intend to take the name of zakat, and is the obligation to pay alms due to that? he firmly replied: "he must not intend zakat. if he intends to pay alms, his obligations will not fall as stated by nasir al-hatab.”, (2) sayid rasyid ridha sayid rasyid ridha was once asked about christian levies in india on land, some of which were half and some one quarter of that land. may it be considered a religious obligation (zakat), such as 1/10 or 1/20? he replied: "actually the obligatory of 1/10 or 1/20 of the produce is from the zakat assets that must be issued on eight targets according to the text. if collected by amyl from priests in the islamic state. then the land owner is free from his obligations, the priest and his amil are obliged to share the zakat with his mustahik. if it is not collected by amil, it is obligatory for the owner of the property to issue it, according to allah's order. the assets collected by the christian were considered as tax and do not abort zakah obligations. that person still issues zakat. this means that taxes cannot be considered zakat, (3) sheikh mahmud syaltut, n the issue discussed, he said, that zakat is not tax. zakat is basically a treasure worship. indeed, between zakat and tax there are similarities, but there are differences in many ways. in principle, his opinion was the same as the scholars who said that, zakat and taxes differed on principles and targets. zakat obligation to allah while tax obligation to the government, (4) sheikh abu zahra when asked by people about tax and zakat, he answered, the tax up to now does not have special values, which can provide social security, even though the main purpose of tax is to tackle the problem of social society. zakat can meet demands as a tax. but taxes cannot be able to overcome the needs of the poor who demand to be fulfilled. zakat is an obligation of allah and cannot be erased by his servants. zakat remains collected throughout the ages, even though the poor are gone. of the four opinions of scholars, it is understood that zakat must be issued after fulfilling the requirements, even if someone has paid taxes. taxes should be collected if needed, even though zakat has been paid (ali, 2008). second opinion: scholars who do not allow to pay taxes in addition to a number of the jurists claiming that the tax may be collected, some of the fuqaha questioned (refused) the right of the state to increase resources through taxes, in addition to zakat. among others: dr. hasan turobi from sudan, in his book, the principle of governance, freedom, and responsibility in islam, states: governments that exist in the muslim world in such a long history are "generally invalid". therefore, the fukaha are worried that if they are allowed to withdraw taxes, they will be misused and become an instrument of oppression (gusfahmi, 1982). international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 83 3.7. the concept of fair tax management perspective of ibn khaldun long before adam smith (w.1790), who was concerned with the canons of taxation or taxation rules (equality, certainty, payment conviction and economy in collection), ibn khaldun had emphasized his taxation principle very clearly in the muqaddimah. he quoted a letter written by thohir bin al-husaini, his general caliph al-makmun, who was advising his son abdullah bin thohir, a governor of the province of ar-raqqah (syria), " therefore, distribute taxes among all people in general, do not exclude anyone because of their position or wealth and do not exclude your officers or your followers. you must not burden anyone with a tax that is beyond his ability to pay”. in this paragraph, he emphasizes the principles of equality and neutrality. while on another page, he emphasized the principle of belief and productivity. even far before, the jurists have emphasized this principle, especially the need for a fair tax system that does not suppress(choudhury, 2018). the tax impact on incentives and productivity is clearly visualized by ibn khaldun, so it seems he has mastered the concept of optimum taxation. he had anticipated the core logic of the laffer curve, about 600 years before professor arthur laffer introduced it, in two chapters on discussion of the muqaddimah. at the end of the first chapter, he concluded that: "the most important factor to create a favorable business atmosphere is to alleviate as much as possible the tax burden on business people, with the aim of promoting the business world by providing a guarantee of greater profits (after tax)". this he explained as follows: "when the tax burden is light, people have incentives to try to be more active. because, the business world is developing, which leads to greater satisfaction among the people because of the low tax burden, while tax revenues will also increase, judging by the overall source of tax land ". he further said: that as time goes on, the needs of the state will increase and the rate of taxation will also increase so revenues will be the same. if this increase is gradual, people will get used to this atmosphere, but in turn there will be a negative impact on incentives. the business world will suffer losses and decline, as well as tax revenue. thus, a prosperous economy at the beginning of the dynasty receives higher tax returns from a lower tax rate, while an economy that is depressed will receive less tax revenue because of the tax rate he explained the reason by saying: "know that acting unjustly on the property of others will reduce their willingness to seek life and obtain wealth and if the unwillingness to obtain life continues, they will stop working. the greater the pressure, the greater the impact on their work efforts and if the people do not want to make a living and stop working, the market will stagnate and people's conditions will deteriorate "revenue from taxes will also decrease. therefore, he supports justice in taxation”(chapra, 2011). ibn khaldun also analyzed the impact of government spending on economy. in this case, he was a pioneer of keynes. he said: "an increase in government spending will cause a decrease in tax revenues. the reason is that the state represents the biggest market for the world and the source of civilization. if the authorities accumulate tax receipts, or the proceeds of these revenues are lost, and he does not spend them for the intended purpose, the funds deposited in the court and supporters will decrease. likewise and will be given to employees and family members who are dependents (multiplier impact). because of that, their total expenditure has dropped. given that they are an important part of the population and spend an important part of the market, the business world will also be disrupted and the rate of business profits will decline, resulting in a decrease in tax revenues. wealth tends to revolve around a handful of people and rulers, from him to them and from them to him. thus, if the ruler keeps him for shop, the people will be kept away from him”(chapra, 2011). 84 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 taxes vary according to the wealth of the authorities and their inhabitants. therefore the amount of tax is determined by the demand and supply of the product, which in turn determines the income of the population and its readiness to pay. if taxes are too low, the government cannot carry out its functions: "property owners and abundant wealth in certain civilizations require protective power to defend them", if the tax is too high, the fiscal pressure becomes too strong so that the profits of traders and producers decrease and their incentives are lost to work: "if the tax is too burdensome and the expected profits do not occur cultural incentives will disappear." therefore, ibn khaldun divides national income into three categories, namely salaries, profits, and taxes, and each of these categories has an optimum level, however, this optimum level cannot occur in the long run, and the cycle of economic activity must occur (abdullah 2010). the money spent by the government comes from residents through tax. the government can increase its expenditure only if the government raises its taxes, but too high fiscal pressure will weaken people's morale. as a result, a fiscal cycle arises. if the government collects small taxes and the population has a large profit, they are encouraged to work. however, government needs and fiscal pressures increase, while producers and traders profit falls, and they lose their desire to produce. production has dropped, but the government cannot reduce its expenses and taxes. as a result the fiscal pressure rises. finally, the government nationalizes companies because producers do not have the incentive to run it. then, because of its financial resources, the government became dominant in the market and turned off other producers who could not compete with it. profits dropped, tax revenues dropped, and the government became poorer and had to nationalize more companies. productive people leave the country, and civilization collapses: "it must be known that in the beginning of the dynasty, taxes generated a large income from small charges. at the end of the dynasty, taxes generate a small income from large charges. at first the tax income was low. if the tax on the population is low, the population has the energy and desire to work. cultural companies develop and rise, because low taxes produce satisfaction. if cultural companies develop, individual contribution rates and tax charges increase. as a result, tax revenues rise. if the dynasty remained in power (he became) progressed each individual fee and burden rose massively, to achieve higher tax revenues due to the gradual increase in luxury tax and so many needs of the dynasty. imposing fees increases beyond the normal limits. as a result, the interest of the population in cultural companies is lost, because if they compare their expenses and taxes with their income and income, and see the small profits generated, they lose hope. therefore, many of them withdrew from all cultural activities. as a result, the total tax revenue goes down, because the individual burden falls eventually, civilization is destroyed, because the incentives for cultural activity are lost". the commercial activities carried out by the authorities will harm the population and disrupt competition tax revenues between those (residents) who have used up their financial resources. now, if the rulers have so much money compared to them side by side, rarely can any of them get the things they want (residents) thus spend their capital and must stop doing business. so, for ibn khaldun there is a fiscal optimum, but also an irreversible mechanism that forces the government to spend more and collects more taxes, which creates a production cycle. thus, ibn khladun describes a dynamic theory based on population law and public finance law. according to laws that cannot be negotiated, a country must go through cycles economic development and depression(abdullah, 2011). in summary, from the various views above, ibn khaldun discovered many fundamental economic thoughts several centuries before his birth "officially" he discovered the benefits international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 85 and necessity of the division of labor before smith and the principle of labor value before ricardo. he elaborated before malthus's population theory and emphasized the role of the state in the economy before keynes, there were still many economists who rediscovered the mechanisms they had discovered. however, more than anything else, ibn khaldun used concepts to build a dynamic and coherent system. in this system the economic mechanism cannot not bring economic activity to long-term fluctuations. because of the coherence of the system, the criticism that can be applied to most economic concepts that use the same ideas cannot be applied here(abdullah, 2011). ibn khaldun presented another theory, namely, "dynamics model", as was followed by mirza gamal. ibn khaldun in the theory referred to, has a clear view of how the factors of social, moral, economic, and political dynamics differ from one another, but are interrelated with each other for the progress and decline of a community environment or government of a region (state). ibn khaldun has contributed production theory, value theory, marketing theory, and cycle theory combined into a general economic theory that is coherent and arranged in historical framework (abdullah 2010). ibnu khaldun's contribution to the development of science is quite significant, but unfortunately, he was born when the islamic world began to decline. according to umar chapra as quoted by mirza gamal decline of muslims began in the 12th century which was marked by a decline in morality, loss of dynamics in islam after the emergence of dogmatism and the power of thought, decline in intellectual and scientific activity, local rebellion and divisions among people, war and external attacks, the creation of financial imbalances and loss of security in life and wealth, and other factors which reached their peak in the 16th century, namely during the ciscassiyah mamluk dynasty which was full of corruption, thus accelerating the process of decline (z. ali, 2009). every initial establishment of an entry country will be small but requires a lot of income: "usually the tax conditions at the beginning of the daulah are a little shared but the amount obtained is large. whereas in the final period there was a large amount to be distributed, but the amount obtained was small" (amirabedini, 2014). "that is because you are, if you follow the provisions of religion, then he is not demanding except for the responsibility of the shari'a. namely zakat-zakat, earth tax (kharaj) and head tax (jizyah). of all that little has to be divided because the amount of zakat from wealth is little as you know. likewise the zakat of grain and livestock, jizyah, and kharaj. all the liabilities of the sharia are already determined and cannot be more than the provisions. ” (amirabedini, 2014). according to ibnu khaldun at the beginning of the establishment of an empire or state, it requires high tax revenues to be able to quickly build a country even though the income that can be received is still small because of the small amount that must be taxed. countries that follow the provisions of religion cannot sue or force unless those already determined by the shari'a are like zakat. however, the amount of zakat from very little assets to be shared while the dependents of the shari'a are absolutely determined, so that they cannot be reduced or exceeded from the provisions. a perceived income, salary and development is part of the tax: "when the income and salary charged to the people are small, they are excited and happy to work. the result will be a lot of development and more results from the spirit due to the lack of burden. when development has been large, there are also many salaries and incomes. as a result the tax also becomes a lot because it is part of development ". the government gives a small burden to the people to build. so, the people will be eager to work and participate in building the country. and the more development, the more benefits will be felt by the people. if the people feel 86 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 that life is sufficient and income is large while the burden is small, the people will obey pay taxes and will increase the opinion of the state tax. when the government adds a high burden to the people it will reduce the amount of tax: "but then the addition came out of reasonable limits. as a result, the enthusiasm of the people was lost to build because of the loss of hope of their assets, due to the lack of benefits compared to the burden and between the fruit and its benefits. so many people then hold hands and stop building at all. then the amount of tax decreases at that time due to reduced income from it”(amirabedini, 2014). when the people are done unfairly by adding a huge burden beyond the fairness limit and greater dependence on the benefits that they can, so that people are not eager to build together and will reduce the amount of tax because the people are not eager to try and work or to build together because they feel very disadvantaged by large demands beyond the capabilities of the people. tax revenue will be reduced and damaged if it is misused not for state development: "when a kingdom has a reduced tax due to things that we have stated, namely luxury, lots of traditions, shopping, income is not fulfilled with various needs and shopping and there needs to be additional assets and taxes, sometimes various kinds of taxes are imposed on buying and selling transactions and people's markets ". taxes that are misused not for the development of the state will have an impact on the destruction of the state itself as a result of being extravagant and stipulating various types of taxes to increase the state's needs from people's markets and buying and selling transactions. the state must oversee the officers or tax managers so that they are not deviated and that: "sometimes with tax terms if it already exists. sometimes by dividing the workers and the towers and watching them because the kingdom views that they have produced something useful from the tax assets, the count cannot be shown ". therefore, it is very important for the government to oversee the tax agency, tax officers, and every employee in it. because they are the spearhead in collecting tax funds from the public and knowing how much tax revenue each year. if they misuse funds tax, it is certain that the government and the people will be harmed as well as development countries such as infrastructure will be hampered. to increase the increase in tax, the government must intervene with the people: "sometimes the sultan conducts trade and his own agriculture in the name of increasing tax revenues. because the kingdom was of the view that traders and farmers produced various benefits and income in addition to their easy access to wealth"(choudhury, 2018) . to increase state tax revenues, the government must contribute with the people and all other elements in order to overcome problems that often occur. because the state sees it is very important to directly participate in overcoming the state tax so that the rapid development will be carried out. the large levies imposed on the government by the people will have a negative impact on the people and the state: "difficulties, narrowness and the absence of profits made by the people can revoke their imagination from doing business in the field in total and causing tax damage. because, most taxes are taken from farmers and traders. what's more after applying levies and increasing taxes because of it. if the farmers have receded from the farm and the traders have stopped trading, then the overall tax is lost. or at least experience significant deficiencies. if the sultan between what he produces from tax and between these few benefits, the benefits are far less. then even if it is useful, it still loses a large part of the tax in sales and purchases it does. because, it is not possible if there is a tax in the event that those who do the contracts are other than the sultan, then all of his work is taxable. " (choudhury, 2018) international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 87 the government that applies levies or taxes charged to the people is too high, and the people will feel difficulties, and will not benefit. so, people will feel eager to work and try, if people are reluctant to work then they will not be able to pay taxes and tax revenues will be lost or greatly reduced significantly and this will hinder the country's development. advanced cities and magnificent buildings will be followed by the high cost of living: "we have said that cities with a lot of development are specialized with the expensiveness of their markets and the prices of their needs, then taxes increase the cost because civilization is only at the peak of its greatness, namely the period of applying royal taxes because of the large that "(amirabedini, 2014) countries or cities whose buildings are magnificent and luxurious in their progress will also have an impact on the price of higher and more expensive needs and high taxes for the people to cover expenses at that time. the high cost of goods subject to tax will affect the sale and purchase of goods: "taxes have an impact on various buying and selling ie causing the price of goods to be expensive and consequently the people and merchants all calculate the price of their merchandise by including everything they spend to pay themselves own. taxes are included in the values and prices of goods traded. as a result, it has become a major expenditure of civilizational citizens and has shifted from what was originally being excessive and wasteful. " (amirabedini, 2014). taxes greatly affect and impact on buying and selling transactions that cause expensive goods, and the existence of more profit seeking by traders consequently greatly affects the price stability and changes the nature of the previous consumer consumptive being turned into a wasteful society. 3.8. the relevance of the concept of tax management that is fair to ibn khaldun's perspective with the condition of the modern economy ibn khaldun asserted, at the beginning of the kingdom, taxation earning large amounts of income and in the end, the kingdom gained little income from many sources. ibn khaldun formulated his theory by saying, in the beginning the state followed the provisions of religion and set the burden as determined by sharia. because there is not much tax charged that has a low level. low tax rates have an impact on incentives for business activities that naturally encourage trade activities that increase a number of sources. tax revenue increases along with economic prosperity, because the state is expanding, the authorities generally like to spend unproductively. therefore, they set new taxes and even increase the previous amount. this encourages a detrimental impact on society. they finally stopped at economic activities and the state would face destruction (amirabedini, 2014). in addition to analyzing the taxation impact on the growth and collapse of the state, ibn khaldun saw and denounced the state's involvement in trade activities on the part of the authorities, because it was dangerous for the people and taxpayers. he believes, because the state is at the forefront of its power and resources, the people are in a disadvantaged position in the competition. as a result, this will lead to the deterioration of private business and the decline of concurrent tax revenues profits will be released from traders and private farmers (amirabedini, 2014). ibn khaldun's thinking about the economy is actually very brilliant which covers various economic problems, both micro and macro, especially those ideas put forward in the 14th century when europe was still behind. ibn khaldun has conducted an empirical study of islamic economics, because he explained the economic phenomena that occur in society and the state. from the study of papers it can be concluded that historically, ibn khaldun's thinking about economics far preceded modern western scholars. therefore, what deserves to be called the father of economics is ibn khaldun, not adam smith. 88 international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 ibn khaldun's economic thinking as stated has discussed many problems related to discussion in economics, such as theories about value, division of labor, price systems, laws of supply and demand, consumption and production, money, capital formation, population growth, macroeconomics from public taxes and expenditures, trade, agriculture, industry and trade, welfare and prosperity, and so on. he also discussed the various stages that society passed through in its economic development. ibn khaldun's economic thinking inspired the economists thereafter, both the development of science in the east and west. but far more important, its economic thinking is relevant and gives a new perspective in photographing the economic problems of nations in the world, including in indonesia. ibn khaldun's economic thinking is very relevant to the current state of the modern economy, especially taxation issues. as we all know, there are many problems in the taxation world in indonesia, starting from lack of compliance with taxpayers, lack of knowledge of the community about taxes, high tax determined by the government, and misappropriation of tax funds and tax officers who hoard these tax funds. this is a very serious problem to be addressed and addressed as well as possible so that the tax funds can be used and utilized as well as possible to build a strong and advanced country. from the facts above, can conclude that ibn khaldun's economic thinking is very relevant to the islamic economic system and the current state of the modern economy, because in accordance with islamic economic principles, and the basic value of islamic economics, namely: tawhid, justice, freedom and responsibility. ibn khaldun's thoughts on taxes, international trade, efforts to build civilization and politics are very urgent to consider in the present context in order to create a prosperous society and state. baldatun thayyibatun wa rabbun ghafur 4. conclusion based on the discussion of the results of the research conducted by the author, it can be concluded: ibn khaldun was a muslim figure and thinker, his full name was abd al-rohman (abu zaid) bin muhammad ibn abi bakar bin hasan. he was born in trus on may 17, 1332 ad, from a family of aristocrats from hadramaut, and died in cairo on march 17, 1406 ad according to ibn khaldun, if the tax burden is light, the public will be enthusiastic about paying taxes and vice versa if the tax burden is high, the people are reluctant to pay taxes and their morale will decrease. in addition, tax officers must be monitored so that tax funds are not misused and misused because it will hinder development and harm the state. ibn khaldun's thinking about taxes is very relevant if applied to the current conditions in which the economic condition is again unstable and lack of enthusiasm in paying taxes and many who are disobedient in paying taxes so the government issues a tax amnesty program to alleviate the tax burden borne by taxpayers. collection and distribution of tax funds must be effective and efficient in order to realize a prosperous society and state. baldatun thayyibatun wa rabbun ghafur. references abdullah, b. (2011). peradaban pemikiran ekonomi islam. bandung: pustaka setia. ali, m. h. (2008). zakat dan infaq. jakarta: kencana prenada media group. ali, m. h. (2014). zakat dan infaq. yogyakarta: pustaka pelajar. ali, z. (2009). hukum ekonomi syariah. jakarta: sinar grafika. international journal of islamic business and economics (ijibec), 3(2) december 2019, 73-89 89 amirabedini, a. (2014). two development theories: ibn-i-khaldoun and wallerstein. campuswide information systems, 31(1), 63–74. anshori, a. g. (2006). hukum dan pemberdayaan zakat. jakarta: pilar media. astuti, a. a. and d. p. (2015). humanomics article information : humanomics, 31(3), 354–371. chapra, m. u. (2001). the future of economics: an islam perspective. jakarta: shariah economics and banking institute. chapra, m. u. (2011). masa depan ilmu ekonomi. jakarta: gema insani. choudhury, m. a. 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(2017). pemikiran dan kontribusi tokoh ekonomi islam klasik dan kontemporer. jurnal deliberatif; jurnal ilmiah hukum, 1(1), 42–62. mc caffrey, j. (2014). ibn khaldun: the forgotten father of economics? isor journal of business and management, 16(3). mujahidin, m. (2018). munich personal repec archive ibn khaldun ’ s economic thought. ibn khaldun’s economic thought mujahidin, 1(87192), 1–8. said, a. m. and m. (2000). islam dan tantangan ekonomi. jakarta: gema insani. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 15 feb 2018 accepted : 12 may 2018 published : 1 june 2018 keywords: islamic bank; maqashid sharia index;efficiency jel: g21 g41 abstract the purpose of this study is to analysis the level of efficiency of islamic banks through the ratio used as a measure of operational efficiency that is the operational expense tooperational revenue, knowing the level of bank performance of the assessment in accordance with the principles of islamic bank is maqashidsharia index, and know the cluster quadrant of each syariah bank through a combination of efficiency assessment and performance of maqashidsharia. all research data is taken from the financial statements of islamic banks in indonesia through their respective websites. the research period is the year 2012 until 2016. the results showed that banks that are in the highest efficiency quadrant and high performance of sharia maqashidis panin bank of sharia. the results of this study indicate that paninsyariah bank has successfully used operational costs to obtain high operating income, and has also succeeded in achieving good performance of sharia maqashidcompared with other islamic banks in indonesia. efficiency and performance of islamic bank: quadrant analysis approach irman firmansyah accounting department, economics faculty, siliwangi university email: irmanfirmansyah@unsil.ac.id mailto:irmanfirmansyah@unsil.ac.id international journal of islamic business and economics, 2(1) june 2018, 1 5 2 516 1. introduction the development of islamic banks in indonesia shows a very positive potential (firmansyah&rusydiana, 2013). increasing assets, financing and revenues indicate that islamic banks perform well. to achieve these performancethat islamic banks must continue to optimize the efficiency level for the cost incurred. to measure the performance of islamic banks can be done through the mechanism of financial statement analysis. financial statement analysis is a way of analyzing the condition of a company based on data taken from the financial statements. in measuring financial performance, the researchers measured the bank’s performance of the profitability ratios, a ratio that measures the company’s ability to generate profits. the greater the profitability ratio the better the company’s financial performance. some research on financial performance (roa) such as research conducted by choong, et al (2012), kusmayadi, et al (2017), and hidayat & firmansyah (2017). measuring the performance of islamic banks is certainly different from conventional banks that only see the performance of the business side or the ability to generate profits. in islamic banks profit should not be the only measure of performance. but other aspects need to be taken into account, especially the social and human resources aspects. to restore the purpose of the existence of islamic banks, the performance of islamic banks should be measured by maqashid sharia rather than just the rate of return on profit. as in omar muhammed’s research that formulates a useful measurement to measure the performance of islamic banking developed based on the principles of maqashid sharia with the aim that there is a measurement for islamic banks in accordance with its purpose. performance measurement for islamic banking does not focus only on profit and other financial measures, but incorporated other values of banking that reflect the size of non-profit benefits that are in line with the objectives of islamic banks. his research resulted in a measurement of financial performance of islamic banking called maqashid shariah index (msi). until now this msi model has been widely applied in subsequent scientific studies to measure the performance of islamic banking in various countries including in indonesia. some studies that use maqashid shariah index on islamic banking is omar & dzuljastri (2008) and rusydiana & firmansyah (2017) maqasid sharia index (msi) is developed based on three main factors, namely individual education, justice creation, and welfare achievement, in which three factors are in accordance with the general purpose of maqasid syariah that is “to achieve prosperity and avoid evil”. these three objectives are universal which should be the objective and operational basis of every entity with public accountability, not only sharia banks but also conventional banks, as they relate to the welfare of all stakeholders, not just shareholders or company owners in addition to measuring the performance of maqashid sharia, another important thing related to the operational management of the bank is the level of efficiency. efficiency will show the bank’s strength over existing resources to obtain maximum output. therefore, if the bank has optimized efficiency then the bank will be easier to achieve its performance. through this research will be analyzed about the islamic bank cluster on the level of efficiency and performance so that it will be known bank groups that are at a high level of efficiency and has achieved good performance as well, will also be known to other groups. international journal of islamic business and economics, 2(1) june 2018, 1 5 2 5 17 2. literature review 2.1.islamic bank islamic bank is a banking system in islamic economy that runs its business operations based on the concept of division of either profit or loss, meaning that the results obtained by customers will fluctuate in accordance with the profit earned by the bank where the greater the bank profits, the greater the results obtained by customers. islamic banks are developed based on principles that do not allow the separation between the temporal and the religious 2.2 operational efficiency efficiency is an action that management does not achieve waste. efficiency can also mean the limited management of resources so as to produce maximum output or projected output can be achieved by minimizing existing resources. assessment of efficiency in banking varies according to desired sizes. one of the easiest measures of efficiency can be seen in the comparison between operational expense and operating revenue (oeor). firmansyah (2014) uses this ratio to measure the efficiency of islamic banking in indonesia. this ratio is used to see the cost incurred by the bank to achieve maximum revenue. this ratio can be described as follows: 2.3. maqashid sharia index according to the language of maqasid al-shariah consists of two words namely maqasid and syari ‘. maqasid is the plural form of maqshud which means intent/purpose, sharia means the path to the source, and simply maqashd al-syariah means the purpose of the law is prescribed in islam. from the many opinions about maqasid sharia, as previous research by muhammed & dzuljastri (2008), the researchers considered that ibn ashur’s view of the purpose of sharia is to create prosperity and avoid the evils identical to abu zahrah’s opinion on maqasid sharia, more clearly to be reduced to several measurements . as abu zahrah classifies sharia objectives, which include: 1) tahdhib al-fard (educating the individual), 2) iqamah al-adl (creating justice), 3) jalb al-maslahah (prosperity). maqasid syariah index (msi) is a model of measuring the performance of islamic banking in accordance with the objectives and characteristics of islamic banking. msi is developed with three main factors, namely: education, the creation of justice and the achievement of welfare, where the three factors are universal. the three performance measures based on maqashid sharia, namely education, justice, and welfare require national banks to be able to design educational and training programs with moral values so that they will be able to improve the skills and skills of the employees. justice means that islamic banks must ensure honesty and fairness in all transactions and business activities covered by the product, all activities of free interest. the last syariah banking should develop investment projects and social services to improve the welfare of society (muhammed & dzuljastri, 2008). the muhammed & dzuljastri (2008) and antonio, et al (2012) studies show that the maqashid sharia approach can be a strategic alternative approach that can illustrate how well the national banking performance can be implemented in the form of a comprehensive policy strategy. operationally, the method of sekaran (2000) is able to explain the elements to be measured through the research. this is done by observing the behavior of the dimensions illustrated by the concept described. these dimensions will be translated into observable and more measurable derivative elements, which can form the measurement indexes. international journal of islamic business and economics, 2(1) june 2018, 1 5 2 518 based on the sakaran method, the behavioral characteristics to be measured are derived into a concept, denoted as (c). the concept will be downgraded again into several dimensions that will be more easily observable and measurable, denoted by (d). dimensions will be lowered back into some of the clearer elements of measurement, denoted by (e)(muhammed and dzuljastri, 2008). by using sakaran method, the banking objectives according to the shariamaqasid framework described before in the second part covering: education for individuals, administering justice and realizing welfare, can be explained operationally. each goal is translated as concept (c). then with certain characteristics it is lowered into some measurable dimension (d). this dimension will obviously be derived again into specific elements which can be easily measured (e) described in the table below: table 1. operational objectivity of islamic bank concept (purpose) dimension element performance ratio data source 1. educating individual d1. increasing the knowledge e1. donation for education r1. donation for education/ total income annual report e2. reseach r2. research cost/total cost annual report d2. adding and increasing the new capability and skill e3. training r3. training cost/ total cost annual report d3. creating human awareness of the existence of islamic bank e4. publicity r4. publicity cost/ total cost annual report 2. creating the justice d4. justice agreement e5. a fair return r5. profit/total income annual report d5. product & affrodable services e6. affordable cost r6. uncollectible account/ total investment annual report d6. eliminating unjustice e7. free interest banking product r7. non interest income/ total income annual report 3. achieving the welfare d7. profitabilities e8. profit ratio r8. net profit/ total aktiva annual report d8. wealth and profit distributions e9. personal incomel r9. zakat/net profit annual report d9. investment in real sector e10. real sector investment ratio r10. financing for investment/ total financing annual report source: muhammed &dzuljastri (2008) rasio-rasio tersebut dipilih karena memenuhi beberapa kriteria dalam penelitian ini, diantaranya adalah: the ratios were chosen because they met several criteria in this study, including: (a) discussion of banking objectives that are closer to islamic values (sharia) can be international journal of islamic business and economics, 2(1) june 2018, 1 5 2 5 19 represented through these ratios. dimensions and elements can be easily identified through these objectives. (b) previous studies that examine identic problems also use the same ratios in measurement, both for islamic banking and conventional banking. so it can be implemented in both agencies (al-osaimy and bamakhramah, 2004; hameed et al., 2006). (c) data to be collected by researchers is much easier, because the data source is the annual financial statements of banks. (d) the possibility of measuring the implementation of the concept of maqasid sharia is more accurate by using these ratios. the ratios presented in table 1 are those that meet the criteria of maqasidsyaria. the description of these ratios as well as their relation to the maqasidsyariaframework (rusydiana&firmansyah, 2017) are: (a) the first goal is individual education described by r1; donation for education/ total income. r2; research cost/total cost. r3; training cost/ total cost. r4; publicity cost/ total cost. the interpretations of these four ratios are if ratio value is increasing, or if the allocations of the fund to fulfill these four indicators are increasing, then the goal achievement of maqasid sharia in islamic bank are also increasing. (b) the second goal is creating the justice, described by r5; profit/total incom. r6; uncollectible account/total investment. r7; non interest income/total income. the goal of creating the justice by islamic bank and conventional bank are better if r5 is getting lower. means that if profit accepted by the bank are getting lower compared to total income, than the banking are valued highly implemented the goal of justice. as well as r6 is getting lower, then the goal of of justice in national banking is highly valued. means if uncollectable financing in national banking is lower compared to total investment distributed, then the goal of justice is getting better, because reducing the gap of income distribution. in otherwise, the achievement of national banking is considered getting better if r7 are highly valued. means that if non interest investment distributed by national banking are increasing compared to total investment, than the goal of justice is getting better according to maqasid sharia. (c) the third goal is achieving the welfare (maslahah), described trough r8; net profit/total activa. r9; zakat/net profit. r10; financing for investment/total financing. the goal of welfare would be achieved by national banking only if the value of r8, r9, & r10 is increasing. means that if net income, zakat and sector real investment are increasing, then support of national banking to create the maslahah are increasing 3. research method this study uses the population of all islamicbanks in indonesia from 2012 until 2016. from the total population is used purposive sampling method to select the sample to be used in this study. banks used as sampling is a bank that did not suffer losses so obtained 8 islamic banks. in this research, there are two variables that will be analyzed are bank performance measured by maqashidsharia index and operational efficiency of bank as measured by operational expense to operational revenue. the ratios used as described in table 1 are derived from previous studies conducted by muhammed&dzuljastri (2008). based on the results of his research, the average weight is as follows: international journal of islamic business and economics, 2(1) june 2018, 1 5 2 520 table2 average weight for 3 purposes and 10 elements given by experts purpose average weighting (scale 100%) elements average weighting (scale 100%) o1. education 30 e1. donation for education/ donation 24 e2. research 27 e3. training 26 e4. publicity 23 total 100 o2. justice 41 e5. affrodable return 30 e6. affordable price of product 32 e7. non interest product 38 total 100 o3. welfare* 29 e8. profit ratio 33 e9. income distribution 30 e10. real sector investment ratio 37 total 100 * this welfare is included bank and public interest source: muhammed&dzuljastri (2008) the method used by researchers in the research maqashidsyariah index refers to the method used by muhammed&dzuljastri (2008). this method is used to weight, calculate distribution and process the rank (rank) in certain data. in this research eliminated 2 ratio that is e6 and e7 because not in accordance with syariah bank so that data not presented in financial report. while the measurement of operational efficiency is measured by the ratio between operational costs to operating income. both analyzes are based on financial statement data known as financial statement analysis. furthermore, to know the groups of banks based on the high level of efficiency and high the low performance of islamic banks, then conducted a quadrant analysis by taking the average data as the middle limit. to assist the analysis then used spss software. 4. result and discussion based on the results of research that has been implemented, the data collected are as many as 8 islamic banks the period 2012 to 2016: (a) bank syariah mandiri; (b) bank muamalat; (c) bank mega syariah; (d) bank bni syariah; (e) bank bri syariah; (f) bank bca syariah; (g) bank panin syariah; (f) bank bukopin syariah. 4.1. maqashidsyariah index assessment of maqashidsharia performance divided into 3 major sections of education, justice and welfare. the following is explained about all three: a. educational objectives in banking, the total aspects of educational objectives that can be researched are aspects international journal of islamic business and economics, 2(1) june 2018, 1 5 2 5 21 of research, training and publicity. the following table describes the research results of the three elements: table 3.maqashid sharia indexat educational objectives bank names average educational objectives bsm 0,0098 bmi 0,0187 bris 0,0125 bnis 0,0305 megas 0,0325 panins 0,0101 bsb 0,0181 bcas 0,0085 the table above shows that the aspect of the educational objectives in the period 2012 to 2016. the results showed that the average aspect of educational, the largest index conducted by banks mega syariah that is equal to 3.25% followed by bni syariah of 3.05% and third place of bank muamalat indonesia at 1.87%. b. justice objectives as in previous goals, the objectives of justice from the total aspects of justice objectives that can be researched are just aspects of fair returns and non-interest income. the following table describes the research results: table 4 maqashid sharia index on justice objectives bank names average objectives of justice bsm 0,5391 bmi 0,5066 bris 0,5350 bnis 0,5422 megas 0,5427 panins 0,5536 bsb 0,5219 bcas 0,5463 table 4 above explains that the performance of maqashid sharia from the justice objective. the results showed that banks of all banks studied in the period of research 2012 to 2016 which has the highest index of this aspect is paninsyariah bank which is 55.36%, followed by bca syariah that is equal to 54.63% and the third highest value obtained bank mega syariah is equal to 54.27%. international journal of islamic business and economics, 2(1) june 2018, 1 5 2 522 c. welfare objectives in contrast to the previous objectives, in this welfare goal the total aspects of the objectives can be examined as a whole consisting of the bank’s profit ratio, the transfer of income and the ratio of investment to the real sector. the following table describes the research results of both elements: table 5. maqashid sharia index on welfare objectives bank names average on welfare objectives bsm 0,0939 bmi 0,2434 bris 0,2040 bnis 0,0736 megas 0,0225 panins 0,2516 bsb 0,1340 bcas 0,1610 the third element of maqashidsyaria related to welfare objectives consists of the percentage of profit earned on total assets, the amount of zakat incurred from the total net profit earned, and the amount of investment financing to the real sector of total financing disbursed. on average, banks that have the greatest value of the welfare aspect are paninsyariah bank which is on average 25.16% followed by bank muamalat which is 24.34% and the third largest is bri syariah which is 20.40%. overall, the following table describes the performance of islamic banks from the aspect of maqashidshariah after performing the weighting in accordance with the provisions. table 6. analysis result of maqashid sharia index bank names maqashid sharia index bsm 0,197 bmi 0,235 bris 0,228 bnis 0,196 megas 0,180 panins 0,252 bsb 0,208 bcas 0,221 the analysis result of maqashidsyaria index (msi) conducted at 8 islamic banks in indonesia research range 2012 to 2016 obtained that the best msi performance obtained by bank paninsyariah international journal of islamic business and economics, 2(1) june 2018, 1 5 2 5 23 is the average value of msi equal to 25,2%. this shows that sharia panin bank is the best bank among other syariah banks during 2012 to 2016. 4.2. operational efficiency in this study, efficiency is measured by the ratio commonly used in banking in indonesia is the ratio of the ratio between operational expense on operationalrevenue. the smaller the value of this ratio shows the islamic banks are more efficient in running its operations. therefore, the bank should be able to optimize the costs incurred in order to obtain maximum revenue. to see the ratio of efficiency (oeor) to islamic banks in indonesia can be seen in the following table: table 7. efficiency of islamic bank number bank names efficiency (oeor) 1 bsm 87,536 2 bmi 94,156 3 bris 92,388 4 bnis 90,600 5 megas 89,730 6 panins 80,022 7 bsb 92,880 8 bcas 91,840 average 89,894 from the table above can be seen that the ratio of efficiency (oeor) of islamic banks in indonesia on average more than 89.894%. the smallest ratio was obtained by paninsyariah bank, which was 80.022%. of all syariah banks that become the object of this study, the bank paninshariah is the most efficient banks, sharia panin banks are able to optimize operating costs to be maximized into operating income. while the largest oeor value obtained by bank muamalat indonesia that is equal to 94.156%. this indicates that bank muamalatis the most inefficient bank. 4.3. quadrant analysis: efficiency and islamic bank performance this analysis is intended to know the group of islamic banks from the point of view of efficiency and performance of maqashidsharia. some groups that will be obtained are: 1) a group of islamic banks with low efficiency and low performance, 2) a group of islamic banks with low efficiency and high performance; 3) a group of islamic banks with high efficiency but low performance; and 4) groups islamic banks that have high efficiency and high performance. here is the output quadrant analysis results between the efficiency with the performance of maqashidshariah: international journal of islamic business and economics, 2(1) june 2018, 1 5 2 524 figure 1. quadrant analysis from the quadrant above can be obtained cluster group as follows:sharia bank groups that have low efficiency and low performance are bni syariah and bukopinsyariah.bank bni syariah and bank bukopin sharia is a group of syariah banks have not optimized the cost to produce maximum income. besides these two banks are also associated with low performance so that the analysis shows that the bank bni sharia and bank bukopin sharia is in the lowest group. sharia bank group which has low efficiency and high performance is bank muamalat, bri syariah and bca syariah.the group of banks in this quadrant shows that the efficiency level is still very low compared to other islamic banks. nevertheless, the muamalat bank, the sharia bri and the sharia bca have been able to demonstrate good performance as islamic banks that adhere to islamic principles. therefore, low efficiency value is not an excuse for not having a good performance, because the performance of sharia cannot be associated with the level of income earned. because as a bank that runs the principle of islam that performance measures are not only measured by profit melalinkan by social aspects as well. islamic bank group which has high efficiency and low performance is bsm and megasyariah. the group of banks in this quadrant has managed to optimize the cost to maximize its operating income so that the efficiency ratio becomes low which indicates good condition. however, although it has successfully achieved a high level of efficiency, the bank syariahmandiri and bank mega syariah have not been able to show good performance of shari’amaqoshid. islamic bank group that has high efficiency and high performance is paninsyariah.the existing islamic banks in this group have demonstrated the optimal level of efficiency because the costs incurred have been able to maximize revenue. in addition, the success of islamic banks is also shown with high performance. the combination of efficiency and high performance leads to paninsyariah banks being in the best quadrant compared to other syariah banks in indonesia. 5. conclussion and suggestion based on the results of previous research and discussion, this research can be summarized as follows: (a) islamic banks that perform well from the viewpoint of the performance of maqashidsharia international journal of islamic business and economics, 2(1) june 2018, 1 5 2 5 25 during the period of research 2012 to 2016 is bank paninsyariah while the bank has the lowest performance is bank mega syariah. (b) the best islamic bank efficiency measured by oeor is bank paninsyariah, while the lowest efficiency is obtained by bank muamalat indonesia. (c) quadrant analysis shows that banks that are in the best quadrant of islamic banks that have a high level of efficiency with high performance also is bank paninsyariah. some of the important suggestions for this study are related to the deficiencies that can be improved, including: (a) not all banks can be examined in this study because there are 2 banks whose data is difficult to obtain so further research is attempted to obtain data as optimal as possible. (b) the range of study period can be extended and can be added period 2017. in this study was not included because the availability of data on the website cannot be found. (c) can be added with regression analysis to know the effect of efficiency on maqashid performance syariah index. 6. references abdul razak, d., mohamed, m. o., & md taib, f. (2008). the performance measures of islamic banking based on the maqasid framework.iium international accounting conference intac iv putra jaya marroit malaysia, best paper. al-osaimy, m. h., & bamakhramah, a. s. (2004). an early warning system for islamic banks performance. islamic economics, 17(1). antonio, m. s., sanrego, y. d., & taufiq, m. (2012). an analysis of islamic banking performance: maqashid index implementation in indonesia and jordania. journal of islamic finance, 1(1). choong, y. v., thim, c. k., & kyzy, b. t. (2012). performance of islamic commercial banks in malaysia: an empirical study. journal of islamic economics, banking and finance, 8(2), 67-79. firmansyah, i. (2014). determinant of non performing loan: the case of islamic bank in indonesia. buletin ekonomi moneter dan perbankan, 17(2), 241-258. firmansyah, i., & aam, s. r. (2013). pengaruh profitabilitas terhadap pengeluaran zakat pada bank umum syariah di indonesia dengan ukuran perusahaan sebagai variabel moderasi. jurnal liquidity, 2(2), 110-116. hameed, s., wirman, a., alrazi, b., nazli, m., & pramono, s. (2004). alternative disclosure and performance measures for islamic banks. malasyia: iium.2nd international conference on administrative science, king fahd university of petroleum and minerals, saudi arabia. hidayat, i. p., & firmansyah, i. (2017). determinants of financial performance in the indonesian islamic insurance industry. etikonomi, 16(1). kusmayadi, d., badruzaman, j., & firmansyah, i. (2017). efficiency and profitability of islamic banks in indonesia. advanced science letters, 23(9), 8807-8812. rusydiana, a. s., & firmansyah, i. (2018). efficiency versus maqashid sharia index: an application on indonesian islamic bank. shirkah: journal of economics and business, 2(2). sekaran, u. (2000). research methods for business: a skill building approach 3rd ed. new york: john willey & sons. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 18 july 2018 accepted : 5 august 2018 published : 1 dec 2018 keywords: interest; religious stimuli; trust; purchasing decision; digital al qur’an https://doi.org/10.28918/ijibec. v2i2.1307 jel: d90; m30 abstract pt. tigaraksa satria branch of semarang, is a company which runs the digital al qur’an product as one of its type of business’s engagement. one of the digital al qur’an to be sold is mushaf grand maqomat. pt. tigaraksa satria also produces mushaf for woman and mushaf maqomat for kids. among these three mushaf, mushaf grand maqomat-has the less selling. this study is expected to measure and analyzing the effect of interest, religious stimuli, and consumers’ trust on the decision to purchase digital al qur’an. it is suspected that variable of religious stimuli has the most dominant effect to the consumers. the population in this study are the current consumers of digital al qur’an on pt tigaraksa satria. the result of this study indicates that variable of interest has significant effect on the purchasing’s decision. this is resulted on p-value (sig) that is 0.001 under 0.05, the variable of stimuli has significant effect on purchasing decision indicated by 0.755 as the p-value (sig) above 0.05. whilst, the most dominant variable that influences buyers in purchasing al qur’an is the religious stimuli, accordingly to the researcher’s hypothesis that states religious stimuli is the most dominant variable. the effect of interest, religious stimuli, and the consumer’s trust on the digital al qur’an purchase sokhikhatul mawadah & nurudin faculty of islamic economics and business uin walisongo semarang email: sokhikhatulmawadah@walisongo.ac.id 90 international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 1. introduction currently, the halal industry in indonesia is growing. this happened because of the many requests for halal products and the existence of indonesian citizens who were predominantly muslim. the government also plays the role in the development of this industry by establishing law no. 33 of 2014 concerning guarantees of halal products. this halal product guarantee act aims to provide comfort, security, safety, and certainty of halal product availability for the community in consuming and using products, as well as increasing added value for businesses to produce and sell halal products. one of the halal products is the use of technology in the qur’an. the qur’an appears with new packaging and features that appeals public. one example is the grand maqomat mushaf product, which is one type of qur’an product sold by pt tigaraksa satria. in addition to grand maqomat mushaf, pt tigaraksa satria also produces mushaf for woman and maqomat for kids mushaf. among these three manuscripts, the grand maqomat mushaf was the one with the least sales. even though grand maqomat manuscripts are market share for the fathers, for men, who are in fact are family heads who can be the role models for their families. in this case, who is a good guide in reading the qur’an. table 1. data of digital al qur’an sales on pt. tigaraksa satria branch of semarang no product sales 2015 sales 2016 sales 2017 1 mushaf maqomat for kids 5,098 pcs 5,275 pcs 5,420 pcs 2 mushaf maqomat for woman 6,895 pcs 7,512 pcs 8,050 pcs 3 mushaf grand maqomat 4,982 pcs 4,850 pcs 4,825 pcs source: pt. tigaraksa 2017. form the above data it can be seen the mushaf grand maqomat has the least figure of sales, compare to the other types of qur’an’s mushaf which are mushaf maqoma for kids and mushaf for woman. based on this background, researcher will examine the consumer’s purchasing decision, reflected by the interest, religious stimuli and consumer’s trust to the purchased product. several previous studies related to interest, religious stimuli, consumer trust and buying decisions, including the one conducted by mawadah (2013), entitled: customer preferences for islamic banking in brebes district, 2013. this study discussed religion stimuli as the most dominant factor in influencing the selection of sharia bank for customers in brebes district. a study conducted by muhammd bahrudin and siti zuhro, entitled: the effect of customer trust and satisfaction on customer loyalty, in 2015. the results reflected that to build high customer loyalty, customer satisfaction and high trust are needed from customers. in 2013, a research on interest has also been studied by mita yuniati, mein kharnais, entitled: factors that influence consumer interest in rabbani products. the results of her study are service quality factors, company’s reputation and product attributes has significant positive interest against rabbani products. the next research is about purchasing decisions. the research conducted by dedy aguspriandono suprapto, rita nurmalina and idqan fahmi, in 2014, entitled: the contents of his research on the decision to buy powdered milk products for infants aged 26-35 months was significantly affected by factors of nutritional value composition, effect factors and benefits on children and product safety. this writing examines the variable of interest, religious stimuli and costumer’s trust in the purchasing decision of digital al qur’an on di pt tigaraksa, branch of semarang. form this study, it 91international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 is expected to obtain the information from related parties about the development of halal industry, particularly the digital al qur’an. evaluation material related to the development strategy of halal industry, especially for digital al qur’an. 2. theoretical framework and hypothesis 2.1. the correlation between interest and purchasing decision interest is basically the acceptance of a relationship between yourself and something outside yourself. the stronger or nearer the relationship is, the greater the interest (slameto, 2010: 180). great interest in something is a big capital to arouse enthusiasm in taking action that is in demand. interest is a situation where someone has attention to an object and is accompanied by a desire to know, learn, and to prove it further about a particular object with an active comprehension of the object. in completing that will, it is closely related to thoughts and feelings. the mind has a tendency to move in the rational sector of analysis, while feelings that are subtle or sharp are more desirable. based on the definition above stated that interest is a motivation that encourages people to do what they want if they are free to choose, if they see that something will be profitable, they feel interested. every interest will satisfy a need. in doing its function, the will is closely related to thoughts and feelings. the mind has a tendency to move in the rational sector of analysis, while feelings that are subtle / crave more crave needs. crow and crow stated that, there are three factors that influence the emergence of interest (mahmud, 2001: 56), which are: (1) encouragement from within. this need can be in the form of physical and psychological needs. as an instance, the urge to eat, curiosity and sex. (2) social motives are the need to gain recognition, appreciation from the environment in which he is located. it can be a factor that arouses interest in carrying out certain activities. (3) emotional factors, which are a measure of one’s intensity in paying attention to certain activities or objects. interest has a close relationship with emotions. hypothesis it is suspected that there is a significant positive effect of interest variable on the purchasing decision of digital al qur’an product on pt tigaraksa, branch of semarang. 2.2. the correlation between religious stimuli and purchasing decision religious stimuli are the factors of knowledge and religious experience that encourage a person to take an economic action. there is a concept of religiosity expressed by algound and lewis that religiosity is divided into four indicators which are, religious symbols, zakat, halal business and prohibition of usury (algaound & lewis, 2001: 15). religious stimuli have two dimensions, namely the dimension of product’s understanding and adherence to religion. (1) product is something that can be offered to the market to get attention to be purchased, to be used or consumed in which can fulfill the wants and needs (rahmawaty, 2008: 159). service products that are service-oriented have their own characteristics. (2) obedience to religion is the level of awareness and obedience of someone doing what is believed in carrying out what is taught in the religion they have adopted. since this awareness is the beginning of content expression in practical life as the base of the process of religious economic behavior (kadir, 2000: 55). hypothesis it is suspected that there is a significant positive effect of religious stimuli’s variable on the purchasing decision of digital al qur’an product on pt tigaraksa, branch of semarang. 92 international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 2.3. the correlation between trust and purchasing decision trust is the perception of reliability from consumers’ point of view based on experience or more in the sequence of transactions or interactions characterized by the fulfillment of expectations of product performance and satisfaction (ferrinadewi, 2005: 4). trust is also a descriptive thought that someone has to believe in something, which is based on original knowledge, opinion, and faith. the trust on the brand plays pivotal role for the product, trust is the key variable in expanding a long-lasting desire to keep maintaining a long-term relationship of a particular brand. the trust on the brand reflects two components (ferrinadewi, 2005: 4) which are: (1) brand reliability, derived from consumer’s confidence that the product is able to meet the desired value. in other words, consumers believe that the brand concerned is able to fulfill and satisfy them. (2) brand intention, based on consumer’s confidence that the brand will be able to maintain the interests of consumers when issues in product consumption appear unexpectedly. hypothesis it is suspected that there is a significant positive variable of trust on the purchasing decision of digital al qur’an product on pt tigaraksa, branch of semarang. 3.3. the correlation of consumer’s behavior and purchasing decision consumer’s behavior is a dynamic process that encompasses the behavior of individual consumers, groups, and community members who are constantly changing. the american marketing association defines consumer behavior as a dynamic interaction about feelings, cognition, behavior and the environment in which, individuals exchange in various aspects of their lives (syriac, 2013: 5). the attempts made by consumers to obtain goods and services can be initiated by seeking information, whether through the internet, neighbors or asking salespeople. if the product is at high risk, consumers will search for more information to avoid mistakes in the decision making. if consumers believe in the benefits of a product, consumers will buy and consume the product. the behavior of consumers will certainly vary according to the conditions of the consumer, the situation and external conditions that influence it. hypothesis it is suspected that the variables of interest, religious stimuli, and trust, it is the religious stimuli as the most dominant variable that affects the consumers of digital al qur’an product on pt tigaraksa, branch of semarang. 3.4. the correlation between buying decision and purchasing purchasing decision as an action of decision making that includes the decision about type and product’s benefit, decision about product’s shape, decision about brand, decision about product’s number, decision about the sales and the decision about purchasing’s period as well as the payment method (dharmmesta, 2010: 10) consumer purchasing process (kotler, 2005: 224-228), which are: (1) introduction to problems. the buying process begins when the buyer recognizes an issue or need. in this case, the customer needs for islamic banking products and services. (2) disbursement of information. this is completed by collecting data to meet customer’s needs. disbursement of this information can be obtained from friends, family, neighbors, advertisements, brochures, institutions, and so on. (3) alternative evaluation. this is related to the selection criteria, namely tangibility, accessibility, reliability, responsibility, empathy, and product 93international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 quality assurance. as an example, in terms of selection, this is because the price offered is cheap. (4) purchase decision. after an alternative evaluation, the next process is the decision to buy or not. (5) post-purchase behavior. this is related to the level of satisfaction. and affect the next decision whether to use the product again or no more. hypothesis it is suspected that among the variables of interest, religious stimuli and trust, allegedly religious stimuli are the most dominant variable in affecting the consumers of digital al qur’an product on pt tigaraksa, branch of semarang. 3. research method 3.1 type and approach this study uses quantitative approach. where the researcher is able to determine only several object’s variables to be studied and further to develop an instrument to measure them (sugiyono, 2008: 17). in this study, the researcher utilizes data in the form of figures, in which using the sales data of mushaf al qur’an (al digital) on pt tigaraksa branch of semarang form several consumers of mushaf al qur’an. these mushafs are mushaf grand maqomat, mushaf for woman dan mushaf maqomat for kids. primary data is data is the ones that directly obtained from the first data source in the research location or research object (bungin, 2005: 132). primary data is obtained directly from the distribution of a list of questions (questionnaires) to consumers who buy digital qur’an at pt tigaraksa semarang branch. secondary data is data obtained from second sources or secondary sources of data that we need obtained from pt tigaraksa’s website, literature, journals, magazines, newspapers, and others. data can also be obtained from other data related to the study. 3.2 population and sample population is the whole objects of a research (arikunto, 2006: 131). population is the sum of all objects or individuals to be studied. the population in this study is all consumers who buy digital qur’an at pt tigaraksa semarang branch in 2015, 2016, and 2017. sample is the part of number and characteristics possessed by the population (sugiyono, 2007: 62). it can also be interpreted as a small part of a population whose characteristics are to be investigated and considered to represent the entire population or representative of the population under study. the sampling technique used in this study is non-problem ability sampling, namely accidental sampling. accidental sampling is the technique of determining a sample based on anyone who happens to be found and suitable to be considered as a respondent, will be sampled. the number of samples taken is 100 consumers or respondents. 3.3. variable of the study and measurement variables are attributes or aspects of people and objects that have certain variations applied by researcher to be studied and to be drawn conclusions. the research variables used in this study are: 1. independent variable independent variable is a number of symptoms with vary components within, which determines the presence of dependent variables. in this case, the dependent variables are interest (x 1 ), religious stimuli (x 2 ), and trust (x 3 ). 94 international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 2. dependent variable dependent variable is a number of symptoms with various components or factors within, which determined by the existence of other variables. in this study, the dependent variable is purchasing decision (y). 3. variable’s measurement measurement is a deductive process. the researcher starts from a construction, concept and idea, then designing a measurement tool to study it empirically (bambang, 2012: 89). table 2. the variable of the study and measurement variable of the study definition indicator scale of measurement interest (x 1 ) interest is basically the acceptance of correlation between self and something external. the stronger or the closer a correlation is, the greater is the interest (slameto: 2010) 1. preferential interest: consumer wants to buy a product. preferential interest: consumer pays attention to the quality of the product. 2. preferential interest: consumer pays attention the price of the product. 3. explorative interest: consumer seeks a product accordingly to the needs. 4. explorative interest: consumer pays attention to the benefit of the product. measured by questionnaire by using likert scale. r e l i g i o u s stimuli (x 2 ) religious stimuli is a factor of knowledge and various experience that stimulate someone to take an economic action (algaound & lewis: 2001) 1. purchasing digital al qur’an because of the obedience to the religion. purchasing al qur’an product because of the awareness in economic behavior 2. selecting al qur’an product as the symbol of religious. 3. purchasing digital al qur’an to perform halal business. selecting digital al qur’an product because of being taught in the religion to select a good product. 4. measured by questionnaire by using likert scale. 95international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 trust (x 3 ) trust is the perception of reliability from the consumer’s perspective that is based on the experience or more on the list of transactions or interaction that is characterized by the fulfilment of expectations of the product’s performance and satisfaction (ferrinadewi: 2005) level of consumer’s trust on the digital al qur’an product. consumer purchases digital al qur’an because of the company’s image. the quality of service post-purchase is satisfied. trust of the brand on the digital al qur’an brand. digital al qur’an produced by pt tigaraksa is a well-known brand. measured by questionnaire by using likert scale. p u r c h a s i n g decision (y) purchasing decision is the action of taking decision that includes decision related to type and product’s benefit, shape of the product, decision related to the brand, decision related to the number of product, and the decision related to the product’s period and payment method (dharmmesta: 2010) 1. selecting product accordingly to the needs. 2. confidence in purchasing and using the digital al qur’an product. 3. buying a digital al qur’an product is not time consuming. 4. purchasing digital al qur’an product does not consume much time. 5. period of purchasing digital al qur’an is routine in a certain period. 6. the method used in the payment. 7. measured by questionnaire by using likert scale. 3.4 techniques in analyzing the data data analysis is one of the methods utilized to determine the extent to which variables affect other variables so that the collected data can be useful, it must be processed or analyzed, hence, it can be taken into consideration in making the decisions. the data analysis technique used in this study is a multiple linear regression model. analysis of the data obtained in this study will utilize the assistance of computer technology with the spss 16 program. 4. result and discussion 4.1. coefficient of determination the coefficient of determination has a function to explain the extent of the ability of independent variables (interest, religious stimuli and trust) to the dependent variable (purchase decision) by looking at r square. the result of the coefficient of determination can be seen in the table below: table 3 the effect test model r r square adjusted r square std. error of the estimate 1 .612a .374 .355 2.37959 a. predictors: (constant), kpy, rls, mnt b. dependent variable: kpm source: data primer processed in 2017 the results of data analysis on the purchasing decision variable indicates that r square is 0.374 or 37.4%. this shows that the independent variables which are interest, religious stimuli and 96 international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 trust are only be able to explain the dependent variable by 37.4%, the remaining 62.6% is explained by other variables that are not exist or are not taken into account in the research analysis. 4.2. partial test (t-test) this partial test aims to test or confirm the hypothesis individually between the independent variables of interest, religious stimuli and trust partially have a significant influence on the dependent variable purchasing decision. the results of this t-test are explained in the following table: table 4 partial test (t-test) model unstandardized coefficients standardized coefficients t sig. collinearity statistics b std. error beta tolerance vif 1 (constant) 5.668 1.479 3.833 .000 mnt .268 .075 .349 3.570 .001 .682 1.466 rls .296 .081 .353 3.642 .000 .695 1.439 kpy .016 .051 .026 .312 .755 .929 1.077 a. dependent variable: kpm source: primary data processed in 2017 from the above table, the variable of interest reflects a value of t count of 3.570 and p-value (sig) of 0.001 below alpha 0.05. this means that the variable interest affects the purchase decision. religious variable stimuli show t count value of 3.642 and p-value (sig) of 0.000 below alpha 0.05. this means that religious stimuli variables affect purchasing decisions, while the trust variable shows t count value of 0.312 and p-value (sig) of 0.755 above alpha 0.05. this indicates that trust does not affect purchasing decisions. 4.3. discussion after elaborating on the results of the questionnaire distribution to 100 respondents to find out the effect of purchasing decisions with independent variables namely interest, religious stimuli and trust. as described above, interest has a positive and significant effect on purchasing decisions. based on the results of statistical processing multiple linear regression analysis with spss tools, it is known that the result of the regression variable interest variable on the purchase decision is 0.268. this is in line with the study conducted by nurhidayari (2014), where interest has a positive and significant influence on the purchase decision of smart detergent products. the variable of religious stimuli also has a positive and significant effect on purchasing decisions. regression coefficient of religious stimuli variable on purchasing decisions of 0.296. this is in line with the study conducted by mawadah (2013), concerning customer preferences for islamic banking in brebes district. in this study religious stimuli have a positive and significant effect on the selection of islamic banks. whilst trust has a positive and insignificant influence on purchasing decisions. regression coefficient of confidence variable on purchasing decision is 0.016 with a constant of 16.128 and a standard error of 5.668. the results of the study contradict the study conducted by bahrudin and zuhri (2015) where trust has a positive and significant effect on customer loyalty. the regression equation obtained from the regression coefficient variable interest religious stimuli and trust on purchasing decisions with the purchasing decision regression equation = 5.668 + 0.268 (mnt) + 0.296 (rls) + 0.016 (kpy) + e. 5. conclusion by looking at the results of the studies that have been discussed, we can pull the conclusion that 97international journal of islamic business and economics (ijibec), 2(2) december 2018, 89-97 the interest variable ( x1 ) has a significant effect on purchasing decisions, this is reflected by p-value (sig) of 0.001 below 0.05, religious variables stimuli ( x2 ) have a significant effect on purchasing decisions, this is indicated by p-value (sig) of 0.000 below 0.05. whilst the trust variable (x 3 ) does not have a significant effect on purchasing decisions, this is indicated by p-value (sig) of 0.755 above 0.05. while the most dominant variable affecting buyers in buying the qur’an is a religious stimuli variable, as accordingly to the hypothesis that the most dominant variable is religious stimuli. references algaoud, l. m., & lewis, m. k. (2001). perbankan syariah, prinsip, praktik, prospek, jakarta: pt. serambi ilmu semesta. bahrudin, m., & zuhro, s. (2016). pengaruh kepercayaan dan kepuasan pelanggan terhadap loyalitas pelanggan. bisnis: jurnal bisnis dan manajemen islam, 3(1), 1-17. bungin, m. b. (2005). metodologi penelitian kuantitatif. jakarta: prenada kencana group. dharmmesta, dkk. (2000). manajemen pemasaran. analisa perilaku konsumen. yogyakarta: bpfe. ferrinadewi, e. (2005). pengaruh tipe keterlibatan konsumen terhadap kepercayaan merek dan dampaknya pada keputusan pembelian. modus vol. 17 no. 1. kadir, a. m. (2000). ilmu islam terapan. yogyakarta: pustaka pelajar. kotler, p. (2005). manajemen pemasaran jilid i. jakarta: indeks. mahmud, d. (2001). psikologi suatu pengantar. yogyakarta: bppe. mawadah, s. (2013). preferensi nasabah terhadap perbankan syariah di kabupaten brebes. tesis uin sunan kalijaga yogyakarta. prasetyo, n., & lina, m. j. (2006). metode penelitian kuantitatif: teori dan aplikasi, jakarta, pt. raja grafindo persada. rahmawaty, a. (2008). analisis pemicu perbedaan motivasi nasabah berafiliasi antara bank konvensional dan bank syariah di semarang. kumpulan makalah acis. penguatan peran perguruan tinggi agama islam dalam meningkatkan daya saing bangsa. e_jurnal skripsi. sari, s. p. (2011). pengaruh tipe keterlibatan konsumen terhadap kepercayaan merek dan dampaknya pada keputusan pembelian. fe (manajemen), 7(7). slameto. (2010). belajar dan faktor-faktor yang mempengaruhinya. jakarta: rineka cipta. sugiyono. (2008). metode penelitian bisnis. bandung: alfabeta. suharsimi, a. (2006). prosedur penelitian suatu pendekatan praktik. jakarta: rineka cipta. suprapto, d. a., nurmalina, r., & fahmi, i. (2014). faktor-faktor yang memengaruhi keputusan konsumen dalam pembelian produk susu bubuk pertumbuhan. jurnal ilmu keluarga & konsumen, 7(2), 113-122. suryani, t. (2013). perilaku konsumen di era internet. yogyakarta: graha ilmu. yuniati, mira dan mein k. (2013). faktor-faktor yang mempengaruhi minat konsumen terhadap produk rabbani. e-jurnal: volume 02 nomor 03 tahun 2013. edisi yudisium periode agustus 2013. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 2 march 2018 accepted : 19 may 2018 published : 1 june 2018 keywords: evaluation , mustahiq empowerment, poverty alleviation jel: e20 e71 abstract the increasing number of the poor in indonesia makes the management of zakat play more important role. lazs (nonprofit organizations managing zakat) which functions as collecting and distributing zakat, infaq, and shadaqah in indonesia is potential to develop as an attempt for equal distribution of national income, as well as a solution for poverty alleviation. common empowerment programs by lazs include education, health, social-humanity, and economy. those all are consistent with government’s poverty alleviation programs, as mentioned in the constitution 1945. “evaluation of mustahiq empowerment-based poverty alleviation program at amil-zakat organizations in surabaya” points to a theory by wirawan that evaluation was conducted through three phases; evaluation of process, evaluation of usage, and evaluation of effect. it aims to see whether or not lazs’ empowerment programs run well and thus, be potential to be developed as a solution for poverty in indonesia. the result showed that the empowerment programs in education and health areas were found well-implemented, while the other facets including economy and social-humanity still need more improvement within. the evaluation of mustahiq empowerment-based poverty alleviation program at amil-zakat organizations khusnul fikriyah and ahmad ajib ridlwan departement of islamic economic, universitas negeri surabaya email: ahmadajibridlwan@unesa.ac.id mailto:ahmadajibridlwan@unesa.ac.id international journal of islamic business and economics, 2(1) june 2018, 6 5 7 366 1. introduction poverty has become an issue in indonesia since long time ago, even before this country reached their independence. the data from bps (a statistic center organization) on september 2014 showed that 27.73 million people of indonesia were living in poverty, and on september 2015, it had reached 28.51 million people. most of them, approximately 15.31 million people, live in java and the others live across indonesia. from the perspective of islam, however, poverty is a sunatullah (multifiah, 2011). alleviating the issue of poverty is not easy, as it needs a very-well integrated and coordinated planning with various policies reflected in each of government regulations. both government and all the elements of society should conduct the policies and thus, it needs relatively long period of time to be well implemented and sustained. the attempt of poverty alleviation by government is mentioned in article 27 subsection (2), article 28 c subsection (1), article 28 e subsection (1), article 28 h subsection (1), article 34 subsection (1), (2), and (3). those articles mention the government’s attempt to improve people welfare and to provide public facilities (e.g., health, education, autonomy and access for work, etc.) that aims to decrease the number of poverty in indonesia. poverty alleviation needs a bottom-up empowerment program involving all the elements of people through the culture of mutual assistance (munir, 2005). following friedman (1992), the concept of empowerment emerges with two possibilities, including failure and expectation. in this case, the failure refers to the fail models of economic development that aim to sustainably solve the issues of poverty and environment. expectation, on the other hand, refers to the alternatives of economic development that apply the values of democracy, gender equality, intergenerational equality, and adequate economic growth within. those failures and expectations are not only in social disciplines, but also a reflection of normative and moral values in both individuals and society. therefore, people empowerment is basically a collective value of individual empowerment (sumodiningrat, 2007). a concrete effort by the government in alleviating the poverty is seen in their various amendments of policies. some policies related to the attempt of poverty alleviation over period of time are as follow. 1) soekarno era: area reformation program, regulating the ownership of area for agriculture as well as the profit share that gives benefits for the working-farmers. 2) soeharto era: a program that provides asset in the form of land area, manifested through transmigration program for small-scale farmers and farming laborers from java to other island outside java. this program has still been running until today. 3) soeharto era: a program that provides job opportunities with a relatively low salary for jobless people, manifested through labor-intensive program. 4) habibie era: regional-based development program, including: city poverty alleviation program (this program was sustainably implemented up to the era of gus dur and megawati), as well as infrastructure development program for isolated areas, and district development program. 5) sby era: education empowerment program through bos (bantuan operasional sekolah) and bms (bantuan siswa miskin). those are kinds of government’s operational support for education, particularly for the poor students. 6) sby era: people empowerment program, manifested into pnpm (a kind of national empowerment program for people of indonesia). international journal of islamic business and economics, 2(1) june 2018, 6 5 7 3 67 similar to government’s efforts and the mandate of the constitution 1945, the syari’ah of islam has a mechanism of asset distribution. this mechanism makes people with higher economic capability (muzakki) help the lower ones (mustahiq). it is called as asset distribution, and reflected in the third pillar of islam, “implementing zakat”. additionally, islam also forbids people to amass fortune. it is clearly mentioned in surah al hashr verse (7) “… so that it will not be a perpetual distribution among the rich from among you…”. zakat, infaq, and, shadaqah (zis) are strategically potential to be developed in indonesia as a solution for asset distribution (i.e., welfare) as well as poverty alleviation (ammani, abba, & dandago, 2014). it is because, in demographic manner, most of indonesian people are moslem, and the obligation of implementing zakat, infaq, and shadaqah has strongly grown as their habits as moslems in indonesia. zakat has a very big potential for people welfare. it may decrease gab between highereconomy people and the lower ones. zakat should be delivered directly to mustahiq. in some cases, however, it makes zakat piled up in one particular individual. therefore, it is expected for zakat to be well distributed through an amil-zakat agent/organization. given that zis is potential as a solution to alleviate poverty, it should be well-managed in order to empower the poor and lead them into autonomousness and for the sake of madani people with full of equality and welfare. therefore, zis should not be individually managed by a muzakki, but through an organization of zakat management. amil is commonly required to have capabilities such as technical skills and insight of organizing zakat for the sake of their duty. qardawi (2009) argues some requirement of being an amil, including (1) moslem; (2) mukallaf; (3) amanah; (4) understanding the law of zakat; (5) capable in conducting their tasks; and (5) sincerity in conducting their tasks. currently, more amil zakat organizations are initiated by privates. however, it is not in line with the realization of zis income. the result of survey public interest research and advocacy center showed that the potential of zakat, infaq, and shadaqah along with its realization is still far from the expectation. its potential per year had reached idr 20 trillion, however, the realization still reached idr 1.2 trillion or at 6% (pirac, 2009). on the other hand, canggih, fikriyah, & yasin (2017) found on their study conducted between 2011 and 2015 that the realization of zakat was less than 1%. whereas, zakat is one of the five pillars of islam that must be implemented by capable people (hayeeharasah, sehvises, & ropha, 2013). zakat, as a supporting instrument of social infrastructure needs a good management system to give optimal contribution for people to get rid from poverty and lead into welfare (sutisna, 2010). a effective attempt of zakat management organizations (opz) to cope with poverty is through an empowerment program, in which the poor may reach achievement, be autonomous, and have better live after such empowerment (megawati, 2014). some models of empowerment program commonly developed by opz include education, health, social-humanity (i.e., management of disaster) and economy empowerments. those all attempts need assistance from laz. the process of assistance involves planning, implementation, monitoring, and controlling, as well as program evaluation. a productive management of zakat is a program to be implemented by laz. it is expected to sustainably create a good economic circulation, improve people business productivity, develop economic outcomes/results (pratama, 2015). empowerment in education is commonly distributed to poor students, particularly to provide their needs including school attribute and other supporting means for their education. in the context of health, the fund is distributed for medication, surgery, and medicines for the poor. in social and humanity, it is allocated for disaster management. in economy, it points to the development of welfare through business, both the start-up businesses and the existing ones. international journal of islamic business and economics, 2(1) june 2018, 6 5 7 368 in particular to economy, assistance from lazs is necessary in order to make mustahiq ready to develop their business. nevertheless, the fact that zakat for the poor is mostly consumptive in nature for encountering people needs in a moment has arisen as a problematic issue. it may less the distribution of zakat. therefore, it needs an evaluation on those laz’s empowerment programs in order to make the distribution of zakat effective and well-implemented for the sake of people welfare. in addition, it is expected for the evaluation to be developed, realized in national context, and become the government’s consideration to make policies for poverty alleviation in indonesia. 2. research method this study is a field research with descriptive-qualitative method. it is descriptive as it aimed to explore and describe a social condition to be thoroughly studied (sugiono, 2008). it is qualitative as its finding was neither through statistical procedures nor calculation method (strauss & corbin, 2009). it was conducted on organizations of zakat management in surabaya between april and november 2017. the data collection was in two phases; april-june for lazs in south surabaya, and july-september for lazs in west surabaya. the sources of the data were human (as informants) and some relevant documents. the informants were selected through sampling technique. however, they did not represent the population but primarily based on the relevance and detail of information as well as the theme of the study and the field condition. the technique was continuously run until it met the completeness for the data and the informants had been saturated. the source of human data consisted of the managers, mustahiq, businessmen, and non-businessmen. the source of non-human data consisted of relevant data that focused on the study. the primary informant of this study was the personals of lazs, including their director, treasurer, secretary, and staff. additionally, we collected information through an interview with the leader and supervisor. for data collection, the authors used data triangulation, including: source, technical, and time triangulations. furthermore, it used observation, interview, and documentation for data collection. 3. result and discussion the empowerment program by lazs in surabaya, is broadly classified into four categories: (1) education; (2) health; (3) social-humanity (including ramadhan program); and (4) economy. commonly, most organization of amil zakat in surabaya is still running all those programs. the most popular and regular one is in education and health, while economy and social-humanity are often incidentally implemented. these empowerment programs by lazs are consistent with the mandate of the constitution 1945, including article 27 subsection (2) that “every people has right of having job and good living for the sake of humanity”. it is in line with one of laz’s empowerment programs, especially in terms of economy and social-humanity. article 28 c subsection (1) mentions that “every people has right to evolve by encountering their basic needs, and they have right to get education and take benefits from science, technology, art and culture in order to improve the quality of their lives and for the sake of people welfare.” this is consistent with laz’s empowerment program in terms of education and economy development. article 28 h subsection (1) mentions that “every people has right to have good physical and spiritual life, good living, and good surroundings, as well as good health services”, and this is in line with laz’s program in health and economy empowerment, and so on. international journal of islamic business and economics, 2(1) june 2018, 6 5 7 3 69 the evaluation of empowerment programs for the poor in laz education program laz’s empowerment program in education is consistent with the mandate of the constitution 1945, particularly to article 28 c subsection (1) and article 28 e subsection (1). this program aims to make every people have education and take benefits from science and technology. the evaluation of process this education empowerment program takes the poor and orphans (i.e., yatim and dhuafa) in school-ages as the target. the range starts from kindergarten up to high school. this program is distributed through several schemes, including scholarship, attributes and uniform, private courses, reading holly qur’an, and etc. the subject is the registered mustahiq and other parties through direct proposal filed to laz. some laz, however, have particular policies which only provide educational support for mustahiq (yatim and dhuafa) who have requested in every month as it should be fairly distributed, not delivered to the same parties. in fact, it is apparently ineffective since it needs to select the prospective candidates every month. furthermore, it may difficult the poor and orphans (i.e. yatim and dhuafa) as they have to propose every month, in addition to the ones who do not pass the selection. the evaluation of benefit education empowerment program by most lazs in surabaya commonly provide benefit to the poor and orphans in needs for their education. it may give access for them to get education, both formal and informal, as well as the character building. in formal education, for instance, they may enroll themselves to study at school through scholarship, along with educational attributes and uniform. in informal education, they may have free private courses from lazs cooperated with particular courses, including intensive coaching for final test. in terms of character building, for instance, it may be in the form of attitude building and a movement for loving al-qur’an. some lazs also provide additional courses and training for the poor and orphans who have graduated from high school. it consists of some in-class and out-class activities conducted in a year. lazs provide some faculties based on people interests and the needs of workplace. those are accounting, economy, culinary, automotive, network, agribusiness, fishery, hydroponic, and etc. during some months, the poor and orphans may get some materials and theories. it aims to make them, particularly to the ones in productive ages, get ready to be in the workplace. the evaluation of effect education empowerment program by lazs in surabaya commonly brings effect on education. the indicator is through the logs of the poor and orphans having scholarship, private courses and training. for the poor and orphans in school ages, their academic performance will be taken into account, such as their academic rank, score, and other academic achievements. for the poor and orphans having courses and trainings (i.e., especially for they who have graduated from high school), some aspects including their output, workplace they are in, how long the waiting period before having work and other related aspects will be taken into account. health program empowerment programs by lazs have a similar purpose with government’s effort to solve the issue of health in indonesia. it is mentioned in the constitution 1945 article 28 h subsection (1) and article 34 subsection (3). this health empowerment program aims to make people have access to proper health facilities and services in order to get healthy and prosperous life, both physically and spiritually. international journal of islamic business and economics, 2(1) june 2018, 6 5 7 370 the evaluation of process this health program takes the poor and orphans in needs, particularly to health services. some lazs implement this program by visiting some schools, villages, and other low districts in surabaya, and then conducting examination to people there. it is a basic medical examination, such as eyes, ears, mouth, and teeth. when particular complaints with difficult treatment are found, lazs will give assistance for further examination. the medical services by lazs are also through donation for surgery, inpatient medical treatment, and so on. however, if the cost is over the maximum limit covered, the lazs may find such another way to help them, such as providing assistance to make health insurance (i.e., bpjs), or if the individuals have already had a health insurance (i.e., bpjs), lazs may assist in using the insurance. the evaluation of benefit in general, health program by lazs in surabaya gives access for the poor and orphans to have health services. they may keep healthy in their limitation. starting from the basic examination, lazs cooperating with some clinics and hospital may provide further medical examination for them. in addition, lazs also assist in requesting for bpjs and other donations for the poor and orphans who need to have surgery, as the medical insurance such as bpjs may not cover the cost due to several reasons. the evaluation of effect in general, this health program by lazs in surabaya brings positive effect on people, particularly to the poor and orphans who need medical treatments. the indicator of success for this program is seen from the better condition of the poor and orphans that have had medical treatment. the lazs’ data also shows that this program is effective to prevent the poor and orphans from any disease. social-humanity program this social-humanity program by lazs is consistent with the constitution 1945, particularly to article 28 h subsection (3), article 34 subsection (1) and (2). this program aims to make the poor and the homeless children get help to survive until they are capable to gain income, and to have social assurance. it is expected that any poor and homeless children will no longer be found if they can be autonomous and meet their needs. the evaluation of process social-humanity and disaster management programs by lazs in surabaya are often incidental, not regular, as disaster and such urgent issues do not regularly happen and they tend to prioritize the donation on economy empowerment. the distribution of the donation for social-humanity is often for ramadhan program and the victims of disaster. when a disaster happens, the social donation will be immediately distributed. it is similar for ramadhan program; the donation will be distributed in ramadhan and around the moment of idul fitri. for some cases, the donation will be huge, and thus, lazs will collect donation for social-humanity, such as the issue of rohingya and palestine. the evaluation of benefit this social-humanity program by lazs focuses on other issues beyond education, health, and economy. lazs provide help for social-humanity issue in order to help the mustahiq to survive from calamity and disaster they have experienced. this donation is usually in the form of food, drink, and other necessary urgent stuff for mustahiq. as those are the primary needs, it will be international journal of islamic business and economics, 2(1) june 2018, 6 5 7 3 71 out of stock in short-term period. some lazs commonly classify ramadhan program into socialhumanity in order to help the poor and orphans to do worship during ramadhan and around the moment of idul fitri. the evaluation of effect in general this social-humanity program brings a concrete short-term effect on people. however, it should be sustained and developed more, such as by providing assistance for mustahiq to begin their new life after disaster. in particular cases, this program should be combined with economy empowerment program in order to give a concrete benefit and effect on mustahiq. economy program economy empowerment program is the most popular one as many leaders implement this program in their countries. this program is in line with the constitution 1945, particularly to article 27 subsection (2) and article 28 c subsection (2). lazs also develop an economy empowerment program that takes productive mustahiq as its subject. it aims to make them capable to improve the quality of their life to be more prosperous in long-term period of time and capable to lead others into prosperity as well. the evaluation of process the process of utilizing zakat for economy empowerment takes some steps including: (1) registering the prospective candidates for donation; (2) survey of appropriateness; (3) grouping strategy; (4) assistance; (5) periodical training; (6) involving the third party as partner; (7) monitoring, controlling, and evaluation. economy empowerment program by lazs in surabaya is commonly distributed toward productive mustahiq who are still capable to do business using qardul hasan scheme. this scheme claims that productive mustahiq participating in economy empowerment will get some fund to run their business. if the business is successful, it may improve their economy condition and thus, their transition of being muzakki is expected to happen. commonly, lazs require the mustahiq to return the fund, although the time limit is not fixed set up. it aims to make them responsible with the fund provided. some lazs succeed implementing the scheme, and some others are still stuck with the mustahiqs’ persistence in developing their business. lazs commonly have particular criteria they use to select the prospective mustahiq for capital assistance. one of lazs in surabaya, for instance, develops an economy empowerment program with a training scheme (in about 6 months), and followed by giving a capital assistance and business practice. it develops the economy empowerment program using a grouping model and capital rolling in one area. at the beginning of the business, the capital assistance will be provided to 30% 40% of the total mustahiq in their group. after those mustahiq have already returned the capital assistance to the group (not to laz) it will be distributed to another group respectively. lazs also have some other criteria such as the limit of ages (i.e., productive age), the mustahiq should have a business (at least for two years), and the mustahiqs’ persistence in training (and will be assessed during the training period before they have the capital assistance). in fact, however, those predetermined criteria are not fully implemented due to several reasons, such as the group of mustahiq consists of people out of productive ages and with a very early business started or even they have no business to run. nevertheless, the lazs cannot put aside those members from their group. thus, economy empowerment program by lazs in surabaya is generally implemented, but not fully well-implemented. many aspects need to improve, including the scheme, input (the prospective mustahiq), and the process of monitoring. another problem to encounter is that most of the mustahiq have a very limited marketing skills and low educational international journal of islamic business and economics, 2(1) june 2018, 6 5 7 372 background, which makes them difficult to have assistance on good business management and financial administration. the evaluation of benefit economy empowerment program is one effective way for public welfare distribution. this program is a solution for poverty alleviation, and it is expected to improve the national economy development. it facilitates productive mustahiq. hence, they may take benefits from this program, including business training such as production skill, basic accounting skill, and marketing skill. most lazs in surabaya provide particular training to the prospective mustahiq before the capital assistance is distributed. they also select the candidate based n their readiness, maturity, and persistence in business. the qualified mustahiq will have some capital assistance to run their business. they may immediately run their business under lazs’ monitoring and assistance. the evaluation of effect in general, this economy empowerment program brings positive effect people, particularly to ones who get the assistance. the mustahiq who want to develop their business and improve the quality of their economy feel grateful for this program, although most of them often feel difficult to implement the material they have in training such as the basic accounting management, marketing skill, and other business management materials. 4. conclusion in general, empowerment programs by lazs in surabaya are classified into four categories, including: education, health, social-humanity (e.g., ramadhan program), and economy. those programs are in line with the government’s program to solve the issue of poverty. it is also consistent with the mandate of the constitution 1945, in particular to article 27 subsection (2), article 28 h subsection (1), article 28 c subsection (1), article 28 e subsection (1), article 34 subsection (1), (2), and (3). therefore, it is expected that the successful programs by lazs in surabaya can be implemented in national level. empowerment through education, health, social-humanity, and economy programs by lazs in surabaya brings some benefits along with its effects. for instance, the programs of utilizing zakat for economy empowerment may bring economic, social, and spiritual effects on the mustahiqi. this may create unity and solidarity between the poor and the rich. some well-implemented empowerment programs refer to education and health fields. we saw that those two programs could be sustainably developed and implemented in national level. in addition, social-humanity and economy empowerment programs still need some improvements within. according to the result of this study on zakat distribution for empowering the poor, we recommend some suggestions such as: carefully selecting the prospective candidate of mustahiq, not only that they are from the group of asnaf, but also requiring them to have strong characters and personalities and be persistent in implementing the program, especially for education and economy empowerments; monitoring and assisting those two programs; increasing the quota of the prospective mustahiq for education and economy empowerment programs as those two program bring a very concrete effects on mustahiq’ independence; and finally, organizing volunteers to do monitoring and assistance. international journal of islamic business and economics, 2(1) june 2018, 6 5 7 3 73 acknowledgment this article is the result of research in 2017. the author would like to thank the faculty of economics, universitas negeri surabaya who has provided financial support to this research. references ammani, s. a., abba, s. a., & dandago, k. i. 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(2009). a comparative study of zakah, regulations and philosophy in the light of qur’an and sunnah. fiqh al zakah. kingdom of saudi arabia: centre for reseach in islamic economics king abdul azis university. strauss, a., & corbin, j. (2009). dasar-dasar penelitian kualitatif. yogyakarta: pustaka pelajar. sugiono. (2008). metode penelitian kuantitatif kualitatif dan r & d. bandung: alfabeta. sumodiningrat, g. (2007). pemberdayaan sosial; kajian ringkas tentang pembangunan manusia indonesia. jakarta: kompas. the constitution of the republic of indonesia 1945 along with its amandment. https://doi.org/10.1016/j.sbspro.2014.11.081 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 27 july 2018 accepted : 25 august 2018 published : 1 dec 2018 keywords: marketing mix, brand image, service quality, and loyalty https://doi.org/10.28918/ijibec. v2i2.1370 jel: d90; m31 abstract the objective of research was to find out the effect of marketing mix, brand image, and service quality on customer loyalty in fatmawati branch of bank bni syariah. data employed in this research was primary one; data collection was carried out using questionnaire distributed directly with random sampling method; the object of research was customers of bank bni syariah. this research was expected to contribute to the bank, particularly fatmawati branch of bank bni syariah, in order to give good service to their customers. the result of research showed that marketing mix, brand image, and service quality affected positively and significantly the customer loyalty in fatmawati branch of bank bni syariah either partially or simultaneously. the effect of marketing mix, brand image and service quality on customer loyalty in bank bni syariah ligar fadilah, ade sofyan mulazid, yunia silvia sesunan faculty of economic and business, uin syarif hidayatullah jakarta, indonseia email: adesofyanmulazid@uinjkt.ac.id 128 international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 1. introduction banking development increases significantly today. this change occurs due to rapid growth and development of technology, information, machine and heavy equipment, particularly communication technology. as a result, the change impacts quickly on the change of community behavior. in the presence of technology, community can acquire information easily, particularly concerning banking realm in indonesia. sharia-compliant banking emerges for the first time with the publication of law no. 10 of 1999 as the revision of law no.7 of 1992 about banking, in which the law directs conventional to establish sharia-compliant branches (rizal, 2014: 14). since 2008, sharia-compliant banking in indonesia starts to use special law for sharia-compliant banking. the law is law number 21 of 2008 about shariacompliant banking ratified on july 16, 2008. the law consists of 13 chapters and 70 articles (rizal, 2014: 27). the improvement occurs in indonesian banking sector due to some factors, one of which is marketing. a good right marketing will affect industrial performers positively; one sector affected with it is banking realm. bank marketing is a process of creating and exchanging bank’s product or service intended to meet customers’ need by means of giving satisfaction (kasmir, 2003: 63). considering bank of indonesia governor’s decree number 12/41/kep.gbi/2010 on may 21, 2010 about the publication of business license for pt bank bni syariah, corporate plan uus bni of 2003 stipulated that the status of uus is temporary in nature and will undertake spin off in 2009. the plan was realized on june 19, with the operation of bni syariah as sharia-compliant public bank (bank umum syariah or bus). the realization of spin off time on june 2010 was inseparable from external factor constituting conducive regulation aspect, in this case the publication of law no.19 of 2008 about islamic based government securities (surat berharga syariah negara or sbsn) and law no. 21 of 2008 about sharia-compliant banking. in addition, government’s commitment to sharia-compliant banking development is getting stronger and its awareness of the superiority of sharia-compliant banking product also increases. there have been 65 branch offices, 161 unit offices, 17 cash offices, 22 mobile service cars and 20 payment points up to june 2014. considering the data of indonesian sharia-compliant bank association (asosiasi bank syariah indonesia or asbisindo), there is an increase by 20.33% from idr 296.26 trillions in late 2015 to idr 356.50 trillions in late 2016. in addition, the fund reaches idr 249.09 trillions or increases by 16.40% from idr 213.99 trillions in previous year. meanwhile, third party fund gain reaches idr 279.33 trillions or grows by 20.83% on december 2016 compared with that on december 2015, idr 231.17 trillions. the position of profit is idr 2.09 trillions on december 2016, grows by 17.46% compared with that on december 2015, idr 1.78 trillions (www.bnisyariah.com). considering the background above, the research on marketing mix is feasible to follow up because the competition between bni syariah and other sharia-compliant bank is very tight, confirmed with brand image and service quality in order to create positive perception on and belief in bank bni syariah’s product affecting customer loyalty. 2. literature study and research hypothesis marketing mix tjiptono (2014: 41) suggests that marketing mix is a set of instruments that can be used by marketers to create the characteristics of service offered to customers. the instruments can be used to arrange long-term strategy and to design short-term tactic program. 129international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 some scholars said that there are four main variables existing in marketing mix called “4p” product, price, place, and promotion. they can be defined as follows. a. product the product here can be any thing offered to potential customers to meet certain need and want. product is any thing the market offers to be considered, obtained and used or consumed to meet need and want including physical, service, people, organization, and idea. product is a combination of product (goods) and service offered by company to target market. product includes not only physical unit but also packaging, guaranty, brand, and post-sale service (rivai, 2012: 12-14). b. price price, according to kotler (2008: 345), is a number of values given by customers to benefit from having or using a product or service. c. place place shows a variety of activities conducted by company to make product accessible and available to company. location or place is distribution pertaining to the customers’ convenient access to service. it is a strategic place in which the product is available to enable the consumers to get a product (rivai, 2012: 31-32). d. promotion (promotion) mc. daniel et al (2001: 56) define promotion as an activity of producing information, persuading, or reminding consumers about the benefit of a product. brand image brand image, according tjiptono (2005: 49), describes association consumer’s belief in certain brand. generally, consumer will buy products with famous brand, because consumers feel safe with something they have known. brand name distinguishes a product from competitor products. their strong identity creates main competitive advantage. the brand known by buyers encourages repeated purchasing. a brand is strength. the stronger the value of brand you have, the stronger is the company you have. factors supporting the creation of brand image in its relation to brand association: (kotler, 2008). 1. strength it is the physical advantage the brand has and not found in other brands. this brand’s advantage refers to physical attributes of the brand that can be considered as its strength over other brands. strength includes the functioning of all product facilities, physical appearance, product price, and appearance of supporting facilities and broad market coverage. 2. uniqueness meanwhile, uniqueness is an ability of distinguishing a brand from others. this impression results from product attributes differentiating it from other products. uniqueness included appearance variation or name of a brand that is memorable and easy to spell, as well as the physique of product. 3. favorable favorable characteristics includes the product brand’s easiness to spell and their ability to be memorized by customers making the product well-known and favorite to community and compatibility between brand image in customers’ mind with the image wished by the company over the brand. 130 international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 service quality tjiptono (2005: 110) states that “quality is a dynamic condition related to product, service, human resource, process and environment meeting or surpassing the expectation”. in addition, he (2011: 3) also suggests that service is simply a series of activity to do something for others. quality, according to koller and keller (2008: 143), is total feature and characteristics of product or service dependent on the ability of satisfying the need, either implicitly or explicitly. service discrepancy, according to lovelock and wright (2007: 98-99), is not the only one way for the customers to asses service quality. they also use five broad dimensions as the criteria. 1. tangibles it is physical evidence of service supporting service delivery. it includes physical facilities, equipment, personnel, and communication media. 2. reliability reliability means accurate and satisfactory according to the promised one or the ability of giving service according to the need. it means giving service readily and quickly from the first time. 3. responsiveness it is employees’ desire and efficiency in helping the consumers by giving service as well as possible. 4. assurance it is an ability the employees have to cater to customers patiently and friendly, responsively, quickly, and reliably. 5. empathy it is a sincere attention given to consumers, including convenience in establishing relation with consumers, directing, communicating well, giving personal attention, understanding the customers’ need, and corresponding to the time the customers have. loyalty literally, loyalty is defined as allegiance, an individual’s allegiance to an object. mardalis (2005: 111-112) defines loyalty as a condition in which customers have positive attitude to a brand, commitment to the brand, and intend to continue their purchasing in the future. the fully-integrated customers in action loyalty stage can be hypothesized as the ones have low vulnerability to switching to other product. in other words, this action loyalty gives the customers only a little or no opportunity of switching to other products (mardalis, 2005: 113). tjiptono in sangadji and sopiah (2013: 115) suggests indicators that can be used to measure customer loyalty as follows: a. repeated purchasing; b. brand consuming habit; c. big preference to brand; d. determination to brand; e. belief that the brand is the best one; f. recommending the brand to others; and g. saying positive things about the company to others. 131international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 3. research method this study was a quantitative research. this quantitative research was used to answer the problem statement of research, the answer to the problem research using theory only. quantitative method is appropriate to use in the already clear research generally conducted on broad population, so that the result of research is less in-depth (sugiyono, 2014: 347). the author selects case study on the customers of fatmawati branch of bank bni syariah because the customers themselves feel service quality of bank bni syariah. the research was conducted from june to august 2017. in this study, there were two types of variable: independent and dependent variables. independent variables were marketing mix (x 1 ), brand image (x 2 ) and service quality (x 3 ), while the dependent on was customer loyalty (y). method of collecting data primary data was data source directly giving data to data collector (sugiyono, 2015: 137). to obtain primary data in this research, the method of collecting data employed was questionnaire. questionnaire is the technique of collecting data conducted by distributing a series of written questions or statements to be responded to by respondents. questionnaire can be closeor openended questions or statements given directly to respondents or sent via mail or internet (sugiyono, 2015: 142). primary data employed in this study was the one based on the response to the questionnaire distributed directly to 100 customers of fatmawati branch of bank bni syariah. in this research, the answers given by respondents were scored using likert scale in checklist (p) for,/ likert scale is the scale used to measure an individual’s or a group of individuals’ attitude, income, and perception on social phenomenon. through likert scale, the variable measured was elaborated into indicator of variable. then, indicator was made the starting point to arrange instrument items including statement or question (sugiyono, 2015: 93). method of analyzing data method of analyzing data employed was a multiple-linear regression one. basically, regression analysis was a study on the dependency of dependent variable on one or more independent variables (explanatory variables), aiming to estimate and or to predict the mean population or mean score of dependent variables based on independent variable value known (gujarati, 2003 in ghazali, 2016: 93). 4. result and discussion normality test 1. graphic analysis figure. 1 p plot regression 132 international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 considering the result of data analysis a shown in figure about p-plot normal curve above, it can be concluded that on p-plot normal curve, there are points spreading around diagonal line, the distribution of which is not too far or wide. it means that this curve shows that regression model is corresponding to normality assumption and feasible to use. table. 1 multicolinearity test coefficientsa model collinearity statistics tolerance vif 1 (constant) marketingmix .930 1.076 brandimage .787 1.271 servicequality .792 1.263 a. dependent variable: loyalty from table above, it can be seen that tolerance value is close to 1 and variance inflation factor (vif) value is around 1 for each variable, indicated with tolerance marketing mix value of 0.930, brand image discipline of 0.787, and service quality of 0.792. in addition, vif value was 1.076 for marketing mix, 1.271 for brand image, and 1.263 for service quality. a regression model is stated to be free of multicolinearity problem when it is has vif score less than 10. thus, it can be concluded that there is no multicolinearity problem in the regression equation model and this model can be used in this research. heteroscedasticity 1. graphic analysis heteroscedasticity aims to study whether or not there is difference of variance or residual between one observation and another in regression model (ghozali, 2013: 139) figure. 2 scatterplot the figure of scatterplot chart above shows that data is distributed above and below 0 (zero) on y axis and there is no clear pattern in data distribution, meaning that there is no heteroscedasticity occurring in regression equation model, so that the regression model is feasible to use to predict employee performance based on the variables affecting it, including marketing mix, brand image, 133international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 service quality, and loyalty. table. 2 multiple regression analysis result of multiple linear regression test considering the coefficients above, the following equation can be obtained: y = a + b1 x1+ b2 x2 + b3 x3 + e where: y = customer loyalty x1 = marketing mix x2 = brand image x3 = service quality a = constant (intercept) b1-3 = coefficient of regression e= confounding variable (disturbance error) t-statistic test t-test shows the size of effect of independent variables partially on the variation of dependent variable. table. 3 result of t-statistic test the effect of marketing mix (x1) on customer loyalty ( y ) it can be found that t-statistic value of marketing mix is 5.209, while t table can be calculated, 134 international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 with = 0.05, as it uses two-way hypothesis, when finding t table, with divided into two, 0.025 and df = n-2, df 100-2 = 98, and it can be found that t table value = 1.984. thus, t hitung > t tabel or 5.209 > 1.984 with significance level of 0.000 < 0.05. therefore, it can be concluded that ho is not supported and h a is supported. it means that marketing mix affects customer loyalty partially. the effect of brand image (x2) on customer loyalty (y ) it can be seen t-statistic value for brand image is 12.460, while t table can be calculated, with = 0.05, as it uses two-way hypothesis, when finding t table, with divided into two, 0.025 and df = n-2, df 100-2 = 98, and it can be found that t table value = 1.984. thus, t hitung > t tabel or 12.460 > 1.984 with significance level of 0.000 < 0.05. therefore, it can be concluded that ho is not supported and h a is supported. it means that brand image affects customer loyalty partially. the effect of service quality (x3) on customer loyalty (y ) it can be seen t-statistic value for service quality is 2.905, while t table can be calculated, with = 0.05, as it uses two-way hypothesis, when finding t table, with divided into two, 0.025 and df = n-2, df 100-2 = 98, and it can be found that t table value = 1.984. thus, t statistic > t table or 12.460 > 1.984 with significance level of 0.000 < 0.05. therefore, it can be concluded that ho is not supported and h a is supported. it means that service quality affects customer loyalty partially. table. 4 f test anovaa model sum of squares df m e a n square f sig. 1 regression 402.388 3 134.129 106.838 .000b residual 120.522 96 1.255 total 522.910 99 a. dependent variable: loyalty b. predictors: (constant), service quality, marketing mix, brand image f test is conducted to find out whether or not all independent variables in the model affect the dependent variables tested simultaneously. it can be seen that f table in this research is 3.09, so that it can be concluded that 106.838 > 3.09 and significance level of 0.000 < 0.05. therefore, it can be concluded that ho is not supported and h a is supported, meaning that marketing mix, brand image, and service quality affect customer loyalty simultaneously. table. 4 coefficient of determinacy (r2) model summaryb model r r square adjusted r square std. error of the estimate durbinwatson 1 .877a .770 .762 1.120 1.643 a. predictors: (constant), service quality, marketing mix, brand image b. dependent variable: loyalty coefficient of determinacy (r2) explains the adjusted r square of 0.762 or 76.2%, meaning that 76.2% of dependent variable’s ability can be explained by three variables: marketing mix, brand image and service quality. meanwhile the rest of 23.8% (100%-76.2%) variance of dependent variable is explained by other factors excluded from the regression equation in this study. 135international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 5. conclusion this research aims to find out the effect of marketing mix, brand image, and service quality on customer loyalty in bank bni syariah. the respondents consisted of 100 customers of fatmawati branch of bank bni syariah. considering the data collected and data analysis conducted using multiple linear regression table, it can be concluded that marketing mix (x 1 ) affects customer loyalty (y) in bank bni syariah partially. brand image (x 2 ) affects customer loyalty (y) in bank bni 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(2005). brand management and strategy. yogyakarta: andi. 136 international journal of islamic business and economics (ijibec), 2(2) december 2018, 127-136 internet bank negara indonesia syariah, “profil bank negara indonesia syariah”, www.bnisyariah.co.id, retrieved on december 14 2016. www.ojk.go.id“jumlah bank syariah di indonesia” retrieved on december 14 2016. www.kinerjabank.com.“bank sehat 2016” retrieved on december 14 2016. untitled ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn 255-3216 article history: received : 10 juli 2017 accepted : 20 july 2017 published : 1 december 2017 keywords: spiritual, godliness. this study succeeded in proving that altruism is an inseparable to lead a consumer to the best level of godliness. just by assuming that to create as . what is unique is the three forms of altruism have a altruism models in islamic consumption system muhammad muflih the state polytechnic of bandung international journal of islamic business and economics, 1(2) december 2017, 6 3 7 564 have indicators, although there is budget constraint, price of pi and commodity xi which consumed by a consumer is equal to or below the budget m responsible for securing private interests but not responsible on the safety of the other party. the only be used during the human life, and it will end if the ends of human life. i i j j. it is described as follows. , is equal to 0. the achievement of these international journal of islamic business and economics, 1(2) december 2017, 6 3 7 5 65 want to get the perfect glory of god. therefore . ithappens because only rely on the limited society cluster which not certain if there are poor people or not, while the expression is a concern to all society cluster. in this regard the maximum will be able ui cases will occur between the max wedge and because the value . the emergence of as one of significant factors in the formation of the system of islamic consumption actually has attached in people perspective. at least, a description of the about the bargaining problem, for example, is suitable in this case. nash has initiated the consequently, such a pattern is able to eliminate the ego’s attitude on individual self interest. activity for the two parties’ economic capability, balanced humans, but also can be explained as an instrument to strengthen social relationships in different levels of the economy. as a result, with this model the system of distribution of wealth from the rich to the poor can be run well. wealth that turned out to be both of which turned , then , then . this may imply that is determinant of increase in the number of . in reality, only a few people who run the system of altruism using the spirit of reciprocity. international journal of islamic business and economics, 1(2) december 2017, 6 3 7 566 , then c z s proof. suppose the , where m is the budget constraints. with the provisions of where if , then there will be a very z and s. this means z and s expenditures. this shows that consumers z in z is the rights of others who have not been issued. these rights remain in the property of a consumer. the z international journal of islamic business and economics, 1(2) december 2017, 6 3 7 5 67 the z when z the form of , where it can be incorporated with and can also be incorporated with . similarlys the compulsory. in other words, without z therefore, the z z s, because s . although the value of z but without a value of s happens because the expenditure value of z s issued based on an urge to improve the quality of individual z, becausez where as the s z, and is based on the ability of the individual to share sto the social environment can be greater than z if the value which distributed are large. however, it may be smaller than the z because the value is z is only able k international journal of islamic business and economics, 1(2) december 2017, 6 3 7 568 m the k derived from z s , it shows that consumers have been able to integrate z strong control on the use of and . 0 consumers do not give anything to a fellow human and social environment. the next level is the because the consumer is eager to add the quality of closeness to god, and not all of its grant to . the more the line of the arrow pointing to the right, then a higher level of human of love for god. conversely, the arrows pointing to the left, then a man increasingly has a international journal of islamic business and economics, 1(2) december 2017, 6 3 7 5 69 a symbol . this indicates that humans only see themselves, while the interests of others are ignored. u during t as the price, the proof . this shows concretely that human imprisoned by his own ego 3.1 compassion utility in every human it is undeniable that in every human being there is an element of a social character soul, where arethe form of pride for the concern and solidarity to others. moreover, when others who are will express genuine altruism. . the following are the reasons behind it: international journal of islamic business and economics, 1(2) december 2017, 6 3 7 570 1. awareness of the social interests always occur incidental when there is a sad event that encouraged the spirit to help others. . proof. each value of . in this case limitrequires , but most importantly both can operate when . in fact, it could happen . suppose that . when a consumer , where represents the giving to people who beloved and for poor people, then with the exponents that giving a sense of solidarity and concern to others. while rather than increase it is certain that the , because menu has the same meaning with the spending of material. therefore stands alone, and as important as the menu ofcommodity international journal of islamic business and economics, 1(2) december 2017, 6 3 7 5 71 1,1 , , 0,0 however, each part of converted into the form of it exist if on to reduce the weight of created, with each get points, and vice versa. even when it is found that , it doesn’tmean that individual consumers lose money or even regret. it 3.2 rationalization of the social-spiritual gain to god. , can be described as a deliberate reward god gives to the human in the form of the virtues which grow material and spiritual value. if the then it will be of shadaqah to the level . rewards given are where as a symbol of wealth and forms and categories of rewards that are taught in islam can be outlined as follows. 1 giving the property in the form of promised by religion will grow and increase as well asthe value of consumer spiritual. the more giving, it will increasingly high, as well as the spiritual values. international journal of islamic business and economics, 1(2) december 2017, 6 3 7 572 2 altruism to the other people brings mental peace and encourage consumers to be more serious in doing business. god, result in passionate because the consumer believes that god will simplify the business. consumers feel that moreover, the economic improvement of the unfortunate poor and the rich always considered as a form of a loan the god to human, will get an honorable good reward, and obtain forgiveness of sins where . , in order to perform altruism incidental expenditure, as was done with with regard , as well as divided by it is found that the structure of altruism contained in very limited because it is for the following model is not as the rate of international journal of islamic business and economics, 1(2) december 2017, 6 3 7 5 73 in this case, proof of the above can be run properly if . this happens because has targeted a wider spread than also be numerous and wider than . by the consumer denoted by , which means that the consumer has the goal to be achieved 3.3 god and human relationship . the level of altruism. he will move on his own, as he departs from the need to always close and purpose in god either directly or indirectly. however, consumers in this model is concerned about international journal of islamic business and economics, 1(2) december 2017, 6 3 7 574 , forms of altruism they have the character of islamic altruism are very strong, namely, that all forms change the structure of altruism that has been very well established for this, namely the reciprocity altruism is not very dependent on the people who will be given, but it is a form of consumer , 64 property,” unity,” social capital,” , international journal of islamic business and economics, 1(2) december 2017, 6 3 7 5 75 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 20 july 2018 accepted : 7 august 2018 published : 1 dec 2018 keywords: sales promotion girl; islamic perspective; marketing https://doi.org/10.28918/ijibec. v2i2.1261 jel: m30; m31 abstract there are many spg who dress un-accordingly to the teachings of islam when they are running product promotion activities. this study uses qualitative research method with a phenomenological approach. subjects in this study were women who worked as spg, while the research object was in semarang city. the results of this study indicates that the use of sales promotion girl is potential to violate islamic sharia because of the inadequacy of the clothes used by spg, since in the marketing system, the clothes used by sales promotion girl are considerate un-accordingly to the provisions of the islamic sharia or not in accordance with the perspective islam. the marketing strategy of the product with sensual marketing reviewed from islamic perspective fajar adhitya faculty of islamic economics and business uin walisongo semarang email: fajar.adhitya@walisongo.ac.id 100 international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 1. introduction an entrepreneur is a human being who is able and capable of doing business, regardless they are tired and always trying to reach the glory. a businessman, in doing his business also conducts activities called marketing (nurcholifah, 2014). kotler & keller (2013) explained that marketing is a social and managerial process where individuals and groups get what they want and need by creating, offering, and exchanging goods/services with other parties. in this state, marketing is a process of meeting between individuals and groups where each party intends to get what they need/want through the stages of creation, supply and exchange. marketing is an activity carried out by a company/organization to maintain the continuity of its company, to grow and to profit. in marketing, there is a design of activities to support the income target to be obtained, so the need for marketing management is to manage all these activities runs smoothly. the activities that support marketing management are sales/marketers. marketers are individuals who are looking for one or more prospective customers to distribute products from one location to another so that the exchange of values is involved. one strategy that has become a trend among companies now, is marketing with a model of sensual marketing carried out by sales promotion girl or often called spg. sales promotion girl is a woman who sells certain products. the number of women who work to fulfill their daily needs, particularly as sales promotion girl as a result of the time’s development and the changing perspective and pattern of thinking about the position of a woman. today’s life does not provide an opportunity to limit women’s work. nowadays, many women are working in government and private offices, and not a few also become members of the military and state police, quite a lot are working in the field of the company, for example selling or often called marketing. marketers are the spearhead of the company since they are in direct contact with candidates of customers/ potential customers. sales promotion can contribute to the success of ongoing marketing efforts if there is a proper understanding of consumers and markets (mendez, bendixen, abratt, yurova, & o’leary, 2015). in selling the company’s products, it requires several activities involving resources, in this matter, these resources can affect the management of a product that can further be accepted by the community. promotional activities are usually carried out involving skills for each person, such as sales promotion girl (spg). the sales promotion girl is aiming to attract consumers, this is based on the appearance of an attractive sales promotion girl since in the recruitment process, sales promotion girl must meet several criteria, namely good looking, dare to be different, having height above average, proportional weight, and also possess the ability to speak. in the recent competition era, there are quite a lot of companies utilizes the sales promotion girl as a method to smooth their product’s marketing. in this era of competition, not a few companies in indonesia use sales promotion girl as a way to make their product marketing run smoothly. the utilization of sales promotion girl in marketing a product now can be found anywhere, especially if the company launches a new product that is not familiar yet to the public. there is even a sales promotion girl recruitment service company, it is named as agency sales promotion girl, it will be a distinct advantage for the service company because of the tendency of companies in indonesia to require sales promotion girl. as with cigarette products, sales promotion girl tends to be targeted at product knowledge as a way of successful promotion. the statement was corroborated by the results of study from (alvo & hasan, 2017) which stated that the promotion and marketing through spg was very effective and efficient in increasing sales turnover. the determined criteria by the sales promotion girl (spg) agency and the company are sometimes falsely implemented in the field by women who are sales promotion girl professionals. 101international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 they assume that being spg must be sexy like the opinions that have been developed in the community by far, although not all agencies and companies require sales promotion girl to dress sexy and indulge in genitalia. based on the observations that the researcher has done, 80% of the spgs muslims who in islamic teachings forbid the use of clothing that shows or reveals body curvature (aurat) in every activity of life including work. by looking at the attached symbols to the spg also enables a poor stigma for spg as a profession based on the sexy outfit, make up to the more aggressive and coercive verbal language when offering the product. the previous study conducted by (sari, 2014) stated that the community leaders’ perspective towards the automotive sales promotion girl (spg) in surakarta is poor or negative. surakarta is a city which well-known as identic to the stigma of woman who is polite, friendly and soft tends to consider physical appearance, the body language and how an automotive sales promotion girl (spg) interacts with a customer already has a poor image. based on the background above, the academic anxiety arises for the researcher about the potential issues that can occur due to spg’s behavior that is crossing the boundaries of both clothing and behavior limits. these problems are essential to be studied considering the problems that arise are very much related with the religious norms/cultural norms of the indonesian people. this motivates the writer to study more deeply about marketing strategies with sensual marketing if reviewed from islamic perspectives. the number of women who work is based on several factors, one of which is the desire to develop and fulfill needs. according to (lestari, 2012) by working, women are considered to have a higher social status and gain social rewards from the community. the opportunity to develop as broadly as possible for women makes women begin to dare in emerging excellence in job competition and issue ideas. there are so many jobs that can only be completed by women such as sales promotion girl. poerwodarminto in (rafikah, 2014) stated that sales promotion girl (spg) is a profession that is aimed to sell or to promote a product. this profession involves a woman who has appealed physical appearance as an effort to attract consumer’s attention. retnasih (2001) defines sales promotion girl as a woman who is recruited by a company to promote the products. this opinion is seen by the existence and function which is as the presenter party of a product. this statement also illustrates that the main task of a sales promotion girl is to produce a product. sales promotion girl is a saleswoman who offers a service to serve the consumer. by the presence of sales promotion girl, a company is able to attract consumer and influence the consumer to try the offered product (mutiara, 2013). according to raharti (2001), there are several obligated requirements that must be fulfilled by the sales promotion girl: first, performance is a physical appearance that can be seen by the vision. it means that performance is about the characteristic that is measured by outlook appearance (physical appearance) and dress code design (clothing design), second is the communicating style which means an absolute communication must be fulfilled since the communication will create interaction between consumer and sales promotion girl. this communication is measured based on the style of speech and the way of communicating that is valued from the consumer, the third is body language which means more body language/ physical movement (weak, soft, graceful, etc.). the body movements when offering products and touches are descriptions of body language. it is very possible that sales promotion girl recruited by the company will be able to create a good perception of the product advertised and will be followed by interest in buying. marketing a product requires several activities which involve several resources. in marketing, there is also a section that has a direct relationship with consumers, namely product sales. basically, 102 international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 product sales now have a direct marketing section that offers product offerings and product samples. this section is usually known as sales promotion. an spg is demanded to look attractive as the initial effort to attract potential consumer’s interest, at least the consumer listens to the explanation of the offered product or even try it. furthermore, an spg also has to possess deeper knowledge about the product so that the potential consumer is interested to buy that product. to become an spg, it takes several conditions. the common condition for an spg is as listed: female, 21 y.o. maximum, high school or equivalent the academic background, height is 160 cm as the minimum, 56kg as the maximum weight, attractive looking, has experience as an spg or having learning interest to become a professional spg. the company’s need for sales promotion girls is matched with the character of a product to be marketed. product promotion for daily needs usually uses sales promotion girl with lower possible criteria compared to sales promotion girls for premium products. having that way, the selection of the sales promotion girl personnel’s utilization can be completed with consideration of the products to be promoted. the compatibility between the products promoted and the sales promotion girls’ qualifications makes it possible to increase the attractiveness of consumers in the promoted products. the physical character’s existence of a sales promotion girl, in its function is able to elevate the image of the product, especially direct consumption products. at the time of hearing the word marketing, it is often linked by many parties with sales, sales promotion girls, advertising, promotions, or products. marketing can be interpreted as a social process that designs and offers something that becomes the needs and desires of customers in order to provide optimal satisfaction to customers (rivai, 2011). marketing can be interpreted as an activity that strives to make the marketed products acceptable and favored by the market (khasmir, 2004). marketing is the result of work’s performance of a business activity that is related to the flow of goods and services from producers to consumers (assauri, 2013). in a broader view, marketing is a process of an activity that starts long before the goods / materials enter the production process. marketing activities include concept of development, pricing, promotion, and distribution of a number of ideas, products, and services. the marketing of islamic product has no significant difference from other marketing that we are familiarized with, however, sharia marketing focusing more on and based on islamic sharia derived from al qur’an and hadiths. furthermore, (makmun, 2015) stated that in running a business particularly in the marketing process, it has to be based on the proper management and by holding the ethics and morality that is applied in the society that possess social and religious values. the company’s need for sales promotion girls is matched with the character of a product to be marketed. product promotion for daily needs usually uses sales promotion girl with lower possible criteria compared to sales promotion girls for premium products. having that way, the selection of the sales promotion girl personnel’s utilization can be completed with consideration of the products to be promoted. the compatibility between the products promoted and the sales promotion girls’ qualifications makes it possible to increase the attractiveness of consumers in the promoted products. the physical character’s existence of a sales promotion girl, in its function is able to elevate the image of the product, especially direct consumption products. an spg is demanded to look attractive as the initial effort to attract potential consumer’s interest, at least the consumer listens to the explanation of the offered product or even try it. furthermore, an spg also has to possess deeper knowledge about the product so that the potential consumer is interested to buy that product. furthermore, an spg also has to possess deeper knowledge about the product so that the potential consumer is interested to buy that product. the common requirements for an spg is as follows: (a) female (b) 21 years old as maximum 103international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 age (c) high school or equivalent as the academic background (d) has minimum height as 160 cm (e) 56 kg as the maximum weight (f) attractive looking (g) posses experience as an spg or having desire to learn to become a professional spg. 2. research method this study uses qualitative research method with a phenomenological approach. according to (moleong, 2006), qualitative research is a study that aims to understand the phenomenon of what is experienced by the subject of research, such as behavior, perception, motivation, actions, etc., thoroughly, and by way of description in the form of words. words and language, in a special natural context and by utilizing a variety of natural methods. through the phenomenological approach of alfred schutz, the writer will describe the complex reality in women’s lives as spg. this research method was chosen because in addition to not using statistical numbers, the author wanted this research to explain the meaning of women as sales promotion girl in semarang city. in accordance with the purpose of this study, the research subject was devoted to women who were sales promotion girls in the city of semarang totaling 3 spg. the criteria for informants to see the meaning of women as spg in semarang city, which are: the informant is a woman who is a muslim, the informant has promoted products in the form of information and the informants have followed at least 5 events. the object of study is the point that becomes the focus of a study. the point of attention is in the form of material that is examined or solved the problem using the theory in question (chaer, 2007) in this study the object of the study was semarang city. 3. result and discussion basically, a woman’s task is to manage the affairs of the house, take care of the family, educate children, and serve the husband, as the prophet said: “the woman is responsible for the affairs of her husband’s house” (hr al-bukhori). women are not required to fulfill their own needs because they are the responsibility of their father or husband. even so, islam does not prohibit women from working. they may sell or buy business with their personal property. no one can prohibit them while following the religious guidelines. there is stigma arises in society indicates that by working, women are considered to have a higher social status and get social appreciation from the community (lestari, 2012: 143). [having job as a sales promotion girl can increase family income, decrease family’s economic burden and can fulfil the needs sir, therefore it can increase family’s economic image. woman nowadays has to be independent, become the breadwinner of herself, better than to stay jobless sir. lately it is difficult to find jobs at the office which is why i become a sales promotion girl (spg)]. (interviewed on 29th april, 2018). the statement of this informant strengthens the study conducted by (samsudin, 2013) stated that woman prefer to work as an spg for cigarettes industry because of reason like gaining bigger income to fulfil daily needs. a study from (arfryani, 2016) stated that the past motive from a female college student to become an spg are: economy, which is the will to live independently, means that financial needs are fulfilled. aside from many who falsely apply the implementation of the provisions of the agency and the company, there are some spg who deliberately dressed that displayed aurat with the aim of tempting the customer to buy the cigarette products offered by the spg. many sales promotion girl dressed beyond fairness / display excessive genitalia which can actually invite lust and can invite someone to commit a crime such as sexual harassment. sales promotion girl who are many sensual marketing actors who are sexy, this was revealed by my informant as aprilia (25 years): most of the women who work as spg are dressed in sexy packs, it aims to attract more consumers’ 104 international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 buying interest, because the products i sell are cigarettes which are actually male users, i also eat sexy so they are attracted to me only later interested in the goods / products that i sell. dressed in sexy, i sold the cigarettes faster and reached the sales target (interviewed on april 29th, 2017). what was conveyed by aprilia (25) as an informant was corroborated by the research conducted by (agow, 2017) which stated that the many issues circulating in the community about the spg profession made the spg cigarette image worse, in which the community considered spg social negative behavior. basically, women may work if they get permission from their father or husband when the woman is married and if her job requires her to leave the house. the right to give permission of the husband to the wife is automatically lost if a husband does not provide for his wife. if the woman works, she shouldn’t leave the obligation to take care of the family and care for her children. the criteria for work done outside the home for women according to (manshur, 2012) are: (a) excluding immoral acts as singing, or playing musical instrument and does not tarnishing family’s honor. (b) does not require her to spend time alone with a man, since it is feared that there could be slander between the two of them. (c) does not require her to have over make up and shows her aurat when she is. and settle in your homes; and do not display yourselves, as in the former days of ignorance. and perform the prayer, and give regular charity, and obey god and his messenger. god desires to remove all impurity from you, o people of the household, and to purify you thoroughly. (qs. al ahzab: 33). in the marketing system, promotion is the main thing because when the promotion is completed, later on we will know how consumer responses to the products we offer. part of the sales promotion’s function is not only to strengthen the consumer’s commitment but to encourage repeatedly purchases (oyeniyi, 2011). in promoting a product, we need the services of a sales promotion girls (spg). the bidding process carried out by an spg already has and is based on the provisions of the company itself. but in the implementation of product offerings that becomes promotions in the field, the sales promotion girls (spg) should only be to attract buyers from the goods promoted so that, consumers when buying goods really pay attention to the quality of the product to be purchased through an explanation delivered by spg, not by consumer interest against clothes worn by spg. within the field of product / goods marketing, the prophet muhammad has set the best example: he is charming, builds relationships, prioritizes blessings, understands customers, gains trust, provides the best service, communicates, establishes personal relationships, responds to problems, creates feelings one community, integrating, creating engagement and offering choices. the concept taught by the prophet muhammad saw is often referred to as islamic marketing. the concept of sharia marketing is developing along with the development of islamic economics in indonesia. (tamamudin, 2014) said that in some literature many people say, the sharia market is an emotional market, whilst the conventional market is a rational market. in addition, in the islamic religion, the prophet muhammad had taught and told his people to market their products/goods in accordance with the teachings of islam. the promotion strategies of the prophet muhammad include: having a spiritual personality (taqwa), behaving well and sympathetically (siddiq), having intelligence and intellectuality (fathonah), communicative, transparent and communicative (tablig), serving and being humble (khidmah), honest, trusted professionals, credibility and responsibility (al-amanah), do not like to get worse (su’uzh-zhann), do not like to speak badly (ghibah), and do not commit bribery (risywah). by utilizing the method of promotion through spg media according to the economy in 105international journal of islamic business and economics (ijibec), 2(2) december 2018, 99-106 general is valid. because the system used in promotions using spg media has fulfilled the terms and conditions of the general sale and purchase conditions. in this case all have been fulfilled in the syara which has become a provision in buying and selling, which are sellers, buyers, prices, goods, permission and qabul. in terms of islamic economics, the system of product sales carried out by companies using bidding through spg is in in-line with the terms and conditions. because in the principle, the marketing carried out by spg applies a system that is part of the elements that are in accordance with the provisions explained by the prophet muhammad. however, what makes this system a little out of the islamic context is that it is not good enough for the clothes used by spg, because in the marketing system the clothes used by the spg are not in accordance with the provisions in islamic sharia. which is too show the nakedness that should be covered. so that the prospective buyers of the product affect them not because of the quality of the products promoted by spg but from the physical shown by spg. hence, the marketing system carried out by companies in the context of marketing using spg is permissible because it is in accordance with the concept of offers made by the prophet muhammad. nevertheless, in the context of ethics in islam the system by means of spg that uses clothes shows that their genitals are deemed incompatible with the islamic context. the marketing pattern of the company as mentioned above is not permitted in the context of islamic marketing because the process carried out in this system is carried out in a way that emphasizes the aspect of spg-worn clothing that shows its nakedness not because of the quality of the goods traded in the offer. 4. conclusion in the selling/marketing, promotion is the main part of how to make a new product’s marketing successful that half or even the whole society or consumer have not been informed yet about the product. within the promotion, it needs the service of sales promotion girl (spg) with the objectives of introducing the new product to be known by the consumers. spg has to possess the advantage which one of them is a proper communication skill with everyone, as well as possess the inner beauty so consumer can be attracted to buy the product. by using the promotion through the sales promotion girl, according to the economy is permissible in general, as it fulfils the requirements. from the perspective of economic islam, the marketing system applied by a company that uses the offer through sales promotion girl is already in accordance with the requirements and sequences (rukun). because in principle marketing that is run by sales promotion girl, applying a system that is partially in accordance with the provisions explained by the messenger of allah, only, the use of sales promotion girl can violate islamic sharia because of the lack of dress used by spg, because in the marketing system the clothes used the sales promotion girl is not in accordance with the provisions in the islamic sharia. spg is more concerned with big targets and benefits, it is contrary to sharia marketing, which is pursued not only by profit but also by the values of honesty and maintaining the prevailing norms in society. the concept of islamic marketing emphasizes that sales are responsible not only to customers but also to allah swt. references agow, o. 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(2015). sensual marketing (memasarkan produk dengan menggunakan jasa sales promotion girls) menurut perspektif ekonomi islam. universitas islam negeri walisongo. manshur, a. q. (2012). buku pintar fikih wanita. (y. burhanudin, ed.) (cetakan 1). jakarta: zaman. mendez, m., bendixen, m., abratt, r., yurova, y., & o’leary, b. (2015). sales promotion and brand loyalty : some new insights. international journal of education and social science. mochammad, n. (2008). investasi syariah. (jusmaliani, ed.). yogyakarta: kreasi wacana. moleong, l. (2006). metodologi penelitian kualitatif. jakarta: kualitalif sasial. mutiara, r. d. (2013). perilaku komunikasi sales promotion girl provider xl axiata. artikel. nurcholifah, i. (2014). strategi marketing mix dalam perspektif syariah. jurnal khatulistiwa-journal of islamic studies. rafikah, n. (2014). analisis pengaruh penggunaan jasa event organizer dan sales promotion girl terhadap keputusan pembelian rokok apache. unisla journal. 12(3), 1-6. oyeniyi, o. (2011). sales promotion and consumer loyalty: a study of nigerian tecommunication industry. journal of competitiveness. rafikah, n. (2014). sales promotion girl terhadap keputusan pembelian. unisla journal, 12(3), 1–6. raharti, m. (2001). manajemen penjualan dan pemasaran. yogyakarta: andi offset. retnasih, r. (2001). sales promotion girls dalam berbagai perspektif. jakarta: salemba empat. rivai, v. (2011). islamic marketing. jakarta: pt gramedia pustaka utama. samsudin., n. v. (2013). eksploitasi tubuh sales promotion girl (spg) rokok nicke virawati samsudin arief sudrajat. fakultas ilmu sosial universitas negeri surabaya, volume 01, 1–5. sari, f. a. (2014). persepsi masyarakat terhadap sales promotion girl otomotif (pp. 1–17). uns. tamamudin. (2014). refleksi teori pemasaran... (tamamudin). jurnal hukum islam (jhi) volume 12, nomor 2, desember, 2014 http://e-journal.stain-pekalongan.ac.id/index.php/jhi, 12, 273–285. untitled ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn 255-3216 article history: received: 07 agustus 2017 accepted: 17 agustus 2017 published: 1 december 2017 keywords: early warning sign the contribution of nusantara moslem local tradition on micro finance risk management in indonesia (case study in bondowoso rural’s banking) nur hidayat faculty of islamic economics and business of institut agama islam negeri (iain) jember international journal of islamic business and economics, 1(2) december 2017, 7 7 8 678 the change strategy becomes a necessity, in all areas and sectors. the ability to adapt to change is customer company competitor change indicators, does not consider the factor of consumer behavior due to consumer culture. according international journal of islamic business and economics, 1(2) december 2017, 7 7 8 6 79 to the mind, and the output of the human mind referred as a culture. cultural values themselves are the values agreed upon and embedded within a community, the community, the scope of the the value of culture in the form of signs and symbols that are very diverse is also presented respect for nature and so on. human way of life to accept the changes and conduct business in a rapidly changing world without 4.1 socio-cultural on bondowoso society international journal of islamic business and economics, 1(2) december 2017, 7 7 8 680 ” referred to the shape of the region madurese and javanese as a pendhalungan society. hijri 1 sorah 2 safar 7 10 11 12 rerajeh the calendar used by the pendhalungan society consist mostly with the islamic nuances ”. it is as some of the money, food, power, and ideas. is intended to get international journal of islamic business and economics, 1(2) december 2017, 7 7 8 6 81 both for marriage or for circumcision deliberately in high amount. it is the provision of to be refunded in future. most , . ” in the form of food or dish to deliver to their families or neighbors 4.2 banking in the bondowoso area assets deposit loan npl ldr the development of micro loans international journal of islamic business and economics, 1(2) december 2017, 7 7 8 682 every month. have a unique behavior. credit borrowing behavior, installment loans, saving and investments january january march march april april may may international journal of islamic business and economics, 1(2) december 2017, 7 7 8 6 83 june june july july august august september september november november december december masehi january january march march april april may may june june july july august august september september november november december shafar december january deposit on micro finance international journal of islamic business and economics, 1(2) december 2017, 7 7 8 684 non-performing loan international journal of islamic business and economics, 1(2) december 2017, 7 7 8 6 85 ” or others became the mainstay of the community investment product. some bad debt customer that most because they have perceived that the cow was not a business commodity to trade, but it was an 1. were worse compared with similar companies in general or the business past performance. 2. international journal of islamic business and economics, 1(2) december 2017, 7 7 8 686 the right amount and the right people. . school, philadelphia, pa. verging?. , . . jember: kompyawisda. another sources website : www.bi.go.id www.bps.go.id 21 ijibec human capital investment : case of state-owned banks and sharia banks maaz ud din1, ana kadarningsih2, herry subagyo3 1ph.d scholar university of swabi, kp-pakistan 2ph.d scholar university of diponegoro, university of dian nuswantoro, indonesia 3university of dian nuswantoro, indonesia (correspondent email: ana.kadarningsih@dsn.dinus.ac.id) abstract the objective of study is to find the influence of company size, human capital investments, and leverage on financial performance. case studies on state-owned banks and state-owned sharia banks in indonesia for the 2012-2018 period. the number of samples uses in the study were four state-owned banks and four state-owned sharia banks in indonesia. the samples of this study were the financial report that taken from the indonesia stock exchange and the indonesia financial service authority with period 2012-2018. the analysis method for this research is linear regression methods, test of classic assumption, determinant coefficient, f-test, t-test. the findings show that the size and leverage variables have no significantly effect on financial performance in state-owned banks, while the human capital investments have a positive effect and significantly on financial performance. the results also show that human capital and leverage have no impact on financial performance in state-owned sharia banks, but has size have significant effect on financial performance. human capital investment was most variable that impact financial performance significantly in state-owned banks. otherwise, size was the most significantly variable that effect financial performance in state-owned sharia banks. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 1 2020 keywords: human capital investments, size, leverage, financial performance doi https://doi.org/ 10.28918/ijibec.v4i1.1979 jel: g21, g24, g32, j24 published : 1 june 2020 mailto:ana.kadarningsih@dsn.dinus.ac.id 22 international journal of islamic business and economics (ijibec), 3(2) december 2019, 21-29 1. introduction company performance is a measure of success in managers in company running. company performances’ information is required by parties with an interest in the company, such as shareholders, creditors, the government, or the public, especially shareholders (isbanah, 2015). measuring the company's financial performance from a financial perspective is very valid, but basic driver of financial value is human capital that consist of knowledge, ideas, and innovations (mayo, 2000). the intellectual capital’s lifeblood is human capital, innovations’ source and improvements’ source, but not easy to measure (sawarjuwono, 2003). human capital can be measure with indicators size, human capital investments, and leverage (scafarto, 2018). commitment in human capital investment can show great results on capital accumulation so it is often a more efficient choice (michael waldman, 2020). financial performance is very important for companies, especially banking companies. there was four commercial banks and four sharia banks that owned by government in indonesia. commercial banks owned by government are bni (bank negara indonesia), bri (bank rakyat indonesia), btn (bank tabungan negara) and mandiri bank . meanwhile, four sharia banks that owned by government are bni syariah, bri syariah, btn syariah and bank mandiri syariah ( www.ojk.go.id, 2018). data from idx.co.id shown that size and human capital investment of bri and btn already increase but there was a decrease in financial performance in 2012-2018. otherwise, bank mandiri experienced an increase in size and human capital investments which was followed by an increase in financial performance in 2012-2018. but the size and human capital can not increase or decrease in financial performance in bni from 2012-2018. leverage also increase and was followed by a decrease financial performance in bank btn from 2012-2018. otherwise, the data of sharia bank owned by government found that size of bri syariah and btn syariah have been increased in 2014, but the financial performance was decrease. the human capital investment of btn syariah was an increase in 2017, but the financial performance was decreased. the leverage of mandiri syariah was decreasing in 2016, but the financial performance was an increase. a decrease in leverage can affect the amount of assets of a banking company so there are obstacles between the return of bank assets and leverage (galo nuno, 2017) some previous research related this study found human capital investment, size and leverage have effect positively on performance of financial (scafarto, 2018). the size of the company had impact on financial performance in positively and significantly (aprianingsih, 2016). the size of the company negatively affected financial performance (isbanah, 2015). other research found that company size have no influence on financial performance (hidayat, 2015). meanwhile, another study found that company size have positive and significant impact on financial performance (stephanie angel claudia rompas, 2018). leverage has a negative impact on financial performance (isbanah, 2015) ; (lestari, 2015). leverage has a significant effect on financial performance (tampubolon, 2015). increased leverage as an action in financial innovation can increase equilibrium leverage and reduce the risk of shortterm liquidity (karel mertens, 2011). human capital have a significant and positive influence on financial performance (khasanah, 2016) ; (nick bontis & massimo ciambotti, 2018). meanwhile, a finding of study found that human capital investment had no impact on financial performance (andriana, 2014). other research also found that human capital investment hadno influence on financial firm (rompho, 2017). increase in human capital can increase company productivity (hongbin li, 2017). the long-term effect of human capital investment is to improve employee skills, thereby increasing company output (rudi rocha, 2017). the findings show that there were a http://www.ojk.go.id/ international journal of islamic business and economics (ijibec), 4(1) june 2020, 21-29 23 positive relationship between human capital and company value. it mean human capital can increase the value of the company (irina berzkalne, 2014). human capital investment can be used as a measure of investment returns, cost factors, and economic added value (djojo, 2010). first, the objectives of this research is to determine the relation between human capital investment, size, leverage with financial performance of commercial banks that owned by government. second aim is to find the relationship between human capital investment, size, leverage with financial performance of sharia banks that owned by government. and the last aim is to compare the result of analysis from commercial banks and sharia banks and to identify the most variable that influence on financial performance in commercial banks and sharia banks that owned by government. 2. research method the researchs’ population are state-owned commercial banks listed on indonesia stock exchange and state-owned sharia banks listed on indonesia financial service authority from 2012-2018. the samples in this study is four state-owned banks dan state-owned sharia banks. the sample selection is done using the purposive sampling method with specific criterias such as : 1) banks have financial reports and complete annual reports from 2012 – 2018; 2) banks have complete data based on variables; 3) banks were owned by government or namely stateowned banking. total samples from the criteria above were 8 bank companies with 224 data. this study using quantitative data in the form of financial annual report of banks in the indonesia stock exchange (bei) from year 2012 until year 2018. financial data used include return on assets (roa) as a measure of financial performance, and human capital data measured by size, human capital investments in the form of employee training costs, and leverage. the analysis method for this research is linear regression methods, tests’ classic assumption , determinant coefficient, f-test, t-test. ghozali (2016) said that t test is used to examine the influence of independent variables on the dependent variable size, human capital investment, and leverage on financial performance. the purpose of this study is to study whether every independent variable significantly impact the dependent variable. the f-test aims to find out whether dependent variables jointly influenced by independent variable (ghozali, 2016). the first hyphotesis of research is to determine the impact of company size on the financial performance of state-owned l banks and state-owned sharia banks during 2012 2018. return on assets (roa) was use to measure dependent variable. the independent variable is size with the formula of the total logarithm value assets. there was research by (aprianingsih, 2016) with result that company size has a significant and positive effect on financial performance. so the hypotheses developed in first model are : h1a. size affects financial performance positively and significantly in state-owned banks h1b. size affects financial performance significantly and positively in state-owned sharia banks the second hyphotesis of research was to determine the effect of human capital investment on the financial performance of state-owned banks and state-owned sharia banks during 2012-2018. roa as dependent variable and human capital investment (hci) as independent variable. alkan et al (2008) argue human capital consists skills and knowledge that earned through variety activities of education such as training, schools, courses. in this research, human resource investment is measured based on the total cost of training 24 international journal of islamic business and economics (ijibec), 3(2) december 2019, 21-29 employees. research conducted by (scafarto, 2018) said that human capital investments has a significant and positive impact on financial performance. based on this research, the hypothesis for second model are : h2a. human capital investments influence financial performance significantly and positively in statedowned banks. h2b. human capital investments influence financial performance positively and significantly in statedowned sharia banks. the third hypothesis wants to see the effect of leverage on performance of financial in state-owned banks and state-owned sharia banks. the dependent variable is roa which is a measurement of financial performance, which is the ratio of net income after tax to total assets. according to (harahap, 2016) leverage is a ratio that illustrates relationship between a company's debt to capital. syamsuddin (2009) argue leverage is a ratio that show the relationship of long-term loans provided by creditors with the amount of capital of company owner. while kasmir (2012: 113) said leverage reflects the relationship between a company's debt to capital. research by (tampubolon, 2015) have result leverage has a positive and significant effect on financial performance. based on this research the hypothesis for third model are : h3a. leverage has a positive and significant effect on financial performance for state-owned banks h3b. leverage has a significant and positive impact on financial performance for state-owned sharia banks 3. results and discussions total samples from the specific criterias was 8 bank companies with 224 data from 2012 until 2018. eight bank companies are bri, bni, btn, mandiri bank, bri sharia, bni syaria, btn syaria and bank mandiri sharia. table 1 show the relation between size, human capital investment (hci), and leverage with financial performance for state-owned banks as bellows table 1 multiple linear regression (state-owned banks) coefficientsa model unstandardized coefficients standardized coefficients t sig. collinearity statistics b std. error beta tolerance vif 1 (constant) 22.966 15.800 1.454 .162 size -1.024 .762 -.688 -1.344 .194 .177 8.067 hci .006 .002 1.064 3.283 .004 .191 5.246 leverage -.002 .002 -.431 -1.293 .211 .180 5.565 a. dependent variable: financial performace table 2 show the relation between size, human capital investment (hci), and leverage international journal of islamic business and economics (ijibec), 4(1) june 2020, 21-29 25 with financial performance for state-owned sharia banks as belows : table 2 multiple linear regression (state-owned sharia banks) coefficientsa model unstandardized coefficients standardized coefficients t sig. collinearity statistics b std. error beta tolerance vif 1 (constant ) .008 .007 1.224 .256 size -1.512 .000 1.053 6.590 .000 .475 8.107 hci .007 .000 -.156 -.983 .355 .481 5.081 leverage -.002 .010 -.022 -.194 .851 .958 5.033 a. dependent variable: financial performace based on linear regression results between state-owned sharia banks and state-owned banks, results can be made comparisons as seen in table 3 : table 3 comparison of results between stated-owned banks and stated-owned sharia banks no. variables banks companies state-owned banks state-owned sharia banks 1. size on financial performance not significant significant 2. human capital investment on financial performance significant not significant 3. leverage on financial performance not significant not significant source: processed data this study was found size (company size) had no impact on the financial performance of state-owned banks, but size have significant also positive influence on financial performance of state-owned sharia banks. this results seen from the t value of -1.334 while the significance level of 0.194. significance value greater than 0.05 indicates that the size variable has a negative and insignificant influence on financial performance. this study does not support the first hypothesis (h1a) that "size has a positive effect on financial performance" in stated-owned banks, but support h1b for state-owned sharia banks. the results of state owned banks supported by yuyun isbanah's research ( 2015); (yildiz, bozkurt, kalkan, & ayci, 2013); (januardin manullang, 2019) which states that the variable company size has a negative effect on financial performance variables. meanwhile, the results of stateowned sharia banks supported research by (terraza, 2015); (sudaryanti, sahroni, & kurniawati, 2018) and (sugiarto, 2012) that size have positive influence on financial performance. 26 international journal of islamic business and economics (ijibec), 3(2) december 2019, 21-29 the results of this study mean larger company is not necessarily followed by good financial performance. large or small companies can not be used as a good measure of financial performance. the number of company assets does not necessary to make people believe in the company's performance, so it is not necessary to increase the company's profit. this can be caused by the large size of the company that not supported by good management. human capital investments have significant and positive relationship with financial performance of state-owned banking companies in the 2012-2018. it seen from the t-value of 3.283 while the significance level of 0.004. this study supports the second hypothesis (h2a) for stated-owned banks. human capital investment have no impact on financial performance in stated-owned sharia bank significance level of 0.355. so h2b was not supported. the findings of this study describe that investment in human resources can make the company's financial performance is good, because human capital investments measured by employee training costs in this study. the result of stated owned banks supported with previous research that said human capital have positive impact on financial performance (scafarto, 2018); (ozkan, cakan, & kayacan, 2017); (hamdan, 2018). otherwise, human capital have no impact on financial performance in stated-owned sharia banks supported by research of (andriana, 2014) ; (dominique, 2011); (cabrilo & dahms, 2018); (rompho, 2017). a good investment in human resources will enhance the financial performance of the company. the better training is given to employees, the more capable and competent employees are at their jobs. improved employee competence will certainly be followed by good performance as well. investment in human resources can be used as a benchmark for the public and especially investors. this study also found that leverage have no relationship or impact on financial performance in state-owned banks and state-owned sharia banks. it seen from the t-value of -1.293 while the significance level of 0.211 in state-owned banks. significance value greater than 0.05 indicates leverage variable has a negative and not significant effect on financial performance. this study does not support third hypothesis (h3a and h3b). the results of this study are also not in line with research by wuryaningsih dwi lestari and ika yulianawati (2015); (jummai v. madume 2018); (dwi kartikasari, 2016) states that the variable leverage has negatively impact on financial performance variables. 4. conclusion human capital investments have a positive and significant relation with state owned banks’ financial performance , but there was no impact on the financial performance of state-owned sharia banks. otherwise, size of the company have influence significantly and positively on the financial performance of state-owned sharia bank, but there was no influence on stateowned banks’ financial. leverage have no effect on the financial performance of state-owned banks and state-owned sharia banks. the implementation of human capital investment recommended for state-owned banks, because employee can be more competent on their job with training, knowledge base capability. the better employees can carrying out their work, and the financial performance can increase significantly. state-owned sharia banking should not too concern human capital investment because human capital investment have no impact or no relation with stateowned sharia banks’ financial performance. this research have several limitations and awaits future research. first, this study only investigate the relation of human capital, size and leverage on financial performance, with many others variables such as innovation, structural capital or relational capital that can effect international journal of islamic business and economics (ijibec), 4(1) june 2020, 21-29 27 financial performance. the human capital indicator in this study is limited to size, human capital investments, and leverage. further research can use another variables such as wage, sales, and family ceo. in addition, the measurement of financial performance in this study is limited to roa (return on assets). further research can use roe (return on equity) and cr (current ratio) to measure financial performance. acknowledgements we thank to kartika putri anindita for her research assistant and gratefully acknowledge funding provided data by indonesia stock exchange with period 2012 until 2018. references andriana, d. 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(2013). the relationships between technological investment, firm size, firm age and the growth rate of innovational performance. procedia social and behavioral sciences, 99, 590-599. doi:10.1016/j.sbspro.2013.10.529 106 ijibec the effect of debt-based financing and equity-based financing on profitability of islamic banks in indonesia rofiul wahyudi1*, aulia arifatu diniyya2, julia noermawati eka satyarini3, lu’liyatul mutmainah4, sri maulida5 1 department of islamic banking, faculty of islamic studies, uad yogyakarta email: rofiul.wahyudi@pbs.uad.ac.id 2 iium institute of islamic banking and finance, international islamic university malaysia, malaysia email: aulia.arifatu@live.iium.edu.my 3 department of sharia economics, faculty of islamic studies, umy yogyakarta email: julianoermawati@fai.umy.ac.id 4 department of islamic banking, faculty of islamic economics and business, uin sunan kalijaga yogyakarta email: sakinah.lym@gmail.com 5 department of economics and development studies, faculty of economics and business, universitas lambung mangkurat kalimantan selatan email: srimaulida@ulm.ac.id abstract this study's main objective was to investigate the equity-based financing and debt-based financing on the profitability of islamic banking in indonesia. this research was expected to provide contribution to both theoretical and practical dimensions. based on the theoretical dimension, this study can provide evidence whether equity-based financing and debt-based financing affect profitability of islamic banking. meanwhile, based on practical dimension, islamic banks in indonesia can determine their extensive profitability and, in turn, the competitiveness of islamic banks is able to be developed in line or even better than that of conventional banks. the data were analyzed using a panel regression technique with data time series and cross-section. furthermore, the panel data model was estimated by common effect, fixed effect, and random effect. the result of this study showed that equity-based financing partially did not affect roe. at the same time, debt-based financing affected roe of islamic banks. equity-based financing and debt-based financing partially did not affect roa of islamic banks. however, the test results of both independent variables, consisting of equity-based financing and debt-based financing, simultaneously had a strong influence on the dependent variable, that is, profitability, as measured by roa and roe. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 2 2020 keywords: debt-based financing; equitybased financing, profitability of islamic banking doi: doi.org/10.28918/ijibec.v4i1.1980 jel: g 21, g 23 published : dec 2020 international journal of islamic business and economics (ijibec), 4(2) december 2020, 106-115 107 1. introduction in 2019, the development of islamic banking in indonesia experienced a rapid growth (ojk, 2019), although the macro and microeconomic conditions experienced a slowdown in various regions (bank indonesia, 2019). the growth was driven by multiple factors, ranging from the increasing islamic banking networks, number of third parties’ funds, and financing performance which nationally stimulated growth in the market share. as an intermediary financial institution, islamic banks rely on the distribution of funds or financing to benefit their operations. the islamic bank financing model uses a profit and loss sharing scheme and trade financing. there are differences in risk characteristics between them which also affect the amount of profit. according iqbal and molyneux (2005), this financing distribution scheme is based on the equity-based financing and debt-based financing. based on its characteristics, the equity-based financing benefits will be received by the islamic banks as much as the debtor's business profits following the agreed ratio in the contract. conversely, if the debtor incurs a loss, the islamic banks will also experience a loss. in debt-based financing, islamic banking will earn a definite profit, equal to the profit agreed in the contract. in other words, this system is easy to implement, and the profits can be predicted (van greuning and iqbal 2007; nafik, ryandono, and wahyudi 2018). the statistics of financial services authority (fsa) in 2008-2018 showed the fluctuations related to the portions of equity-based financing (ebf) and debt-based financing (dbf) of islamic banks as presented in table 1. the statistics showed that the share of debtbased financing had a more significant portion than that of equity-based financing in channeling the islamic bank financing. table 1. the financing portions based on equity-based financing (ebf) and debt-based financing (dbf) portion 2014 2015 2016 2017 2018 dbf 65.55% 62.82% 81.5% 82.9% 80.9% ebf 32.85% 35.81% 34.64% 35.22% 36.56% source: ojk, processed data table 1 shows that dbf performance increased from 2014 to 2018. likewise, ebf performance also increased from 2014 to 2018 yet only decreased in 2016. healthy and sustainable profitability is significant in maintaining the financial system stability, including islamic banking. profitability is influenced by several factors, such as capital, efficiency, decisions, and management policies regarding to the bank operations. therefore, research on profitability is still relevant to investigate, in addition to the purpose of a business which is to gain profits, due to the business environment changes in response to the presence of digital banking. several previous studies related to the factors determining the profitability showed various results. the different findings in the previous studies were used as the bases of this research. besides, increasing the number of periods and bank samples is also expected to improve the quality of the research results. meero (2015) conducted a study in gulf countries in the period of 2005-2014, comparing the islamic banks with conventional banks based on capital structure and performance represented by roa and roe, the research concluded that there were similarities between them. zafar, zeeshan, and ahmed (2016) found a positive international journal of islamic business and economics (ijibec), 4(2) december 2020, 106-115 108 relationship between the determinants’ capital structure and the banking industry's performance in pakistan. meanwhile, the studies conducted in indonesia showed that there were not much different results. andini (2019) examined the debt-based financing and equity-based financing of cash ratio at pt. bank panin dubai syariah ltd. in the period of 2015 2017. the findings indicated that partially and simultaneously, there was no significant effect of debt-based financing and equity-based financing on cash ratio at pt. bank panin dubai syariah ltd. in 2015-2017. latifah (2018) investigated the debt-based financing and equity-based financing of return on equity (roe) at pt. bank shariah jabar banten shows a strong relationship between debt-based financing and equity-based financing on return on equity (roe). the findings of a research conducted by nuha & mulazid (2018), who investigated seven sharia banks in the period of 2011-2015, showed that non-performing financing (npf), operational income operating expenses (bopo), and revenue sharing funding simultaneously influenced roa. wahyudi, mujibatun, and riduwan (2019) investigated the impact of debt-based financing and equity-based financing on profitability with bank size as the moderating variable. this study used islamic bank panel data from the financial statements published in the period of 2008-2017. the findings of this study indicated that debt-based financing had a negative and significant effect on profitability measured using roa and roe. the equity-based financing did not affect the level of profitability measured by the roa and roe of islamic banks, while bank size could not become the moderating variable. indriyanto, iskandar, and deviyanti (2018) conducted a study of debt financing and equity financing on return on equity in islamic banks from 2015-2017. the data were analyzed using a multiple linear regression analysis. the results of this study indicated that: (1) debt financing had a positive and significant effect on roe of bni syariah, mega syariah, muamalat, and mandiri syariah from 2015-2017. (2) equity financing had a negative and significant effect on roe on bni syariah, bank mega syariah, bank muamalat, and bank mandiri syariah from 2015-2017. firdaus dan prasetyo (2017) found that debt-based financing and equity-based financing affected profit expense ratio. the research samples were three islamic banks consisting of bank muamalat, bank mandiri syariah, and bank bri syariah, in the period of 2011-2015. the findings of this study indicated that debt-based financing and equity-based financing partially and simultaneously had a significant effect on profit expense ratio. mariam et al. (2017) also had a similar research on two samples, consisting of bank muamalat and bank mandiri syariah, in the period of 2011-2013. the findings reinforced the previous conclusions that equity-based financing partially had a significant effect on profit expense ratio, while debt-based financing simultaneously affected profit expense ratio. these findings were greatly interesting as equity-based financing contributed more to profitability when compared to debt-based financing. zahara dan islahuddin (2014) also studied the effect of debt-financing and equityfinancing on islamic banks' financial performance in the period of 2006-2010. the results indicated that debt-financing and equity-financing simultaneously affected the financial performance of islamic banks operating in indonesia. meanwhile, debt financing partially had a significant effect on the financial performance of islamic banks. in contrast, equity financing did not affect the financial performance of islamic banks operating in indonesia. debt financing had a positive direction to the financial performance of islamic banks in indonesia. international journal of islamic business and economics (ijibec), 4(2) december 2020, 106-115 109 in contrast, equity financing had a negative direction to the financial performance of islamic banks in indonesia. the main objective of this study is to investigate equity-based financing and debtbased financing on profitability of islamic banking in indonesia. this research is expected to provide contributions to the theoretical and practical dimensions. on the conceptual aspect, this study can provide evidence whether or not equity-based financing and debt-based financing affect the profitability of islamic banking. meanwhile on the practical aspect, islamic banks in indonesia can find out the extent of their profitability and in turn the competitiveness of islamic banks can be developed in line with or even better than that of conventional banks. 2. research method this study used the panel data population from 14 sharia commercial banks. the samples were taken within the period of 2008-2017. during this period, indonesia experienced and was affected by the global economic crisis. however, of those 13 sharia commercial banks, seven banks (bank aceh syariah, bank victoria syariah, bank bca syariah, bank panin dubai syariah, bank bukopin syariah, bank tabungan pensiunan nasional syariah, and maybank syariah indonesia) were eliminated because data were not yet available in the study period. return on assets (roa) is calculated by dividing the net income on total assets which gives the ratio of income generated from the invested capital. the higher roa, the more profitable the banks are (javaid and alalawi 2018; nahar and prawoto 2017; tian-shyuglee, chih-chou chiu, chi-jie lu 2002). this ratio is widely used as a proxy for profitability. this measure was chosen and extensively used to measure the banking performance (bruggen 2015). besides, return on assets (roa) is one most important and useful indicator of bank profitability (nguyen, ta, and nguyen 2018). in most studies on profitability of commercial banks throughout the world, the proxies for the profitability of commercial banks often use roe, such as (mansour et al. 2018; nguyen, ta, and nguyen 2018). roe is calculated by dividing the net income after tax on total equity (jarbou, 2018). the data were analyzed using a panel data regression analysis with time series and cross-section data. furthermore, the panel data model was estimated and divided into three: common effect, fixed effect, and random effect. the statistical t test is conducted to examine the effect of each independent variable on dependent variable and assume that the other independent variables are constant. the coefficient of determination (r2) is used to figure out the percentage variations of the dependent variables to the model explained by the independent variable. f test is performed to choose the ols methods without dummy variables or fixed effects. the f test is used to determine whether or not the panel data regression technique with fixed effects is better than that without dummy variables by looking at the residual sum squares. 3. results and discussion model estimation and results a. the effect of debt-based financing and equity-based financing on roe 1) model estimation the model estimation in the panel data regression included three steps: a) common effect table 2. model with common effect variable coefficient std. error t-statistics p-value international journal of islamic business and economics (ijibec), 4(2) december 2020, 106-115 110 c -107.7619 3070.674 -0.035094 0.9722 equity-based financing 85.03424 91.32204 0.931147 0.3565 debt-based financing -71.39938 141.7137 -0.503828 0.6167 source: authors (2020), processed data b) fixed effect table 3. model with fixed effect variable coefficient std. error t-statistics prob. c 10078.90 4655.118 2.165122 0.0360 equity-based financing 170.8818 206.7286 0.826599 0.4130 debt-based financing -498.7969 209.9112 -2.376228 0.0220 source: authors (2020), processed data c) random effect table 4. model with random effect variable coefficient std. error t-statistics prob. c 4146.551 3497.175 1.185686 0.2417 equity-based financing 132.7674 117.6632 1.128368 0.2649 debt-based financing -261.2999 160.4428 -1.628618 0.1101 source: authors (2020), processed data based on the available data, the t value of equity-based financing statistics was 0.931147 with the p-value of 0.3565, while the t-value of debt-based financing statistics was -0.503828 with the p-value of 0.6167 as shown in table 2. the t-value of equity-based financing statistics was 0.826599 with the p-value of 0.4130, while the t-value of debt-based financing statistics was -2.376228 with the p-value of 0.0220 as shown in table 3. furthermore, the t-value of equity-based financing statistics was 1.128368 with the p-value of 0.2649, while the t-value of debt-based financing statistics was 1.628618 with the p-value of 0.1101 as shown in table 4. b. significance test to choose the most appropriate model for panel data processing, there are several tests conducted, including: 1) fixed effect significance test table 5. fixed effect significance test effect test statistics d.f. p-value cross-section f 4.105233 (4.43) 0.0066 cross-section chi-square 16.172321 4 0.0028 source: authors (2020), processed data 2) fixed effect and random effect significance test table 6. fixed effect and random effect significance test test summary chi-sq. statistics chi-sq. d.f. p-value cross-section random 6.236843 2 0.0442 source: authors (2020), processed data based on the available data, the p-value of the f-test was 0.0066 smaller than the alpha value. thus, the chosen model was the fixed effect shown in table 5. based on the test results, international journal of islamic business and economics (ijibec), 4(2) december 2020, 106-115 111 it showed in table 6 that the p-value was 0.0442. thus, the model chosen was the fixed effect and the hypothesis rejected the random effect. c. hypothetical test 1) partial test (t test) table 7. fixed effect test result variable coefficient std. error t-statistics p-value c 10078.90 4655.118 2.165122 0.0360 equity-based financing 170.8818 206.7286 0.826599 0.4130 debt-based financing -498.7969 209.9112 -2.376228 0.0220 source: authors (2020), processed data based on the available data, the statistics of t-value was 0.826599 with the p-value of 0.4130. furthermore, the statistics of t value was -2.376228 with the p-value of 0.0220. 2) coefficient test (r2) determination the coefficient value of multiple determinations was 0.289943. it means that a set of predictor variables in the model could explain the response variable by 28.9943%, while the rest was explained by other non-examined variables. b. effect of debt-based financing and equity-based financing on roa 1) model estimation the model estimation in the panel data regression includes three steps: a) common effect table 8. common effect model source: authors (2020), processed data b) fixed effect table 9. fixed effect model variable coefficient std. error t-statistic prob. c 439.3282 211.3769 2.078411 0.0437 equity-based financing 7.921219 9.387016 0.843848 0.4034 debt-based financing -22.17944 9.531530 -2.326955 0.0247 source: authors (2020), processed data c) random effect table 10. random effect model source: authors (2020), processed data based on the available data, the t-value of equity-based financing statistics was 0.883284 with the p-value of 0.4034, while the t-value of debt-based financing statistics was -0.459587 variable coefficient std. error t-statistics p-value c -7.439193 138.5317 -0.053700 0.9574 equity-based financing 3.639078 4.119943 0.883284 0.3816 debt-based financing -2.938294 6.393335 -0.459587 0.6479 variable coefficient std. error t-statistics prob. c 171.4139 157.1624 1.090680 0.2810 equity-based financing 5.748663 5.250728 1.094832 0.2792 debt-based financing -11.02053 7.213082 -1.527854 0.1333 international journal of islamic business and economics (ijibec), 4(2) december 2020, 106-115 112 with the p-value of 0.6479 as shown in table 8. the t-value of equity-based financing statistics was 0.843848 with the p-value of 0.4034, while the t-value of debt-based financing statistics was -2.376228 with the p-value of 0.0220 as shown in table 9. furthermore, the t-value of equity-based financing statistics was 1.094832 with the p-value of 0.2792, while the t-value of debt-based financing statistics was 1.527854 with the p-value of 0.1333 as shown in table 9. d. hypothetical test 1) partial test (t test) table 11. fixed effect model variable coefficient std. error t-statistics pvalue c -7.439193 138.5317 -0.053700 0.9574 equity-based financing 3.639078 4.119943 0.883284 0.3816 debt-based financing -2.938294 6.393335 -0.459587 0.6479 source: authors (2020), processed data proceed based on the available data, the statistics of t value was 0.883284 with the p-value of 0.3816. furthermore, the statistics of t value was -0.459587 with the p-value of 0.6479. e. simultaneous test (f test) table 11. f-test statistics variable probability (fstatistic) significant level decision significant independent variables (roa & roe) 2.779771 0.022531 < 0.05 h0.1 was rejected significant effect source: authors (2020), processed data based on the available data, the statistics of f-value was 0.022531 with the p-value of 0.022531 < 0.05 or the critical limit of the study. thus, it can be concluded that h1 was accepted. the accepted h1 in a simultaneous test means that the independent variable simultaneously had a significant effect on the dependent variable. the results of multiple coefficient test determination showed that the response variable was 0.289943. it means that 29 percent of the independent variables used in the model was able to explain the dependent variable. meanwhile, the other 71 percent was explained by the other variables outside of the model, such as cash ratio, profit expense ratio, non performing financing (npf), and operational income operating expenses (bopo) as well as the external factors covering both macro and microeconomics. the test results showed that equity-based financing partially did not affected roe. meanwhile, debt-based financing affected the roe of islamic banking as shown in table 7. it can be seen from the significance value of debt-based financing which was equal to 0.0220 was smaller than the significance level of 5%. these results can be seen from the characteristics of equity-based financing of the islamic banks could also experience loss, while the debt-based financing of islamic banks could earn profits. thus, equity-based financing had more effect on the returns received by the islamic banks. the coefficient value of the debt based financing variable which was negative indicated that when there was an increasing debt financing, there will be also decreasing bank profitability as measured by roe. conversely, when there is a decreasing debt-based financing, there will an increasing profitability as measured by roe. this finding was in line with the research conducted by indriyanto, iskandar, international journal of islamic business and economics (ijibec), 4(2) december 2020, 106-115 113 and deviyanti (2018) showing that islamic banking will be more effective if the financing is distributed to the productive sectors when compared to that classified into debt. the results of statistical tests showed that both equity-based financing and debt-based financing partially did not affect roa of islamic banks as shown in table 11. these can be seen from their significance value of respectively 0.3816 and 0.6479 greater than the significance level of 5%. since the financing either ebf or dbf did not have a direct correlation with roa, those related variables should be re-proxied. the coefficient value of debt-based financing variable which was negative indicated that when there is an increasing debt financing, there will be also decreasing bank profitability as measured by roa. conversely, when there is a decreasing debt-based financing, there will be an increasing profitability as measured by roa. this finding was different from that of research conducted by qonitah dan nuha (2018). this finding simultaneously showed that the results of independent variable test consisting of equity-based financing and debt-based financing had a strong effect on the dependent variable, that is, profitability as measured by roa and roe. this finding was similar with that of previous studies (amanda maulidiyah firdaus dan ari prasetyo 2017; anafil windriya 2019; latifah 2018; siti zahara, islahuddin 2014). on the other hand, these results were different from those of the other previous studies (andini 2019; wahyudi, mujibatun, and riduwan 2019). the interesting part in this research finding was that debt-based financing provided more contributions to profitability when compared to equity-based financing as seen from the characteristics of equity-based financing and debt-based financing of islamic banking. ebf is more volatile in term of incomes and losses caused by the profit and loss sharing, while dbf tends to be more constant due to the projected profits. 4. conclusion based on the results of data analysis, it can be concluded that the results of statistical tests showed that the independent variables, consisting of equity-based financing and debt-based financing, simultaneously had a strong effect on the dependent variable. the researchers realized that the main limitation of this study was the large number of data used. the use of more data and measurement panel to the other types of equity-based financing and debtbased financing is expected to provide a more representative of realistic results. references amanda maulidiyah firdaus dan ari prasetyo. 2017. ‘pengaruh debt 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equity-based financing, size and islamic banks profitability: empirical evidence from indonesia’. iqtishadia 12(2): 227. 16 ijibec evaluating efficiency of zakah institutions: an intermediation approach using data envelopment analysis (dea) rismayanti 1, sepky mardian 2*, mustafa kamal 3 and rianti pratiwi 4 1,2,3 department of islamic accounting, sekolah tinggi ekonomi islam sebi, jl. raya bojongsari no. 63, bojongsari, depok, jawa barat 16517 4 rmit university, australia; sekolah tinggi ekonomi islam sebi, indonesia correspondence email: sepky.mardian@sebi.ac.id abstract this paper analyzes the efficiency of badan aml zakat nasional (baznas) and dompet dhuafa from 2002 to 2018. based on selected input and output, the intermediary approach assumes that baznas and dompet dhuafa act as a link between muzakki (giver) and beneficiaries. furthermore, baznas and dompet dhuafa were selected as decisionmaking units (dmu) from 2002 to 2018, and their efficiency was measured using data envelopment analysis (dea) method under output-orientation with constant return to sclae (crs) and variable return to scale (vrs) assumptions. the results showed both baznas and dompet dhuafa raise the optimum efficiency in the years before 2007. meanwhile, their inefficiency was mostly due to lack of input such as higher personalia (amil/volunteers) expenses. therefore, these findings suggests that both technical and scale efficiency should be improved by adjusting the input. this is to achieve the most efficient and productive level of performance in order to fulfill the institutions' objectives as an intermediary between muzakki and the beneficiaries. this paper is among the pioneers that analyzed the efficiency of zakat institutions from their initial establishment to present. also, existing papers examined data spanning 5 years or less. hence, long duration of data analysis provides a comprehensive evaluation of fluctuations in the zakat institutions efficiency and their supporting or inhibiting factors.. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 1 2021 keywords: efficiency; zakat institution; data envelopment analysis; intermediary approach. doi:https://doi.org/10.28918/i jibec.v5i1.2864 jel: l25, l31 article info article history: received : 13 september 2020 accepted : 11 may 2021 published : 1 june 2021 mailto:sepky.mardian@sebi.ac.id https://doi.org/10.28918/ijibec.v5i1.2864 https://doi.org/10.28918/ijibec.v5i1.2864 https://doi.org/10.28918/ijibec.v5i1.2864 international journal of islamic business and economics (ijibec), 5(1) june 2021, 16-24 17 1. introduction baznas study found that zakat has a positive effect on indonesia's macro economy, although it is currently recognized that its contribution is still minimal in reducing poverty and inequality (puskas baznas, 2020). meanwhile, zakat is part of the assets that allah obliged to be given with certain conditions (hafidhuddin, 2005). in a broader view, the concepts of zakat, infaq and alms are believed to have a tremendous impact. in western regions such as the united states, a concept has emerged where the economy needs to be based on a spirit of sharing and giving (beik, 2009). the issuance of law no.38 of 1999 concerning zakat management is an important matter in indonesia. initially, it was only done by one individual to another. the issuance of this law encourages muzakki to channel their zakat through its institutions. also, the collection of zakat from year to year continues to increase, although it is still far from the initial potential. therefore, to reduce regulatory problems in the field, law no.23 of 2011 on zakat management was enacted. however, for some people, this law is considered to be too focused on institutions, hence, its substantial aspects are still not regulated (foz, 2012). in the last few years, the zakat management organization has experienced rapid development, and it's growth is a positive signal in indonesia (zahra, harto, & bisyri, 2016). in law no.23 of 2011, there are two types of organizations, namely the national amil zakat agency (baznas) and the amil zakat institution (laz). according to the latest data published by the national zakat agency, it was recorded that there are 557 management organizations which have received official permits in accordance with the regulations of the ministry of religion (baznas, 2018). indonesia is a country with the largest muslim population in the world, hence making it a large potential for zakat. the baznas report states that there are 233,8 trillion rupiah of potential zakat in indonesia in 2019, but this has not been optimally explored (puskas baznas, 2020). although the potential is quite large, the realization of zakat collection is not more than 5% of the existing potential. also, collection in 2018 only reached 8.1 trillion rupiah with an increase of 1.9 trillion from 2017 (puskas baznas, 2020). there is a gap between the number of zakat institutions, the potential, and the amount received. this gap is a challenge to improve their performance. another problem is how to continually increase collection and the effectiveness of it's distribution to the community. therefore, the efficiency of collecting and distributing zakat funds needs to be improved in order to optimize performance (nurhasanah & lubis, 2019). therefore, the goal of increasing efficiency is a mandate of zakat management act. currently, baznas has developed 6 research pillars for strengthening national zakat, namely regulation & institutions, distribution & utilization, collection, operations & finance, national database & coordination, as well as strengthening publication. in the operation and finance pillars, financial ratios are also developed, one of which is the proficiency ratios related to the costs of collection, operations and human resources (puskas baznas, 2020). the development of financial ratios and operations is still benchmarking against conventional ones in commercial institutions. this ratio is an overhead type which may not be directly related to input optimization in non-profit institutions. sometimes even though the overhead costs are high, it however does not reduce the level of their proficiency. for example, the cost of purchasing software can increase effectiveness because it can boost output, such as significantly increasing fundraising. although the costs incurred are large, it does not reduce the effectiveness of non-profit institutions. therefore, an alternative 18 international journal of islamic business and economics (ijibec), 5(1) june 2021, 16 24 measurement of efficiency is needed for non-profit institutions such as zakat. one of the measurement is the introduction of the data envelopment analysis (dea) method (coupet & berrett, 2019). also, zakat institutions can be considered sound, credible, effective, and proficient when they meet several performance indicators. this performance refers to the objectives and activities in accordance with the needs of the community (fathurrahman & hajar, 2019). research on the efficiency of zakat institutions is important in islamic economics. this is because the institutions are responsible for the management and utilization of public funds, therefore efficiency becomes a controlling tool for performance (alam, 2018). also, to measure efficiency, data envelopment analysis (dea) is applied. the dea obtains more accurate results than ordinary financial ratios such as operational efficiency ratios used for commercial organizations (sari & saraswati, 2017). also, other studies such as akbar (2009), lestari (2015), parisi (2017) and widyaningrum has been carried out using the dea on different objects. the results vary and the efficiency depends on the zakat institution, whether the collection or distribution of funds to mustahik is not optimal. this study is significant due to the longer span, and is more focused on central baznas and dompet dhuafa. previous studies examined several zakat institutions for a few years only and with a long observation period. therefore, this study addresses the years baznas and dompet dhuafa achieved the highest level of efficiency during their establishment. the reasons for selecting these objects are based on two factors, namely having financial statements since the founding year, and having the same input and output variables. baznas was chosen because of its relatively low level of proficiency based on previous studies. therefore, it is necessary to re-examine in order to ascertain efficiency development. also baznas is managed by the government and has the authority to manage and coordinate all zakat institutions in indonesia. however, previous studies found that baznas experienced low level of effectivenes, namely 58.74% (2010) and 55.07% (2011). according to the annual financial reports, the collection of zakat and other charity funds by central baznas for the last 5 years only reached 289 billion rupiah in 2019. this number grew to 177 billion from 93 billion in 2015 (baznas, 2016, 2020). this amount is smaller when compared to other national institutions, such as dompet dhuafa, which raised 379 billion rupiah in 2019. dompet dhuafa was chosen because it has good performance and has an increased efficiency score in 2016 based on the acr ratio, and is managed by the private sector. the baznas 2017 awarded dompet dhuafa as the national amil zakat institution with the best operations. however, based on the calculation of the acr ratio, dompet dhuafa experienced a decrease in the level of efficiency in 2017. meanwhile, previous study found that dompet dhuafa obtained the lowest score of 9.36% in 2010. therefore, selection of the two zakat institutions is to ascertain organizational performance, which is under the government and private sector by assessing the efficiency level since the institution was founded. the results of this study are expected enlighten management and related stakeholders to properly allocate input and output factors in achieving optimal efficiency. also, it is expected to identify the key factors that challenge and improve efficiency during the zakat institution operation since the establishment. this paper is organized as follows: section 2 highlights data and methods, followed by the presentation of efficiency mmeasurement and their discussions in section 3. finally, section 4 provides conclusions and suggestions. international journal of islamic business and economics (ijibec), 5(1) june 2021, 16-24 19 2. methods this is a quantitative study with a non-parametric data envelopment analysis (dea) approach. secondary data collected from baznas were used, and dompet dhuafa's financial reports from the year of establishment until 2018. this study was analyzed using dea, which is the ccr (1978) and bcc model (1984). dea was introduced by charnes, cooper and rhodes in 1978, and was created as an analytical tool to evaluate the performance of an activity in an entity or organization unit. basically its principle is to compare the input and output data of different data organization (decision making unit). this comparison is made to obtain an effective value, and the analysis can be used for health, education, transportation, manufacturing, and banking studies (nugraha, 2013). to measure efficiency with the dea method, input and output variables needs to be defined in advance based on the approach used. therefore, this study used an intermediation approach with output orientation. the input and output variables used are as follows: table 1. input and output variables with intermediation approach output variable definition source of data output 1 (y) fund disbursed statement of fund input variables definition source of data input 1 (x1) fund collected statement of fund input 2 (x2) personalia expense statement of fund the measurement of efficiency ratio was carried out by comparing the output factor with the input. this assessment is efficient when the value obtained reaches 1 or 100%, and inefficient when it approaches 0. this benchmark is to measure the level of technical efficiency which processing will show 3 (three) conditions, namely constant to scale (crs), increasing to scale (irs) and decreasing to scale (drs). the increasing condition allows the zakat institution to continue improving its output capacity by maintaining existing inputs. meanwhile, the addition of input is not effective because the resources used are not optimal. also, the condition of decreasing demands is that zakat institutions reduce the use of inputs because the amount is not ideal for use. the conditions of the two institutions was compared to assess the level of efficiency in each year of observation. 3. result and discussion findings of efficiency measurement of zakat institution baznas and dompet dhuafa efficiency was measured by data envelopment analysis. in the dea, every dmu is a subject that has a quantitative variable to calculate the efficiency level. dea measures efficiency by comparing the input and output used. furthermore, the efficiency of zakat institutions was measured using the maxdea software based on the output orientation. this was used to find out how efficient the institution is in distributing funds with a certain number of inputs. also, the efficiency assessment was based on whether the value obtained reached 1 or 100% and vice versa, and it is inefficient when it reaches 0. in the dea, it is possible for an institution to have one of the return to scale (rts) conditions, namely irs, crs and drs. 20 international journal of islamic business and economics (ijibec), 5(1) june 2021, 16 24 table 2. baznas efficiency trends in 2002-2018 year crs vrs scale rts 2002 53% 69% 76% increasing 2003 52% 55% 95% increasing 2004 80% 83% 96% increasing 2005 100% 100% 100% constant 2006 92% 93% 100% increasing 2007 100% 100% 100% constant 2008 55% 55% 99% decreasing 2009 70% 70% 100% decreasing 2010 95% 99% 96% decreasing 2011 94% 98% 96% decreasing 2012 100% 100% 100% decreasing 2013 76% 81% 94% decreasing 2014 77% 80% 97% decreasing 2015 82% 85% 97% decreasing 2016 62% 68% 91% decreasing 2017 72% 79% 91% decreasing 2018 94% 100% 94% decreasing source: author’s work table 2 explains that baznas achieved an efficient score (constant 100) in 2005 and 2007. meanwhile, in 2003 to 2004, there was an increase in technical efficiency with the crs assumption that was seen to be significant, from 52% to 80%, and also an increase in the efficiency score of 28%. this showed a positive increase when compared to the previous years which showed a low efficiency value. also, in the assumption of vrs, the increase in efficiency occurred in 2003-2004 by 25%. the two assumptions continued to increase till 2005 as indicated by the optimal efficiency value of 100%, and constant rts. furthermore, from table 2, it is shown that there was a significant decline in 20072008. in 2007, baznas obtained the optimal efficient score of 100%, then dropped to 55% in 2008. based on the crs and vrs assumptions, there was a significant decrease in efficiency by 45% in that year. in the intermediation approach, there were irs and drs conditions in baznas. furthermore, irs occurred in early 2002-2004 and 2006 while, drs occurred from 20082018. the irs allows baznas to continue to increase its output capacity by maintaining the existing input. also, adding inputs is not effective because the resources used are still not optimal. therefore, the drs requires baznas to reduce the use of inputs, because the amount is not ideal for use. table 3. dompet dhuafa efficiency trends in 2002-2018 year crs vrs scale rts 2002 100% 100% 100% constant 2003 92% 92% 100% increasing 2004 91% 94% 96% decreasing 2005 96% 96% 100% decreasing 2006 100% 100% 100% constant 2007 87% 89% 98% decreasing 2008 100% 100% 100% decreasing international journal of islamic business and economics (ijibec), 5(1) june 2021, 16-24 21 year crs vrs scale rts 2009 92% 93% 99% decreasing 2010 69% 100% 69% decreasing 2011 99% 100% 99% decreasing 2012 78% 82% 96% decreasing 2013 79% 84% 94% decreasing 2014 90% 98% 91% decreasing 2015 94% 100% 94% decreasing 2016 94% 100% 94% decreasing 2017 84% 95% 88% decreasing 2018 79% 97% 81% decreasing source: author’s work table 3 shows dompet dhuafa had an optimal efficiency score of 100% in 2002 and 2006. in 2002 to 2005, assuming crs and vrs, dompet dhuafa's efficiency score decreased slightly. in 2003, rts showed irs, and drs in 2004-2005. however, in 2006, the efficiency score increased again and showed an optimal value of 100%. during the observation period, the score fluctuations were low. however, in 2010, based on the crs assumption, the proficiency score obtained was quite low when compared to the previous or following year, which was 69% making it the lowest efficiency score obtained. in 2010, a high amount of rp. 20 billion was spent in building the rumah sehat terpadu. based on the processed data, drs conditions often occured while irs occurred once in 2003 which was because the basis for setting salaries changed from the gregorian calendar to the hijriyah calendar. also, the appraisal performance tools was completed that same year. this tool is used to determine employee performance, and it has implications for career advancement and the percentage of salary increase. in addition, personnel costs are one of the variables used in this study, where there are matters related to amil's salary, allowances and more. discussion badan amil zakat nasional (baznas) the collection of zakat, infaq and alms (zis) funds has increased by 5310.15% in a period of 13 years. in 2005 and 2007, there was an increase in zis fundraising of almost 100%, which was predicted due to a national disaster in indonesia (puskas baznas, 2016). based on data processing on the level of efficiency, baznas achieved a scale of 100% with a constant rts in 2005 and also obtained a constant efficiency score of 100% in 2007. this means optimal performance was carried out by obtaining constant efficiency. apart from the optimal input and output used, the efficient condition in 2005 and 2007 was also influenced by the increase in public awareness to pay zakat through its institutions and also by an increased trust in baznas (puskas baznas, 2016). moreover, the increased collection of funds through baznas was influenced by the existence of regulations related to zakat management in government regulation (pp) no. 14/2014 and presidential instruction no. 3/2014. the former regulates baznas to have the highest member appointed by the president while the latter requires all ministries, stateowned companies (bumn), and all government agencies to pay and collect zakat through baznas (puskas baznas, 2016). in 2003, baznas experienced the lowest efficiency during its establishment with a 22 international journal of islamic business and economics (ijibec), 5(1) june 2021, 16 24 score of 52% with irs condition. under this condition, the use of inputs needs to be optimized and personnel costs should be reduced. also, the high costs incurred to support amil's activities affected the target of fund distribution in 2003. besides, another factor responsible for this inefficiency are the challenges in fixing the performance of baznas and other zakat institutions which includes the weak quality and quantity of human resources (puskas baznas, 2016). in accordance with law 23/2011, the establishment of amil education and training center, as well as zakat certification is to maximize the functions of baznas. this is because one of the important elements in zakat management is the role of amil, which will increase the confidence of the muzaki. therefore, to improve amil's competence, a standard work's capability is needed. in addition, amil is a unique job sector, hence it should have its own work competency standard (puskas baznas, 2017). studies on the efficiency of zakat institutions showed mixed results and that of baznas which have the same findings occurred in 2012 and 2013 for conditions of drs with zahra et al. research (2016). different results from akbar's (2009) found increasing conditions, while this study found constant conditions. also, a difference occurred in 2008, 2009, 2011, and 2012 in rusydiana, maliha, & alfarisi (2016), which found constant conditions, while this study showed decreasing conditions. dompet dhuafa based on the intermediation approach, dompet dhuafa's efficiency level which reached a constant point of 100% or equivalent to 1 occurred in 2002 and 2006, while other years have not reached optimal efficiency. this means dompet dhuafa effectively carried out the intermediary function of zis. furthermore, the optimal efficiency level in 2006 was supported by synergy of the program between dompet dhuafa and baznas, and also by the large distribution of funds to help victims of natural disasters (dompet dhuafa, 2006). therefore, amil's good performance in managing costs and raising funds created optimal efficiency. also, dompet dhuafa experienced inefficient conditions in other years until 2018. this condition was influenced by the improper use of input and output variables. the large amount of costs incurred for amil zakat caused the output to be non-optimal. in 2017, the theme "spanning goodness/membentang kebaikan" was taken. furthermore, the spirit of spreading kindness was greeted by the increasing interest of the community to become volunteers, therefore leading to a total of 8,481 dompet dhuafa volunteers (ddv) in the last 4 years (dompet dhuafa, 2017). this large number caused more personnel costs to be spent to finance their activities. the results of dompet duafa's efficiency is the same for the decreasing conditions in 2015 and 2016 in fathurrahman & hajar (2019) study. the difference in results occurred in 2012-2014, and different conditions also occurred in parisi (2017) findings between 20102013 with irs, while this study showed decreasing conditions. after conducting comparison matrices on the efficiency findings of baznas and dompet dhuafa in several studies, it was discovered that the conditions were very diverse. this is possible due to the differences in input and output factors, and also in the efficiency measurement approach used. this study used an intermediation approach, while others used a production, input-output approach and more. international journal of islamic business and economics (ijibec), 5(1) june 2021, 16-24 23 4. conclusion this study evaluated the efficiency of baznas and dompet dhuafa from the time of their establishment to 2018. furthermore, it was shown that the efficiency of both zakat institutions mostly occurred in the years before 2007. the level of efficiency was far from the optimum and showed drs. also, 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(2018). efisiensi organisasi pengelola zakat nasional di indonesia dengan metode data envelopment analysis. jurnal pendidikan dan ekonomi, 7(4), 316–325. zahra, a., harto, p. p., & bisyri, a. (2016). pengukuran efisiensi organisasi pengelola zakat dengan metode data envelopment analysis. jurnal akuntansi dan keuangan islam, 4(1), 25–44. https://doi.org/10.35836/jakis.v4i1.28 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 15 july 2018 accepted : 1 august 2018 published : 1 dec 2018 keywords: liquidity, profitability, debt policy, corporate value, issi https://doi.org/10.28918/ijibec. v2i2.1339 jel: g10; g14 abstract in the current era of business competition is getting tighter, strategies to get customer loyalty need to be increased. because with such an effort to increase the value of the company. this paper aims to examine the effect of profitability (roa), liquidity (cr) and debt policy (dar) on the value of the company in the indonesian sharia stock index (issi). this research is anstudy explanative with a duration of four years from 2012-2015, in the issi index there are 100 samples taken by purposive sampling technique. data analysis using panel data analysis techniques with eviews 8 software applications. the results of the study show that simultaneously profitability, liquidity, and debt policy affect the value of the company. the determinants of corporate value in the indonesia sharia stock index (issi) agus faisal & izzun khoirun nissa departement of islamic economics and business, uin sunan kalijaga yogyakarta e-mail: agus.faisal@uin-suka.ac.id international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-8776 1. introduction the capital market as an intermediary institution connects parties who need funds with those who are over-funded (investors). this role supports the economic stability of a country (arifin, 2007). in addition, the capital market can encourage efficient allocation of funds. the existence of a capital market, investors can choose an alternative investment that provides the return, most optimaleither investment in conventional stocks or islamic stocks on the idx. many considerations must be made in investing, namely by analyzing the company’s performance through financial statement analysis and knowing the liquidity of leading stocks that are expected to provide a high rate of return. there are several variables that can be taken into consideration before investing in the capital market. among them, company value. the value of the company is the price that can be paid by prospective buyers if the company is sold. the higher the value of the company, the greater the prosperity received by the owner of the company (kismono, 2011, p. 83). one of the values of this company can be seen from the price book value (pbv). price book value is a comparison of stock prices with book value per share. a high pbv will reflect a high level of prosperity for shareholders, where the shareholders’ prosperity is the main objective of a company (arfan, 2012, p. 20). variables that can influence company value are liquidity, profitability and debt policy. in a study conducted by nurhayati (2013) liquidity has a negative influence on stock returns. according to ayu (2013) if the company has a high profit, then investors will judge that the company’s future prospects are good and will make the company’s value increase. while debt policy can also be linked to the value of the company. with the existence of debt, the higher the proportion of debt, the higher the share price of the company (sartono, 2010, p. 30). in addition, answering the high public demand for sharia-based investment products, the indonesia stock exchange (idx) in collaboration with the indonesian clearing and guarantee corporation (kpei), the indonesian central securities depository (ksei) has launched fatwa no. 80 concerning sharia stock trading mechanism and indonesian sharia stock index (issi). with the hope that people will no longer hesitate to invest in the capital market. secretary general of the sharia economic community (mes) friderica widyasari dewi considered that the islamic stock market in indonesia showed encouraging growth. sharia stock market share is more dominant than non-sharia at the end of 2015. it can be seen from the number of shares on the indonesia stock exchange that fall into the category of sharia shares as many as 318 securities or 61 percent of the total shares. the event was held the launch of the indonesian sharia stock index (issi) or the indonesia sharia stock index (issi) which is intended to be a reference for investors in investing in islamic stocks. with the launch of this index, it helps eliminate the misunderstanding of the people who consider that islamic stocks only consist of 30 shares included in the jakarta islamic index (jii) (okezone finance, 2015, chap 1). 2. theoretical profit information information is a component of a company’s financial statements that aims to assess management performance, as well as to help estimate the earnings ability of representatives in the long term, forecast profits, assess risks in investing or credit, predict future cash flows and have great influence for users in making a decision. as stated in the statement of financial accounting consept (sfac) number 1 that earnings information is generally a major concern in assessing the company’s performance or management accountability and earnings information helps the owner or other international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-87 77 parties to assess the earning power company’sin the future. earnings information is an indicator of the company’s success in carrying out its activities, so investors often use it as a basis for making investment decisions (moniaga, 2011, p. 433). beaver (1968) found evidence that earnings announcements have earnings information content that affects investor reactions as reflected in changes in the price and volume of shares of the company concerned. bamber (1986) states that the effect of the information on annual earnings announcements also concludes a positive market reaction, which is reflected the price and volume of shares traded increased after the earnings announcement. thus the disclosure of earnings information with high profitability is a manifestation of the success of the company’s performance and is a positive signal for investors to invest in the company. increasing profitability means increasing the share price / corporate value reflected in pbv. signal theory mm assumes that everyone both investors and managers have the same information about the prospects of a company. this is referred to as symmetric information (symmetric information). however, in reality managers often have better information than outside investors. this is referred to as asymmetric information,and it has an important influence on optimal capital structure (brigham and houston, 2011, p. 84). because there is an asymmetric information , the manager tries to signal investors. the signal must be something that can be trusted and not easily imitated or expensive to imitate. in the capital structure policy, the signal given is in the form of using a larger portion of debt in the company. only a truly strong company dares to run the risk of experiencing financial difficulties when the portion of corporate debt is relatively high. so the high debt portion is used by managers as a signal that the company has reliable performance. investors will judge companies that have a higher portion of their debt at prices that are more expensive than companies that have a low portion of their debt (arifin, 2007. p.81). signals according to the financial literature are actions or policies that will burden the signaling company of a large cost to be able to make outsiders uninformed to believe in what is conveyed. the signal becomes credible if other companies that do not have the performance that the signaling company has are difficult to imitate the signal. a good company can provide signals in the form of a high debt portion on its capital structure. companies that do not perform well will not dare to use large amounts of debt because if it is done then the probability of bankruptcy will be high (arifin, 2007, p. 98). in theory, the signaling assumption is that there is asymmetric information between managers and shareholders. this model appears based on the idea that company managers whose financial prospects are really good cannot deliver reliable information to infestors at no cost, because the delivery of information from good companies can be replicated by companies whose prospects are not good. investors know that companies that are not good will be encouraged to deliver information as conveyed by companies with good prospects, so investors will be distrustful of announcements about the company’s prospects, as a result the company will have the same prospects in the eyes of investors, nothing better than the others (arifin, 2007, p. 121) investments in a sharia perspective investment is a commitment to a number of funds or other resources at this time, with the aim of obtaining a number of future benefits (tandelilin, 2001, p. 3). in islamic economics, investment is influenced by the increase in expected profits and the level of zakat on unproductive funds (diana, 2008, p. 12). investment can be done in various ways, one of which is investment in the international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-8778 capital market in the form of shares. shares are securities that represent equity participation in a company. while in sharia principles, equity participation is carried out on companies that do not violate sharia principles, such as gambling, usury, producing prohibited goods such as beer, and others. according to the national sharia board (dsn), shares are proof of ownership of a company that meets the criteria of sharia stock and does not include shares that have special rights. the basic principles of islamic stocks are as follows: 1. characteristically musyarakah if offered on a limited basis. 2. is mudharabah if it is offered to the public. 3. there should be no difference in the type of stock, because the risk must be borne by all parties. 4. principles of profit and loss profit sharing 5. unable to be disbursed unless liquidity selling and buying of shares in islam is basically a form of mudaraba syirkah, between entrepreneurs and owners of capital are both endeavors which will later be shared. mudharabah, is a funding technique whereby capital owners provide funds to be used by the deficit unit in productive activities on the basis of loss profit sharing. mudharabahcomes from the word al-darb, which means literally to travel or walk. criteria for shares included in the shariah index based on the fatwa of the national sharia board (dsn) no. 20 are issuers whose business activities do not conflict with sharia such as: 1. gambling businesses and games that are classified as gambling or prohibited trading. 2. the business of conventional financial institutions (riba) includes banking and conventional insurance. 3. businesses that produce, distribute and or provide goods or services that are moral and harmful. company value based on the theory according to iryanti (2014), the value of a company is the selling value of a company as a business that is operating. there is an excess selling value above the value of liquidity is the value of the management organization that runs the company. the market because the value of the company can provide maximum shareholder prosperity if the company’s stock prices increase. the higher the stock price, the higher the prosperity of the shareholders. to achieve this, investors generally hand over their managers to professionals such as managers or commissioners. in achieving the goal of maximizing the value of the company through the decisions taken. brealey ra (2009), argues that the value of a company can be interpreted as the company’s selling value or value added to shareholders. according to brigham (2011) maximizing value means considering the effect of time on the value of money, the funds received this year are worth more than the funds received years to come and means also considering various risks to income streams. the value of the company in this study was confirmed through price to book value (pbv). the value of the company reflects the size of the stock market reaction to the company. the greater the value of the company reflects the public has valued stock prices above the book value (cristine, 2013, p. 194). for this reason, the majority of owners have an interest in the value of the company which can be done by pressing management to maintain the company’s reputation which has an impact on the rising costs incurred by the company to provide information to the public. international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-87 79 profitability profitability is the ability of a company to make a profit in relation to total assets and own capital. there are three ratios that are often used, namely:profit margin, return on assets (roa), and return on equity (roe). this study uses theratio return on assets (roa)to calculate the level of profitability of the company against the use of assets or assets used. the higher the roa value, reflects the use of company assets that are optimal in generating profits. (ima, 2014, p. 30). the concept of profitability in financial theory is often used as a fundamental performance indicator of a company representing management performance. generally profitability has a causal relationship to the value of the company. this causality relationship shows that if the performance of a company management is measured using the dimensions of profitability in good conditions, it will have a positive impact on the decisions of investors in the capital market to invest their capital in the form of equity participation. this will have an impact on the value of a company. this means that the higher the level of corporate profitability, the greater the value of the company (sartono, 2010, p.121). according to hermuningsih (2013) there are several factors that influence the profitability of a company including: type of company, age of company, scale of company, price of production. liquidity liquidity is one of the main considerations carried out by a company to distribute dividends. assessments can be carried out for several periods so that the development of company liquidity over time (bambang, 2013, p. 45) is seen. the liquidity ratio can be measured using current ratio which will certainly affect the value of a company. information about the company’s cash flow is useful for users of the report as a basis for assessing the company’s ability to generate cash and assess the company’s need to use cash flow. thus, increasing corporate liquidity will provide a positive signal and increase investors’ confidence in the dividend payment policy expected by investors (nurhayati, 2013, p. 45). debt policy debt policy is the use of a source of funds that has a fixed burden (debt) to finance investment in the hope that debt will provide additional profits greater than the fixed costs, so that it will increase the profits available to shareholders (sartono, 2010, p. 263). debt policy is proxied by the leverage ratio which is measured using a debt to equity ratio (dar). research conducted by mardiyati (2010) states that debt has a positive effect on firm value. while this research is in line with the research conducted by ika (2013) that debt policy has a significant effect on firm value. this positive direction means that the higher the debt policy of a company, the higher the value of the company. issi (indonesian sharia stock index) issi is a stock index that reflects all islamic stocks listed on the idx. the issi constituency is an entire sharia stock listed on the idx and registered in the list of sharia securities (des). the issi constituency is reviewed every 6 months (may and november) and published at the beginning of the following month. the issi constituency is also updated if there is a new sharia stock listed or written off from des. the calculation method of the issi index uses a weighted average of market capitalization. the basic year used in issi calculation is the beginning of the issuance of des, which is december 2007. the issi index was launched on may 12, 2011 (okezone finance, 2015, chap 2). 4. literature review as a supporter of this research there are several scientific works of tertaduhu researchers which are related, among others, are leni’s (2014) research, he tested the effect of capital structure, international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-8780 profitability, and company size on corporate values in the indonesia stock exchange period 20102012. the results of his research show that the capital structure has a negative and significant effect on the value of the company, profitability has a positive and significant effect on the value of the company and the size of the company does not affect the value of the company. setyowati and nursian (2014) conducted a study on the influence of profitability, dividend policy, and corporate social responsibility (csr) on corporate values (empirical studies on manufacturing companies listing on the stock exchange in 2009-2012). the results of his research are profitability and corporate social responsibility have a significant effect on company value and dividend policy does not have a significant effect on the value of the company. mardiyati et al (2012) conducted a study on the effect of dividend policy, debt policy and profitability on the value of manufacturing companies listed on the indonesia stock exchange (idx) for the period 2005-2010. the results of this research are dividend policy has no significant effect on firm value, debt policy, dividend policy does not have a significant effect on firm value, while profitability, company performance, and investment decisions have a significant positive effect on the value of the company. research conducted by mahendra (2012) found that profitability had a significant effect while other variables such as liquidity and debt policy were not significant to the value of the company. while research according to febrianti (2013) found that profitability was not significant to the value of the company. ika (2013) also conducted research on profitability influence, dividend policy, debt policy, and managerial ownership on corporate values (empirical study on manufacturing companies listed on the indonesia stock exchange (bei) for the period 2009-2011). the results of his research are profitability and dividend policy have a positive and significant effect on firm value, while debt policy and managerial ownership have no significant effect on the value of the company. moniaga (2013) regarding the capital structure, profitability and cost structure of the corporate value of the ceramic, porcelen and glass industry in the 2007-2011 period. the results of his research show that the capital structure, profitability and cost structure simultaneously do not have a linear relationship with firm value. ima (2014) conducted a study on the effect of firm size, profitability of corporate social responsibility, institutional ownership, sales growth, and capital structure on company value (empirical study on property companies that entered the sharia securities list group 2009-2012 period). the results of his research are the size of the company and the profitability have a significant positive effect on the value of the company. social responsibility, institutional ownership, sales growth and capital structure have no significant positive effect on the value of the company. from some previous studies, the difference in this research lies in the variables and the existence of an index comparison. the additional variable is located in the independent variables in the companies included in the issi 2012-2015 period. thinking framework to make it easier to understand this research, the framework of thinking is made as follows: international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-87 81 table 1 research variable variable ratio formula profitability return on asset (roa) liquidity current ratio (cr) leverage (debt policy) debt to equity ratio (dar). company value price to book value (pbv) 5. research methods this research includes explanatoryresearch, research that aims to obtain information, information about things that have not been known before. the population in this study arecompanies go public listed on issi. the sampling method used purposive sampling technique, with the following criteria: a. companies registered with issi for 4 consecutive years in 2012-2015; b. companies registered at issi which have the highest 80 market capitalization; c. companies that publish their annual financial statements and use their eyes rupiah in the company’s financial statements for the period 2012-2015; d. have complete data about the variables used in the study. after the screening process is obtained, there are 25 samples in issi. data is taken from the company’sannual reportpublished on www.idx.com, thewebsite company’s official, and other media. data analysis techniques data analysis was processed using a program eviews 8. the first was descriptive statistical analysis. then panel data regression analysis with linear regression equation: y = a + b 1 x i + b 2 x 2+ b 3 x 3 international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-8782 where: y = company value x 1 = liquidity x 2 = profitability x 3 = policy of debt a = constant b 11st , b, 22nd , b, 33rd = partial regression coefficient for theindependent variables to estimate panel data selected several equation models: common effect model, fixed effect model and random model effect. for choosing which model to use in the study, determining the best model is done with three tests (widarjono, 2012, p. 30): chow test (chow test) to choose between pooled least square or fixed effect model, hausman test (hausman test) to choose between fixed effect model or random effect model, test lagrange multiplier (lm) to select the equation between common effects / polled least squared and random effects. lm counts with the formula: where: n : number of companies t : number of periods e2 : average number of squares residuals e2 : number of squared residuals then testing the hypotheses that are carried out are: significance test f (simultaneous), coefficient of determination, t test (partial) to the group of companies listed on issi. 6. results and discussion descriptive statistics descriptive statistics are used to explain generally the characteristics of data which include, mean, median, minimum, maximum, etc. here are the results: table. 2 the results of data data descriptive statistics on the issi index sample: 1 100 pbv cr roa dar mean 5.141760 2.551770 0.216760 0.443200 median 2.783500 2.103000 0.178000 0.394500 maximum 58.48100 9.717000 1.258000 3.762000 minimum 0.054000 0.148000 0.002000 0.136000 std. dev. 9.493999 1.656811 0.227238 0.370376 observations 100 100 100 100 source:secondary data processed eviews 8 international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-87 83 following are the data from 25 companies listed on issi in vulnerable times from 2012-2015, totaling 100 data. from this table pbv can be seen as a maximum of 58,481 owned by pt unilever tbk in 2015 and a minimum value of 0.054 owned by pt. aneka tambang tbk in 2012. liquidity (cr) has a maximum value of 9,717 belonging to pt.media nusantaratbk in 2014 and a minimum value of 0.14800 owned by pt astra internasional tbk in 2012. profitability (roa) has a minimum value of 0.002 owned by pt xl axiatatbk and the maximum value of 1.258 owned by pt unilever tbk in 2013. while the minimum debt policy (dar) of 0.136 conducted by pt indocement tunggal prakarsa tbk in 2015 means the lowest value of debt used by the company during this study period is approximately 0.136 while the maximum value 3,762 was carried out by pt indofood cbf sukses makmur tbk in 2013. selection of regression models in issi index significance of common effect or fixed effect chow test or likelihood ratio-test to determine which is better between common effect models and fixed effects. the basis of decision making is done by looking at the value of chi-square crosssection probability. if the probability value is less than 5% alpha, it means that a good panel model to use is a fixed effect model, and vice versa if the probability is more than alpha> 5%, then the common effect model is used. table 3 chow test effects test statistic d.f. prob. cross-section f 0.640000 (24,72) 0.8895 cross-section chi-square 19.337128 24 0.7338 source:secondary data processed eviews 8 chow test results obtainedprobability values chi-square cross-section of 0.7338> 0.05, with this the best panel model used is common effect. significance test of fixed effect or random effect thetest hausman is the basis for making decisions in looking at the probability value of random cross-sections. if the probability is less than alpha 5%or the results of thetest are hausman significant, then the fixed effect model is used. conversely, if the results of thetest are hausman more than 5% alpha, or the results of the hausman test are not significant then the random effect model is used. table 4 hausman test test summary chi-sq. statistic chi-sq. d.f. prob. cross-section random 15.359991 3 0.0015 source:secondary data processed eviews 8 international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-8784 the results of the hausman test show the probability value of a random cross-section of 0.0015, smaller than alpha 5%. therefore, a model that is better used is fixed effect. lm test (multiple langrange) calculates the lm value calculated as follows: the lm value is calculated then compared with thevalue of the chi squared table with the degree of freedom (degree of freedom) as much as the number of independent (free) and alpha variables or a significance level of 5%. if the lm value counts>chi squared table, the model chosen is the random effect, and vice versa if the lm count <chi squared value is the table, the chosen model is common effect. the chi squared value of the table on the degrees of freedom 3 and alpha 5% is 7.8143 and the calculated lm value is 16.66667. because lm count (16,6667) is greater than chi squared table (7,8143), the model chosen is random effect model. regression analysis of issi index panel data multiple linear regression table 5 regression test random effect model variable coefficient std. error t-statistic prob. c 2014.138 0.255477 7883.837 0.0000 cr? 0.141196 0.036670 3.850511 0.0002 roa? -0.002951 0.067669 -0.043616 0.9653 dar? -6.255821 1.522257 -4.109570 0.0001 source: secondary data processed, 2017 regression results for the data panel using eviews 8 obtained the following equation: pbv = 2014.138 + 0.141196 0.002951 6.255821 hypothesis f test (test equation) table 6 simultaneous test results weighted statistics f-statistic 6.295346 prob(f-statistic) 0.000605 source: secondary data processed, 2017 f statistic value of 6,295346. f table is determined by k-1 as the numerator and nk as the denominator, so that the fresults table at 5% alpha of 5.2953. thus fcount > f table, so it can be concluded that all independent variables together (simultaneously) affect the dependent variable. international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-87 85 coefficient of determination table 7 value adjussted r2 weighted statistics adjusted r-squared 0.138276 source: secondary data processed, 2017 adjusted r2 of 0.138276, which means 13.82% of the variation in the value of the company can be described independent variables. while the remaining 86.18% is explained by other variables. t test (partial test) based on table 4.9 above, the results of data processing for t test can be interpreted as follows: a. the value of the firm’s value constant shows the number of 2014.138 which states that if the independent variable is considered a constant, then the value of the company is equal to 2014.138. b. the profitability variable has a probability value of 0.9653 with a coefficient of -0.00951. this value shows a number greater than 0.05 (0.9653> 0.05) which means that the profitability variable does not significantly influence the value of the company (pbv) at 5% alpha. so that it can be concluded that the profitability variable does not significantly influence the value of the company. c. the liquidity variable has a probability value of 0.0002 with a coefficient of 0.41196. this value shows a number smaller than 0.05 (0.0002 <0.05) which means that the liquidity variable has a significant effect on the value of the company (pbv) at 5% alpha. so it can be concluded that the liquidity variable has a significant effect on the value of the company. d. the debt policy variable has a probability value of 0.0001 with a coefficient of 6.255821. this value shows a number greater than 0.05 (0.0001 <0.05) which means that the debt policy variable has a significant effect on the value of the company (pbv) at 5% alpha. so it can be concluded that the debt policy variable has a significant effect on the value of the company. 7. interpretation analysis and results effect of profitability on company values on the issi index the regression test results show that profitability has no significant effect on firm value. this is evident from the results of the t test profitability has a significance level of 0.9653 with a coefficient of 0.41196. this research is not in line with research conducted by yuniasih and wirakusuma, ulupui (2013), and susila (2013) who found that roa has a positive and significant effect on firm value. however, this research is in line with the research of nur sasongko and nila wulandari (2015) which states that roa has no significant effect on firm value. no influence on profitability (roa) on company value can be caused by the use of inefficient company assets.aruh profitabilitas effect of liquidity on firm value on issi index regression test results show that liquidity has a significant effect on firm value. this is evident from the results of the debt policy t test has a significance level of 0.0002 with a coefficient of 0.41196. thus 0.0002 <0.05. according to information content theory, financial statements are said to be information content if the publication of the financial statements creates a market international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-8786 reaction. according to husnan, this market reaction will be indicated by a change in the price of the securities concerned (mahendra, arum and suarjaya, 2012, p. 10). the influence of debt policy against corporate value in the issi index the regression test results show that debt policy has a significant effect on firm value. this is evident from the results of the debt policy t test having a significance level of 0.0001 with a coefficient of 6.255821. this is in line with the signaling theory, that a company that has good performance means having good prospects in the future will give a signal with high debt to its capital structure, here the average dar is quite high, reaching 0.443 and vice versa if the company lacks good prospects then the company will not dare to have a high portion of debt. 8. conclusions and suggestions this study examine the effect of profitability (roa), liquidity (cr) and debt policy (dar) on the value of the company in the indonesian sharia stock index (issi). from the results of data analysis, it can be concluded that: a. the effect of profitability (roa) on company value (pbv) on companies listed in the indonesian sharia stock index (issi) in 2012-2015 shows negative but insignificant results. b. the effect of liquidity (cr) on company value (pbv) on companies listed in the indonesian sharia stock index (issi) in 2012-2015 showed significant positive results. c. the effect of debt policy (dar) on corporate value (pbv) in companies listed on the indonesian sharia stock index (issi) in 2012-2015 showed significant positive results. limitations in this study are using secondary data from 2012-2015 on observations of 100 samples on the issi index. then the use of profitability (roa), liquidity (cr), and debt policy variables, with the possibility that there are still many other variables that affect the company’s value such as investment opportunity set, institutional ownership, dividend policy, etc. the results of this study are expected to be able to provide information and trigger subsequent research that has similarities with regard to the limitations that exist in this study. among them are broader variable selection, company sector selection, stock index and selection of sample criteria so that it can provide variation in research. references ang, r. 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(2012). faktor-faktor yang mempengaruhi nilai perusahaan pada industri pertambangan di bursa efek indonesia. jurnal bisnis dan akuntansi, 14(2), 141-156. ghazali, i. (2006). metodologi penelitian kuantitatif untuk manajemen dan akuntansi. yogyakarta: international journal of islamic business and economics (ijibec), 2(2) december 2018, 75-87 87 ekonisia. hanafi, m. m., & halim, a. (2012). analisis laporan keuangan. cetakan kedua, edisi keempat. yogyakarta: upp ykpn. mardiyati, u., ahmad, g. n., & putri, r. (2012). pengaruh kebijakan dividen, kebijakan hutang dan profitabilitas terhadap nilai perusahaan manufaktur yang terdaftar di bursa efek indonesia (bei) periode 2005-2010. jrmsi-jurnal riset manajemen sains indonesia, 3(1), 1-17. maspupah, i. (2014). pengaruh ukuran perusahaan, profitabilitas, tanggungjawab sosial perusahaan, kepemilikan institusional, pertumbuhan penjualan, dan struktur modal terhadap nilai perusahaan (studi empiris pada perusahaan properti yang masuk kedalam kelompok daftar efek syariah periode 2009-2012). disertasi fakultas ekonomika dan bisnis universitas islam negeri sunan kalijaga. mindra, s., & erawati, t. (2014). pengaruh earning per share (eps), ukuran perusahaan, profitabilitas, dan leverage terhadap nilai perusahaan (studi kasus pada perusahaan manufaktur yang terdaftar di bursa efek indonesia pada tahun 2009-2011). jurnal akuntansi, 2(2), 10-22. moniaga, f. (2013). struktur modal, profitabilitas dan struktur biaya terhadap nilai perusahaan industri keramik, porcelen dan kaca periode 2007-2011. jurnal emba: jurnal riset ekonomi, manajemen, bisnis dan akuntansi, 1(4). setyowati, e. (2014). pengaruh kepemilikan manajemen, profitabilitas, leverage, ukuran dewan komisaris dan ukuran perusahaan terhadap pengungkapan corporate social responsibility pada perusahaan manufaktur di bei tahun 2011-2013. universitas dian nuswantoro. semarang. suhari, c. (2013). analisis pengaruh risiko sistematis dan likuiditas terhadap tingkat pengembalian saham dalam perusahaan non-keuangan lq-45 periode 2007-2009. bina ekonomi, 17(1). internet ediso sutan k.(2009). saham oke (saham-saham syariah): http://www.sahamok.com/sahamsyariah. idx (indonesia stock excange): http://www.idx.co.id/. 116 ijibec investigating intention-to-use sharia financial technology in new normal era rosana eri puspita1, puput yanita senja2, imanda firmantyas putri pertiwi3 1 sharia management and business program, faculty of islamic economics dan business, iain salatiga. jalan tentara pelajar no. 2 salatiga rosana.eri.p@iainsalatiga.ac.id 2 magister management program, faculty of economics and business, gadjah mada university jalan grafika no. sleman yogyakarta puput.yanita.s@mail.ugm.ac.id 3sharia accounting program, faculty of islamic economics dan business, iain salatiga. jalan tentara pelajar no. 2 salatiga imanda.putri@iainsalatiga.ac.id abstract the new normal era has made the digital-based industries have better prospects, including the sharia fintech industry. this study investigates the influence of knowledge on product, attitude, and intention-to-use related to the sharia financial technology. this study three variables consisting of knowledge on product, attitude, and intention. a quantitative approach was used in this research with a regression test. the data were collected using an online survey of 60 respondents. the results indicated that knowledge on sharia fintech affects attitude and intention-to-use sharia fintech. the knowledge on product provided a significant influence to shape attitude and intention. not many studies were conducted on the new normal conditions, including the sharia fintech industry. for practitioners, this research is possibly useful as a reference to map the muslim markets in the fintech industry. this study highlighted the importance of fintech in the new normal era to reduce the spread of covid-19 virus. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 2 2020 keywords: knowledge, attitude, behavioral, sharia, financial technology doi: doi.org/10.28918/ijibec.v4i1.1980 jel: g 21, g 23 article info article history: received : 09 juli 2020 accepted : 13 dec 2020 published : dec 2020 mailto:rosana.eri.p@iainsalatiga.ac.id mailto:puput.yanita.s@mail.ugm.ac.id mailto:imanda.putri@iainsalatiga.ac.id international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 117 1. introduction innovation in the field of technology is overgrowing in this era (duffett & duffett, 2015). at present, the innovation development of fintech is becoming a tough competitor in the banking sector in the world (vives, 2019). the rapid growth of technological innovation has triggered the growth of technological innovation in the financial industry. in indonesia, financial technology began to overgrow with the emergence of many start-up financial technologies that began to enliven the market. the new normal era faced by the world helped trigger the development of the fintech industry faster. prevention of covid-19 transmission has caused many industry sectors to change the way in serving customers and choosing digital platforms as the most appropriate choice. the physical distancing launched by the government makes business with digital platforms a great opportunity to reach a broader market quickly. the fintech sharia industry that uses digital services also has equally good opportunities. in indonesia, there are currently 51 information technology-based lending and borrowing service providers (fintech) listed by the ojk as of may 2018 (ojk, 2018a). data compiled by the majority of financial services also states that fintech growth occurred in indonesia by seeing an increase in the number of users, starting with lenders, borrowers, and loan amounts(ojk, 2018b). the development of financial technology can also be seen from the anticipation of government incentives to deal with the possibility of problems in the financial technology industry, such as the issuance of the financial services authority’s regulation number 77 / pojk.01 / 2016. various kinds of fintech are very helpful during the pandemic to the new normal era. for examples, lending services offered by fintech companies like investree and tunaikita could help these small firms to get loans at a lower cost with digital-friendly services that outstrip conventional banks (wardhani & bohman, 2020). digital payment platform linkaja teamed up with the it ministry to launch online shopping payment solutions in 18 traditional marketplaces throughout jakarta. lazada teamed up with indonesian fintech start-up alumak to provide quick, small loans for merchants to keep their businesses afloat during the covid-19 pandemic (mulia, 2020). as a country with a moslem population as a majority according to data released by bps, sharia finance with a halal concept in transacting becomes a special attraction (bps, 2018). inevitably, the emergence of the star up fintech sharia has certainly enlivened the financial technology market lately. twenty-six start-ups have been registered with the indonesian sharia financial technology association. a balanced amount between sharia fintech and conventional to fight for the same market makes sharia fintech must develop a marketing strategy to control moslem consumers in indonesia. the development of conventional finance during the moslem community is due to a lack of knowledge about sharia financial technology. consumer knowledge about products is needed to generate intentions in their use, even in financial technology. one of the factors that influence consumers’ intention to use products is influenced by attitudes, while one of the factors that influence attitudes is knowledge about the product (wang et al., 2020). this study analyzes how much knowledge about the product will affect intention-touse sharia financial technology. this research can be the basis for marketing, such as determining the marketing strategy of sharia financial technology, shrinking sharia financial technology marketing programs, etc. this research is beneficial in dealing with the new normal era, which forced the financial industry to migrate to digital platforms. the renewal https://www.investree.id/ https://www.tunaikita.com/ https://theconversation.com/traditional-banks-are-struggling-to-stave-off-the-fintech-revolution-124201 118 international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 offered in this research is a fresh object of research to be studied because islamic fintech is an object that appears in the current era of economic disruption. the new thing in this research is the new normal era term time. there is not much research in the new normal era yet. investigating the intention to use sharia financial technology is important to determine consumer behaviour in the new normal era. 2. research method this study uses a quantitative approach. the preparation of the hypothesis in this study is based on a construct built from established literature. two hypotheses were arranged in testing. because the model is linear and allows for mediation relationships, mediation testing is done after hypothesis testing. in testing the hypothesis, data collection is carried out through online surveys. sampling in this study does not have a sampling frame, so it is categorized in nonprobability sampling. sampling in this study was conducted by purposive sampling in the type of judgment sampling. judgment sampling is a non-probability sampling method. participants are selected based on the experience of individual beliefs that they will qualify in the study (hair, celsi, oritinau, & bush, 2013). sampling criteria in this study were respondents who were over seventeen years old, moslem, and had not used sharia fintech services. the total questionnaires distributed were 60 questionnaires. hypothesis development much research examines the influence of knowledge on attitude formation. knowledge about product affects consumer attitudes (teng, wang, & wang, 2015). knowledge differences will result in a change in attitude, so positive knowledge will result in a positive attitude as well (agüeria, terni, baldovino, & civit, 2018). individual knowledge about information correlated with the attitude formed (hinduan, suherman, pinxten, alisjahbana, & hospers, 2013). based on previous research, this study also tried to investigate the influence of knowledge about sharia financial technology on attitudes, so that the following hypothesis was built. h1: knowledge of financial technology has a positive influence on attitudes to using sharia financial technology the study of the influence of attitudes on intentions has been done before. the intentions explained that attitudes (mohaidin, wei, & ali murshid, 2017; rahman, a. a, 2017; teng et al., 2015). based on these previous studies, the hypotheses built in this study are. h2: attitudes towards sharia financial technology influence the sharia financial technology’s intention-to-use demographic data of respondents table 1 presents the demographic information of respondents. one-third of the respondents are male, and two-thirds are female. the majority of respondents aged 21-30 years with a percentage of 58%, while respondents at least aged 17-20 years as much as 2%. respondents aged 31-40 years were 28%, and respondents aged > 40 years were 12%. table 1. demographic information respondents demographic gender percentage gender male 33,33% female 66,67% international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 119 age 17-20 2% 21-30 58% 31-40 28% >40 12% spending per month idr 1,000,000 13% idr 1,000,000 – idr 2,000,000 37% idr 2,000,001 idr 3,000,000 7% idr 3,000,001 – idr 4,000,000 7% idr 4,000,001 idr5,000,000 3% >idr 5,000,000 33% last education senior high school 17% bachelor 33% master 48% doctor 2% the table presents the demographic information of respondents. one-third of the respondents are male, and two-thirds are female. the majority of respondents aged 21-30 years with a percentage of 58%, while respondents at least aged 17-20 years as much as 2%. respondents aged 31-40 years were 28%, and respondents aged > 40 years were 12%. from the data obtained, the highest number of respondents 'expenditure was around idr 1,000,000 – idr 2,000,000 as much as 37% while the smallest number of respondents' expenditure was idr 4,000,001 – idr 5,000,000 as much as 3%. from these data can also be obtained information that respondent expenditure < idr 1,000,000 as much as 13%, expenditure in the range of rp.3,000.001,00-rp.4,000,000.00 and idr 4,000,001 – idr 5,000,000 as much as 7%, and respondents spend > idr 5,000,000 as much as 33%. the table also reveals respondents’ data based on education level. the largest respondents were s2 graduates with a proportion of 48%, while the least was s3 educated as much as 2%. respondents with an undergraduate degree are 33%, and high school is 17%. validity and reliability of the research instrument validity testing was conducted in this study to see accuracy in measurements. constructions that have good validity are constructs that do not have errors in their measurements (hair et al., 2013). construct validity in this study was carried out using factor analysis. the factor analysis test is carried out by testing keizer-meyer-olkin (kmo) and bartlett of sphericity. kmo values are categorized into four categories. kmo values of 0.50.7 are categorized as moderate, 0.7 are categorized good, and values above 0.9 are very good (li, zhang, tong, tong, & liu, 2011) the kmo value in this study is 0.903, which is categorized as very good in the adequacy of the sample. bartlett of sphericity value in this study is 0,000. this value can be interpreted that the matrix is not an identity matrix because α = 0.05> 0,000. the bartlett of sphericity value means that factor analysis can be used. 120 international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 reliability is measured by calculating the value of cronbach alpha. reliability is built by testing consistency and stability (sekaran & bougie, 2016). consistency is indicated by how well items to measure concepts are used together in a device. from the test results, we obtained three values of cronbach alpha for each variable. the cronbach alpha value for variable product knowledge is 0.882. for the attitude variable of 0.965, and the intention variable of 0.969. all cronbach alpha values are higher than 0.7 so that they can be analyzed as reliable research instruments. 3. results and discussion result there are two tests of influence done in this study. the first test in this study was to test that knowledge of sharia fintech has a positive effect on attitudes towards sharia financial technology. at the same time, the second test is to test that the attitude towards sharia financial technology has a positive effect on the intention to use sharia financial technology. the results of this test are presented in table 2. in the first test, the r-value of 0.795 is the correlation between the variable knowledge of sharia fintech and the attitude towards sharia fintech. the correlation values are categorized as strong values, and positive values indicate that the direction of the relationship is positive. from these values, it can be interpreted that knowledge of sharia fintech is closely and positively related to the attitude towards sharia financial technology. the r-value in the second test is 0.631 and is positive. this value is categorized as a strong relationship. from this value, it can be interpreted that the value of attitudes towards sharia fintech is closely linked and has a positive direction with the intention to use sharia fintech. r2 is a percentage of the variation in the dependent variable described by the independent variable. if the r2 value is 1, then the independent variable is used in full in predicting the dependent variable. in testing the first hypothesis, r2 is obtained at 0.631, and the adjusted r2 is 0.625. from this value, it can be interpreted that variables of knowledge about financial technology explain 62.5% of attitudes toward sharia fintech, and other variables besides knowledge explain 37.5%. in testing the second hypothesis, r2 is obtained at 0.399, and the adjusted r2 is 0.388. from this value, it can be interpreted that the attitude towards sharia fintech explains 38.8% of the intention to use sharia fintech, and other variables besides attitude explain 61.2%. table 2. determinant coefficient and adjusted r square, result of t-test, and f-test knowledge about sharia fintech attitude determinant coefficient and adjusted r square r 0,795 0,631 r2 0,631 0,399 adjusted r square 0,625 0,388 result of t-test standarized coeffisient beta 0,795 0,631 t 9,967 6,202 sig. 0,000* 0,000* annotation significance significance international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 121 result of the f test f 99,347 38,468 sig. 0,000* 0,000* annotation significance significance *significant (sig.<0.05) the t-test is carried out in two hypothesis testing. in the first hypothesis test, the regression coefficient value is 0.795, with t count 9.967 and sig. amounting to 0,000 at a significance level of 5% (0.05). because of the sig. t value is 0,000 <0,05; it can be interpreted that knowledge of sharia fintech is based on attitudes towards sharia fintech. the value of 0.795 shows that the magnitude of the effect of the variable knowledge about sharia fintech affects the attitude towards fintech sharia by 0.795. in testing the second hypothesis, the regression coefficient value is 0.631, with t count of 6.202, and a significance value of 0.000. attitudes towards sharia fintech affect the intention to use fintech sharia; this is because of the value of sig. t is 0,000 <0,05. the magnitude of the influence of attitudes towards sharia fintech on the intention-to-use sharia fintech is 0.631. the f test was also carried out in testing hypotheses. f test is done to find out whether a variable affects other variables. f ratio is the division of mean square and means square residual. from the test results, it is found that the f value for the regression test variable knowledge about sharia fintech has a value of 99.374 with a value of 0.000 significance smaller than 0.005. from these results, it can be interpreted that the knowledge of fintech sharia will affect attitudes. the results of the f test for variable attitudes have a value of 38.468 with a significance value of 0.000, which is 0.005 smaller. from the results of these tests, it can be interpreted that the attitude influences the intention to use sharia fintech. mediation test this study examines whether there is an indication of the mediation relationship of the three existing variables. mediation testing is done by estimating three regression equations. first, test the influence of knowledge about sharia fintech and attitudes. by looking at the beta coefficient, it can be seen that the knowledge of sharia fintech has a regression coefficient of 0.713 with a significant value of 0.000 smaller than 0.005. in the first condition of achieving mediation, the independent variable is expected to influence the mediator with a coefficient of ≠ 0 significantly, so the results of this calculation are stated to fulfil the first conditions for achieving mediation (baron & kenny, 1986). second, test the effect of variable attitudes on the intention to use sharia fintech. from the beta coefficient value, it can be seen that the variable attitude has a value of 0.752 with a significance value of 0.000 smaller than 0.05. third, to test the effect of knowledge variables on sharia fintech on the intention to use sharia fintech. from the test results, obtained the regression coefficient value of 0.761 with a significance value of 0.000 smaller than 0.005. the second condition of achieving mediation, the independent variable, is expected to significantly affect the dependent variable with a regression coefficient of ≠ 0. therefore the results of this calculation are declared to fulfil the second requirement of achieving mediation (baron & kenny, 1986). the results of the mediation test that examines the effect of knowledge on sharia fintech on attitudes, attitudes to intentions to use, and knowledge of sharia fintech on intentions to use are presented on the appendix. fourth, test the multiple effects of product knowledge variables and attitudes on intention. the results of the test of these influences 122 international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 are given in table 6 on appendix too. variables of knowledge about products and attitudes have a positive and significant effect on the intention to use with beta coefficients of 0.150 for product knowledge variables and 0.534 for attitude variables. in the third condition of achieving mediation, the mediator variable must significantly influence the dependent variable with the regression coefficient ≠ 0 (baron & kenny, 1986). besides, the influence of the independent variable on the dependent variable must be lower than the mediator variable to the dependent variable. then the result of this calculation is, the attitude variable is stated to fulfil the mediation requirements. based on these equations, it can be interpreted that the mediation in this study because the influence of independent variables on the dependent variable is lower in the third equation (c’) compared to the second equation (c’). mediation in this equation is categorized as partial mediation because the coefficient c ‘is reduced but remains significant (c’ ≠ 0) discussion this research proposed and examined knowledge and attitudes as factors that predict intention-to-use sharia fintech—also investigating the existence of a mediating relationship to the knowledge of sharia fintech with the intention-to-use sharia fintech. the positive influence of respondents’ knowledge about fintech sharia on their attitudes towards sharia fintech indicates that knowledge influences attitude formation. the more knowledge about fintech sharia, the better their attitude towards fintech syariah. the results of this study corroborate previous research, which concluded that knowledge about products has a positive effect on attitude formation (agüeria et al., 2018; jørgensen, 2017; mohaidin et al., 2017; rios, riquelme, & abdelaziz, 2014; williams, rana, & dwivedi, 2015). with the new normal era, due to the pandemic, the prospect of the digital financial industry has risen dramatically. all financial companies seize this opportunity, so the fintech sharia industry must also participate because the new normal era is a big opportunity for the digital sector. enrichment of customer knowledge can be done through promotion and education. with these two steps, the customer will have product knowledge. increasing knowledge levels will affect increasing other variables that contribute to behaviour (wang et al., 2020). education should not only be done in the potential fintech market, namely the younger generation. the younger generation is a good fintech market because of the characteristics of the younger generation, who are digital natives (hawkin & mothersbough, 2014). fintech marketing to the older generation needs to be more active because this generation is more difficult to adapt to technology even though the older generation is a potential market because of its large numbers and good financial capabilities. the establishment of consumer attitudes by providing knowledge about sharia fintech is needed. the knowledge given can be in the form of knowledge about the characteristics that distinguish sharia fintech from those that are not sharia, knowledge of the features of services provided by sharia fintech, knowledge of the operational processes of sharia fintech, and the knowledge that sharia fintech can help in solving financial problems. the new normal era can also be used as a reason to intensify the importance of digital finance in marketing programs through knowledge transfer. attitudes have a positive effect on the intention to use. the results of this study, the attitude of respondents has a positive effect on the intention-to-use sharia fintech. the international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 123 better the attitude of the respondents, the higher their intention-to-use sharia fintech. this result is in line with previous studies that mention the same thing. namely, the attitude formed by prospective consumers will affect the intention to use a product (abd rahman, asrarhaghighi, & ab rahman, 2015; kuciapski, 2017; mohaidin et al., 2017; rahman, a. a, 2017; spacey, goulding, & murray, 2004; teng et al., 2015; weerasinghe & hindagolla, 2018). changing consumer behaviour is not only done at the individual level because the group level has a significant effect on behaviour change. the intention to do something in the group will have an impact on changing the behaviour of the individuals in the group (valleman, 2015). creating the intention to use sharia fintech can be done by shaping consumer attitudes. the attitude that is formed includes the realization that sharia fintech is useful, good, valuable, and enjoyable when used. with the existence of a positive attitude, the intention-to-use sharia fintech will also be good. the intention to use is formed in the form of willingness to use, a sincere feeling to use, a desire to use, and a desire to consider using. this study indicates of mediation so that the mediation test of the research model was conducted. the results of the survey reveal that there are indications of partial mediation. partial mediation that occurs gives the meaning that knowledge about fintech will make prospective customers intend to use sharia fintech. however, the intention to use sharia fintech will be formed even stronger when potential customers have a positive attitude towards sharia fintech. the study, along with its findings, has provided additional insights into an intention to use sharia fintech. although indonesia has been one of the frontrunners in the development of fintech in southeast asia, not all individuals who use conventional banking system have similar perception towards sharia fintech. the study suggests such intention to use sharia fintech is determined by knowledge about product and attitude. the results imply customers’ intention to use sharia fintech are still dependent on opinions from significant others and social trends. fintech creates new ways that give them the agility needed to rapidly create and deliver new solutions during covid-19 pandemic era. sharia fintech has been developing new offerings and making certain platforms more easily accessible to help individuals cope with the effects of covid-19. the collaboration between fintech firm, the banking industry and government is needed to support the use of sharia fintech during a pandemic and the new normal 4. conclusion this study proposed and investigated the intention to use sharia fintech. by looking at the theory and data analysis about knowledge about sharia fintech, attitudes, and intentions to use sharia fintech, it can be concluded that knowledge about products has a sufficient contribution to help shape the intention of consumers to use fintech sharia. consumer attitudes are important in forming intentions to use. in this study, the attitude has a positive influence on the intention to use sharia fintech services. from the results of the mediation test, the results of partial mediation are obtained. knowledge of sharia fintech directly influences the intention to use sharia fintech. however, the intention to use sharia fintech will be stronger if the attitudes of prospective consumers are also positive. some of the recommendations offered in this study are to market the sharia fintech 124 international journal of islamic business and economics (ijibec), 4(2) december 2020, 116-126 business, which is to increase marketing efforts through education about products offered to prospective consumers. with promotion about sharia fintech, the services offered, the difference with the services that are fintech sharia and sharia fintech trust is intended to form a positive attitude on sharia fintech services. thus the intention to use sharia fintech by itself will be formed. also, companies that are engaged in sharia fintech should conduct further studies regarding other factors that influence attitudes. in the new normal era, a number of online promotional programs can be carried out by sharia financial technology businesses. online promotion will help consumers to find out more about everything about sharia financial technology. covid -19 momentum are potential to improve fintech faster because the advantages of technology this research recommendation for further research is that further research should be able to use other variables or add an independent variable in investigating the intention-touse. other studies can also examine how much the intention to use the sharia fintech service in the formation of consumer behaviour. acknowledgement the author would like to the organizer of the 2nd annual symposium on islamic economy and halal industry at gadjah mada university. because at this moment, the idea of this research is presented and got many suggestions. also, this study had the opportunity to get the best presenter award at the event. references abd rahman, a., asrarhaghighi, e., & ab rahman, s. 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(2015). the unified theory of acceptance and use of technology (utaut): a literature review. journal of enterprise information management, 28(3), 443–448. https://doi.org/10.1108/jeim-09-2014-0088 51 ijibec the effect of the sharia supervisory board the characteristics on maqashid sharia index 1 meilynda kurniasari,, 2 kautsar riza salman 1,2stie perbanas surabaya email: 1, kautsar@perbanas.ac.id abstract the purpose of this study is to obtain empirical evidence regarding the influence of the characteristics of the sharia supervisory board on the maqashid sharia index on sharia banks in indonesia. the variables used in this study are the characteristics of the sharia supervisory board and maqashid sharia index. the characteristics of sharia supervisory boards are the educational background of sharia supervisory boards, number of sharia supervisory board meetings, concurrent positions of sharia supervisory boards, and indicators of the number of sharia supervisory boards. the maqashid sharia index uses indicators of welfare (maal), education (tahdzib al fard), and justice ('adl). the data used are secondary data in the form of annual reports of islamic banks in indonesia for a 5 years period (2013-2017). the research sample of eleven islamic banks. data analysis technique used is partial least square (pls). the findings of the study were successful in proving the negative influence of the number and educational background of the sharia supervisory board on the maqashid sharia index international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 1 2020 keywords: sharia supervisory board, maqashid sharia, education, justice, welfare doi:https://doi.org/10.28918/ijibec.v 4i1.2348 jel: g.21, m.39 article info article history: received : 23 february 2019 accepted : 29 may 2020 published : 1 june 2020 mailto:kautsar@perbanas.ac.id https://doi.org/10.28918/ijibec.v4i1.2348 https://doi.org/10.28918/ijibec.v4i1.2348 52 international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 1. introduction the development of islamic banking in indonesia has doubled in the past 7 years. the growing development of islamic banks has implications for the greater challenges that must be faced by islamic banks, where the biggest challenge is to maintain the image and reputation in the eyes of customers in order to maintain customer trust and loyalty to islamic banks (falikhatun & assegaf, 2012). in addition, the development of islamic banks in indonesia, triggered competition among banks. competition does not only occur between conventional banks and islamic banks. but it also penetrated among islamic bank institutions as institutions that have their own privileges and market share. this situation certainly requires islamic banks to work extra hard in improving their performance. the performance improvement of islamic banks is not only based on profitability and human resources, but also in the roles and responsibilities of islamic banks as islamic financial institutions where all activities carried out by islamic banks are in accordance with sharia principles or based on maqashid sharia. maqashid sharia based islamic bank performance measurement is a process to determine whether islamic banks can achieve the goals of islamic banks derived from maqashid sharia. performance measurement has a direct relationship with its objectives, so that indicators of performance achievement will be derived from these objectives. (hameed et al., 2004). the achievement of maqashid sharia can be seen from three dimensions, namely: jalb al-maslahah (attaining public interest), tahdhib al-fard (individual education), and iqamah al-adl (creation of justice), where the three factors are universal. the other words of these three dimensions are that welfare requires national banks to be able to design education and training programs with moral values so that they will be able to improve the abilities and expertise of employees. justice where islamic banks must ensure fairness and honesty in all transactions and business activities included in the product, all interest free activities. islamic banking must develop social services and investment projects to improve the people’s welfare. there are still few studies that use the islamic maqashid index as a research variable. among those who examined the islamic maqashid index is deegan et al. (2002), hossain et al. (2006), othman et al. (2009), sunarsih & ferdiyansyah (2017) and salman et al. (2018). however, these studies examine the effect of company performance as measured by company performance and the islamic maqashid index on the level of corporate social responsibility disclosure. the current study is different from previous studies, in that it uses the maqashid sharia index as the dependent variable. performance measurement in the modern era is not only measured by financial aspects, but can also be seen in non-financial aspects such as corporate governance, intangible assets, economic value added, and other performance measures (ulum, 2007). the application of good governance requires principles to be used as guidelines so that the implementation runs as desired. the principles of good governance according to the bank indonesia regulation no.8/4/pbi/2006 are: accountability, fairness, responsibility, transparency, and independency. the application of islamic governance also requires guiding principles, while the principles of islamic governance are: deliberation, justice (‘adalah), relationship (ukhuwah), trust, accountability (mas'uliyyah), and transparency (tabligh). islamic governance in relation to banking is a management system designed to improve compliance with legislation and ethical values that apply in general, to improve the performance of banks, and protect the interests of stakeholders. therefore to realize this, banks through corporate governance mechanisms form a sharia supervisory board (ssb). in indonesia it is known as the dewan pengawas syariah (dps). international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 53 the role of the sharia supervisory board (ssb) in the implementation of islamic governance is very important, namely as a party that supervises and ensures that an islamic bank is in operation in accordance with sharia principles. its members consist of experts in the field of islamic jurisprudence who know general knowledge in the field of banking and other capabilities that are relevant to their daily tasks. the sharia supervisory board in overseeing the operations of islamic banks must refer to the fatwa of the national sharia council of the indonesian ulema council to ensure the suitability of bank products and services with the provisions of the fatwa islamic banking is currently growing rapidly and is part of financial conditions in the islamic world. however, there are two important realities to be observed in the life of islamic banking in indonesia. first, islamic banks have not reached a market share of 5 percent. second, there is a decline in islamic banking compliance with sharia principles. therefore a development strategy is needed through the implementation of islamic governance. this study is motivated by the results of previous research studies, because previous studies showed inconsistent or conflicting results, including the relationship between islamic governance and the maqashid islamic index. studies by muttakin & ullah (2012), mollah & zaman (2015), meilani (2015), and endraswati (2017) provide empirical evidence that islamic governance has a positive effect on the temporary maqashid sharia index. kholid & bachtiar (2015) cannot explain the relationship between islamic governance and the maqashid sharia index. on the other hand, endraswati (2017) also revealed that the number of sharia supervisory board did not have a positive effect on the performance of company reports. given the above gaps, this study seeks to carry out the same research as the research sample in the form of islamic banks in indonesia for the 2013-3017 period. the study of the islamic governace has the aim of providing empirical evidence regarding indicators that are thought to affect the maqashid sharia index. this study seeks to prove empirically the influence of characteristics of sharia supervisory board on the maqashid sharia index, with indicators consisting of number of members ssb, double positionss of members of the ssb, ssb member meetings, educational background of members of the ssb on maqashid sharia index. this research is also expected to be able to provide theoretical and practical contributions to islamic banking policies in indonesia. in addition, it is also expected to provide additional theory and literature in current maqashid sharia research. based on gaps in previous studies and the importance of providing the same research results, this study aims to obtain empirical evidence of the influence of the characteristics of the sharia supervisory board on the maqashid sharia index. 2. research method this study uses panel time dimensions, namely sharia commercial banks in indonesia in the period 2013 to 2017. this type of research uses research design to test hypotheses, namely by testing the dependent variable, namely the performance of the maqashid sharia index which is influenced by characteristics of sharia supervisory board (ssb) with indicators of reflection on the number of ssb members, double positions of ssb members, number of ssb meetings, and educational background of ssb members. this research indicator refers to previous studies such as mukhibad (2019), endraswati (2017), almutairi & quttainah (2016), mollah & zaman (2015), kholid & bachtiar (2015), muttakin & ullah (2012), farook et al. (2011), and ghayad (2008). the dependent variable of this study is the maqashid sharia index. the maqashid sharia index can be defined as the level of the bank in achieving its objectives. the maqashid 54 international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 sharia index in this study took a measurement developed by mohammed et al. (2008). according to mohammed et al. (2008), the purpose of islamic banks will be right if they are derived from the objectives of sharia. the steps in measuring the performance of maqashid sharia are as follows: population and samples the population used in this study are all islamic banking companies in indonesia. sampling in this study using purposive sampling technique. purposive sampling where there is a determination in sampling, so there are certain criteria in determining the sample. the criteria are as follows: (1) islamic banking financial institutions, namely sharia commercial banks registered at bank indonesia. (2) the sharia commercial bank publishes annual financial reports in the period 2013-2017 consistently and has been published on the website of each islamic bank. (3) islamic banks have the required data related to the international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 55 measurement of the variables used for research during the period 2013-2017. by using purposive sampling, this study obtained 11 islamic banks from panel data of 55 (11 x 5 years). technical data analysis data were analyzed using the partial least square (pls) approach through smartpls version 3.0, stages. data analysis techniques include: factor analysis, validity and reliability assessment, r2 and q2 assessment, and hypothesis testing. 3. results and discussions agency theory is used to explain the relationship between two research variables. theory agency was first developed by (jensen & meckling, 1976). agency theory explains the relationship between principal and agent. the principal is the party that gives the mandate to the agent to act on behalf of the principal, while the agent is the party given the mandate to act on behalf of the principal. this will require any action to the principal. agency theory requires a separation between the principal and the agent, which triggers the existence of asymmetric information where the agent has better information about the organization than the principal. faozan (2013) defines good corporate governance as a mechanism for good organizational governance in managing organizational resources efficiently, effectively, economically or productively with the principles of openness, accountability, responsibilty, independence and fairness in order to achieve goals organization. good organizational governance can be seen in terms of the internal mechanism of the organization or the external mechanism of the organization. the internal mechanism is more focused on how the leadership of an organization regulates the running of the organization in accordance with the above principles. meanwhile, the external mechanism emphasizes how the organization's interactions with external parties run in harmony without ignoring the achievement of organizational goals. maqashid is the plural form of the word maqshud which means purpose. understanding of sharia is all that has been determined and explained by allah to his servants both related to maslahah, aqeedah, and law (siddiq, 2009). maqashid as-sharia means the intent and purpose of islamic law. according to the term maqashid sharia is identical with the term islamic legal philosophy. so it can be concluded that maqashid assharia is the intent or purpose of islamic law. in the opinion of experts in general that these goals are a problem for humanity. this study shows that the initial sample of the bank before being selected based on the criteria is 13 sharia commercial banks for five years. based on predetermined criteria, there are 2 banks that have incomplete annual reports in 2013-2017. the following are the names of sharia commercial banks in indonesia which are the research subjects included in the sample criteria: based on data obtained from the financial services authority with predetermined criteria, there are 11 sharia commercial banks in indonesia in 2013-2017 which will be sampled and processed in this study. sample of this study are bca syariah, bank jabar banten syariah, bni syariah, bank syariah mandiri (bsm), bank bukopin syariah, bank victoria syariah, maybank syariah, bank mega syariah, bank muamalat indonesia, bank panin dubai syariah, and bri syariah. 56 international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 descriptive analysis this study uses a descriptive statistical analysis model. descriptive analysis will provide a description (description) of a data, including the average (mean), maximum value, minimum value, standard deviation of each data or variance which is a measure of variability; minimum and maximum values. the following are the results of descriptive calculations that are processed using smartpls version 3.0. based on table 3. it can be seen that overall the average number of members of the sharia supervisory board is 2.38. this study has the minimum number of the sharia supervisory board members of 2 people and at most 4 people. this indicates that 11 islamic commercial banks in indonesia have complied with bank indonesia regulation no.6/24/pbi/2004 article 26 (1) which states that the number of the sharia supervisory board members is at least 2 people and a maximum of 5 people. double positionss in the sharia supervisory board have an average value of 1.02. this value exceeds 1. this indicates that out of 55 data used, the sharia supervisory board held double positionss according to pbi regulation no. 11/33/pbi/2009, where the sharia supervisory board members may only hold double positions as a members of the sharia supervisory board as many as 2 banking institutions and 2 non-bank sharia financial institutions. the sharia supervisory board members are prohibited from concurrently as a consultant in all islamic bank. one of the sharia supervisory board member is allowed to hold a position as a member of the dsn. the average of sharia supervisory board meetings is 1.55. this value is close to number 2. this indicates that the average sharia supervisory board in sharia commercial banks has complied with pbi no. 11/33/pbi/2009, where at least once a month or in one year at least 12 meetings are held. the average value of the educational background variable of members of the sharia supervisory board is 2.05. this value is close to number 2. this shows that the average educational background of members of the sharia supervisory board has complied with bank indonesia regulation no. 6/17/pbi/2004 article 28 paragraph 2 and 3 which states that the sharia supervisory board members who have competence are those who have knowledge and experience in islamic muamalah and banking or finance in general. according to mohammed et al. (2008), the purpose of a sharia bank will be appropriate if it is derived from the goal of sharia. islamic banks is not only to maximize profits, but also to have a role in the social sector. this resulted in the measurement of the international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 57 performance of islamic banks to be more complex. performance measurement of maqashid sharia based islamic bank is a process to determine whether islamic banks can achieve the goals of islamic banks derived from maqashid sharia. the average of maqashid sharia index in indonesian islamic commercial banks in 2013-2017 based on table 3. is 0.268855 with a standard deviation value of 0.71496. the minimum value of the maqashid sharia performance index for indonesian islamic commercial banks in 2013-2017 is 0.2712. the highest maqashid sharia performance index is 0.35737. convergent validity testing for convergent validity is done by paying attention at the value of outer loading of each research indicator. this study uses rule of tumbs above 0.5 as a condition for each indicator to meet convergent validity. the outer loading test results are shown in the following description and some indicators that have a low score less than rule of tumbs 0.5 must be eliminated. furthermore, a summary of the results of outer loading for the indicators of each variable under study is presented in the following description based on table 4, the results of loading factors on the characteristics of sharia supervisory board variable indicate that there are 2 (two) indicators that have low convergent validity below 0.5, namely double positions of ssb members (x1.2) and sharia supervisory board member meetings (x1.3). the loading factor of double positions of ssb members (x1.2) is 0.15. meanwhile the loading factor number of ssb meetings (x1.3) is 0.813. these two indicators must be eliminated from the measurement of variables. meanwhile, the results of loading factors from the maqashid sharia index variable as the dependent variable indicate that there are 2 indicators that have low convergent validity, namely education (y1.1), and public interest (y1.3). education indicator (y1.1) and public interest (y1.3) must be eliminated from the measurement of the maqashid sharia index variable, because both have a loading factor below 0.5 which is equal to 0.416 and 0.127. after eliminating the indicators that do not meet the requirements in the convergent validity test, the indicators used in measuring the variables are as follows: table 5 second outer loading no indicators outer loadings 1. number of ssb members (x1.1) 0.858 2. educational background of ssb members (x1.4) 0.741 3. justice (y1.2) 0.896 58 international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 discriminant validity in this study, discriminant validity testing is done by paying attention at loading and cross loading. the term of discriminant validity indicates that the variable correlation value in itself must be greater than the correlation with other variables. the table below shows the cross loading values for each indicator: table 6 the results of discriminant validity variables x y number of ssb members (x1.1) 0.923 -0.283 educational background of ssb members (x1.4) 0.853 -0.208 justice (y1.2) -0.281 1.000 based on table 6, each indicator of the research variable has the largest cross loading value on the variable itself compared to the value on the others. it is implied that it can be stated that these indicators have good discriminant validity in preparing their respective variables. reliability test reliability testing is done using cronbach alpha and composite reliability. cronbach alpha and composite reliability are used to measure the reliability of reflexive measurement models. the rule of tumbs in this study for reliability testing was 0.70 as in the hair et al. (2011). based on the results of the reliability test obtained good results, all variables have more scores than rule of tumbs 0.70 (table 7). thus it can be concluded that all variables in the measurement model have good reliability. table 7 the results of reliability test variabel composite reliability cronbach alpha ims 1.000 1.000 characteristics of sharia supervisory board 0.739 0.882 based on the data presented in table 7, it can be seen that the composite reliability values of all research variables > 0.7. these results indicate that each variable has met composite reliability so that it can be concluded that the overall variable has a high level of reliability. based on the data presented above in table 7, it can be seen that the cronbach alpha value of each study variable is > 0.7. thus these results can show that each research variable has met the requirements of the cronbach alpha value, so it can be concluded that the overall variable has a high level of reliability. structural model testing results (inner model) the main criterion for assessing the inner model is to look at the value of determination (r2). in the previous chapter, it was explained that r2 value of 0.75, 0.50, or 0.25 for endogenous latent variables in structural models can be described as either strong, medium, international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 59 or weak. in the current study, the results obtained are that r square (r2) in the model where the maqashid islamic index as the dependent variable is higher than the model where characteristics of ssb is an independent variable. the value of r2 in the model with the maqashid sharia index variable as the dependent variable of 7.9% indicates that the model is weak so that the research model cannot explain the effect of the maqashid sharia index variable on sharia commercial banks of 7.9% while the remaining is 92 , 1% is explained by other variables outside the research model. thus it can also be stated that there are still other variables outside the model that need to be considered with regard to the factors that influence the maqashid sharia index. predictive relevance (q2) is a goodness of fit test of the structural model used. the resulting value is greater than zero (q2> 0) which indicates that the exogenous construct has predictive relevance for the endogenous construct (hair et al, 2011). predictive relevance (q2) is 0.079 or 7.9%. in accordance with the criteria of hair et al. (2011), then this model shows that exogenous constructs have predictive relevance to endogenous constructs because they have a q2 value greater than zero hypothesis testing results testing the hypothesis of direct influence (h1) is done by looking at the values on the path coefficients that show the parameter coefficients and t-statistic values. the research hypothesis is supported if the absolute t-statistic value is greater than 1.96 or p-value is less than 0.1 (table 8). table 8 the results of hypothesis testing hipothesis original sample t statistic p values h1 -0.281 2.583 0.010 it showz absolute t-statistic values of 2,583 greater than 1.96 or p values of 0.010 less than 0.05. this means that h1 is accepted. the inner weight coefficient value of -0.281 shows that characteristics of sharia supervisory board (x) has a negative effect on the maqashid sharia index. discussion in bank indonesia regulation no. 11/33 / pbi / 2009, the sharia supervisory board (ssb) has the duty and responsibility to provide advice to the directors and supervise the activities of the bank in accordance with sharia principles. ssb in this study uses the characteristics of the number of ssb and ssb educational backgrounds. a sharia supervisory board that has better knowledge and experience shows that ssb has a reputation that will encourage improvements in the oversight function. this concept is supported by mutakin and ullah (2012) who find that the greater number of dps members is proportional to the better performance of the board because the board has high experience and expertise and extensive social networks. the more ssb members will increase the level of compliance of islamic banks. different findings were obtained by usamah (2010), kholid & bachtiar (2015), mukhibad (2019) who failed to prove the effect of the number of members of the sharia supervisory board on the islamic maqashid index. the results of the analysis carried out using smart pls show that characteristics of sharia supervisory board has negative effect on the maqashid sharia index directly. this can 60 international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 be seen from the t-statistic value which is greater than 1.96 which is equal to 2.583. in other words, islamic governance which reveals the role of the sharia supervisory board more broadly has an impact on the governance of sharia banking, but with the linkage of the sharia supervisory board which is so great that the maqashid sharia index is getting lower. the results of the study stated that the characteristics of the ssb had a negative effect on the maqashid sharia index. however, the results indicate findings that are with previous studies. the higher the reputation of ssb members results in monitoring becoming weaker, because ssb cannot carry out its functions properly due to the overwhelming busyness of the members. other findings in this study are to show that a small number of ssb members who have sufficient experience and knowledge are able to do positive things through better supervision so as to lead to a better level of islamic sharia compliance. supervision that is carried out properly will reduce agency problems conducted by islamic bank management, so that the maqashid index in islamic banks will be better. 4. conclusion an important finding is that the characteristics of the sharia supervisory board (ssb) negatively affect the maqashid sharia index. this finding is very interesting because it turns out that the number of council members is too much ineffective in improving the performance of sharia maqashid. likewise, the higher the reputation of the board members actually results in low maqashid performance, because the reputation is identical with the busyness of the members of the board so that it is not effective in monitoring. the limitation of this study is that there is still a small influence between the independent variables on the dependent variable, so it requires additional other variables in testing the performance of maqashid sharia. in addition, from collecting data it is obtained that the data relating to the islamic maqashid index in islamic banks is incomplete in the annual report. another study finding is that education and training costs are not separated in the income statement and other comprehensive income. future studies can add other indicators to measure the characteristics of the sharia supervisory board, and other variables such as the amount of financing. future studies can also increase the observation period, because the longer the observation interval, the greater the chance of getting better research results. references almutairi, a. r. and quttainah, m. a. 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(2018). new evidence on the direct and indirect influence of the maqashid sharia index on the islamic social reporting index. international journal of research science & management, 5(8): 165-173. https://doi.org/10.5281/zenodo.1405433 siddiq, g. (2009). teori maqasid syariah dalam hukum islam. universitas islam sultan agung, vol. xliv, no. 188. sunarsih, u., & ferdiyansyah. (2017). determinants of the islamic social reporting disclosure. al-iqtishad: jurnal ilmu ekonomi syariah (journal of islamic economics), 9(1): 69-80. https://doi.org/10.15408/aiq.v9i1.3771 62 international journal of islamic business and economics (ijibec), 4(1) june 2020, 51-62 ulum, i. (2007). pengaruh intellectual capital terhadap kinerja keuangan perusahaan perbankan di indonesia. masters thesis, program pascasarjana universitas diponegoro, semarang. usamah. (2010). peran kompetensi dan model pengorganisasian dewan pengawas syariah terhadap pembiayaan berbasis bagi hasil pada bank umum syariah di indonesia. 95 ijibec diagnostic of innovations and volatility persistence in emerging markets: evidence from sukuk and stock indices metadjer widad 1*, benbekhti seyf eddine 2, and boulila hadjer 3 1 faculty of economic sciences, management, and commercial sciences, university of djilali liabes, algeria 2 faculty of economic sciences, management, and commercial sciences, university of abou bekr belkaid tlemcen, algeria email: ……………… abstract this paper analysis the persistence of shock and volatility of both islamic and conventional financial markets, as well as the natural correlation between those markets. this study used the bivariate bekk-garch (1,1) model to examine the persistence of shock and volatility based on the daily prices in dubai islamic capital market (sukuk index) and conventional stock market (dfm index). the results showed that both sukuk and stock market indices were affected by their own news, while the volatility was persistent during the period of this research. the study also found a negative correlation between prices in both sukuk and stock markets during the dubai debt crisis indicating that islamic bonds were considered as a good portfolio diversifier. this study defines the natural correlation between the daily prices of both sukuk and stock market, unlike the other studies which used returns. in addition, the empirical results might be valuable for investors and market makers to ensure a good portfolio diversification strategy. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 2 2020 keywords: volatility; sukuk; stock market; financial crisis; bekk-garch doi:https://doi.org/10.28918/ijibec.v 4i2.2355 jel: g1, g11,g15 article info article history: received : 28 february 2019 accepted : 14 dec 2020 published : dec 2020 https://doi.org/10.28918/ijibec.v4i2.2355 https://doi.org/10.28918/ijibec.v4i2.2355 96 international journal of islamic business and economics (ijibec), 4(2) december 2020, 95-105 1. introduction the last decades witnessed a wide expansion of islamic finance, which is part of a consistent and integrated framework which considers finance as a supporting factor in the smooth functioning of real economic activity. it has offered a wide series of financial products developed to meet the requirements of a specific group of people, in a way which does not compromise their religious and ethical beliefs. the mechanism of islamic capital market is rather different from the familiar capital market. financial actors are guided by legal norms laid down in the legislation of the country, like for conventional market, but not only, they are also committed to respect meticulously the rules prescribed in the holy quran. under this law, all islamic financial transactions must be free of the following (nikonova,t et al , 2015; elfakhani and hassan ,2005 ) : (a) the interest is prohibited (rhiba); (b) the risk should be shared; (c) the speculative behavior is prohibited (maysir); (d) use of asymmetric information is banned (gharar); (e) the contracts should be respected; (f)trade transactions allowed by the islamic norms should be financed only by halal industries. due to the excellent investment opportunities, and the large choice of both conventional and islamic investment tools offered in emerging markets such as malaysia and the middle east countries, investors are attracted to those markets more than ever. and it is known that volatility is one of the most attractive characters of emerging market, and investors know that they are likely to make huge profits if they understand the mechanism of such markets, and how the islamic investment products interact with their conventional counterparts. this is why it is essential to understand the nature of the relationship between shariah compliant tools and stocks and how investors can profit from the specificity of the link between them. indeed, forecasting financial markets correlations and volatility persistence have gained an enormous importance from investors, policy makers and different practitioners in finance worldwide, that is given to the huge impact of a good modelling process and a meticulously drawn previsions from academic researchers as well as from market makers to shed the light on the investments opportunities offered in the markets. thus, both conventional and islamic markets are becoming more and more decorticated for a better understanding of every little part of their mechanisms, and that attention to the volatility investigations is vital for a more efficient portfolio’s management strategy. in addition, the fact that the volatility is varying over time and that its persistence is depending on the development of the market its self and the time series as well, may be the biggest challenge for the researchers and econometrician when investigating volatility of a given equity or market. one area of islamic finance that attracted and continues to attract lot of interest on the part of the business community worldwide is the global sukuk market. so, what are these unconventional bonds? what characteristics do they have to their conventional counterparts? how has this sector prospered? and what are the challenges facing it? to clarify the picture, it is necessary to define these financial instruments, underlining the main characteristics that distinguish them from traditional bonds. in addition, to understand all aspects of the subject, it is crucial to reveal the development of the global islamic sukuk market since its first appearance. sukuk صكوك plural of sakk صك is an arabic term meaning certificate. in financial sense, sukuk refer to shari’ah-compliant bond, according to the islamic financial services board, these financial tools can be defined as a certificate representing a proportional undivided ownership right in tangible assets, or a pool of predominantly tangible assets, or a international journal of islamic business and economics (ijibec), 4(2) december 2020, 95-105 97 business venture (isfb, 2009). sukuk can be of many types (fourteen eligible sukuk types have been identified by the accounting and auditing organization for islamic financial institutions (aaoifi). there are requirements for sukuk to be considered in compliance with the shariah law, the most fundamental characters are as follow (godlewski et al.,2013) : first, the certificates must represent ownership in tangible assets, usufructs or services from revenue-generating firms. second, payments to the investor come from after tax profits and finally, the value repaid at maturity date should follow the current market price of the underlying asset. the sukuk market in the mid-1990s. the first attempt to resolve the liquidity problem faced by islamic banks has been done by the central bank of malaysia in 1983. so, the bank started its work without using the interest from government securities, and instead launched government investment certificate, representing privacy bonds. in 1992, the malaysian government has issued $ 600 million sukuk bonds in international markets (rezaei, 2013) the graph below shows the sukuk issuance from 2001 to 2016. we notice that the sukuk market grew sharply from 2001 until 2007 when the global prices have far exceeded us$ 25 billion. however, in 2008, the market showed a decline of about 30%,due to uncertainty in the global capital market as a result of great recession in 2008. nevertheless, islamic bond prices recovered in 2009, because, the global economy has just tried to convalesce from the crisis. furthermore, it is noticed from the graph below, the overall sukuk prices are increasing during the post crisis period. in 2012 sukuk market registered the biggest expansion. nevertheless, the prices fall again from 2013 to 2016 due to the overall economic distress worldwide. figure1: total sukuk issuance 2001-2016 source: iifm newsletter, march, 2017 in order to face the sukuk market challenges, the standardized contracts need to be endorsed by the shari-ah board of islamic infrastructure institutions such as aaoifi1, iifm2 and ifsb3 in order to give it an international dimension and acceptability in court litigation (muhammad, 2008). despite the efforts of islamic finance standard setters, in many countries the industry is governed by a regulatory and supervisory framework developed for conventional finance. therefore, it does not fully take into account the special nature of islamic finance (al-maraj, 2014). moreover, apart from the regulatory and tax aspects, the main challenge of islamic finance is based on innovation to offer products that meet both 1 aaoifi: accounting and auditing organization for islamic financial institutions 2 iifm international islamic financial market 3 ifsb islamic financial services board 98 international journal of islamic business and economics (ijibec), 4(2) december 2020, 95-105 the criteria of compliance with regulations, compliance with islamic precepts but also financial and economic profitability. from a regional point of view, the gcc countries are experiencing a significant evolution in the islamic finance industry, and we fund that dubai is looking after the highly privileged position of being the centre of islamic sukuk in the middle east, and one of the major players in islamic finance worldwide along with malaysia and the united kingdom. the ambitious initiative toward transforming dubai into a global centre for islamic sukuk aims in the first place at making dubai a hub for the islamic finance undustry and therefor contributing to the attraction to a huge liquidity to the dubai financial market, hence potentially also transforming dubai into the world capital of islamic finance. 2. literature review islamic financial tools have notably grown, feeding the debate on these alternatives financing instruments. el khalichi et al (2014) investigate the efficiency of islamic benchmarks and their conventional counterparts, by testing the random walk hypothesis using variance ratio tests. their results show that islamic indices have the same level of (in) efficiency as conventional ones. while connoly et al (2005) investigate the linkage between islamic and conventional market, the author claim that stock–bond market correlation decreases with the increase of stock market uncertainty, suggesting that bonds could be a better hedge against stock market downturns. also, chiang et al (2016) shows that stock and bond prices tend to move in the same direction. el alaoui et al (2015) use wavelet analysis, attempting to analyze the co-movement dynamics at different time scales of islamic dubai financial market (dfm-uae) index returns with their counterpart regional islamic indices returns. their study’s results divulge that closer market tend to have contagion effect, showing higher correlation and higher interdependence with a certain time delay. in addition to that, others ( naifar ,2015 ; sclip et al., 2016) , look at the topic from a volatility perspective. naifar, n.(2015) explore the dependence structure between islamic bonds yields and stock market returns and volatility in the case of saudi arabia. the author use three archimedean copula models namely gumbel, clayton, and frank. the research’s result show that the dependence structure between sukuk yields and stock market volatility are symmetric and linked with the same intensity. from the same perspective, sclip et al.(2016) show that volatility linkages between sukuk and regional market indexes are higher during financial crisis. the researchers argue that given the lower volatility of sukuk compared to equity, sukuk could be a good diversifer for investor’s portfolio. further, the use of the multidimensional garch (mgarch) models in financial market studies has been numerous. we can mention earliest work of bollerslev (1990) about the changing variance structure of the exchange rate regime in the european monetary system, assuming the correlations to be time invariant. lien and luo (1994) evaluated the multi-period hedge ratios of currency futures in a mgarch framework. karolyi (1995) examined the international transmission of stock returns and volatility using different versions of mgarch models. finally, this research paper attempts to identify whether there is any impact of islamic bonds on international stock market volatility, using a pile of time series econometric methods in order to add a scientific value proven by tests statistics. international journal of islamic business and economics (ijibec), 4(2) december 2020, 95-105 99 3. research method the researchers use the daily data of dubai islamic capital market (sukuk index) and conventional stock market (dfm index) prices, extracted from the thomson reuters i deal rating database and investing database respectively, from the period of 01/04/2009 to 29/12/2017. extending our univariate-garch(1.1) allow to estimate variance-covariance matrix, we specify the mean equation of the sukuk and stock market prices series as follow: where: psu, pst : are vector of definite prices of sukuk and stock market series, respectively. , : are the autoregressive coefficient in the conditional mean equation for sukuk and stock marlet prices. , : are the long drift coefficient. , : are the residuals. (baba-engle-kraft-kroner)bekk-model, acronym refers to specific parameterization of the multivariate garch model developed by engle and kroner(1995). the simplest bekk representation for the n*n conditional covariance matrix ωt takes the form: whether: can upper triangular n*n matrix , a and b are unrestricted n*n matrix, and quadratic representation automatically guarantees that ωt is positive definite. we can show our diagonal bekk-garch(1.1), n=2 as follow : hence, the diagonal bekk-garch(1.1) is : 4. results and discussions 4.1. unit root test: table 1: unit root test statistics: variables philips peron test with constant and trend (1%) augmented dickey fuller test with constant and trend (1%) level 1st dif result level 1st dif result su 0.6403 0.0001 i(1) 0.63 8 6 0.0001 i(1) st 0.6521 0.0000 i(1) 0.66 4 4 0.0000 i(1) 100 international journal of islamic business and economics (ijibec), 4(2) december 2020, 95-105 in general, time series have a unit root which refer to random walk with drift, to check the stationarity of our variables we use two of the most popular unit root test, as shown in table 1. from the result of both pp and adf tests, we notice that our variables are not stationary at level and have unit root because their probability is higher than the critical value, but at the first difference, they became stationary. 4.2 co-integration test: table 2: johansen test: hypothesized eigenvalue trace statistics probabilities none 0.018072 41.04083 0.0000 at most one 0.000443 0.972411 0.3241 co-integration (trace test) results shown in table2, imply that there is co-integrating equation at the 0.05 level. hence, there is long run equilibrium relationship between the sukuk and stock market in dubai financial market. 4.3 bekk garch estimation: table3: bekk-garch(1.1) estimation: variables coefficients std.error z-stat p-value fascia3.1 fascia3.2 αsu αsu st αst βsu βst σsu σst 0.808737 0.212178 0.842592 0.169932 0.700032 7.568329 436.619 0.858162 0.857923 0.646494 0.646402 0.133926 0.049591 0.117039 0.030866 0.058009 1.538994 54.00415 0.027072 0.026996 0.007617 0.007554 6.038673 4.278550 7.199243 5.505501 12.06758 4.917712 8.560460 31.69942 31.78015 84.87559 85.56707 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 table3 represents fascia 3.1 and 3.2 that display the conditional mean estimates and the conditional variance-covariance estimates, respectively. first, fascia3.1 shows that one period lagged sukuk price explaine the changes in current sukuk price , same for the stock market index. this means means that historical prices are represented by actual prices which is coherent with efficient market hypothesis (timmermann, a., & granger, c. w.2004). second, the fascia3.2 part of the table show that we see that arch ( β ) and garch (σ derives positive estimates which are statistically significant at 1% level. we can say that conditional variance of both sukuk and stock market are sensitive to their own past shocks, and their volatility are persistent and vary progressively over time. further, the volatility of sukuk is found to be driven mainly by the forecast variance (garch term) than the past shocks or news (arch term), which is consistent with rahman et al (2013). this result suggests that any innovation will have a significant effect on the prices fluctuation of both sukuk and stock markets of the dubai financial market and will international journal of islamic business and economics (ijibec), 4(2) december 2020, 95-105 101 take some time before the prices gradually return to equilibrium. the volatility of the dubai stock market can be attributed to the dubai debt crisis. in fact, the government borrowed 80 billion dollars in short delay (four year) to transform the landscape of the city aiming to be the new real estate and tourism hub. but this incredible challenge was not without consequences, the dubai real estate sector suffered from a high property depression in the global scale and without any surprise this event had repercussion on the stock market, represented by the volatility of the dubai stock market general index (dfm) prices. moreover, we examine conditional correlation between sukuk and dfm in order to observe how their prices behave in relation to each other. -1.2 -0.8 -0.4 0.0 0.4 0.8 1.2 250 500 750 1000 1250 1500 1750 2000 cor(sukuk,dfm) conditional correlation figure2: conditional correlation of the sukuk and stock market indices: from the figure we notice that for the first three years (1000days) the correlation is varying between positive and negative coefficient, the relationship between our two assets is extremely volatile and tends to vary between 0.92 and -0.92. further, this volatility is due to the nature of the sukuk that are hybrids between action and bond, and that result is coherent with sclip, a et al (2016). also, the negative dependence between our two equities can benefit the investors, and can provide good portfolio diversification, this is consistent with (naifar, 2016) study’s results. the volatility persistence of the trading assets is due to the dubai financial market crisis as demonstrated by the graph. however, the graph also show that at the beginning of the 4th year and until the end of the study’s period, the correlation becomes equal to zero, which means that our two assets are no longer correlated, otherwise there is no measurable co-movement among the two investments. 5. conclusion it is known that market participants take into consideration the expected returns as well as expected risk. hence, high volatility points out high uncertainty and this is why market’s volatility is considered as the cornerstone of both long and short-run traders’ strategy. indeed, when the prices fluctuate its provide opportunities for investors to buy stocks, bonds or indexes (conventional or islamic) when prices are low then the investors wait for cumulative growth down the road. the paper concludes that both sukuk and stock market indices are affected by their own news and shows volatility persistence over the study period. the general environment of the dubai financial market suggest that the fluctuation and sensitivity of investigated 102 international journal of islamic business and economics (ijibec), 4(2) december 2020, 95-105 equities are related to the nature of the market as a fast-growing emerging market on the one hand and to the economic and political event changes likewise the dubai financial debt as the main trigger for the market tremble. moreover, the negative degree of correlation between sukuk and stock market prices plays a meaning role in the performance of the islamic bonds as good portfolio diversifier. references acar, m., köse, n., yıldırım, j., boyacı, a., & sezgin, f. 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(2014). a qualitative evaluation of a conditional cash transfer program in turkey: the beneficiaries’ and key informants’ perspectives. journal of social service research, 40(1), 62-79. 48 ijibec interest free banking in ethiopia: customer awareness, satisfaction and its role on economic development debebe alemu kebede jimma university, college of business and economics, department of management email: debealex2@gmail.com abstract this study is aimed at evaluating the customer’s awareness and satisfaction toward interest-free banking and its role on ethiopia economic development with some selected commercial bank in ethiopia. this method achieves the aim of the study the primary data was collected from customers and managers of the selected banks by using convenience method through questionnaire and interview. while, secondary data was collected by compiling and summarizing the bank’s annual reports and journals. the collected data was analyzed in descriptive and inferential analysis. the finding of the study depicts as low customer awareness regarding interest-free banking services except the interest-free banking account holders. further, majority of interest-free banking account holders are more or less satisfied with the current interest-free banking services provided since, it can potentially serve as an alternative banking channel in filling the gap left unaddressed by conventional banking and economic development in relation to idle monetary resource mobilization and allocation, inviting to use banking system, creating employment opportunity, supporting gdp growth and assisting in stabilizing crisis and arresting inflation. impact on the study result as interest free banking have its own role on the country economic development through mobilizing the idle monitory resource, allocating the monitory resource, creating employment opportunity, and inviting to the banking system. it recommended as the banks should make aggressive promotion for customers out of muslim customers, the government has to support and should give more emphasis to enable interest free banking service, promote interest free banking which can help assist the economy in stabilizing economic crisis and arresting inflation. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 1 2021 keywords: awareness, satisfaction, role, interest free banking, economic development, ethiopia. doi:https://doi.org/10.28918/ijib ec.v5i1.2566 jel: l25, l31 article info article history: received : 13 may 2020 accepted : 25 may 2021 published : 1 june 2021 mailto:debealex2@gmail.com https://doi.org/10.28918/ijibec.v5i1.2566 https://doi.org/10.28918/ijibec.v5i1.2566 international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 49 1. introduction today’s world of globalization agendas demonstrates and realizes that the interest-free banking (ifb) convention commonly known as islamic banking has the potential to serve as an alternative banking service by filling the gap left unaddressed by the conventional banking. this breakthrough in banking industry is occasioned by the introduction and growth of the interest free banking. however, despite the growth in islamic banking, there are concerns that development of islamic banking remains somewhat limited and that the industry may be suffering from a lack of innovation (khan and bhatti, 2008) and lack of initiatives in convincing customers that they are really offering shariah compliant products and not dressing up conventional banking practices (karbhari, naser and shahin, 2004). banking system is one of the most important economic sectors and strongest financial intermediaries in the economy that plays a key role in economic development in societies through receiving the deposits of depositors and instead pay loans and facilities to applicants and give interest (iravani, ghazali and ghazali, 2012). in accordance with nbebsd no. sbb/51/2011, authorized the business of ifb under the umbrella of the conventional banking with limited scope. “interest-free banking business‟ refers to banking business in which mobilizing or advancing funds is undertaken in a manner consistent with islamic finance principles and mode of operation that avoids receiving or paying interest;” and “interest-free banking window” refers to a unit within a conventional bank exclusively offering interest-free banking services”. the authorization for the licensing of the ifb business under the umbrella of the conventional banking with limited scope is thus aimed at addressing two contesting national objectives of two extremes; optimize economic values of ifb to address the interest of its stakeholder and satisfy the community that have problem with the current banking systemin one hand and constrict its operation under the umbrella of the conventional banking with limited scope for the time being, perhaps for strategic reasons. the interest free banking is let free to operate independently without pressing supervisory restrictions in middle east, asia and some european countries for its most fair economic liaison role (shelton and percival, no date). according to research and surveys conducted by sankaramuthukumar and devamohan, (2008), it was then recommended that the government of ethiopia has to consider introducing interest-free (islamic) banking by making use of smooth relationship between the christians and muslims as an opportunity and underscoring its immense and untapped contribution in filling the gap left by the conventional banking in general and various microeconomic benefits in particular. in general, despite the fact that the interest free banking is newly embarking in ethiopia with peculiar features that have repercussions unless otherwise, the overall awareness level of the stakeholders (commercial banks and customers) as to compliance with the governing principles, operating philosophy and practice in one hand and the supervisory platform on the other are believed among the key limiting factors and it is at an infant stage with potential gap (debebe a., 2015). the perceived trust of banking in ethiopia are the one factors that affecting the customer’s intention to use interest free banking financial products and services in ethiopia (debebe a., 2015). its prospect towards successful ultimate contribution to the economic development of the country meanwhile depends on filling these gaps. in the ethiopian context, the ifb convention is introduced in the form of ifbw short of full-fledge level, which has its own retarding impact on standard of the convention and its 50 international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 contribution in driving the economic development and complementing the banking industry in the process. moreover, as an emerging phenomena, it seems as it may face misconception challenges as a value-adding convention to the banking industry and the economy as well, which emanates from its peculiar features and operating principles. the ifb convention is newly embarking in ethiopia with peculiar operating philosophy, principles and practices that require debate on the customers awareness, satisfaction and its role to economic development working towards the convention’s growth in the ethiopian present context. hence, this study tried to evaluating the customer’s awareness and satisfaction toward interest-free banking and its role on ethiopia economic development with some selected commercial bank in ethiopia in jimma town. 2. method the study was a descriptive study which was conducted using survey approach in which a cross sectional and panel design was applied to achieve the objective of the study. customers and managers of some selected commercial banks providing interest free banking in jimma town was considered as the target population of the study. to conduct this study the primary data of both quantitative and qualitative nature that was obtained from interest free banking customers and managers. un-structured interview and questionnaires was used to collect information from managers of the selected banks. however the prevailing estimated total number of interest free banking customers irrespective of the scope of service and the intensity of relationship, the number of interest free banking customers that have established comprehensive (deposit, financing and trade service) ifb services relationship. hence, this relevant group of interest free banking customers was considered as target population of the customer sub-population. based on carvalhio (1984) sample size determination method the researcher was select a small sample size which is 200 customers of the selected commercial banks in ethiopia by using systematic sampling technique such that a questionnaire was given to every second customer come into branch separate window premises. moreover, secondary data was also collected and used to augment the study. the secondary data was collected from clients’ files, bank reports, supervisory directives and other working documents. the data generated was analyzed and presented by using descriptive and inferential statistical analysis techniques. 3. result and discussion this section presents the analysis, discussion and inferences made on the basis of the responses obtained. all the data were coded and entered in to stata 14 and inferences were made based on the statistical results. the research instrument used in the study was survey questionnaire. the study population comprised the commercial banks’ managers and customers. data was collected from all selected commercial bank’s managers of 51 and customers of 178 which comprises 89% of target population. descriptive analysis the current status of interest free banking services, customers awareness and satisfaction the conventional banking service restricts or discourages individuals‟ needs to some extent due to various socio-cultural, religious and economic reasons. accordingly, a question is forwarded to investigate individual reason of choice and preference between the two banking services and customers satisfaction. international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 51 table 1: current status and customer satisfaction of interest free banking items alternatives frequency percentage interest free banking substitutes conventional banking in mobilizing idle fund absolutely 62 35 to some extent 85 48 not at all 31 17 interest free banking enhances doing fair business absolutely 52 29 to some extent 114 64 not at all 12 7 fairness in cost of services absolutely 94 53 to some extent 72 40 not at all 12 7 interest free banking properly addressing corporate social responsibility absolutely 112 63 to some extent 55 31 not at all 11 6 appropriateness of the prevailing national bank of ethiopia interest free banking provision absolutely 0 0 to some extent 77 43 not at all 101 57 ethiopian ifb have unprecedented bearing on financial stability of the country from risk management point of view absolutely 20 11 to some extent 52 29 not at all 106 60 total 178 100 source: survey, 2018 regarding interest free banking substitutes conventional banking in mobilizing idle fund the respondents responded 35%, 42%, and 22% of the sample respondents agreed “absolutely agree”, “to some extent agree”, and “not agree at all”, respectively, that interest free banking can substitute the conventional banking in mobilizing the idle fund in the economy. from the turnout, we can conclude that almost one-third of respondents believed that the interest free banking can at least contribute little to mobilize the idle fund in the economy as substitute for the conventional banking. this doesn’t mean that it displaces the conventional banking, but fills the gap left by it. the respondents asked whether interest free banking enhances doing fair business in economy as compared to the conventional banking and they responded 29%, 64%, and 7% of the sample respondents agreed “definitely agree”, “to some extent agree”, and “not agree at all”, respectively. from this sample turnout one can conclude that interest free banking better enhances doing fair business as compared to the conventional banking, as it is full of transparency and informed decision making in all aspects of business dealings. this also shows as the existence of alternative services satisfied the customers. also the respondents asked interest free banking’s fairness in cost of service and indicated,53%, 40%, and 7% of the sample respondents indicated “agree”, “to some extent agree”, and “do not agree”, respectively, that interest free banking’s is cost effective than conventional banking. from this it is possible to conclude that almost the two services are comparable in cost even though there is slight difference in which again interest free banking is better in spending and receiving good value for money. regarding whether interest free banking’s properly addressing corporate social responsibility respondents asked and their response indicated in the above table 1 above, 63%, 31%, and 6% of the sample respondents replied “agree”, “to some extent 52 international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 agree”, and “did not agree” about the betterment of interest free banking’s in addressing corporate social responsibility as compared to the conventional banks service. from this fact it can be generalized that interest free banking’s is highly regarded in addressing corporate social responsibility as compared to the conventional banks. from the above table 1 on the question whether the prevailing national banks of ethiopia interest free banking provision is appropriate or not, of the total respondents, 57% of them were agreed that the prevailing provision is not appropriate while the remaining 43% agreed as to some extent there exists a good provisions that can assist the operation of interest free banking. from this one can conclude that the existing national banks of ethiopia supervisory provisions are not appropriate enough for the effective implementation and operation of interest free banking in the country. referring to the above table 1 whether or not interest free banking service have unprecedented bearing on financial stability from risk management point of view or not, 11%, 29%, and 60% of the respondents agreed “definitely”, “to some existent”, and “not at all”, to the question. from this result, though the majority of the respondents believe that there is no as such risk but about 40% of the respondents think that the existing interest free banking has unprecedented bearings on financial stability from risk management point of view, in one way or another. in addition, the open-ended questions response indicated as the more than 52% of the respondents suggested creating awareness through campaign, workshop, market development is what expected from commercial banks and national banks of ethiopia. also, more than 40% of the respondents suggested as capacity building must be takes place. some of the respondents suggested as the undergoing best practice experience sharing of practitioners with islamic banking pioneers is expected by national banks of ethiopia and banks with interest free banking services. furthermore, 30% of the respondents suggests as national banks of ethiopia should revising the prevailing nbe ifb provision restricted under cbb to fulfill along with lifting or relaxing the ceiling levied on investment portfolio. from the suggestion provided by the customers it can be concluded as there is awareness creation activities problem in ethiopian banking industry. further, capacity building, experience sharing and enabling supervisory provisions problems are issues incurred by banks. the role of interest free banking on attributes of economic development here, respondents were asked to separately evaluate each attribute of economic development, according to the level of perception that they have, using a five-point likert scale: “strongly disagree”, “disagree”, “neutral, “agree”, and “strongly agree”, assigned with five different scores of 1, 2, 3, 4, 5, respectively. the statistical test of one-sample t-test for the analysis of those economic development attribute variables were used. it is to be noted that the one-sample t-test procedure tests whether the mean of a single variable differs from a specified constant population mean. table 2 one sample t-test one-sample test a tt ri b u te o f e co n o m ic d e v e lo p m e n t effect of ifb on attributes of economic development test value = 3 t d f1 s ig .( 2 -t a il e d ) m e a n d if fe re n ce 95% confidence interval of the difference lower upper international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 53 m o b il iz a ti o n o fm o n e ta ry r e so u rc e s ifb has positive effect on mobilization of monetary resources 2 5 .8 6 0 1 7 7 .0 0 0 1 .5 4 0 1 .4 2 1 .6 6 ifb has positive effect on mobilization of monetary resources subject to awareness creation 2 5 .1 4 3 1 7 7 .0 0 0 1 .4 8 0 1 .3 6 1 .6 0 a ll o ca ti o n o f m o n e ta ry r e so u rc e s ifb has positive effect on allocation of monetary resources 2 2 .5 1 2 1 7 7 .0 0 0 1 .4 8 7 1 .3 6 1 .6 2 ifb has positive effect on allocation of monetary resources subject to awareness creation 1 9 .6 7 9 1 7 7 .0 0 0 1 .4 0 7 1 .2 7 1 .5 5 e n co u ra g in g p e o p le t o u se b a n ki n g s y st e m ifb has positive effect on encouraging people to use banking system 2 5 .5 4 0 1 7 7 .0 0 0 1 .5 4 0 1 .4 2 1 .6 6 ifb has positive effect on encouraging people to use banking system subject to awareness creation 2 2 .1 8 1 1 7 7 .0 0 0 1 .4 4 7 1 .3 2 1 .5 8 source: survey, 2018 as it can be seen from the above table 2, the figures on the opinion of respondents about the effect of interest free banking on the attributes that have direct constructive effect towards economic development of a country were better expected to have tpositive values and service scores while for those attributes which have retarding effect towards the economic development the interest free banking has negative effect while the result have negative t-values and service scores. the factors which had t-values greater than 1.96 were significant in positive direction and the factors with t-values less than -1.96 were significant in negative direction which implies that, in both cases, their p-values approach to zero and their respective mean difference values also largely deviate from the test value (3) as their t-values are far from the critical value in both direction. on the contrary, those attributes whose calculated t-value lies between 1.96 and 1.96, were statistically insignificant in both directions. that means their mean value do not differ from the test value and thus we cannot reject the null hypothesis for these attributes. accordingly, when we have look at the above table 2, we can safely generalize that in all attributes the respondents agrees that interest free banking can play a significant role in contributing to economic development through enhancing mobilization and allocation of monetary resources, and encouraging people to use the banking system since all the attributes have a positive t-value greater than 1.96 and highly significant by rejecting the null hypothesis. 54 international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 table 3: one sample t-test one-sample test a tt ri b u te o f e co n o m ic d e v e lo p m e n t effect of ifb on attributes of economic development test value = 3 t d f1 s ig .( 2 -t a il e d ) m e a n d if fe re n ce 95% confidence interval of the difference lower upper in te rn a l a n d e xt e rn a l e co n o m ic c ri se s ifb has positive effect on economic crisis -4 .6 1 5 1 4 9 .0 0 0 -. 6 2 0 -. 8 9 -. 3 5 ifb has positive effect on economic crisis subject to awareness creation -4 .2 6 0 1 4 9 .0 0 0 -. 5 5 3 -. 8 1 -. 3 0 in fl a ti o n ifb has positive effect on inflation -5 .0 2 4 1 4 9 .0 0 0 -. 6 4 6 7 -. 9 0 1 -. 3 9 2 ifb has positive effect on inflation subject to awareness creation -5 .0 0 2 1 4 9 .0 0 0 -. 6 2 0 -. 8 6 -. 3 8 source: survey, 2018 referring to the above table 3, which depicts the result of one sample t-test of interest free banking’s impact on economic crisis and inflation, for both attributes we rejected the null hypothesis as their calculated t-values were greater than the critical value in absolute terms implying that the mean differences had negative sign and the means of each were less than (different from) the test value and they were highly significant since their p-value is less than 0.05 which is 0.00 highly significant. therefore, we can plausibly conclude that interest free bankinghas greater role in stabilizing economic crisis and plays great role in arresting inflation. table 4: one sample t-test a tt ri b u te o f e co n o m ic d e v e lo p m e n t one-sample test effect of ifb on attributes of economic development test value = 3 t d f1 s ig .( 2 ta il e d ) m e a n d if fe re n ce 95% confidence interval of the difference lower upper e m p lo y m e n t ifb has positive effect on employment 2 3 .6 9 8 1 7 7 .0 0 0 1 .4 0 0 1 .2 8 1 .5 2 ifb has positive effect on employment subject to awareness creation 2 5 .2 3 6 1 7 7 .0 0 0 1 .3 5 3 1 .2 5 1 .4 6 international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 55 b u si n e ss c o m p a ti b il it y w it h f a ct o rs s o ci o cu lt u ra l ifb has positive effect on business compatibility with socio-cultural factors 2 1 .7 7 1 1 7 7 .0 0 0 1 .3 2 7 1 .2 1 1 .4 5 ifb has positive effect on business compatibility with socio-cultural factors subject to awareness creation 2 0 .6 0 3 1 7 7 .0 0 0 1 .3 0 7 1 .1 8 1 .4 3 f il li n g e xi st in g b a n k in g g a p ifb has positive effect on filling banking gap unaddressed by cbb 3 2 .1 8 4 1 7 7 .0 0 0 1 .6 2 7 1 .5 3 1 .7 3 ifb has positive effect on filling banking gap unaddressed by cb subject to awareness creation 3 5 .4 7 5 1 7 7 0 0 0 1 .6 6 7 1 .5 7 1 .7 6 c o m p le m e n ti n g th e b a n ki n g i n d u st ry fb has positive effect on complementing the banking industry 2 5 .0 5 9 1 7 7 0 0 0 1 .4 5 3 1 .3 4 1 .5 7 ifb has positive effect on complementing the banking industry subject to awareness creation 2 6 .7 1 0 1 7 7 .0 0 0 1 .4 4 0 1 .3 3 1 .5 5 g ro ss d o m e st ic p ro d u ct ifb has positive effect on gdp 2 3 .4 5 4 1 7 7 .0 0 0 1 .4 2 7 1 .3 1 1 .5 5 ifb has positive effect on gdp subject to awareness creation 2 6 .5 1 0 1 7 7 .0 0 0 1 .4 5 3 1 .3 5 1 .5 6 source: survey, 2018 the above table 4 shows the t-test result of the attributes of economic development that vindicate we rejected the null hypothesis for all the attributes since the t-values were greater than 1.96 in positive direction and the mean differences were large enough and they were highly significant with p-value 0.000. from this we can safely generalize that in all attributes, the respondents agreed that interest free banking has constructive effect on creating employment opportunities, enhancing business compatibility with socio-cultural factors, filling the banking gap left by conventional banks, complementing the banking industry at large and in contributing to the national gross domestic product. additionally, the open-ended question response of the respondents indicated as majority of respondents are suggested as the role of interest free banking are fostering financial inclusion, which in turn promotes sense of social justice that brings about political stability which is a foundation for national peace and growth, has constructive role in attracting foreign direct investment, creates fair and competitive working environment, contributes in balancing wealth gap, promotes poverty reduction and contributes towards improving standard of living. finally, the annual report of the selected commercial banks in ethiopia commensurate 56 international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 with some of the above analyzed attributes of economic development that are reasonably supposed to be affected by interest free banking, from the interim reports of the these target banks up to november 31, 2018. the attributes that analyzed by using secondary data sources are, mobilization of monetary resources, allocation of monetary resources as financial development factors and, encouraging people to use banking system and employment opportunity on the other hand. hence, the document indicated as interest free banking has constructive effect on some attributes of economic development at national level in general and mobilization of monetary resources that were kept away from the banking system (about ethiopia birr 1,652,203,000), allocation of monetary resources (about ethiopia birr 597,567,510), encouraging people to use banking system (about 113,058 depositors and about 80 financing customers) and created employment opportunity for about 150 citizens in particular. the secondary data obtained after almost five year operation from the three interest free banking-pioneering commercial banks of oromia international bank(oib) and commercial banks of ethiopia (cbe) and united banks (ub) supports the interest free banking constructive effect on attributes of economic development and this is consistent with the study generalization above primary data t-test result under table 6 above in which respondents agreed that interest free banking can play integral role in contributing to economic development through enhancing mobilization and allocation of monetary resources, and encouraging people to use the banking system since all the attributes have a positive t-value greater than 1.96 and highly significant by rejecting the null hypothesis. 4. conclusion based on the study result it concluded as interest free banking have its own role on the country economic development through mobilizing the idle monitory resource, allocating the monitory resource, creating employment opportunity, and inviting to the banking system. therefore, it recommended as the banks should make aggressive promotion on interest free banking services for customers awareness specially those of out of muslim customers, the government has to support and should give more emphasis to enable interest free banking service, promote interest free banking which can help assist the economy in stabilizing economic crisis and arresting inflation. the current study examines the role of interest free banking on ethiopian economic development. thus, it gives hindsight for commercial banks, ifb customers, the nbe and policy makers are at the forefront of the key stakeholder. when new product is introduced, it is common to come across fear of new things which is always exists in mankind. accordingly, as long as the interest free banking is concerned in the ethiopian context, both customers and bank employees themselves have low level of overall awareness about interest free banking. in a bid to lay a foundation for interest free banking in response to the observed overall stakeholder awareness inadequacy result of the analysis, commercial banks in collaboration with the nbe/government shall work on creating awareness through conducting stakeholder campaign, workshop and market development, to induce the very purpose of introducing interest free banking, its comparative advantages, its governing principles, its operating philosophy (to some extent), and its contribution to economic development among customers, conventional banks customers and government organs. it is generalized that interest free banking has a greater role in stabilizing the economic shock of a given country by stabilizing financial and economic crisis, and arresting international journal of islamic business and economics (ijibec), 5(1) june 2021, 48 58 57 inflation. in today’s world, every country is experiencing higher inflation including our country ethiopia. the government should promote interest free banking which can help assist the economy in stabilizing economic crisis and arresting inflation. in particular, the nbe shall revisit the prevailing interest free banking provision consider the pros and cons of revising the operation of from operating under the umbrella of conventional banking to full-fledge level along with lifting or relaxing the ceiling levied on investment portfolio, to create enabling regulatory environment for the interest free banking product and ultimately contributes to the national economic development references abdouli, a. h. 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(2001). a comparative literature survey of islamic finance and banking. financial markets, institutions & instruments, 10(4), 155-199. 40 ijibec the support of sharia rural banks financing on national financial inclusion nenny ariani1, etna nur afri yuyetta2, pancawati hardiningsih3 1 ph.d scholar university of diponegoro (undip) semarang, high school of economics amm (stie amm) mataram, indonesia 2 university of diponegoro (undip) semarang, indonesia 3 university of stikubank (unisbank) semarang, indonesia corresponding email: nennyariani1981@gmail.com abstract the purpose of this study is to examine the effect sharia rural banks financing through micro small medium entreprise (msmes) financing on financial inclusion in indonesia from 2011 to 2018. the study samples consists of financial reporting of sharia rural bank from the indonesian financial service authority and financial inclusion from growth economi report of indonesia central bank. this study uses a quantitative approach with secondary financial inclusion data as measured by msme business expansion credit and gross domestic product (gdp) using linear regression method to test the effect of variables.the results show that sharia rural banks financing has a significant effect to gdp (gross domestic product) as a financial inclusion in indonesia. the results of the study also showed that msmes financing in sharia rural banks did not have a significant relationship with net expansion credit because of internal inhibiting the development of msmes such as low human resources, organizational management, addition limitations information technology and creativity. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 1 2020 keywords: islamic financing msmes, financial inclusion, net expansion msmes credit, gross domestic product doi https://doi.org/ 10.28918/ijibec.v4i1.1883 jel: g.21, m.39 published : 1 june 2020 international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 41 1. introduction national economic growth has increased over the last three years as indicated by the figures of gdp (gross domestic product), which had a 4.88 per cent in 2015 to 5.18 percent in 2017, (ppn/bappenas, 2018) according to bps (central bureau of statistics) figures were possible will continue to increase along with the growing number of businesses msmes industry in indonesia. the role of smes is very important and strategic in national economic development, in addition to a role in stimulating economic growth by contributing to gdp by 57 percent, this business is also able to absorb 97 percent of the workforce of the entire national workers and play a role in distributing development outcomes (bank indonesia, 2015). world bank global data findex explained that indonesia has a financial inclusion progress is quite high. half of adults in indonesia already have an account at the bank, carrying about 36 percent of adults in indonesia has been transacting through banks and 49 per cent owner of the account and savings in financial institutions such as banks or microfinance institutions. (world bank global findex, 2018). but the numbers gap between rich and poor is quite high at 20 percent. this illustrates that the economic growth in indonesia is uneven. financial inclusion index in indonesia reached 19.6 percent in the years 2011, lower than countries in asia. low financial literacy society, contributes to the unequal distribution of financial inclusion in indonesia. research related to the role of islamic banks in the strengthening of smes also have a lot to do, citing the results of the analysis of the ministry of commerce that smes have a very important role in the economic growth of a country. saleh & hadiyat (2016), it is in line with the results of the study (rini, 2017), (prayogi & siregar, 2017), (kara, 2014), (cheng & degryse, 2010) in his research revealed that poor communities in border areas are able to improve their standard of living by empowering msmes, but are still constrained by the level of education in managing msmes. (trimulato, 2017), (aurora lubis, 2016), (darwanto, 2013) in his research identified that the most suitable islamic banking financing for msme financing is the musyarakah contract. islamic finance contracts and products are the focus of the research conducted (nofinawati, 2014), (lestari & hisamuddin, 2015) mentioned that, intermediation and types of islamic bank financing products have a positive relationship with bank risk and performance. their gab between financial literacy among consumers and financial services providers, gender roles, internet access, and high levels of poverty, less inequality triggers financial inclusion in indonesia. financial inclusion are believed to be able to build the economy and to reduce poverty in a country, as it creates an efficient payment mechanism, improve access to credit for entrepreneurs and sme business with the right financing mechanisms. micro, small and medium enterprises often considered unable to meet the banking requirements (bankable). precisely loan obtained from a loan shark's burdening businesses with great interest, so it is often smes that has long operated will be difficult to develop because of their turnover should be reduced by a large interest expense. financial inclusion aims to encourage unbankable people to access financial services for every level of society, so as to reduce social inequalities, improve welfare, help small communities to be more empowered to manage their finances independently and able to get out of debt trap from loan sharks. financial inclusion is a financial system that is built to improve access to financial services to small and medium sized enterprise (smes) in gaining access to finance, consumer protection and to strengthen financial regulation evenly, (nengsih, 2015). the government is aware of the importance of implementing financial inclusion and issuing policies through bi 42 international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 regulation no.17 / 12 / pbi / 2015 which requires commercial banks to reach msme credit ratios from total loans disbursed at least 20 percent to assist msmes businesses access capital, and law no. 21 of 2008, concerning srb, explains that sbr is a sharia bank whose activities do not provide services in payment traffic, but in their business conducting business based on sharia principles, economic democracy and the principle of prudence. (cheng & degryse, 2010). in his research also explained that the services provided in the banking sector as a credit service is very important to encourage the economic growth of a country, and encourage the creation of a better financial inclusion. based on this litrature, we propose hypothesis that msmes financing by the srb have significant effect to increasing financial inclusion with net credit expansion. the development of islamic financial institutions (lks) in indonesia is experiencing significant growth in assets, and the majority of its assets used for the financing of smes. this shows that islamic banks have participated in the growth of smes. with the administrative system easily understood smes, srb can reach financial transactions and closer to small and medium communities sharia banking rule number 21 of 2008 srb explains that islamic banks in their activities do not provide services in payment traffic, therefore the srb still has the same function as an islamic bank. it is as a financial intermediary institution, so that the srb as a financial intermediary institution can improve the welfare of the community, especially for msmes and can contribute significantly in increasing the national financial inclusion index. research related to the financing of smes in boosting the national economy and the financial inclusion has done much earlier researchers, included in, (nengsih, 2015) in his research on the role of islamic banks in implementing financial inclusion, explaining that islamic banking has great potential in implementing financial inclusion as seen from an increase and an increase in microfinance, certainly requires the synergy for all. nengsih's research was also supported by research (mohieldin m, iqbal z, rostom a, 2012), which states that economic instruments in islamic economics will accelerate the process of financial inclusion, this is in line with research by (kamath, 2007), (shahulhameedu, 2014) and (chakrabarty, 2012), emphasizes how the conceptual framework measuring and analyzing the financial inclusion globally, it is in line with the thinking (mohiuddin, begum, & rizvi, 2018), (rifa’i .a, 2017) financing bank examined the role of sharia in implementing financial inclusion through smes financing, rifa'i concluded that the srb has managed to maintain and improve its capacity to channel financing. mohiuddin et al., (2018) examines the reasons large companies in pakistan are reluctant to go into business in islamic banking, and are more inclined to choose banks conventional. allen, demirguc-kunt, klapper, & martinez peria (2016), in the foundations of financial inclusion: understanding ownership and use of formal accounts explore the factors that drive a country's financial inclusion to be stronger. the realisation that financial inclusion is a key enabling element, both in the fight against poverty and in reaching the goal of inclusive economic development, is leading to an increasing focus on financial inclusion policies and initiatives, so that we propose second hypothesis that msmes financing by the srb have significant effect to increasing financial inclusion with gros domestic produk. many studies acknowledge that msmes are able to contribute in improving the national economy, so the government strongly encourages banking financial institutions to provide msme capital funds, however, economic growth is not enough to improve national welfare, economic system more equitable and easier capital in small and medium public access is the most appropriate to be applied nationally is through an increase in financial inclusion. shinkafi, yahaya, & sani, (2019) found that financial inclusion and ripe the benefit of tackling international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 43 poverty, needed promoting sustainable, equitable growth and development. based on the purpose of this study is to examine the effect of sharia rural banks financing through micro small medium entreprise (msmes) financing on financial inclusion to be achieved, the author only limit the problems on financing of smes in the srb and its influence on financial inclusion in indonesia. the findings of previous researchers have certainly contributed to the scientific treasures in indonesia. some of the problems underlying this research are: 1. the phenomenon that indonesia is a country where the majority of the population is muslim, but people prefer to open accounts and make financing loans at conventional banks despite knowing the usury law.the results of initial observations on the financial statements of srbs loans or financing are mostly realized are murabahah loans, which tend to be used for consumptive use, while financing for mudharabah and musyarakah are less, whereas in reality these types of financing more reflect islamic values. 2. the results of initial observations on financing quality srb srb showed an increase in the npf, the question that arises then is whether the growing nilia npf occur due to lack of customer assessment standards for not fully implementing 5 c as in conventional banks. 3. financing of smes have been realized if it really can improve economic growth and financial inclusion. 4. the government has issued bi regulation no.17 / 12 / pbi / 2015 which requires commercial banks to reach msme credit ratios from total loans disbursed at least 20 percent, so that financial inclusion can increase, but indonesia's financial inclusion index is still low. this research is different from other studies, because in general research with similar themes is carried out with a qualitative approach, namely by observing the increase or decrease in financing and comparing with economic growth and financial inclusion, while this research will focus more on analyzing the role of the islamic people's financing bank in providing msmes financing products, and its impact on the national financial inclusion proposed by the net msmes credit expansion and gross domestic product (gdp) as an indicator of the growth of national financial inclusion. 2. research method this research was conducted to assess the effect of the financing of smes sharia rural bank on financial inclusion in indonesia. the study will be determine with a quantitative approach by used regression linier to secondary data msmes financing on the srb as a variable (x), business expansion credit of msmes and gross domestic product (gdp) as indicators of financial inclusion as variables (y1) and (y2). the data processed are quarterly data in the period 2011-2018. the object of this study discusses the msme financing products in the srb for the rural bank were quite successful in financing micro and more in line with islamic law in terms of transactions and the akad. the financial inclusion variable in this study is proxied by the msmes net credit expansion which indicates growth and development of micro and gdp businesses (gross domestic product) as indicators of economic growth. this study are expected to be able to add to the scientific discourse of various studies that have been conducted which generally provide the view that financing in islamic banking, more suitable for application in encouraging the development of smes through the capital more easily in reach, especially srb believed closer to the community. 44 international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 3. results and discussions banking has a very large contribution for economic in indonesia. the role of banks as intermediaries for people who have more funds and people who need funds reflected by the number of dpk, loans and credit financing distributed by these financial institutions to the public. according to mohieldin m, et al. (2011) islam has instruments and supports that are unconventional, which if implemented fully can facilitate poverty and inequality in muslim countries that increase poverty, by making policies that are in line with infrastructure needs and financial regulations. the role of islamic banking in encouraging small and medium microeconomic actors can be seen from the amount of islamic bank financing for the msmes group that continues to increase, this is supported by research (prayogi & siregar, 2017). trimulato, (2017) in his research revealed that the number of msmes entrepreneurs increased significantly but was not supported by musyarakah financing which was believed to be fit for msmes financing. this is supported by data in the present by the ministry (trade 2013) that the amount of financing for smes is still low, so the bank indonesia helped in assisting the development of small businesses and cooperatives, to provide financial assistance to smes, known as bank indonesia liquidity credit (klbi). to illustrate these conditions can be seen in the following table 1. table 1. descriptive statistics n minimu m maximu m mean std. deviation pumkm 32 1246116 4185589 2910292.00 892500.058 nek 32 -28405 957047 445760.47 284167.124 pdb 32 47 67 54.78 6.588 valid n (listwise) 32 source: secondary data processed, 2019 table 1 shows the descriptive statistics of the study, in which the number of sharia bpr samples in indonesia conducting msme financing was 32. the average value of msme financing by sharia bprs was still low at 2,910,292. this condition shows that investment financing and / or working capital based on sharia principles with a sale and purchase agreement (murabahah) to help micro, small and medium-sized businesses in business development is still low. likewise, net expansion of credit is also still low at 445,760.47, this shows that financial inclusion in indonesia is still low. this result is based on the financial services authority (ojk) survey data from 2011 to 2018, that the level of financial understanding (literacy) of the indonesian people has only reached 29.66 percent. meanwhile, the level of use or people who have access to financial services and services (financial inclusion) have not reached 50 percent. for this reason, it is necessary to increase financial inclusion in indonesia by continuously expanding access to financial services in the regions by accelerating the penetration of financial inclusion in indonesia. while indicators of economic growth (gross domestic product) began to experience an increase from 2011 to 2018, amounting to 54.78. this condition shows that the total value of the production of goods and services produced by all companies whether owned by local or foreign in a country begins to increase. furthermore, the program credit management task has been transferred to three soes international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 45 appointed by the government, namely pt bank rakyat indonesia (bri), pt bank tabungan negara (btn), and pt permodalan nasional madani (pnm). in this case, pt bri functions as the coordinator of kut, kkop and kkpa-tr schemes, pt btn as the coordinator of kprs and kprss skim distribution, while pt pnm is the coordinator of other credit scheme. this effort is carried out in order to spur the growth of msmes in the riil sector so that they can contribute to economic growth and financial inclusion, this is supported by research (nengsih, 2015), (rifa’i .a, 2017), (mohieldin m, iqbal z, rostom a, 2012), in his research the role of islamic finance in enhancing financial inclusion in organization of islamic cooperation (oic) countries, states that muslims are more likely to have an official account in banking than non-muslims. with redistributive instruments in islamic economics, such as zakat, infaq, sadaqah, muslims have great potential in conducting financial inclusion. beside that (makina & walle, 2019) who focused their research in africa, with the lowest level of financial inclusion in the world, found that financial inclusion as measured by the access dimension had a significant positive effect on economic growth in africa. this finding reinforces the need for financial inclusion as one of the most effective tools for realizing inclusive growth. although technically already instructed the government to provide funding assistance to the smes, are still many who can not get access to bank (aurora lubis, 2016), so it can be assumed that there has been a gap in financing access to banks (unbankable), (mohiuddin et al., 2018), and (rini, 2017) in this case explaining the difficulty of procedures in accessing financing in islamic banks, in addition, laweyan batik sme entrepreneurs feel unfamiliar with financing products in islamic banking, (mohiuddin et al., 2018). kara, (2014) in his research revealed that the role of islamic banking have not been up to the smes, which is supported by a study (maryati, 2014), which is more focused on the discussion of the characteristics of the srb customers who obtain financing in west sumatra. (aurora lubis, 2016) reveals the limitations of smes in the utilization of information technology, low investment and a lack of support from government institutions. increasing number of bank financing to smes in the trust will be able to encourage businesses to develop their products and boost national economic growth which is reflected in the gdp. this is supported by empirically (darwanto, 2013), which revealed the existence of creativity-based smes business operators in central java who need government support in the protection of copyright and formed clusters in the production process. results of data tests conducted in this study are shown in the following table 2: table 2. test result variable b pearson correlation significants y2 y1 6,050 0,006 0,820 0,018 0,000 0,460 f test y2 0,000 46 international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 f test y1 r square y2 y1 constant y2 y1 0,672 0,000 72.388 4.2875 0,921 x srb sme financing source: secondary data processed, 2019 the results of this study explains that the financing of smes is channeled by the srb has a strong correlation with variable y2 (gdp) amounted to 0.820 percent, with a significant effect. the results of this study support (nengsih, 2015), (mohieldin m, iqbal z, rostom a, 2012) and (kamath, 2007). research (kwadwo boateng, y. nagaraju, 2019) also suggests that msmes serve as a catalysts to distribution of development and wealth in the country, that sector contributes gross domestic product (gdp) india’s about 30%. in line with boateng, (pratiwi, 2016) found that the islamic banking’s musharakah and mudharabah on msmes was showing the positive correlation to financial performance. hence, islamic banking is strongly suggested to be more focused on these two types of partnership financing contract to umkm. while the financing of smes by srb effect only amounted to 0.018 percent on net credit expansion of smes that planned, this means that not all smes financing can improve the net expansion. this happens because of the lack of human resources in managing finances, lack of knowledge of the development of product innovation, lack of financial literacy of small and medium micro economic actors. this result is in accordance with research (trimulato, 2017) and (aurora lubis, 2016). mohiuddin et al., (2018) are suggested that to improve the awareness of islamic banking amongst customers needed (1) knowledgeable employees staffed in islamic banks should have influencing sessions as guest speakers in various educational institutions. (2) effective training sessions should be held for the employees of islamic banks to guide them on how to convince customers and prospective customers for islamic financing. (3) some rewards should be announced for the employees who succeeded to have business from prospective customers. furthermore, its value and volume is needed to be expanded to build indonesia’s sustainable socio economic foundation. then the positive gross domestic product (gdp) growth will be achieved. financing for smes although it has distributed and has increased since 2011-2018 (ojk.go.id, 2018), (nengsih, 2015), but the constraints of smes own internal inhibiting the development of smes, such as low human resources in managing financial and organizational management, in addition to the limitations in information technology, and creativity, as well as the lack of financial literacy, causing difficult to develop smes and require government assistance in providing technical training and understanding of financial literacy in order to avoid economic and social disparities in the community in small and medium enterprises. r square shows that the gross domestic product can only be influenced by 0.672 or 67 percent by financing smes while the remaining 33 per cent of gdp is influenced by other factors outside the model. hypothesis 1 results obtained an f test value of 0.921 so that h1o was rejected and h1a was accepted, meaning that msme financing by the srb had no significant effect on the msmes net expansion. these results are consistent with the results of the study (trimulato, international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 47 2017) and (aurora lubis, 2016), that the level of business development and sme loans much influenced by the internal smes itself, and in need of assistance from all walks of life (government, smes society, students and financial institutions) to provide training in organizational management and understanding of financial literacy to the community. akenroye, owens, elbaz, & durowoju, (2020) stated that the factor internally related to smes in indonesia in general, as well as resources and capabilities, which can help them in public tenders. need help understanding about the role of resources and the company's internal capabilities in increasing sme participation in the community. this is consistent with the results of the study (rusdarti, 2018) to improve sme’s business need extending marketing network and organizing training, assistance and technology upgrade for smes to improve their product standard, value and quality. according to arun and kamath in kabakova & plaksenkov, (2018), which is proposed to increase financial inclusion can be done through (1) mobilizing social grants to become cashless; (2) supports partnerships between the government and four major banks that support to improve access and use financial services; and (3) introducing special cards for low income, etc. in asia, internationalize smes is largely limited to exports, but political and legal norms of the country, limited access to capital and adding to information that has been obtained as some obstacles to internationalization of smes in developing markets (das & rangarajan, 2020). so that the government policy should can overcome the challenges of internationalization and facilitate smes to better challenges in the future. while the results of the second hypothesis test show that the f test result is 0,000, meaning that h20 is accepted and h2a is rejected, which means that sharia msme financing has a significant effect on gross domestion products which is one indication of the achievement of financial inclusion. this research model explains that each msme financing of 6,050 million will contribute to an increase in gdp of 72.388 percent. these results are consistent with the results of the study (nengsih, 2015), (mohieldin m, iqbal z, rostom a, 2012) and (kamath, 2007). (chakrabarty, 2012) writes that financial inclusion provides savings and enables efficient payment mechanisms, thereby strengthening the financial institution's resource base. thus, financial inclusion becomes a necessity and banking is the main driver for the implementation of financial inclusion. 4. conclusion islamic banks are that use sharia principles in carrying out their business activities with the principles of sharia from the al-quran and al-hadith related to the financing msmes channeled by the srb has an important role and significantly influences economic growth as an indication of growing financial inclusion, the phenomenon that exists in indonesia is that the financial inclusion program in indonesia is increasing rapidly, but index financial inclusion indonesia is still low compared with countries in asia, according to the literature and the results of the study, low index of financial inclusion in indonesia are affected because there is still no gab between financial institutions and public unbankable, uneven economic growth, and low financial literacy in the community, and the lack of use of information and technology. this research certainly has many shortcomings, in the future it is necessary to develop more extensive research on msmes financing not only at the bprs, but also nationally with more financial inclusion indicators. this study are expected to be able to add to the scientific discourse of various studies that have been conducted which generally provide the view that financing in islamic banking, 48 international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 more suitable for application in encouraging the development of smes through the capital more easily in reach, especially srb believed closer to the community. so far the institutional role of the srb as a sharia financial institution has been able to get involved in implementing inclusive finance through existing data which is consistently and focused on the msme sector, as evidenced by the financial ratios that exist at the srb. references akenroye, t. o., owens, j. d., elbaz, j., & durowoju, o. a. 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(2016). penggunaan teknologi informasi di kalangan pelaku usaha mikro kecil menengah di daerah perbatasan ( studi di kabupaten belu provinsi nusa tenggara timur ) use of information technology among performers micro small medium enterprises in the border area ( s. pekommas, 1(2), 141–152. https://doi.org/10.30818/jpkm.2016.2010204 shahulhameedu, m. (2014). financial inclusion issues in measurement and analysis. international journal of current research and academic review, 2(2), 116–124. retrieved from www,ijacrer.com shinkafi, a. a., yahaya, s., & sani, t. a. (2019). realising financial inclusion in islamic finance. 50 international journal of islamic business and economics (ijibec), 4(1) june 2020, 40-50 journal of islamic marketing, 11(1), 143–160. https://doi.org/10.1108/jima-02-20170020 trimulato, t. (2017). analisis potensi produk musyarakah terhadap pembiayaan sektor riil umkm. jurnal ekonomi & studi pembangunan, 18(1), 41–51. https://doi.org/10.18196/jesp.18.1.3830 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 25 feb 2018 accepted : 15 may 2018 published : 1 june 2018 keywords: ibn khaldun, karl marx, work, surplus value, necessity. jel: b11 b14 abstract this paper aims to compare the two great minds of ibn khaldun and karl marx in terms of their similaritiesand differences. in term of similarities, ibn khaldunsuggests the fall of empire sovereigntywhich is in linewith karl marx’s idea of the destruction of capitalism. according to karl marx, the development of modes of production from time to time is a necessity. whereas, ibn khaldun in his book of al-muqaddimah argues thatthe fall of empire sovereignty is rooted in the nature of its power. marx assumes that the capitalistsystem ‘inevitably’ will continuously foster the surplus value, while ibn khaldun states that the nature of power is about pursuing luxuries.this research applied descriptive comparative and qualitative approach.the study concludes that there are some similarities between ibn khaldun and karl marxalthoughthere are more distinct differences. this is because of the following factors:(1) life background, (2) assumption used by both figures, (3) social state of the society, and (4) influence of the previous scientific thoughts. the difference in the course of economic conception -work, surplus value, and the law of necessity-lies in the paradigm which both concepts use. ibn khaldun applies induction approach bysummarizing the general case of many historical events and disappearance of the former empires. whereas, marx uses class conflict approach as the basis for his theory. as its implication,similarities ofthese concepts do not necessarily require the same paradigm. a review of economic thought of the preceding figures should apply a contextual approach, that is, from the condition of the relevant figure. a comparative study: the economic thoughts of ibn khaldun and karl marx singgih muheramtohadi faculty of islamic economic and business, uin walisongo semarang email: singgih.muheram@gmail.com mailto:singgih.muheram@gmail.com international journal of islamic business and economics, 2(1) june 2018, 5 1 6 452 1. introduction comparative studies of ibn khaldun are oftenperformed, either in the form of journals or research (bachelor thesis or graduate thesis). however, most of these comparativestudiesuse sociological and political perspectives.this is because the explanations of political sociology are scattered almost in all parts of the book of al-muqaddimah.both of ibn khaldun and marxusean empirical approach to explaining the laws of social development. this empirical approach explains the society through visible or tangible symptoms. prior to the ibn khaldun era,social literature was less viewed from an empirical perspective.they rather viewed it asreligious, philosophical, ethical, and legal perspectives. muhammad abdullah enan in the book of ibn khaldun biography states: although al farabi and ikhwanus shafa discuss it from philosophical and scientific perspectives, ibn khaldun discusses it from a sociologicalperspective and expresses it practically, and his artwork follows his new methods. in this case, he is truly original (enan, 2013: 149). al-muqaddimah actually contains the law of humankind history. it covers various aspects about the formation of societies, the influence of geography and climate to the developing communities, two kinds of communities (nomads and settled communities), the rise and fall of empires, human activities in pursuing life (work), and lastly about the methods of science which are derived from the qur’an and as-sunnah, empirical method, reasoning, and etc. al-muqaddimah is fairly the same as madilog (tan malaka) inwhich it includes the explanation of epistemologythrough logical discussion, empirical method, and then discussion of the dialectical law that occurs in society. the difference lies in the fact that tan malaka wrote books based on the pre-existing theories. therefore, madilog is only considered as a study of logic, dialectic, and materialism theories (yudda, 2008: 165). whereasal-muqaddimahis mostly discussingthe result of inductive reasoning about the past realities, especially during the rise of states and its impact. in explaining the destruction of a state, ibn khaldun is almost identical to marx’s argument about the destruction of a capitalist system. it encompasses the commencestage of destruction, the early stage of the formation of capitalism system, followed by the expansion of ‘surplus value’. when the expansion of surplus value is closer to the climax point, all parties will feel disappointed. after that, the system will be collapsed. the stages of destruction, (both ibn khaldun -with his theory of the destruction of empiresand marx -with his theory of the destruction of capital system-, are almost similaryetnot the same. furthermore, ibn khaldun and marx apply economic approach on how the economy influences social development. here, the author exploresthe similarities, differences, and comparison between the two figures. in their discussion of economics, both explain about work, surplus value, and the law of necessity. they assume the same argument that work is about the labor process when the workers add value to the commodity. this “value” comes from the worker, and it is given to the other parties who pursue the ‘surplus value’ produced by other people. this ultimately leads to their own destruction, that is inevitable. frequently, this narrative is casually equated.however, this paperexplains the difference between the two narratives developed by both figures. one narrative is about the destruction of capitalism entering the revolutionary phase, and another narrative is about the destruction ofempireswhich has been run more than three generations. 2. methodology this research is a comparative study which aims to identify and examine the similarities and differences between two or more groups in a way to compare the two studies or thoughts of each international journal of islamic business and economics, 2(1) june 2018, 5 1 6 4 53 figure or variable. a comparative research is a descriptive study which searches for cause and effect answers by analyzing the causative factors of the emergence of a particular phenomenon (nazir, 2005: 58). this study applied descriptive and analysis approach. the descriptiveapproach described an object by using words to be clearly understood. whereas, the analysis approach scrutinized an object by using various ways such as reasoning, comparison, and scientific perspective. the author described the thoughts of ibn khaldun and karl marx from the relevant literature. the analysis used several approachessuch as historical approach (background), comparison, and modern socio-economic theories. 3. discussion a. the background of ibn khaldun’s life ibn khaldun alhadramy is one of the founders of social sciences, living between the year of 1332 and 1406, with aphenomenal work of al-muqaddimah. he came from the environment of ulama (muslim scholars and leaders who have expertise in islamic sacred law and theology) and hafiz (muslims who have completely memorized the qur’an).from his early age, he waskeen on writing. he initiated the notion of a “value” of work, long before david richardo. also, hisidea of price equilibrium was advanced long before the birth of adam smith. he was born in tunisia, north africa; the northernborder was the middle sea and across from spain. his family was an immigrant from andalusia. his family previously worked for the muwahidun dynasty, before spain was subdued by the christian rulers (enan, 2013: 19). his family lineage was a royal officer, started from his great-grandfather and his grandfather. whereas his father did not occupy any royal position,instead,he pursuedfiqh, philology, and poetry (enan, 2013: 20) al hadramy, part of his name,indicated that he was a descendant of hadramaut yemen. he was one of the descendants of a prophet’s dearest friend. like the arab family at that time, he was also familiar with the family lineage in a detailed hierarchy (sanad). this considerably influenced his writings in al-muqaddimah. as he stated that genealogies werethe pre-eminence of ashabiyyah (enan, 2013: 134). he explained the civilization in cordova cities which then he compared it to tunisia and egypt (a region in north africa). hislanguage style usedpopular and simple language that was easy to understand. his position as the personal secretary of abu salim, a sultan in morocco, hadtrained his language skills, (enan, 2013: 137). undoubtedly, he understood the details of work division in the royal environment. in the era of ibn khaldun, the territory of tunisia was occupied by the hafsiyyun dynasty. the east region was egypt that previously occupied by the fatimiyyahdynasty, while the northern region was the government center that previously occupied by the umayyah dynasty. his lifetime was after the end of the crusades. at that time, dynasties in the middle east emerged and reached glorious era which then experienced a shrinking power, nomore than 150 years. geographically, the conditionof tunisiawas no different from other north african regions. it was resided by groups of city dwellers, inhabitants in small settlements, northern berber people (turks) who inhabited the grasslands, and nomadic (bedouin). in this period, the bedouin groups were known for their strong tribal solidarity and courage since they lived in the wildlife. ibn khaldun’s time span was after ibn taimiyyah, well-known for majmu ‘fatawa book which contained the concept of price formation in the market. at that time, a currency -dinar and dirhamwas printed with the royal stamp. book keeping and administrative systems were well-conducted, and historical writing was also conducted. al-muqaddimah mentioned that author was considered as any other professions such as poets and singers. international journal of islamic business and economics, 2(1) june 2018, 5 1 6 454 the thoughts of ibn khaldun could not be separated from the social-political situation at that time. from the thoughts he poured in al-muqaddimah, we can conclude that what he wrote was a social condition in the north african desertduring that period. however, his style of writing was considered as a new style. in this period, ‘knowledge’ (al-’ilm) was identical with the ‘fixed’ knowledge. undoubtedly, knowledge in social dynamics and social development did not receive much attention. for example, a philosophy which investigated the essence of everything in life was considered asa ‘fixed’ knowledge. therefore, many scientists praised the book of al-muqaddimah and its influence on the sociological writing style in europe. arnold j toynbee mentioned almuqaddimah as a historical philosophy in which its undoubted privileges everlasted wherever and whenever. this was related to the philosophy of the history of power cycle, in which every power constantly experiencedrise and fall. b. the background of karl marx’s life marx lived between the year of 1818 and 1883 in prussia, and he passed away in london. at that time, europe experienced industrial revolution where large-scale industries required a lot of man power, and liberalismrose.marx came from a jewish family yet he was skeptical towards religion. the thought of feurbach became the starting point of marx’s criticism of religion(soeseno, 1999: 75). in one of his writings, marx declares that religions do not create the mankind but men create the religions (ibid). he was an activist of the labor movement, a writer,and an academician. his works included the german ideology, the communist manifesto, and das capital. in berlin, he joined the hegelian youth group, a dialectic philosopher. hegelian dialectic explained the constant contradiction between one idea and another so that an improved ideawas created from another idea. marx agreed on some parts ofthe hegelian dialectic; he argued that dialectic did not occur in ideas but it occurred in the real life such as class conflict between the capitalist class and the working class (soeseno, 1999: 65). the contradiction between ideas occurred in the mankind history (hegel), yet marx suggested that the history of societies until the present day was about the history of class conflict. generally speaking, the thought of the young hegelian’s was more materialist (atheistic) rather than idealist as hegel himself believed (farihah, 2015). furthermore, marx learned a great deal about the principle of development through the idea of contradictions and conflicts that he gained from hegel (zeleny, 2004: 76). marx’s life was almost the same as charles darwin, and by then marx had read about darwin’s theory of evolution. marx followed darwin’s theorythatthe origin of man and his history was the highest product of organism (soeseno, 1999: 227). according to darwin, species evolved because of their survival to nature, as well as from other predatory attacks. marx seemedto draw this claim into the law of human history (nitecki 1992: 212). at that time, the movement of socialism had been common in europe. this movement was a protest movement against social inequalitybetween the capitalist class and the working class. this ideology was embraced by a group of socialist who aspired to restore the society regardless ofthe ownership of production factors. marx and fredich engels were involved in revolutionary activitiesin france. many commentators believed that what marx diswas ‘marrying’ the economic thoughts of socialism and hegelian. marx experienced failuresfrom his movement activities hence he turned to a more serious research in 1849 in england (soeseno, 1999: 166). he observed the working conditions in the british industries. the results of this observation were eventually poured into the book of das capital, a book which contained the stages of destruction of capitalism. international journal of islamic business and economics, 2(1) june 2018, 5 1 6 4 55 c. the principle differences of background and thought ibn khaldun is a muslim scholar, undoubtedly, the recitation of the qur’an and sunnah flourish his writings in the book of al-muqaddimah. in each chapter of the book he writes, he always ends it with a praise statement to god. diametrically, it distinguishes his writing with any other thinkers of the 19th century. in the development of knowledge, this century is known as the atheist age when the existence of god isquestioned. all the previous theories related to religion were changed according to the materialist ideas. biological science was previously known by the islamic world aslife science which was based on the creation of a body, either species or man, created directly by god. however, biological science-although the same object with life science-was then referred to the theory of species development which called the theory of evolution. furthermore, the theory of evolution was later adopted by marx as the basis of his theory.there is a similarity between marx and darwin about the struggle for life and the struggle to survive. the marxian concept is formulated based onthe class struggle. marx states “darwin’s book is very important and serves as a natural scientific basis for the class struggle in history” (harris, 1981: 233). ibn khaldun and marx have many similar views such as using induction methodas well as a historical description and analysis to formulate a social theory based on material sources (hanafi, 2004: 161). ibn khaldun stands on the civilization history which he sees it from the destruction of islamic dynasties. subsequently, he compiled a book about the rise of empires and the fall of empires.whereas, marx roots his writings on the social reality of europe, that is, the labor exploitation by the capitalist groups. he reviews the prerequisites of the destruction of capitalist society in term of socio-economic conditions. having said that, the object of ibn khaldun’s thought is economic civilization built by the empires, while the object of marx’s thought is the industrial societies in western europe in the 19th century. the background of their thoughts is certainly different from the present time. the current conditions are too complex to be viewed by the past observation. in the industrial sector, manufacturing industry is increasingly developed. however, labor welfare varies between the past and present times. yet the most important element of labor revolution lies on the point where unreasonable labor exploitation reaches ‘class consciousness’ phase. today’s situation is also different from the past monarchywhere a country solely depends on the decision of a king. today, there are many powers outside the king such as opposition, parliament, and mass media. this is surely different from the time ibn khaldun wrote the book of al-muqaddimah, although, some of ibn khaldun’s conceptions are still relevant to the present time such as the correlation between civilization development andthe increasing demands of service and expertise jobs (architecture, art, etc.). when a society experiences a chaos state, basic needs are more important compared with another type of needs such as serviceand expertise. d. the theory of working 1) the principle of working according to ibn khaldun the distinctive feature of medieval muslim scholars -in this case is ibn khaldun-and modern european scholars -in this case is marx-is that muslim scholars generally classify science into two things: (1) the naqliyya science, knowledge which cannot be attained by reasoning because it involves the almighty allah and supernatural beings based on the qur’an and as-sunnah; and (2) the aqliyyah science, knowledge which can be obtained through logical reasoning (saiful, 2015: 231) ibn khaldun extensively explains sovereignty and destruction of empires by rooting to ‘human nature’. according to ibn khaldun, human nature needs to ‘eat and drink’ from birth to international journal of islamic business and economics, 2(1) june 2018, 5 1 6 456 death. ibn khaldun explains that allah provide everyhuman need as stated in qur’an jatisiyah / 45 verse 13 and ibrahim / 14 verse 32 (khaldun, 2000: 447). according to ibn khaldun, ‘the hands of man lie upon the whole universe and everything in it, in which god made man as his vicegerent, a caliph upon the face of the earth’ (khaldun 2000: 448). god gives human life through the rain to grow plants and crops to produce fruits. god also created cattle to produce milk, leather, meat, and so on. everything is provided in nature. the mankind is obliqued to utilize and manage the resources given by god such as producing raw goods into valuable goods, managing farm field, raising livestock for commercial or selfconsumption, carpentry, or other related business activities which require ‘work’. according to ibn khaldun, ‘work’ contains a value. work makes a low-value material or invaluable material into a higher value material. accordingly, work is a process of adding value to a particular material (khaldun, 2000: 450). in arabic, work is called ‘aisy, while the place / type of work is called ma’isyah. aisyh is a musytarak word which meansa word with several meanings. it can be defined as a work or life. this is because ‘aisy makes life (al hayah) possible(khaldun, 2000: 451). mankind possesses such human nature to exploit the natural resources. accordingly, ibn khaldun states that the most ‘primordial’ type of work is agriculture, which then followed by carpentry. agriculture was first introduced by prophet adam whilst the second prophet, prophet idris, introduced carpentry. agricultural technique precedes carpentry technique because agriculture is a very simple process in which it requires a simple knowledge (khaldun, 2000: 452). as we know, farming is generally about cultivating and maintaining. whereas, carpentry includes a lot more complicated knowledge compared with agriculture. the third type of work is trading (tijarah). ibn khaldun tends to view trade as a negative activity because it is identical with persuasion, forgery, dishonesty, and so on. nevertheless, trade is a legitimate activity since islam allows it as long as it does not illegally take other people’s goods. these three types of work are indeed needed by the mankind. whilst other types of work are not necessary because they are not needed in life. for example, servants, treasure seekers, and even governments are not a natural way of making a living (khaldun, 2000: 451). referred to the aforementioned statement, ibn khaldun classifies two major types of work namely the work which directly related to the fulfillment of life and the work which is not directly required for the existence of human life. this reminds us of the two economic sectors namely real sector and nonreal sector. the real sector is an economic activity that is directly related to livelihood and the fulfillment of human needs. in the event of a crisis, the state will be able to survive as long as food supplies, food security, services, and trade sectors are still abundant. 2) the principle of work according to marx marx, like ibn khaldun, hefirst explains the essence of laborbefore further describes the economic concept. this is because work is making a human life. according to marx, man is the following development of ape species. biologically, human is just like any other species who needs to live, needs food and drink. marx’s conception returns humans into their early stage oflife, that is, hunting and gathering before the establishment of land ownership system. man exists because of working hence work is the real essence of a humankind. in the relation to nature, man is seen as a working being. for that reason, marxian views the essence of a man as a homo laboran (hadiwijono, 1980: 120). the influence of darwinian thought on the life ofspecies has considerably influenced marx, because just like darwin, marx views a man in the relation to ‘stomach’ affairs. a mancannot fulfill his own needs alone unless he lives in a group. living in a international journal of islamic business and economics, 2(1) june 2018, 5 1 6 4 57 group also occurs in most species in which they are familiar with the division of labor. in contrast to the species which only requires a simple work division, humans need a more complex work division in their life. for example, fishing requires different groups of people to create nets, create boats, catch the fish, sell and distribute the captured fish to the broad communities. accordingly, work division and the use of production modes are naturally existed in the everyday life (marx, 2009: 117) there is a historical aspect within the scope of work since work is passed down from one generation to the next. following this, technology is developed to facilitate work process. the next generation continuously improves the existing technology. furthermore, people need ethics to regulate their social gathering. the establishment of ethics is not about the search for ideas of ‘good and bad’;marx argues that it cannot be separated from economic infrastructure. according to marx, ideas are abstract which cannot change society; materials do change the society (martono, 2014: 45). human adaptation to their material environment, through labor, is a part of working / economic relationship (johnson, 1994: 135) in the beginning, there was no such private ownership of the land. people directly workedin the communal land; this was the initial phase of socialism. subsequently, private ownership was introduced as the antithesis of communal ownership; this was the time when social life was divided into two contrasting categories namely the landowners and labors (marx 2009: 293).the polarization between the landowner and the landless is caused by the inability to protecttheir property from the enemy threat. in this pattern, farmershave no longer a rice field,however,they still can work for the landowners or feudal groups in which some of the yields belong to the landowners (two, 2008: 94).the ownership system over factors of production is the beginning of human alienation towards work. in the previous phase,people manage, plan and enjoy the natural resources (smith and raeper 2000: 118). however, the phase of land ownership leads to the isolation of people from their human nature, because they can no longer plan or enjoy the results of their own work (smith and raeper 2000: 118). in the feudal system, there is a legal ownership over a vast land by one family, and many slaves cultivate the land for the landlord. in this point, the production relation takes place between the landlords and their slaves. the landlords occupy the upper structure in the social stratification, while the slaves occupy the lower one. the landlords have a certain relationship with the governments; the slaves cannot directly receive the results of their work because all their ‘value’ of work are devoted for their landlords (soeseno 1999: 17). the feudal phase has gradually transformed into a capitalist system as it has occurred in europe (especially england) with the invention of the spinning machine which enables people to quickly produce commodities. the need for the increasing production requires more labors in the industrial sectors. as a result, labor groups emerges. marx emphasizes the history of modes of production, the means of production, and the relation of production that has shifted from one stage to another. the development of modes of production influences the society during the initial phase of modes of production (hunting and gathering phase) and the phase of communal land and forests. there is no such social stratification at this phase. following this, modes of production have changed into a settled agricultural system which creates land ownership and enables social stratification. the phase of private ownership creates a relationship between masters and slaves which is known as the feudal phase. at this stage, people are completely alienated from their own work. they do not receive anything from their work. religion still receives an attention before the advent of the industrialization phase. modes of production are about creating commodities on a massive international journal of islamic business and economics, 2(1) june 2018, 5 1 6 458 scale, organizing labors, and production relations between capitalists and labors. this phase forms urban communities, mostly are groups of workers, who work for hours to earn much lower wages than their actual ‘value’ of work. (maksum, 2015: 155) 3) the comparison between ibn khaldun and marx in viewing the principle of work the main difference between marx and ibn khaldun is the basis they use to observe society. when ibn khaldun views the emergence of empires, he observes how a group of people controls such sovereignty over a territory. he learns that sovereignty is based on ashabiyah (tribal solidarity). the high “value” produced by the worker has no effect onthe establishment of a sovereignty. nevertheless, the inequality of economic distribution and the wealth accumulation which are done by a few people may lead to power bankruptcy. marx does not observe ashabiyyah or social bonding/coherence factor (borrowing durkheim’s term) which leads to the state establishment. instead, he uses conflict approach (not coherence approach) in which conflict (dialectical relationship) between the landlord and worker (slave, labor) is the root of the law and norms formation, facilitating the relationship between landlord and slave. in some of his statements, he states that darwin is his inspiration. this means that conflict over economic resources is innate of species. it is also understood by tan malaka in the madilog book. the concept of struggle for lifeis a concept that inspires many theories, even spencer from the liberalist economic groupuses this conceptto justify that poverty in africa is the impact of a defeat of competitions. the use of “the struggle for life” concept is highly controversial to discuss society. the conception of work by marx and ibn khaldun still survives the present day, and it relatively can be used as a philosophical basis. this is because the concept of work by these figures is based on metaphysical assumptions (beliefs). for example, work in marxian conception assumes the development of the human species. one seeks work by farming, trading, or being an employee, essentially to fulfill life just like a species forage for food. whereas, ibn khaldun views work as optimizing potentials in managing natural resources by processing raw material into a useful thing. it is based on the common sense and logic given by god, and also nature provided by god. this can be found in various forms in the modern life such as in the field of mining, carpentry, agriculture, and etc. 4) the theory of surplus value by ibn khaldun a) accumulation of surplus value by ibn khaldun according to ibn khaldun,benefit is the “value” of their work. if one does not work, then the value = 0. each benefit contains a value that can be exchanged with other objects, equivalent to the ‘work’ value. the ‘work’ value is equivalent to the demand level for the product. the more demands of a product, the higher valuethe product generates. a trader earns the value from the difference of purchasing and sales. therefore, the value depends on one’s work; the more efforts and worksone performs, the more “value” he/she generates. ‘value’ is always generated from work while bureaucratic positiondoes not generatesuch value. by using the power of position, one can obtain “value” which is generated by others especially trade-related activities that have plenty of farmland and sales. the big traders need to approach the authorities in a way to secure their trade activities. therefore, having such position may gain wealth in a short time (khaldun, 2000: 460-461) this is still relevant to the current situation where capitalist requires the investment international journal of islamic business and economics, 2(1) june 2018, 5 1 6 4 59 security from the government. some of them perform lobbying in an effort to get a license for land clearing, mining, and etc. access to the relevant officials helps to facilitate business developmentas well as to get government’s protection. nevertheless, the context is different between the past and present times when the distribution of power in tunisia at that period was only centralized in one person. the highest position is occupied by the king, for which no other power cannot regulate him. whereas, the lowest positions are occupied by those with absolutely no influence at all (khaldun, 2000: 461). therefore, “position” constitutes a social stratification within a kingdom. it includes people with hierarchical positions in which each level has a particular influence, depending on the level of positions to the king. such influence can be obtained from having a relation with the ‘clan’ or king’s extended family, or it can be obtained from having certain positions. this influence has the ability to obtain ‘value’ (profit) from other parties. because the wealthowners who are keen on helping the needs of community require suchpower to protect them -besides prestige-that can be obtained from having a close relationto the king, close friends of the king,or social solidarityin which the king honors it. in his shelter, they can calmly and peacefully live, free from enemy attacks;if they do not possess any of it, they will get exposedby all forms of deceit and legal excuse. ibn khaldun interprets the above verse that onewith a higher position can lead men to work more actively, the rulers may protect them from various dangers (from barrack or bedouin attacks), the governance system may provide fruitful benefits, and this governance may enable law and religion enforcement. the characteristic of ibn khaldun’s writings lies on the fact that he sometimes uses full of ‘positive’tone but some other times describes in a ‘negative’ tone. this can be seen when he describes bedouin communities that they are born from nature, brave, strong, and bold in facing any situation. however, elsewhere in the same book he has writen, he describes bedouin communities asuncivilized people. likewise with his writings related to the government. on one hand, he says much about the fruitful benefits from the ‘hierarchical structure of the government. on the other hand, he describes the ‘negative’ side of the government. b) the accumulation of surplus value by karl marx surplus value is one of three central issues in karl marx’s thought, in addition to the theory of class struggle and the theory of dialectical materialism (wiraman, 2014: 9). marx is much inspired by the previous theories. his opinion of materialism is based on the conception of feurbach, his opinion of dialectics based on hegel, and his opinion on value is more from david ricardo. whereas, the idea of socialism in europe has evolved long before das capital. marx has previously read economic thoughts of adam smith, david ricardo, and so on (soeseno, 1999: 90) marx considers hegel’s philosophy in terms of conflict. however, darwin’s influence on the thought of survival of the fittest is more interesting. this is because conflict does not occur in the competing idea, but rather the struggle for economic resources. marx criticizes the absolute idea of hegel that manifestation of the state is the result of partial idea, therefore, the absolute idea overcomes the partial idea (pals, daniel l 1996: 133). this does not pay much attention to the idea of abstraction but it pays attention to the concrete matter instead. one of the main attention is the surplus generated by the workers. the notion of surplus value sees the value of work from the duration of work, type of work, and quality of work. a commodity is not only about the value resulting from its advantage, but also the value resulting from the magnitude of the work done by the workers . the number international journal of islamic business and economics, 2(1) june 2018, 5 1 6 460 of commodity produced by the workers is greater than the amount of wages paid to them. as a result, there areprice differences between the actual value generated by the workers and the amount of value provided by the investors to them. according to marx, the ideal situation occurs when there is a balanced relationship between workers and employers. on one hand, employers have the capital to mobilize commodities. on the other hand,workers have the rights to decide such cooperation. in fact, the workers are willing to ‘sell’ their children and underage youth to work (marx, 2009: 198). moreover, children work for 24 hours without a break, etc. (soeseno, 1999: 188) in this point, the ‘value’ produced by the worker is being cheated. the greater number of workers used in an industry, the greater the value is being generated. having said that, the capitalist party takes much bigger profit from it. c) the comparison of surplus value accumulation of values in the royal system is about a misuse of tax and gift distribution. this is due to the absence of triaspolitica in which the king plays an absolute rolewithout any institution overseeing him. this accumulation comes from the farmer’s taxes which the government uses to pay the army, police, ministers, and qadhi (courts). whilst the rest of the money goes to the luxuries facilities of the royal family. in addition, such royal positions enable them to receive gifts from the wealthy merchants. at that time, there was no corruption concept to consider this collecting prize activity as an abuse of power. prizes were given to maintain a good relationship with the rulers in a way to secure their business. the accumulation of value in the 19thcentury industries is done by paying wages under the actual ‘value’ of work. workers work for more than half a day but their wages is only enough to meet their basic needs. the capitalist groups gain their wealth from the difference of the value of work done by the workers and value that the capitalists give to the workers. the accumulation of value by the government to increase their luxury is equivalent to the accumulation of value by the capitalist groups to increase their profit. as a result, it creates a gap between the bourgeoisie (capitalists and government) and the proletariat. in the current context, the value of work refers to 8 hours per day and the amount of the regional minimum wage (umr) which is based on central and local government regulations. the measurement is conducted by measuring incomes minus expenditures; the rest is equivalent to surplus value. profit from investors is the interest from the shares they invest in a company, and the obtained interest is generated from the net profit. in the year of ibn khaldun, the king often received various taxes and gifts. today, such rewards are considered as corruption (bribery). it was certainly possible for the king and his officers to receive many gifts in the old days when there was no rule forbidding him. nevertheless, it is no longer possible except by stealth. although regulation has been established, there are many government officers with a fantastic wealth far above their salary and benefits. 5) the law of necessity a) the law of necessity on the destruction of sovereignty: ibn khaldun’s thought the law of necessity is the belief that society will develop from one stage to another, from one condition to another. one stage is naturally followed by the next stage which can be predicted. this is one ofthe similarities between ibn khaldun and marx. despite the importance of a governance, the nature of governance often possesses a negative side. a fair use of power is an ideal form of governance, but in reality, the use of power is often manipulated for their own interests (khaldun, 2000: 462). historically, ibn khaldun international journal of islamic business and economics, 2(1) june 2018, 5 1 6 4 61 argues that the age of an empire is likely the same as the human age, that is, it never lasts for more than three generations (120 years). the first generations are the founding fathers who have the characteristics of the knights, modestly, and away from extravagance. this is because their life is still filled up with the wildlife spirit (brave, wild, and modest). contrary, the next generations start to pursue a luxurious life and wasting taxes, yet they still have the character of their predecessors. the third generations are the worst of all in which they spend a huge expenditure for paying salary and their own luxury; they neglect the life of the knights (khaldun, 2000: 208-209). according to ibn khaldun, the destruction of a state occurs through several causes (khaldun, 2000, 205-206): 1) the distribution of power is in the hands of one person. when a king concentrates power only in his hands, he sets aside others and ruins solidarity. in fact, solidarity is the beginning of the kingdom establishment. 2) the creation of a state carries out luxuries because everyone is not only satisfied with basic needs. when the basic needs are met,other needs emerge. this includes the need for luxury. as a result of the high demand for these luxuries, expenditures outweigh incomes. for that reason, other budget allocations are cut, for example, the military budget. the consequence of cutting this budget is riskingthe state security and defense. 3) the negative character of a settled culture: a) lazy, lavish, and extravagance b) the loss of ancestor living habits: wandering, robbing, exploring, and searching for self-determination. b) the law of necessity on the destruction of capitalism: karl marx’s thought referring to marx, the law of necessityis rooted in the inevitability of conflict between the bourgeoisandproletarian class.these two classes are constantly in conflict with each other. marx applies social conflict theory which assumes intergroup relationships are not functional (every person plays his/her social functions) nor coherent (every person is attached to his/ her social group) as it is generally understood,but the nature of social relationship is actually a conflict. the proletarian revolution is rooted in the understanding that the relationship between the capitalist bourgeois class and the proletarian working class is not a work division-related relationship;it is a contradictionary relationship instead. this assumes that the contradictions in hegel’s dialectics are not contradictionson a conceptual level, but it is class contradictions. (enan, 2013: 438).revolution occurs when a situation reaches a certain point where the workers are aware of their positions (class consciousness) due to the individual crisis. those points are derived from the ‘mistake’ that the capitalists surely have made, that is, they reduce the price as low as possible for their market expansion in a way to ensure their commodities are accepted and won the market. if the price of commodities falls, the volume of production should be increased in order to maintain profits. market expansion causes the shift from agriculture to industry, or from feudal phase to industrial phase. this gradually leads to a cheaper labor market. when the labor force in the industrial sector increases, whilst the bourgeoisie are unable to prosper their workers, it causes the working class can no longer afford their needs; this is due to the extremely cheap labor system (soeseno 1999: 173) international journal of islamic business and economics, 2(1) june 2018, 5 1 6 462 the stages of social development, from the pre-communist phaseto feudalism and then to capitalism phase, are inevitable stages. the destruction of private property by the socialist movement is also a necessity in history. marx views that the destruction of capitalism is isolated to ethical judgment, it is a necessity instead (soeseno, 1999: 51). c) the comparison of the law of necessity almost in line with marx’s argument, the accumulation of ‘value’ in the form of taxes and gifts leads to royal’s luxuries which later induce bankruptcy. the luxuries of the high position officers are not about ‘like or dislike’, but it is a matter of dignity. therefore, the creation of a kingdom is due to the strong social attachment of a powerful tribe. they establish a kingdom and entrust one of them as a king. nevertheless, the next offspring is no longer one tribal tie as beforedue to the issue of jealousy and unequal distribution of ration. subsequently, it comes to the phase of defiancewhich weakenings the state. dynasties always rise and fall, causing other to rise yet experiencing the same condition as the previous dynasty. accordingly, the shift from one dynasty into another dynasty is a kind of cycle that keeps circulating. this distinguishes with marx’s argument in which the destruction of capitalism due to the accumulation of surplus value is the end of the story. according to marx, the destruction of capitalism is due to the nature of the capitalist system which always seeks for profits. the profits are derived from surplus value generated from the workers. the more workers, the more value it generates. this is in line with ibn khaldun’s opinion that the destruction of empiresis because of the nature of the rulers who always waste the state money. marx ‘blames’ the production relationship, while ibn khaldun blames one’s psychological nature. both claim that this ‘mistake’ (contradiction) is natural and necessary. the factors of the destruction of a state by ibn khaldun are sociological, economic, and psychological factors. the destruction of a state is not only caused by economic factors, economic factors are only one of the several factors. moreover, ibn khaldun explains the psychological factor of the bedouin group in a much larger portion than the destruction of a state. in chapter ii of al-muqaddimah, ibn khaldun explains the difference between the bedouins and the settled communities. bedouins tend to be brutal, have the potential to conquerand develop a territory (later establishan empire). ibn khaldun does not talk about the destruction of economic sector in destroying the state. contrary, ibn khaldun argues that the destruction of astate will destroy the economy because of the lack of wealth protection. the carpentry industry will also collapse due to the lack of demands. according to ibn khaldun, the population and securityof the state will elevate the economy because of the increasing demand for the product. this is different from marx in which the economic infrastructure builds the superstructures such as law, ethics, social institutions, and etc. the work relation and the modes of production determine the types of community. moral and religion are addictions or media against the alienation between individuals and works. whereas, ibn khaldun assumes that religion and law are alienated from economic activity. it is not the product of human alienation, but it is the magnificent rules directly from god. today, capitalism is not confined to a particular place, a few investors, and worker-related issues; it is much more complex which involves many investors who own shares in a company. in the modern society, the state is also influenced by the concept of trias politica in which the role of state leader (king or president) is overseen by parliament. the economic system is not only determined by real business sector, but also stock market sector. in the situation of a chaotic state, the stock sector is greatly impacted by the fleeing investors abroad. this is almost similar international journal of islamic business and economics, 2(1) june 2018, 5 1 6 4 63 toibn khaldun’s argument that the destruction of a state determines the economy, especially trade sector. whilst, it does not have much influence on the agricultural sector. ibn khaldun argues agriculture is the simplest sector which allows everyone to take part in it. ibn khaldun’s thought on the destruction of a stateis also relevant that the royal family’s extravagance and public distrust leads into bankruptcy. this is relevant to the fact that corruption disables the state to obtain incomes (taxes) and ultimately the state will be collapsed as it can not pay for any development works. 4. conclusion the thoughts of marx and ibn khaldun have some similarities, despite the different paradigms and the use of induction method inconstruing a law. marx uses darwin’s theory as the basic assumption of the nature of work. whilst, ibn khaldun views work as using all potentials given by god to seek his grace. for example, managing nature into useful things. observing marx and ibn khaldun’s thoughts, an academician will not be able to examine one’s thoughts apart from one’s contexts. this is because one’s thoughtsare inseparable from his/her activities, situations, social development, and knowledge. despite both figures have similarities, in terms of the necessity of socio-economic development, their thoughtsare built upon two very different paradigms. one cannot take both ideas of marx and ibn khaldun in one package -to explain the essence of work, the theory of surplus value and the necessity of socio-economic development-without first examining the paradigm used by both thoughts. some parts of marx and ibn khaldun theoriesare still relevant until today, but some other parts are not. the relevant and applicable parts occur in the macroscope, but not in the microscope. for example, theory of the destruction of a state by ibn khaldunis relevant in the macro scope that the destruction of a state starts from financial problems. however, a state with a stable budget condition may be hit by a monetary crisis which later causing the soaring prices in the market and unaffordable price to the public. this condition may subvert a regime such as the may 1998’s revolution. likewise with marx, many things can be applied in the macro scope based on marx’s thoughts, including surplus value. for example, labor demonstration is due to a lack of workers’ salary and welfare. the decreasing labor salary means the increasing surplus value. in this point, the workers will eventually experience class consciousness andlabor movement in the macro scope. however, this condition only occurs locally. it does not change the foundation of the modern capitalist economic systems. in many cases,the disputes between workers and employers can be solved through negotiation or mediation by a third party (for example from the governmental element). references akbar, t. s. 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(2004), logika marx: analisis dalam kapital marx, kritik marx terhadap hegel, keberadaan praxis nalar. jakarta: hasta mitrahasta mitra. 127 ijibec determinants of non-performing financing of mortgage in islamic commercial banks rofadatul hasanah1, dina fitrisia septiarini2, and dian filianti3 1,2,3 islamic economics, faculty of economics and business, universitas airlangga airlangga st. num.4 correspondence email: rofadatul.hasanah-2016@feb.uniar.ac.id abstract this study aims to determine the effect of capital adequacy ratio, return on assets, bi 7-day rate, and inflation towards non-performing financing mortgages in islamic commercial banks in indonesia. the population of this study is the islamic commercial banks in the period 2015-2019. the sample used is a saturated sample, which uses all islamic banks as research samples. this research uses a quantitative approach using time series data. all variables use the percentage of growth and show the results of the level stationary so that the technique used is ordinary least square (ols) regression analysis which is processed using e-views 10 software. the results of this study indicate partially the capital adequacy ratio and return on assets variables have a negative influence significant to non-performing financing mortgages. while bi 7-day rate and inflation variables do not influence nonperforming financing mortgages. nonetheless, capital adequacy ratio, return on assets, bi 7-day rate, and inflation simultaneously have a significant effect on the non-performing financing of mortgages in islamic commercial banks in indonesia in the period 2015-2019. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 2 2020 keywords: microeconomics; macroeconomics; non performing financing; home ownership loan doi: https://doi.org/10.28918/ijibec.v 4i2.2725 jel: g 21, g 32 article info article history: received : 19 juli 2020 accepted : 22 dec 2020 published : dec 2020 mailto:rofadatul.hasanah-2016@feb.uniar.ac.id https://doi.org/10.28918/ijibec.v4i2.2725 https://doi.org/10.28918/ijibec.v4i2.2725 128 international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 1. introduction the level of housing demand is 800,000 units per year while housing needs that can be met until the end of 2017 are around 400,000 units to 500,000 units per year. this makes the price of land and house prices very expensive, in addition to the less available land makes the housing supply gap (backlog) reached 13.5 million units in 2017 (indonesian cabinet secretary, 2017). the government through the ministry of public works and public housing (pupr), continues to provide alternative policies for granting housing loans/mortgages (kpr) through various programs that have been running to help low-income people who cannot buy houses in cash. the ministry of public works and housing has appointed both the conventional and islamic banking industry and the non-bank financial industry (iknb) as kpr distributors (public communications bureau, 2019). muamalah in cash or mortgages, which is the banking party needs a clear agreement regarding the scheme that will be used according to haris (2007), one of which is ib murabaha, istishna’ and ijarah especially ijarah muntahiyah bittamlik (imbt). besides, there is a new scheme, namely musharaka mutanaqisah (financial service authority, 2016). increased islamic banking mortgages financing (ib kpr) because this product is one of the primary needs that are currently in high demand by the public. according to the 2019 sharia banking statistics (sps) data, the portion of kpr financing distribution in 2015-2019 tends to increase every month following figure 1. figure 1. chart of distribution of mortgage financing portions (billion rp), 2015 – 2019 source: sharia banking statistics data 2016-2018, processed. risks to mortgages are reflected in the ratio of non-performing financing (npf) or problem loans. the lower the npf, the lower the level of problem loans that occur, and the better the condition of the bank. a high npf value indicates that the islamic bank has low bank health and must bear a large risk as well. therefore, islamic banking must be selective in channeling credit to customers. nonperforming financing mortgage ratio from 2015-2019 in figure 1.2 tends to decrease. non-performing financing mortgage ratio in the islamic commercial bank industry mortage financing portions international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 129 listed in figure 1.2 experienced a significant increase of 4.53% in 2016, then in may 2016 decreased by a significant enough so that the value of the npf kpr ratio of 2.76%. the nonperforming financing mortgage ratio in figure 1.2 is fluctuating but tends to decrease. the decline in kpr npf is a wise step by the central bank (bank indonesia) or islamic banking in addressing and dealing with the occurrence of problematic financing that is maintained well from sharing factors that can influence it. some studies show factors that have a significant effect on npf in islamic banks, such as asnaini's research (2017), namely sbis and car variables; auliani and syaichu (2016), namely bopo, car, inflation, and sbis variables; firdaus (2015) namely car and gdp; akbar (2016) namely gdp, car, and fdr; yusof, et al (2018) variable interest rates affect sharia housing loans; haifa and dedi (2015) namely fdr, profit-loss sharing, inflation, and exchange rates; lidyah (2016), namely car, bi rate, and bopo. of several above research, the variables used in this study are the capital adequacy ratio (car), return on assets (roa) bi 7-day rate or interest rate, inflates. based on a series of problem descriptions above, this study is interested in researching on "analysis of factors affecting non-performing financing of housing loans at islamic commercial banks from 2015 to 2019". according to muhammad (2009: 91), types of financing by islamic banks according to the nature of its use is divided into productive financing and consumer financing. various types of productive and consumptive financing are facilitated by islamic banking, one of which is financing for residential homes on credit or called kpr ib financing. bank indonesia defines a housing loan/mortgages (kpr) as a credit facility provided by banks to individual customers who will buy or repair a house. in providing credit financing, islamic banks are required to conduct a feasibility analysis of the customer. this is intended to find out that the customer is truly trustworthy and can pay his debts. credit financing assessment criteria that must be considered according to kasmir (2009: 115) namely 5 c + 1 s which consists of an assessment of the character of the prospective recipient (character), subjective assessment of the recipient's ability to make payments (capacity), capital capabilities of the recipient (capital), collateral owned by the recipient (recipient), economic conditions of the recipient (condition), and the business or goods provided do not violate sharia following the dsn (sharia) fatwa. dendawijaya (2005) defines npf as the failure of the debtor to fulfill its obligations to pay the installments (principal) of the agreed principal. non-performing financing (npf) is the most crucial thing in the islamic banking system, because of this relating to bank liquidity and profitability. by muhammad's research (2005: 359), namely problem financing increases, the risk of decreasing profitability is greater. if profitability decreases, the bank's ability to expand financing decreases, and the pace of financing decreases. asnaini's research (2017) in mardiani (2013) explains that the increasing car ratio of islamic banks, islamic commercial bank will feel safe to channel financing. the results of previous studies by research akbar (2016); auliani and syaichu (2016); lidyah (2016). asnaini (2017) have significant and negative effects on npf. capital adequacy ratio is often called the capital ratio authorized capital that must be met by the bank. under bank indonesia regulation no 3/21/pbi/2001 that banks are required to provide a minimum capital of 8% of the weighted assets according to the risk stated in the capital adequacy ratio. capital adequacy ratio (car) defined by dendawijaya (2009) is a ratio 130 international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 that shows how far all bank assets that contain risks (loans, investments, securities, bills at other banks) are also funded from the bank's capital funds besides obtaining funds from sources outside the bank, such as public funds, loans (debt) and others the level of profitability of the company can be proxied into the ratio of return on assets (roa). return on assets according to wardoyo and endang (2009) is a ratio to measure a company's ability to make a profit compared to the company's total assets. bank indonesia has set a safe standard of roa ratios ranging from 0.5% to 1.25%according to yuwono (2012), the basis for achieving high profitability is to fulfill obligations to shareholders, to assess the performance leadership, and to increase the attractiveness of investors to invest their capital. rresearch that shows roa has significant and negative influences, namely wardoyo and endang research (2009) on npls in rural credit banks and raysa (2014) on npf in islamic commercial banks. interest rates according to karl and fair (2001: 52) are annual interest payments in the form of a percentage of loans obtained and the amount of interest received each year divided by the number of loans. interest rates in keynesian theory are positively related to the number of credit offers and vice versa is negatively related to the number of loan requests means that the higher the loan interest rate is reflected the more expensive the cost will reduce credit demand, and vice versa. this phenomenon reflects that the high lending rate is currently one of the considerations of the public in making loans to banks. the benchmark interest rate becomes the reference for islamic banks in determining the house price margin, the bi 7-day rate. yusof research results (2018), interest rates have a significant and positive effect on islamic housing loans. lidyah research (2016); hernawati, et al (2018) showed that the bi rate influences npf. inflation is an increase in process general prices of goods continuously (sunariyah, 2004: 17). this does not mean that the prices of various types of goods go up with the same percentage. some theories that discuss why inflation occurs, according to nature (2006), namely: first, the quantity theory expressed by the opinion of classics that the price level is determined by the amount of money in circulation. the price will rise if there is the additional money supply. second, keynes's theory sees inflation as the level of demand for needs increases while supply remains, what will happen is that prices will rise. auliani and syaichu's (2016); rahmadani (2016) shows that inflation has a significant effect on kpr npf on islamic banks. 2. research method this study uses a quantitative approach because this study presents data in the form of numbers. according to kurniawan and zahra (2016: 18), quantitative research is structured research and quantifies data to be generalized. this approach and method began by gathering data, analyze data, and interpret it. secondary data used in this study is timeseries data, in the form of monthly financial statement data from the financial service authority and bi. the population in this study is the entire industry of the indonesian sharia commercial bank in 2015-2019 which distributed mortgages in indonesia. the sample in this study uses saturated samples. according to sugyono (2014: 68), the saturation sampling technique is a sampling technique when all members of the population are used as samples. this was due to limited sources of information from several islamic commercial banks international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 131 related to car, roa, bi 7-day rate, inflation, non-performing financing mortgages so that the chosen is the entire islamic commercial bank industry. parametric test in this study uses the ordinary least square (ols) regression method or the least-squares method using statistical tools e-views 10 and microsoft excel 2016 the main step in conducting data analysis techniques is to first tabulate the research data needed following the sample research, as well as this regression model must meet several classic assumption test requirements. 3. results and discussion data stationarity test (unit root test) based on the results of the stationarity test using the augmented dickey-fuller (adf) test at the level, the results of the probability of all independent variables are less than α = 5%. it can be concluded that stationary data or data is feasible to be tested using the ordinary least square (ols) method. classical assumption testing following: normality test, based on the results of the panel data multicollinearity test with the help of eviews 10 application, the results of the normality test can be seen in the value of the jarque-fallow test (j-b test) which shows a jarque-fallow value of 0.503738 with a probability value of 0.568500 is greater than α = 5%. it can be concluded if the prob (jarquebera) value is greater α = 5%. that the data is normally distributed so that it meets the requirements in the regression model. multicollinearity test, based on the results of the panel data multicollinearity test with the help of the application e-views 10, the results of testing the vif value shows all independent variables produce a vif value <10. based on these results, all independent variables have been free from the classic problem of multicollinearity so that this regression model is worth testing. heterokedasiticity test, based on the results of the panel data multicollinearity test with e-views 10 application assistance, breusch-foodgodfrey test result shows the chisquare probability of 0.9018, more than α = 5%. it can be concluded that there is no heteroscedasticity problem. autocorrelation test, based on the test results the method used to test the autocorrelation is the breusch-godfrey serial correlation lm test in table 4.6 with lag 5 obtained a dw value of 1,931 which is greater than the du limit (1.7266) and smaller than (2.2734). the du value is obtained from the durbin watson table with a significance value of 5% with the independent variable (k) being 4 and observation (n) being 59. it can be concluded that there are no autocorrelation symptoms. car growth variable has a significant and negative effect on the growth of kpr npf. this research is in line with research by raysa (2014); akbar (2016); diansyah (2016); auliani and syaichu (2016); lidyah (2016) asnaini (2017) which shows the car variable has a negative and significant effect on nonperforming financing in islamic banks. this means that the higher the car, the bank will be more careful to provide financing, which in turn will reduce the npf level of islamic commercial mortgage loans in indonesia. according to auliani and syaichu (2016), the significant result of this roa is because every bank has criteria and different requirements in providing funding. there is a clear initial agreement between the customer and the bank (contract) for good faith that 132 international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 emphasizes the mandate and forms of a business carried out by islamic banks in overcoming the problem of default. one of the actions is to save non-performing loans by banks such as rescheduling, reconditioning, restructuring, and execution (adlan, 2016). the method of execution is the last method such as handing over obligations to the bupn (state receivables agency) and submitting the case to the district court (civil case). one other way banks do to reduce problem loans is by auctioning houses that have failed to pay by a mortgage (kpr) or transferring credit (take-over credit) of the first home buyer to someone else. roa growth variable has a significant and negative effect on the growth of kpr npf. this means that the higher the roa, the level of mortgage financing problems in a bank decreases. this research in line with the study of wardoyo and endang (2009) which shows roa has a significant and negative effect on npl. high profitability obtained from good management, according to berger deyoung's (1997) research in kusuma and a mulyo's (2016) research which states that bad management practices will have an impact on corporate profits. when managers do not have credit scoring skills-assessing building up to the supervision of the debtor, this mismanagement will increase bad credit to banks. the high profitability indicates that the bank has a good performance that attracts the public to place their funds in the bank. for trust it is this community that banks can raise a lot of funds which will then be distributed, then the ratio of bad loans can then be suppressed. conversely, if the profits are bad, the bank may raise the interest rate policy for the sake of achieving profit targets that will only increase the possibility of debtors defaulting. there is a tendency to decrease the npf kpr ratio because this financing is a consumptive activity in the presence of pawning goods or collateral in the form of the house itself, the collateral can be used if the borrower is unable to pay it off. bi 7-day rate growth variable had no significant and negative effect on the growth of kpr npf. this result is in line with the research of astuty and nisa (2018) which shows insignificant results on islamic mortgage financing. these results indicate that the economic turmoil that makes the interest rate fluctuations or bi 7-day rate does not affect the npf kpr. covenants on mortgages such as murabaha, istishna’, imbt, and musyarakah mutanaqisah in their application do not use interest rates in determining the amount of the installment because the beginning of the agreement has been determined the amount of margin and ratio between the bank and the customer. the islamic banking system in indonesia in channeling mortgage financing applying islamic principles that are free of interest and penalties. also, sharia mortgages apply a fixed rate, which means that the mortgage installments will not change from the initial installment to the end of repayment and there is no penalty or administrative fees (provision) if the customer makes early repayments. inflation growth variable did not have a significant and positive effect on the growth of the npf kpr, which meant an increase in the inflation rate, so the level of problematic financing in a bank would remain. this research is in line with asnaini (2017); syahputra and achmad (2019); hernawati, et al (2019). not significant inflation to the npf kpr because inflation conditions in the study period tend to be stable a year) and according to the target determined by bank indonesia (classified as mild inflation is <10%). inflation can occur because of people's desire to consume excessively. the customer's decision to make a kpr transaction indicates that the customer feels that he has a responsibility or commitment to international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 133 fulfill his obligations in terms of repaying loans to the bank so that even though inflation has increased, problematic financing at islamic banks has not increased as well. asnaini's research (2017) shows no the effect of deep inflation installment payments due to installment payments by customers do not increase if inflation rises but remains as large as the initial contract and also because the initial contract and also changes in the rate of inflation do not dampen the desire of the public to follow the development or reduce consumption, the impact of financing risks can still be controlled. according to fisher in akbar (2016) states that rising inflation in the short term will not dampen people's desire to follow the fulfillment of needs, then the impact of credit risk in the short term can still be controlled. according to bank indonesia (2013), islamic banking more resistant to macroeconomic variable shocks. this is evident at the time of the recession and the crisis of islamic banks are more able to survive than conventional banks. this is evidenced by the high growth of financing in 2008/2009. besides, rising inflation causes the value of the collateral (the house) will also increase. the higher the value of the collateral can cover if the debtor fails to pay. the results of the probability value on the simultaneous test (test f) that have been done that is equal to 0.000054 which is smaller than the value of α (0.05). then it can be concluded that the growth of each variable car, roa, bi 7-day rate, and inflation together influences the growth of non-performing financing mortgages so that h0 is rejected. based on the r-square value shown by the same table, the value is 0.363812 or 36.38%. this shows that the car, roa, bi 7-day rate, and inflation variables in the regression model can explain the npf kpr variable in islamic banks in the 2015-2019 period by 36.38% and the rest is equal to, which means 63.62% is influenced by other variables. which is not used in this study. 4. conclusion capital adequacy ratio or capital adequacy ratio has a significant and negative effect on non-performing financing mortgages. the car variable is the most important factor for banks. the greater the value of car, the more careful the banking sector is in giving the financing will make the opportunity for npf kpr smaller. return on assets has no significant and negative influence on non-performing financing mortgages. roa variable influences increasing or decreasing mortgage npf. the high level of profit is obtained because in this financing there are goods pledged or collateral, thus encouraging customers to pay on time which will indirectly affect the profitability of banks. inflation has a significant effect and positive for non-performing financing kpr. in the short term, if inflation increases will not affect the problematic financing of islamic banks. rising inflation will not discourage people from continuing to carry out their obligations. inflation also makes the value of the guarantee has increased, so it can cover problem financing if the debtor defaults. the suggestions of this study are as follows, banks must implement a prudent system when channelling capital to customers and further develop professional banking performance from the islamic banking system so that it can improve bank profitability to minimize the occurrence of non-performing financing mortgages. for further research, it is expected to be able to take several models and samples of islamic banks both in indonesia and in other countries so that they can be used as a comparison and can be known with certainty the occurrence of problem financing. besides it also 134 international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 adds factors to both internal and external variables accordingly to the conditions and the economic situation of indonesia and the world. it is also necessary to consider and examine the dimensions of time and space research scope. we need to consider and examine the dimensions of time and scope of research. references adlan, m. aqim. 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(2012). influence analysis dpk, ldr, car, npl, ro adan sbi against the amount of credit distribution. thesis. diponegoro university. http://presidenri.go.id/program-prioritas-2/rumah-subsidi-untuk-masyarakat-penguduk-rendah.html http://presidenri.go.id/program-prioritas-2/rumah-subsidi-untuk-masyarakat-penguduk-rendah.html 127 null hypothesis: g_npf has a unit root exogenous: constant lag length: 1 (automatic based on sic, maxlag=10) t-statistic prob.* augmented dickey-fuller test statistic -9.671679 0.0000 test critical values: 1% level -3.550396 5% level -2.913549 10% level -2.594521 *mackinnon (1996) one-sided p-values. augmented dickey-fuller test equation dependent variable: d(g_npf) method: least squares date: 02/16/20 time: 19:24 sample (adjusted): 3 59 included observations: 57 after adjustments variable coefficient std. error t-statistic prob. g_npf(-1) -2.058990 0.212889 -9.671679 0.0000 d(g_npf(-1)) 0.385547 0.123004 3.134432 0.0028 c 0.271611 1.052230 0.258129 0.7973 r-squared 0.782778 mean dependent var -0.008070 adjusted r-squared 0.774732 s.d. dependent var 16.72466 s.e. of regression 7.937916 akaike info criterion 7.032375 sum squared resid 3402.568 schwarz criterion 7.139904 log likelihood -197.4227 hannan-quinn criter. 7.074164 f-statistic 97.29666 durbin-watson stat 1.972534 prob(f-statistic) 0.000000 null hypothesis: g_car has a unit root exogenous: constant lag length: 0 (automatic based on sic, maxlag=10) t-statistic prob.* augmented dickey-fuller test statistic -10.13383 0.0000 test critical values: 1% level -3.548208 5% level -2.912631 10% level -2.594027 *mackinnon (1996) one-sided p-values. augmented dickey-fuller test equation dependent variable: d(g_car) method: least squares date: 02/16/20 time: 19:24 sample (adjusted): 2 59 included observations: 58 after adjustments variable coefficient std. error t-statistic prob. g_car(-1) -1.210712 0.119472 -10.13383 0.0000 c 0.799552 0.425538 1.878921 0.0655 r-squared 0.647121 mean dependent var 0.168103 adjusted r-squared 0.640819 s.d. dependent var 5.349206 s.e. of regression 3.205869 akaike info criterion 5.201718 sum squared resid 575.5454 schwarz criterion 5.272767 log likelihood -148.8498 hannan-quinn criter. 5.229393 f-statistic 102.6945 durbin-watson stat 2.054270 prob(f-statistic) 0.000000 null hypothesis: roa has a unit root exogenous: constant lag length: 0 (automatic based on sic, maxlag=10) t-statistic prob.* augmented dickey-fuller test statistic -9.885397 0.0000 test critical values: 1% level -3.548208 5% level -2.912631 10% level -2.594027 *mackinnon (1996) one-sided p-values. augmented dickey-fuller test equation dependent variable: d(roa) method: least squares date: 02/16/20 time: 10:26 sample (adjusted): 2 59 included observations: 58 after adjustments variable coefficient std. error t-statistic prob. roa(-1) -1.238849 0.125321 -9.885397 0.0000 c 10.64678 6.985303 1.524168 0.1331 r-squared 0.635704 mean dependent var -1.955517 adjusted r-squared 0.629199 s.d. dependent var 85.89595 s.e. of regression 52.30503 akaike info criterion 10.78594 sum squared resid 153205.7 schwarz criterion 10.85699 log likelihood -310.7922 hannan-quinn criter. 10.81361 f-statistic 97.72107 durbin-watson stat 2.078909 prob(f-statistic) 0.000000 null hypothesis: g_bi7_day has a unit root exogenous: constant lag length: 0 (automatic based on sic, maxlag=10) t-statistic prob.* augmented dickey-fuller test statistic -4.982016 0.0001 test critical values: 1% level -3.548208 5% level -2.912631 10% level -2.594027 *mackinnon (1996) one-sided p-values. augmented dickey-fuller test equation dependent variable: d(g_bi7_day) method: least squares date: 02/16/20 time: 19:26 sample (adjusted): 2 59 included observations: 58 after adjustments variable coefficient std. error t-statistic prob. g_bi7_day(-1) -0.614213 0.123286 -4.982016 0.0000 c -0.414170 0.487595 -0.849414 0.3993 r-squared 0.307106 mean dependent var -3.06e-17 adjusted r-squared 0.294733 s.d. dependent var 4.357031 s.e. of regression 3.659042 akaike info criterion 5.466154 sum squared resid 749.7610 schwarz criterion 5.537204 log likelihood -156.5185 hannan-quinn criter. 5.493829 f-statistic 24.82048 durbin-watson stat 2.012591 prob(f-statistic) 0.000006 null hypothesis: g_inflasi has a unit root exogenous: constant lag length: 0 (automatic based on sic, maxlag=10) t-statistic prob.* augmented dickey-fuller test statistic -6.965870 0.0000 test critical values: 1% level -3.548208 5% level -2.912631 10% level -2.594027 *mackinnon (1996) one-sided p-values. augmented dickey-fuller test equation dependent variable: d(g_inflasi) method: least squares date: 02/16/20 time: 19:25 sample (adjusted): 2 59 included observations: 58 after adjustments variable coefficient std. error t-statistic prob. g_inflasi(-1) -0.907481 0.130275 -6.965870 0.0000 c -0.834967 1.308484 -0.638118 0.5260 r-squared 0.464234 mean dependent var 0.217241 adjusted r-squared 0.454667 s.d. dependent var 13.40413 s.e. of regression 9.898498 akaike info criterion 7.456517 sum squared resid 5486.895 schwarz criterion 7.527567 log likelihood -214.2390 hannan-quinn criter. 7.484193 f-statistic 48.52334 durbin-watson stat 1.990382 prob(f-statistic) 0.000000 appendix statisionary test normality test 0 2 4 6 8 10 12 14 -25 -20 -15 -10 -5 0 5 10 15 series: residuals sample 1 59 observations 59 mean 7.00e-16 median -0.857662 maximum 17.45295 minimum -22.80573 std. dev. 7.701291 skewness -0.003741 kurtosis 3.480831 jarque-bera 0.568500 probability 0.752578 multikoliniearity test variance inflation factors date: 02/16/20 time: 19:16 sample: 1 59 included obs ervations : 59 coefficient uncentered centered variable variance vif vif g_car 0.094205 1.088256 1.065758 g_roa 0.000380 1.075098 1.039752 g_bi7_day 0.074049 1.054575 1.024440 g_inflasi 0.011810 1.087926 1.071907 c 1.227165 1.136564 na heterokedastisity test heteroskedasticity test: breusch-pagan-godfrey null hypothesis: homoskedasticity f-statistic 0.245036 prob. f(4,54) 0.9114 obs*r-squared 1.051806 prob. chi-square(4) 0.9018 scaled explained ss 1.092915 prob. chi-square(4) 0.8954 test equation: dependent variable: resid^2 method: least squares date: 02/16/20 time: 19:18 sample: 1 59 included observations: 59 variable coefficient std. error t-statistic prob. c 53.80009 13.20370 4.074624 0.0002 g_car 2.266985 3.658306 0.619682 0.5381 g_roa 0.149283 0.232366 0.642450 0.5233 g_bi7_day -1.492958 3.243426 -0.460303 0.6471 g_inflasi -0.717082 1.295286 -0.553609 0.5821 r-squared 0.017827 mean dependent var 58.30463 adjusted r-squared -0.054926 s.d. dependent var 92.62188 s.e. of regression 95.13157 akaike info criterion 12.02934 sum squared resid 488700.9 schwarz criterion 12.20540 log likelihood -349.8654 hannan-quinn criter. 12.09806 f-statistic 0.245036 durbin-watson stat 1.663144 prob(f-statistic) 0.911436 128 international journal of islamic business and economics (ijibec), 4(2) december 2020, 127-137 autokorelation test breusch-godfrey serial correlation lm test: null hypothesis: no serial correlation at up to 3 lags f-statistic 4.170882 prob. f(3,53) 0.0100 obs*r-squared 11.26876 prob. chi-square(3) 0.0104 test equation: dependent variable: resid method: least squares date: 02/14/20 time: 11:13 sample: 1 59 included observations: 59 presample missing value lagged residuals set to zero. variable coefficient std. error t-statistic prob. car -0.027212 0.280666 -0.096955 0.9231 roa 0.012798 0.018468 0.692971 0.4914 c -0.098757 0.987729 -0.099984 0.9207 resid(-1) -0.491521 0.139446 -3.524814 0.0009 resid(-2) -0.188950 0.151656 -1.245911 0.2183 resid(-3) -0.053591 0.138324 -0.387431 0.7000 r-squared 0.190996 mean dependent var -3.31e-16 adjusted r-squared 0.114675 s.d. dependent var 7.816682 s.e. of regression 7.354850 akaike info criterion 6.924741 sum squared resid 2866.973 schwarz criterion 7.136016 log likelihood -198.2799 hannan-quinn criter. 7.007215 f-statistic 2.502529 durbin-watson stat 1.994396 prob(f-statistic) 0.041627 regesion ols result dependent variable: g_npf method: least squares date: 02/16/20 time: 19:15 sample: 1 59 included observations: 59 variable coefficient std. error t-statistic prob. g_car -0.881640 0.306928 -2.872470 0.0058 g_roa -0.095536 0.019495 -4.900507 0.0000 g_bi7_day -0.131332 0.272120 -0.482624 0.6313 g_inflasi 0.125897 0.108673 1.158492 0.2518 c 1.779146 1.107775 1.606054 0.1141 r-squared 0.363812 mean dependent var 0.308814 adjusted r-squared 0.316687 s.d. dependent var 9.655408 s.e. of regression 7.981429 akaike info criterion 7.073050 sum squared resid 3439.973 schwarz criterion 7.249113 log likelihood -203.6550 hannan-quinn criter. 7.141778 f-statistic 7.720129 durbin-watson stat 2.687802 prob(f-statistic) 0.000054 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / 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n e 2 0 1 7 , 4 3 5 246 1. introduction customer satisfaction is a feeling or an outburst of excitement of somebody after the product he/ she bought fulfilled the desired expectation. customer satisfaction is costumer evaluation of a product or service of whether that product or service has met their needs and expectation (bitner, m. j. and zeithaml, v. a., 2003). to determine customer satisfaction, there are five (5) factors that should be noticed by the company, including product quality, in which customer will be satisfied if the results show that the products they use have a certain quality (lupiyoadi, rambat, 2001); the price, in which the products have the same quality but determining the price to be relatively cheap will offer a higher value to the customers. the cost, in which the customers do not have to spend an additional cost or waste the time to get a product or service, they tend to be satisfied with the product or service (lupiyoadi, rambat, 2001). in choosing the market, the industry of batik martha and batik tamina pick those two markets, however now the industry of batik tamina is focusing on direct customer marketing which has more purchasing power, the customer satisfaction provides many benefits to the company, and the higher level of customer satisfaction. in long term, it will be more beneficial to preserve a good customer rather than continuously withdraw and develop new customers in order to replace outgoing customers. satisfied customers will spread a positive story by word of mouth communication and it will be a walking advertisement and for a company, that will decrease the benefit of customer satisfaction (lovelock, christopher h. and wright, lauren k., 2005). hence, to achieve a good customer satisfaction, we need to know what we should offer to the customers so the products are demanded by customers. one of variables that is often found related to product quality, price, and brand is customer satisfaction. therefore, this study uses a satisfaction as dependent variable. in this case, it is explained that customer satisfaction is one of variables that becomes a reason of the existence of other variables (independent variable). those independent variables include price, quality product, and brand. according to the result of the study, the researcher wants to test how far the role of product quality, price, and brand play in affecting the customer satisfaction. research problem according to the background of the study above, we can formulate the problems as follows: (1) does the price have a relation to customer satisfaction? (2) does the product quality of batik have a relation to customer satisfaction? (3) does the brand’s image have a relation to customer satisfaction? (4) do the price, product quality, and brand collectively have a relation to customer satisfaction? in the research activity, it is usually based on the science that already exists. in general, the researcher will start the study by digging up from what the researcher has been studying from the previous researcher. the utilization of what has been revealed and found by the researcher can be done by studying, scrutinizing, exploring, and digging back, also identifying things whether it exists or it does not. to recognize the things exist or not, we can find out from the study reports such as journal or scientific works. in this study, the researcher will observe about the relation of price, product quality, and brand’s image of batik toward customer satisfaction. the study conducted by maddalena sihombing, retno budi lestari, edin s. djatikusuma entitled “analisis pengaruh citra toko terhadap kepuasan konsumen carrefour palembang square mall”. the result of the study showed the variables of the store’s image were product, price, the store layout, and customer service simultaneously had a positive and significant effect toward customersatisfaction of carrefour palembang square mall. i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 2 47 the study conducted by putri setyarini entitled “analisis pengaruh kualitas produk, harga, and merekdeterjen “attack easy” terhadap kepuasan konsumen in andina mart gonilan, kartasura sukoharjo”. the method in collecting data included questionnaire and interview. from the studies above show that three variables include product quality, price, and brand simultaneously have a significant effect toward customersatisfaction. the study conducted by joko putro nugroho entitled “analisis pengaruh kualitas produkand citra merek terhadap kepuasan konsumen dalam meningkatkan word of mouth pada produk autan”. the result of the study shows product quality and brand’s image affect customer satisfaction. variables include product quality, brand’s image, and customer satisfaction have a positive and significant effect toward word of mouth. 2. methods this study uses quantitative research. quantitative research does not focus too much on the depth of the data, but it is important to record data as much as possible from a wide population (kuncoro, 2011). the data obtained from random distribution questionnaires for almost two months, then processed and analyzed using multiple regression analysis technique. this analysis includes: classical assumption test, multiple regression analysis, t-test, f-test. this study demonstrates the relation of price, product quality, and brand’s image toward customer satisfaction. theoretical framework customersatisfaction is feelings of pleasure or disappointment of someone that appear after comparing performance (result) of a product that is considered toward the expected performance (kotler, philipand kevin lane keller, 2007). the customer satisfaction is the perception level of someone after using a product then comparing the product performance that the customer experiences to his/her expectation. satisfaction or dissatisfaction of the customer is a response toward an evaluation of incompatibility or disconfirmation that is perceived between the previous expectation and the actual product performance that is perceived after the usage (tse. o.k and p.e. wilton. 1988). many factors are affecting customer perception and expectation when making a purchase of a good or service, such as the needs and desires felt by the customer when making a purchase of a good or service, the past experience when consuming or using the goods and services and the experience of friends who have consumed the goods or services. gaspers (in nasution, 2005) said that customer satisfaction is really depending on customer perception and expectation. satisfaction is post-consumption evaluation to choose several alternatives in order to meet expectations (engel, james, f, roger d. blackwell, and paul w. miniard, 1994). customer satisfaction can be achieved if the product quality fulfill and exceed the expectations. otherwise, if the quality does not fulfill and exceed customer expectation, desire, and needs, then satisfaction will not be achieved. the customer who are dissatisfied with the goods or services they consumed will look for other company which are able to provide their needs. the relation of price and customer satisfaction price helps the customers decide how to get the highest expected benefits or utilities based on their purchasing power. so, the price can help the customers decide how to allocate their purchasing power to different types of goods and services. the customers compare the prices of the various alternatives available, then decide the desired budget. i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 248 the relation of product quality and customer satisfaction product quality is a factor that influences customer satisfaction (lupiyoadi, r. 2001). the product that is proved qualified will cause customer satisfaction. the product can be said qualified when it has performed its function properly and if the customer expectations of the product have been fulfilled. the existence of these expectations is formed through the image of the product. product image is a set of associations perceived by customers of a product. the relation of brand’s image and customer satisfaction customer satisfaction is a phenomenon after purchasing (giese & cote, 2000). it means that customer satisfaction happens after purchasing, where after doing a purchase, the customer will evaluate the product, whether it is as they expect or not. brand is an identity that is easiest to remember by the customers, the better the product performance is, the better brand image will be. 4. classical assumption test result a. normality test one of the easiest way to see residual normality is by looking at histogram graphic that compares observation data and the distribution that close to normal distribution, as shown in picture 1. picture 1. histogram graphic of questionnaire data by looking at the histogram graphic preview, it can be inferred that histogram graphic gives a distribution pattern that close to normal, not tilted to the left or right. however, just looking at the histogram is considered to give less maximum results so it is necessary to see the normal probability plot, where in the normal graphic the plot looks the spots spread around the diagonal line and its distribution follows the diagonal direction, as shown in the following picture: i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 2 49 picture 2. normal p-plot graphic of questionnaire data based on the normal graphics plot, it shows that the regression model is worthy of use in this study because the data spreads around the diagonal line and follows the diagonal line direction, so the regression model fulfils normality assumption. beside using histogram graphic and normal plot graphic, the statistical test that can be performed in the normality test is kolmogorov-smirnov test. multivariate tests of normality of data performed on residual values. normally distributed data is indicated by a significance value above 0.05. the normality test result on a test of statistical data is shown in the following table 1: table 1. one-sample kolmogorov-smirnov test unstandardized residual n 100 normal parametersa,b mean .0000000 std. deviation 1,40890443 most extreme differences absolute .127 positive .065 negative -.127 kolmogorov-smirnov z .554 asymp. sig. (2-tailed) .919 a. test distribution is normal b. calculated fromdata according to the result in the table 4.4 above, the data is distributed normally. it is indicated by the value of kolmogorov smirnov of 0.554 and significant at 0.919 which is higher than 0.05. it means that the residual data is normally distributed, since the significance value is more than 0.05. i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 250 b. multicollinearity test multicollinearity test can be seen from the value of variance inflation factor (vif). a regression model is said to be free of multicollinearity if it has a tolerance value higher than 0.1 and a vif value less than 10. full multicollinearity analysis results can be seen in table 2. below: table 2. coefficient (a) model collinearity statistics tolerance viff 1 (constant) harga ,648 1,542 kualitas produk ,588 1,700 citra merek ,746 1,341 a. dependant variable: customer satisfaction based on the result of the study obtained the tolerance value and vif value, for tolerance value, the variable of price equal to 0.648, the product quality equal to 0.588, and brand image 0.746, and for vif value 1.542, the product quality equal to 1.700, and brand image equal to 1.341, tolerance value >0.1 and vif <10 which means that the regression model has no symptoms of multicollinearity. c. heteroscedasticity test the heteroscedasticity test aims to test whether in the regression model there is a variance inequality of one observation to another observation’s residual. if the variance of one observation to another observation’s residual remains, then it is called homoscedasticity and if it is different thenit’s called heteroscedasticity. a good regression model is homoscedasticity or does not occurheteroscedasticity. picture 3. i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 2 51 spss output display results can be seen that the dots do not form a clear pattern, and the dots spread above and below the number 0 on the y axis. so it can be concluded that there is no heteroscedasticity on the regression model. d. autocorrelation test autocorrelation test aims whether the linear regression model has a correlation among disturber error in period t-1 (previously). a good regression model is a regression independent of autocorrelation. table 3. autocorrelation test result – customer satisfaction model summaryb model r r square adjusted r square std. error of the estimate durbinwatson 1 ,655(a) ,429 ,405 1,43796 1,853 a. predictors (constant): price, product quality, brand image b. dependent variable: customer satisfaction with the dw table value at the significance level 5%, the number of samples 100 (n) and the number of independent variables 3 (k = 3), then in durbin-watson table will get the upper limit value (du) 1.736 and lower limit (dl) 1.613. because the dw value of 1.853 is higher than the upper limit (du) 1.736 and less than 4-1.736 = 2.264 (4-du). since the dw value lies between du and 4-du (1.736 <1.853 <2.264), it can be concluded that there is no autocorrelation in this regression model. multiple linear regression analysis the amount of changes in the dependent factor (y) due to changes in the independent factor (x) is partially explained through the regression equation obtained. by using spss program version 21.0 the results obtained as listed in table coefficients (a). table 4. coefficients(a) model unstandardized coefficients standardized coefficients b std. error beta 1 (constant) 8,746 1,655 harga -,152 ,090 ,187 kualitas produk ,132 ,088 ,174 citra merek ,434 ,103 ,435 a dependent variable: customer satisfaction regarding to the analysis result that has been performed, the regression equation formed is as follows: y= 8.746 0,152x 1 + 0,132x 2 +0,434x 3 i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 252 a) t-test (partial) based on spss output it is seen two of free variables which are working capital and labor to income shown in the following table: table 5. coefficients(a) model unstandardized coefficients standardized coefficients t sig. b std. error beta b std. error 1 (constant) 8,746 1,655 5,283 ,000 harga -,152 ,090 ,187 1,689 ,046 kualitas produk ,132 ,088 ,174 1,500 ,138 citra merek ,434 ,103 ,435 4,214 ,000 a dependent variable: customer satisfaction from the partially regression analysis result above we can conclude that: 1. t value – price (x 1 ) of 1.689 with significance level of 0.046 due to significance level is lower than probability value 0.05 (0.046 < 0.05) so it can be concluded that price has a positive influence toward customer satisfaction. 2. t value – product quality (x 2 ) of 1.50 with significance level of 0.0138 due to significance level is higher than probability value 0.05 (0.138 > 0.05) so it can be concluded that product quality has no influence toward customer satisfaction. 3. t value – brand’s image (x 3 ) of 4.218 with significance level of 0.00 due to significance level is lower than probability value 0.05 (0.00 < 0.05) so it can be concluded that brand’s image has a positive influence toward customer satisfaction. b) f-test (simultaneous) table 6. the result of f-test or simultaneous of customer satisfaction anova(b) model sum of squares df mean square f sig. 1 regression 111,900 3 37,300 18,039 ,000(a)residual 148,876 72 2,068 total 260,776 75 a. predictors (constant): price, product quality, brand’s image b. dependent variable: customer satisfaction from the output result in the table 4.9 that f value of 18.039 with significance level of 0.000, due to significance level 0.000 < α = 0,05 so there are simultaneous influences of price (x 1 ), product quality (x 2 ), and brand’s image (x 3 ) toward customer satisfaction (y) in the industry of batik tamina. c) coefficient determination test by knowing the value of coefficient determination it can be explained the goodness of regression model in predicting the dependent variables. the higher the value of coefficient i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 2 53 determination will make the better capability of independent variables in describing the behaviour of dependent variables. coefficient determination test result can be seen from the value of adjusted r square in multiple regression analysis. table 6. coefficient determination test model summary(b) model r r square adjusted r square std. error of the estimate 1 ,655(a) ,429 ,405 1,43796 a. predictors (constant): price, quality product, brand’s image based on table 4.10, coefficient determination has adjusted r square of 0.405. it means that 40.5% of customer decision (y) that can be explained by the independent variables are the variable of price, product quality, and brand’s image. while the rest (100% 40.5% = 59.5%) are explained by other variables outside the models that are not explained in this study. 4. conclusion the result of significance of individual parameters test (t-test), the influences of each of independent variables toward dependent variables and test of overall coefficient regression (f-test) can be illustrated as follows: 1. the influence of price (x 1 ) toward customer satisfaction. t value – price (x 1 ) of 1.689 with significance level of 0.046 due to significance level is 0,046 < α = 0,05 so it can be concluded that price (x 1 )partially has an influence toward customer satisfaction (y) of batik tamina in pekalongan city. price has a positive influence toward customer satisfaction, where the higher batik’s price increase so it can increase the customer satisfaction as well. 2. the influence of product quality (x 2 ) toward customer decision. t value – product quality (x 2 ) of 1.50 with significance level of 0.0138 due to significance level is 0,138 > α = 0,05 so it can be concluded that partially product quality (x 2 ) has no influence toward customer satisfaction (y) of batik tamina in pekalongan city. product quality has no positive influence toward customer satisfaction, where the higher product quality of batik probably cannot satisfy its customer satisfaction. 3. the influence of brand’s image (x 3 ) toward customer decision. t value – brand’s image (x 3 ) of 4.218 with significance level of 0.021due to significance level is 0.00 <α = 0.05 so it can be concluded that brand’s image (x 3 ) partially has a positive influence toward customer satisfaction (y) of batik tamina in pekalongan city. it means that if the brand’s image is good, it will increase its customer satisfaction. this is because brand’s image is easier to know compared to any other physical form. 4. the influence of price, product quality, and brand’s image toward customer satisfaction. based on the result of simultaneous significance test (f-test) that f value of 18.039 with significance level of 0.000 due to significance level is 0.000 < α = 0.05, this result shows that the independent variables; price, product quality, and brand’s image simultaneously has a significant influence toward customer satisfaction of batik tamina in pekalongan city. based on regression analysis obtained the value of adjusted r square of 0.405 which means that the contribution of product quality and brand’s image that simultaneously has an influence toward customer decision is 40.5% and the rest is 59.5% that can be explained by other variables that are not mentioned in this study. i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 4 3 5 254 suggestion based on the conclusion of the study above, then the following suggestions are proposed for the industry of batik tamina. 1. it is better to be able to maximize the use of quality materials to ensure product quality is maintained so that the company’s goal to maximize the profit can be achieved. 2. product efficiency must be performed due to the very elasticity price in the market. 3. must be able to manage the company well so that the brand’s image that has already known is maintained. 4. with a price that matches the better product quality and brand’s image that are known by the customers so a business will run smoothly and will generate high profits. references abdullah, thamrin and francis tantri. 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(2003). service marketing. new york: mcgraw hill inc, int’l edition. 17 ijibec build loyalty with islamic relationship marketing and trust through satisfaction tamamudin1, saddam husein2, anas hidayat3 1faculty of islamic business and economics, iain pekalongan tamamudin@iainpekalongan.ac.id 2international lslamic university malaysia (iium) shusein729@gmail.com 3faculty of business and economics, (uii) hidayatanas@gmail.com abstract this study examines and explains how loyalty is built with islamic relationship marketing and trust through customer satisfaction. the success of a company in getting satisfied customers will have an impact on customer loyalty. although relationship marketing research is a popular topic, research on relationship marketing from an islamic perspective is very limited. relationship marketing from an islamic perspective is interesting because it is very relevant to be practiced in today's business development. the quantitative approach used in this study, the data collection method through questionnaires with nonprobability sampling techniques, the number of respondents was 76, the data analysis technique used in this study was path analysis. the results showed that there was a relationship between islamic relationship marketing and trust which had a direct effect on customer satisfaction. islamic relationship marketing and trust directly affect loyalty, and consumer satisfaction has a direct effect on loyalty. consumer satisfaction can play a role as a mediating variable between islamic relationship marketing and trust on loyalty. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 1 2022 keywords: islamic relationship marketing (irm); trust; satisfaction; customer loyalty doi: 10.28918/ijibec.v6i1.3938 jel: m10, m20, m31 article info article history: received : 24 january 2021 accepted : 13 april 2022 published : 1 june 2022 mailto:tamamudin@iainpekalongan.ac.id mailto:shusein729@gmail.com mailto:hidayatanas@gmail.com 18 international journal of islamic business and economics (ijibec), 6(1) june 2022, 17-25 1. introduction customer satisfaction is a measure of marketing performance that is considered to be in the product and becomes an expectation, realizing the importance of satisfaction results in high loyalty, therefore companies are required to maintain customer bias, one of the keys to maintaining customers with relationship marketing. relationship marketing is receiving great attention in western studies. although relationship marketing research is a popular topic, research on relationship marketing from an islamic perspective is very limited. relationship marketing from an islamic perspective is interesting because it is very relevant to be practiced in today's business development. in relationships with consumers that are fostered not only short-term relationships, but also long-term relationships. to achieve this, the company is not only oriented towards sales transactions, but also maintains good relationships with consumers. islamic relations are practiced through vertical and horizontal interactions. through the concept of tawhid, the vertical interaction between humans and creators is emphasized (arham, 2010). meanwhile, horizontal interaction highlights interactions between humans and other creations (yusuf, 2015). islamic relationship marketing (irm) emphasizes islamic values such as oneness (tawhid) which can be reflected in an honest attitude and feeling that allah swt has always been supervised in conducting business activities. in a business context, islamic marketing is a strategic business discipline that directs the process of creating, offering, and exchanging value from one initiator to stakeholders where the entire process must be in accordance with the principles of business in islam (sula & kartajaya, 2006). islamic relationship marketing (irm) as measured by islamic ethical behavior, social ties, structural ties, and financial or financial ties has been shown to significantly affect future customer retention or loyalty (salleh, 2016). every business entity, including the batik industry, really needs a relationship marketing process; this is all done to find the lifetime value of the customer so that it can be enlarged from year to year, with the aim of getting new customers at a relatively lower cost. in the context of relationships with business partners, trust plays a very important role (morgan, r. m., & hunt, 1994). trust plays an important role in every organizational relationship. trust allows partners to be manage risk and be selfless in transactions. there is an element of trust in every transaction, although it varies between trading partners. previous studies have found that trust can guides behavior in some business settings (doney & cannon, 1997; morgan, r. m., & hunt, 1994), and when trust is present, the risk of selfinterest and market volatility is reduced. in addition, (smith & barclay, 1997) found that trust significantly influences the attitudes and behavior of suppliers towards buyers in recent years the interest in understanding trust in organizations has increased, this is driven by evidence that trust has a number of benefits for organizations (kramer, 1999). in some literature it is stated that trust promotes healthy teamwork and teamwork, improves communication and satisfaction, creates a more positive attitude (mayer, r. c., davis, j. h., & schoorman, 1995) customer satisfaction provides many benefits for the company, and a greater level of customer satisfaction. in the long run, it is more profitable to retain good customers than to continually attract and nurture new customers to replace departing customers. satisfied consumers will spread positive word of mouth and will indirectly become ambassadors for walking and talking advertising for a company, which will lower costs of attracting new customers as seen in the figure below regarding the benefits of customer satisfaction. thus, to achieve good customer satisfaction, it is necessary to build a relationship outside the existing product context, by building relational relationships and international journal of islamic business and economics (ijibec), 6(1) june 2022, 17-25 19 developing a good brand image so that consumers are more satisfied (tse & wilton, 1988). one of the factors that can shape customer loyalty is satisfaction. according to (schnaars, 1991) basically the purpose of a business is to create satisfied customers. customer satisfaction has a positive impact on loyalty. the creation of customer satisfaction can provide several benefits, including the relationship between the company and its customers being harmonious, providing a good basis for repurchasing, creating loyalty, and forming word-of-mouth recommendations that are beneficial for the company (magdalena, 2014). 2. research method this study uses a quantitative approach. the formulation of hypotheses in this study is based on constructs that are built from predetermined literature. five hypotheses were compiled in testing. using spss 25 the analysis technique used is path path analysis, with a linear model that allows for a mediation relationship, mediation testing is carried out after testing the hypothesis. in testing the hypothesis, data was collected through a direct questionnaire to the research object, namely the buyer of batik in the wholesale market of setono, pekalongan. sampling in this study is categorized in nonprobability sampling with purposive sampling technique. the sampling criteria in this study are respondents who have bought more than once within 6 months april to september 2020 and are over seventeen years old, are muslim. a total of 76 questionnaires were distributed. 3. results and discussion validity and reliability of the research instrument the validity test was carried out with the help of the spss 23 program with a significance level of 5% or 0.05. if r count> r table, then it is said to be valid and vice versa. in this research, it can be done with a significance test that compares the calculated r value with the r table value for degree of freedom (df) = n 2. in this case n is the number of samples. the number of samples in this study was 76. the magnitude of df = 76-2 or df = 74 with 5% alpha (0.05) obtained r table = 0.2257. the results of the analysis can be seen in the table as follows: table 1.instrument validities islamic relationship marketing instrument r score r table description x1.1 0,677 0,2257 valid x1.2 0,650 0,2257 valid x1.3 0,633 0,2257 valid x1.4 0,611 0,2257 valid trust instrument r score r table description x2.1 0,604 0,2257 valid x2.2 0,604 0,2257 valid x2.3 0,673 0,2257 valid x2.4 0,598 0,2257 valid x2.5 0,606 0,2257 valid 20 international journal of islamic business and economics (ijibec), 6(1) june 2022, 17-25 x2.6 0,678 0,2257 valid customer satisfaction instrument r score r table description y1.1 0,837 0,2257 valid y1.2 0,781 0,2257 valid y1.3 0,862 0,2257 valid y1.4 0,735 0,2257 valid y1.5 0,893 0,2257 valid y1.6 0,785 0,2257 valid loyality instrument r score r table description y2.1 0,802 0,2257 valid y2.2 0,769 0,2257 valid y2.3 0,741 0,2257 valid y2.4 0,661 0,2257 valid y2.5 0,738 0,2257 valid y2.6 0,728 0,2257 valid y2.7 0,695 0,2257 valid y2.8 0,814 0,2257 valid source: authors (2021), processed data spss 23 from table 1, the instrument validity test shows that the calculated r value of each question item is greater than the r table, this indicates that each question item in each variable is declared valid. table 2. instrument reliability test results source: author (2021), processed data spss 23 the instrument reliability test shows the extent to which the measurement results remain consistent, if two or more measurements are made of the same symptoms using the same instrument. the criterion of an instrument is said to be reliable if it produces a cronbach's alpha value> 0.70. the results of the instrument reliability calculation show that the cronbach alpha value for the islamic relationship marketing variable is 0.782. for trust variable 0.765, customer satisfaction variable 0.769 and loyalty 0.805 all cronbach alpha values are higher than 0.7 so that they can be analyzed as a reliable research instrument. path analysis is an extension of multiple linear regression analysis. there are two path analysis used in this research, the first path analysis is to test islamic relationship marketing and trust has an effect on satisfaction. while the second path analysis in this study is to test islamic relationship marketing has an effect on loyalty, trust has an effect on loyalty and variable cronbach’s alpha description islamic relationship marketing (x1) 0,782 reliabel trust (x2) 0,765 reliabel customer satisfaction (x3) 0,769 reliabel customer loyality (y) 0,805 reliabel international journal of islamic business and economics (ijibec), 6(1) june 2022, 17-25 21 satisfaction has an effect on loyalty. the results of the first path test are the correlation of islamic relationship marketing variables and trust with customer satisfaction, in the first line analysis also produces a beta value of 0.439 islamic relationship marketing variables with a significance level of 0.000 <0.05, this shows that islamic relationship marketing has a positive effect on customer satisfaction . likewise, the trust variable produces a beta value of 0.427 with a significance level of 0.00 <0.05. r square is the percentage variation in the dependent variable explained by the independent variable. if the value of r square is 1, then the independent variable is used fully in predicting the dependent variable. in testing the first hypothesis, an r square is obtained of 0.39.2. from this value it can be interpreted that the islamic relationship marketing and trust variables explain 39.2% of customer satisfaction and other variables besides islamic relationship marketing and trust explain 60.8%. the results of the second pathway test calculate the correlation between islamic relationship marketing variables, trust and customer satisfaction with loyalty. in the second path analysis produces a beta value of 0.198 for the islamic relationship marketing variable with a significance level of 0.034 <0.05, this indicates that islamic relationship marketing has a positive effect on consumer loyalty. likewise, the trust variable produces a beta value of 0.178 with a significance level of 0.000 <0.05. then the consumer satisfaction variable produces beta 0.415 with a significance level of 0.000 <0.05. the results of the path analysis show that all pathways have a significant effect on the dependent variable. the r square for the second line produces a value of 0.502. from this value it can be interpreted that the islamic relationship marketing, brand image and customer satisfaction variables explain 50.2% of consumer loyalty and other variables besides islamic relationship marketing, trust and satisfaction explain 49.8%. model 1 mediation test testing the mediation hypothesis is carried out using a procedure developed by (sobel, 1982). the sobel test is a test tool used to determine the significance of the indirect relationship of the exogenous variables of islamic relationship marketing and trust to the endogenous variables of consumer loyalty through customer satisfaction as an intervening variable. this research examines whether there is a mediating effect of islamic relationship marketing and trust in research, testing mediation estimates two regression equations. irm trust customer satifaction costumer loyality β3 = 0,198 β1= 0,439 β5= 0,415 β2=0,427 β4=0,178 e1= 0,631 e2= 0,541 22 international journal of islamic business and economics (ijibec), 6(1) june 2022, 17-25 the first is to examine the effect of islamic relationship marketing on loyalty through consumer decision. the value of the influence of the islamic relationship marketing variable on consumer loyalty through customer satisfaction is obtained from the multiplication of the value of β1 and β5, namely 0.439 x 0.415 = 0.182. this shows that the value of the indirect effect of the islamic relationship marketing variable on customer loyalty through customer satisfaction is 0.182. with the t value of 4.227> 0.1665, this shows that customer satisfaction mediates the effect of islamic relationship marketing on consumer loyalty. the value of the influence of the trust variable on consumer loyalty through customer satisfaction is obtained from the multiplication of the value of β2 and β5, namely 0.427 x 0.415 = 0.177. this shows that the value of the indirect effect of the trust variable on loyalty through customer satisfaction is 0.177. with the t value of 4,140> 0.1665, this shows that customer satisfaction mediates trust in consumer loyalty. discussion this study tries to propose and test the effect of islamic relationship marketing, trust and customer satisfaction on consumer loyalty. in addition, this study also investigates the influence of the mediating relationship between islamic relationship marketing and trust on consumer loyalty mediated by the variable customer satisfaction. the result show that the higher the level of customer satisfaction, the higher customer loyalty (kotler and amstrong, 2006). the results of the first path research show that islamic relationship marketing has an effect on customer satisfaction, islamic relationship marketing itself is shown by islamic ethical behavior, social ties, structural ties, and financial or financial ties. all advantages or benefits in a relationship are obtained through islamic relationship marketing which is applied in the batik industry in central java. the results of this study further strengthen and clarify that islamic relationship marketing contributes to customer satisfaction. the influence of the variable customer trust on customer satisfaction shows a positive influence or has a unidirectional relationship, which means that if customer trust increases, it will increase customer satisfaction. customer trust is closely related to customer satisfaction with a product, service and service. customer trust arises because of the satisfaction obtained by customers from the results of the perceived performance of products, services and services. the results of this study support the findings in research conducted by bricci et al., (2016) which show that customer trust has a direct positive effect on customer satisfaction in the distribution sector in portugal. the results of this study are also in line with the results of gul (2014) research which proves that the trust variable has a significant effect on satisfaction. the second line test results show that customer satisfaction also affects customer loyalty where people are satisfied with the trust instilled and maintaining good relations with the company resulting in customer loyalty to a company. the results of the study the direct influence of the islamic relationship marketing variable on customer loyalty shows a positive influence. the results of this study further strengthen and clarify that islamic relationship marketing contributes to customer satisfaction to be more loyal to the company. this result in line with the results of previous studies (faraj aldaihani, bin ali, hashim, & basha, 2020; huang, 2015; omar & ali, 2010; salleh, abdullah, & razali, 2012). the test results show that satisfaction has a significant effect on loyalty. theoretically, delivering customer value through satisfaction ultimately makes customers loyal, both in the form of providing recommendations and making repeat purchases. likewise, some research international journal of islamic business and economics (ijibec), 6(1) june 2022, 17-25 23 states that the value of consumer sacrifice indirectly affects consumer satisfaction and the desire to buy back behavior intention (bi) (abdur rehman, osman, aziz, koh, & awais, 2020; cronin, brady, & hult, 2000). the results of this study explain that to increase customer loyalty, companies must build trust and maintain marketing relationships with customers so that customer satisfaction can be achieved and maintain this level of satisfaction in the long term. to increase customer satisfaction, companies must add value that can get them what they expect, by building islamic marketing relationships and maintaining customer trust so they can survive and lead to repeat purchases and make loyal customers (al abdulrazak & gbadamosi, 2017; aldaihani & ali, 2019; decker & mohammed, 2014; hidayat, akhmad, & machmud, 2015). 4. conclusion this study propose and investigates how to build loyalty from intangible assets, islamic relationship marketing and trust. using the resource based view (rbv) as a theory that identifies a company's strategic advantage based on a combination of assets, expertise, 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(2015). ethical implications of sales promotion in ghana : islamic perspective. journal of islamic marketing, 1(3), 220–230. https://doi.org/10.1108/17590831011082400. 71 ijibec experience-based knowledge in islamic perspective yuli indah sari, 1* widiyanto bin mislan cokrohadisumarto, 2 abdul ghafar ismail, 3 olivia fachrunnisa 4 1 faculty of economics, unissula semarang, jl. kaligawe raya km. 4 50112 correspondence email: yuliindahsari@unissula.ac.id and syuli668@gmail.com 2 faculty of economics, unissula semarang, jl. kaligawe raya km. 4 50112 email: familiar@unissula.ac.id and widiyantopunt@hotmail.com 3 faculty of economics and muamalat, usim malaysia, bandar baru nilai 71800 nilai, negeri sembilan malaysia email: agibab62@gmail.com 4 faculty of economics, unissula semarang, jl. kaligawe raya km. 4 50112 email: olivia.fachrunnisa@unissula.ac.id abstract the development of technology has created problems regarding challenges and opportunities in utilizing knowledge obtained by humans from various experiences. experience-based knowledge has been seen as a special advantage for individuals and islam has a unique way to explain this aspect. this paper aimed to develop an experiencebased knowledge model from an islamic perspective. this study used a qualitative approach based on literature reviews sourced from alqur’an, al-hadith, and relevant previous literatures. this study is expected to provide contributions to the development of theories related to experience-based knowledge from an islamic perspective. the results show that knowledge could be learned and obtained by humans from various experience sources, such as personal experiences, other people's experiences, experts’ experiences, and experiences said in al-qur’an and al-hadith. this experience-based knowledge helped individuals improve their abilities and was disseminated to the other individuals for allah’s blessings and achieving the embraced organizational goals and success.. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 5 no 2 2021 keywords: experience-based knowledge;islamic perspective;model; ability doi: 10.28918/ijibec.v5i2.2886 jel: d80, d83 article info article history: received : 21 september 2020 accepted : 26 juli 2021 published : 1 december 2021 mailto:yuliindahsari@unissula.ac.id mailto:syuli668@gmail.com mailto:familiar@unissula.ac.id mailto:widiyantopunt@hotmail.com mailto:agibab62@gmail.com mailto:olivia.fachrunnisa@unissula.ac.id 72 international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 1. introduction in this increasingly sophisticated era with a massive use of technology, there are several issues related to the role of humans in the technological era. when digital change takes place, according to north et al. (2018), opportunities and challenges utilize knowledge coming from the individual experiences to help organizations create their values. experience has been widely discussed as a new approach to the human resource management to achieve the organizational goals (plaskoff, 2017). breakthroughs or innovation ideas are manifestations of knowledge and experience, untapped potential to create value (ronald mascitelli, 2000). in general, experience brings knowledge gained during certain periods. manson (2018) provided an interesting writing about experience. he explained that a desire to pursue a positive experience was a negative experience unless the acceptance of negative experience was a positive experience. this means solving problems and events in the past provide important knowledge to deal with current problems. islam recognizes knowledge as a compulsory inquiry. through the muslims’ life, allah, the creator, tests us in different ways, such as taste of death and do evil (al-quran chapter 21, verse 35) and gives reward those who do evil and goodness (al-quran chapter 53, verse 31). muslims have experienced various events during their lives, been considered as valuable life lessons and possibly used as experience. this experience will make people wiser and have a broader perspective in facing a challenge and making a decision. thus, an experience is fitted to use as a knowledge source. the, source of knowledge in islamic concept is different from that in materialistic atheist and other religious metaphysical concepts which only recognizes things with a physical form and tangible evidence (material) and does not trust or recognize the nonmaterial entities (such as revelation) (azram, 2012). islam can uniquely give a different color in viewing experience. knowledge gained from experience will make people develop better without falling into the same hole for the second time. in addition, the experience will encourage people to make various efforts, gratitude, and patience to increase their faith in god in facing the given tests. 2. methods discussions regarding experience-based knowledge from an islamic perspective are rarely found in the previous literature. in contrast, this experience-based knowledge can create value/competitive advantage for individuals in terms of increasing spiritual aspects, abilities, and behaviors that are difficult to imitate by other individuals. in addition, this is clouded because experience with tested and recognized values has not been discussed before. therefore, this paper fills the gap and offers a more comprehensive model of experience-based knowledge from the islamic view that has not been discussed before. the quality of individual knowledge has been based on the quality and variety of experiences gained. this paper seeks to find sources of knowledge based on experience that has been tested and recognized for its values by allah and is explained clearly through the al-quran and hadith. this study uses a qualitative approach based on a literature review from the alquran, al-hadith, and previous relevant literature to produce a credible islamic knowledgebased experience model. then, the results of this study are expected to contribute to the development of theories related to islamic experience-based knowledge and benefits that are disseminated for the development of individuals, organizations, and society. discussion in this paper is divided into 3 sections. section one discusses the background of this study. section two deals with the results and discussion from what the scholars have discussed on the subject of experience-based knowledge and suggest the proposed model of islamic international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 73 experience-based knowledge. section four contains the conclusions. 3. result and discussion 3.1. experience-based knowledge this section explains the islamic view on knowledge and experience and how experience can produce intangible knowledge useful for individuals. experience-based knowledge belonging to individuals possibly assists organizations in dealing with the increasingly competitive business and technology. therefore, the important role of this aspect in the organization as a competitive advantage/uniqueness that other organizations cannot imitate are explained in this section. aktharsha (2011) described knowledge from the islamic perspective. he further argued that knowledge was possibly combined with experience, context, interpretation, reflection, intuition, and creativity. however, he suggested that knowledge started from information. after processed in an individual’s mind, information possibly became knowledge. allah, as mentioned in chapter 96, verse 1-5, is the creator who teaches human with what they have not known yet. islam explains knowledge related to allah, the purpose of creation, and the relationship between allah and his creation as priority. in islam, the best way to seek knowledge is by making interactions with the nature and other creatures created by allah. in each creation, there are always hidden secrets and humans must try to achieve them with knowledge (al-quran chapter 3 verse 190 and chapter 29, verse 20). however, azram (2012) and salam & shaikh (2014) noted that the concept of islamic knowledge should be notified that the humans’ reasons and senses are limited so that not all knowledge and creation of allah can be well recognized. hence, the concept of absolute knowledge where only allah is all-knowing and the concept of functional knowledge is the evolutionary process of transmitting knowledge and experience gained from the universe appears. both concepts are based on tawhid's law to increase faith in allah. in the western views, azram (2012) argued that knowledge means information about something, divinity and physical matters, while "ilm" (knowledge) means everything which includes theory, action, and education. thus, the knowledge defined by the western perspective has failed describing "ilm" (azram, 2012). one of the scholars studying the theory of knowledge from the western perspective is immanuel kant (salam & shaikh, 2014). he divided the knowledge types into priory and posterior knowledge. the former received its truth without going through the observation and experience processes, while the later received its truth through the observation and experience processes. thus, it can be concluded that there is a relationship between experience-based knowledge and experience-based learning where the knowledge is obtained based on the learning processes from various experiences. experience is an event in certain periods made by humans or in other words, a practical association of humans with the world, nature, or social environment. roth & jornet (2014) further argued that experience is a category of thought, a minimum unit of analysis including intellectual and practical characteristics with social environments and the influencing relationships. they also explained that experience is related to practical, intellectual, and emotional matters. it means that experience not only brings knowledge and practical teaching of the occurred events (related to intellectual) but also with emotional feelings, memories, hopes, and faith. hence, through experience, humans can record every event either in practical, emotional, or intellectual manner and repeated in the future to ease humans make their best decisions. further studies have been conducted by considine et al. (2007) in identifying the three experience criteria consisting of passage of time (a certain period), acquiring skills and 74 international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 knowledge, and exposure to the joined events. experience is often gained in certain periods and used to determine the position of human resources (hr) in certain fields. furthermore, they explained that gaining skills and knowledge can directly explain that experience is a knowledge source. each experience will always be followed by exposure to an event which in the future will help the decision making of an issue. individual knowledge and abilities increase with the quality and variety of experiences gained, known, and passed. the quality of experience referred to here is related to values that have been tested and impact imprinted knowledge (not forgotten). ganguly et al. (2019) explain that valuable and quality knowledge is described as the acquisition of useful, innovative knowledge and is seen from the extent to which this knowledge can complete individual activities. the quality of experience will produce valuable knowledge and will continue to be involved in decision-making. this means that individuals will sort out the knowledge gained from the quality of experience that is suitable for decision-making in solving current challenges. in addition to the quality of experience, the variety of experiences also plays a vital role in increasing individual knowledge. it should be noted that experienced individuals are not judged by how long they have been in certain types of work or conditions but are determined by how many different experiences they have gone through. different types of experience events in the same field will help individuals become experts. however, to gain knowledge from diverse experiences, individuals do not have to experience these experiences first. because under certain conditions, this actually causes time delays for the completion of activities and increases the losses that may occur. thus, individuals can take other alternatives by learning from experiences from external sources, such as the experience of experts and other people. furthermore, the study of mohamed et al. (2019) have explained that knowledge from a western point of view is only obtained through the experience of the five human senses. it is based on the idea that there is no prior knowledge before experience and beyond the five human senses. however, islam has a different view regarding this matter. azram (2012) and salam & shaikh (2014) explain that there is an absolute concept to seek knowledge in islam. this concept explains that the knowledge obtained by humans is only partial because basically human reason and five senses are limited, and humans can study not all knowledge and creations of allah swt because only allah is all-knowing, including the concept of experience-based knowledge in islam. humans are often confused about getting the right source of knowledge from authentic (sahih) experience. therefore, islam has guided in the form of quality and diverse sources of experience with values that have been tested and recognized by allah, namely the al-quran and hadith that tell the experiences and stories of certain prophets so that humans can take lessons. in the end, individuals can not only improve their abilities but also improve their spiritual aspects and improve their behavior through experience-based knowledge sourced from the qur'an and hadith. therefore, it can be concluded that islamic experience-based knowledge referred to in this paper refers to the learning process to add and take knowledge from various experiences of high quality and variety and have tested and recognized values (from the al-quran and hadith). islam has a different approach to explain experience. the world is a place of testing humans. every good and bad event comes as a form of test (al-quran chapter 29, verse 2) to increase the faith of his servants. thus, it can be concluded that allah will always test his servants by giving pleasure and calamity to educate humans learn to always be patient and grateful for everything given by allah. as reported in the history of hadith from al-thabrani international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 75 in al-mu'jam al-kabir from the abu hind al-dari, life on earth is only temporary and a place of competition to win the blessing of allah, the al-mighty. good and bad events will be remembered as experience. humans have intellectuals to interpret experience as learning materials and knowledge due to the occurring good and bad experiences during the humans’ life. knowledge gained from experience will provide people with valuable motivation, lessons, and warnings to move on to their next life. the knowledge gained from experience will strengthen the human mindset to have a broader perspective in dealing with problems in the future. likewise, allah gives good and bad events to his servants in order to make them better human beings. the reward is clearly mentioned in al-hadith from muslim no 918 said by ummu, one of the wives of the prophet muhammad. she heard the prophet said: “anyone from the servants who was struck by a disaster then he said: "inna lillahi wa inna ilaihi rooji’un. allahumma'jurnii fii mushibatii wa akhlif lii khoiron minhaa [we belongs to allah and to him we shall return. o allah, compensate me in my affliction and replace my loss with something better] ", then allah will reward him and replace his loss with a better substitute”. allah will not give a test beyond the ability of his servants. the rewards given to those who are patient and gratitude to allah are heaven. thus, if humans are in troubles, they should get closer and ask allah’s help. experience is an indicator of someone’s credibility in various fields to provide advice to the next generation. experience is a prerequisite and source of wisdom, not only related to the raw intellectual power but also the formation of good maturity, emotions, and mentality. seeking knowledge to obtain the blessings from allah, the al-mighty will bring us closer to the pious people. making friends with those people will always remind someone to allah, including in terms of seeking the truth of knowledge (al-quran chapter 9 verse 119, chapter 18 verse 28, and chapter 26 verse 83). in workplace, experience is needed to support the human resources’ performance and productivity (r. kotur & anbazhagan, 2014). plaskoff (2017) explained that human resources’ experience can be defined as human resources’ holistic perception on the relationship of experience with the employing organizations throughout the life journey of human resources. he explained that the life journey of human resources has various milestones and interactions (or points of contact), and the quality of human resources’ experience has a direct influence on the employees’ satisfaction, engagement, commitment, and ultimately, performance. experience is a source of knowledge and helps the decision making in a related field of work (considine et al., 2007). according to north et al. (2018), experience-based knowledge is good or best practice, lessons that can be taken, tacit knowledge (knowledge that is difficult to document and transfer to others), and explicit knowledge (knowledge with easily transferable and documented). the human resources with good working experiences can be leaders with special talents while performing the works, such as specific abilities and tacit knowledge (r. kotur & anbazhagan, 2014). the individuals with many experiences can help the decision making when facing a challenge, crisis, and other unexpected conditions (north et al., 2018). someone brings the tacit knowledge from unique experience and becomes an added value and competitive advantage which cannot be imitated by others and competitors. however, for some conditions, organizations have not been able to optimally manage the human resources’ tacit knowledge gained from experience which is actually difficult to describe and document. 76 international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 3.2. the essence of learning through experience in islam this section explains the role of humans as knowledge and truth seekers from the knowledge source, allah. the essence of learning processes will be described from an islamic perspective in which knowledge can be obtained from experience through learning processes. this section also describes that learning processes can not only be performed based on an individual’s personal experience but also from others’, experts’, and those said in al-quran and al-hadith. humans are leaders sent by allah to prosper the earth and its contents. to support his duty as caliph, allah has equipped humans with common senses. this provision can be used to study and seek knowledge within the framework of mandates given by allah. in history told by ibn majah in al-hadith no. 224, from a companion, anas bin malik radhiyallahu 'anhu, validated by al albani in shahiih al-jaami'ish shaghiir no. 3913, learning knowledge is compulsory for each muslim. the nature of humans as knowledge users is to learn and seek knowledge and get happiness in the world and hereafter. but when seeking and receiving this knowledge, humans must always remember who is the true owner knowing all the knowledge in the world, is allah, the al-mighty. the gained knowledge can not only develop humans’ emotional and intellectual aspects but also foster to love allah from the spiritual aspects (bakir et al., 2015). kolb et al. (2001) described learning as the process in which knowledge is created through the experience transformation. learning is a process of changing human behaviors as a result of interactions with the environment and also described as a process for retrieving and transferring information and experiences (sakilah, 2009). lewis (1999) further argued that if humans want to get a life lesson, they have to go out and seek experiences (both positive and negative) because experience is the best teacher. this has been stated in al-qur’an and al-hadith on the importance of seeking knowledge. allah said in al-qur'an chapter 39 verse 9: “…say (unto them, o muhammad): are those who know equal with those who know not? but only men of understanding will pay heed” besides, islam will give the highest degree to those who provide seeking knowledge and faith (al-quran chapter 58 verse 11 and chapter 17 verse 36) by learning from experience, humans will get the wisdom to become better human beings. knowledge submitted by humans (based on faith) will prevent humans from actions taken by allah and avoid those harm others. sakilah (2013) described learning process in islam starting from the cognitive (akliyah) stage which clearly has the cognitive functions and important tools used as the learning tools (human senses and intellect). the cognitive functions and tools actively determine the success to acquire knowledge in both short and long terms. she also explained that the results obtained in learning could be seen through changes and mastery of cognitive knowledge, changes in mental and awareness (affective), and changes in motor (psychomotor) actions. furthermore, the experience learning resources are described further in this paper. a) learning from experiences said in al-qur'an and hadith al-qur’an and hadith are the main sources of experience-based knowledge tested and recognized by allah al-mighty, so they become sources of authentic experience for humans. valuable experience that humans can use is by examining and describing various stories said international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 77 in al-qur'an, such as the stories of people denying allah, the prophet’s struggles, and the servants in obtaining allah’s blessings (al-quran chapter 12 verse 111). al-quran always explains allah's greatness signs so that humans can make contemplations. al-quran is the true guidance for humanity. in al-qur'an, various stories are said for humans to take the valuable lessons. lessons and knowledge from al-qur’an are used as a way of life to leave allah’s prohibitions and perform allah’s orders. in the end, the purpose of learning from the experiences narrated in the qur'an is not only to improve individual abilities but to produce wider benefits, especially in aspects of spirituality and behavior (akhlaq). b) learning from your own experiences humans were born with a pure and empty state. thus, allah equips humans with senses and intellectuals to seek the scientific truths (al-quran chapter 16 verse 78). the willingness to learn from personal experiences is essential. in learning process, the events independently experienced and studied will provide different sensations. feelings, memories, knowledge, and time poured on the experienced events will provide deeper learning to individuals. islam teaches people to take the lessons from the events that they have experienced themselves. be more careful and don't fall into the same hole (al-quran chapter 24 verse 17). experience exists to fill the space in humans’ mind and heart with the knowledge to be more careful when facing similar problems in the future. allah has also warned muslims not to return to the devil's seduction and deception which mislead to immoral acts. personal experience provides a lesson not to repeat the same mistakes. the more personal experiences an individual has, he/she will be more mature mentally, emotionally, and in knowledge. an individual will be wiser in dealing with anything because they have already had a broader life perspective. therefore, it is not surprising that age can also determine a person's mental maturity due to given the experiences gained during his/her life. c) learning from others’ experiences in addition to learning from their personal experience, humans can also take the lessons from others’ experiences. allah has created humans as social creatures to interact with others (alquran chapter 49 verse 13). as social beings, humans are advised to kindly help each other and learn from others’ experiences. through others’ experience, humans can take the lessons in anticipating a problem without spending time to experiencing things by themselves. learning from others’ experiences continuously can make the civilizations in the world grow well. thus, personal experiences and others’ experiences can be the best teachers for humans to learn and bring their success. d) learning from the experts' experiences in exploring a particular field, a person often has to go through a long life journey. individuals who are referred to become experts must study for a long time mastering a particular field. a long life journey will form experience to provide instruction for individuals in the same field. thus, if there are difficulties in the field of science, individuals should ask questions and learn from the experts from the related fields to find solutions. 3.3. experience upgrades capability this section discusses definition of capability and impact of experience to increase the individual capability. in islamic perspective, mandate and responsibility must be given to competent individuals, while the related individuals must honestly perform the mandate and responsibility. in an individual context, a capability is described as a combination of resources, the capacity, and ability to perform activity better than competitors (persson & stirna, 2015). 78 international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 pyles & banerjee (2010) explained that a capability approach focuses on what individuals can and able to do. in the organizational context, according to españa et al. (2015), capability is described as the ability and capacity which enables a company to achieve the business objectives in a particular context. pyles & banerjee (2010) have introduced 10 centers of human ability functioning to improve the welfare including (a) life; (b) physically fit; (c) bodily integrity; (d) senses, imagination and mind; (e) emotions; (f) practical reasons; (g) affiliation; (h) other species; (i) playing; and (j) controlling one's environment. humans are free to choose to or not to develop this ability as a function in this approach. it means that the ability belonging to someone will be the determinant to improve his/her life welfare. thus, increasing capability is an absolute aspect to improve. the knowledge gained from experience will help someone improve their abilities. with this experience, the human resources will more easily complete the targets given by the organization. experience can enhance the ability to innovate the human resources (ronald mascitelli, 2000). the number of experiences of an individual helps him complete the tasks and responsibilities faster so that the productivity is higher than that of human resources without experiences. thus, human resources should be allowed to gain greater trust to help the organization achieve its goals. ability in a particular field will help someone maintain the trust given by the organization. amanah (trust) is one of the prophet’s qualities. islam itself explains that certain tasks and authorities should be given to credible people who can well maintain the given mandate. at the same time, the trusted individuals are not allowed to deny the given mandate (al-quran chapter 4 verse 58 and chapter 23 verse 8). from the psychological aspect, experience stimulates growth in mind and behavior characteristics as well as increases the ability of individuals to learn and solve problems (rosenzweig & bennett, 1996). the ability to solve problems and learning process are often associated with the ability of individuals and organizations to adopt wisdom from various experiences. heimeriks & duysters (2007) found that experience is an important factor influencing an individual's learning process in increasing the ability (both mental and productivity) to achieve the maximum performance. through this discussion, it can be concluded that experience-based knowledge can stimulate and increase an individual’s mental abilities, behaviors, and performances (ability in learning processes and solving problems) to become more productive. 3.4. the important of experience-based knowledge sharing knowledge sharing is an important part to discuss in this section. knowledge sharing is when individuals mutually exchange knowledge and create new knowledge (li et al., 2017). in the knowledge sharing concept , two processes take place, including knowledge donating which refers to providing one's intellectual capital to others, and knowledge collecting which refers to consulting with others to get a portion of their intellectual capital (hooff & weenen, 2004; li et al., 2017). the best knowledge is the knowledge which is useful for others, environment, and society. islam always teaches muslims to share knowledge with others. the knowledge teaching virtues include obtaining rewards from allah. the person has done good deeds (amal ma'ruf), especially to improve the social order by advising in the forms of help increase the piety to allah, as well as guiding and educating other people (al-quran chapter 3 verse 110). however, one should share the true knowledge without misleading others. kahfi (2006) explained that some rules should be known when conveying messages and information to others according to islam: (1) qashash/naba al haq (must be reported based on actual events to avoid false news) based on al-quran chapter 11 verse 120; (2) a’mar international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 79 ma’ruf nahyi munkar, (must bring goodness and prevent the people from making any sin); (3) tabayyun (must be confirmed in advance through a clarification process); (4) mauizhah hashanah (must contain good role models imitated and applied to the lives of people who have received the information); (5) hikmah (providing information to convey the firm and true words); (6) layyin (should use gentle, non-violent and abusive language). sudarti & zulfa (2020) found that da'wah is part of knowledge sharing and is one of the characteristics of the islamic vanguard spirit (al-quran chapter 3 verse 104, chapter 90 verse 17-18). they explained that the information shared was one of the efforts to make improvements in an organization. while hiding important information for personal gain is not justified. knowledge sharing is a key factor in building competitive advantage (muñozpascual et al., 2020) and has a significant relationship to improve the quality of hr (human capital) owned by the organization (oliveira et al., 2020). kader jilani et al. (2020) explained that in line with the theory of human capital, they found that knowledge-sharing attitudes and behavior among human resources can strengthen the dynamic capabilities of an organization and help it achieve sustainability. in organization, the development of islamic knowledge management can form superior human resources, such as moral, intellectual, knowledge, and skill responsibilities (bakir et al., 2015). the activity of gathering and sharing knowledge in an organization is performed to educate the human resources as a whole so that the risk of knowledge belonging to only a few people becomes smaller. dysvik et al. (2015) revealed that knowledge sharing might become a competitive advantage for an organization. they also explained that successful exchange of knowledge between the givers and collectors could be a fundamental way of human resources to contribute in disseminating knowledge and increasing the productivity and performance at the teams’ and organizations’ analysis level. li et al. (2017) found that the success of knowledge sharing greatly depended on a commitment to the sharing and receiving. selain itu, sharing experiences that impart knowledge discreetly through daily work activities will help organizations create new knowledge in innovation (ganguly et al., 2019). based on this discussion, it can be concluded that sharing knowledge possibly benefits humans both in the world and the sight of allah. 3.5. discussion this section discusses the challenges of managing experience-based knowledge that generates tacit knowledge and how to overcome the challenges of managing experiencebased knowledge in an organization. matthew & sternberg (2009) said that experience-based knowledge develops over time through the repeated learning processes in the form of perceptions, actions, and feedback. experience-based learning is a cognitive process combined with the tacit knowledge. experience of tacit knowledge that is more complicated to code and express (ganguly et al., 2019). tacit knowledge as suggested by holste & fields (2010) is rooted in individual experiences and values. tacit knowledge naturally refers to intuitive knowledge but it is difficult to define or transfer because most of this knowledge is based on experience. tacit knowledge has been recognized as a result of experiential learning and basis for continuous learning (matthew & sternberg, 2009). new experiences bringing the tacit knowledge cause knowledge to develop continuously if managed properly. in addition, according to ganguly et al. (2019), the existence of tacit knowledge combined with socialization (sharing and receiving) can create new knowledge that increases an organization's innovation opportunities. however, managing this resource is still a challenge 80 international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 for most organizations because every individual has different abilities in learning experience (practical intelligence) and acquiring other important components, such as tacit knowledge (matthew & sternberg, 2009; tamer cavusgil et al., 2003). although the resources above are difficult to transfer from one to the other (difficult to disclose), the effective transfer, sharing and use of knowledge are still essential in an organization. in addition, for some individuals who share tacit knowledge, it can involve various risks, such as loss of competitiveness and superiority when compared to peers and doubts related to the reputation of knowledge sources (holste & fields, 2010). the discussion above has provided an overview of some occurring problems hindered the management of experience-based knowledge resources including: (1) individual inability to absorb knowledge from experiences, (2) tacit knowledge coming from experience is often difficult to transfer or distribute to the other individuals, (3) individual unwillingness to share tacit knowledge gained for fear of losing competitiveness, (4) individual distrust to the knowledge sources. furthermore, the relationship between learning process and experience has been explained by kolb et al. (2001) in "experiential learning theory" emphasizing on the central role that experience plays its role in the learning process. there are four stages in the experiential learning theory including concrete experience (new experience of the situation at hand, or reinterpretation of the existing experiences), reflective observation (of new experiences; in which the most important thing is inconsistency between experience and understanding), abstract conceptualization (reflection brings up new ideas or modifications to the existing abstract concepts), and active experimentation (an individual applying the concept to the world and see the results). in the reflection stage, the ability to implicitly acquire knowledge from experience is recognized to be a very important stage in the process. however, each individual has different abilities to absorb the experience-based knowledge. thus, matthew & sternberg (2009) offered a "tacit knowledge reflection training" approach to selectively increase one's capacity to learn from experience. the experience will bring tacit knowledge naturally to an individual. thus, an obstacle often faced by individuals and organizations in managing this knowledge is the difficulty of sharing this resource because tacit knowledge is difficult to conceptualize (foos et al., 2006). most studies on knowledge transfer process are based on the broader knowledge concepts, while fewer studies are based on certain knowledge types with the targeted knowledge classifications. it means that sorting out the knowledge types is very important to support the organization's successful transfer of certain knowledge. north et al. (2018) outlined several methods used to exchange the human resources’ experience information within an organization, such as through training programs, succession planning, informal talks, mentoring, advanced training courses, formal meetings, moderated exchanging experiences, experts’ directories, written reports, and online platforms. the key to the transfer of tacit knowledge, both formal and informal, is the individuals’ willingness and capacity to share what they have known and use what they have learned (holste & fields, 2010). meanwhile, according to ganguly et al. (2019), the key to tacit knowledge sharing lies in the willingness and capacity of individuals to share what they know (knowledge donation) and use what they know (knowledge gathering). furthermore, they also explained that to close the occuring gaps, such as the individuals’ fear to share the tacit knowledge and doubt related to the knowledge sources, can be done by applying the affect-based trust (trust based on the caring relationships between individuals) and cognition-based trust (trust based on others’ reliability and competence). in addition, sudarti & zulfa (2020) explained international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 81 that in conveying tacit knowledge-based experiences to other human resources, islam teaches humans to (1) be enthusiastic in persuading others to make improvements (alquran chapter 3 paragraph 104), (2) use good language when persuading others (al-quran chapter 90 verse 17-18), and (3) persuading by setting an example first (al-quran chapter 61 verse 2-3). from the discussion above, it can be emphasized that problems in managing experience-based knowledge resources can be handled through (1) training to improve the ability to reflect the experience-based tacit knowledge, (2) sorting out the knowledge types and using different management methods, (3 ) instilling the principles and values of caring for sharing knowledge, (4) giving confidence related to the credibility of knowledge sources. 3.6. proposed model based on the results and previous discussions, this section offers an experience-based knowledge model based on the islamic perspective and previous literature studies, as seen in figure 1. figure 1. islamic experience-based knowledge model basically, human nature as a caliph is to seek allah's knowledge. but at this stage, humans must understand the absolute concept of tawhid, which states that only allah is allknowing. in contrast, humans have limited reason and five senses to absorb and understand all knowledge. then, individuals often obtain knowledge from the quality and variety of sources of experience that are known and obtained, figure 1. has described the main sources of authentic (sahih) experience coming from the experiences of the prophets the principle of sharing knowledge without misleading people human nature to seek allah's knowledge quality and diverse sources: the experiences told in al -qur'an and hadith (experiences of the prophets) personal experiences other people's experiences experts' experiences experience-based knowledge wisdom quality of tacit and explicit knowledge intuitive feelings period upgrade capability experience-based knowledge sharing there are knowledge refreshment and renewal looking for allah’s blessings improving behaviour (muhasabah) educating and developing others helping organizations achieve the goals knowledge sharing principles the principle of trust to receive knowledge receiving and maintainin g trust (amanah) ability to reflect or absorb knowledge gained from experiences 82 international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 recounted in the qur'an and hadith and with a variety of other experiences that come from individual experiences, experiences of others, and expert experiences. the absorption stage of experience-based knowledge produces individual wisdom, quality tacit and explicit knowledge, and intuitive feelings that must be balanced with the individual's ability to absorb the knowledge gained from experience. all individuals have different abilities in taking learning from experience. this impacts the level of knowledge that has been collected, which then affects the abilities and skills of individuals. a collection of experience-based knowledge will improve individual abilities. this ability is often used as a measure to provide trust (amanah) and responsibility for certain work activities. individuals with good abilities will help achieve organizational goals, and islam recommends entrusting certain work activities to individuals with adequate abilities. in addition, islamic recommends da'wah to invite other people to good deeds, especially in sharing their knowledge. a collection of experiences often brings tacit knowledge that is difficult to share at this stage, figure 1. illustrates the various islamic principles that humans must implement to achieve success in sharing experience-based tacit knowledge, including the principles of sharing non-misleading knowledge, the principles of sharing caring-based science, and the principle of accepting trust-based knowledge. in the case of experiencebased tacit knowledge management in an organization, there are various methods that organizations can use, which can be seen in the previous section. the integration of these aspects will allow the development of science that provokes innovations, improvement of individual behavior through the stages of muhasabah learning from experience, educating and developing other individuals, increasing aspects of spirituality, especially to achieve blessings from allah, and in the case of organizations can be a competitive advantage that is difficult for other organizations to imitate. 4. conclusion experience-based knowledge in the islamic perspective has illustrated that humans can gather knowledge through a learning process from the quality and diverse experiences. this paper has found a source of experience-based knowledge that individuals can gain from various experiences that have gone through themselves, the experiences of others, the experiences of experts, and the experiences of the prophets recounted in the qur'an and hadith. al-quran and hadith are references to experience-based knowledge sources that have been tested and acknowledged by allah. this ends with the goal that humans can take lessons that improve aspects of ability, aspects of spirituality, and aspects of behavior (morals). the discussion of the experience-based knowledge model was based on islamic values listed in each supporting aspect and impact of experience-based knowledge. a collection of experience-based knowledge that is continuously shared and updated will support the emergence of innovations in today's science. in the end, the results of this study make an interesting contribution to the development of a more in-depth theory of experience-based knowledge from an islamic perspective. however, further studies are needed on the impact of islamic experience-based knowledge related to the role of humans in the development of industry 5.0 in the future. international journal of islamic business and economics (ijibec), 5(2) december 2021, 71-85 83 references azram, m. 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(2020). knowledge management and religiosity: a conceptual development of islamic vanguard spirit. in advances in intelligent systems and computing (vol. 993). springer international publishing. https://doi.org/10.1007/9783-030-22354-0_88. tamer cavusgil, s., calantone, r. j., & zhao, y. (2003). tacit knowledge transfer and firm innovation capability. journal of business & industrial marketing, 18(1), 6–21. https://doi.org/10.1108/08858620310458615. torraco, r. j. (2000). a theory of knowledge management. advances in developing human resources, 2(1), 38–62. https://doi.org/10.1177/152342230000200105. ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / issn: 2599-3216 e issn: 2615-420x article info article history: received : 10 april 2019 accepted : 10 may 2019 published : 11 june 2019 keywords: bank performance (roa and roe), non-performing investment(npi),causes of npl doi: https://doi.org/10.28918/ ijibec.v3i1.1618 jel: g20; g21 abstract non-performing investment are the amounts that can not be collected by organization from clients. in bangladesh banking sector is facing severe consequences from lack of collection of non performing loan(non performing investment for islamic banks). emphasizing the significance of the subject the study is undertaken to find out how non performing investment effect performance of islamic banks in bangladesh for five year period from 2012 to 2016.statistical tests such as (descriptive statistics, correlation and regression analysis) are performed to find out the effect non performing investment have on the overall performance of islamic banks. correlation analysis opine negative association of non performing investment with bank performance, bank size and capital adequacy ratio. on the other hand, regression analysis did not found any significant effect of non performing investment with bank performance.. effect of non-performing investment on islamic banks performance: an empirical study on islamic banks in bangladesh 1 bba,mba, department of finance, university of chittagong,chattogram, bangladesh. 2 assistant professor, department of finance, university of chittagong, chattogram, bangladesh. corresponding email: shafir121@gmail.com2 1. shafir zaman1 2. md. mohiuddin chowdhury2 international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-82 1. introduction in order to be an efficient economic system financial system should be transparent and accountable. banking industry as a life blood of economic system should be efficient. bank performance is satisfactory when banks can satisfy the customers with minimum risk and maximum return. poor performance of banking industry has a consequence on both the economy of a particular country and in the world economy,(khan and senhadji, 2001).among many risks facing by banks the most severe risk is the risk of non-recovery of loans (non performing investments for islamic banks) that are given to borrowers. default loans after a specific period become non-performing loans. nonperforming loans are not a source of earning for banks rather they are loss for banks (hennie, 2003). loopholes in the financial system, lack of inefficiency of management system, political influence are the prime reasons of nonperforming loan. in bangladesh there are almost 58 listed banks. at present the amount of npl is increasing in bangladesh. in 2010 the npl as an outstanding loan was 7.2% and in 2017 september it was 10.7%.the rate of npl ratio is much more higher than other neighbor countries. almost 45000 billion money was written off as npl (islam,m.a,2018).report from bangladesh bank(the central bank of bangladesh) stated that default loan have increased to 74303 crore in 2017 compared to 62172 crore in 2016.default loans as a portion of outstanding loans have also risen to 9.31% from 9.23% in 2017 compared to 2016 (mallick,s.2018).from the statistics it can be noticed that non-performing loan has become a major concern for financial industries of bangladesh specially for banking industry. the study is undertaken to discover how non performing investment effect islamic banks performance by analyzing the research question: do non performing investment effect the performance of islamic banks in bangladesh? although much research on this topic done by researchers are basically related with impact of npl in terms of banks profitability as well as how credit risk effect bank performance there is little work done considering how non perforimng investment can effect the performance of islamic banks. the research aims to remove research gap by studying how npi can effect performance of islamic banks in bangladesh and further opening a field for research in the topic throughout the world. 2. literature review the loans that cannot be collected by banks from customers are regarded non-performing loans. the prime cause that is responsible for non-performed loan is failure to choose potential customer i.e. the customers who can pay loans in right time (chowdhury,h.m.m.).other causes include:poor credit appraisal, high-interest rate, inflation, low amount of gdp (hou,2007).financial institutions especially banks suffer severely as a result of npl. reserves needed to be maintained by banks to guard against npl. increase in npl reduce banks profit which is in turn reduce income of banks. excess npl decreases the money flow in the economy which results in economic recession. for finding out the association between npl and bank efficiency of malaysia and singapore banks a study had been done by (karim, chan and hassan,2010) .the study revealed npi increases as a result of cost inefficiency of banks. to show how credit risk management effect the performance of nigerian banks for 2004 to 2008 (kargi,2011) conducted research. descriptive statistics, correlation and regression analysis were done. the result opined that credit risk had significant relationship with bank performance. further research emphasizing the impact of credit risk on nigerian bank performance for 20042008 by (hamisu,2011) revealed credit risk and bank profitability were significantly related. similar type of study on pakistani banks by (iftikhar,2016) found npl and capital adequacy ratio had significant existence with performance of bank (roa and roe). international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-8 3 a different type of study undertaken on central and eastern european countries for 2009-2012 to explore the association of npl with gdp, inflation and unemployment problem by (skarica,2014) found npl negative relationship with gdp and positive relationship with unemployment rate, inflation. to find out relationship between npl with profitability of nigerian banks for period of 2006 to 2012 research were done by (adebisi and benjamin,2015).the research found roa was insignificantly related with npl but roe was significantly related with npl. for seeing the impact bank-specific factors had with npl on albanian banks for period 20022012 (ali and eva,2015) undertook a study. the result revealed exchange rate and loan growth had positive relationship with bank performance and gdp, interest rate had negative relationship with bank performance. study was conducted to find out the relationship of npl with other factors for period 20082014 in malawian banks by (chimkono, muturi &njeru,2016).the result opined that npl ratio, cost efficiency ratio, average lending interest rate had significant existence with bank performance. to explore how nonperforming loan effect nigerian banks performance a study had been conducted for period 1994 to 2014 by (etale. l,ayunku & etale. e, 2016). descriptive statistics, unit root test, correlation, regression analysis were conducted by researchers. the results found negative association of npl with roce which meant increase in npl cause decrease in firm performance. similar type of study on the nigerian bank for period of 2000 to 2013 was done by (ozurumba,2016). the results found negative relationship between roa and roe with npl.the study opined that this negative relationship was an indicator of danger for sustainability of banks. to find out the effect of npl with net interest on the stock exchange of bangladesh for the period 2008 to 2013(akter & roy,2017) conducted research. the research found significant relationship of npl with net interest margin of banks. further research were done to find the relationship between npl and profitability of ethiopian banks by (balango and rao,2017).the study revealed that npl was negatively associated with profitability . study on kenyan banks with respect to bank performance (roa and roe) and npl were undertaken by (chege and bichanga,2017) for period 2011 to 2015.the study found that nonperforming loan, size of the bank, operating cost and liquidity were significantly associated with bank performance (roa) and capitalization was insignificantly related with bank performance (roa). for exploring how profitability is related with ghana banks (baasi,2018) conducted research for period (2006-2015). the result revealed that npl had negative relation with roe, on the other hand car had positive relation with roe. hypothesis of the study: for the study hypothesis are developed by studying research papers . a study is done on the effect of non -performing loan on the profitability of ethiopian banks by (balango and rao 2017) took non-performing loan ratio as a hypothesis. therefore the first hypothesis of the study is: ho1: there is no relationship between npi with islamic banks performance. ha1: there is relationship between npi with islamic banks performance. bank size is used as an indicator to find out the effect it has with npi. a study made by (chege and bichanga, 2017) studying non-performing loan and financial performance of kenyian commercial banks considered bank size is an indicator. international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-84 the second hypothesis of the study is: ho2: there is no relationship between size of the bank with islamic banks performance. ha2: there is relationship between size of the bank and islamic banks performance. capital adequacy ratio have been used as an indicator to measure the effect of nonperforming loan on ethiopian banks by (balanco and rao,2017) . the third hypothesis of the study is: ho3: there is no relationship between car with islamic banks performance. ha3: there is relationship between car with islamic banks performance. 3. research method the study uses simple random sampling. simple random sampling is used because it gives the chance of every sample being selected. there are eight islamic banks in bangladesh. samples of six islamic banks are being taken for research. the study used secondary data which is collected from annual reports of six islamic banks from 2012 to 2016. 2012 to 2016 period is used because non performing investment during this period have become an area of concern of banks as it has increased to a great level. thirty annul reports of six islamic banks for year 2012 to 2016 are being used for the study. variables used in the study: dependent variable: bank performance (roa and roe). independent variable: size of bank, npi and car. software used to perform tests: ibm spss 20 software is used to do descriptive statistics, correlation analysis and regression analysis. model development: for the study econometric model is used. the model is as follows: y = a +β 1 x 1 + β 2 x2 + β 3 x 3 + € here y= bank performance(roa and roe) a = constant β 1β 3= regression coefficient of independent variables. table 1. variables and their proxies variable symbol proxies roa y net income / total asset roe y net income/ total equity size of the bank x1 logarithm of total asset npi x2 bad debt/investment car x3 (tier 1 capital + tier 2 capital ) / risk-weighted asset error term € 4. results and discussion 4.1 ratio analysis ratio analysis is undertaken to evaluate the overall performance of the islamic banks. international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-8 5 table 2. five-year ratio analysis of roa, roe, bank size, npi, and car year roa roe bank size npi ratio car 2012 1.48 14.28 5.23 3.8 11.69 2013 1.07 11.79 5.28 3.84 12.76 2014 1.04 10.62 5.52 4.39 12.58 2015 0.96 10.68 5.41 4.24 12.77 2016 1.08 13.07 5.48 4.57 11.89 source: annual report of six sample islamic banks from 2012-2016. return on asset: the return on asset can be computed by taking net profit with respect to total asset of banks. roa shows the profitability of banks. in 2012, roa was 1.48%.roa continued to decrease till 2015.in 2016, roa increased to 1.08% .it indicates the good revenue generation of islamic banks to fulfill short-term obligations. return on equity: roe is is found by dividing net income to total equity. the more the roe the better return is for the shareholders investment. in 2012, roe was 14.28% which decreased in 2013 to 11.79%. in 2014 and 2015 roe declined. in 2016, it increased slightly. this indicted external source of funds require higher cost and it decreases profitability for islamic banks . bank size: bank size is calculated by taking the logarithm of total assets. the size of islamic banks were 5.48% in 2016 and it gradually increased from 2012 to 2016. non-performing investment ratio: non-performing investment ratio is calculated by dividing the non-performing investment to total investments.high ratio results in large amount of bad debts which is loss for the banks. islamic banks had the low ratio of npi in 2012. the highest figure of the npi ratio was in 2016. capital adequacy ratio: car shows how bank assets (loans, investments, securities) have been financed by using capital of the banks. it is described as a percentage of a bank’s riskweighted credit exposures. car ensures safety of depositors money as well as financial soundness of banks. capital adequacy ratio of islamic bank increased from11.69% to 12.77% in 2015. in 2016 it decreased to 11.89% which meant the slowdown of islamic banks capital. it shows that capital cannot be used to cover up due dates and risks will be faced by banks in upcoming days. 4.2 descriptive statistics table 3. calculation of minimum, maximum, mean & standard deviation items n minimum maximum mean std. deviation roa 5 .96 1.48 1.1257 .20079 roe 5 10.62 14.28 12.0883 1.58136 size 5 5.23 5.52 5.3840 .12542 npi 5 3.80 4.57 4.1667 .33883 car 5 11.69 12.77 12.3373 .51116 from table-3, the values of range, minimum, maximum, mean and standard deviation can be found. range is found by maximum minus minimum value. highest value is termed as maximum value and lowest value is termed as minimum value. mean represents average value of all observations which is found by dividing all the number of observations. standard deviation measures the risk involved . standard deviation of all variables is low. it can be concluded that less risk involved. international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-86 4.3 correlation analysis table 4. pearson correlation test items roa roe size npi car roa 1 roe 1 size -.669 -.567 1 npi -.577 -.351 .951 1 car -.786 -.910 .216 .003 1 from table -4, correlation analysis of independent variable with dependent variable can be found. independent variables bank size, npi, car are negatively related with dependent variable roa and roe. negative association between bank performance and npl also found by (etale. l, ayunku & etale. e, 2016), (ozurumba,2016) and (balango and rao,2017). negative correlation opines an increase in the independent variable causes dependent variable to decrease and vice versa. it is seen that bank size, npi, car will reduce as a result of the increase in roa and roe and increase as a result of the decrease in roa and roe. 4.4 regression analysis table 5. regression analysis based on roa model summary model r r square adjusted r square std. error of the estimate change statistics durbin watson r square change f change df1 df2 sig. f change 1 .995a .990 .962 .03929 .990 34.48 3 1 .124 2.599 a. predictors: (constant), car, npi, size b. dependent variable: roa table. 6. regression analysis based on roe model summary model r r square adjusted r square std. error of the estimate change statistics durbin watson r square change f change df1 df2 sig. f change 1 .990a .981 .924 .43703 .981 17.12 3 1 .175 2.599 a. predictors: (constant), car, npi, size b. dependent variable: roe in table-5 & 6, regression analysis is done in terms of dependent variable (roa and roe).r value indicates how dependent and independent variables are associated. in case of roa and roe, the value is .995 and .990. the value close to 1 means the bank performance (roa and roe) are positively related with size of the bank, npi, car. r square shows the variation of the independent variable concerning the dependent variable. the value of r square is .990 regarding roa and .981 regarding roe. the result suggests that dependent variable roa and roe can explain 99% and 98.1 % of the independent variables (bank size, npi and car). adjusted r square shows how close the international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-8 7 data fits the line of regression. the respective adjusted r square values are .962 in case of roa and .924 in case of roe.so 96.2% and 92.4% of data fits the regression line. durbin watson statistics give an idea about the consistency of time series data. the standard value is 0 to 4. dw value in case of both roa and roe is 2.599.the value above two opines that data series are consistent and there is no autocorrelation involved. p value in both cases of roa and roe is greater than 0.05 which rejects the alternative hypothesis and indication of no relationship between islamic bank performance with npi. similiar type of result is also found by (adebisi and benjamin,2015) on their conducted research on impact of npl in terms of profitability of nigerian banks. 5. conclusion the study explore how non performing investment effect islamic banks performance. negative effect of non performing investment with islamic banks performance are found in terms of correlation analysis. in regression analysis no effect is found between non performing investment and banks performance. the research creates a scope for researchers to identify the reasons of negative effect of non performing investment with bank performance when correlation analysis is used and also the reason of not finding any effect of non performing investment with bank performance when regression analysis is used with recommendations. references adebisi, j.f.&benjamin, o. 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(october 2016 march 2017). non-performing loan impact on financial performance of commercial banks of keneya. international journal of management and commerce innovations, vol. 4, issue 2, pp: (909-916). chimkono, e.e., muturi, w. & njeru, a. (2016). effect of on malawi banks performance with respect to non-performing loans and other factors. international journal of economics, commerce and management, vol. iv, issue 2. chowdhury, h.m.m. (2018). reasons and consequences of non performed loans . dhaka: the daily observer. etale, l.m. , ayunku, p.e. & etale, e.l.m. (2015). impact of non-performing loans on the performance of nigerian banks. international journal of humanities and social science invention, volume 5, issue 4. exim bank. (2012-2016). retrieved from http://www.eximbankbd.com/report/annual_reports international journal of islamic business and economics (ijibec), 3(1) june 2019, 1-88 fsib. ( 2012-2016). retrieved from http://www.fsiblbd.com/category/annual-report/ hamisu, s.k. (2011). how credit risk impact nigerian banks. zaria, nigeria: department of accounting, ahmadubello university. hennie, v.g. (2003.) analyze and manage of bank risk: a framework for assessing corporate governance & financial risk, 2nd edition. washington dc: world bank publications. hou, y. (2007). experiences of non -performing loans on some banks. 4th afe-qass conference, ineag,doi: issn 2222-1905. ibbl. (2012-2016). retrieved from https://www.islamibankbd.com/abtibbl/financial_report.php iftikhar, m. (2016). credit risk impact on performance of commercial banks in pakistan . university of haripur journal of management (uohjm), volume 1. ,issue 2. islam, m.a. (2018, april 3). causes, consequences and remedies of default loan. financial express. kargi, h.s. (2011). credit risk and its impact on performance of nigerian banks. zaria, nigeria: ahmadubello university. karim, m. z. a., chan s. g., & hassan, s.(2010). bank efficiency impact on npi on malaysia & singapore banks. prague economic papers, 2, 2010. khan, m.s. and s.a. senhadji,(2001). impact of relationship between inflation and growth . imf staff papers, vol. 48, no. 1. mallick, s. (2018, march 18). default loan rises by 12000 crore. dhaka tribune. ozurumba, b. a. (2016). npl impact on nigerian commercial banks performance. research journal of finance and accounting, vol.7, no.16. skarica, b. (2014). non -performing loans and its determinants in central and eastern european countries. financial theory and practice pp. 38(1) 37-59,doi: issn : 2319-7714. social islami bank ltd. (2012-2016).retrieved from https://www.siblbd.com/home/annual_reports shahjalal islami bank ltd.(2012-2016)retrievedfrom:https://www.sjiblbd.com/financial_statements.php. 9bf1d3c2308aa1739f1e237d0e8eafabc2affd979ddaffe6350188bdd86ed2ce.pdf 26 ijibec joint liability based financing to prevent non-performing financing in bank wakaf mikro purwanto1*, abdul ghofur2, shodiq3 1departement islamic economics, al husain islamic college, magelang 2,3departement of islamic studies, universitas islam negeri walisongo semarang *corresponding email: purwanto@staia-sw.ac.id abstract the indonesian government has made various efforts to reduce it, one of which is establishing a micro waqf bank. the focus of the establishment of the bank wakaf mikro is to empower the poor by providing assistance and providing microfinance for productive activities. interesting to assess is the financing mechanism applied, namely joint liability. the purpose of this study is to examine whether joint liability-based financing can prevent non-performing financing. data were collected from 215 respondents from micro waqf bank customers in magelang regency. data analysis was carried out statistically by using structural equation model (sem) partial least square. the results show that joint liability-based financing has a significant effect on preventing non-performing financing. this means that joint liability based on bank wakaf mikro can prevent defaults or non-performing financing. this means that joint liability based on the distribution of fund financing by bank wakaf mikro can prevent defaults or non-performing financing. problem financing in joint liability-based financing can be prevented because of the necessity of forming a group when applying for financing, so prospective customers will choose group members who have integrity and can be trusted. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 1 2022 keywords: joint liability; non-performing financing; micro waqf bank doi: 10.28918/ijibec.v6i1.4361 jel: l31, g23, g41 article info article history: received : 16 september 2021 accepted : 14 may 2022 published : 1 june 2022 international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 27 1. introduction the indonesian government has made various efforts to reduce poverty; the most recent is establishing a bank wakaf mikro hereinafter abbreviated as bwm (ojk, 2018). the establishment of bwm is to empower the poor by providing assistance and providing microfinance for productive activities. the source of financing from bmw is profit sharing from sharia deposits, profit sharing from financing, and other income (ojk, 2018). in its implementation, bwm cooperates with islamic boarding schools as the frontline. the financial services authority cooperates with islamic boarding schools in implementing the bwm program because of the great potential of islamic boarding schools in community empowerment. this potential can be seen from the number of islamic boarding schools that have reached 28.194 (ojk, 2018). apart from the large number, the function of islamic boarding schools is not only to carry out education but also to have the function of community empowerment (uu no. 18 tahun 2019). this empowerment function is a manifestation of islamic teachings, especially in helping each other in goodness (muhtifah et al., 2015). in order to realize this function, the pesantren also offers nonreligious lessons, such as agricultural skills, vehicle repair, and other activities (tan, 2014). as of september 2019, bmw in indonesia reached 53 units, and 12 of them were in central java province (ojk, 2019b) including in magelang regency. in order to support its business processes, bwm received an allocation of rp.4,000,000,000. the funds are then divided into two, with a composition of rp.1,000,000,000 distributed to the community and rp3,000,000,000 into endowments deposited in islamic banks. in general, the business scheme of bwm can be seen in figure 1: source: financial services authority (2018) figure 1. scheme of bank wakaf mikro the presence of bwm is expected to overcome poverty so that it can realize community welfare, especially for small communities. bwm was established to provide access to finance for small communities that have had difficulty accessing capital in the formal sector (ojk, 2019a). with this access to capital, it is hoped that the presence of bwm can at least reduce poverty and improve people's welfare. study conducted by zayanie et al., 28 international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 (2019) proves that the presence of bwm is beneficial for the community in accessing microscale financing. the presence of bwm also has a positive impact on increasing people's income (yeubun et al., 2021). compared to other microfinance institutions, bwm is unique in providing its financing. the uniqueness is that the distribution of financing is tanggung renteng (rozalinda & nurhasnah, 2020) which in this study is called joint liability. joint liability is basically one of the many ways to avoid problems that arise in the distribution of financing. small communities, in general, do not have access to financing because they do not have collateral and do not have adequate financial records (ghatak & guinnane, 1999). by means of joint liability, even people who do not have collateral can obtain financing. the distribution of joint liability financing has two advantages when compared to the distribution of individual financing. the first advantage is that group members may know more about other members (i.e., each other's types, actions, and status) than other people. the second sanctions given to members who are unable to pay are the responsibility of fellow group members (ghatak & guinnane, 1999). joint liability is the highest embodiment of trust and a sense of loyalty among members of the group. the benefits of the joint responsibility system are to strengthen group cohesiveness and trust from outsiders to members. the implementation of joint liability models requires strong social control; therefore, this system will work effectively if applied in a group with a unifying bond and strong ties of interest (saripudin, 2013). the research results conducted by srivastava and samanta (2015) prove that the application of joint liability financing can increase trust and solidarity. furthermore kumar (2012) states that joint liability has its own uniqueness and is different from others. bwm has provided assistance to the community's economic empowerment through the provision of training for prospective customers. in practice, the financing of financing by bwm begins with the formation of groups, and this is the main condition for obtaining financing (rozalinda & nurhasnah, 2020). prospective customers must create a group called kelompok usaha masyarakat in the vicinity of the islamic boarding schools hereinafter referred to as kumpi before applying for financing. the minimum number in one kumpi is 5 people. it doesn't stop there; every kumpi is required to hold a weekly meeting called halaqoh mingguan hereinafter referred to as halmi. halmi activities are in the form of weekly installment payments and also the delivery of materials such as religious studies, business development, and others (ojk, 2018). the joint liability financing model is a group financing distribution system in which all group members are responsible if one of the group members is unable to pay (attanasio et al., 2015). this mechanism basically benefits financiers because of the low risk of nonperforming financing. this is because if one member is unable to pay, the other members are also responsible for making payments. thus, joint liability can avoid problematic financing because the selection stage for group members is carried out strictly so that each group will get credible and trustworthy members. the results of research conducted by ghatak & guinnane (1999) show that joint liability models allow for better repayment rates than individual loans. likewise, the research conducted by bayer & shatragom (2013) which states that the shared responsibility model can increase payback. this is because the shared responsibility model in financing will increase trust and solidarity (srivastava & samanta, 2015). research related to joint liability-based financing to prevent non-performing financing in micro waqf banks is important to do because research with this theme is still little done. international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 29 the majority of studies on bwm are related to the impact of bwm on the economy, as research conducted by zayanie et al., (2019) yeubun et al., (2021), dewanti et al., (2021) and apriliawan et al., (2021). thus, research on the extent to which the application of joint liability-based financing in preventing the occurrence of non-performing financing is important to do. 2. method the research approach used in this study is quantitative. quantitative research is quantitative research which is in the process of analyzing data using numbers and analyzed using statistical methods (apuke, 2017). meanwhile, williams (2007) provides an understanding that quantitative research involves collecting data so that information can be quantified and analyzed using statistics to support or refute alternative hypotheses. in quantitative research, research activities begin with a statement of the problem, determine hypotheses or research questions, review related literature, and conduct analysis. the method used in this research is a survey method. survey research uses a scientific sampling method with a questionnaire designed to measure the characteristics of a particular population through the use of statistical methods (sukamolson, 2007). basically, survey research is used to describe quantitatively the population and then study the relationship. in the survey research method, data is obtained from the research sample which is part of the population. from the sample, it is then used to generalize the entire population (apuke, 2017). the population in this study were all members of kumpi at bwm in magelang regency, amounting to 219. due to the small size of this population, in this study, all sampel numbers were used as research samples. in the structural equation modelling (sem) analysis, the number of samples required is relatively large (santoso, 2011). conceptually, sem analysis requires at least 100-200 samples (kusnendi, 2005); thus, the number of samples of 219 is considered adequate. joint liability variables in this study were measured using indicators compiled by kritikos & vigenina (2005) which consists of 1) group quality, 3) informasi, 4) monitoring, 5) peer control, 6) peer pressure dan 7) peer support. meanwhile, non-performing financing in this study was measured by the indicators presented by angaine & waari (2014) which consists of 1) complete non repayment. 2) late payment. 3) payament after intervension measures the research questionnaire was prepared according to the indicators mentioned in the operational definition of the variables. the research questionnaire will be measured using a likert scale with five answer options, namely "strongly agree" with a value of 1, agree with a value of "2", neutral with a value of "3", disagree with a value of " 4" strongly disagree with a value of "5". data analysis in this study used structural equation modelling (sem). sem is a statistical model used to perform multivariate data analysis and involves complex variables (hoyle, 1995). sem has advantages compared to traditional regression models because it can test hypotheses about the relationship between observed variables (carvalho & chimma, 2014). to analyse the research data, the pls structural equation model (sem) analysis was used with the help of smart pls 3 software. using pls-sem in this study was that it was easy to use and could overcome abnormal research data (henseler et al., 2009). before testing the hypothesis using sem pls analysis, it is necessary to test the quality of the research data. the quality of research data must meet the criteria of validity and reliability. in sem pls, there are two data validity tests, namely convergent validity and 30 international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 discriminant validity tests (hair et al., 2011; purwanto, 2021). an indicator can meet the criteria for convergent validity if it has a composite reliability value and a factor loading value greater than 0.7 and has an ave average variance extract value greater than 0.5 (hair et al., 2011). meanwhile, the test results of the discriminant validity criteria can be seen from the cross-loading value and the fornell-larcker criteria. fornell-larcker must be a correlation between variables with the square of ave. the correlation of each variable with ave must be more than the correlation of other variables (chawla & joshi, 2018). the cross-loading criteria can be met if each indicator has a higher value when compared to indicators on other variables. meanwhile, the validity test was carried out by looking at the cronbach value. data is said to be reliable if it has cronbach greater than 0.7 (lin & huang, 2008). 3. result and discussion profile of respondents the planned sample in this study was 219, but up to the data collection limit, only 215 data were collected. detailed information concerning the profile of respondents is shown in table 1. table 1. profile of respondents variables category n percent sex male 0 0 female 215 100 status in family head of family 0 0 housewife 215 100 family members 0 0 age < 20 years 0 0 20-30 years old 2 0.93 30-40 years old 43 20.00 40-50 years old 135 62.79 50-60 years old 35 16.28 > 60 years 0 0 the last education level elementary school 98 45.58 junior high school 90 41.86 senior high school 12 5.58 other 15 6.98 business fields farmer 65 30.23 services 30 13.95 culinary 115 53.49 other 5 2.33 income range <idr 500,000 35 16.28 idr 500,000-idr 1,000,000 30 13.95 idr 1,000,000 to idr 1,500,000 125 58.14 idr 1,500,000 to idr 2,000,000 10 4.65 more than idr 2,0000,000 15 6.98 estimation of measurement and structural model before conducting the test, the validity and reliability were tested first. the validity test in international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 31 this study was seen by conducting a convergent validity test and a discriminant validity test. convergent validity in this study is determined by the value of composite reliability and average variance extract (ave). an indicator can meet convergent validity if it has composite reliability and a loading factor greater than 0.7 and an ave of 0.5. (hair et al., 2011). the test results, as can be seen in table 2 can be seen that the jl7 indicator has a loading factor of less than 0.7 so that the indicator must be removed. after the jl7 indicator is removed, the results show that the composite reliability, and average variance extract (ave) values all exceed the specified threshold. thus, all indicators in this study have met the criteria of convergent validity. meanwhile, the discriminant validity test results show that the crossloading value has a higher value than the indicators on other variables (shown in table 4). meanwhile, the results of testing the discriminant validity of the fornell-larcker criteria also found that the correlation between variables with ave squared was higher than other variables (chawla & joshi, 2018), so that the discriminant validity fornell-larcker criterion in the study has been fulfilled the requirements (shown in table 3). the results of the reliability test using show that all variables have cronbach α values greater than 0.7 (shown in table 2). cronbach α values which is greater than 0.7 indicates that the indicators in the study are declared reliable (lin & huang, 2008). thus, it can be said that the research model has valid and reliable indicators. table 1. the measurement model construct item item deleted loading cr ave cronbach’s alpha joint liability jl1 0.803 0.918 0.652 0.893 jl2 0.881 jl3 0.843 jl4 0.838 jl5 0.737 jl6 0.732 jl7 0.671 non performing financing npf1 0.799 0.896 0.741 0.827 npf2 0.895 npf3 0.886 table 2 shows that the research has met the rules of thumb in the reflective measurement models. according hair et al (2011) rules of thumb for reflective measurement models consist of internal consistency reliability which can be seen from composite reliability should be higher than 0.70. indicator reliability can be seen from indicator loadings should be higher than 0.70. convergent validity which can be seen from the average variance extracted (ave) should be higher than 0.50. discriminant validity which can be seen from the ave value of each latent construct should higher than the construct’s highest squared correlation with any other latent construct (fornell–larcker criterion) (shown in table 3). an indicator’s loadings should be higher than all of its cross loadings (shown in table 4). 32 international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 table 3. fornell-larcker criterion construct jl npf joint liability 0.808 non-performing financing 0.458 0.861 source: research data that is processed (2021) notes: diagonal values are squared roots of ave; off-diagonal values are the estimates of the inter-correlation between the latent constructs. jl=joint liability, npf= non-performing financing table 4. measurement model cross loadings construct jl npf jl1 0.803 0.343 jl2 0.881 0.332 jl3 0.843 0.349 jl4 0.838 0.297 jl5 0.737 0.413 jl6 0.732 0.431 pnpl1 0.305 0.799 pnpl2 0.419 0.895 pnpl3 0.440 0.886 table 4 provides information that the research indicators have met the criteria for discriminant validity by looking at the cross-loading value. the results of the discriminant validity test show that the cross-loading value has a higher value than the indicators in other variables (show numbers in bold). assessment of the significance of the structural model based on the results of the analysis obtained, the study results are shown in table 3. table 5. structural relationship hypothesis std dev beta t stat p value results jl -> npf 0.055 0.458 8.338**(> 2.58) 0.000 accepted notes: *t-value > 1.65 (significance level 10 percent) ** t-value > 1.96 (significance level 5 percent) ***t-value > 2.58 (significance level 1 percent) used bootstrapping to assess the path coefficients’ significance. the minimum number of bootstrap samples is 5,000, and the number of cases should be equal to the number of observations in the original sample. the critical t-value for the two-tailed test obtained a result of 8.338 which means it is greater than 2.58. thus, it can be concluded that the research hypothesis states that joint liability-based financing has a significant effect on the prevention of funding non-performing. this result is confirmed by the results of hypothesis testing as shown in table 5 where joint liability-based financing (jl) has a significant positive effect on the prevention of non-performing financing (pnpl) (β = 0.458, t = 8.100 (> 2.58), supporting the hypothesis. the final result of this research is described, as shown in figure 2. international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 33 *** notes: *t-value > 1.65 (significance level 10 percent) ** t-value > 1.96 (significance level 5 percent) ***t-value > 2.58 (significance level 1 percent) figure 2. final structural model the results of the study prove that joint liability-based financing has a significant effect on preventing non-performing financing. this means that joint liability based in the distribution of fund financing by bwm can prevent defaults or non-performing financing. the results of this study are certainly in line with research conducted by ghatak & guinnane (1999), this shows that the joint liability model is more likely to allow better repayment rates than individual loans. this study also supports the results of research from bayer & shatragom (2013) which states that the shared responsibility model can increase the payback. this research is also in line with the study conducted by chen et al. (2016); zainab et al. (2020) azizah & islamiyah (2021), which prove that non-performing financing has a real impact on the emergence of financing. furthermore, this research is also in line with the study conducted by che (2002), which also proves that the features of joint obligations related to credit can reduce the risk of default. the results of this study have reaffirmed that joint liability-based financing is one of the best ways to deal with non-performing financing. many financial institutions prevent problem financing by implementing a guarantee system, but low-income people do not own guarantees. therefore, the joint liability-based financing implemented by the bank wakaf mikro in magelang regency is empirically able to prevent the occurrence of non-performing financing. joint liability models in financing distribution are basically an attempt by financial institutions to select prospective customers (kumar, 2012). joint liability models require prospective customers to form groups so that in the selection of group members, prospective customers will choose prospective group members who have integrity. therefore, joint liability models basically make it easier for financial institutions to mitigate the problem of selecting prospective customers who are less credible, so that the risk of problematic financing can be avoided. with the strength of social relations, each group member will automatically choose prospective members who have integrity and can be trusted. joint liability models in the distribution of financing in magelang regency run effectively according to the target because they are in groups that support each other and have a sense of kinship and cohesiveness for strong interests. in practice, in distributing micro waqf bank financing, each group has explained that all group members will be 34 international journal of islamic business and economics (ijibec), 6(1) june 2022, 26-36 affected if one of them defaults. like, i will not get a chance to become a customer again. with this application, all group members automatically supervise all group members. it is not uncommon for group members to help each other settle payments if one of the group members has difficulty paying installments one day. implementing the joint liability models method in the distribution of financing to bank wakaf mikro can prevent the risk of default because there are good and strong social controls in the joint liability models. 4. conclusion the results of the study prove that joint liability-based financing has a significant effect on preventing non-performing financing. this means that joint liability based in the distribution of fund financing by bank wakaf mikro can prevent defaults or non-performing financing. problem financing in joint liability-based financing can be prevented because of the necessity of forming a group when applying for financing, so that prospective customers will choose group members who have integrity and can be trusted. based on the results of this study, it can be said that joint liability based on the distribution of financing funds by bank wakaf mikro is the best way to distribute financing, because it can prevent the emergence of non-performing financing. the joint liability based applied by the bank wakaf mikro in magelang regency can be a model in the distribution of funds sourced from zakat, cash waqf and other social funds. this research contributes to overcoming problematic financing caused by information asymmetry. information asymmetry in financing distribution arises because the customer has more information than the financier. the customer has an interest so that the proposed financing can be approved so that the customer is encouraged to provide inaccurate information. in this context, research results that have contributed to financing prevention are problematic because of information asymmetry. in short, financing with a joint responsibility system is one way to overcome the problem of information asymmetry in the distribution of financing. references angaine, f., & waari, d. n. 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(2019). bank wakaf mikro and creative economics in pesantren buntet. shirkah: journal of economics and business, 4(2), 253–285. http://www.shirkah.or.id/new-ojs/index.php/home/article/view/269. 81 ijibec rethinking islamic economic and finance practices in indonesia: some critical reviews azwar iskandar1*, bayu taufiq possumah2, arfan arifuddin3 1 sekolah tinggi ilmu islam dan bahasa arab (stiba) makassar, indonesia email: azwar.iskandar@gmail.com 2 institut agama islam tazkia, bogor, indonesia email: btaufiq@gmail.com 3 sekolah tinggi ilmu islam dan bahasa arab (stiba) makassar, indonesia email: arfan@stiba.ac.id *corresponding email: azwar.iskandar@gmail.com abstract this research aims to analysis some issues related to the islamic economic and financial practices in indonesia. this research used a descriptive-qualitative approach with content analytical, library research and critical study method. this research found some critical points on islamic economic and financial practices in indonesia: (i) the islamic banking in indonesia showed inconsistencies and partial implementations; (ii) the islamic economic practices were not too far from the surrounding financial sectors (iii) the islamic financial practices in indonesia mostly focused on the islamic commercial finance (icf) sector and less concerned on the islamic social finance (isf); (iv) sharia financial institutions were more precisely than those called ”bank syariah” (v) the epistemological problems in the islamic economic curriculum needed to be answered and resolved to avoid the contra-productive outputs from the fundamental purposes. it was necessary to conduct the re-orientation of sharia banking to strengthen its vision. all involving parties should be able to collaborate with academicians, practitioners, governments, scholars, and organizations. those parties’ reorientation and synergy shall solve the problems related to the partial implementation of banking and answer all criticisms directed to the sharia banking. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 4 no 2 2020 keywords: islamic economics; islamic finance; indonesia; practices; critical points doi:https://doi.org/10.28918/ijibec.v 4i2.2751 jel: g21; p46; p51 article info article history: received : 30 july 2020 accepted : 30 nov 2020 published : dec 2020 mailto:azwar.iskandar@gmail.com mailto:azwar.iskandar@gmail.com mailto:azwar.iskandar@gmail.com mailto:azwar.iskandar@gmail.com https://doi.org/10.28918/ijibec.v4i2.2751 https://doi.org/10.28918/ijibec.v4i2.2751 82 international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 1. introduction shariah has been a familiar term in our society, to muslims and non-muslims over the last decades. it can often be heard as the principle in all aspect of life including economic or financial aspect. as the result, we can see islamic economics and finance has been revivaled, fostering trade and business interaction model phenomenon. shariah-based economic institutions then born and encourage “interest-free” or “islamic” banking in the national economics system. islamic banking refers to a system of banking that is consistent, both in objectives and in operations with islamic laws (baele, farooq and ongena, 2014). worldwide, islamic banking is as an emerging and growing system (ebrahim and joo, 2001). swift growth in this field has also enhanced the need for designing consistent policies for islamic banks (archer, karim and sundarajan, 2010). theoretically, islamic bank operations are premised on equity based financing which is an alternative to debt based financing (mallin, farag, and ow-yong, 2014). these operations include mudharabah (trust financing), mushārakah (equity financing), ijārah (lease financing), qarḍ al-ḥasan (welfare loan), and istiṣnā‘ (progressive payments) (samad, gardner and cook, 2005). in reality, the islamic bank practices and products resemble that of conventional banks (tafri, rahman and omar, 2011). for this reason, existing islamic banking can be referred to as hybrid banking (mix of islamic and conventional banks) instead of islamic (siddiqui, 2008). from 1988, islamic finance has been facing numerous issues such as unavailability of common accounting standard, lack of central control body, density of regulation, absence of money and capital market, tough market competition and clash in sharīah scholars’ views. islamic banks have no separate regulatory framework and they seek regulatory support from regulations of conventional banks in their operations (abdullah, shahimi and ismail, 2011). currently, the only distinguishing criteria of islamic banking from conventional banking is just “prohibition of interest,” which is insufficient. if islamic banking restricts itself to just prohibition of ribā then what will be the difference between islam and other religions such as judaism and christianity as ribā is also prohibited in these religions (zaman and movassaghi, 2002). in reality the islamic financial system provides basic axioms which put forward an ethical system founded on the philosophical founts of islam (asutay, 2007). islamic banking emerged as an alternative to conventional banking with profit maximization at its heart (imam and kpodar, 2010). decades have passed, unfortunately islamic banking failed to fulfill its promise to deliver social and economic advantage to the muslim world through profit and loss sharing (pls) modes of financing (warde, 2010). islamic banks that claim to be sharīah based not only fail to offer pure sharī‘ah based financial products; they also attempt to make conventional products sharī‘ah compliant using islamic rulings (fatwā) (khan, 2010). islamic banks also failed to design an appropriate regulatory framework to serve their businesses through legitimate enforcement of profit and loss sharing instruments (kayed, 2012). as a country with the largest muslim population in the world, indonesia has not been able to play an optimal role in fulfilling this demand. in the global islamic economy index 2018/2019, indonesia is ranked 10th in the world as a producer of halal products. although indonesia’s export performance in muslim fashion products, halal food, and halal tourism continues to increase from year to year, but in aggregate, indonesia has a large net import for halal products and services which results in a deficit in the current account. furthermore, the national shariah finance committee (knks) indonesia assessed shariah financial international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 83 industry in indonesia is still on the road. this proven by the latest financial services authority (ojk) data that mentions the market share of new sharia finance reached only 8.69 % of the total national financial market. shariah banking market share recorded only 5.94 percent and the rest is 2.75 % by non-banking sharia market share (see https://www.cnnindonesia.com/ekonomi/20190911034328-78-429312/knks-sebutpertumbuhan-pangsa-pasar-keuangan-syariah-stagnan). compared to its muslim neighbor country, malaysia. shariah finance industry in the country grab almost 20 % of the national market share. moreover, the implementation of shariah banking in indonesia still omits some fairly fundamental problems that reap criticism by a lot of muslim scholars such as syu'aibun, (2014); rusydi, (2016); ananta, (2019); and candrakusuma, (2018). among the criticism are that banking products not shariah compliants, riba, maysir and gharar elements still found, and disoriented purpose of shariah economics implementation in the banking system. surely, every effort and contribution to this industrial development should be appreciated and grateful. islamic banking for example is no longer confined to muslim countries, as even the biggest western banks now offer products compliant with the islamic law. however as a human-created product, weakness of the system always brings gaps and deficiencies that should be considered and repaired. the critical concern to this issues is necessary and aimed to repair continuesly an existing laws and errors. since it is proper if every component of muslims always contribute constructively in the struggle of applying the shariah in all aspects of life, no exception to the economic and financial aspects of the people. islamic economy in indonesia is in its critical stage as it is in the midst of global economy uncertainty and it is competing against its rival regional economies. roles and contribution of the islamic economy towards the national economy is not yet significant for it to be labelled as an important pillar in helping indonesia with the world’s economy that has become more vulnerable, uncertain, complex and ambiguous. however, even the minimum contribution of islamic economy does not illustrate the potentials of islamic economy, which is strategically beneficial for indonesia’s current and future economy. the minimal role of islamic economy is due to the development of various sectors in the islamic economy ecosystem, which are not optimal. the coverage and development of the islamic economy, which is still leaning towards the financial sector is also an obstacle. the presence of various government regulations regarding the implementation of shariah economics in indonesia, such as law no. 10-1998, act no. 38-1999 on zakat management and supreme court decree no. 581 of the management of zakat, implies a message of importance and assertive that study of islamic economic and finance system became an urgent thing to be lifted always, because it has been widely protected and implemented by law it self. the need for such studies in order to provide reinforcement to the industry and to clarify that the economic system not deviated from its normative rules and shariah principles (iskandar and aqbar, 2019). departing from the inquiries above, this study intends to contribute through a critical and constructive review of the phenomenon to enhance the implementation of islamic economic and financial practices. there are some of the islamic economic and finance industry development facts that has been running in the community according to this study might be as reasons that makes the industry stagnant. paradigms, concepts and normative approaches of islamic economics in the midst of the people, has brought too rational and profit oriented system. therefore, this research is conducted to highlight the criticism to 84 international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 industrial system, not in term of its value concept of economic, but more on the reality of implemantion in our society as far as the study observations. research related critical studies on the paradigm of implementing islamic economics, has not been much enthusiastics. eventhough some scholars such as kuran (esp. 1995, 1996) criticised the economic foundations of islamic economics, aggarwal & yousef (2000) gathered some empirical evidence to show that islamic banking falls behind expectations. proponents of islamic banking acknowledged some of the critiques, but the academic debate based on empirical research has gone silent in the last ten years. previous studies in indonesia such as done by rahmawaty (2007), sulaiman (2014), and syu'aibun (2014) only saw and criticize one of the akad in the implementation of islamic economics with narrower scope, since did not see it from a more fundamental point of view. islamic economics deals with a paradigm that links the responsibility concept of resource allocation and income distribution, in addition to the maximisation of utility by consumers and profit by businesses and taking into account the property rights of every members of the society in a way that maximises social welfare, based on rules set out in the quran and the teaching of prophet mohammad (cole, soufani, & tse, 2013). the islamic law covers a comprehensive range regulation related to religious, social, economic and financial affairs and the governance of the financial dealings with groups and individuals in an islamic society. the application of such system is the solution by those who believe that unjust distribution of income, unemployment, poverty and environmental problems has been gone far today. such system also supposed to promote the concept of corporate social responsibility as argued by iqbal and mirakhor (2007) that islamic paradigm “incorporate a spiritual and moral framework on human relations above material possessions”, and that it is important to recognize that the betterment of the society is achieved through a sense of social and material responsibility to the whole without the denial of individual self-interest. the financial services industry was largely affected by the global financial crisis of 2008, in which the sluggish growth in this sector was mainly due to the loss of confidence by depositors and borrowers to the financial liquidity for corporate investment projects. the overall economic slowdown that impacted the growth have affected also supply and demand chains in the global financial market. however, behind the financial crisis there have been a fascinating increased to islamic finance and banking industry globally. in terms of scope the conventional finance covers corporate finance, investments, financial institutions, derivatives and international finance, which related the financial management decisions, how to make an investment, debt or equity based capital gain, cash flow and rates of returns, economically and financially. on other side, islamic finance decisions related to an asset investment and prohibited object of transactions in businesses such as alcohol, pork products, firearms, tobacco, adult entertainment and the gambling industry (jobst, 2007). with regard to the raising of finance, the parties involved in financial transaction are forbidden any form of dealings that involved money exchange for debt without an underlying asset transfer. any cash flows have to be produced by sharia-compliant sources. in addition, the working of financial institutions such as islamic banks, takaful (islamic insurance) companies, islamic investment banks and islamic private equity firms are prohibited from being involved in speculative activities. these activities involve preventable uncertainty (gharar) such as: financial derivatives instruments, forwarding contracts and future agreements (jobst, 2007). international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 85 the main essence of islamic contract is the absence of interest in the overall agreement. promising interest and any fixed rate of return to an investor (predetermined ex ante), regardless of the financial performance of the asset is not permissible ( see iqbal and llewellyn, 2000; iqbal and tsubota, 2006; iqbal and mirakhor, 2007). islamic finance encourages a financial structure without interest, where the transaction between the borrower and lender has to be based on shared business risk and returns. any capital based investment that does not involve entrepreneurial risk would not considered as islamic principles compliant. . in this sense, the basic proposition of islamic finance is that return on capital would be determined ex post and not ex ante, and size of return is a function of the economic activity in which the funds were employed. in an islamic financial system, the provision of capital should be linked to the productive flow in the economy, in which the size of debt claims should not be greater than the value of production, hence the capital structure should be based more on equity rather than debt for firms and financial institutions otherwise ‘debt bubbles’ would develop (cole, soufani, & tse, 2013). 2. literature reviews several previous studies have been discussed critical reviews of various islamic economic and finance practices at the level of concepts, paradigms and practices. among the studies are shaikh (2013) analyzed the islamic banking philosophy, principles and practices and identifies the shortcomings which need attention of islamic scholars as well as the regulators in pakistan. islamic banking in pakistan has completed one decade of operations in pakistan and now there are 5 full-fledged islamic banks and more than 15 conventional banks with islamic banking windows. due to the consistent double digit growth in total assets, the market share had steadily risen to 7% by the end of 2011. however, meaningful assessment of islamic banking requires looking at how far they have contributed to uphold islamic principles, values and bringing about or at least working towards equitable distribution of income. but, islamic banking industry continues to use debt based financing modes which are priced using kibor as the benchmark. equivalence of means test confirms that islamic banking spreads are higher than conventional interest rate spreads. sulaiman (2014) critics that shariah banking in indonesia has ran a lot of murabahah financing system or products compared to mudharabah (profit sharing) that became the initial spirit of its founding as an alternative to conventional banking based on interest. but unfortunately, on his journey, the use of the murabahah is a lot of legal irregularities or not really shariah compliant in the context money investment, that is deviation in the contract as well as on the placement of funds. laldin & furqani (2016) also saw the need for shariah banking re-attention to the islamic banking philosophy and fundamental principles. ascarya (2017, 2018) mentioned that the islamic economy in indonesia is currently focused on the islamic commercial finance (icf) sector, especially banking, and less concerned with the development of the real sector, even though the real economic practices of islam include the financial sector and real sector, combine commercial and social side. ahmed, i., akhtar, m., & aziz, s. (2017) critically evaluate the practices of islamic banks in the light of islamic ethical values and philosophy of accountability to allah and society. the study found that islamic banks defend their practices by taking islamic rulings from shariah advisors in order to make their product to be more shariah compliant. profit maximization, availability of a vast range of islamic rulings, market competition, lack of 86 international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 adequate risk management tools and trust on islamic banking and meeting the general public expectations caused islamic banks to comply with debt base modes of financing. the study basically is an additional value in our literature of islamic finance which suggests what it ought to be. from there, we can see also the role of the organization of islamic countries (oic) and the governments of islamic countries. ananta (2019) in her research suggests that from what had been implemented by shariah banks in products and process,in this time and compared to the compilation of the fatwa of national shariah board and salaf scholars jurisprudence, we can conclude that the number of irregularities concepts in shariah banking commonly rooted to the mudharabah contract. in these irregularities, shariah banks are committing to shariah violations that can be dragged on ribawi transactions. this should not be left insoluble, because what is done in this thing may called as shariah engineering product. based on our literature reviews above, this study proposes a conceptual framework to redevelop our islamic economic framework practicess as follow: figure 1. conceptual framework source: iskandar and aqbar (2019); candrakusuma (2019); ascarya (2018); ahmed, akhtar, ahmed, i., & aziz, s. (2017); ascarya (2017); badri (2016); laldin & furqani (2016); and shaikh (2013) (modified by author) 3. research method this research uses descriptive-qualitative approach with content analysis techniques and library research to understand various concepts found in the research process. qualitative content analysis is one of the several qualitative methods for analyzing data and interpreting its meaning (schreier, 2012). as a research method, it represents a systematic and objective means of describing and quantifying phenomena (downe-wamboldt, 1992; schreier, 2012). for the prerequisite and successful content analysis, the data of this study reduced to describe the research phenomenon (cavanagh, 1997; elo & kyngäs, 2008; hsieh & shannon, 2005) by creating categories, concepts, a model, conceptual system, or conceptual map (elo & kyngäs, 2008; morgan, 1993; weber, 1990). the research also uses a critical method to reveals and analyses social reality by ensuing an inequality of existing social relations. critical research is sustained by critical theory international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 87 perspective with its constructed assumptions (halik, 2018). further critical research approaches are oriented towards problem-solving and social change (hanurawan, 2010). finally, the research library in this research uses the types and sources of secondary data obtained from research results, articles and reference books that discusses topics related to the theme of the research (iskandar & aqbar, 2019). 4. result 4.1. shariah bank industry: a heartless shariah implementation as time goes by, shariah banking practices are currently began more doubted, questioned, and conceived by some communities (candrakusuma, 2018). this is because the products, transactions and banking mechanisms are, considered to deviate from the sharia corridor itself. some people think that shariah banks have less sensitivity to social issues. some have assumed that shariah banking is merely a camouflage, from its capitalist origin to capitalize shariah banking (candrakusuma, 2018). such criticisms are of course indispensable to the advancement of shariah banking, as long as criticism is constructive and scientific, not because fear factor (islamophobia) and illogical assumptions. for example, the practice of mudharabah on shariah banks today tends to be collaborated with mutanaqisah contract because the capital is derived from two parties, shariah banks and customers. in terms of return sharing, financing is not based on profit and loss sharing but uses a system for revenue sharing. this contract mechanism is chosen by current islamic bank since the banks are not fully ready to bear loss sharing risk of the capital. thus, the proportion of profitable financing is more widely implemented, for example with murabahah contract where the profit definitely based on natural certainty contracts not based on natural uncertainty contracts like mudharabah. in this scheme, it is undeniable is islamic banks in profitable oriented business position. . another example, in the savings through the wadi’ah, banking tends to impose deposit funds to be used on the productive activities that the bank wants. in principle, in the wadi’ah contract, the utilization of deposit in any form of law is forbidden, the contract also changed to qard (hutang-piutang). the wadi’ah contract in islamic banking is not the wadi’ah as described in the fictional books. wadi’ah conctract which applied in islamic banking today is likely more similar to qard contract.and precisely refers to the wadi’ah yad al-dhamanah. from the this issues we can notice an inconsistency and principle shift of islamic banks as an outcome bank to be a profit oriented bank based on field survey, this study views that, the main problem of shariah implementation in the current banking is lies on commitment. shariah banking seems to have stopped at one stage and lost the vision of becoming the whole shariah banking. the implementation of shariah in islamic banking is heartless visible. reorientation need to be done to strengthen the vision of shariah banking. all parties and stakeholders such as academician, practitioners and government, should be able to cooperate, as well as the role of scholars and organizations. the reorientation and synergy of all parties will be able to solve the problem of shariah implementation in islamic banking and answer the embedded criticism in islamic banking. 4.2. islamic economics: does financial sector matters? uundoubtedlyy what theoretically has been understood, islamic economy is not only the financial sector, but also includes the real industry sector,therefore often referred as the islamic financial economy (ascarya, 2104), vis a vis to what we seen in the practice of islamic 88 international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 economics in indonesia which is still dominated by the financial sectors. if we take a look further, we will find that financial sector will always depend on the real sectors. the various efforts poured will only come to a deadlock. when the financial sector not allowed to go directly to the real sector to produce halal profit according to law no. 10 of 1998, it means money is economic object not a major factor to run economic wheels. in islamic perspective, this is contraditc to the shariah which has layed down goods or services as object of the economy. subsequently assessed with money, and not money assessed with money. when the money used as a commercial object in transaction and trading tools , then riba, would be happen in various speculation and turmoil (badri, 2016). real sector is the main implementation focus in islamic economy, particularly those with the potential to increase economic growth nationally. more specifically, products and services. principally for those that are using halal labels to distinguish it from other products. in doing so, in contributing to the economy and strengthening indonesia’s balance of payments, the principle of islamic economic system upholds the values of justice and sustainability, which can bring the national economy to an inclusive, sustainable and robust growth against crisis. therefore, the halal value chain is one of the main strategy that includes several real key sectors of halal industry such as halal food and agriculture, modest fashion (muslim fashion industry), halal pharmaceutical and cosmetics, halal tourism and travel and halal recreation and media. this industrial development has an important role in supporting the implementation of national development. 4.3. islamic bank: between social and commercial oriented the next our critical point is focused on the issue between social and commercial oriented in the development of the islamic economy in indonesia especially in banking industry. the lack of attention to the development of real sector and islamic social finance (isf), makes the industry farther away from the community. our social community is backbone from where our financial should begin and end. we can not tolerate if the industry asset going fast then our community left behind. this is the distinction between conventional finance and islamic finance. one example for that is microfinance system. microfinance, as a tool of alleviation and empowerment of the poor (faqr or faqir, plural of fuqara’), is not really a new concept in islam, but it is part of islamic teachings. for example, islam lays out certain compulsory obligations (such as zakat) and voluntary obligations (such as infaq and waqf) on the individuals having substantial means for the poor members of the community (ascarya, rahmawati, tanjung, 2018). wealth in islam should not circulate among wealthy people only, but it has to be distributed to others, including the orphans, al-masakin (the needy) and the wayfarer (al qur’an surah al hashr [59]:7). in the wealth of people, there was the needy right1 . by using redistributive instruments from social funds, such as zakah, infaq and waqf, as well as risk sharing instruments from commercial funds, such as microfinance and micro takaful, islamic microfinance (imfi) not only includes financial inclusion to provide various islamic financial product and services needed by low income and poor groups of the society, but also provides more holistic framework to enhance financial inclusion, eradicate poverty, and a healthy economy by promoting microfinance, mse financing, and micro insurance (naceur, 2015), (mohieldin, 2012; iqbal and mirakhor, 2012 and 2013; iqbal, 2014). therefore, imfi includes social inclusion and financial inclusion as an integral concept of holistic financial inclusion (hfi). in indonesia, when islamic commercial finance is commonly offered by islamic banks 1 (al quran surah adz dzaariyat [51]:19 and al ma’aarij [70]:24-25) international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 89 and islamic rural banks, islamic social finance is served separately by zakah institutions and baitul maal wat tamwil (bmt) (see seibel (2005), obaidullah (2008) and ascarya (2014, 2016 and 2017). islamic microfinance institution (imfi) then developed and registered as an islamic cooperative, combining islamic social finance in its baitul maal division and islamic commercial finance in its baitut tamwil division (ascarya, 2018). in this case, when we talk about the actual economic practice of islam which is includes the financial sector and the real sector, or integrating commercial and social side, imfi more on the track than islamic banking industry (ascarya, 2017, 2018). 4.4. the meaningless of what called as ‘islamic or shariah bank it should be understood that the term shariah bank (not islamic bank) was used at the beginning, initially to consider islamic phobia. essentially, the bank's duties are based on legislation, including raising funds from the community, giving credit, delivering financing, providing storage and transferring money. but if we look at the prohibition imposed on banking, the bank should not run the real business outside the financial sector, then the naming of shariah or islamic banks becomes problematic. if the bank not allowed to do business or real businesses, through financing contract such as murabahah, mudarabah, salam, istisna', ijarah, and others, it means the bank does not comply with shariah laws. this is where the fallacy needs to be straightened. policies have to be taken and sharia banks should be upgraded to do real businesses. the point is that sharia finance institutions need more regulation to wider space to be able to stay in the financial sector and real sector simultaneously, according to the concept and spirit of the shariah economy itself. 4.5. islamic economics education: an epistemological problems in order to respond and addressing the encouraging islamic economic and financial development in indonesia, various financial or higher education institutions, then try to make a breakthrough by establishing new courses or department in islamic economics field, to prepare the intellectuals need of human resources, who are able to work professionally in various islamic financial institutions. however, the problems then arise when there are several universities or institutions in indonesia placing that course or islamic economics study program in different faculties. some higher education institutions partially placing the majors in sharia/law faculty, some others place them in the faculty of islamic economics and business. the grouping of islamic economics majors into shariah sciences subfields, such as the faculty of shariah (law) rising epistemological problems in the philosophy of science, since the economics and shariah (as the main reference of islamic economics) have different scope of scientific philosophy (iskandar and aqbar, 2019). this epistemological problem needs to be answered and resolved so that the output resulting from the education program is not counterproductive to its fundamental purposes. it should be understood that the scope of jurisprudence taught in the faculty of shariah(law) is more oriented towards the normative values than the implemented aspect. this means that the courses graduated are more in the theories of ttransactions based on islamic jurisprudence. while practices in industrial and market environments, more to financial engineering. not suprisingly if some researchers such as ardiansyah, et al., (2013); hadi, (2013); rozalinda, (2015); iskandar and aqbar, (2019) said that bbusinesses and industries are more likely need to human resources with practitioner qualifications. in fact, islamic economics discusses two disciplines simultaneously, purely science of economics and fiqh muamalah. the problem that arises is how to combine the liberal and 90 international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 capitalist knowledge-based economics thought with the divine based jurisprudence thought meaning that the science of islamic economics is the unification of human thought and divine source; the qur'an and the hadith of the prophet. the difference in this source of knowledge is then the reason for the difference of assessment of human economic problems. for example, the liberal, capitalist, and communist economic system allow to satisfy the needs of human beings as the economic objectives. but conversely, jurisprudence is not really agree to to accept that objective, and need to validated by the qur'an and hadith. the economic sciences that developed in the western world are based on the freedom of the individual in conducting economic transactions. several western economic concepts need to be redefined in order to be adopted into the needs of shariah objective (maqashid shariah), such as the concept of wealth, concept of money, concept of capital, and others. based on the differences in the knowledge source and the theory of truth used, it is essentially problematic to combine the economics science with fiqh muamalah. the issue then acknowledged that the implementation of the islamic economic system in banking and insurance is almost identical with what is found in western economic systems. the islamic banking in practice remain to refers to many general economic models or systems. the fundamental epistemologyy differences between economic science and jurisprudence requires a collaborative principles that may combined as a new discipline. several actions should be taken in to account such as: first, redefinition of economics study. the subject matter in economics increased into the science of jurisprudence or reduced certain material that is considered irrelevant to shariah. the example for this case is a discussion on consumer behavior theory in microeconomics., the theory pointing the human activities relates to the search, selection, purchase, use, and evaluation of products and services to meet their needs and wishes. in this theory, the discussion in islamic economics perspective should be limited with shariah assumptions about the prohibition of non-halal commodities and services. secondly, redefinition of fiqh muamalah study in higher education institutions. the subject matter is increased by shariah legal analysis of various modern economic concepts such as time value of money, capital market instruments or transactions in the foreign exchange market. shariah judgements on such concepts is necessary to understand the fundamental origins and and its impact to the economy as a whole. these two customizations on our islamic economic study curriculum above, then bring us to the implications (iskandar and aqbar, 2019). first, if the economic sciences are redefined, then the products will be experiencing the definition anyway. for example, microeconomics products such as a regression in demand for general commodities will undergo redefinition by issuing an index of non shariah compliant goods. likewise, in macroeconomics, consumer price index used as a divider in the calculation of inflation is also changed by issuing the shariah non consumption commodity. due to this, there will be bias in some economic indicators. for example, inflation calculated according to the usual consumer price index will differ from the rate of inflation calculated by using shariah assumptions that have undergone redefinition. similarly, the prediction of unemployment, growth, national income or others. secomf, if the fiqh muamalah redefined, then it must be rewritten by adding a new economic concept which is not received yet a legal judgment on the classical jurisprudence. the redefinition of jurisprudence is the same meaning with the process of islamization of the sciences pioneered by ismail raji al-faruqi. islamization of international journal of islamic business and economics (ijibec), 4(2) december 2020, 81-94 91 knowledge means restoring the function of revelation to be seated as if it is aligned with human sense and experience as a source of knowledge. one of the earliest experiments in this field is approach for unifying islamic sciences with social sciences). 5. conclusion as part of indonesian muslims awareness, back on the track of shariah is getting strong and rounded. however, the lack and weaknesses of existing systems, conducing gap and deficiency to be rectified and repaired, even leave our community development behind. in this study we have highlight some critical points that challenge indonesia's sharia economic industry to resolved together. all parties and stakeholders must take responsibilities on their own role. according to these responsibilities, we can reconstruc islamic economics and finance, and relevance of the embedded shariah can be carried out. the emergence of islamic economics and finance discipline would then be a 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(2002). interest-free islamic banking: ideals and reality. international journal of finance, 14(4). 2428-43. 52 ijibec contribution of local wisdom as a halal tourism attraction: case study of pekalongan city central java indonesia abdul ghofur1, kuat ismanto 2 1department of islamic studies, postgraduate uin walisongo semarang abdulghofur@walisongo.ac.id 2postgraduate uin walisongo semarang kuatismanto79@gmail.com abstract the purpose of this paper is to analyze the contribution of local wisdom as a halal tourism attraction. this research is carried out with a qualitative research framework. primary research data is collected by qualitative research methods, namely through observation, interviews, and documentation. secondary data is obtained through the assessment of articles, books, research reports, documents, and other sources that are valid and support the theme of the research. observations are carried out in the region and tourist attractions, while interviews are conducted to the tourism office and the managers of tourist attractions, communities, and tourists. the collected data is analyzed descriptively and qualitatively. the results of this study show that pekalongan city has the prospect of becoming a halal tourism destination because it has fulfilled the components of halal tourism (attractions, access, amenities, communication, environment, supporting facilities, and celebration). on the other hand, the attractions and attractions owned by pekalongan city are interesting and diverse. pekalongan city has distinctive and unique local wisdom and can be an object and attraction of regional tourism. in addition, it is also supported by community security and creativity activities that support local wisdom as a tourism attraction. culture, islamic traditions, and local wisdom in pekalongan city have not been maximally packaged into tourist attractions. the implication of this study is that the packaging of local wisdom into a tourist attraction will contribute to the development of regional tourism. the abandonment of local wisdom as a regional tourism attraction will negate indonesia which is rich in cultural diversity as a differentiator with other countries in the field of halal tourism. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 1 2022 keywords: halal tourism; cultural tourism; regional tourism; tourism attractions; local wisdom doi: 10.28918/ijibec.v6i1.5199 jel: g10, g20 article info article history: received : 24 marh 2021 accepted : 20 may 2022 published : 1 june 2022 mailto:abdulghofur@walisongo.ac.id mailto:kuatismanto79@gmail.com international journal of islamic business and economics (ijibec), 6(1) june 2022, 52-62 53 1. introduction halal tourism has grown in various parts of the world, both in muslim-majority and nonmuslim countries. indonesia is among the countries that have paid attention through the ministry of tourism of the republic of indonesia. a number of regions have also developed it such as aceh jaya (bupati aceh jaya, 2019), west sumatra (gubernur sumatera barat, 2020), bandung district (bupati kab. bandung, 2020), and lombok, west nusa tenggara (firdausi, et all., 2017), and others. however, a number of other regions in indonesia also have potential, feasibility, and prospects such as solo (saeroji, et al., 2018), banjarmasin (budiman, et al., 2019), cirebon regency (ropiah, 2018), and other areas. in 2019, central java province has obtained the flagship halal tourism award version of the indonesian muslim travel index (imti) of the ministry of tourism of the republic of indonesia as a leading tourist destination (disporapor jateng, 2019). so, the concept of halal tourism has spread in the province of central java. halal tourism is a tourism concept whose implementation applies islamic teachings. this islamic teaching is implemented in tourism components such as attractions, access, amenities, communication, environment, and empowerment (ismanto, 2022). in particular, in tourist destinations there are halal food, mosques (places of worship), which basically meet the needs of muslim tourists (vargas-sánchez & moral-moral, 2018). although this concept is derived from islamic teachings, but this tourism concept is not exclusive to muslim tourists alone, but also for non-muslim tourists as well. in essence, with the concept of halal tourism, the expansion of services (extended services) for muslim tourists is obtained so that satisfaction of visits is obtained. the purpose of tourism development in the region is to realize regional prosperity such as employment, economic impact, regional income, and others (mardianis & syartika, 2018). conceptually individually, halal tourism aims to realize aspects of the maqasid shari'ah, both the concept of the previous scholars (realizing the benefit of religion, soul, reason, descendants, and treasures) (othman, et al., 2017) and the concept of maqasid asy-shari'ah of jaser audah (ismanto, et al., 2020). culture-based tourism and local wisdom are characteristics in indonesia. this condition is a differentiator with other countries in terms of developing the concept of halal tourism (ismanto, 2022). indonesia has a wide range of cultures around the world. pekalongan city, as part of central java province, has a variety and types of interesting tourism, including religious tourism, culinary tourism, tourism, shopping, cultural tourism, historical tourism, and others (pekalongan city government, 2019). pekalongan city gained unesco recognition as a "kota kreatif/creative city" (susanti, 2018a). this region is known to be religious for its various religious tourism and religious activities (makshum, 2017). in its development, pekalongan city has been visited by tourists, both archipelago and foreign tourists. various development developments and awards have also been obtained by this city. today, religious tourism and shopping tourism become the mainstream of tourism, even though the city has a fairly rich history and culture. in terms of tourism, history, culture, islamic traditions, and local wisdom are very suitable to be developed into a tourist attraction. because, regional tourism that prioritizes local wisdom becomes distinctive and unique for the region. so, pekalongan city has an interesting tourism destination and has been recognized by the world in the creative industry. studies on regional tourism associated with local culture and wisdom have been conducted by previous researchers, such as (harirah, et al., 2021), (rofelawaty, 2017), (miftahudin, 2020), (ridwan, fatchan, & astina, 2016), (irfan & suryani, 2017), (hasanah, 2019b), (aswita, suryadarma, & suyanto, 2018). nevertheless, halal tourism research 54 international journal of islamic business and economics (ijibec), 6(1) june 2022, 52-62 associated with local wisdom still requires a more comprehensive explanation. among the studies that have been produced are the work of djakfar (2017), sholehuddin, munjin, & adinugraha (2021), kasdi, nashirudin, & farida (2021), yuspin, absori, & nurhayati (2019), sundari, et al., (2021), hajar (2019), and (qodariyah & wahed, 2019). in particular, the results of research in pekalongan city related to halal tourism have been produced by several previous researchers, such as ismanto (2019) showing that pekalongan city has the potential to become a halal tourism destination in the perspective of the global muslim travel index (gmti), which is also supported by nurwilda (2020). its existence is also supported by academics around pekalongan (ismanto & madusari, 2020a). from the above exposure, this paper aims to complement existing studies by analyzing the extent to which the halal tourism attractions of pekalongan city, especially local wisdom, can be a regional tourism attraction. 2. methods this research is categorized as field research with a qualitative approach. primary data is obtained through observations at tourist attractions and interviews with religious figures, community leaders, and also government representatives, especially tourism agencies. secondary data is obtained through the study of journal articles, books, research reports, websites, and other sources related to the research theme. this research data was analyzed using the miles & huberman analysis stage (1984), which started from data reduction, data display, and ended with data verification. the data are analyzed by methods of content analysis and theme analysis (attride-stirling, 2001). 3. result and discussion development of halal tourism in pekalongan city pekalongan city is in a strategic area, located in the north coastal area of java island, which borders the java sea in the north, batang regency in the east, and pekalongan regency to the south and west. this city consists of 4 sub-districts, namely west pekalongan, north pekalongan, east pekalongan, and south pekalongan. the population of pekalongan city in 20218 was 315,997 people, consisting of 49.98% of men and 50.02% of women (bps pekalongan city, 2021). pekalongan city is ethnically dominated by javanese with a javanese style of pekalongan dialect which is dialectally close to the javanese banyumasan tegal dialect or javanese semarang. pekalongan's history as a port and trading city makes it have a number of prominent immigrant communities, such as ethnic chinese and arabs, in addition to of course other nusantara tribes such as malays and banjars. so, pekalongan city is a plural and strategic city that can be accessed through various directions, both through various modes of transportation, especially land. pekalongan city is famous for its religious nuances, because the majority of the population embraces islam. there are several unique traditions in pekalongan such as the celebration of syawalan with giant lopis, fetival hot air balloons, sea alms (sadranan/peh cun), and other cultural activities that have been running and some of them are celebrated every year (bappeda pekalongan, 2019). syawalan as one of the annual agenda is a celebration seven days after eid al-fitr and is enlivened with giant lopis cuts to then be distributed to visitors (rokhayah, 2019). this agenda is routinely carried out in order to take care of traditions and attract tourists. pekalongan city is dubbed as "batik city", which is distinctive and global. pekalongan batik has been around since about 1800. this is inseparable from the history that since https://id.wikipedia.org/wiki/cina https://id.wikipedia.org/wiki/arab https://id.wikipedia.org/wiki/melayu https://id.wikipedia.org/wiki/banjar international journal of islamic business and economics (ijibec), 6(1) june 2022, 52-62 55 hundreds of years ago until now, most pekalongan people produce batik (pekalongan, 2014). significant developments only occurred after the diponegoro war or also called the java war of 1825-1830 in the mataram kingdom. if previously the use of batik clothing was only limited to subordinate fabric clothing for women (jarik) and sarongs began to develop into finished clothing such as dress materials for women and shirts for men. the next development of batik became accessories for hats, households such as bed linen, bedcover, tablecloths, napkins and others. tourism is a concern for the pekalongan city government. this can be seen in the attention of the local government and also the diversity of types of tourist attractions. various awards have been received by this city further adding to the image of the city. among the types of tourism are cultural, religious, educational, culinary, shopping, history, nature, and others (pekalongan city government, 2019). this tourist attraction is spread across four sub-districts (see table 1.). table 1. types and attractions of pekalongan city tourist attractions object historical heritage tourism (heritage) 1. batik museum 2. dutch territory (jetayu) 3. chinatown 4. chinatown area islamic culture and traditions 1. syawalan (giant lopis) 2. sea alms 3. sintren 4. simthuddurror 5. samproh 6. multicultural sufi 7. kuntulan 8. barongsay & liong march 9. marahod dance 10. traditional sintren dance 11. sintren garap dance shopping tours 1. sentra atbm batik medono 2. setono batik wholesale market 3. mall (matahari hypermart, ramayana, transmart) 4. kauman batik village 5. pesindon batik tourism village 6. krapyak batik village 7. gamer wholesale market 8. mm wholesale market 9. ridaka craft center 10. atbm medono 11. kampung canting landungsari & kebulen 12. fariz craft nature tourism 1. pasir kencana beach 2. slamaran beautiful beach 3. pekalongan mangrove park 4. marine tourism beach (ppnp)/fisherman's museum http://tourism.pekalongankota.go.id/destinasi/30-pusat%20kerajinan%20ridaka http://tourism.pekalongankota.go.id/destinasi/29-atbm%20medono http://tourism.pekalongankota.go.id/destinasi/28-kampung%20canting%20landungsari%20%26%20kebulen http://tourism.pekalongankota.go.id/destinasi/31-fariz%20craft 56 international journal of islamic business and economics (ijibec), 6(1) june 2022, 52-62 tourist attractions object religious tourism 1. tomb of habib ahmad bin tholibal-atas (sapuro) 2. tomb of prince sampang tigo (pandito banyu segoro) 3. kliwon friday study in kanzus sholawat habib luthfi bin yahya 4. al-qur-‟an museum in komplek masjid al muhtarom 5. aulia pekalongan mosque culinary 1. soto tauto 2. garangasem masduki 3. megono rice 4. ijo bean sugar 5. tahlil coffee 6. nasi kebuli 7. culinary tourism "kampoeng jadoel" 8. culinary tourism "jetayu" source: calender of event pekalongan city (2019) tourism in pekalongan city is well developed, such as in the management of destinations and infrastructure. in the north has been developed the largest water tourism in indonesia by the central government in collaboration with the local government with which "new pasir kencana" (vishnu, 2022). several awards to tourism have also been obtained, so that the image of city tourism is getting better (ismanto, 2022). however, batik and its derivatives are the main tourist attraction in this city along with the batik museum. there is also a centralized batik shopping tour at the setono batik wholesale market. batik is a folk handicraft product that is the flagship of the region. not only referred to as a batik city in indonesia, pekalongan city is also referred to as the world's batik city. this is based on the condition of the community who mostly have their livelihoods as batik craftsmen. in addition, at the international batik week in 2011, the new slogan of pekalongan city "world's city of batik" was launched as the first step in a global batik city. pekalongan became the only representative of indonesia and even southeast asia to be included in the category of world creative cities by unesco in 2014. therefore, now not only the nickname of batik city owned by pekalongan, but also as a creative city that is recognized at the international level (susanti, 2018b). pekalongan city which is characterized by religious and creative has the potential to become a halal tourism destination (ismanto, 2022). this can be seen in the existence and diversity of halal tourism components in pekalongan city, such as attraction components, access, amenities, communication, environment, supporting facilities, and empowerment. a number of studies have also stated that pekalongan city is feasible and ready to become a halal tourism destination (ismanto, 2019; ismanto & madusari, 2020b; nurwilda, 2020). therefore, the development of pekalongan city tourism can be categorized as developing. local culture and wisdom in pekalongan city tourism the development of regional tourism that makes local culture and wisdom as tourist attractions makes the area has a distinctive regional identity (branding). the local culture international journal of islamic business and economics (ijibec), 6(1) june 2022, 52-62 57 and wisdom are very attached to the community, so that the packaging becomes a tourist product and the involvement of local residents. the development of tourism involving the community means that it has lifted its dignity from several aspects, such as economic and social. this condition is in accordance with the concepts of community-based tourism development community based tourism (cbt) (sugandi, paturusi, & wiranatha, 2020) and sustainable tourism (sustainable tourism) (cuesta-valiño, bolifa, & núñez-barriopedro, 2020). according to timothy, mohsin, & ryan (2019),community-based tourism is an understanding related to the certainty of benefits obtained by the community and the existence of mentoring planning efforts that defend local communities. community participation in tourism consists of two perspectives, namely community participation in the decision-making process and participation related to the distribution of profits received by the community from tourism development. therefore, there are basically three main principles in the strategy of planning tourism development based on society. these two tourism concepts have made local culture and fanfare an important part of development. pekalongan city has a culture, traditions, local wisdom, and others that are typical of the region. the form of each culture and local wisdom is described in table 2 as follows: table 2. local karifan in pekalongan city local wisdom existed tangible culture (tangibles)) pekalongan batik keris suratman kethip and suratman lethrek batik sarong heritage local wisdom kauman batik village pesindon batik village krapyak batik village chinatown arab village dutch village (jetayu) local economic wisdom batik tiban market activities in kampung batik canting making traditional market with sni sanggan batik women religious local wisdom pilgrimage of the tomb of ulama haul habib ahmad sapuro haul kyai tohir beard pengajian jum‟at kliwon di kanzus sholawat khotaman in pondok modern junaid habib bagir pekalongan's routine studies friday night yasin and tahlil reading simtuduror and al-barjanji readings kegiatan tpq dan mengaji al-qur’an tashih activities pass tpq graduation at kyai khumaidi family grave pilgrimage activities the study of the mosque and mosque assembly kyai/ustadz mosque and mosque study 58 international journal of islamic business and economics (ijibec), 6(1) june 2022, 52-62 the study of mothers in mosques / mosques and homes manakib reading sheikh abdul kodir jaelani local wisdom in social life legend of goddess lanjar local wisdom facing disaster local culture and wisdom that are manifested syawalan celebration hot air balloon festival simtudduror reading talisman long march sadranan/sea alms peh cun celebration sintren dance traditional music cultural arts festival (rampak) jlamprang dance pekalongan nusantara batik week source: compiled from various sources, 2021. from the exposure of table 2., the local culture and wisdom in pekalongan city can be used as a tourism attraction. among these forms of local wisdom are: a) tangibles of culture; b) local heritage wisdom; c) local wisdom of the economy; d) local religious wisdom of the community; e) local wisdom in people's social life; f) local culture and wisdom are manifested. local wisdom as a tourist attraction is common in various regions in indonesia, such as in yogyakarta (vitasurya, 2016), balik (kharisma & muni, 2017), lombok (irfan & suryani, 2017), and east java (suksmawati, pabyantara, & ..., 2020). thus, local wisdom in pekalongan city can also be done similarly. local wisdom as a halal tourism attraction of pekalongan city local wisdom is the ideas, values or views of a place that has a wise and good value nature that is followed and trusted by the community in that place and has been followed for generations (wandasari, 2017). pekalongan city is an area part of central java that has a unique local culture and wisdom. tangible and intangible culture belongs to this city. islamic values that appear in the daily activities of the community and historical relics, indicate this area has a distinctive historical heritage (heritage). some of the local wisdom in this area has been manifested so that it becomes an attraction for archipelago and foreign tourists such as long talisman parades, balloon festivals in syawalan, sea alms, and others (pekalongan city government, 2019). in the context of halal tourism, local culture and wisdom can be used as an attraction and tourist attraction. regional solidarity activities, such as syawalan celebrations, clerical hauls, simtuddurors, and others are packaged into one annual routine activity that can attract tourists from outside. by making local wisdom as the basis for the development of halal tourism makes this concept better, on the other hand economic benefits can be obtained. likewise with the development of halal tourism in the region and indonesia. the results of this study, in particular, further strengthen the results of previous research on the feasibility of pekalongan city to become a halal tourist destination conducted by researchers previously (ismanto, 2019; ismanto & madusari, 2020b; international journal of islamic business and economics (ijibec), 6(1) june 2022, 52-62 59 nurwilda, 2020). in general, the results of this study also further strengthen that local culture and wisdom can be an interesting tourist product while protecting it from extinction as shown by previous research budiningtyas (2018), erna sadiarti budiningtyas & sirod (2021), raodatul hasanah (hasanah, 2019a), solemede, tamaneha, & selfanay (2020), and komariah, saepudin, & yusup (2018). 5. conclusion based on the results of research and discussion, this study produces conclusions. first, pekalongan city has the prospect and feasibility of becoming a halal tourism destination as well as previous studies with different 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(2019). the establishment of participatory regional regulations based on local wisdom. humanities & social sciences reviews, 7(3), 92–96. https://doi.org/https://doi.org/10.18510/hssr.2019.7314. 96 ijibec characteristics of the sharia supervisory board (ssb) and investment account holders (iah) to islamic social responsibility disclosure (isrd) in islamic banks hirdinah dewi kenangsari1* and falikhatun2 1,2 departement accounting, faculty of economics and business, universitas sebelas maret jalan ir. sutami no.36 a kentingan surakarta 57126 1* email: hirdinahdk@gmail.com 2 email: falie.feuns17@gmail.com abstract this study examines the effect of education level on the sharia supervisory board (ssb), ssb doctoral ratio, and investment account holders (iah) on islamic social responsibility disclosure (isrd) using the control variable of profitability and firm size. the object of the research is islamic banks in the four countries with the highest percentage of poor people in the selected regional division of asia and europe: indonesia (southeast asia), bangladesh (south asia), jordan (west asia), and turkey (southeast europe), which published annual reports in 20132019. the results showed that ssb education level and firm size positively affected isrd, while iah and profitability did not affect isrd. meanwhile, ssb doctoral ratio has a negative effect on isrd. this research can provide consideration and input for islamic bank regulators in evaluating existing regulations. future research is expected to add proxies for ssb characteristics and other variables in testing the effect of islamic bank isrd quality. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 2 2022 keywords: islamic social responsibility disclosure; sharia supervisory board; investment account holders; islamic bank. doi 10.28918/ijibec.v6i2.4509 jel: c12, g21, g30 article info article history: received : 17 october 2021 accepted : 27 october 2022 published : 1 december 2022 mailto:hirdinahdk@gmail.com mailto:falie.feuns17@gmail.com international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 97 1. introduction the importance of islamic social responsibility disclosure or isrd for stakeholders, namely sharia government institutions, communities, people, and the environment, is that it can help make religious and economic decisions in a sharia company (zafar & sulaiman, 2019). it is because isrd is a manifestation of accountability to god and stakeholders and a form of transparency in business activities that disclose various information to meet the spiritual needs of muslim decision-makers (bukhari et al., 2020; santoso et al., 2018). isrd is mandatory for sharia companies because companies that operate with sharia principles will automatically be socially responsible as a form of obedience to allah's commands (hussain et al., 2020; setiawan et al., 2016). islamic banks have grown rapidly, in the global market, with volumes approaching us$ 1.7 billion as of june 2020, marking a 72.4% share of banking assets globally. to the islamic financial services industry stability report 2020, there are at least 36 islamic bank jurisdictions in the world, with an increase in the islamic banking market occurring in 19 countries, including the gulf-cooperation countries (gcc), the middle east and north africa (mena) and the asian region (zulfahmi et al., 2021). according to the international monetary fund imf, one of the causes of the success of the islamic bank market is the existence of ethical principles and socially responsible business (zulfahmi et al., 2021). the principles of ethics and socially responsible business in islamic banks are called isrd or islamic social responsibility disclosure. isrd, according to the accounting and auditing organizations for islamic financial institutions (aaoifi), is all activities carried out by islamic financial institutions to fulfill religious, economic, legal, ethical, and discretionary responsibilities (aaoifi, 2017). isrd is mandatory for every islamic bank because if it operates based on sharia principles, it will automatically be socially responsible (hussain et al., 2020). however, various studies state that the quality of isrd in islamic banks is still low (ahmad & rahman, 2019; nugraheni & wijayanti, 2017; sawitri et al., 2017). it is due to the absence of overall regulation on isrd (rimayanti & jubaedah, 2017). so that the pressure of business competition and corporate religious awareness causes the quality of isrd to increase (ahmad & rahman, 2019; bukhari et al., 2020). in islamic banks, there is a sharia supervisory board (ssb) that supervises sharia compliance in islamic banks (elamer et al., 2019; kamarulzaman & madun, 2013). however, various studies have shown that the quantity of ssb members does not affect the quality of isrd (dewindaru et al., 2019; meutia et al., 2019; suryadi & lestari, 2018; wardani & sari, 2019). it is because the individual quality of ssb members affects the quality of isrd more than the quantity the number of ssb members (dewindaru et al., 2019). in hasan mukhibad (2018), the educational background of islamic economics, education, and doctoral education ratio member ssb positively affects the quality of isrd. it means that higher education and relevant members of the ssb will increase the effectiveness of ssb islamic banks in terms of increased isrd quality (mukhibad, 2018). this result is also in line with the research of farook and colleagues, which showed that the higher the doctoral qualification and the international reputation of ssb, the higher the quality of isrd (farook et al., 2011). it is due to the increasing number of ssb members with higher education levels, the higher the level of supervision, independence, and the tendency of ssb, so the pressure on the ssb to encourage islamic banks to improve the quality of isrd is increasing. in this study, the researchers used the ssb education level and the ssb doctoral ratio as proxies for the ssb characteristics in their effect on isrd quality. 98 international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 because of this research, the researcher considers the ssb characteristic variables and the iah ratio can affect the quality of isrd. it is due to the strategic position of ssb, which is equivalent to the board of commissioners (meutia et al., 2019), and the iah ratio is the ratio of savings deposits owned by customers as stakeholders of islamic banks (farook et al., 2011; guermazi, 2020; putri & mardian, 2020). the isrd measurement uses four themes, namely the theme of zakat, employees, communities, and the environment adopted from previous research, namely othman & thani (2010), sofian & muhamad (2020), and brahim & arab (2020). this study also uses cross-country studies based on the highest percentage of poor people in selected parts of asia and europe, namely indonesia (southeast asia), bangladesh (south asia), jordan (west asia), and turkey (southeast europe). the research year used is the latest, namely 20132019. this study uses control variables in the form of profitability and firm size. control variables are used because the independent variables are not influenced by external factors not examined in this study (sugiyono, 2017). this study uses profitability because profitable businesses often aim to expand their social responsibility to persuade stakeholders, notably investors, that the business cares about more than just short-term effects (profit), such as long-term objectives (chumaidah & priyadi, 2018). size is because larger companies tend to pay more attention to the running of their companies, so the tendency of information disclosure also increases (hussain et al., 2020; setiawan et al., 2016). this study used islamic stakeholder theory. according to islamic stakeholder theory, every employment and business activity is worship. hence they must be carried out by allah and follow his precepts, with allah serving as the primary stakeholder and possessing all of the world's resources (beekun & badawi, 2005; mohammed & muhammed, 2017). this study contributes to filling the previous research gap where this study uses the variables of ssb education level, ssb doctoral ratio, and iah ratio. in addition, the isrd index used is a combination of the isrd index in the previous research. this study used samples and the latest research year, namely islamic banks in indonesia, bangladesh, jordan, and turkey in 2013-2019. this research also contributes, among others, as a reference for regulators in updating related regulations and establishing new regulations regarding isrd islamic banks, as a reference on islamic stakeholder theory in developing hypotheses in further sharia research, as a reference for islamic banks in evaluating and maximizing isrd quality in sharia bank annual report, as a reference for investors in making investment decisions, as a reference for creditors in considering decisions to provide credit, and as a reference for the development of science and further research on isrd. 2. method the population in this study are islamic banks located in indonesia, bangladesh, jordan, and turkey from 2013 to 2019. the sampling technique in this study uses a non-probability sampling method using particular criteria, which include a. islamic banks are located in indonesia, bangladesh, jordan, and turkey from 2013 to 2019; b. islamic banks are located in countries with the highest percentage of poor people in selected parts of asia and europe, namely indonesia for southeast asia, bangladesh for south asia, jordan for west asia, and turkey for southeast europe; c. islamic banks have annual report data as of 31 december, which can be accessed online; d. islamic banks have complete data regarding the variables used in the study; international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 99 e. islamic banks did not conduct mergers or acquisitions during the study period. by using purposive sampling, this study obtained 17 islamic banks with 100 observations. the dependent variable of this study is islamic social responsibility disclosure (isrd). corporate social responsibility in an islamic perspective or islamic social responsibility disclosure (isrd) is an alternative philosophical framework based on sharia principles regarding the rules of human relations with nature and with fellow humans in business as a form of worship to allah swt (khurshid et al., 2014). the isrd proxy uses isrd scores in the categories of zakat, employees, communities, and the environment that have been developed by previous researchers, namely othman & thani (2010), sofian & muhamad (2020); and brahim & arab (2020). scoring is done by giving a score of 1 for companies that disclose each disclosure index and a score of 0 for companies that do not disclose any disclosure index in the annual report, then the number of isrd scores disclosed is divided by the maximum value of the isrd score (brahim & arab, 2020; dewindaru et al., 2019; farook et al., 2011; fauziah & j, 2013; hassan & harahap, 2010; hussain et al., 2020; jaiyeoba et al., 2018; jannah & asrori, 2016; jati et al., 2020; khasanah & yulianto, 2015; kurniawati & yaya, 2017; meutia et al., 2019; nissa & asrori, 2017; novrizal & fitri, 2016; nugraheni & khasanah, 2019; othman & thani, 2010; prasetyoningrum, 2019; ramadhani, 2016; rimayanti & jubaedah, 2017; rosiana et al., 2016; santoso et al., 2018; setiawan et al., 2016; sulistyawati & indah, 2017) the independent variable used sharia supervisory board (ssb) education level, ssb doctoral ratio, and investment account holders (iah) ratio. ssb education level is proxied by giving a score of 3 to members with a doctoral education level, a score of 2 at the master's education level, and a score of 1 at the undergraduate education level, and then the total score is divided by the number of ssb members (mukhibad, 2018). the ssb doctoral ratio is proxied by the ratio of ssb members who have a doctoral education background to the total ssb members (mukhibad, 2018). the iah ratio is proxied by the ratio of the total amount of third-party funds to the total amount of paid-in capital in shareholder equity (astuti & nurkhin, 2019; charatunnisa & muthmainah, 2019; farook et al., 2011; hikmatullah, 2019; khasanah & yulianto, 2015; mukhibad, 2018; nissa & asrori, 2017; zanjabil & adityawarman, 2015). the control variable uses profitability and size. profitability is measured using the return on equity or roe ratio, which is the ratio between net income after tax and company capital (hardian, 2016; hijriah, 2019; nugraheni & wijayanti, 2017). firm size is measured by the total assets of islamic bank companies (farook et al., 2011; hussain et al., 2020; meutia et al., 2019). the estimated model used in this study is as follows: 100 international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 figure 1. model of research the data were analyzed using a panel data regression analysis with time series and cross-section data. the panel data is then tested with the classical assumption test so that the panel data model becomes valid as an estimator. then, the panel data model is selected between common effect, fixed effect, and random effects. there are three hypothesis testing carried out, namely the f statistical test, the multiple determination coefficient test (r2), and the t statistic test. the f statistical test is used to test the significant effect of the independent variables simultaneously on the dependent variable. the multiple determination coefficient tests (r2) are used to figure out the percentage variations of the dependent variables to the model explained by the independent variable. the statistical ttest is conducted to examine the effect of each independent variable on the dependent variable and assume that the other independent variables are constant. 3. result and discussion research samples and descriptive statistics the purposive sampling method used to determine the sample caused several banks to be eliminated, so the final sample used in this study was 17 companies with 100 observations. table 1. results of descriptive statistics n mean maximum minimum sd dependent logisrd 100 -0.154 0.173 -0.551 0.132 independent logpend 100 0.316 0.424 0.154 0.079 docr 100 0.546 1 0 0.327 iah 100 7.666 16.605 -1.085 3,824 control roe 100 0.053 0.161 -0.148 0.059 logsize 100 6.599 7.413 5.427 0.518 source: authors (2021), processed data the statistical test results in table 1 show that the sample tested was 100 observations. the average natural logarithm of islamic social responsibility disclosure or isrd of islamic international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 101 banks in indonesia, bangladesh, jordan, and turkey in 2013-2019 is -15.4%. the maximum isrd value is 17.3%, and the minimum isrd value is -55.1%. for the sharia supervisory board (ssb) education level variable, members with ph.d. degrees receive a score of 3, master's degree holders receive a score of 2, and undergraduate students receive a score of 1. the total score is divided by the number of ssb members (farook et al., 2011; mukhibad, 2018). the average value of the natural logarithm of the education level of ssb members is 31.6%. the maximum value for the natural logarithm of the ssb education level is 42.4%, and the minimum value is 15.4%. the average value of the ssb doctoral ratio variable is 54.6%. this shows that, on average, half of the ssb members have a doctoral education background. this is in accordance with the ifsb's instructions that ssb requires members with doctoral degrees to be able to carry out the duties and functions of ssb properly (ginena & hamid, 2015). even so, the minimum value of this variable is 0%, which indicates that there are ssbs that do not have members with a doctoral education background. the average value of the investment account holder (iah) ratio is 7.666, indicating that the average ratio of bank customer deposits to shareholder equity is 7.666. the maximum value of the iah ratio is 16.605, and the minimum value of the iah ratio is -1.085. the existence of a negative value is due to losses experienced by one of the islamic banks every year, which causes the total equity to be negative. in the control variable, profitability is used as proxied by return on equity (roe), and the size of islamic banks is proxied by the natural logarithm of total assets. the average profitability of islamic banks is 5.3%. the maximum value of profitability is 16.1%, while the minimum value of profitability is -14.8%. in the size of islamic banks the average natural logarithm of the size of islamic banks is 6.599, while the maximum value is 7.413 and the minimum value is 5.427. normality test in the test results, the probability value of the normality test in this study is 0.649253, which is greater than the significance value of 0.05. the research data has been normally distributed. multicollinearity test table 2 shows that there is no correlation coefficient because all values do not exceed |0.8|, so it can be concluded that the data used does not experience multicollinearity problems. table 2. multicollinearity test results logpend keu iah size logsize logpend 1 keu 0.7681 1 iah -0.223422 -0.158601 1 roe -0.298029 -0.39662 0.347124 1 logsize -0.148951 0.012276 0.740331 0.515483 1 source: authors (2020), processed data autocorrelation test autocorrelation test conducted by durbin-watson test by comparing the value durbinwatson statistic with durbin-watson on the table 3. the results of the autocorrelation test showed the calculated value of dw was 2.003306. then the dl value shows a value of 1.571, a du value of 1.7804, a 4-du value of 2.2196, and a 4-dl value of 2.429. from the results of 102 international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 this autocorrelation test, it can be concluded that the value of dw has a value greater than du and less than 4-du with the position dl<du<dw<4-du<4-dl, which means the study is free from autocorrelation. table 3. autocorrelation test results variable durbin-watson dl du 4-du 4-dl isrd 2.003306 1.571 1.7804 2.2196 2.429 source: authors (2020), processed data heteroscedasticity test the heteroscedasticity test in this study uses the glejser test. table 4 shows that all the variables used have a probability value of more than 0.05, so it can be concluded that the regression model is free from heteroscedasticity problems (see table 4). table 4. heteroscedasticity test results variable coefficient prob. logpend 0.022191 0.8766 docr -0.026717 0.4888 iah -0.003855 0.1734 roe 0.129831 0.4214 logsize 0.025394 0.3017 c -0.039995 0.7884 source: authors (2020), processed data model selection test the regression model selection begins with conducting the chow test to choose between the common effect model and the fixed effect model. the results of the chow test in table 5 show the probability value of the f statistic of 0.0002, which is smaller than the 0.05 significance level. it shows that the selected model from the chow test is the fixed effect model. next is the hausman test to choose between the fixed and random effect models. table 5 shows the results of the probability test with a statistical chi-square probability value of 0.8128, which is greater than the 0.05 level of significance. the results conclude that the selected research regression model is a random effect model.. table 5. results of chow test and hausman test chow test effects test statistics df prob. cross-section f 3.295002 (16.78) 0.0002 hausman test test summary chi-sq. statistics chi-sq. df prob. cross-section random 2.25517 5 0.8128 source: authors (2020), processed data hypothesis testing results the results of the f statistic test in table 6 show the f statistical probability value of 0.00027. this value is smaller than the significance value of f used, which is 0.05, so it can be concluded that the independent variables simultaneously affect isrd. furthermore, the adjusted r-square value shows a value of 0.176708. this value shows that the ssb education international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 103 level variable, the ssb doctoral ratio, the iah ratio, profitability, and company size can explain the islamic social responsibility or isrd variable by 17.67%, while the other 82.33% is explained by the other variable, other than the independent variables used in this study. table 6. hypothesis test results hypothesis independent variable dependent variable coef. prob. information h1a logpend logisrd 0.502538 0.0431 positive influence h1b docr logisrd -0.250638 0.0017 negative influence h2 iah logisrd -0.007466 0.2153 no effect control roe logisrd -0.090573 0.7741 no effect control logsize logisrd 0.184032 0.0012 positive influence r-squared 0.218288 adjusted r-squared 0.176708 f-statistics 5.249789 prob(f-statistic) 0.00027 source: authors (2020), processed data 1) ssb education level to isrd according to islamic stakeholder theory, there is a positive correlation between ssb education levels and isrd. al-mujadilah (22) verse 11 of the qur'an states that muslims who are knowledgeable will be elevated in rank. this means that as there are more ssb members with higher education levels, the ssb members will find it easier to improve the quality of isrd islamic banks with allah swt's blessing. 2) ssb doctoral ratio to isrd the probability value of t for the sharia supervisory board (ssb) education level variable is 0.043. a value smaller than the 0.05 significance level indicates that the number of ssb members with higher education levels will affect the quality of isrd islamic banks later. the coefficient value of 0.5025 indicates a positive direction, which means that the greater the ssb members with higher education levels by 1%, the isrd of islamic banks will increase by 0.5025%. these results indicate that the higher the education level of ssb members, the higher the isrd quality of islamic banks. hypothesis h1a, which states that ssb education level has a positive effect on isrd, is supported. these results are consistent with the study of farook et al. (2011) and mukhibad (2018), which state that the education level of ssb members positively affects the quality of isrd. it is because the more ssb members with higher education levels, the more variations of ideas that arise regarding social responsibility, so there will be more social product innovations and their implementation. this large number of variations means that the quality of isrd is increasing. in addition, ssb members with higher education levels can be more skilled in deciphering islamic law so that it can be applied to modern islamic banks (farook et al., 2011; ginena & hamid, 2015). according to islamic stakeholder theory, there is a positive correlation between ssb education levels and isrd. al-mujadilah (22), verse 11 of the qur'an, states that knowledgeable muslims will be elevated in rank. it means that with more ssb members with higher education levels, the ssb members will find it easier to improve the quality of isrd islamic banks with allah swt's blessing. 3) ratio of iah to isrd the probability value of the t-statistic test for the investment account holders or iah variable is 0.2153 with a significance of 0.05. it shows that the size of the iah ratio does not affect the isrd quality of islamic banks. the coefficient value on this variable is -0.0075, 104 international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 which indicates a negative direction; if the iah ratio increases by 1%, the isrd of islamic banks will decrease by 0.0075%. these results indicate that the higher or lower the iah ratio, the lower the isrd quality. hypothesis h2, which states that the ratio of investment account holders or iah has a significant positive effect on islamic social responsibility disclosure or isrd, is not supported. this study is consistent with nazabiya's (2018) research which states that the iah ratio does not affect the quality of isrd because islamic banks are not responsible for iah through isrd. this study is inconsistent with the research of farook et al. (2011), charatunnisa and muthmainah (2019), and astuti and nurkhin (2019), which state that the iah ratio has a positive effect on isrd. according to the statement of financial accounting standards or psak 105 concerning mudharabah accounting, iah profits are divided between the customer and the islamic bank according to the agreement. in contrast, the customer only bears the financial loss as the owner of the funds. because islamic banks have the potential to benefit consumers, they tend to seek out and preserve iah funds with them. because islamic banks have the potential to benefit consumers, they tend to seek out and preserve iah funds with them. when the iah rises, islamic banks allocate iah funds to profitable investments (profit-sharing investment account/psia). so, shoppers can benefit from the iah profit sharing and maintain their iah in affiliated islamic banks (alshattarat & atmeh, 2016; ameer et al., 2012; guermazi, 2020; magalhaes & al-saad, 2013). this activity does not affect the allocation of funds for isrd, so the quality of isrd is not affected. by islamic stakeholder theory, in qs. al-anfal (8) verse 27 explains that muslims are prohibited from betraying the mandate given, so islamic banks are prohibited from betraying customers' trust in iah because iah aims to gain profit sharing between customers and islamic banks. then this study found that the minimum ratio of iah is -1.085. the minimum ratio of iah causes low profit-sharing financing, which causes low profits, thereby reducing the number of social funds that can be used for activities related to social responsibility. the consequence of this is that there is less information in isrd. therefore, the islamic banks that are the sample in this study do not use iah's profits in carrying out corporate social responsibility. in the research results of farook et al. (2011), charatunnisa and muthmainah (2019), and astuti and nurkhin (2019), the iah ratio has a positive effect on isrd. it is because the sample related to iah determines the level of compliance with islamic banking principles and its consequences for isrd disclosure. the amount of iah, more significant than shareholder equity, shows that muslims are more interested in islamic bank products and services than in buying shares. customers do not have formal voting rights to influence the level of monitoring of islamic banks due to iah. as a result, islamic banks must disclose information about their corporate social responsibility, or isrd, with greater transparency and accountability to meet customer demands as iah rises and falls. the higher the iah, the wider the disclosure of isr in islamic banking (astuti & nurkhin, 2019; charatunnisa & muthmainah, 2019; farook et al., 2011). in zanjabil and adityawarman's (2015) study, iah has a negative effect on isrd. it is because the isrd-related sample is used to attract customers and consolidate cooperative relationships with customers. therefore, if the iah declines, islamic banks will make more expansive disclosures to attract customers. vice versa, if the iah follows the targets set by islamic banks, islamic banking will tend to reduce the quality of isrd (zanjabil & adityawarman, 2015). the probability value of the t-statistical test results for the profitability control variable is 0.7741, with a significance of 0.05. it shows that the size of the company's profitability in international journal of islamic business and economics (ijibec), 6(2) december 2022, 96-109 105 the return on equity or roe proxy does not affect the isrd of islamic banks. the coefficient value of -0.906 in the study shows an unfavorable direction so that if the size of islamic banks increases by 1%, the quality of isrd islamic banks can decrease by 0.906%. the results show that the size of the profitability of islamic banks in the roe proxy does not affect the isrd of islamic banks. the result is in line with nugraheni & wijayanti's (2017) research, which states that islamic companies do not consider company profitability in the isrd area of islamic companies. it is because, for islamic companies, especially islamic banks, isrd is an obligation that must be implemented (nugraheni & wijayanti, 2017). the probability value of the t-statistical test results for the firm size control variable is 0.0012, with a significance of 0.05. it shows that the size of islamic banks can affect the isrd of islamic banks. the coefficient value of 0.184 in the study shows a positive direction, so if the size of islamic banks increases by 1%, the isrd quality of islamic banks can increase by 0.184%. it shows that the larger the size of the islamic bank, the higher the isrd quality of the islamic bank. these results are in line with research by hussain et al. (2020), meutia et al. (2019), and setiawan et al. (2016), which state that company size has a positive effect on isrd because companies that have significant assets will be more comprehensive in paying attention to their social responsibilities (hussain et al., 2020; meutia et al., 2019; setiawan et al., 2016). 4. conclusion the results of this study indicate that simultaneously the dps education level variable and the firm size control variable have a positive effect on isrd. the iah ratio and profitability have no effect on isrd. at the same time, the doctoral ratio of ssb has a negative effect on isrd. various limitations in this study include variables and proxies on ssb characteristics are still limited, where the characteristics used are only two variables, namely education level and ssb doctoral ratio. it is hoped that further research will add variables related to ssb characteristics, especially those that can represent the influence on isrd. in addition, the number of islamic banks that became the sample was minimal, namely 100 samples, because of the large number of outlier sample data, so it is hoped that future research will choose countries with a few outlier islamic bank samples. finally, the scope of the research is limited to countries with the highest percentage of poor people in selected parts of asia and europe, namely indonesia for southeast asia, bangladesh for south asia, jordan for west asia, and turkey for southeast europe. therefore, for the following research, it is hoped that more selected regions of the continent will be selected so that more sample countries can be selected. acknowledgement we would like thanks to respondents who participated in this study. we also thank the reviewer for the significant comments and suggestions to improve this paper. references aaoifi. 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(2021). participation banks in turkey: issues and proposes strategies based on swot analysis. international journal of islamic economics and finance (ijief), 4(si), 121–152. https://doi.org/10.18196/ijief.v4i0.10475 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / ������� �� article history: received : 10 may 2017 accepted : 20 may 2017 published : 1 june 2017 keywords: 9���"��� � ���"� � ����"� ��������"��� ��� � �� � ������ 3��� ������ ����� ���� ������� ����� � ����� ��l�������� �� � ���� � ���� � ���� ����� ������ �� ����� $��� ����� ��������"� �������� ���������� ����� ��� ���� � ����� ��l����� ��� ���� ���� ��� ����� �� � �������� &e��� �f"� e�� f� ��� e���� �����f� ����+��3���� � ���� ��������������������������� �������� ���� ��������� ����� �������� ��� ����� ���� ���� �$� �� � ���� ����"� ��������� �������� � ����� ��l����� )�� � ��� ��� ���� �l ������� �$� %���������� ���� ������ ������� ����� �������� ���������� �l �� ����� �������� 3� �� ��������� �� ��� �6���� ��� �� ���� )������ ��� ����������� �� �� ��� � ��� ����� ��� ��� )������ ��������������� ����"�����%����������� �������������� ���� ��� � ��������l ��������$�e8����=��� ����$�9���f��� ��� ��� `�� �����`���������{���d��$�� �z�%������������������������ �$� %���������� ����� ������� 3������� ���� ���� �$� ���������� ���� ��� ���������������� ��� ������ ��� ����"� �� � ��� ������� �� e9���� %���������f� ������ �� ��� ��� ���� �$�������� ������ ���� �������� ��� �$� %���������� ����� �������� �������� ����� ������ ������"� ���� ������ ����� $��� %���������� � ��� ����������� ��� %���������� (<;%k)� �� �� ��� � ��� ���� ���� �$� ���� ������� 3����$���"� �� � ��� ���� ��� � ������ ��� ������ ������ ��������� �������� protecting batik customers and the existence of pekalongan original batik by augmented reality technology based on cloud computingin batik label paminto agung christianto, eko budi susanto, & ichwan kurniawan stimik widya pratama pekalongann e-mail: p_a_chr@yahoo.com i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 2 3 2 926 ��� �������� 9������������������� ��� ��%��������������������� ��� ������������e3���8����=��* ����$�9���f�� )��� ��"�-{;<*>������� ?��%������������������$����������=����������� �������� ��� u"�-{;<*>� ������ ?���)������ ����������������$������� ������������������ ��������� 9������������������ ��"��������tulis, cap and a ���#�������������3������� �� ������� ���� � ���� ������� ��� �"��� ��������������������������� ��l ��� ����� ��� ��������������� ���l ��� ������ �����k������"��������������������� ��$���������������3�����������=��� ��� �������������������� ����� ��������������������� � �������l����� �������� � ��������� ������������������������"� �����$���������� ��������$���� ���������������������� � ��� 3��� ���������=� �������� �� � ����� �� ��� �������� ���� �� � ���� ����� ���� � ������l���� ������������������������������� ���� �����3��������������������� � �������l���� �������������� ������ � ����������3� ��� � ���� ����� ���������������$���������������� ��$�� � �������l����� ��� ������ ���������� � ��������"������� ���������������������$���������$������ ��������� ��%����������� 3� �� �������$�������������������������� ����������� ���������������������� � ��������"���������� ����������������� � �������l���"��������������������6�����������3� ��$������� ��� ��������l ��������$� �� � ��������� ��%���������� >����$������6������$�%������������������������ ������������l ��������$���������� ������������ �� ��� ��� ��� `�� ����� `��������� {��� d� �$� � �z� %���������� * ��� ������ ���� ���� �$� %���������� ����� ������� )�� ��� ������� � ��� ���� (���� ����� �$� ;l ������� ���� ����$��������� �$� )������ ��� &(<;%k)+� %���������"� ��� ( � �� ��"� � �d� ����������� ���� ���� �$� ���� ������ ����� ��������� ��� �� ���������$������������������������� ����������������� ���� � ��������"���� � �������l�����>� � ���� ������������������y�&�����+�������"��� ������������$��������� ���$�tulis����"�� �����$��������� ���$ ���#������������� ���$��������� ���$�cap ����� 9����� ��� ����� ��� � ��� 9���� 9����� ������ ��� ������� &���� ��"� � �g+"� �� ���� $����� ����� ���� ���� �$� �� � �������� ��������� � �� ���� ���� ����� ���� �� ���� ���� �� ��� �����%���������� ��������������(<;%k)�3����$���"������������ ������������������������������������������� ��� �� ������ �� � ��������� ��������������������������� ����� � ����� ��������� )���� ����������"����� ������������e9����%���������f��������� ������ ?����������������� ��� ����������������������������� �������� ��� ��� �$�������������������������� ����$� �������� �������� ������ ������ �������� 3� �� ��� ? 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|�� 5"��/d� 82 ijibec application of islamic spiritual intelligence as a msme strategy in postpandemic arief dwi saputra 1*, alfina rahmatia 2, andi azhar3 1 international program of management and business, faculty of economics and business, universitas muhammadiyah yogyakarta jalan geblagan, tamantirto, kasihan, bantul regency, special region of yogyakarta 55184 arief.dwi.psc19@mail.umy.ac.id 2 departement sharia banking, faculty of islamic religion, universitas ahmad dahlan jalan kapas, semaki, umbulharjo, yogyakarta, special region of yogyakarta 55166 alfina.rahmatia@pbs.uad.ac.id 3 departement of business administration, asia university taiwan liufeng rd, wufeng district, taichung city, taiwan 413 me@andiashar.com abstract this study aims to investigate how islamic spiritual intelligence is applied as a strategy for entrepreneurship in facing the post-pandemic. this study used a qualitative research strategy with a sample of 128 respondents. the root of the problem is reviewed from the literature review and strengthened by collecting data from the in-depth interview process. the data is processed using the nvivo 12 application with coding similarity analysis then the results of the study are used as a reference and conclusions through the data obtained. the results of this study found that there are seven elements of spiritual intelligence from an islamic perspective, namely faith, piety, morality, shiddîq (honest), amânah (responsible), tablîgh (conveying), fathânah (intelligent), discipline, visionary, and empathy. a review of the total percentage of 100% has the potential for islamic entrepreneurship in achieving business sustainability in the ability of business actors to manage their business through attitudes and decision-making that rely on elements of islamic spirituality intelligence. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 2 2022 keywords: msmes; islamic spiritual intelligence; post-pandemic. doi 10.28918/ijibec.v6i2.5701 jel: m1; o15; p47 article info article history: received : 21 june 2022 accepted : 31 november 2022 published : 1 december 2022 mailto:arief.dwi.psc19@mail.umy.ac.id mailto:alfina.rahmatia@pbs.uad.ac.id mailto:me@andiashar.com international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 83 1. introduction today's discussion of spirituality has its place. some studies link spiritual elements to various aspects, even in the well-known secular west. the study of spirituality is widely associated with the world of work, entrepreneurship, leadership, and religion (zahid, 2019). in the business world, spirituality is increasingly being looked at to take the value and its application for business management amid shocking conditions due to various things, such as the ambition to achieve high profits and ignoring spiritual values that hurt business conditions (lata & chaudhary, 2020). many studies have shown positive results from implementing strategies that include elements of spirituality in daily business. business people are directed to make their business activities synergize with nature, more concerned with balance, not exploitation, and more concerned with long-term stability, not short-term profit (hakim et al., 2019). a previous study by adamu et al. (2011) explained that spirituality in entrepreneurship presents a conceptual analysis that impacts entrepreneurial motivation, performance, and commitment to social responsibility. in addition, mubarak et al. (2014) research shows that spirituality is an essential aspect of islamic entrepreneurship associated with the attitude of internal religious values as the final solution. previous research by grine et al. (2015) explored the influence of islamic spirituality on muslim women's entrepreneurship in malaysia, showing the effect on career, business ventures, and entrepreneurial behavior. therefore, in nafis's (2011) review, spiritual entrepreneurs produce the role of entrepreneurs by combining professionalism and spirituality, producing worldly (psychological) and hereafter benefits rather than physical and material aspects. it is okay to pursue the highest profit, but when the ambition to achieve high profit puts the other party at a loss, it can potentially worsen business conditions. examples are the exploitation of consumers, which causes losses to consumers, and the exploitation of nature, which causes environmental damage. these conditions can trigger business unsustainability and deviate from the essence of business from an islamic perspective (shahabuddin et al., 2020). in islam, spirituality is the awareness of monotheism towards allah swt in human life to be able to follow his will and direction (m. s. rahman et al., 2019). the phenomenon of spirituality associated with islamic business refers to the awareness of business people that the benefits obtained are not limited to nominal shortterm profits in the world but also the achievement of long-term profits in the hereafter (astrachan et al., 2020). companies that base their activities on spiritual values are proven to survive and develop well. in general, there are six benefits for companies that base their business on the spiritual aspect. first, the company will be far away from various frauds (fraud) that may occur as a result of "justifying all means" because this is where the bankruptcy of a business begins (murfianti & mayangsari, 2020). second, increasing company productivity and performance (singh, 2019). third, the creation of a harmonious work atmosphere. fourth, increasing the company's positive image. fifth, the company will grow and develop sustainably. sixth, reducing employee turnover (rodrigues et al., 2019). market conditions are uncertain, raw material prices are relatively unstable, and people's purchasing power tends to fluctuate. this condition does not discourage business actors from surviving despite internal constraints such as inadequate quality and quantity of resources, limited capital, and product standardization. the existing social networks, values, norms, and trust owned by each entrepreneur also influence the sustainability of their industry, so many industries remain amid increasingly fierce market competition (scholz, 84 international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 2019). one of the values and norms is part of the spiritual side that entrepreneurs can apply through their islamic spiritual intelligence (pakdaman & balideh, 2020). in addition, the emergence of the coronavirus pandemic (covid-19), which occurred suddenly at the beginning of this year, significantly impacted people's lives, including the economy. this condition has not only disrupted the economy but has also interrupted the movement of the indonesian economy. it is based on data for the first quarter of 2020 against the first quarter of 2019 of 2.97 percent (year-on-year), slowing down compared to the achievement in the first quarter of 2019, which was 5.07 percent (badan pusat statistik, 2020). of course, this is closely related to the msme business movement in the era of new norms because it is increasingly being echoed in the face of changes in the economic order (fahriyah, 2020). the role of business actors is significant in determining the goals and direction of a business (bull & miklian, 2019). they can intuitively see and manage every opportunity, namely business opportunities that can be used to gain profits toward success and achieve long-term business sustainability (haldar, 2019). the potential of this business actor is the result of a combination of spiritual values that they apply with creativity to their consistency in building the business. it is hoped that muslim entrepreneurial intelligence combined with the value of islamic spirituality can be a strategy to form the strength of islamic spiritual intelligence that exists in every human being and can be a model of a successful muslim entrepreneur (syamsul bahri et al., 2021). it is a potential for business actors to manage business amidst business development to achieve business continuity from an islamic perspective. based on the background that has been presented, the purpose of this study is to find out how to apply islamic spiritual intelligence as an entrepreneurial strategy in dealing with the post-pandemic. 2. literature review a. islamic perspective business continuity the values in sharia principles become a spirit in every business action and transaction that occurs during the process of achieving business continuity (handayani, 2020). the factor of blessing and seeking the pleasure of allah swt is essential in achieving business continuity based on sharia principles. because these principles can be used as a basis for business orientation, they are always in the corridor of islamic law (sadri et al., 2020). there are several types of business continuity studies, namely, sustainability of capital, sustainability of human resources, sustainability of production, and sustainability of marketing. it emphasizes and is based on three keywords implied in the definition of business continuity: meeting needs, developing resources, and protecting resources (panigrahi et al., 2019; minoja & romano, 2021). there are several aspects to consider for the development of business activities within the islamic framework to achieve business continuity, namely 1. production production is finding, allocating, and processing resources into output to increase the mashalahat for humans (rivai et al.. 2019). all production activities are tied to islamic moral and technical values. islamic values relevant to production are developed from three central values in islamic economics: khilafah, fairness, and takaful (al-jarhi, 2019). in more detail, these values, for example, have a long-term perspective, keep promises and contracts, and avoid forbidden things. of the raw materials used, the production process, and others. 2. marketing international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 85 marketing in islam is defined as a strategic business discipline that leads to the process of creating, offering, and changing the value of an initiator to its stakeholders, which in the whole process is following the contract and the principles of muamalat (business) in islam (aditya, 2018). yusoff (2019) stated that emphasizing the spiritual value of islam at every stage of the comprehensive sharia marketing process includes the process of creation, offering, to changing the added value of a product offered as well as the contracts that accompany the marketing process. there are four characteristics of sharia marketing that can be a guide, namely: 1) theistic (rabbâniyyah) means divine, 2) ethical (akhlâqiyyah) means morality and ethical values, 3) realistic (al-waqi'iyyah) is flexible but always puts forward religious values, and 4) humanistic (insâniyyah) means is universal for all mankind with the power of human unity. 3. financial in sharia principles, it has been revealed that usury is forbidden, as in the word of allah in qs. al-baqarah [2]: 275. business actors with sharia principles must abstain from practices that contain usury. the use of lawful finances is prioritized. islam has legalized several effective ways to create capital, one of which is the principle of participation, which is to encourage mutually beneficial cooperation and solidarity. the existence of islamic financial institutions makes it easy to get capital with an agreed cooperation scheme (shinkafi et al., 2019). 4. human resource management human resources (hr) are company resources that are dynamic in nature so that particular treatment is needed. islamic spiritual intelligence opens a new discourse in managing human resources, which puts forward the values of conscience as a guide so that they always follow the straight path (eman ahmed, 2020). the roles of managers and employees are significant for business, and goodness must start from the manager; if the manager is good, they will be able to provide sound direction to their subordinates. returning to the manager or business actor, as the leader in the business, exemplary is a vital aspect that a manager or leader must have. a. elements of islamic spiritual intelligence spiritual intelligence developed following the framework of the qur'an can form spiritual awareness, which is formed based on the merger of a belief system (faith), worship, morality, and social responsibility (bensaid et al., 2014). regarding the elements that build islamic spiritual intelligence, several aspects underlie islamic spiritual intelligence, namely alrûh (spirit), al-qalb (heart), al-nafs (soul), al-all (reason), faith, worship, and morality. in other words, these aspects become human inner strength that comes from the soul, heart, feelings, strong faith, diligently worshiping, adhering to allah's principles, and having good character (baharuddin & ismail, 2015b). the involvement of this islamic spiritual intelligence supports character and moral development amid islamic spiritual values. the character that relies on the quality of the prophet muhammad through his characteristics is the basis for realizing a balance in the dimensions of islamic spiritual intelligence. these aspects are shiddîq (telling the truth), amânah (reliable), tablîgh (clever in conveying), and fathânah (wise) (z. a. rahman & shah, 2015). some say these elements are creative, disciplined, empathetic/caring, forwardthinking (visionary), responsible, independent, and intelligent. another opinion states that the indicators of islamic spiritual intelligence are piety, responsibility, faith, and achievement orientation (shaari, 2020). some elements of islamic spiritual intelligence are considered to have in common and are considered following the 86 international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 practice of islamic entrepreneurship, which aims to achieve business continuity. as for the essence of the elements above, the author summarizes them into several elements of islamic spiritual intelligence, namely faith, piety, morality, shiddîq, amânah, tablîigh, fathânah, discipline, visionary, and empathy. 3. method to address the identified research gaps and investigate this research adopting qualitative approach strategy research, using literature studies (reputable journal sources) and in-depth interviews. in this study, data processing was collected through literature studies (reputable journals) and in-depth interviews. furthermore, the data is managed using nvivo plus 12 through coding similarity analysis then a conclusion is drawn. nvivo analyzes qualitative data to produce more professional results (hilal & alabri, 2013). to strengthen this research, in addition to a literature review through literature studies with reputable journal sources, data collection was also carried out by sampling techniques. then determine the sample whose number corresponds to the sample size that will be used as the actual data source by paying attention to the characteristics and distribution of the population in order to obtain a representative sample. the sample of this research is the management of umkm business by students in the business charity in the muhammadiyah student association based on arief & alfina (2021). it is based on the application of islamic sharia, consisting of 34 provincial leaders at the provincial level throughout indonesia. it represents students at the branch leadership level, branch managers, and regional leaders in a hierarchical structure. sampling is based on judgment or purposive sampling; the sample is selected in the presence of specific criteria used by researchers, namely marketing executive (me) in elected management, as many as 13 people who are representatives of each province's leader. data was collected employing online interviews through the zoom application by giving a raised hand signal to agree or disagree. the overall sample consisted of regional leaders in as many as 34 provinces, with 13 students in each regional leader representing 128 respondents. 4. result and discussion a. result according to the islamic viewpoint, business is defined as a series of activities that take various forms. however, there are limitations regarding how the assets are obtained and utilized (there are halal and haram rules). islam has also taught the application of sharia principles in business entities. the conduct of business must stick to the provisions of the shari'a (the rules in the koran and hadith). in other words, the shari'a is the primary value that serves as a strategic and tactical umbrella for economic activity (business) actors (khan et al., 2018). in the word of allah swt in the al-quran surah al-nisa [4]: 29, "o people who believe, do not eat each other's wealth in a way that is vanity, except by way of commerce that applies equally between you. and do not kill yourselves; allah swt is most merciful to you." the above verse shows the completeness of islamic law in regulating and fortifying business activities. it is in line with what was exemplified by the prophet muhammad, through good morals guiding people to think, say, and act using the references of the qur'an and hadith to expect the pleasure of allah (al parslan, 2019). international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 87 figures 1 4 show the application of processes to business based on business continuity from an islamic perspective and how to achieve it by reviewing the elements of islamic spiritual intelligence with a total percentage of 100%. figure 1 describes business continuity in hr performance, figure 2 is about marketing performance, figure 3 is about production performance, and figure 4 is about financial performance. it can be seen from figures 1 4 that the elements of faith and piety are the most dominant elements compared to other elements in their implementation, with the lowest percentage of 13% and the highest reaching 17% of the total. meanwhile, empathy and morality are the minor elements at a percentage of less than 5% in business continuity, even though in marketing performance, the elements of discipline and vision are the lowest. furthermore, other elements, such as siddiq and amanah, are the most stable among the other elements. the percentage figures differ from each other by applying 8%. however, in business continuity, fathanah and tabligh also become stable elements with an average percentage of 7% at the level of analysis. figure 1: improvement of hrm performance source: secondary data processed through the nvivo 12 application (2022) 88 international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 figure 2: improvement of marketing performance source: secondary data processed through the nvivo 12 application (2022) figure 3: improvement of production performance source: secondary data processed through the nvivo 12 application (2022) figure 4: improvement of financial performance source: secondary data processed through the nvivo 12 application (2022) then, figure 5 describes the business continuity process in reviewing the elements of islamic spiritual intelligence to get a strategy for improving organizational performance. in applying elements of islamic spiritual intelligence in business, hr performance is more dominant in its application, with the highest percentage of 35%, followed by production performance and marketing performances which reach 28% and 21%, respectively. meanwhile, financial performance is a process that has the lowest percentage of 14%. in hr performance, human involvement is more dominant than other business support processes such as technology and other resources. it is inversely proportional to seeing the performance review on financial performance, which technology has greatly international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 89 assisted. meanwhile, in production and marketing performance, the achievement of performance is relatively stable in the findings found because technology and humans have almost equal roles in each process. applying the business continuity process to technology and humans has a close relationship that will determine performance achievement by applying elements of islamic spiritual intelligence. figure 5: improvement of organizational performance source: secondary data processed through the nvivo 12 application (2022) the word similarity analysis shown in figure 6 is carried out to obtain the similarity of relevant analysis relationships related to cluster analysis to produce a diagram that classifies the interrelationships between the variables obtained. the application of each element consisting of faith, piety (taqwa), morality, shiddîq (honest), amânah (responsible), tablîgh (conveying), fathânah (intelligent), discipline, visionary, and empathy has a relationship with each other which mutually support the application in the business continuity process. this shows that the elements of islamic spiritual intelligence can be a strategy in business processes that can be implemented through business continuity processes such as hr performance, marketing performance, production performance, and financial performance in facing challenges in the new average era. 90 international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 figure 6: the mutually supportive relationship between elements of islamic spiritual intelligence and the process of business continuity source: secondary data processed through the nvivo 12 application (2022) b. discussion entrepreneurship from an islamic perspective is not just a simple summary of concepts related to entrepreneurship and islam. for this reason, the relevance of both can be aimed at the islamic spirituality that every human being has. in this study, it can be found that business continuity and islamic spiritual intelligence can be in line with the stages of organizational management. it can be seen from the results obtained that the elements of islamic spiritual intelligence can be a business strategy for its sustainability. each element can support the other to improve the performance of business processes such as hr performance, marketing performance, production performance, and financial performance. it supports the findings of ghozali et al. (2019), which explain that spirituality also refers to applying the tawhid paradigm, which creates a harmonious relationship between the world and the hereafter in a business context. spiritual intelligence in this study can also be used as religious intelligence, where a person can understand and apply it in daily life by worshiping according to their respective religions (amiruddin et al., 2019). spiritual intelligence provides a moral framework, motivation, ethos, and spirit (dawson, 2020). in addition, islamic spiritual intelligence is the inner strength of humans that comes from the soul, heart, feelings, and deep faith, practicing diligently based on the principles of allah and good characteristics (baharuddin & ismail, 2015a). in this study, hr performance shows a more dominant process than other business processes. it is also in line with the essence of well-developed islamic spiritual intelligence, which will be marked by a person's ability to behave and behave ethically, and ultimately international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 91 make someone understand the meaning of his life (pakdaman & balideh, 2020). islamic spiritual intelligence can also be implemented in business management with humans as objects. it is an important matter that sometimes often goes unnoticed by entrepreneurs. this implementation aligns with the natural form of business activities following islamic teachings (machmud & hidayat, 2020). human resource management, seen from an islamic management point of view, there are basic abilities that business actors in islamic entrepreneurship should have: 1) being able to motivate employee members; 2) being able to assign tasks to employees clearly and according to their respective abilities in their fields, able to provide rewards or gifts that can be in the form of material or praise to motivation that encourages employees, likewise, if there is an error, the manager can provide punishment or sanctions such as in the form of reprimands, then able to provide good examples such as disciplinary attitudes that employees can emulate at al-baqarah [2]: 44. in the process of production and business marketing as a form of worship by applying the rules in islamic law. it can be stated in business management with islamic ethics in decision-making and implementation (alyammahi et al., 2021). it is in line with islam, which has taught people to do business in ways that follow islamic law, not in a way that is vanity or wrongdoing others (qs. al-nisa [4]: 29). this study also explains the perceptions of people involved in the business. who thinks that the form of faith in islamic entrepreneurship can demonstrate through the belief that allah swt is the provider of sustenance through the efforts he builds and believes that every effort is part of worship so that it is done well and can be done? benefit others. then, the piety reflected in islamic entrepreneurship can become a real potential in the business process. morality aims to obtain the happiness of living in this world now and in the hereafter, in human relations with god, oneself, others, and nature. among the most critical transaction values in business is honesty. the element of trust is also essential for islamic entrepreneurship, which positively impacts consumer satisfaction and trust through good accountability for the mandate they provide, resulting in consumer loyalty towards business continuity. furthermore, tablîgh is related to communication skills, reasonable negotiations, and establishing friendships in entrepreneurship. rasulullah saw, as an accomplished entrepreneur, has provided an example of the potential of tablîgh in doing business. additionally, intelligence and wisdom will motivate them to continue to learn and absorb all clues of knowledge to develop themselves to be more helpful. accuracy of commitment to duties and work. a strong vision for an entrepreneur is essential as a primary goal for the running of a business and a trigger for the goals to be achieved, namely the achievement of long-term business sustainability. other people's sun forms. empathy in islamic entrepreneurship includes concern for humans and the environment. this study also refers to the goal of humans as servants of allah through the potential of islamic spiritual intelligence that can support the management of feelings well, then affects the mindset, both related to personal interests, work, and in overcoming various situations (abdullah et al., 2019). it can be developed to be more valuable and effective as motivation to achieve goals. support for islamic spirituality is based on the principles of faith in allah swt, which form certain attitudes and practices which are oriented as forms of worship. it can be expressed in various work activities, specifically in entrepreneurship. in the islamic view, the stages of the management process of a business are intended as worship whose purpose is to achieve the 92 international journal of islamic business and economics (ijibec), 6(2) december 2022, 82-95 benefit of life, and each stage can hold the essence of islamic spirituality. 5. conclusion support from islamic spirituality, which is based on the principles of faith in allah swt, can form certain attitudes and practices oriented as worship. it can be expressed in various work activities, one of which is entrepreneurship, which aims to seek god's pleasure so that the motivation is not only to achieve material gain but to achieve blessings in the hereafter. islamic spirituality that is born from every human being can be utilized as a power in the form of islamic spiritual intelligence whose elements consist of faith, piety, morality, shiddîq, amânah, tablîgh, fathânah, discipline, visionary, and empathy. the elements of islamic spiritual intelligence have the potential to be implemented in business activities in order to achieve business continuity. process stages such as production management, marketing, capital, and human resources all have the potential to be managed based on islamic spiritual values. for business actors, in simple terms, the values of islamic spirituality can provide the potential to be utilized to produce attitudes and characters that can be implemented in order to achieve business continuity following an islamic perspective. the potential of islamic spiritual intelligence for human life is to generate motivation until it is reflected through an attitude that, as a whole, refers to islamic ethical values. for islamic entrepreneurship, the elements of islamic spirituality contained in islamic spiritual intelligence can have a positive influence through the attitudes of entrepreneurs in entrepreneurship as motivation that drives business, has a role in the decision-making process, and provides positive energy for business performance. this potential can be implemented in all stages of the business process, namely in the management of production, marketing, capital, and human resources, all of which can work together well to achieve sustainable business goals. according to the islamic perspective, the achievement of business continuity, apart from the financial side. the achievement of the blessing of sustenance and pleasure of allah swt also interprets it. the business and the ability of the business to benefit many parties. acknowledgment the authors are grateful to the supervisors and students at each university for their support and knowledge. the authors also would like to thank the informants from the muhammadiyah student association team who have been willing to answer questions and continue strengthening the data's capacity and validity to conduct this research. references abdullah, a., masruri, s., & bashori, k. 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(2019). pembangunan spiritual: konsep dan pendekatan dari perspektif islam. e-journal of islamic thought and understanding volume, 2(october), 64–87. 138 ijibec does the component of islamic financial literacy effect on msmes decision in islamic banking financing: creative economy investigate habriyanto1, budi trianto2*, nik hadiyan nik azman3, busriadi4, evan hamzah muchtar5, elida elfi barus6 1uin sulthan thaha saifuddin, jambi, indonesia 2stei iqra annisa, pekanbaru, indonesia 3universiti sains malaysia, penang, malaysia 4iai yasni bungo, jambi, indonesia 5stai asy-syukriyyah, tangerang, indonesia 6stai syeikh h. abdul halim hasan al-ishlahiyah, binjai, indonesia *corresponding author: budi_asamandiri@yahoo.com abstract this study aims to determine what factors influence msmes in the creative economy sector in deciding on islamic banking financing in indonesia. we investigated the role of islamic financial awareness, islamic financial knowledge, and islamic financial skills. we also examine whether the decision to use islamic banking financing impacts business performance. by using a path analysis approach, the results of this study show that islamic financial awareness and financial skills positively impact the decision to finance in islamic banking. meanwhile, the decision to finance in islamic banking has a positive effect on business performance, but insignificant. other results show that islamic financial skills positively and significantly impact msme business performance. the results of this study imply that business actors in the creative economy sector must be given an understanding of islamic financial skills and islamic financial awareness. on the other hand, islamic banking must expand financing in the creative economy sector through a more competitive financing scheme so that msmes can easily access it. expanding access to islamic financing for msmes is expected to accelerate the inclusion of islamic finance in indonesia. this study is a preliminary investigation in indonesia of islamic banking financing for the creative economy. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 2 2022 keywords: islamic financial literacy, islamic bankingfinancing, msmes, creative economy doi 10.28918/ijibec.v6i2.6090 jel: l25;g53;g21 article info article history: received : 03 september 2022 accepted : 08 november 2022 published : 1 december 2022 international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 139 1. introduction micro, small and medium enterprises (msmes) play a strategic role in the national economy. in indonesia, the contribution of msmes is the formation of gdp and absorption of labor. in 2018, the contribution of msmes in the formation of indonesia's gdp reached 61.1 percent, able to absorb a workforce of 117 million workers. msmes in indonesia are dominated by micro businesses, which reach 98.68 percent, with workforce absorption of around 89 percent and a share of gdp of 37.80 percent (ministry of finance, 2020). one of the keys to success in developing a business is the availability of access to financial services. with access to finance, entrepreneurs can develop their businesses into bigger ones. but unfortunately, not all msmes have access to formal financial institutions, especially msmes engaged in creative economics, both access to conventional finance and access to islamic finance, even though the creative economy has become an alternative in the development of the national economy and global economy. globally, the creative economy can grow well. in 2012 2015, the creative economy grew by 7.34 percent, and export growth increased from $ 208 billion in 2002 to $ 509 billion in 2015. developed countries with the most significant exports in the creative economy are europe, the united states, and canada. developing asian countries are china, india, hong kong, singapore, taiwan, turkey, thailand, and malaysia (unctad, 2018). in indonesia, exports from the creative economy sector from 2010 to 2016 have consistently increased, with a share of total exports amounting to 13.77 percent. the fashion sub-sector had the most prominent export value of $ 10.9 billion in 2016, ranked second by the crafts sub-sector with an export value of $ 7.8 billion. the culinary sub-sector occupies third place with an export value of $ 1.2 billion. meanwhile, the region with the largest export producer in west java province, with an export value of $ 6.39 billion or 31.96 percent of the total export value of the creative economy. the export destination countries for the creative economy are unites states, switzerland, and japan (bps, 2017). table 1. creative economy export 2010 2016 source : bps, 2017 during covid-19, the creative economy sector was also significantly affected and also affected the volume of exports. in 2019, the export volume of the creative economy reached usd 20 billion, and in 2020 the number of exports decreased to usd 15.05 billion. four sectors still contribute significantly to exports: fashion at usd 9.06 billion, crafts at usd 4.95 billion, culinary at usd 1.03 billion, and publishing at usd 0.013 billion (kemeparekraf, 2021). during the pandemic, the creative economy sector still contributed positively to the gdp of idr 1,211 billion in 2020. this figure has increased from 2019, which contributed idr 1.105 billion. in 2021, the creative economy will contribute to a gdp of idr 1.134 billion or 6.98 percent (antaranews, 2022). the difficulty of msmes engaged in the creative economy sector in obtaining access to formal financial institutions is due to several factors, including the unwillingness of a suitable financing 140 international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 scheme for the creative economy, difficulty in marketing due to uncertain demand cycles, and static production aspects (bank indonesia, 2015). the problems presented by bank indonesia show that financial institutions still need to see bright prospects in the creative economy sector, so only a few businesses in the creative economy sector have been provided with financing by financial institutions for their business development. to develop a business, entrepreneurs engaged in the creative economy use more individual funds, and only six percent use financial services in developing their businesses (pikiran rakyat, 2017). not only are conventional financial institutions not interested in providing financing for businesses in the creative economy, but islamic financial institutions also have yet to see good prospects from the creative economy sector for financing. so islamic financial institutions' financing in the creative economy sector is still relatively small. the creative economy agency (bekraf) of the republic of indonesia has taken an approach to islamic banking to participate in advancing the creative economy sector by providing financing with a suitable scheme (kompas, 2018). sharia banking positively welcomes the steps of the ministry of creative economy in supporting the development of the creative economy in indonesia by using the productive waqf scheme to make financing. bni syariah (bank syariah indonesia) claims to be serious about working on this creative economy sector (trianto et al., 2021). the ministry of tourism and creative economy (kemenparekraf) of the republic of indonesia collaborates with the national committee on sharia economics and finance (kneks) to develop the creative economy sector. with the collaboration between kemenparakraf and kneks, it is hoped to strengthen the creative economy sector and sharia finance. the minister of tourism and creative economy, salahudin s. uno, said that the islamic economy and finance became a global trend related to tourism and the creative economy. the small number of msmes engaged in the creative economy sector in accessing islamic financial institutions is also due to indonesia's low level of islamic financial literacy. according to a report from the financial services authority (ojk) of the republic of indonesia, the islamic financial literacy index in indonesia has only reached 8.1 percent, meaning that out of 100 residents in indonesia, there are only eight people who know sharia financial services (ojk, 2017). financial literacy is defined as knowledge, skills, and beliefs that influence attitudes and behavior to improve the quality of decision making of financial (ojk, 2017). financial literacy is very important for a person and also for msmes. for individuals and entrepreneurs, financial literacy will help them manage finances, mitigating risks such as saving and diversifying assets to make financial decisions (lusardi & tufano, 2015). empirical facts also show that entrepreneurs with sound financial literacy improve their business performance (fatoki, 2014; chepngetich, 2016; susan, 2020; trianto et al., 2021). besides financial literacy, access to formal financial institutions also has a vital role in developing a business. scholars such as demirguc-kunt (2017) and abubakar (2015) believe that the existence of financial institutions is significant for entrepreneurs or msmes in developing their businesses. because of the importance of access to formal financial institutions, the world bank (2020) established the financial inclusion support framework (fisf). the purpose of forming fisf is so that those with small incomes, including msmes, can formally access financial institutions. empirical facts also show that entrepreneurs with access to financial institutions can develop their businesses well (fowowe, 2017; hussain et al., 2018; okello et al. (2017). although many researchers have studied the relationship between financial literacy and business performance and access to formal financial institutions with business performance, no researchers have investigated the creative economy sector, especially msmes who have to get financing through islamic banks. this study aims to see the impact of financial literacy and the availability of access to islamic financial institutions on business performance in the creative economy sector. this research is essential to obtain empirical facts related to the contribution of islamic banking in developing the business of msmes in the creative economy sector. the focus of this study is business actors in the creative economy sector who have made financing to islamic financial institutions, both in the form of profit international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 141 and loss sharing (pls) and non-pls-based financing. islamic financial institutions provide financing as an alternative to the usury system imposed on conventional financial institution financing. based on the description, this article investigates this case because a creative economy is a new alternative to renewable economic development. the indonesian government is serious about developing the creative economy because it has excellent potential to be developed. on the one hand, the creative economy faces considerable challenges in developing its business, especially in financing halal finance. the creative economy is still not the primary goal of islamic banking in financing, even though the potential is tremendous. 2. method data this research was conducted in the city of pekanbaru, where the sample was business people in the creative economy sector who had ever financed islamic financial institutions, both islamic banking (ib), islamic rural bank (bprs), and islamic cooperative (bmt). the research data was taken using a questionnaire with a likert scale of 1 5. data was collected through an online questionnaire to reduce the risk of covid-19. the online questionnaire was sent to the entrepreneur community, such as bangkit pengusaha muslim (bpm) and generasi entrepreneur profesional (genpro). researchers received feedback from 140 respondents, but after being selected according to the criteria of this study, there were only 55 samples that matched the criteria. therefore, the total sample involved in this study was 55 business owners. following is a respondent distribution based on islamic financial institution financing: table 2. respondent distribution no islamic financial institution total percentage 1 islamic banking (ib) 46 83.64 2 islamic rural banking (bprs) 6 10.91 3 islamic cooperative (bmt) 3 05.45 total 55 100.00 empirical model this study will look at the relationship between islamic financial awareness (x1), islamic financial knowledge (x2), islamic financial skill (x3) with decisions in financing islamic banks (y1) and business performance (y2) business actors in the creative economy sector. the relationship between these variables can be seen in the image below: figure 1. empirical model from the picture above, there are two structural equations generated: 1. y1 = β1 x1 + β2 x2 + β3 x3 + ε…………………………………..……………(1) where : islamic financial awarness (x1) islamic financial knowledge (x2) islamic financial skill (x3) islamic financing (y1) business performance (y2) h1 h4 h2 h5 h3 h6 h7 142 international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 y1 = islamic financing variable β1,2,3 = path coefficient x1 = islamic financial awarness x2 = islamic financial knowledge x3 = islamic financial skills ε = error term 2. y2 = β1 x1 + β2 x2 + β3 x3 + β4 y1 + ε...………………………..……………(2) where : y2 = islamic financing variable β1,2,3 = path coefficient x1 = islamic financial awarness x2 = islamic financial knowledge x3 = islamic financial skills y1 = islamic financing ε = error term this research uses a path analysis approach. path analysis is a statistical technique that allows users to investigate the effect pattern within a system of variables (allen, 2017). in path analysis, there are direct impacts and indirect impacts. its impact is the direct effect of exogenous variables on endogenous variables. thus, the indirect impact is an indirect effect between exogenous and endogenous variables. 3. result and discussion respondent profile table 4 shows the profile of the respondents where the respondents in this study were dominated by women, with a total of 67.27 percent, while men only amounted to 32.73 percent. it illustrates that business in the creative industry is very popular with women. meanwhile, most business actors in the creative economy sector in indonesia are graduates from universities, reaching 76.36 percent. it indicates that businesses in the creative economy sector attract higher education graduates. it is understandable because businesses in this sector require the creativity of business people, and educational backgrounds provide broad insights for business owners in the creative economy sector. meanwhile, regarding age, the creative economy sector is dominated by those aged 3059 years, who reach 30 respondents or 54.55 percent. table 4. gender, education and age no. descriptions total percentage 1 gender a. male 18 32.73 b. female 37 67.27 2 education a. elementary school & junior high school 6 10.91 b. senior high school 7 12.73 c. university 42 76.36 3 age a. 20 – 29 years old 23 41.82 b. 30 – 39 years old 15 27.27 b. 40 – 59 years old 15 27.27 c. 60 years old and above 2 03.64 source : authors calculations, 2022 international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 143 business profile of respondent table 5 shows that the culinary or restaurant sector attracted a lot of interest from business actors in the creative economy sector, which reached 28 respondents or 50.91. it is inseparable from the background of pekanbaru city as a trading city, so city residents do not have many choices in spending the weekend except to enjoy various types of food provided by restaurants. so the culinary or restaurant sector has increased every year. the business that is the choice of business actors in the creative economy sector is advertising, which reaches 16.36 percent. a large number of enthusiasts in the advertising business is due to the increasing demand by business actors in pekanbaru, indonesia. however, most businesses in the creative economy sector are still dominated by microbusinesses, reaching 49.09 percent. meanwhile, the small business category in this study only reached 38.18 percent, and the medium category reached 12.73 percent. the business sector with the micro category in this study could absorb labor up to 80 percent, the minor category could absorb 12.64 percent of the workforce, and the medium category was 7.28 percent. it confirms that the micro business sector in indonesia is still the business sector mainly carried out by the community. . table 5 : business profile no. descriptions total percentage 1 type of business a. culinary/restaurant 28 50.91 b. fashion 4 07.27 c. publishing 3 05.46 d. advertising 9 16.36 c. art performance 4 07.27 f. others 7 12.73 2 business sales per years a. under rp. 100 million 27 49.09 b. rp.100 million – rp.300 million 21 38.18 c. rp.300 million – rp. 1 billion 6 10.91 d. above rp. 1 billion 1 1.82 3 number of employee a. 1 – 4 employee 44 80.00 b. 5 – 9 employee 7 12.72 c. 10 – 19 employee 2 03.64 d. above 20 employee 2 03.64 source: authors calculations, 2022 descriptive statistic table 6 shows the descriptive statistics of this research data, where the minimum value is 2 for variables x1 and x2, while for variables x3, y1 and y2 have a minimum value of 1. the maximum value is 5 for all variables. the lowest mean value is x1 which is 3.6727, and the highest mean value is 3.9091 for the y1 variable. meanwhile, the highest standard deviation value is variable y2, 0.79052, and the lowest is variable x2, which is 0.67918. table 6. descriptive statistic variabel minimum maximum mean std. deviation x1 2 5 3.6727 .74671 144 international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 x2 2 5 3.7273 .67918 x3 1 5 3.8182 .74761 y1 1 5 3.9091 .67420 y2 1 5 3.6909 .79052 source: authors finding, 2022 reliability analysis reliability shows how well the measurement instrument is used in research. reliability can be seen from the resulting cronbach alpha value. hair et al., (2006) argue that the recommended reliability value is 0.7. table 7 shows that all variables have a reliability value above 0.7 table 7. reliability variable cronbach’s alpha individual composite awarness (x1) 0.771 0.817 knowledge (x2) 0.797 skill (x3) 0.757 islamic financing (y1) 0.802 business growth (y2) 0.775 source: authors finding, 2022 correlation matrix of among variable table 8 shows the correlation between variables showing a solid relationship. it means that the variable to be tested can influence other variables. the most vital relationship is shown by the x3 variable with the y2 variable, which is 0.561. in contrast, a minor correlation occurs in the variable x2 with y1. table 8. correlation matrix variables x1 x2 x3 y1 y2 x1 1 x2 0.478** 1 x3 0.522** 0.557** 1 y1 0.418** 0.349** 0.444** 1 y2 0.547** 0.357** 0.561** 0.467** 1 ** = significant at the 0.01 source : authors finding, 2022 multicollinearity analysis the variable must be free from multicollinearity in quantitative research with a multivariate approach, such as path analysis. anderson et al. (1996) say that the variable is free from multicollinearity when the vif value is below 10. table 9 shows that all variables have a vif value below 10. it means that this study is free from multicollinearity problems. table 9. multicollinearity independent variable vif awarness (x1) 1.550 knowledge (x2) 1.568 skill (x3) 1.753 islamic financing (y1) 1.332 source: authors finding, 2022 international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 145 path coefficient the results of the path analysis are summarized in table 10, where islamic financial awareness positively influences msmes' decisions in financing islamic banks, with a significant effect of 0.327. therefore accept hypothesis 1 (h1 accepted). the islamic financial skill variable also has a positive and significant influence on decisions in financing islamic banking, with a coefficient of 0.355. for that, the proposed hypothesis is acceptable (h3 accepted). meanwhile, the islamic financial knowledge variable has a negative but insignificant effect (rejected h2). decisions in financing islamic banks influence the performance of msmes but are not significant, with a path coefficient value of 0.242 (rejected h7). the variable that has a positive and significant influence on the performance of msmes is islamic financial skills, with a path coefficient value of 0.360. this relationship indirectly impacts the variable islamic financing of 0.128, so it has a total impact of 0.488 and is accepted h6. the variables of islamic financial awareness and islamic financial knowledge positively influence the performance of msmes. however, they are insignificant, with path coefficient values of 0.212 and 0.083, respectively, because they reject the h4 and h5 hypotheses. table 10. path coefficient independent variables dependent variables path coefficient effect remarks direct indirect total cr model 1 islamic financial awarness islamic financing 0.327 0.327 2.339* accepted islamic financial knowledge islamic financing -0.058 -0.058 0.372 rejected islamic financial skill islamic financing 0.355 0.355 2.388* accepted model 2 islamic financial awarness business performance 0.212 0.069 0.281 1.589 rejected islamic financial knowledge business performance 0.083 0.005 0.078 0.555 rejected islamic financial skill business performance 0.360 0.128 0.488 2.087* accepted islamic financing business performance 0.242 0.242 1.684 rejected cr* = significant at 0.5 level source: authors finding, 2022 the results of this study also present a summary model as shown in table 11, where in model 1 the value of the coefficient of determination (r2) is 0.250 and in model 2, the value of the coefficient of determination (r2) is 0.436. table 11. path coefficient – summary model model r r2 adjusted r2 std error of the estimate model 1 .500 .250 .205 .60099 model 2 .661 .436 .391 .61658 source: author findings, 2022 discussion several research results show a positive and significant relationship between financial literacy and financial inclusion or access to finance, such as ali et al. (2021), trianto et al. (2021), and bongomin et al. al. (2017). ali et al. (2021) found that financial literacy and social influence are the most critical factors for creating islamic financial inclusion in indonesia. meanwhile, trianto et al. (2021) found that the determinants of financial inclusion in msmes in indonesia are social-cultural and marketing communication. at the same time, financial literacy has a positive but insignificant effect. in particular, bongomin et al. (2017) investigated all financial literacy components. they found that only financial attitude positively and significantly impacted financial inclusion for 400 poor households in 146 international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 uganda. meanwhile, the results of this study show that there are two components of financial literacy, namely islamic financial awareness and islamic financial skills, which positively and significantly influence decisions in financing islamic banking. it indicates that each case's financial literacy component has a different effect. however, financial literacy has an essential role in creating financial inclusion. it indicates that business actors have financial intelligence, such as financial planning, budgeting, cash flow management, and credit. in a study by hilgert et al. (2003), financial literacy positively correlates with individual financial expertise. financial literacy is also crucial to saving, borrowing from banks, and investing (behrman, 2010). the results of this study show that business actors who have good financial skills can have a positive impact on their business performance. this research is in line with several previous researchers, such as esiebugie et al. (2018), usama and yusoff (2018), and alharbi et al. (2021). in a study conducted by esiebugie et al. (2018) in nigeria on the impact of financial literacy on the performance of small and medium enterprises (smes), 154 respondents found that financial knowledge and financial awareness had a positive and significant effect on company performance. usama and yusoff (2018) also found that financial knowledge, financial behavior, and attitude as components of financial literacy positively and significantly influence the performance of small and medium-sized companies in bauchi, nigeria. alharbi et al. (2021) also stated that financial attitude and awareness are essential in improving the performance of small and medium enterprises (smes) in saudi arabia. meanwhile, the results of this study found that islamic financial skills are the only financial literacy component that affects the performance of msmes in the creative economy sector. it also informs us that financial literacy affects the business performance of msmes in each sector and country. so the policies in each sector and country will also be different. however, these results provide a direction that every business actor needs to improve their financial literacy. it indicates that to improve company performance, entrepreneurs need to improve their ability to manage finances and make financial decisions such as investing, cash management, budgeting, and debt management. the results of this study also reveal that entrepreneurs' decisions to finance through islamic banks can positively improve their business performance, although the impact is not significant. these results are not in line with the research conducted by bongomin (2016), bongomin et al. (2018), and trianto et al. (2021). these results illustrate that the financing provided by islamic banking provides hope for entrepreneurs in the creative economy sector to continue to develop. the provision of broader access to the real sector, such as the creative economy sector, is expected to have a broader impact, including in creating islamic financial inclusion, boosting the performance of msmes as well as islamic banking stability, especially in musyarakah financing (widarjono & mardhiyah, 2022). 4. conclusion the creative economy sector is one sector that continues to get attention from various parties, including entrepreneurs, islamic banking, and also the government. the results of this study show that the decisions of entrepreneurs in the creative economy sector in financing islamic banking positively influence their performance. however, it has not had a significant impact. it certainly gives hope to the creative economy sector to continue to grow by making payments to islamic banking. for this reason, the author recommends that entrepreneurs in the creative economy sector increase the financing ceiling to have a bigger and more significant impact. on the one hand, islamic banking also needs to provide financing concessions so that entrepreneurs in the creative economy sector can access the financing schemes provided by islamic banking. we also recommend that entrepreneurs in the creative economy sector increase islamic financial literacy. especially islamic financial skills such as increasing the ability to manage islamic finances, the ability to invest islamically, and debt management because empirical facts show that islamic financial skills significantly influence business performance. however, this study has a international journal of islamic business and economics (ijibec), 6(2) december 2022, 138-147 147 limitation, namely the small number of samples, so we recommend increasing the number for further research. acknowledgment we would like thanks to respondents who participated in this study. we also thank the reviewer for significant comments and suggestions to improve this paper. references abubakar, h.a. 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https://doi.org/10.1108/s1571-038620200000027004 https://doi.org/10.28918/ijibec.v6i1.4196 https://www.worldbank.org/en/topic/financialinclusion/brief/financial-inclusion-support-framework https://www.worldbank.org/en/topic/financialinclusion/brief/financial-inclusion-support-framework 1 ijibec profit-loss sharing financing and stability of indonesian islamic banking agus widarjono1*, zhafira mardhiyah2 1*department of economics, faculty of business and economics, universitas islam indonesia, yogyakarta. corresponding email: agus.widarjono@uii.ac.id 2 school of accountancy, university of missouri at columbia, usa. email: zmc2z@missouri.edu abstract the study analyzes the extent to which profit-loss sharing (pls) financings with some control variables influence the stability of islamic banks. because of different scheme financings between musharakah and mudarabah, we also split them. this study measures stability utilizing z-score. we employ the autoregressive distributed lag (ardl) model using monthly aggregate data of islamic banks, covering from 2010:m1 to 2019:m12. this study is among studies who are pioneer in analyzing the role of pls financing on stability. the findings shows that the pls financings strengthen islamic banks' stability for which musharakah financing enhances the stability but mudarabah financing weakens stability. evidence also underlines that bank capital adequacy ratio (car) support stability but non-performing financing (npf) and inefficiency lower stability. macroeconomic conditions persistently support stability for which economic upturn fortifies stability but sharp depreciation weakens stability. this study implies that, in addition to murabahah, islamic banks have to diversify their financing on musharakah. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 1 2022 keywords: islamic banks, pls financing, musharakah, mudharabah, stability doi: 10.28918/ijibec.v6i1.4196 jel: c14, g21, g28 article info article history: received : 26 july 2021 accepted : 15 april 2022 published : 1 june 2022 mailto:agus.widarjono@uii.ac.id mailto:zmc2z@missouri.edu 2 international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 1. introduction islamic banking is a new finance industry in the banking industry that emerged in 1970. islamic banking has become a lucrative and prospective industry since the practice of islamic banking is not only in muslim countries but also in countries with muslim minorities such as the uk and the philippines. islamic banking is the most leading industry in the islamic finance industry. based on data from the islamic finance development report, the total assets of the finance industry amounted to us$ 2,875 billion in 2019, while the total assets of islamic banking were us$ 1,993 billion which is accounted for 69% of the total assets of the finance industry. the indonesian islamic banking industry is in the top 10 countries in islamic banking assets with a total asset of us$38 billion and based on the number of islamic banks it ranks number 4 with 34 islamic banks. indonesia has been practicing islamic banking since 1992, starting bank muamalat indonesia. the islamic banks have grown rapidly since the islamic banking law no. 21 of 2008 was passed by the government. the number of banks and assets experienced rapid growth. the number of islamic commercial banks in 2020 was 34 islamic commercial banks, consisting of 14 fully-pledged islamic banks and 20 islamic bank windows. total commercial banking assets were idr 593,948 trillion. based on their financial performance, the average profitability of islamic banks measured by returns on assets (roa) was 1.544%, which is above the threshold of 1.5% from 2010 to 2020. moreover, non-performing financing (npf) representing bad financing was 3,729, which is lower than the threshold of 5%. despite experiencing rapid development, the role of islamic banking in the national economy is small because their market share is relatively low, which is accounted for only 6% of the total banking industry. the banking industry, including islamic banking as a financial intermediary, is vulnerable to economic shocks such as the 1998 economic crisis. even though islamic banks can survive this economic crisis in that year, for instance, bank muamalat indonesia, they are still very vulnerable to economic shocks. as a new industry in national banking, many researchers are interested in analyzing the performance of the indonesian islamic banks. topics of islamic banking studies are various, but, in general, the topics of islamic banking research in indonesia focus on profit such as risfandy et al., (2017), sutrisno and widarjono (2018), risfandy (2018), octavio and soesetio 92019) and financing risk such as firmansyah (2015), havidz and setiawan (2015), setiawan and bagaskara (2016), widarjono and rudatin (2021). the factors used by researchers as determinants of islamic bank's profitability include bank characteristics, namely assets, capital, efficiency, financing risk, and macroeconomic conditions, namely gdp and exchange rates. the exchange rate is commonly applied as a macroeconomic condition because indonesia relies on imported raw materials for both domestic and export production. depreciation and appreciation thus greatly affect profits. the facts highlight that financing and assets have a positive effect but impaired financing has a negative effect on profits such as trinugroho et al. (2017), risfandy (2018), sutrisno and widarjono (2018). evidence also underlines that economic upturn positively connects but depreciation negatively influences islamic banks' profitability (widarjono, 2020a). moreover, profit is positively linked to intellectual capital which is measured with value added intellectual capital (octavio & soesetio, 2019). in addition to islamic commercial banks, regional islamic banks called islamic rural banks have also grown rapidly. the empirical study accomplished by warninda (2014) documents that profit-loss sharing (pls) and non-pls financing have a positive effect but international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 3 non-performing financing has a negative effect on profits. the macro variable that affects profit is the money supply. another study shows that the bank characteristics, namely assets and car, have a positive effect on the profitability of islamic rural banks, while the domestic output has a positive effect but inflation has a negative effect on the profitability of islamic rural banks (widarjono, anto, & fakhrunnas, 2021). furthermore, other studies show that the oligopolistic market structure in the islamic rural bank market has a positive effect on profits (widarjono, mifrahi, & perdana, 2020) apart from islamic banks' profitability, financing risk is a topic that is extensively studied in islamic banking. financing based on pls contracts such as mudarabah raises asymmetric information and moral hazard problems, which in turn increases impaired financing (kabir, worthington, & gupta, 2015). several studies report that impaired financing of islamic commercial banks is affected by car and operating efficiency to which high car lower npf but inefficient operating boots high npf (setiawan & bagaskara, 2016; setiawan & bagaskara, 2016). more significantly, due to low financing risk low, npf links to low concentrated financing (widarjono & rudatin, 2021). because of high npf, a number of studies have investigated islamic rural banks' financing risk. large asset and high equity are related to low npf (prastiwi & anik, 2020); (muhammad, suluki, & nugraheni, 2020). furthermore, low impaired financing is associated with diversified income (muhammad, anto, & fakhrunnas, 2020). however, one of the topics that need to be explored more deeply is the stability of islamic banks in indonesia. research on the stability of islamic banks is an interesting topic and rare. islamic banks with a small market share must compete with conventional banks. accordingly, the stability of islamic banks is very vulnerable in the indonesian banking industry. indeed, the stability of islamic banks also depends on the type of financing (widarjono & rudatin, 2021). however, in practice, non-pls financing such as murabahah is still the dominant financing in indonesian islamic banking. the ratios of pls and non-pls financing to total financing are 48% and 52% in 2020, respectively. therefore, it is important to investigate the role of pls financing on the stability of islamic banks. this study investigates the role of pls financing on the stability of islamic banks in indonesia. pls financing consists of mudarabah and musharakah, which is the core business of islamic banking (azmat, skully, & brown, 2015). this study measures the stability of islamic banks using the z-score. several previous studies employ the z-altman score to analyze the stability of indonesian islamic banks such as effendi (2017) and bawono and setyaningrum, 2018). the application of z-score in many studies could predict the failure of islamic banks well (čihák & hesse, 2010; beck, demirgüç-kunt, & merrouche, 2013). in addition, numerous previous studies employ z-score but using total financing without distinguishing between pls and non-pls financing in determining the stability of islamic banks such as widarjono (2020b) and (kasri & azzahra, 2020). this paper tries to fill the existing gap by analyzing the role of pls financing as the core business of islamic banks towards the stability of islamic banks in indonesia by using aggregate data of all islamic banks. 2. methods we investigate the extent to which pls financing, along with some control variables, influences the stability of islamic banks in indonesia. the control variables are both bank characteristics and macroeconomic conditions. the bank characteristics are capital, impaired financing, operating efficiency, domestic output, and exchange rate. our study employs 4 international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 aggregate data from january 2010 to december 2019. we apply the regression method to investigate the stability of indonesian islamic banks following the prior empirical studies accomplished by widarjono (2018) and kasri and azzahra (2020) as : (1) the dependent variable is z-score to measures stability. the explanatory variables are pls financing, capital adequacy ratio (car), non-performing financing (npf), expense-torevenue ratio (err), industrial product index (ipi), and exchange rate (exc). z-score is calculated using the following formula (abedifar, molyneux, & tarazi, 2013 ; hassan, khan, & paltrinieri, 2019): (2) where sd(roa) is the standard deviation of roa. z-score indicates islamic bank’s return drop below its average value to exhaust equity and leads to the bank's insolvency. hence, a low z-score indicates an unstable bank and a high z-score represents a stable bank. pls is profit and loss sharing financing measuring equity financing. pls is the ratio of pls financing to total financing (%). the function of pls financing on islamic bank's stability is indecisive. azmat, skully, and brown (2015) argue that pls financing contracts are subject to asymmetric information and moral hazard. entrepreneurs are likely deceitful in showing their financial reports and are less effort to carry out their business. on the contrary, entrepreneurs may have more motivation in running their business to make a high profit due to the fairness of pls financing (risfandy, 2018). for that reason, islamic bank's stability is positively or negatively linked to pls financing. car is a capital adequacy ratio (%) to cover the risk of loss that may be faced by the islamic bank. the capital adequacy ratio shows the extent to which the bank contains financing risks which are financed by third-party funds. the higher the capital adequacy ratio is the more the bank's ability to bear the risk of any risky financing and productive assets (hamid, 2017). if the value of the capital adequacy ratio is high, the bank can finance operational activities and provide any financing to customers. hence, car positively affect islamic bank' stability. one measure of the islamic bank's efficiency, which is widely applied, is operating efficiency. operating efficiency is the expense-to-revenue ratio (%). the expense-to-revenue ratio (err) measures how much it spends to produce revenue per unit (trinugroho, agusman, & tarazi, 2014). low err shows that the expense to generate per unit of revenue is low and vice versa. consequently, low err shows higher operating efficiency but high err represents lower operating efficiency. low err encourage islamic banks to create high margin and, in turn, generate high profits (trinugroho, risfandy, & ariefianto, 2018). therefore, we expect err to negatively influence islamic bank's stability. any islamic bank persistently encounters the risk of financing in the form of bad financing. the measure of financing risk that is commonly used is the ratio of nonperforming financing (npf) to total financing. non-performing financing is the ratio of bad financing to total financing (%). the higher the nfp implies the greater default while impaired financing is difficult to recover. low npf shows the bank's ability to generate profits is high because islamic bank is not burdened with previous non-performing financing (ahamed, 2017; widarjono, 2020b). accordingly, we expect npf has a negative impact on international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 5 the islamic bank's stability. gdp measures the size of national output which consists of the production of goods and services. a rising in the national output indicates improving economic conditions due to an increase in the production of goods and services and further increases income. on the other hand, a fall in the national output shows worsening economic conditions due to falling in goods and service productions and income. output upturn will thus increase profits and output downturn will decrease profit (widarjono, 2018). due to the unavailability of monthly gdp, this study utilizes the industrial production index (ipi). this study hypothesizes ipi positively affects the islamic bank's stability. indonesia is a country with an open economy and domestic production depends on imported raw materials. thus, the exchange rate steadily affects the domestic economy. depreciation of the rupiah against the us$ causes domestic prices to increase due to the high cost of imported raw materials. high inflation causes the ability of islamic banks to generate profits to decrease. on the other hand, an appreciation lowers prices of imported goods and, in turn, encourages an increase in islamic bank's profits due to an increase in domestic output and income. hence, the exchange rate negatively affects the islamic bank's stability. the autoregressive distributed model (ardl) is applied due to two advantages. first of all, all variables do not need to be stationary at the same level. second, ardl can explore not only short-run conditions but also long-run conditions. the equation (1) can be expressed as the ardl model as (3) where is the first difference (lag), are the short-run dynamic condition, and are the long-run condition. finally, when co integration exists, the error correction model of the ardl model can be written as (4) where is lag of error and the coefficient is the adjustment pace. the ardl model is estimated in several steps. the first step is the stationary test to check the integration order of variables. our paper utilizes the unit root test from philipsperron (pp) and augmented dickey-fuller (adf). the second step is the estimation of the ardl model. the main issue of the ardl model is to determine the length of the lag. this paper employs two approaches, namely schwarz criterion (sc) and akaike information criterion (aic) to produce an unbiased estimation. the co integration test is the third step to determine the long-run relationship between the variables being studied following the bound testing approach (pesaran, shin, & smith, 2001). the null hypothesis of no co 6 international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 integration is . if co integration is found, the next step is to estimate the ecm model. estimation of the long-run model to obtain the long-term coefficient is the last step of the ardl model. 3. results and discussion baseline results table 1 presents descriptive statistics of variables. the mean z-score as the dependent variable is 38.77% with a standard deviation of 5.25, meaning that the z-score is relatively stable under the period of study. the average pls as the main explanatory variable is 35.18 with a maximum value of 48.22 and a minimum value of 26.58. this fact indicates that non-pls financing is still the dominant type of financing in islamic banking. moving to bank control variables, the average car is 16.25% which is higher than the 15% threshold, the average bad financing (npf) is 3.78% which is lower than the 5% threshold and the mean operating efficiency level (err) is 83.81%. for macroeconomic control variables, the average ipi is 123.38 while the mean exchange rate of the rupiah against the dollar is 11,803. figure 1 describes the relationship between z-score and pls financing, indicating co-movement between pls financing and z-score. the coefficient correlation between z-score and pls is 0.6284, implying a strong positive association between them. table 1 descriptive statistics variable mean std. dev. maximum minimum zscore 38.77 5.25 50.12 28.16 pls 35.18 6.12 48.22 26.58 car 16.25 2.35 21.39 11.07 npf 3.78 0.80 5.54 2.22 err 83.81 6.69 94.38 70.43 ipi 123.39 16.45 158.00 92.32 exc 11803.71 2116.69 15178.87 8526.80 25 30 35 40 45 50 55 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 zscore pls figure 1. z-score and pls financing international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 7 before estimating the ardl, we test the stationarity of the data with a unit-root test. the unit-root test is needed to ensure that no variables are integrated into the second difference so that the ardl model can be applied and the co integration test results are valid. the results of the unit-root test from pp and adf are shown in table 2. the car, err, and lipi are stationary at the level while the remaining variables are stationary at the first difference. the results of this unit-root test confirm that no stationarity in the second difference is found for each variable so that the ardl model and the co integration test through the bound testing approach are valid. table 2. unit root test level difference pp adf pp adf variable constant trend constant trend constant trend constant trend z-score -2.23 -2.95 -1.50 -1.82 -14.96*** -14.88*** -11.66*** -11.61*** pls 1.25 -2.20 1.16 -2.26 -9.76*** -10.68*** -4.88*** -10.60*** car -2.27 -3.34* -1.80 -2.24 -13.10*** -13.04*** -11.78*** -11.73*** npf -2.56 -2.56 -1.60 -1.63 -15.19*** -15.12*** -10.83*** -10.78*** err -2.50 -3.47** -1.82 -2.07 -20.21*** -20.19*** -17.65*** -17.58*** lipi -1.41 -10.51*** -0.65 -10.51*** -63.02*** -68.58*** -7.80*** -7.78*** lexc -0.77 -1.59 -0.78 -1.62 -8.28*** -8.24*** -8.30*** -8.26*** notes: ***, **, * report significance in 1%, 5%, and 10%, respectively we estimate the ardl model as equation (3) using the ordinary least squares (ols) method. this study sets maximum lag up to 6. however, the estimation results of ardl depend on what method we use to select optimum lag. in order to get robust results for optimum lag, schwarz criterion (sc) and akaike information criterion (aic) and are applied. table 3 provides the results of the ardl model. the sc technique results in ardl (1,0,2,0,0,0,0) and the aic technique generates ardl (1,0,2,0,0,0,0). this study also tries hannan-quinn criterion (hq) method but the results are exactly the same. both sc and aic techniques pass heteroskedasticity test through autoregressive conditional heteroscedasticity (arch) test and the serial correlation through lagrange multiplier (lm) test so that the ols method produces unbiased and efficient estimators. figure 2 reveals a stability test using cumsum and cumsum of squares for both sc and aic techniques. the co integration test is presented at the bottom of table 3. the fpss statistic is 5.3441 for both methods and it exceeds the upper bound at 1%, confirming the long-run relationship between dependent and independents variables is found. table 3. ardl: total pls financing sc technique aic technique variable coefficient t-statistic coefficient t-statistic c 17.7823 4.1180 17.7823 4.1180 zscore(-1) 0.5129 6.5711 0.5129 6.5711 pls 0.0341 2.1871 0.0341 2.1871 car 2.1192 42.2671 2.1192 42.2671 car(-1) -1.2158 -6.7132 -1.2158 -6.7132 car(-2) 0.1399 2.8483 0.1399 2.8483 8 international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 npf -0.2448 -2.4642 -0.2448 -2.4642 err -0.0125 -0.8891 -0.0125 -0.8891 lipi 1.5880 1.2859 1.5880 1.2859 lexc -2.4243 -2.6755 -2.4243 -2.6755 r-squared 0.9911 0.9911 diagnostic test arch 0.2014 (0.6536) 0.2014 (0.6536) lm 1.2173 (0.2699) 1.2173 (0.2699) cointegration test fpss 5.3414 5.3414 note: notes: ***, **, * report significance in 1%, 5%, and 10%, respectively. the parentheses indicate probability. the critical values of upper bond i(0) are 1.99, 2.27, and 2.88, for 10%, 5% and 1%, respectively. -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 2011 2012 2013 2014 2015 2016 2017 2018 2019 cusum of squares 5% significance figure 2 cumsum and cumsum square of sc and aic method after established the co integration, the next step is to estimate the error correction model. the results of the ecm-ardl model are shown in table 4. the sc and aic techniques produce the same ecm regression. as an error correction model, ecm includes the lag errors variable ec(-1) as one of the independent variables. variable ec(-1) is negative and significant, meaning that ecm-ardl is valid. the variable ec(-1) can correct existing errors at a speed of 0.4871 every month. the independent variable that affects the stability of islamic banks is the only car in the short run. the next analysis is the long-run condition which shows the condition of equilibrium condition after economic agents make adjustments due to changes in economic variables in the short run. the long-run coefficient is an equilibrium condition as predicted by economic theory. the sc and aic methods produce the same long-run coefficients. pls financing is positive and significant as expected, meaning that high pls financing will increase the islamic banks' stability. now turning to the bank control variable, car is positive and significant while operating efficiency is negative and significant but impaired financing is negative and insignificant. these findings imply that high capital and high efficiency will increase the stability of islamic banks. for macroeconomic conditions, the ipi is positive and significant, -30 -20 -10 0 10 20 30 2011 2012 2013 2014 2015 2016 2017 2018 2019 cusum 5% signific anc e international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 9 while the exchange rate is negative and significant. economic upturn and appreciation encourage the stability of islamic banks. table 4. ecm-ardl: total pls financing sc aic variable coefficient t-statistic coefficient t-statistic d(car) 2.1192*** 48.7487 2.1192*** 48.7487 d(car(-1)) -0.1399*** -3.2175 -0.1399*** -3.2175 ec(-1) -0.4871*** -6.7455 -0.4871*** -6.7455 r-squared 0.9576 0.9576 note: notes: ***, **, * report significance in 1%, 5%, and 10%, respectively. table 5. long-run ardl: total pls financing sc aic variable coefficient t-statistic coefficient t-statistic c 36.5063*** 4.6356 36.5063*** 4.6356 pls 6.9990** 2.3114 6.9990** 2.3114 car 2.1418*** 26.5874 2.1418*** 26.5874 npf -0.0257 -0.9219 -0.0257 -0.9219 err -0.5027*** -2.6788 -0.5027*** -2.6788 lipi 3.2601* 1.3045 3.2601* 1.3045 lexc -4.9770*** -2.7548 -4.9770*** -2.7548 note: notes: ***, **, * report significance in 1%, 5%, and 10%, respectively. discussion pls financing contracts positively influence the stability of islamic banks in this study. however, the role of pls contracts on stability is debatable. pls financings consist of musharakah and mudharabah. theoretically, both financing contracts create benefits for the bank and the customer because the losses and profits from the business are shared according to the their agreement. pls financing provides a strong impetus for entrepreneurs to run their business well with the assumption that the entrepreneurs are truthful for mudharabah financing (risfandy, 2018). if these conditions are fulfilled, this mudharabah financing will encourage the profits and stability of islamic banks. however, mudharabah financing can also cause problems because it depends on the skill of the entrepreneur in carrying out the project and is subject to moral hazards and asymmetric information. previous research has shown that pls financing can boost profitability and stability for large islamic banks because large banks have the skills to manage projects in musharakah financing and monitors them well in mudharabah financing (čihák & hesse, 2010). large banks are able to generate high profits and subsequently maintain stability because they are able to increase business efficiency due to economies of scale (ibrahim & rizvi, 2017). in addition, large banks with market power are able to determine high margins, thereby increasing profit and stability. evidence also highlights that most of the customers of islamic banks in indonesia are medium and small enterprises. pls financing gives them flexibility in terms of financing repayments rather than fixed costs such as murabahah (risfandy, 2018). now we turn to bank-specific variables as control variables. car has a positive effect on islamic banks' stability. the financial service authority has set a minimum car of 8%. car 10 international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 serves to protect third part funds because car protects customers from unanticipated losses. a high car can make a substantial contribution to profitability and stability. samail et al. (2018) indicate that car positively links to the profitability and stability of islamic banks in malaysia. other studies also show that car has a positive effect on the profitability and stability of islamic banks in indonesia (trinugroho et al., 2017 ; widarjono, 2020b). bad financing is negative but does not affect stability because impaired financing is manageable, which is below the maximum threshold of 5%. npf has reached above 5% only four times in the study period. the level of operating inefficiency has a negative effect on profitability and stability. the low efficient rate causes islamic banks to fail to set high margins so that the profit is not optimal (trinugroho, risfandy, & ariefianto, 2018) the last investigation is the control variable from external conditions, namely macroeconomic conditions. good macroeconomic conditions through economic growth and appreciation of the rupiah will boost the profitability and stability of islamic banks. economic upturn increases income and in turn can enhance profitability and stability. this research is in line with the case of islamic banks in malaysia (abduh & alias, 2014) and indonesian islamic banks with panel regression (trinugroho et al., 2017). the exchange rate, through the theory of the exchange rate pass-through, raises domestic prices as the domestic currency depreciates (kassi et al., 2019). thus, depreciation increases inflation and accordingly decreases profitability and stability. evidence shows that inflation reduces the performance of islamic banks in malaysia (abduh & alias, 2014). further investigation pls financing consists of two, namely musharakah and mudharabah. in the previous discussion, we did not distinguish between those two financings. both financings are part of the pls financing contract but both are slightly different. musharakah is a type of financing where banks and entrepreneurs provide funds to run a project, while mudharabah is a type of financing where all projects are funded by banks and entrepreneurs run the project. therefore, this paper wants to find out which form of pls financing drives the profitability and stability of islamic banks. musharakah (mus) is the ratio of musharakah financing to total financing (%) and mudharabah financing is the ratio of mudarabah financing to total financing (%). the results of the ardl model are exhibited in table 6-8. table 6 presents the results of ardl (1,0,0,2,0,0) with the sc method and ardl (6, 3,0,3,2,0,5) with the aic method. both approaches pass the heteroscedasticity and serial correlation tests. cointegration occurs in the sc method while the aic method produces indecision. furthermore, table 7 displays the ecm-ardl model. the variable ec(-1) is negative and significant, meaning that the sc and aic methods produce a valid estimate of the ecm-ardl model. in addition, the coefficient of ec(-1), which is the speed of adjustment to long-run equilibrium, is not slightly different. out paper emphasizes the long-run coefficient by focusing on musharakah and mudarabah financing. the results are shown in table 8. musharakah financing has a positive effect on the stability of islamic banks using the sc and aic methods. musharakah financing can increase profits and stability since this type of financing can be managed properly because both parties are responsible for the managed project (risfandy, 2018). a study by warninda (2014) on islamic rural banks also shows that musharakah financing can increase the profitability of islamic banks. on the other hand, mudarabah financing has a negative effect on stability using the aic method. mudarabah financing is subject to moral hazards international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 11 and asymmetric information (azmat, skully, & brown, 2015). mudarabah financing has led to an increase in non-performing financing and further reduces the profitability and stability of islamic banks (kabir, worthington, & gupta, 2015). while the car has a positive effect and npf has a negative effect on the stability of islamic banks. in addition, depreciation reduces the stability of islamic banks. table 6 ardl: musharakah and mudarabah sc aic variable coefficient t-statistic coefficient t-statistic c 25.2600** 2.1299 45.3382*** 3.0493 zscore(-1) 0.5039*** 6.3510 0.5421*** 5.3689 zscore(-2) -0.1255 -1.1723 zscore(-3) 0.2365** 2.4976 zscore(-4) 0.0256 0.9604 zscore(-5) -0.0224 -0.9024 zscore(-6) -0.0489** -2.1861 mus 0.0436** 2.0789 -0.0174 -0.1354 mus(-1) 0.1876 1.1386 mus(-2) -0.3364** -2.0998 mus(-3) 0.2130* 1.7616 mud -0.0082 -0.1272 -0.1718** -2.3362 car 2.1192*** 42.1628 2.1643*** 40.7940 car(-1) -1.2013*** -6.5710 -1.2770*** -5.5596 car(-2) 0.1359*** 2.7401 0.4981** 2.0102 car(-3) -0.5627** -2.5565 cir -0.0125 -0.8857 -0.0348* -1.8184 cir(-1) 0.0129 0.7193 cir(-2) 0.0422** 2.3807 npf -0.2176** -2.0247 -0.1269 -0.9452 lipi 0.9563 0.6169 -0.0387 -0.0255 lexc -2.8838** -2.5438 -1.2781 -0.4149 lexc(-1) -0.7231 -0.1516 lexc(-2) -0.9392 -0.1981 lexc(-3) 5.1001 1.0921 lexc(-4) -13.4210*** -2.8545 lexc(-5) 6.5042* 1.9666 r-squared 0.9911 0.9934 diagnostic test arch 0.2453 (0.6204) 0.2422 (0.6226) lm 1.6846 (0.1943) 0.4484 (0.5031) cusum stable stable cumsumsq stable stable cointegration test fpss 4.7760 2.3327 note: notes: ***, **, * report significance in 1%, 5%, and 10%, respectively. the parentheses 12 international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 indicate probability. the critical values of upper bond i(0) are 1.99, 2.27, and 2.88, for 10%, 5% and 1%, respectively. table7. ecm-ardl: musharakah and mudarabah aic sc variable coefficient t-statistic coefficient t-statistic d(zscore(-1)) -0.0653 -0.7081 d(zscore(-2)) -0.1908** -2.1018 d(zscore(-3)) 0.0457* 1.9573 d(zscore(-4)) 0.0713*** 3.2280 d(zscore(-5)) 0.0489** 2.4174 d(mus) -0.0174 -0.1693 d(mus(-1)) 0.1234 1.2585 d(mus(-2)) -0.2130** -2.0962 d(car) 2.1192*** 48.8543 2.1643*** 49.2100 d(car(-1)) -0.1359*** -3.1299 0.0646 0.3218 d(car(-2)) 0.5627*** 2.8477 d(cir) -0.0348** -2.0914 d(cir(-1)) -0.0422** -2.6327 lexc -1.2781 -0.4575 dlexc(-1) 2.7559 0.9256 dlexc(-2) 1.8167 0.6291 dlexc(-3) 6.9168** 2.4319 dlexc(-4) -6.5042** -2.3963 ec(-1) -0.4961*** -6.7969 -0.3926*** -4.7880 r-squared 0.9578 0.9713 note: notes: ***, **, * report significance in 1%, 5%, and 10%, respectively. table 8. long-run ardl: musharakah and mudarabah sc aic variable coefficient t-statistic coefficient t-statistic c 50.9214** 2.2568 115.4784*** 2.9958 mus 0.0878** 2.2183 0.1192** 1.9864 mud -0.0165 -0.1274 -0.4375** -2.0686 car 2.1243*** 25.6436 2.0953*** 16.3568 cir -0.0252 -0.9176 0.0520 1.0551 npf -0.4387** -2.1190 -0.3232 -1.0105 lipi 1.9279 0.6161 -0.0987 -0.0255 lexc -5.8134*** -2.6749 -12.1165*** -2.9709 note: notes: ***, **, * report significance in 1%, 5%, and 10%, respectively. robustness checks this paper also conducts robustness tests to confirm our ardl results employing the ols method with a multiple regression approach. we apply the heteroscedasticity and autocorrelation consistent (hac) method because of heteroscedasticity and serial correlation to generate unbiased and consistent estimators. the results are reported in table international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 13 9, consisting of the model with total pls financing (model a) and with musharakah and mudarabah financing (model b). total pls financing positively links to stability but only musharakah financing enhances stability. furthermore, the impacts of bank characteristics and macroeconomic conditions as the control variables on stability are exactly similar to the results of the ardl method. table 9. ols with robust estimation model a model b variable coefficient t-statistic variable coefficient t-statistic c 31.4688*** 3.8674 c 50.1555*** 2.7828 pls 6.8987*** 2.4358 mus 0.0912** 2.5084 mud -0.0428 -0.5517 car 2.0775*** 29.0889 car 2.0640*** 26.0903 cir -0.0449* -1.5084 oer -0.0434* -1.4484 npf -0.5056*** -2.6995 npf -0.4191** -2.0867 lipi 3.5379** 1.8064 log(ipi) 1.7086 1.2811 lexc -4.2966*** -2.3756 log(exc) -5.3500*** -2.3769 r-squared 0.9880 r-squared 0.9883 note: notes: ***, **, * report significance in 1%, 5%, and 10%, respectively. 4. conclusion the main purpose of islamic bank financing is to avoid financing with a fixed cost. this paper analyzes the role of pls financing which consists of musharakah and mudarabah financing on the stability of islamic banks. the stability of islamic banks is measured using the z-score. our finding shows that pls financing strengthens the stability of islamic banks. more particularity, musharakah financing enhances stability but mudarabah financing diminishes stability. in addition, car also fortifies stability while inefficiency weakens stability. economic expansion and depreciation obviously reinforce islamic bank's stability. so far, islamic banks in indonesia have focused more on murabahah financing with fixed costs like conventional banks. there are several important implications. first, islamic banks have to diversify their financing contracts. second, islamic banks should focus on profit-sharing financing such as musharakah. indeed, musharakah results in impartial financing because the risks are shared with both parties. third, mudarabah deteriorated stability but mudarabah financing is also another alternative because other studies have shown that musharakah and mudarabah financing provide the same financing risk (warninda, ekaputra, & rokhim, 2019). the main key in mudarabah financing is the ability of islamic banks to monitor customer behavior in running their business. this study, however, uses aggregated data to conceal individual islamic bank's behavior. accordingly, regression panel data may be the agenda for the next study. 14 international journal of islamic business and economics (ijibec), 6(1) june 2022, 1-16 references abduh, m., & alias, a. 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(2021). financing diversification and indonesian islamic bank’s non-performing financing. jurnal ekonomi & keuangan islam, 7(1), 45–58. 37 ijibec waqf institution and management cash waqf during the ottoman period iskandar dokuz eylül university, turkey iskandar.lon@gmail.com abstract this paper discussed the implementation and management of cash waqf during the ottoman empire. during the reign, waqf has become an instrument that is very successfully implemented in various sectors such as religion, education, social, and health. waqf assets continued to increase and not only provided facilities for public but also assisted people who need capital to do business. nazir as waqf institution (individual or institution waqf manager) have administered waqf with different schemes, such as providing loans in the form of qard hasan, mudharabah, bai’ul-inna, and bidaa. management waqf institutionally was evaluated by the government in 1823, this evaluation led to the reformation of waqf institution and founded the new waqf institution which was known as evkaf-i hümayun nezareti. this institution was the ottoman sovereign wealth fund which functioned to manage all waqf assets. all waqf assets, as well as cash waqf, were managed by this institution with various schemes that are not much different from what has been done before. however, in this period the management of cash waqf was only carried out by this institution as the authority for managing waqf assets. the management of waqf assets under this institution lasted until the end of the ottoman turkish government. the establishment of cash waqf institutions in the ottoman empire has shown an important step that has been taken to ensure the effectiveness of cash waqf development. cash waqf management in the ottoman empire has proof waqf as islamic social finance in islamic economic theory shown a significant contribution to society and the ottoman government. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 1 2022 keywords: cash waqf; waqf management; waqf application; ottoman empire doi: 10.28918/ijibec.v6i1.4851 jel: g3, g20, h12 article info article history: received : 22 december 2021 accepted : 19 may 2022 published : 1 june 2022 mailto:iskandar.lon@gmail.com 38 international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 1. introduction throughout the history of islamic civilization from the time of prophet muhammad pbuh, era of sahaba (companions of the prophet muhammad) to the last islamic caliphate, the ottoman empire, waqf is an inalienable charitable endowment under islamic law that have a great impact on the social and economic development of the ummah (bulut & korkut, 2016). although at a certain time waqf is seen as less prominent in society, it does not mean that waqf does not have a social impact on that time, but there is no record or written evidence that can be used as a reference to be claimed as waqf assets. among the companions of the prophet muhammad (sahaba), waqf innitially has been practiced by umar ibn al-khattab by endowing property obtained from spoils of war (ghanīmah). in addition, among the other sahaba who are also known munificent and often giving waqf was uthman ibn affan and 'abd al-rahman ibn 'awf. the form of waqf in the era of sahaba varied, such as date palm gardens, war equipment, wells, etc. during the reign of the umayyad and abbasid dynasties, waqf was also practiced by benefactors at that time. waqf assets at that time were not only used to help the needy and poor but also for capital in providing public facilities such as the construction of educational institutions, libraries, and others. from this waqf property, the allocation is also used to pay the salaries of his staff and other needs (nurhayati, 2008). during the ottoman empire, waqf has become a strong tradition in society. the waqf tradition is inseparable from the tradition brought by islamic teachings which also became a belief of the people at that time. however, non-muslims were also free to live in the ottoman lands without discrimination and could enjoy the benefits of the waqf property as well. in general, all people who live in the ottoman territory have the same rights which were called "millet” or the people of ottomans. thus, their right to perform waqf and get benefit from the waqf property is also permitted under certain conditions (kazancioglu, 2016). at the beginning of the ottoman rule, the waqf tradition in society of ottoman empire was generally carried out by the sultan, the sultan's relatives, and the nobility. this is because they are the ones who have excessive wealth then endow their wealth to the people who need it in their community. most of the waqfs established for the community are in the form of building schools, mosques, providing water kiosks (sebil), hostels or accommodation for travelers, hamams, etc (özger, 2009, bayartan, 2008, iskandar, 2020). the waqfs has spread and grown impressively. as a result, the management of waqf assets has developed very quickly and this has made mutawalli as the manager of wakaf institutions to manage waqf assets more organized. the sultan and governors at that time had expanded the scope of waqf which previously only consisted of waqf in the form of immovable goods such as buildings and land, then developed so that the community could also donate immovable assets such as agricultural equipment, books, and cash (money) (baqutayan et al., 2018). therefore, cash waqf has become a model of waqf that played an important role in development at that time. waqf institutions that have been formed not only provide services for the welfare of the community but also as institutions that manage finances for the country's economic growth (baqutayan et al., 2018; halaçoglu, 1991). according to çizakça (2006) waqf institution during the ottoman empire was a very important institution in social and economic development. most of the expenditure of waqf property was allocated for education, health, and religion. as it is known that cash waqf during the ottoman empire had a great impact on society. the success of implementation cash waqf during the ottoman period was certainly international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 39 accompanied by good financial management. however, discussion about the management of cash waqf during the ottoman period was hardly found. therefore, this study will focus on discussing how the implementation and management of cash waqf in the ottoman era. the ottoman empire which has been in power for approximately 700 years has left a very interesting historical record to study and can be an experience for the management of cash waqf today. the accomplishment of the ottoman empire had implemented cash waqf which at first was only as a religious teaching had succeeded making waqf as social finance instrument that can be used not only for the development poor people but also develop economy of the ottoman empire. this success also motivated author to dig deeper into the management of cash waqf model that was applied during the ottoman empire (iskandar, 2020). at the beginning of the establishment of ottoman empire, waqf has been known as multidimensional instrument composing of economic, social, and religious aspects of human life. the impact generated by the utilization of waqf property can be felt directly by the beneficiaries, such as the purpose of building madrasas for education, hospitals for healthcare, mosques for religion and other facilities to meet sosial need (çizakca, 1998, şimşek, 1986, özger, 2009, türkoğlu, 2013). those were only some important aspects in the society which were provided through waqf (kudat & ceyhan, 2020). waqf in the ottoman empire has played a supreme role in social life of its people. this can be seen from the increase in waqf assets and the expansion of the scope of waqf which previously could only establish waqaf in forn of land and building so that later they could perform waqf in the form of money or also known as cash waqf. cash waqf in the ottoman period had originally been practiced since the time of sultan orhan gazi, since then cash waqf has continued to grow so that it is not only used as a social activity that can help the community but also an income for the state (iskandar, 2020, dumlu, 2015). according to bulut & korkut (2019b) cash waqf in the ottoman empire has functioned as social charity and financial needs of society. these two functions have solved social problems that occurred in the society. the existence of cash waqf has also created a financial institution that has become a pioneer of interest-free finance. in addition, several financing models carried out through cash waqf such as mudharabah and qard hasan have been proven to help people who need capital to run their businesses by not taking interestbearing loans. kudat & ceyhan (2020) acknowledged that cash waqfs were distinctive philantropic institutions in islamic history. they claimed three main management principles of cash waqfs had provided them an institutional strength to have sustainable philanthropy. first, they were bounded to the religious rules and laws, which provided them a holy position in the eyes of muslims. second, cash waqfs provided a more flexible and wider application area for charitable works. third, religious motive of endowing cash existed for contributing to the societal well-being. it meant, cash waqfs had the purpose of providing honorable life standards to people and advancing their living conditions in economic, social, physical ways. while cızakca (2006) claimed that the main purpose of cash waqf in islamic history were gaining profit and protecting the accumulation of capital. however, his view about this has brought to a debate among scholars. the management of waqf property in the ottoman period also underwent changes in the management of the institution or structural management. the management of waqf property was initially managed by mutawali who was registered with the local qadi (iskandar, 2020). then in 1826, waqf property began to be managed in a more structured 40 international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 manner under one institution known as evkâf-ı hümayun nezâreti. this institution was established by sultan mahmud for the sole administration of all waqf property distributed belonging to the sultans and their relatives (öztürk, 1985, hançer, 2019), özsaraç, (2019). the very prominent management of waqf assets that has been implemented in the ottoman period is the existence of an excellent record that was conducted when performing waqf. so what can be concluded from the existing literature that accounting management has been applied by waqf institutions at that time (demirhan, susmuş & gönen, 2012). gürsoy (2018) has also discussed the management of waqf money by conducting an analysis of risk management. if we examine the study further, the focus of the study is more focused on financial management strategy and risk management. in addition, his study found that cash waqf management and risk management running in parallel. at the end of his study, he suggested that there is a need for further analysis of waqf management in other service areas such as social work, education, and transportation. 2. method this study used qualitative research method with the historical approach. the historical approach is the most suitable method for revealing historical facts that occurred from the existing evidence, this approach is considered the most appropriate to find out how the application of cash waqf during the ottoman period (bucheli & wadhwani (eds.), 2014). the data collection carried out in this study by using library research from secondary data. the secondary data from books, articles, research results, website, and turkish directorate general of foundation (vgm) archives that related to the topic of cash waqf within the ottoman period has been employed to identify the utilization of cash waqf at that moment. afterwards the data will be analyzed to determine the implementation of cash waqf during the ottoman empire, in this case to obtain the management and the implementation of cash waqf. this finding is expected to be a reference for future researchers as well as comparisons or experiences from the past to current policy makers in determining the appropriate model for management cash waqf in this modern era. 3. result and discussion waqf in ottoman empire period the ottoman empire which ruled asia, europe, and africa was a government with the most advanced civilization in the 14th century. the power possessed is not only in terms of territorial land, but also in terms of military, economic and strong influence compared to other kingdoms. this atmosphere allows them to control a lot of land, buildings that has on it (imber, 2019). several buildings and land in several areas have been donated by the sultan who was in power at that time for the benefit of the ottoman people. the first waqf of the ottoman empire was the establishment of a madrasa in iznik by orhan gazi as an educational institution that could provide education for people who wanted to study. davud-i kayseri was the first teacher at the school who later became head of the same madrasa. davud-i kayseri is also known as a religious scholar, philosopher, and sufi at the beginning of the founding of the ottoman empire (bayartan, 2008, sezer & sannav, 2018, bulut & korkut, 2019). the ottoman government has seen that waqf has a very large impact on society, the ottoman sultan then took policy steps to expand the scope of waqf to other sectors that provide more benefits to the community, such as: waterways, sidewalks as an infrastructure service, madrasahs, schools, kulliyahs, libraries as an educational service, hospitals, clinics, international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 41 patients as a health service, mosques, masjids, lodges as a religious service and hans, caravansaries, bazaars as a commercial service (peri, 1992, bulut & korkut, 2019, iskandar, 2020). as explained in the literature review, in the early 16th century the application of cash waqf was debated among ottoman’s islamic scholars. differences in views on cash waqf had occurred among the scholars of the madhab before the ottoman era, but there was no significant difference among the scholars of that time. some mazhab scholars allow cash waqf with several provisions, among the scholars who allow cash waqf are imam hanafi, imam muhammad syaibani, and abu yusuf. therefore, because the official school of thought during the ottoman empire was the hanafi school, it was permissible to make waqf in the form of money or the like (aslan, 1998, iskandar, 2020). although there was a debate among the ottoman scholars, this did not really affect the people's desire to continue to do cash waqf. this may be because they adhered to the hanafi school which was the official school at that time. waqf assets are not only spread in the center of the capital, but also develop to small towns in the ottoman territory (özger, 2009). the facilities and infrastructure needed by the community such as buildings, markets, mosques, hospitals, schools, libraries, roads, waterways, hammams (bath houses) and others have been built using cash waqf assets. the management of waqf assets with a good system has made development during the ottoman empire continue to grow so rapidly. cash waqf during the ottoman empire had strict procedures that had to be completed with complete records. the recording of waqf is called waqfiyah. a person or several people can perform cash waqf by registering with the sharia court accompanied by waqfiyah. then the sharia court will provide instructions on the formation of cash waqf (iskandar, 2020). debating on the establishment cash waqf the establishment of cash waqf in the ottoman empire period was not much different from the nature form of waqf (i.e waqf in the form of land or building). in this circumtances the only difference is the object of waqf, land and buildings are categorized as immovable waqf property while money is categorized as movable waqf property. the process of establishing a cash waqf was derived from the ijtihad issued by islamic scholars at that time in the form of fatwa. the fatwa has stated that cash waqf is permissible and applicable to be practiced by the people of ottoman empire. this ulema's fatwa also caused cash waqf to develop and be practiced by the people at that time (bulut & korkut, 2016). bulut, & korkut (2019a) mentioned before the ottoman period there were no records or evidence of cash waqf found. this can be an assumption that cash waqf has not been practiced before. according to historical evidence that the practice of cash waqf during the ottoman period can be known from wakfiyah (waqf property records) which have been found in waqf archives that are still stored today (see figure 1.). all waqf assets during the ottoman period were recorded by the court in waqfiyah and became a reference document for operating cash waqf. therefore, the evidence of cash waqf found in the wakfiyah records that exist during the ottoman period proves that cash waqf has been practiced. however, some of these records have no definite date when the cash waqf was established. according to various literatures cash waqf in the ottoman empire have been found at the beginning of the reign of the ottoman sultanate (early 15th century) (korkut, 2014, mandaville, 1979). cash waqf was initially allowed when institution seyhulislam as association of islamic scholars issued the fatwa regarding the permissibility of cash waqf 42 international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 (atar, 2020). in 1425, scholars under institution seyhulislam such as: molla fenâri, fahreddin-i acemi, molla abdülkerim efendi, and molla hüsrev molla gürâni issued a joint fatwa allowing cash waqf. all the scholars at the time were unanimous on this fatwa. so, there is almost no debate that occurs among scholars about the permissibility of cash waqf (özcan, 1998, şimşek, 1985). the fatwa on the permissibility of cash waqf became an enlightenment on the economic activities of the ottoman empire. because the fatwa has opened the way to provide credit to people in need by not using interest. the application of cash waqf also became a period in which the ottoman government implemented a borrowing or credit system by not taking interest but using qard hasan (turkoglu, 2013, sannav & sezer, 2018). the establishment of cash waqf was initially able to run smoothly for approximately 120 years after the issuance of a fatwa on the permissibility of cash waqf by scholars under the institution seyhulislam. then in the 16th century debate began to occur among ottoman turkish scholars. even the debate that occurred at that time could be said to be very serious which made both parties defend their respective arguments (özcan, 1998, şimşek, 1985, çızarça, 1995, güney, 2019). the fierce debate took place between ebusuud efendi (d. 1574) and civizade muhyiddin mehmet efendi (d. 1547). ebusuud efendi's opinion on cash waqf has followed the opinion of the imam muhammad from the hanafi school and ibn shihab az-zuhri. according to ebusuud, cash waqf can be classified as waqf of movable property and some of islamic scholars including imam hanafi agree and permissible to perform waqf by using movable property such as: agricultural equipment, books, money, etc. although some of the scholars set the conditions for movable waqf. in addition, according to ebussuud, the practice of cash waqf is based on the opinion of imam muhammad who made local customs (‘adat) or customary usage (‘urf) as the basic criteria in performing cash waqf (okur, 2005). ebusuud efendi's opinion was not accepted by civizade muhyiddin mehmet efendi. the reason expressed by ebusuud follows the opinion of imam muhammad which states that if it is customary usage (‘urf) to perform waqf in some places using money then the cash waqf is permissible, because it is in accordance with the rules of islamic law which considered “urf” or customs as a legal method in producing a law. according to civizade the reason given by ebusuud is very fragile. because according to him, to make custom as proof of the argument, there must be a mujtahid who lived at that time. therefore, according to him, the customs and traditions used by ebusuud and imam muhammad as evidence of the arguments used for cash waqf must be reviewed. however, civizade does not deny that customs and traditions can be used as evidence or arguments by mujtahids in making decisions of a law (okur, 2005, bayram, 2019, güney, 2019). in 1545, ebusuud efendi was dismissed from the membership of institution seyhulislam and replaced by civizade. after civizade was appointed as a member of the fatwa-giver in seyhulislam, he issued a new fatwa prohibiting the practice of cash waqf. the issuance of fatwa from civizade has also requested sultan sulaiman to issue a law prohibiting the practice of cash waqf. thus, a new law was enacted that officially forbade cash waqf to to be implemented in the ottoman territory. this decision made sofyalı bali efendi (d.1552) wha was aslo an islamic scholar at that time and supported the implementation of cash waqf by sending a letter to sultan sulaiman al-kanuni requesting to allow cash waqf back (gel, 2020). bali efendi in his letter emphasized that cash waqf has great benefits for the people and if it is prohibited it will cause great losses (okur, 2005). thereafter civizade died, the sultan instructed the islamic scholars to review the fatwa international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 43 prohibiting cash waqf. the scholars at that time made a joint decree to abolish the ban of cash waqf. in the month of rabiul awal 955 h/1548 ad, the law prohibiting cash waqf was officially revoked and the fatwa on the permissibility of cash waqf was returned as decreed by ebusuud efendi. this decision was acceptable to most scholars at the time (özcan, 1998). after the issuance new fatwa, the cash waqfs became quite widespread. it spread extensively to the europian regions and anatolian regions of ottoman empire. the development of cash waqf was also made the ottoman economy increased sharply. these developments also have an impact on entrepreneurs and traders who need capital. with the cash waqf, they can get waqf funds to run their business. the income from the cash waqf that was operated by using islamic methods, such as mudaraba, qard hasan, and ijarah. it was spent in the direction of the waqf purposes and according to the wishes of the wakif (pamuk, 2012, p.90). operations and administrations of cash waqf since the first-time cash waqf was practiced in the ottoman period in the early twentieth century until the second practice after the lifting of the prohibition on cash waqf, this practice continues to increase and become a culture that is practiced among the community. this shows that cash waqf is not only able to provide benefits to the community, but it has also helped people who need business capital to use waqf money as loan capital. the implementation of cash waqf was also known in the ottoman period as the beginning of the implementation of an interest-free loan system (turkoglu, 2013, bulut & korkut, 2016). the collected cash waqf is operated in several forms or models in accordance with the provisions of islamic law. among the scheme models used in developing cash waqf assets are by providing loans in the form of qard hasan, capital loans with mudharabah contracts, and selling goods using waqf money and taking a small profit using murabahah contracts, as well as bidaa. according to dönduren (2008), the most widely used operating model is the mudharabah contract with an agreement of 10-15% per year profit. operating cash waqf assets using mudharabah contracts was given by many large traders who traded not only within the territory of the ottoman empire but also outside the country. (döndüren, 2008, turkoğlu, 2013). qard hasan loans were mostly given to lower middle-income people who need capital to do business or for other purposes. this qard hasan loan is usually given to the poor without taking any profit of the loan. to get a qard hasan loan, a borrower will go to a mutawalli who administered of cash waqf by bringing a guarantor. afterward the borrower must also meet the qualifications specified in the wakfiyyah. if all the necessary requirements are met then the mutawalli will prepare registration form of records in the form of wakfiyyah to be registered to the kadi/judge (türkoğlu, 2013). this practice was also widely practiced during the ottoman empire to help its people in need of loans. another form of cash waqf operation that was also well known and important that has been practiced during the ottoman empire was in the form of mu’âmele-i şer’iyye. this practice was carried out by the ottoman government to produce and get benefit from cash waqf and to avoid the practice of usury. mu’âmele-i şer’iyye was also known as mu'amele or murabah-i mer'iyye. in some literature it is also known as "murabaha". the profit obtained from mu'âmele-i er'iyye is called "ribah" and a business that can bring profit is called “istirbah” (akgündüz, 1996). according to özcan (2003) this practice was one of the most chosen scheme by those who need a loan from a cash waqf fund. 44 international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 apart from the debates of the scholars about the permissible of this contract, what we want to emphasize here is that mu'âmele-i er'iyye is one of the operations or methods of cash waqf used during the ottoman empire. even based on several sources, it has been stated that this practice also dominates the practice of cash waqf that was practiced at that time. management of cash waqf in the ottoman empire obviously can be seen from registering form (vakfiyye) which is registered at the time of establising waqf. toraman, tunçsiper & yilmaz (2007) mentioned that the register of a typical cash waqf contains some information regarding the establishment of waqf. generally, the information recorded in the vakfiyye is name of the waqif (waqf founder), purpose of waqf, the address where the waqf property is registered, the name of the waqf manager or nazir, period covered by the cencus, and original capital of the cash waqf. in addition, in some vakfiyye also containts some additional information regarding the report of usage of cash waqf such as the balance of the new capital thus formed, the return of the investment of the cash waqf capital at the end of the year, the purpose for which the annual return was designated, names of the borrowers, amount of borrowing, address of borrowers, affiliation of borrowers and gender of borrowers. principally, the management of cash waqf during the ottoman period was generally the same as recommended in islamic teachings. waqf property managed by a person appointed by the person who is waqf (wakif) or appointed by a judge. in islamic law, the person who manages the waqf property is called "wilayat". in law during the ottoman period, the term tauliyah was used, which is a term from the same root as the word wilayat. wilayat is a general term used for a person who is a wali/representative in the management of waqf property. islamic jurists, who consider that the operation of waqf usually carried out by competent state bodies or government, therefore they use the term wilayat which has a broader scope. meanwhile, for people who administer waqf and maintain waqf custody, they are called mutawalli, nazir, or kayyim. these three words principally have the same meaning, however in discussing the issue of waqf every mazhab often uses certain words that refer to a person who administer waqf. for instance, the word nazir is widely used by the syafii and maliki sects, the word mutawalli is widely used by the hanafi and hanbali sects. while the word kayyim is rarely used by all sects, but only used in a few issues of waqf (akgündüz, 1996). in explaining the management and administration of waqf during the ottoman period, we divide it into two periods, firstly the classical period and secondly the reform period. the classical period is the period from the establishment and implementation of cash waqf from 1425 to 1826. while the reform period is after 1826 until the end of the ottoman empire (1922). before the reform of the waqf institution (1425-1826) in the early stages of the permissibility of cash waqf, the management of cash waqf was no different from the management of waqf in general. cash waqf have been administered in accordance with the wishes of the wakif. if a person who wants to establish waqf must be able to meet the requirements as wakif and then appoint someone to manage the waqf property. çiftçi (2004) in his paper mentioned that a person who wants to perform cash waqf must meet the requirements such as: akıl (a person of sound mind), baligh (mature), and independent (not a slave). afterward waqif should prepare wakfiyah (waqf records). in the wakfiyah, it must be clearly stated the purpose of the waqf, how much money will be international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 45 donated, special terms or conditions who will manage the assets and then it must be submitted to the mutawali. after that, the wakif and mutawalli went to the qadi to get approval to establish cash waqf. the conditions for the establishment of waqf were regulated in a government regulation at that time called the "nizamname". the qadi will then check all the conditions that have been determined and if all of them have been fulfilled then the qadi will ask the wakif to prove that the property belongs to him and make a pledge of the waqf contract (yediyıldız, 2003). after completing the waqf pledge, the wakif submits the money as waqf assets to the mutawalli. mutawalli who is responsible managing the cash waqf assets will manage it according to the wishes of the wakif as recorded in the wakfiyyah. all mutawalli’s duties related to waqf assets must be administered with a mandate accordingly. for example, mutawalli must control the activities of the waqf property, pay or give salaries to officers who carry out the waqf property and must take preventive measures to save the waqf property from destruction (çiftçi, 2004). during this period all waqf assets was taken care of by mutawalli who consisted of individuals and institutions. yayla (2011) indicated that in this era the waqf founder has given full authority to the mutawalli to manage the waqf. although most of waqf founder at this time was established by sultan yet the ottoman sultans preferred to give the authority the waqf management through mutawalli. if the wakif (waqf founder) could not appoint someone as a mutawalli, subsequently the wakif automatically can be counted as a mutawalli who must maintain and manage the waqf property (genca, 2014). in waqf law during the ottoman empire was stated that to keep the waqf assets maintained and did not run out, it is better that the person appointed as mutawalli is the person closest to the wakif. however, it would be great if the mutawalli was the person who has most intelligent or good at managing waqf assets. a competent person will manage and protect the waqf assets. in order to protect the waqf assets, the wakif has the right not to put any conditions on mutawalli. in addition, to protect the waqf property from extinction, it can be managed as desired by the wakif without any state intervention, however, the state through the qadi will be the supervisor of all waqf assets that have been recorded in court (yüksel, 1998, yayla, 2011). cash waqf assets continue to increase every year. cash waqf which began in the early 15th century continued to expand to the anatolian region and the balkans at the end of the 16th century (mandaville, 1979, korkut, 2014, iskandar, 2020). the results or income obtained from cash waqf are also increasing so that there is a large surplus obtained from cash waqf assets. even during this period, some of the income of cash waqf is also the state's opinion. between the years 1456-1546, cash waqf in istanbul alone reached 46.12% of all waqf assets (öztürk, 1995, turkoglu, 2013). mandaville (1979) has also explained that cash waqf in istanbul during the reign of sultan beyazid ii (1481-1512) itself experienced a very significant increase. in the list of waqf records found by cizarça on cash waqf in bursa only between the years 1555-1823, it shows that the money waqf of the ottoman empire has survived with extraordinary value. this shows that cash waqf in the ottoman period continued to increase. however, the increase in the cash waqf property was not accompanied by a massive distribution, so it caused many of the waqf assets to experience excess (surplus). the management of waqf assets by individuals has caused problems. this problem was caused by the wakif who appointed mutawalli among themselves to avoid supervision by kadi on their waqf. in addition, the authority given to mutawalli was upwards of the 46 international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 authority of kadi to oversee cash waqf assets. this condition made the mutawalli able to take extensive action in the management of waqf property without the knowledge of the qadi. moreover, there were waqf management officers who were not directly elected by the mutawalli but are appointed by the wakif or by the kadi. this circumtances of course very risky for the occurrence of fraud in the management of waqf assets (genca, 2014). during the reign of sultan mahmud ii, the above problems have been tried to be resolved by giving the authority to administer waqf to certain institutions such as seyhulislam, sadrazam, darussade agası and kadi istanbul. the institution is given the authority to manage waqf assets that have been widely scattered and some cannot be controlled, the purpose of managing waqf under this institution is so that waqf assets can be managed better and prevent expenditures from the income of waqf assets to things that are not needed. the transfer of authority for managing waqf assets to the above institutions does not in fact make the management of the waqf system that has been formed able to manage waqf better. even the management at that time there were also malpractices of waqf assets and abuse of authority over the income obtained from waqf assets (genca, 2014). these reasons prompted the government at that time to transform the management of cash waqf by using the sovereign wealth fund model known as evkaf-i hümayun nezareti. under this institution, waqf assets began to be managed in a more centralized and structured manner. the reformation of the waqf institution (1826-1922) the reforms carried out on waqf institutions were influenced by many factors, both internal in the waqf management system itself and social, political factors and government relations at that time with other countries. hence, problems with the management of cash waqf that occurred before this time were not the main reason. whatever the reason behind the reform of the waqf institution, it emerged from the waqf foundation system that had been formed from the previous period. the reform of the centralized evkaf-i hümayun nezareti waqf institution became a very interesting thing in the history of the ottoman empire. with the establishment of this institution, not only as a waqf management institution, but also as a source of finance established by the government at that time. if it is associated with today's era, this institution is an institution called the overeign wealth fund (swf). schena, braunstein, & ali (2018) mention that the sovereign wealth fund (swf) is an organically emerging fundraising model that is related to the accumulation of surplus from income commodities. swf was originally created to manage the excess accumulation of commodity wealth. this excess accumulation requires a new management that can accommodate the excess funds so that they can be reorganized into capital that can be used to build a government bureaucracy effectively. regardless there are also swfs that are made to recycle a country's surplus income so that the excess funds collected can be controlled and regulated more effectively. evkaf-i hümayun nezareti was founded in 1826 by sultan mahmud for the sole administration of all the scattered waqf property belonging to the sultans and their relatives (öztürk, 1985). since its establishment, this institution has had a dynamic structure and has begun to carry out strict supervision of waqf assets. all waqf assets managed by individuals or groups, began to be taken over to be managed again in a more structured manner under one institution. under this institution, the problematic waqf property is taken from the manager and the income obtained from the waqf property is recalculated. international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 47 at the beginning of the formation of this institution, the waqf property that had been managed by the mutawalli and qadi was taken over gradually. the main director evkaf-i hümayun contacted the mutawalli and made a gradual shift of management. this is the consequence must be taken in reforming the management and realigning the waqf property. however, for the main purpose carried out is to strengthen the internal management of the institution such as forming an inspectorate and main management as well as building an office building that will be used for the waqf management center itself (genca, 2014). after the reform of waqf institutions, the management of waqf assets continues to be improved and developed. in 1831, the inspectorate evkaf-ı hümayun was established which served to adjudicate cases related to waqf and cases or issues affiliated with waqf institutions and mutawalli as waqf managers. in addition, the inspectorate evkaf-ı hümayun also functions to inspect or audit the wakaf property and make repairs to the wakaf property if necessary (genca, 2014). in 1833, evkaf-ı hümayun also improved the management of waqf by setting up a representative office to assist and be responsible for wakaf managed under the darussaade institution. the establishment of this representative office was due to the large number of waqfs under nazir darussaade which caused overwhelmed in its management. however, to prevent the dualism of waqf administrators and public confusion over the legal waqf administrators, in 1836 darussaade's waqf management authority was abolished and all waqf property managed under the institution was taken over completely by the directorate of evkaf-ı hümayun. the existence of the evkaf-ı hümayun institution has basically brought changes to the management of cash waqf in general. this can be seen from the increase in the results obtained from the business or management carried out with cash waqf. in addition, the profits from the tax on land (avariz vakfı) imposed on the rich have also been categorized as cash waqf. this categorization has made cash waqf assets increase consequently. so evkaf-ı hümayun allocates and distributes cash waqf to those in need more than before. however, in practice there are still violations that continue even though a law has been issued against violators of the provisions made in waqf law (genca, 2014). to support this reform step, the government enacted new regulations on waqf governance. in this regulation issued in 1863, it was stated that the nazir of waqf was permitted to commit those who deviated and misappropriated the waqf property after it was recorded in a court decision, they would be subject to sanctions in the form of imprisonment or would be exiled to a place of exile. 4. conlusion cash waqf is a derivative of waqf which is usually conducted in the form of immovable property such as land and buildings. as a practice that is highly recommended in islam, cash waqf has developed far from the time of the ottoman empire. the initiation of cash waqf during the ottoman empire had a significant impact on society socially and economically. the impact of cash waqf is not only on the social sector of society but also has built the government's economy at that time, even part of the proceeds of waqf property has become a source of state income. the development of waqf also does not only occur in the city center but has also expanded to the villages. cash waqf has helped people who need capital to do business. waqf institutions during the ottoman sultanate played a role not only as a charity institution but also as a financial institution that had managed waqf assets. the income generated from waqf assets was allocated to the society and could also meet the needs of 48 international journal of islamic business and economics (ijibec), 6(1) june 2022, 37-51 the state such as providing military equipment for the ottoman army. along with the exchange of ottoman’s sultan, the management of cash waqf by waqf institutions also underwent changes. a significant reform was the establishment of evkaf-ı hümayun nezareti as the sole institution for waqf management. the initiation of the establishment of this institution has had an impact on the increase in waqf assets. the establishment of cash waqf institutions in the ottoman empire has shown an important step that has been taken to ensure the effectiveness of cash waqf development. cash waqf management in the ottoman empire has proof waqf as islamic social finance in islamic economic theory shown a significant contribution to society and the ottoman government. 5. acknowledgement i would like to thank the yurtdışı türkler ve akraba topluluklar başkanlığı (ytb) who support me with the scholarship to pursue my ph.d. program. i would 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(2020). türkiye’de para vakıfları konusunda yapılan çalışmalar ve bunlar hakkında genel bir değerlendirme. üçümcü sektör sosyal ekonomi dergisi, 55(2), 842–866. https://doi.org/10.15659/3.sektor-sosyal-ekonomi.20.05.1234. 125 ijibec factors influencing the amount of mudarabah savings deposit in public sharia banks bambang iswanto 1*, risma nurriani 2, idhafiyyah anwar3, ahmad tibrizi soni wicaksono4, muhammad nur faaiz fathah achsani5 1 universitas islam negeri sultan aji muhammad idris samarinda, jalan h.a.m rifaddin, loa janan ilir samarinda, bambang.assamarindi@gmail.com 2 universitas islam negeri sultan aji muhammad idris samarinda, jalan h.a.m rifaddin, loa janan ilir samarinda, nurrianirisma09@gmail.com 3 universitas islam negeri sultan aji muhammad idris samarinda, jalan h.a.m rifaddin, loa janan ilir samarinda, fiyah98@gmail.com 4 universitas islam negeri malik ibrahim malang, jalan gajayana, lowokwaru, kota malang, tibrizisony@uin-malang.ac.id 5 muhammad nur faaiz fathah achsani, iium institute of islamic banking and finance, fathah.faaiz@live.iium.edu.my abstract this research aims at discovering the effect of public bank's interest rate, rupiah exchange rate, deposit profit sharing of public sharia banks and number of branch offices on the amount of mudarabah savings deposit in public sharia banks in indonesia. it used multiple linear regression analysis to test 60 data samples from 12 banks located in indonesia based on the public sharia banks’ monthly reports from 2017 to 2021. the research result showed that public bank's interest rate had no partial effect on the amount of mudarabah savings deposit and rupiah exchange rate, deposit profit sharing and number of branch offices partially affected the amount of mudarabah savings deposit. simultaneously, however, public bank's interest rate, rupiah exchange rate, deposit profit sharing and number of branch offices had an influence on the amount of mudarabah savings deposit. as a primary funding source, mudarabah deposit plays an important role in a bank’s stability since it is the main element to reduce the bank liquidity risk. the implication of this study is that it is important for banks to have a policy that (1) maintain a certain amount of deposit savings by considering the macroeconomic condition, namely the exchange rate of currency used in the global economic trade and (2) maintain the performance of bank’s internal factors such as profitsharing and number of branch offices as an attempt to expand the network to increase the mudarabah deposit market share international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 2 2022 keywords: real sector; mudarabah deposit; islamic banks doi 10.28918/ijibec.v6i2.6288 jel: l25; g30; g21 article info article history: received : 31 october 2022 accepted : 07 november 2022 published : 1 december 2022 mailto:bambang.assamarindi@gmail.com mailto:nurrianirisma09@gmail.com mailto:fiyah98@gmail.com mailto:tibrizisony@uin-malang.ac.id mailto:fathah.faaiz@live.iium.edu.my 126 international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 1. introduction finance sector in a country as a motor to drive the real sector plays an important role in promoting economic growth in modern era. this is reflected from the quality of financial institutions which constitute key elements in forming and accumulating capital cost increase with relatively low risk (paun et al., 2019). according to kalim & mushtaq (2016), sharia banking is a part of investment sector and offers interest-free funding products, making it special and attractive in many countries. effendi et al. (2021) suggests that sharia bank’s growth might affect a country’s economic growth. the interrelatedness relationship between real sectors and banks shows that the interaction between the two will increase economic growth which cannot be separated from the use of banking products and services in developing the businesses being run (kazarenkova et al., 2015). it is predicted that sharia bank industry will keep on growing with an assumed growth at 9.4% using compound annual growth rate (cagr) while the global sharia finance asset potential is predicted to reach us$ 3.782 billion up to 2022 (linda, 2022). as an intermediary institution, banks should be capable of maintaining the trust of those saving their funds to be managed by them. alshari & lokhande (2022) reveals to what extent a financial institution is capable of adopting modern technology in providing their servies is also a key factor. the high interest that people have is especially because they are motivated with the idea that sharia banks are safer than conventional ones (abdelhedi & ghorbel, 2016). until recently, the growth of sharia bank's total assets in indonesia is in a positive trend each year. in 2019 the total assets owned by sharia banks was 350,363.54 billion and in 2020 it was 397,072.97 billion, increasing 13.33%, and now in 2021 the total assets owned is 441,788.83 billion, growing at 11.26% (otoritas jasa keuangan, 2022). this proves that in performing their main function as agents of development, sharia banks which play a role in collecting funds from third parties, particularly the one obtained from term investment saving product known as deposit, are highly necessary to help facilitate the management of liquidity and run the economy, especially when it comes to real sector. in terms of its number, the deposit product of sharia banks keeps on increasing significantly as depicted in figure 1. figure 1. growth of public sharia bank’s deposit for quarter period of 2020-2022 (billion) mudarabah deposit becomes a featured product of sharia banks in indonesia for collecting third party’s fund since, when it comes to source of bank’s fund, deposit has the highest percentage or portion compared to other products such as savings and current account (prihastuty & sudana, 2016). conclusions in the previous study shows that deposits international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 127 are important sources of funding for banks which will affect the stability of banking system (jaaber, 2017; turhani & hoda, 2016; vuong et al., 2020) since if it is the main source of funding then it is important for sharia bank management to figure out the factors that affect it. some previous studies show that the amount volume of deposit collected by banks are influenced by various factors (almejyesh & rajha, 2014; asayesh et al., 2017; gunasekara & kumari, 2018). according to yan et al. (2014), the fundamental factors in banks can affect their term deposit. this research focuses on external and internal factors which can affect the volume of mudarabah deposit obtained by sharia banks. some previous studies suggest that deposits can be affected by factors which include macroeconomic conditions and also bank’s internal affairs (bakashbayev et al., 2020; çekrezi, 2022; morina & osmani, 2019). the macroeconomic conditions that the researcher used as the determinant factors of amount of mudarabah deposit were interest rate and exchange rate. the correlation which connects deposit return in a sharia financial instrument to interest rate is one of the issues that is being questioned even until now. in practice, the operation of sharia financial system uses an interest-free system known as profit and loss sharing. however, a previous study finds that the operation of sharia financial system is still, albeit indirectly, affected by the interest rate applied in conventional banks and determined by the institution holding the monetary authority, in this case bank of indonesia, implying a gap in theory and practice of islamic banking (anuar et al., 2014). assertively, beck et al. (2012) dan el-gamal (2005) argue that the rate of profit and loss sharing in sharia deposits follows the conventional bank’s deposit interest rate. similarly, chong & liu (2009), erdogan et al. (2020), mushafiq & sehar (2021), dan suyyinah (2018) suggest that conventional bank’s deposit interest rate and sharia bank’s deposit have cointegration relationship. meanwhile, exchange rate is thought to normally affect since it is needed in export and import transactions. thus, a currency’s exchange rate is fluctuating as a result of trading activity which gives rise to depreciation and appreciation because of the use of foreign currency (widarjono & mardhiyah, 2022). this research investigated the roles of interest rate and profit and loss sharing as a form of deposit return system and tested their influences collectively on mudarabah deposit by analyzing an aggregate data of all public sharia banks in indonesia. this study seeks to explore the implication by considering why interest rate, exchange rate, profit and loss sharing, and number of branch offices variables have an important effect, particularly for mudarabah deposit. it aims at testing and discovering the influence of bank’s external and internal factors, namely interest rate, exchange rate, profit and loss sharing, and number of branch offices on mudarabah deposit. furthermore, it is supported by the addition of theories from macro side in islam which makes it different from previous studies. it is expected that this research can contribute to the concept of mudarabah deposit, particularly in regard to the influence of such variables as interest rate, exchange rate, profit and loss sharing, and number of branch offices. 2. method the population in this research was 12 public sharia banks in indonesia on conditions that they had monthly financial statements for 5 years starting from january 2017 through december 2021. samples were taken using saturated sampling, where all members of the population were used as the sample. the data used in this research was obtained from statistics indonesia (bps), financial services authority, reports from the ministry of trade of the republic of indonesia, and monthly financial statements from public sharia banks 128 international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 obtained from the banks’ websites. the data was analyzed using multiple linear regression via spss where 60 samples were analyzed to test the hypotheses formulated in the following equation model. y = ꭤ+ β1x1 + β2x + β3x3 + β4x4 where: y : amount of mudarabah savings deposit x1 : public bank's interest rate x2 : rupiah exchange rate x3 : deposit profit and loss sharing of public sharia banks x4 : number of branch offices ꭤ : constant β1 : regression coefficient of interest rate β2 : regression coefficient of rupiah exchange rate β3 : regression coefficient of deposit profit and loss sharing of public sharia banks β4 : regression coefficient of number of branch offices 3. result and discussion linearity test a good correlation should have linear relations between the independent and dependent variables. to test the linearity, the researcher used ramsey reset test on a criterion that if the value of probability f-statistic > 0.05 then there is a significant linear correlation between the independent and dependent variables and vice versa (bawono & shina, 2018). table 1. test linearity variable deviation from linearity sig. deposit*interest rate .000 deposit*rupiah exchange rate .046 deposit*profit and loss sharing .142 deposit*number of branch offices .020 based on the significance (sig) value test of table 1 above, the following result is obtained. a. it is found that the value of deviation of linearity was 0.000 < 0.05, thus it is safe to conclude that there is no significant linear correlation between interest rate and the amount of mudarabah savings deposit. b. it is found that the value of deviation of linearity was 0.046> 0.05, thus it can be concluded that there is a significant linear correlation between rupiah exchange rate and the amount of mudarabah savings deposit. c. it is found that the value of deviation of linearity was 0.142> 0.05, thus it can be concluded that there is a significant linear correlation between profit and loss sharing and the amount of mudarabah savings deposit. d. it is found that the value of deviation of linearity was 0.20> 0.05, thus it can be concluded that there is a significant linear correlation between number of branch offices and the amount of mudarabah savings deposit. international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 129 multiple regression analysis table 2. multiple regression analysis model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) -124.108 69.342 -1.790 .079 interest rate -1.819 1.763 -.053 -1.032 .307 rupiah exchange rate 13.279 2.775 .263 4.785 .000 profit and loss sharing -10.318 2.971 -.287 -3.473 .001 number of branch offices 236.842 29.160 .542 8.122 .000 based on table 2 above, the following regression equation was obtained. y = ꭤ+ β1x1 + β2x + β3x3 + β4x4 y = -124.108 1.819 x1 +13.279 x2 -10.318 x3 + 236.842 x4 from the equation above, it can be concluded that: a. the constant (y absolute value) was (-124.108) which suggested that if the interest rate, rupiah exchange rate, profit and loss sharing and number of branch offices, then, the amount of mudarabah savings deposit was (-124.108). b. the regression coefficient of interest rate was (-1.819) which suggested that if the interest rate decreases by 1 (unit), then the amount of mudarabah savings deposit would also decrease by (-1.819). c. the regression coefficient of rupiah exchange rate was (13.279) which suggested that an increase in the rupiah exchange rate by 1 (unit) would lead to an increase in the amount of mudarabah savings deposit by (13.279). d. the regression coefficient of profit and loss sharing was (-10.318) which suggested that if the profit and loss sharing decreases by 1 (unit), then the amount of mudarabah savings deposit would also decrease by (-10.318). e. the regression coefficient of number of branch offices was (236.842) which suggested that an increase in the number of branch offices by 1 (unit) would lead to an increase in the amount of mudarabah savings deposit by (236.842). hypothesis test (t-test) based on table 2 it is found that: 1) the sig value of interest rate variable for its effect on the amount of mudarabah savings deposit was 0.307 > 0.05 and the value of t score (-1.032) < 2.004), thus it can be concluded that h0 is accepted and h1 is rejected, meaning that interest rate (x1) has no effect on the amount of mudarabah savings deposit (y). because based on the criteria that if the value of t score ≤ t table then ho is accepted at -1.032 > -2.004 and hi is rejected. 2) the sig value of rupiah exchange rate variable for its effect on the amount of mudarabah savings deposit was 0.000 > 0.05 and value of t score (4.785) < 2.004), thus it can be concluded that h0 is rejected and h2 is accepted, meaning that rupiah exchange rate (x2) has a positive effect on the amount of mudarabah savings deposit (y). 3) the sig value of profit and loss sharing variable for its effect on the amount of 130 international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 mudarabah savings deposit was 0.001 > 0.05 and the value of t score (-3.473) < 2.004), thus it can be concluded that h0 is rejected and h3 is accepted, meaning that profit and loss sharing (x3) has a positive effect on the amount of mudarabah savings deposit (y). 4) the sig value of number of branch offices variable for its effect on the amount of mudarabah savings deposit was 0.000 > 0.05 and the value of t score (8.122) < 2.004), thus it can be concluded that h0 is rejected and h1 is accepted, meaning that number of branch offices (x4) has a positive effect on the amount of mudarabah savings deposit (y). simultaneous significance test (f-test) table 3. anovaa model sum of squares df mean square f sig. 1 regression 44004.170 4 11001.043 137.429 .000b residual 4402.683 55 80.049 total 48406.853 59 based on table 3 above, the hypotheses used in this research are: ho: interest rate, rupiah exchange rate, profit and loss sharing and number of branch offices has no significant effect on the amount of mudarabah savings deposit of public sharia banks ha: interest rate, rupiah exchange rate, profit and loss sharing and number of branch offices simultaneously have an effect on the amount of mudarabah savings deposit of public sharia banks 1) determining output of f score at (137.429) 2) to determine this hypothesis, the statistic test ftable with the following formula was used. ftable = (4; 60-4) = (4; 56) = 2.54 based on the calculation above, the sig values for the simultaneous effect of x1, x2, x3 and x4 on y is found at (0.000 < 0.05) and the value of f score (137.429 > f table 2.54), thus it can be concluded that ha is accepted, meaning that simultaneously interest rate, rupiah exchange rate, profit and loss sharing and number of branch offices have an effect on the amount of mudarabah savings deposit of public sharia banks for 2017-2021 period. the coefficient of determination (r2) table 4. model summary r square adjusted r square std. error of the estimate .909 .902 8.94700 based on table 4 above, the value of r explains the correlation level between the independent and dependent variables, meaning the correlation of interest rate, rupiah exchange rate, profit and loss sharing and number of branch offices with the amount of mudarabah deposit was 0.953 or 95.3%. meanwhile, the value of adjusted r square explains that the interest rate, rupiah exchange rate, profit and loss sharing and number of branch offices variables can explain the dependent variable, i.e., the amount of mudarabah deposit at 0.902 or 90.2%, and the remaining 9.8% is affected by other untested factors. international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 131 discussion public bank's interest rate has no effect on the amount of mudarabah savings deposit the result of analysis of the first hypothesis indicated that interest rate (x1) has no effect on the amount of mudarabah savings deposit (y) at a sig value of 0.307 > 0.05 and value of t score at (-1.032) < 2.004. statistically, the research result indicated that interest rate had no effect on the amount of mudarabah savings deposit. this means an increase in the interest rate will have no effect whatsoever since sharia banks have this quality of being based on interestfree transactions as a manifestation of trust that there are factors which dominate muslim’s economic behavior in the form of knowledge and concept of faith that affect their perception and decisions (haron & ahmad, 2000). another study found the reason why bank interest has no effect, i.e. because it contradicts their religious belief (alinda, 2016). however, the effect of interest rate on sharia bank remains debatable even until now. previous study revealed that savings and finance in sharia banks were more responsive to interest rate movement than conventional banks (ergec & arslan, 2013). another study also showed that sharia banks cannot actually be separated from interest rate effect indication despite the fact that they were frequently considered interest-free (kassim et al., 2009). an increase in bank interest rate will be followed by deposit and loan interest rate increases in conventional banks. this indicates that the use of time value of money principle is tightly embedded with the concept which is based on interest rate theory (asmin et al., 2021). the calculation of time value of money here is based on interest. the application of time value of money principle is eventually indicated closer to the usury practice since money is considered a commodity that can develop and give a guaranteed return. in monetary theory, the payment of interest to gain profit is referred to speculation motiff of money demand by keynes. according to asmin et al. (2021) as long as the interest rate (which reflects the fund price) is never negative, then the current money will always be more valuable than later. the higher the interest rate that is considered relevant, the greater the difference between the current value and the value to be received in the future. in conventional banks, the application of interest system is identical to the concept of risk transfer and speculative behavior with freedom to invest in various projects without putting an emphasis on the commodity physical existence (parsa, 2022). according to karim (2017) such concept is different from islamic banking system which determine profit and loss sharing mechanism over the use of fund, both for the customers and the banks, and there is such thing as time value of money in islamic economic concept. exchange rate has an effect on the amount of mudarabah savings deposit the result of analysis of the second hypothesis indicated that rupiah exchange rate (x2) has an effect on the amount of mudarabah savings deposit (y) at a sig value of 0.000< 0.05 and value of t score at 4.785> 2.004. previous study indicated that annual mean exchange rate has an effect on deposit mobilization (tun, 2019). according to previous study finding, the volatility of exchange rate may affect the bank balance with great market share (libman, 2018). in another research, it was found that an increase in rupiah exchange rate against us dollar triggered a multiplier effect which resulted in increased commodity goods price (tho’in & prastiwi, 2019). in support to this statement when a bank expands their assets and liabilities in the form of foreign and domestic currencies, this bank will be more vulnerable to exchange rate changes (berg & borensztein, 2000). many developing countries are heavilt dependent on us dollar or euro since they are considered more stable than their national 132 international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 currency (semenova & shapkin, 2019). the weakening rupiah exchange rate against us dollar serves as a reflection of an uncertain economic condition and, thus, will increase the business climate risk and affect the real sector some of which is supported by financing from banks. hence, the banking sector is affected by the exchange rate position since in global exchange or transaction activity, foreign currencies are involved (pratiwi & lukmana, 2015). in islamic economic concept, money demand for speculation is unknown thus the faster the money circulation in real sector is, the better it is for the economy. according to karim (2017), in islamic economy the exchange rate system follows the market equilibrium. if a currency’s exchange rate is correlated to mudarabah deposit, the effect is indirect since a currency exchange rate can fluctuate as a result of the influence of supply and demand of money market and investment profitability. in this case, if rupiah weakens against us dollar, then it will lead to decreased people’s purchasing power and they will withdraw their money from the banks to fulfill their consumption needs (pratiwi & lukmana, 2015) profit and loss sharing has an effect on the amount of mudarabah savings deposit the result of analysis of the third hypothesis indicated that profit and loss sharing (x3) has an effect on the amount of mudarabah savings deposit (y) at a sig value of 0.001< 0.05 and value of t score at (-3.473) < 2.004. sharia banks have a unique paradigm in terms of profit and loss sharing which explains that lenders must bear the business risks together with borrowers since both of them have no power to control the success or failure of a business (ergec & arslan, 2013). previous study found that sharia bank’s management system that prioritized the transparency of profit and loss sharing affected public trust (zuhroh, 2022). another research also showed that sharia banks that provided profit and loss sharing and non-profit and loss sharing contracts would face lower risks than those that provided only non-profit and loss sharing contracts (widarjono et al., 2022). according to fianto et al. (2020) dan ozdincer & yuce (2018), sharia banks uphold equity, asset-based contracts and particularly profit and loss sharing system which serves as the main differentiator of sharia banks from other banks. in their research, haddad & souissi (2022) suggested that according to the profit and loss sharing principle, the parties to the transaction should fairly share the risks of every project; business actors share the loss and profit with the banks and eventually will share the profit and loss with the depositors. the profit and loss sharing system is considered far more stable than interest rate financing system since it allows investors to not only share the risks but also to participate in making decisions and to propose ideas to reduce the risks (osmanovic et al., 2022). the main objective of bank business model is to provide financing to deficit units using mudarabah deposit product and, in turn, the risk transparency is also taken into consideration. for this reason, information on risk mitigation is needed to help manage the investment risks (umam et al., 2021). theoretically the banking model in islam follows the principle of profit and loss sharing from the profit when making business transaction (purchase and sales) and refraining from taking a return in a fixed way (interest) in every form of money loan and investment (samad, 2020). this shows that islam actually does not acknowledge the concept of time value of money since money in itself has no time value (karim, 2017). it is the time that has economic value (economic value of time), only if the time is used by adding other production factors that it becomes a capital and obtain profit or gives rise to economic added value. according to karim (2017), the basis for calculation in the concept of economic value of time is nisbah (ratio). the obtained nisbah rate will depend on the application of profit and loss sharing system. in profit and loss sharing system, the international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 133 management of capital distributed in financing in real sector can generate added values since the money circulate in economic activities (karim, 2017). the number of branch offices has an effect on the amount of mudarabah savings deposit the analysis result of the fourth hypothesis indicated that number of branch offices (x4) has an effect on the amount of mudarabah savings deposit (y) at a sig value of 0.000< 0.05 and t score value of 8.122> 2.004. statistically speaking, number of branch offices has an effect on the amount of mudarabah savings deposit, which indicates that the greater the number of branch office, the easier it will be to make transactions and to collect fund for the bank. bank expands their brach offieces aggresively to reach greater area and this will make the banking services more accessible to make more people to save their cashes and wealth (tafa & worku, 2022). this statement is supported by sambe (2017) who found that banks’ branch offices have a long-term correlation with their deposits. increasing the number of branch offices is considered banks’ geographical diversification strategy that increases the deposit mobilization (kusi et al., 2022). adding more branch offices is highly important to discover the inclusiveness of sharia banks in expanding their accessibility to the people. this was also supported by another finding from aguirregabiria et al. (2016) who argues that despite the growth of communication and internet technology, the number of branch offices as an attempt to expand network remains an important part to increase deposit market share. sarma (2012) found that increasing the number of branch offices has a desirable and significant effect on financial inclusion level. branch office is an important element that also plays a role in collecting the amount of bank liquidity since the potential of collecting deposits is one of the considerations taken to expand the area scope of bank branch offices and also one of some expansion strategies used by banks. furthermore, number of branch offices serves as a financial intermediary connected through the increase in number of accesses to banking financial services. increasing the number of branch offices implies that providing access to facilities and services will allow many parties to access financial products and be served more easily (bongomin et al., 2018). 4. conclusion mudarabah deposit is the main focus of this research since it plays an important role in sharia banks’ stability and liquidity. this research analyzed the factors that determined the amount of mudarabah deposits obtained by public sharia banks in indonesia. our finding indicated that, rupiah exchange rate, level of profit and loss sharing and number of branch offices have an effect on the amount of mudarabah deposit. insofar, indonesian sharia banks have attempted to expand their influence by providing various services and increasing the number of their branch offices, yet the macroeconomic situation also plays a role in affecting customers in investing their funds. the fluctuating exchange rates resulting from the uncertain global economy has so far showed its influence on the acquisition of mudarabah deposits by sharia banks. the correlation which connects deposit return in a sharia financial instrument to interest rate is one of the issues that is being questioned even until now. nevertheless, the empirical evidence obtained from the analysis of this research showed that during the process the interest rate policy that had been implemented was found to have no effect on the acquisition of mudarabah deposits. 134 international journal of islamic business and economics (ijibec), 6(2) december 2022, 125-137 acknowledgment we would like thanks all in this study. we also thank the reviewer for significant comments and suggestions to improve this paper. references abdelhedi, m. z., & ghorbel, a. 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(2022). mapping islamic bank governance studies: a systematic literature review. cogent business & management, 9(1), 1–22. https://doi.org/10.1080/23311975.2022.2072566 148 ijibec dsn-mui fatwa number 26 of 2013 and the purchase decision of the muslimah generation y and z against halal cosmetic products jaenudin1, cucu susilawati2, rosi hasna sari3, adang sonjaya4 1department of sharia economic law, state islamic university sunan gunung djati bandung jaenudin@uinsgd.ac.id 2department of sharia economic law, state islamic university sunan gunung djati bandung cucususilawati92@uinsgd.ac.id 3department of halal industry management, international islamic university malaysia rosi.hasna@live.iium.edu.my 4departmen of economy, national research and innovation agency adang.sonjaya@brin.go.id abstract this study aims to determine the implementation of the dsn mui fatwa number 26 of 2013. furthermore, how it affects the purchase decision of generation muslimah y and z in choosing and buying cosmetic products—using qualitative methods with triangulation techniques, namely using various data collection methods consisting of observations, interviews, questionnaires, and documentation studies. the results show that the critical point of halal in cosmetics consists of the composition of the ingredients used and the resistance of cosmetics to water. among the muslim generations y and z, some already know, and some do not know the halal standards of cosmetics. however, according to generations y and z, cosmetic halal standards in dsn – mui fatwa number 26 of 2013 can affect their purchase decision on halal cosmetic products. halal certification is still the main reason for purchasing halal cosmetics compared to prices, trends, and brands. it did by the muslimah generation y and z. in conclusion, dsn fatwa–mui number 26 of 2013 applies effectively to the muslimah generation y and z as a consideration in choosing and buying halal cosmetics. this research implies that halal labeling can be used as a marketing strategy for a cosmetic product. the originality of this research lies in the object of research, which is only limited to generations of muslim women y and z and fatwa dsn mui number 26 of 2013 as an analytical tool. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 2 2022 keywords: purchase decision; halal cosmetics; muslimah generation; y-z generation doi 10.28918/ijibec.v6i2.6109 jel: g30; g20; g21 article info article history: received : 12 september 2022 accepted : 07 november 2022 published : 1 december 2022 mailto:jaenudin@uinsgd.ac.id mailto:cucususilawati92@uinsgd.ac.id mailto:rosi.hasna@live.iium.edu.my mailto:adang.sonjaya@brin.go.id international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 149 1. introduction humans are leaders sent by allah to prosper the earth and its contents (sari et al., 2021). the world's population is currently filled by several generations, including baby boomers, x, y, and z. gen baby boomers are a group born after world war ii, namely 1946-1964 (nur aeni, 2022). gen xers were born in the early days of the use of technology, namely those born in 1965 – 1979 (setiawan & nugroho, 2018). gen y or commonly called the millennial generation (lissitsa & kol, 2016), and digital natives (yulianita, 2018) are those who were born in 1980 1994. furthermore, gen z or i-generation, that is, those born between 19952010. the gen z group is the first generation to grow up on the internet (betz, 2019). this generation is predicted to grow up in the age of high-tech communication (kapil & roy, 2014) so that they will be more up-to-date on issues spread in the mass media or the internet (kompas.com, 2021). the two most unique and exciting groups to research are generations y and z. both generations y and z are generations that are always connected to the internet and innovative technology (dwidienawati et al., 2021). in addition, generations y and z are highly curious about new things. generations y and z are the populations that dominate social media. their circle of friends is virtual, and they are virtually always online on any technical device (andrea et al., 2016). although genes y and z have differences in consumer behavior (reisenwitz, 2021), gen y and z have similar general characteristics (raslie & ting, 2020). they are very active and creative. these two generations always want to show their best version on social media. therefore, appearance is the most important for these two generations. a study has found that the millennial muslim generation, or what is commonly called generation y plus generation z, is a segment of the muslim population that has been influential starting in the 20th century. the world's muslim population is expected to increase by about 35% in the next 20 years. —from 1.6 billion in 2020 to 2.2 billion by 2030 (grim & karim, 2011). moreover, it will increase by 2.67 billion by 2050 (salman et al., 2019). meanwhile, according to pew research projections, by 2050, the muslim population will be close to 2.8 billion or 30% of the total population (fardila et al., 2020). furthermore, indonesia is still the country with the most muslim population, beating middle eastern countries where 90% of the population is muslim and is an islamic country (warsah et al., 2019). the millennial muslim generation has religious, modern, universal goodness, and high buying power. this unique characteristic shapes their values, behaviors, and aspirations (rahmah, 2021). according to imam shahid hasan al bana, there are ten good muslim characteristics: clean aqidah, authentic worship, noble morals, physically strong, intelligence, earnestness – the really, ability to manage time, independence, professionalism, and benefit to others (bustamin et al., 2019). muslim generations y and z use technology to facilitate all activities, especially during the covid-19 pandemic. there are five gen z activities as well as those that occur in gen y, that their activities are related to mobile phones, including using social media (95%), using chat or instant messaging services (92%), visiting video sharing sites and watching them (91%), visiting or using search engines (90%), and visiting sites or online retail stores (795%%). in terms of shopping, these two generations certainly get information about the product and buy them online (mamula et al., 2022), including skin care products and cosmetics. cosmetics are biotechnology products that function to maintain the beauty and health 150 international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 of the skin. however, many cases still relate to using harmful substances in cosmetics. usually, women are willing to do various ways for their skin and body care. there are still many beauty products that only care about results compared to the feasibility of the ingredients used. likewise, consumers will usually only focus on the results promised by a beauty product without paying attention to what ingredients are contained in the product. no wonder some cosmetic products provide side effects that harm skin health. currently, regulations related to cosmetic products are regulated in the fatwa dsn mui number 26 of 2013 concerning halal standards for cosmetic products and their use. based on the fatwafatwa, cosmetics must be made halal and sacred. the fiqh rule reads: "the law of hope of something useful is permissible, and the law of origin of something harmful is haram." thus, cosmetic products must contain allowed ingredients and not be harmful. to protect the indonesian muslim community, the government began to focus on halal certification on products circulating in the community, both food and non-food products. as the islamic sharia commands that everything consumed or used by the muslim community must be certified halal. cosmetics include the daily needs of the muslim community. therefore cosmetics are among the products that must be certified halal. indonesian muslims have the largest proportion in the world (bahri et al., 2021). currently, indonesia is entering the era of the demographic bonus, where the number productive age population is more than the unproductive age (al-athar & al arif, 2021). muslims dominate generations y and z in indonesia compared to the non-muslim generation. if the muslim generations y and z are the most significant cosmetics users, then generations y and z muslims should be the pioneers of halal cosmetics. however, the reality is that many factors can influence the purchase decision of the muslim generations y and z towards halal cosmetic products. in addition to trends and brands, price is also a consideration for these two generations in purchasing products. therefore, researchers are interested in researching the understanding of muslim generations y and z towards dsn – mui fatwa number 26 of 2013 concerning halal standards for cosmetic products and their use. researchers want to determine whether the product's halalness is also a consideration for the y and z muslimah generation in choosing and buying halal cosmetic products. they considered that the muslim generations y and z are generations close to the internet. meanwhile, information about halal critical points is also widely on social media and the internet. through this research, it will be known how many generations y and z understand dsn-mui fatwa number 26 of 2013 concerning halal standards for cosmetic products and how they are implemented. in addition, it is hoped that the generation of muslimah y and z who do not know about the existence of a critical point of halal cosmetic products will know and follow the rules of the dsn-mui fatwa number 26 of 2013 so that the muslimah generation y and z can become the market share of halal cosmetics in indonesia. based on the background above, the authors are interested in examining the implementation of the dsn mui fatwa on halal cosmetics. the dsn-mui fatwa is not included in the legislation with permanent legal force. the author wants to know how far generations y and z understand the dsn – mui fatwa, especially the dsn – mui fatwa, which regulates the cosmetics they use daily. generations of muslim women y and z have unique characteristics. therefore the author wants to know what their purchase decision is for cosmetics. international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 151 2. methods this research is qualitative with a type of case study. the research will be carried out on the muslimah generation y and z in depth for this type of research, namely obtaining a complete and detailed description of an entity (hasan et al., 2022). there are three types of case study research: intrinsic case studies, instrumental case studies, and collective case studies. researchers use intrinsic case studies because researchers want to understand in depth the influence of dsn – mui fatwas on muslimah generations y and z purchasing decisions. especially on halal cosmetic products, the specificity of this case is the reason this study was carried out, not for other external reasons (fiantika et al., 2022). this research is descriptive. the researcher will describe all the data found in the field in narrative form. data can be in the form of halal critical points on cosmetic products, the implementation of dsn – mui fatwa number 26 of 2013, and the purchase decision of the millennial muslim generation towards halal cosmetics. the data that has been presented will then be analyzed using theory so that the data can be described accurately and systematically (anggito & setiawan, 2018). the data collection method in this study uses triangulation techniques. namely, researchers use data collection techniques at the same source (roosinda et al., 2021). researchers used documentation studies to explain the problem of critical points in cosmetic ingredients. on the completion of the implementation of the dsn – mui fatwa number 26 of 2013 concerning halal standards for cosmetic products and their use, researchers used structured interview techniques and a collective questionnaire. meanwhile, researchers used a collective questionnaire and participant observation to solve the problem of purchasing decisions of the y and z muslim generations towards halal cosmetics. and then there are three steps in analyzing data, namely (fiantika et al., 2022): data reduction, data presentation, and conclusion drawing. 3. result and discussion halal critical point in cosmetic products according to lppom mui, there are two important things related to the critical point of cosmetic halalness: ingredients and cosmetic resistance in ablution water (lppom mui, 2020). the ingredients used in skincare and cosmetics can come from plants, animal microbes, and humans. plant ingredients in skincare and cosmetics are non-critical ingredients. however, these plant materials must be considered in their processing to avoid a mixture of unclean or non-halal ingredients (scarf media, 2021). several animal ingredients are included in the critical point of cosmetic products' halalness. first, ingredients of animal origin can be collagen and elastin. collagen and elastin are derived from animal bones. both serve to increase the elasticity of the skin. therefore the ingredient is usually present in creams and lotions (muchtaridi, 2017). the material can be used as long as it must be ensured that it does not come from prohibited animals such as pigs and dogs. in addition, the mode of the slaughter of animals must be by islamic law. secondly, the animal ingredient that is the tipping point of skincare and cosmetics is salts of fatty acids, such as lauryl palmitic and glyceryl monostearate. fatty acid salts are stabilizers for essential ingredients such as lipsticks, deodorants, and eye shadows. in addition to fatty salts, essential fatty acids are used for skin care. these acids are easily oxidized and unstable, requiring stabilizing agents (muchtaridi, 2017). therefore, the source of such fatty acids must be ensured halalness and chastity. third, extract the placenta. placenta extract functions as a stabilizer of the hormonal 152 international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 system, so it can increase milk, promote menstruation, improve blood circulation, stabilize menopause, increase fertility, and can increase sexual arousal. this extract comes from the animal placenta through placenta enzymes and lipids. this extract can be taken from the placenta of a newborn baby, but the use of the human placenta is prohibited by islamic law (muchtaridi, 2017). the tipping point of cosmetic ingredients of human origin is forbidden. in skincare and cosmetic ingredients, ingredients such as the baby's placenta, human hair (keratin), and human organs must be avoided. based on the 4th munas of the mui in bandung in 2000, the scholars issued a fatwa that everything from the human body is haram to be used or consumed (intan & yulianto, 2018). the placenta of human origin is of the highest quality, followed by the placenta of pig origin, while the placenta of cattle is of the worst quality. therefore, muslim people need to be careful of the placenta ingredients used by cosmetics today. the critical point of cosmetic halalness, in addition to ingredients, is the resistance of cosmetics to water. currently, many cosmetics are given water-resistant ingredients. the goal is that the cosmetics used can be waterproof. however, the problem is that muslims must pray five times, so muslim women who use cosmetics will then perform prayers and ensure that their cosmetics can be penetrated by ablution water. if not, then the ablutions and prayers are invalid. one example of a waterproof cosmetic is eyeliner. this product is made to not fade fast when sweating or even crying. although the material is halal, it hinders ablution. then the law is not valid. muslim women who want to perform prayers should avoid this type of cosmetics. currently, water-penetrating testing is one of the things that must be done during the halal certification process. therefore, lppom mui opened a water-penetrating test laboratory accredited by iso 17025 (lppom mui 2020). table 1. source of ingredients for the manufacture of cosmetics sources of ingredients for the manufacture of cosmetics plant synthetic chemistry human microbe animal example : • plant extracts • plant oils • fatty acids and their derivatives • vit a, c, and e • candles • glycerol(glyserin) example : • vit a, c, and e • allantoin • fatty acids and their derivatives • alcohol (etanol) • dyes • etc. example : • keratin • albumin • placenta • hyaluronic acid • etc. example : • aha • protein • co q10 • alcohol (etanol) • botox • hyaluronic acid example : • collagen, elastin, plasenta • fatty acids and their derivatives • fat (tallow, lanolin, lard) • alantoin • enzymes • glisterol • amino acids • gelatin international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 153 • hormones • hilarunic acid • aminiotic fluid • etc. source : kneks the table 1 shows cosmetic ingredients made from plants, chemical synthetics, humans, microbes, and animals. materials written in letters whose halalness is still in doubt or sharia terms are called syubhat. materials derived from humans are forbidden. at the same time, animal-made materials must first be ascertained by the animal. if the animal is unclean, then it is included in the najis. if it does not come from an animal haram, it must also be ascertained whether the animal has gone through the process of slaughtering according to islamic law. the halalness of cosmetic ingredients derived from plants are halal. unless, in the manufacturing process, there is the addition of plant ingredients or helpers whose halalness is doubtful. such as plant extracts that use neutralizing solvents that are not kosher; fatty acids and their derivatives are unstable. so they must be added with non-kosher stabilizers, and vitamin c from fruits that are added with stabilizers whose halalness is doubtful, as well as glycerol derived from the results of hydrolyzing plant oils with lipase enzymes derived from the pig pancreas. meanwhile, the halalness of cosmetic ingredients from chemical synthetics is halal as long as there are no additives that are doubtful about their halalness. furthermore, the halalness of ingredients for cosmetics derived from microbes such as alpha acid – hydroxy (aha), microbial proteins, coenzyme q-10 (coq-10), and alcohol depends on the halalness of the media material (such as refreshing media material, microbial propagation media, and production media), halal additives and post-fermentation materials. thus knowing about the critical point of halal in cosmetics is very important. although cosmetics do not directly enter the body like food and drinks, cosmetics can stick and absorb through the skin. muslims are prohibited from using things that are haram, even small. although the ingredients above have an excellent effect on the skin, there are still many ingredients that are also good for the skin and are halal in islamic law. thus, knowing the critical point of halal in cosmetic compositions, people can avoid buying cosmetics that contain non-halal ingredients. implementation of dsn mui fatwa number 26 of 2013 on the use of halal cosmetics by muslimah generations y and z the fatwa on halal standards of cosmetic products and their use was passed in 2013. the consideration for this fatwa is because cosmetics have become a human need, and technological developments have been able to produce various cosmetic products that use various ingredients and have diverse functions, which are often unclear ingredients, whether sacred or not. thus, the mui needs to establish fatwas on the halal standards of cosmetic products and their use. the legal basis of the standard halal cosmetic is q.s al-ahzaab: 33. through this verse, allah almighty commands humanity to be decorated but forbids them to decorate like the jahiliyyah. in addition, there are q.s al-baqarah: 29, q.s al-a'raf: 32, and q.s al-jasiyah: 13. these verses explain the benefits of allah almighty's creation in general for the benefit of 154 international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 man. next is the word of allah almighty about the necessity to consume the halal one in q.s al-baqarah: 168 and q.s al-baqarah: 172. allah almighty about several types of food and drinks forbidden in q.s al-baqarah: 173, q.s al-maidah: 3, and q.s al-an'am: 145. before the ratification of fatwas on the halal standards of cosmetic products and their use, there were several other fatwas related to cosmetic halalness. among them is the fatwa of the national deliberation vi mui number 2 / munas vi / mui / 2000 concerning the use of body organs, ari ari, and human urine for the benefit of drugs and cosmetics. as well as mui fatwa no. 4 of 2003 concerning the standardization of halal fatwas. mui fatwa no. 30 of 2011 concerning the use of halal animal placenta and external medicines. according to fatwa number 26 of 2013 concerning halal standards for cosmetic products, using cosmetics to be legally decorated is allowed, but provided that the ingredients used are halal and sacred, intended for the interests allowed in syar'i, and do not harm. meanwhile, the use of cosmetics that are consumed/enter the body if they use unclean ingredients, then the law is illegitimate. however, the use of external cosmetics that do not enter the body, if using unclean ingredients other than pigs, is still allowed on the condition that purification is carried out after use (tahhir syar'i). fatwa number 26 of 2013 also regulates the use of materials, raw materials, active ingredients, or additives) from animal derivatives that are halal (in the form of fat or others), but the method of slaughter is unknown, so the law is makruh tahrim. likewise, the use of ingredients in microbial products that are unknown to the microbial growth medium, whether from pigs or not, should be avoided until there is clarity about the halalness or sanctity of the material. in addition, regarding cosmetics that function as medicines, such as skin care, the rules must refer to fatwas related to the use of drugs. through fatwa number 26 of 2013, mui appeals to the muslim community to choose sacred and halal cosmetics and avoid the use of haram and unclean, makruh tahrim, and those that use ingredients that are not clear about their halalness and purity. in addition, the government also regulates and guarantees the availability of halal and sacred cosmetics by making this fatwa a guideline. as proof of support for this fatwa, lppom mui does not carry out halal certification of cosmetic products that use illicit and unclean ingredients for internal and external use. young indonesians are currently dominated by muslim women from generations y and z. these two generations are the most aware of technology and information. they are effortless to get information and very impressionable. these two generations should also realize the existence of a halal tipping point in cosmetics because usually, they will quickly get information from various sources, especially social media. generations y and z are also generations familiar with cosmetics. those in this generation are considered very concerned about appearance and tend to publish it on social media. to determine the implementation of the dsn-mui fatwa number 26 of 2013, the author distributed a questionnaire to 100 respondents, with criteria: consisting of generations y and z with an age range between 17-35 years, muslims, and females gender. based on a questionnaire distributed to 100 respondents, 57 respondents (57%) said they used cosmetics daily. furthermore, as many as 72 respondents (72%) said they were aware of the critical point of halal in cosmetics. regarding the knowledge of generation muslimah y and z about dsn mui fatwa number 26 of 2013, as many as 66 respondents (66%) said that they were aware of the existence of dsn-mui fatwa number 26 of 2013 concerning halal standards for cosmetic products and their use. furthermore, as many as 56 respondents said they followed the international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 155 contents of the dsn mui fatwa number 26 of 2013 concerning halal standards for cosmetic products and their use. source : questionnaire results figure. 1 respondents' knowledge of dsn fatwas – mui number 26 of 2013 source : questionnaire results figure 2. respondents' compliance with dsn fatwa – mui number 26 of 2013 researchers also interviewed generations y and z representatives about what if generations y and z knew that the product being used was not following halal standards according to dsn mui fatwa number 26 of 2013. miss a, a lecturer who is 27 years old (generation y), replied that it is better not to use it anymore if, indeed, the cosmetic product is not following the halal standards of the dsn fatwa – mui. it is better to look for and use other cosmetic products that already have a halal logo that has been tested for halalness. the researcher also interviewed one of the representatives of generation z, miss b, a 20-year-old female college student. she replied: "if any of the cosmetics used does not follow the halal standards of the dsn-mui fatwa, then the agenda will not use the product again and will immediately throw it away. in addition, the agenda will also provide this information and understanding to family, relatives, and friends to be careful and pay attention to the halalness of cosmetic products to be purchased and used." thus, among generations y and z, there are already those who know and implement dsn-mui fatwa number 26 of 2013 concerning halal standards for cosmetic products and their use. although there are still those who do not know and have not even implemented the dsn mui fatwa, one of whom is miss c, a 30-year-old teacher (generation y). they are unaware of the existence of the dsn mui fatwa on halal standards for cosmetic products 156 international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 and their use; after knowing it, lia will not use products that are not clear about their halalness and will turn to halal products. influence of dsn-mui fatwa number 26 of 2013 on the purchase decision of the muslimah generation y and z on halal cosmetic products consumer behavior involves obtaining, consuming, and consuming a product or service. consumer behavior is dynamic, meaning a consumer's temperament is constantly changing. the dynamic nature of consumer behavior implies that one should not expect that a similar marketing strategy can deliver the same results throughout time, market, and industry (setiadi, 2015). this behavior will influence consumers' purchase decisions (purboyo et al., 2021). according to kotler and amstrong, a consumer's purchase decision is to buy the most preferred brand or the buyer's decision about which brand to buy (wahyuni & ginting, 2017). purchasing decisions can only be made when there are several other alternatives that can be chosen so that someone can make a purchase or not (putra et al., 2020). the purchase decision is a decision-making process by consumers combining all knowledge that is the value of considering between buying or not buying (dwiandani, 2013). purchase decision involves a sequence of choices formed by a consumer before making a purchase which starts once they has the willingness to fulfill a need (hanasya, 2018). consumers will need time to search for and receive information about the product (schiffman & kanuk, 2008). in addition, consumers will be influenced by factors of purchase intention and purchase decisions. purchase intentions can change if the situation faced by consumers hinders or forces them to cancel the purchase or switch to other alternative options (kotler & amstrong, 2018). according to peter and donnelly, it states that purchasing decision-making is influenced by three factors: extensive decision-making, limited decision-making, and routine decision-making (gulliando & shihab, 2019). the complete customer purchase decision stage is a process that comes from all of us their experience in learning, selecting, using, and even getting rid of a product (wardhana et al., 2021). the five stages of the purchase decision process model, according to (kotler & amstrong, 2018): 1) problem recognition begins when the consumer recognizes a problem or needs to be triggered by internal or external stimuli; 2) information search, the primary source of information search, can come from personal, commercial, public, or experience; 3) evaluation of alternatives is how consumers process information and make a final assessment of the product; 4) a purchase decision is a purchase decision by consumers of the selected product. two main factors can influence purchase decisions: first, the attitudes of others which include negative attitudes towards alternative consumer choices, as well as consumer motivation to obey the wishes of others. secondly, the emergence of unforeseen situations can change the purchasing intentions of consumers. (5) post-purchase decision, which consists of: first, post-purchase satisfaction (satisfied with the product); second, postpurchase actions (if satisfied, then it will make a repurchase. otherwise, it will leave, return, or influence others). furthermore, third post-purchase uses and disposal (how consumers use or dispose of products) (pandrianto, 2022). international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 157 figure. 3 halal cosmetics purchase decision process model based on a questionnaire distributed to 100 respondents, as many as 92 respondents (92%) agreed that the existence of dsn-mui fatwa number 26 of 2013 could affect their purchase decision in buying halal cosmetic products. wardah is proof of the demand for halal cosmetic products in indonesia. as a pioneer of halal cosmetics, wardah is increasingly loved by the muslimah generation of y and z. no wonder wardah sales continue to increase. even wardah has become the best-selling beauty product in the marketplace, wherein in 2021, wardah managed to achieve total sales of idr 13.4 billion within two weeks (compas, 2021). in 2022, there will be a shift in the level of sales of halal cosmetics from wardah to ms glow. however, ms glow is also a pioneer of halal cosmetics in indonesia after wardah. the most significant sales occurred at shopee with a volume of 84.1% and on tokopedia with 15.9%. the total turnover generated by ms glow reaches idr 600 billion per day (sulistyawati, 2022). although it is relatively new compared to wardah, ms glow has proven to be a pioneer of halal cosmetics in indonesia by bagging a halal certificate from the indonesian ulema council (mui) and has obtained permission from the food and drug problem recoginiton information search evaluation of alternatives purchase decision post purchase behavior • halal critical point materials • price • brand • trend • functions and benefits cosmetic products • halal certification products • product not certified halal post purchase satisfaction post purchase actions post purchase uses 158 international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 supervisory agency (bpom). source: questionnaire results figure. 4 influence of dsn fatwa – mui number 26 of 2013 he existence of wardah and ms glow as the best-selling cosmetic products in indonesia proves that muslims in indonesia still choose and use halal cosmetics compared to other cosmetics. the results of the questionnaire were distributed to 100 generations of y and z respondents. there are no written regulations such as laws governing the halalness of cosmetics. as many as 79 respondents (79%) consider that the fatwa dsn – mui number 26 of 2013 is enough to be used as a guide in choosing and buying halal cosmetic products.. source: questionnaire results figure 5 fatwa dsn – mui number 26 of 2013 as a halal cosmetic product guideline many cosmetic companies make prices, trends, and brand their marketing strategies. it is no wonder that many brands are trying to play prices to attract consumers, although it will impact the quality of their products. in addition, creating a solid brand tends to be easier to meet the needs and desires of consumers. a strong brand also makes prices inelastic, meaning that price increases will not make consumers move to other brands (silviani, 2021). another essential thing in today's marketing strategy is to create trends. trends can be brought to life through viral marketing. viral marketing can encourage the spread of information faster and make consumers curious to try it (haque et al., 2021). nevertheless, the halalness of the product is currently a necessity. the large number of muslimah generations y and z makes halal reasons something logical to prioritize. consuming and using halal products is a command of islamic law following the qur'an, international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 159 hadith, and fiqh rules. as also stated in the fatwa dsn – mui number 26 of 2013. based on the questionnaire distributed to 100 respondents, generation muslimah y and z agreed that product halalness is the main reason for choosing cosmetic products with the result of 77%, followed by price reasons at 8%, brand at 12%, and trend of 3%. this result is different from previous research done by other researchers. one is research on halal label and product quality: wardah cosmetic product purchase decision case study, conducted by lily ulfia, mamluatul maghfiroh, and rachma indrarini. the result is that the halal label has a moderate value and a significant relationship with purchasing decisions for wardah cosmetics. this result is because the decision to purchase wardah cosmetics is not based on the presence or absence of a halal label but on other factors such as needs, advertisements, and consumer reviews (ulfa et al., 2021). another research is about antecedents of customer's purchasing decisions on halal cosmetics, conducted by previous research in selangor malaysia. the result is that environmental factors significantly affect purchasing decisions for cosmetic products. halal factors affect those who know halal products. nevertheless, the product availability factor in the market is more important than the halal factor (idris et al., 2021). the results almost the same as this research are research on purchase intention of halal cosmetics: the mediating role of attitude. this research was conducted by maghfira rizky maulana, nuryakin, and nur hidayah. according to this study, knowledge and religiosity affect the purchase intention of the millennial generation toward halal cosmetics. good understanding and good religiosity will affect the purchase of halal cosmetics. almost the same as the results of research conducted by the author. the difference in purchasing decisions by generations y and z are influenced by knowledge of the dsn-mui fatwa regulations regarding the halalness of cosmetic products (maulana et al., 2022). source: questionnaire results figure. 6 the main reasons for generations y and z in choosing and buying cosmetic products 4. conclusions based on the results and discussion above, the critical halal point in cosmetic products consists of two: the ingredients used and the ability of cosmetics to absorb ablution water. fatwa dsn mui number 26 of 2013 concerning halal standards for cosmetic products and their use can be implemented by the muslimah generation y and z by paying attention to the ingredients in cosmetic products used by the halal standards of cosmetic products and their use. furthermore, fatwa dsn – mui number 26 of 2013 concerning halal standards for cosmetic products and their use can influence the muslimah generation y and z towards 160 international journal of islamic business and economics (ijibec), 6(2) december 2022, 148-162 the purchase decision of halal cosmetic products, compared to prices, brands, and trends. this research implies halal labeling can be indonesia's most effective marketing strategy. along with the regulations regarding halal products circulating in indonesia, namely law number 33 of 2014 and fatwa of dsn mui number 26 of 2013. coupled with halal knowledge and awareness of the muslim community, which is getting stronger and increasing. business actors in the cosmetic sector should use halal ingredients. if business actors use halal ingredients, then business actors can register halal product certification to bpjph. after having a halal certificate, business actors can provide a halal label on their cosmetic products. the halal label is proven to have a significant influence on the purchase decisions of muslim generations y and z. fatwa dsn – mui number 26 of 2013 is not positive law, so its existence is not binding for indonesian citizens. therefore, there is a need for even more massive socialization so that not only the muslimah generation y and z but also generations x and before may still not be able to receive information quickly. if information related to halal standards for cosmetic products and their use, as stated in the fatwa dsn mui number 26 of 2013, can be accepted by all circles, then the purchase decision on halal cosmetic products will continue to increase. acknowledgement the author would like to express his deepest gratitude to all parties involved and those who assisted in this article's research and writing process. the co-authors have completed this article by providing the best ideas. the respondents who have filled out the survey have taken the time and provided their perceptions so that this research can be carried out and completed very well. we were grateful for uin sunan gunung djati bandung, iium, and brin, which have accommodated writers so that they can produce works that god willingly benefit the development of science and the lives of muslim communities wherever they are. references al-athar, m. d., & al arif, m. n. r. 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(2018). comparison of generation x and y : perceived usefulness, perceived ease of use, and subjective norms on purchase intention in e-commerce. jurnal komunikasi indonesia, vii(2). 110 ijibec analysis of conventional and islamic monetary policy transmission on inflation and economic growth muhammad syariful anam,1* rifda nabila,2 arna asna annisa,3 rina rosia4 1,2,3 department of islamic economics, faculty of islamjic economics and business, uin salatiga *syarifulanam2700@gmail.com abstract the empirical research aims to analyze the transmission of conventional and sharia monetary policies to inflation (cpi) and economic growth (gdp) using the sbi, puab, sbis, and puas instruments from 2002 to 2020. this study applies the var/vecm approach to the e views program. based on the analysis, several findings were obtained: first, in the short-term and long-term, cpi is influenced by all variables in the conventional and sharia channels, except puas, which has no effect in the short term. meanwhile, gdp is also influenced by all variables in the conventional channel and sharia channel, except for the sbis and puab variables which have no effect in the long term. second, in the irf analysis, the variables of sbi, puab, and sbis were responded negatively by the cpi, while puas responded positively. the variables puab, sbis, and puas, responded positively to gdp, while gdp responded negatively. third, from the results of the fevd analysis, the conventional channel variable has a more significant contribution to influencing inflation (cpi) than the sharia channel variable. meanwhile, the sharia channel variable contributes more to economic growth (gdp) than the conventional channel variable. the results of this study provide valuable new insights into the implementation of dual monetary policy on inflation and economic growth. international journal of islamic business and economics available at http://e-journal.iainpekalongan.ac.id/index.php/ijibec issn 2599-3216 e-issn 2615-420x vol 6 no 2 2022 keywords: monetary policy; inflation; gross domestic product; vecm doi 10.28918/ijibec.v6i2.5970 jel: e31, e43, e52 article info article history: received : 29 july 2022 accepted : 28 october 2022 published : 1 december 2022 mailto:syarifulanam2700@gmail.com international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 111 1. introduction bank indonesia (bi), as the indonesian monetary authority, has a vital role in regulating monetary policy and achieving the expected growth in economic activity. regular economic activities include macroeconomic stability, as seen from price stability (low inflation), good economic growth, and adequate employment opportunities (warjiyo & solikin, 2003). a stable economy can be seen from the stable prices of goods. if the price of goods is stable, economic actors can easily make various plans, whether planning production, buying raw materials for production, paying labor wages, etc. however, if economic activity is volatile and impacts continuous price increases, it can lead to inflation. inflation that lasts long enough can lead to economic chaos, where all goods and services will decrease. if looking at the impact of inflation, it is necessary to control inflation for a country's economy. to that end, central banks in several countries began implementing the inflation targeting framework (itf) in 1990, starting with new zealand, followed by canada, the uk, sweden, and australia (bernanke & mishkin, 1997). in addition to directing public expectations regarding controlled low inflation rates, the itf aims to increase the central bank's credibility as an actor in monetary policy (mendonça & souza, 2012). meanwhile, in indonesia, bi began to adopt inflation targeting in 1999 and began to determine and announce its first inflation target in early 2000. however, bi officially informed about the implementation of the itf on july 1, 2005 (kenward, 2013; setiawan & karsinah, 2016). the inflation target is the amount the central bank must realize. meanwhile, inflation targeting is regulated by the minister of finance regulation (pmk). in addition to maintaining price stability (low inflation), economic activity expected from monetary policy is good economic growth. the government targets economic growth yearly, as stated in the state budget (apbn). after one year, the target will be corrected whether the economic growth has been as expected or has not been able to achieve the set target. in practice, the government can change the target figure in the middle of the current period if the economic growth goals set at the beginning of the period are considered difficult to achieve in the current period due to economic conditions. gross domestic product (gdp) is a proxy for economic growth because gdp can calculate two things simultaneously: an economy's total income and expenditure. therefore, although gdp is not a perfect and absolute measure of welfare, it is a good indicator of economic growth (atika, 2018). the central bank uses monetary policy to control inflation and influence economic growth as proxied through gdp. to achieve this goal, the central bank will transmit monetary policy through five channels: credit channels, interest rates, exchange rates, asset prices, and inflation expectations. the monetary policy transmission mechanism (mptm) reflects how monetary policy can impact various economic and financial activities to achieve the final policy target (warjiyo, 2004). because it involves interactions between the central bank, the financial sector, economic actors, the government, and other authorities both at home and abroad, the mptm process is relatively complicated (warjiyo & juhro, 2020). because the process is complex, mptm is often known as the 'black box' in economic theory (bernanke & gertler, 1995). the mptm process, until it impacts the final target (inflation and economic growth), can occur in varying and quite long periods (friedman & schwartz, 1963). the effect can occur for 6-8 quarters (warjiyo & juhro, 2020). the complexity of monetary policy transmission was further complicated by the enactment of new banking law in 1998, in which indonesia officially adopted a dual banking system, namely conventional and sharia (sugianto et al., 2015). since the establishment of 112 international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 bank muamalat as the first islamic bank in 1992, indonesia has had two banking systems: interest and profit-sharing. the profit-sharing system is based on the principle of calculation which is more flexible in terms of profit-sharing returns. an increase in the volume of money supply will match the increase in output level under this system (rusydiana, 2009). this study focuses on the transmission of monetary policy through the interest rate channel because the interest rate channel emphasizes prices on the financial market for various economic activities in the real sector. in this sense, monetary policy will affect financial interest rates, which can affect inflation and economic growth (warjiyo, 2004). since implementing the dual banking system, indonesia has used a dual monetary system; an interest rate-based system practiced in conventional monetary and profit-sharing principles in islamic monetary. therefore, islam introduced a sharia monetary system based on islamic sharia principles to solve the interest rate system attached to usury. as regulated in bi regulation no. 10/36/pbi/2008 that bi can use sharia principles in implementing monetary policy. this sharia principle has its role in the economic development of a country (kebede, 2021). to achieve the final policy target, the monetary control instrument in sharia monetary policy does not have a significant difference from the instruments used in conventional monetary policy. in the islamic monetary economy, there is one transmission channel called the pass-through policy rate using the principle of profit-sharing, margin, or fee (acharya, 2012). this path is a modification of the interest rate path in the conventional monetary system. some instruments used in this route are bank indonesia sharia certificates (sbis) and sharia interbank money market (puas). sbis are securities adopted from bank indonesia certificates (sbi), where the sbi interest rate is changed using the sbis yield rate based on the ju'alah contract. meanwhile, puas was adopted from the interbank money market (puab), where the puab interest rate was replaced by using an ima certificate device. the instruments (sbi interest rate, puab interest rate, sbis yield, and puas yield) are short-term money market instruments. these are often used in monetary control to achieve the final target: inflation and actual output (economic growth) as proxied by gdp. sbi is used as bank indonesia's policy rate for transmitting monetary policy. meanwhile, before using the sbis, indonesia implemented a bank indonesia wadiah certificate (swbi) with a wadi'ah contract as the basis. like sbi, swbi represents short-term placements of bank indonesia funds, with additional repaid bonuses that are repaid at maturity based on puas yields. both instruments were issued to absorb excess liquidity from the market (wahyudi & sani, 2014). however, because swbi has several weaknesses, swbi was changed to sbis using a sale agreement starting in april 2008. through these two instruments (sbi and sbis), bank indonesia can influence the tendency of bank financing and funding through the interbank money market, both in the conventional money market (puab) as well as the islamic money market (puas) and, ultimately the cost of funds and the price of financial assets (azizi, 2018). acharya (2014) shows that in a dual financial system, an increase in sbi tends to increase inflation and decrease economic growth, while an increase in sbis has an insignificant effect. bawono et al. (2021) showed that the islamic interbank money market does not significantly affect on inflation and economic growth. several studies have been carried out on the transmission of monetary policy influencing the economy. research (acharya, 2012) found that sbi and sbis harmed inflation in achieving the final inflation target, while research (magdalena & pratomo, 2014; pratama, 2013) shows a positive impact. research by (setiawan & karsinah, 2016) found that puab international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 113 and puas harmed inflation, while (magdalena & pratomo 2014) got the opposite result. meanwhile, in achieving the ultimate goal of economic growth, research by (wibowo & mubarok (2017) found that sbi and sbis hurt economic growth, while (pratama, 2013; zelina 2018) got the opposite result. research (acharya, 2012; imaduddin, 2019) showed that puab and puas were negatively related to economic growth, while (maharani, 2017; setiawan & karsinah, 2016) found that puab and puas had a positive impact on economic growth. based on the previous research, there are still gaps in research results. therefore, this study will review the topic of monetary policy transmission through the interest rate channel. however, the difference between this research and previous studies is the final target variable used. in most previous studies, the industrial production index is used as a proxy for economic growth, while this study uses gdp. in addition, as far as the author is aware, there are no previous studies analyzing the transmission of dual monetary policy on inflation and economic growth as proxied by gdp. 2. method the study uses a quantitative approach to analyze the transmission of conventional and islamic monetary policies on inflation and economic growth. the population of this study is data published in indonesian economic and financial statistics and the central statistics agency. meanwhile, the samples involved in this study include bank indonesia certificates (sbi), interbank money markets (puab), bank indonesia sharia certificates (sbis), and sharia interbank money markets (puas) from 2002 to 2020. the analytical tool used is vector autoregression (var)/vector error correction model (vecm) to determine the relationship between variables in the model. to use the var model, the data must be stationary at the level. meanwhile, if the level is not stationary, it can be reduced to the first difference. thus, var modeling can be done with the first difference data or with the vecm model if cointegration exists. the mathematical model in this equation is as follows: cpiyt = c + a1iσcpiyt-k + a1iσsbiyt-k + a1iσpuabyt-k + et pdbyt = c + a1iσpdbyt-k + a1iσsbiyt-k + a1iσpuabyt-k + et and cpiyt = c + a1iσcpiyt-k + a1iσsbisyt-k + a1iσpuasyt-k + et pdbyt = c + a1iσpdbyt-k + a1iσsbisyt-k + a1iσpuasyt-k + et this study's testing steps are as follows: first, the cointegration test is used to determine the long-term balance between the observed variables. the determination of cointegration is observed through the trace statistic score. second, analyze the vecm test to see the short-term and long-term significance. third, an impulse response function (irf) analysis was conducted to determine the direction of the relationship and how much influence one endogenous variable had on other endogenous variables in the model formed, as well as to observe how the variables responded to shocks. fourth, forecast error variance decomposition (fevd) analysis is used to determine how much influence certain variables have on endogenous variables and to find out how strongly between variables influence each other in the long term. 114 international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 3. result and discussion cointegration test the cointegration test follows the johansen cointegration test stage. there is a cointegration equation if the trace statistic value is higher than the critical value. based on the cointegration test results, both the cpi and pdb models are cointegrated or have a longterm relationship. so, the appropriate method to analyze the short-term and long-term effects of the two models (cpi and gdp) is to use the vecm method. vector error correction model (vecm) test the vecm model in this study uses a significance level of 0.05 with a critical value of t 1.99. variables can be significant if the value of statistic > critical. the results of the vecm estimation on the cpi model are presented in table 1 (for the long term) and table 2 (for the short term). the short-term relationship in the conventional channel is shown to have an optimum lag of 7, while the sharia channel is 1. the cpi model shows that both conventional and islamic channels significantly influence the long-term coefficient. if the conventional channel, sbi, has a coefficient value of -0.114, which means that if there is an increase in the sbi interest rate of 1%, it will reduce inflation by 0.114%. while the puab coefficient is 0.133, which means that if the puab interest rate increases by 1%, it will increase inflation by 0.133% meanwhile, in the sharia channel, the sbis coefficient value is 0.798. if the change in yield increases by 1%, inflation will increase by 0.798%. meanwhile, the puas coefficient is 0.777. it means that if the return on puas increases by 1%, inflation will decrease by 0.777%. the long-term cpi equation can be written as follows: lncpi = -4.844 – 0.114sbi + 0.133puab lncpi = -5.657 + 0.798sbis – 0.777puas the cointegrated variables adjust towards equilibrium. this adjustment coefficient is from now on referred to as the error correction term (ect) to see the short-term equilibrium of cointegration equation 1 on both channels will correct the long-term adjustment. for conventional channels, the cpi's long-term equilibrium velocity is 90.1%. meanwhile, in the sharia channel, the long-term equilibrium velocity is realized by the cpi and sbis, which are -4.1% and -42.8%, respectively. the estimation results can be seen in table 1. table 1. long-term coefficient (cpi model) long-term vecm and adjustment of conventional variables long-term coefficient variable lncpi sbi puab cointeq1 1.000 -0.114 0.133 [-4.526] [4.304] c -4.844 coefficient of adjustment cointeq1 -0.901 -1.000 -0.784 [-9.570] [-1.501] [-1.024] long-term vecm and sharia variable adjustment long-term coefficient variable lnihk sbis puas cointeq1 1.000 0.798 -0.777 [5.039] [-4.647] international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 115 c -5.657 coefficient of adjustment cointeq1 -0.041 -0.428 0.267 [-2.168] [-2.600] [1.337] source: secondary data processed, 2022. the short-term estimation results are presented in table 2. in the conventional channel, the cpi model shows that four variables have a significant effect, namely the sbi variable in the past period, sbi in the past two periods, puab in the past period, and puab in the last two periods. it means that if the sbi interest rate during the 1 and 2 previous periods increases by 1%, it will affect inflation by 0.115% and 0.081%, respectively. then, changes in interbank rates in the first and second periods ago by 1% will affect inflation by 0.126% and 0.077%, respectively. meanwhile, cpi was only influenced by sbis in the past period, with a coefficient value of -0.040. that is, if the sbis yield rate during the previous period increased by 1%, it would cause the current change in inflation to decrease by 0.040%. in total, the results of the shortterm estimation of the cpi model are presented in table 2. table 2. short-term coefficient (cpi model) conventional variable short run vecm d(lncpi) d(sbi(-1)) -0.115 [-4.146] d(sbi(-2)) -0.081 [-2.844] d(puab(-1)) 0.126 [4.394] d(puab(-2)) 0.077 [2.725] sharia variable short-term vecm d(lnihk) d(sbis(-1)) -0.040 [-2.135] source: secondary data processed 2022. the results of the vecm estimation of the gdp model are presented in table 3 (for the long term) and table 4 (for the short term). for conventional channels, the optimal lag is displayed up to lag 5. meanwhile, the optimal lag on the sharia channel is displayed up to lag 4. in the conventional, in the long run, the variable that significantly affects gdp is the sbi variable with a coefficient value of 0.318. if the sbi interest rate increases by 1%, gdp will increase by 0.318%. meanwhile, in the sharia channel, only the puas variable has a significant long-term effect on gdp, with a coefficient of 1,913. it means that if there is a 1% change in the puas yield, it will increase gdp by 1.913%. for the long-run equation model, gdp is shown in the following equation: lnpdb = -17.209 + 0.318sbi + 0.149puab lnpdb = -18.623 – 0.929sbis + 1.913puas based on the adjustment coefficient, the velocity of long-term equilibrium in the conventional channel is carried out by the sbi interest rate and the interbank money market 116 international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 interest rate at -82.3% and -71.4%, respectively. meanwhile, gdp and puas were 3.1% and 29.2% in the sharia channel, respectively. the estimation results can be seen in table 3. table 3. long-term coefficient (gdp model) long-term vecm and adjustment of conventional variables long-term coefficient variable lnpdb sbi puab cointeq1 1.000 0.318 0.149 [2.129] [0.877] c -17.209 coefficient of adjustment cointeq1 -0.043 -0.823 -0.714 [-1.162] [-4.427] [-3.426] long-term vecm and sharia variable adjustment long-term coefficient variable lnpdb sbis puas cointeq1 1.000 -0.929 1.913 [-1.881] [3.833] c -18.623 coefficient of adjustment cointeq1 0.031 -0.128 -0.292 [2.254] [-1.274] [-2.986] source: secondary data processed 2022. furthermore, the short-term estimation results are presented in table 4. in the conventional channel, in the gdp model, three variables have a significant effect: sbi in the previous four periods, sbi in the previous five periods, and puab in the previous period. changes in the sbi interest rate in the past four periods of 1% will cause changes in the current gdp to decrease by 0.114%. next, changes in the sbi interest rate in the previous five periods by 1% will cause changes in the current gdp to increase by 0.111%. then, the change in the interbank money market rate in the past period of 1% will increase the current gdp by 0.088%. in the sharia monetary channel, the gdp model shows that in the short term, only the variables of sbis 4 in the previous period and puas 1 in the previous period have a significant effect. if the change in yield on sbis for the previous four periods increases by 1%, it will cause changes in gdp to decrease by 0.044%. also, if the puas yield had changed by 1% in the past period, gdp would have fallen by 0.072%. in total, the results of the shortterm estimation of the gdp model are presented in table 4. table 4. short-term coefficient (gdp model) conventional variable short run vecm d(lnpdb) d(sbi(-4)) -0.114 [-3.358] d(sbi(-5)) 0.111 [3.277] d(puab(-1)) 0.088 international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 117 [2.754] sharia variable short-term vecm d(lnpdb) d(sbis(-4)) -0.044 [-2.027] d(puas(-1)) -0.072 [-2.342] source: secondary data processed, 2022. impulse response function (irf) analysis figure 1 is the result of the impulse response function (irf) for the inflation model (cpi) which shows that all variables in the conventional channel (except cpi), namely sbi and puab, have an impact on reducing inflation and are also permanent. the cpi variable is a variable that has a long-term influence on the cpi response itself, the shock occurred for 30 periods, the next period began to stabilize and permanently positively affect the increase in the cpi itself. meanwhile, the shock effect of conventional variables (sbi and puab) on inflation began to subside and stabilize in the period 33 to 43. on the other hand, in the sharia channel, the cpi shocks last for 5 periods, and the next period the cpi will be responded positively by the cpi itself permanently. the cpi began to respond negatively to the sbis variable shock in periods 2-4, and the cpi response to the sbis shock began to stabilize in the 5th period. the cpi began to respond positively to the puas variable in periods 2 to 10, and in the 11th period it started to stabilize and become permanent. -.06 -.04 -.02 .00 .02 .04 .06 .08 5 10 15 20 25 30 35 40 45 50 55 60 lnihk sbi puab response of lnihk to cholesky one s.d. innovations -.04 .00 .04 .08 .12 .16 5 10 15 20 25 30 35 40 45 50 55 60 lnihk sbis puas response of lnihk to cholesky one s.d. innovations figure 1. cpi model irf test source: secondary data processed, 2022 in the gdp model (see figure 2), the conventional channel shows that gdp responds positively to shocks in the variables of gdp and puab. gdp shocks began to stabilize after the 23rd period, and puab stabilized in the 32nd period. meanwhile, fluctuations in the sbi variable lasted for up to 30 periods, and so on, and gdp consistently reacted negatively to sbi. irf analysis on the gdp model, sharia variables (sbis and puas) have a positive impact in terms of increasing gdp and are also permanent. the influence of the shocks of sharia variables on gdp began to subside and stabilize in the period 18 to 24. 118 international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 -.08 -.04 .00 .04 .08 .12 .16 5 10 15 20 25 30 35 40 45 50 55 60 lnpdb sbi puab response of lnpdb to cholesky one s.d. innovations -.050 -.025 .000 .025 .050 .075 .100 .125 .150 5 10 15 20 25 30 35 40 45 50 55 60 lnpdb sbis puas response of lnpdb to cholesky one s.d. innovations figure 2. gdp model irf test source: secondary data processed 2022. forecast error variance decomposition (fevd) analysis table 5 is the result of fevd analysis on the cpi model, both conventional and islamic channels. in the conventional channel, the most significant contribution to the change in cpi is itself by 100% in the first period and then decreases until the end of the period. the most significant contributor to changes in the cpi apart from itself was puab of 86.6% at the end of the period. meanwhile, sbi contribution only ranges from 0-4%. next, in the sharia channel, the most significant contributor to changes in the cpi is itself at 100% at the beginning of the period, it decreases at the end of the period. meanwhile, the contribution of sbis and puas actually increased until the end of the period. apart from himself, the next most significant contributor to changes in cpi was sbis at 8.7% in the final period and puas at 7.7% in the final period. table 5. fevd test of cpi model conventional variable cpi model fevd test period s.e. lncpi sbi puab 1 0.076588 100.0000 0.000000 0.000000 10 0.134738 34.32738 3.961670 61.71095 20 0.164492 23.70341 4.381641 71.91495 30 0.190396 17.92890 3.676936 78.39416 40 0.211975 14.61888 3.229778 82.15134 50 0.231820 12.34260 2.900843 84.75656 60 0.250092 10.70479 2.664722 86.63049 fevd test of sharia variable cpi model period s.e. lncpi sbis puas 1 0.120321 100.0000 0.000000 0.000000 10 0.379828 85.46474 7.961415 6.573841 20 0.534929 84.34942 8.399345 7.251231 30 0.654235 83.97017 8.547177 7.482657 40 0.754915 83.77972 8.621406 7.598873 50 0.843665 83.66520 8.666044 7.668760 60 0.923929 83.58874 8.695844 7.715416 source: secondary data processed, 2022. the results of the fevd analysis on the conventional and sharia channel gdp models international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 119 are presented in table 6. in the conventional channel, the most significant contribution to changes in gdp is gdp itself by 100% in the initial period, decreasing in the second to the last period. the next most significant contributor to changes in gdp was puab at 14.5% in the final period and sbi at 7.8% in the final period. meanwhile, in the sharia channel, the most significant contribution to changes in gdp is the gdp itself at 100% at the beginning of the period, the next period decreases until the end of the period. the decrease in gdp contribution was followed by an increase in the contribution of sharia variables, namely sbis and puas. puas is the variable that has the second contribution that affects changes in gdp, which is 25.5% in the final period. then, the contribution of sbis was 2.9% at the end of the period. table 6. fevd gdp model test conventional variable gdp model fevd test period s.e. lnpdb sbi puab 1 0.120195 100.0000 0.000000 0.000000 10 0.402895 83.49218 6.701149 9.806669 20 0.545525 80.12904 7.811983 12.05898 30 0.657041 78.92944 7.736592 13.33397 40 0.752292 78.27995 7.782557 13.93750 50 0.836869 77.87345 7.819542 14.30701 60 0.913654 77.59987 7.842525 14.55761 fevd test of sharia variable gdp model period s.e. lnpdb sbis puas 1 0.130061 100.0000 0.000000 0.000000 10 0.411446 80.17972 2.714528 17.10575 20 0.674093 74.51259 2.790693 22.69671 30 0.865959 72.87237 2.870800 24.25683 40 1.022793 72.16731 2.906626 24.92607 50 1.158631 71.77401 2.927012 25.29898 60 1.280141 71.52255 2.940139 25.53731 source: secondary data processed, 2022. discussion based on the results of the study, the following discussions were carried out: first, the results of the analysis show that short-term inflation (cpi) is influenced by sbi in the first and second lags, where for every 1% increase in the sbi interest rate, inflation for that period decreases by 0.115% and 0.081%. meanwhile, in the long term, sbis also have a significant effect on inflation (cpi). this finding is consistent with the existing theory that an increase in interest rates can reduce inflation. an increase in the sbi interest rate can encourage economic actors and the public to invest in securities for speculative purposes rather than for consumption so that the inflation rate will decrease. based on the irf analysis, the sbi interest rate has a permanent impact on reducing the inflation rate. these results support the research conducted by (acharya, 2012) and (zulfa & suseno, 2018). sbi interest rate shocks are able to contain inflation, so this reinforces the conventional economic premise that the sbi interest rate is the primary monetary instrument that can be used to control inflation. meanwhile, the fevd analysis shows that the contribution of the sbi interest rate in 120 international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 restraining inflation (cpi) is 0-4%. the contribution of sbi interest rates is still meager, and this condition is understandable because the contribution that affects the cpi is not only influenced by economic phenomena such as core inflation but also non-core inflation, which tends to be highly volatile so that non-core inflation has a higher contribution to changes in cpi. second, short-term interbank rates have an effect on rising inflation (cpi). likewise, in the long term, interbank rates significantly affect inflation. this result can be understood that when the central bank raises the sbi interest rate, it will be followed by an increase in the interbank money market interest rate, which will have an impact on the inflation rate. irf analysis shows that the shocks that occurred in the interbank rate were responded to negatively by inflation (cpi). these results support research from (setiawan & karsinah, 2016), (saputro & sukmana, 2018), and (zulfa & suseno, 2018). when interbank rates increase, banks will respond by increasing deposit and credit interest rates which will then have an impact on reducing the money supply, thereby reducing the public consumption and reducing inflation. then, the results of the fevd analysis show that the contribution of interbank rates in influencing inflation (cpi) is 86.6%. the contribution of interbank rates up to the end of the period tends to increase, even being the variable with the highest contribution in influencing the inflation rate. this shows that the higher the interbank money market interest rate, the more outstanding its contribution to influencing inflation. third, referring to the vecm results, the sbis variable has a significant effect on inflation in the short term. then, in the long term, sbis yields also have a significant effect on inflation. this indicates that if the rate of return increases, islamic banking will get a more significant profit from its financing, so it has an impact on the consumption sector. meanwhile, the results of the irf analysis show that sbis yields have a negative impact on inflation (cpi). these results are in the channel with research conducted (ascarya, 2012) and (sudarsono, 2017). if there is an increase in sbis yields, islamic banks will respond by channeling funds in the form of sbis. this is done by islamic banks because sbis is considered more profitable when compared to channeling in the form of financing. if islamic banks channel more funds to passive income in sbis, then financing will tend to decrease, and funding in the business sector will be low, so it has a low impact on the inflation rate. the fevd results explain that the contribution of sbis yields in influencing inflation (cpi) until the end of the period is 8.7%. this contribution is still relatively low because, currently, inflation is still heavily influenced by other factors outside the financial sector. fourth, in the short term, the effect of the puas yield on inflation (cpi) is not significant. meanwhile, in the long term, the puas yield has a significant impact on inflation. in the long term, puas has a negative effect on inflation, which means that if there is an increase in the puas yield, it will reduce inflation. furthermore, based on the irf analysis, the cpi responded positively to the puas yield shock. in this case, islamic banks have begun to prioritize transactions in the money market to encourage the consumption sector. these results support the study conducted by (magdalena & pratomo, 2014) and (hadi et al., 2020). although in the initial period, puas experienced a shock that had a fluctuating impact on inflation, it finally experienced a balance until the end of the period. occurs when puas experiences a shock, it will increase inflation. meanwhile, from the results of the fevd analysis, the shock that occurred in the puas yield contributed 7.7% to inflation (cpi). when the imbalance in puas results from increases, international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 121 the financing channeled to the community will also increase. this is because the funds available in the money market will be purchased with an ima certificate by islamic banks and then channeled as financing so that it will encourage the consumption sector. fifth, in the short term, the sbi interest rate has a significant effect on economic growth (gdp). on the other hand, sbi also has a significant impact on gdp in the long term. in this case, the increase in the sbi interest rate will affect changes in gdp. based on the irf analysis, an increase in the sbi interest rate has a negative effect on economic growth. these results are in accordance with the findings of previous research conducted (julaihah & insukindro, 2004), (acharya, 2012), and (wibowo & mubarok, 2017). this indicates that an increase in sbi interest rates will affect interest rates on financial markets, such as lending rates. an increase in loan interest rates will reduce investment, and the growth rate will also decrease. meanwhile, from the fevd analysis, it was found that shocks to the sbi interest rate variable contributed to gdp, which was entirely satisfactory, although still relatively small, at 7.8% in the final period. sixth, in the short term, the interbank rate variable significantly affects economic growth (gdp). meanwhile, in the long term, the interbank rate does not have a significant effect on gdp. the interbank rate can be understood as a short-term instrument used to meet banking liquidity. therefore, changes in the interbank money market interest rate will only affect banking behavior in the short term, while to affect the economy in the real sector, the transmission must be in the form of credit. next, the results of the irf analysis show that the shocks that occur in the interbank rate variable show a positive reaction from gdp. this finding confirms the results of studies that have been carried out (maharani, 2017). these results indicate that the increase in the interbank rate by the monetary authority can improve economic performance. in addition, from the fevd analysis, it was found that the interbank rate variable had a higher contribution than the sbi interest rate in influencing gdp by 14.5%. seventh, from the short-term estimation results, it is known that sbis yields have a significant effect on economic growth (gdp). meanwhile, in the long term, sbis yields have no significant effect on gdp. the effect of sbis on gdp is not significant because, in calculating gdp, it is more directly related to investment in the real sector than investment in the financial sector. based on irf analysis, gdp responds positively to puas yields. the results of this study confirm the previous findings of (acharya, 2012) and (bawono et al., 2021). in short, it can be said that the increase in sbis yields carried out by the monetary authority is quite effective in improving economic performance, in this case, economic growth (gdp). then, the results of the fevd analysis show that the contribution of sbis to gdp is 2.9%. it can be seen that this condition has a substantial impact on changes in banking behavior where the high and low yields of sbis are used both for funding and investing in sbis instruments. eighth, based on the vecm analysis, in the short term, puas has a significant effect on economic growth (gdp). in the long term, puas has also been shown to have a significant effect on gdp. this result can be understood that the increase in puas yields will affect the level of profit sharing in islamic banking so that it will attract public interest in making productive loans at islamic banks, which will ultimately increase economic growth. furthermore, the results obtained from the irf analysis show that gdp responds positively to the shock on the puas variable. the results of this study confirm the results of the study (acharya, 2010) (setiawan & karsinah, 2016) and (bawono et al., 2021). it shows 122 international journal of islamic business and economics (ijibec), 6(2) december 2022, 110-124 that the increase in puas yields carried out by the monetary authority is effective in increasing economic growth. next, based on the fevd test, it can be seen that the puas variable has a higher contribution than the sbis variable to changes in gdp, which is 25.5%. overall, the sharia channel variable has a significant role in encouraging economic growth. 4. conclusion this study analyzes the effect of conventional and sharia monetary policy transmission using the sbi, puab, sbis, and puas instruments on inflation and economic growth (gdp). by using the var/vecm analysis tool, in the short term and long term, all variables in the conventional channel and the sharia channel affect inflation (cpi), except puas, which has no effect in the short term. meanwhile, economic growth (gdp) in the short and long term is influenced by all variables in the conventional channel and the sharia channel, except for the sbis and puab variables which have no effect in the long term. based on irf analysis, the shock that occurred in sbi, puab, and sbis was responded negatively by inflation (cpi), while puas responded positively. then, economic growth (gdp) responded positively to shocks that occurred in the puab, sbis, and puas variables, while sbi responded negatively. furthermore, from the results of the fevd analysis, the conventional channel variable has a higher contribution to changes in inflation (cpi) than the sharia channel variable. meanwhile, the sharia channel variable has a higher contribution to changes in economic growth (gdp) compared to the conventional channel variable. based on the results, we suggest that policymakers evaluate policies regarding the transmission of islamic monetary policy that does not refer to conventional interest rates, especially the sbis instrument. thus, it is expected to be able to control inflation and encourage maximum economic growth. meanwhile, this research is limited to the transmission of dual monetary policy on the interest rate channel with sbi, puab, sbis, and puas instruments. therefore, further research that analyzes the interest rate path is expected to consider other economic variables such as credit interest rates, total conventional bank loans, financing yields, and total islamic bank financing. the hope is to further clarify the flow of transmission of monetary policy; both conventional and sharia can provide more comprehensive information regarding the mechanism of double monetary policy transmission. acknowledgement we would like to thank all for this study. we also thank the reviewer for significant comments and suggestions to improve this paper. references ascarya. 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(2018). the analysis of monetary transmission by interest rate channel in influencing the inflation: vecm approach. international conference on economics, business and economic education 2018, 168–179. https://doi.org/10.18502/kss.v3i10.3127 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / ������� �� keywords: h{{�(�������"�g������� ��������"�*��� ��( ����� � ������ *��� �� �������$������������������ ������� �����)�� ������"� ���� ���������� ����������� ���������� ����������$���������� ������ ���������� ������������� ������� ������������ �� �� ��� ������� ���$������ ;����� �� ���� ����� ����� ���� ����� �� ������ ���� � ��� ������ ��� ������ ����� �� ��� ������� �������������� ����� ������ �� ��������-�$���������������� ��� ������ ��������� ���� ���� �� � ��� � ��� ���� �� � ��� ��� ����� �������� �� ����������� � ��� ���� � ���� ����������� <���� ���� ��������������� ������� �������������� ��� ������������ ����������������e�������� �f��3� ���������������� ��� ��������$� ���� ���������������$����-*)��� �� ��������� � ��������������� �� ���������$����� ��� ������$�������������� ����3������������� gain algorithm �������������������������� ������$�������$����� �s� �������g������������������������������������������s� ������ ����� � 6������ �� ������ 3� �� ������ ��������� �� ���� ������� ��� �������������������s� ������ �#��������������� !�������������� <� ���� �s� ����� (�� ��� -*)� �������� ��� ����� ��� ����� �� �� �s� ������������������������������� �$���������� ���� ���� � &?���+�� 3��� ������� �$� ����� !������ �� ��� h/{������� {� ������� ����� ���� ������ ����� ������ �� ��� �������� �$� g��y_� $��� -*)� ������������y��d_�$������������������[���$������������������� both datasets. data attribute selection with information gain to improve credit approval classification performance using k-nearest neighbor algorithm ivandari, tria titiani chasanah, sattriedi wahyu binabar, & m. adib al karomi stmik widya pratama pekalongan e-mail: ivandarialkaromi@gmail.com article history: received : 7 may 2017 accepted : 17 may 2017 published : 1 june 2017 i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 1 3 2 216 ��� �������� *��� �� ������������ ������� ����$����������� ����������������� ������������������������������ ��������� ���������������������������� ���>����$������� �������$���� ������� � ������������� �� ������ ��������� ������ �������������������� ���������� ����3��������������[������������������������� ������� ���������������� ���������������$�$������������3���� �����������$��������������������� !���� ������� ������������ ���������������������������������� ������� ��� ��� ����������������� @���� ggd� ���������� ������ $���� !���� ��� ���� ���� ��� �� ��� �� )������ �� ��������� ����� �dd� �$����������� �������� �� �������������� ���� ������"��� ���������������������� ������� �� ������������ ��������������������������������������� � �� �������������g_��$����������������� 3��� �������� ���� �� � ������ ������ $���� -*)� �� �� ����� �� ���� ����� �$� ���� �� ����� �������� 3�����������s� ������������� ����������� ��������������� ������������$�������������������� ���� 3� ���������� ��� ������������������������������������� ��$���������$������ !����������� ������3� �� ���� ��� �������������� ���� ��� ������������������������������������� ���}�https://archive.ics.uci. edu/ml/datasets/credit+approval��3�����������$����������$��� ���������� ��du �� ����d��s� ������ �����$��� ��� �����������s� ������3����������s� ��������������������y g��������������zz��_������ ���� �� ����������������"��� ���y\y��������_��������������������� �� 3��� ������ ������� �$� ���� ���� �� ���������� � ��� ����� ���� ��� ���� ��6��� $���� !���� ��� ������ %��������� ���� 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3������� "� � �y+�� b���� ���������� ���� �� ����� $��� ���� ��������� �$� �s� ������ �� �� ����� �� ����� ���� ��/� ���� ����������&h� � ����"�� � +��3�����������$��s� ���������������������������� ����� ��������6����������������������������������� ������������ ������� ������� this research applies ���������� ���� ����� ���������������������� ��� ��������������$������� ��� � ��������� ��$���������$�h{{������ !����������� ���� ������������,������ 3� �����������������l �� ������������������������g �����������������$����������$������������)�� �� ���������������� 6�������������������������������������6�����$������ � �������$����������� gain����������������$�h{{������ ��������� !������� uci credit approval dataset local credit card customers dataset k-nearest neighbor algorithm classification evaluation confussion matrix validation 10 folds cross pre processing feature selection information gain accuracy of knn accuracy of knn + ig k-nearest neighbor algorithm classification evaluation confussion matrix validation 10 folds cross 8�%����������������8�� ����' 2.1 data collection method @�������������� ������!�����������$���������������3������������� ���� ����������� ���������� ��� ������ ��������� ����z�������s� ����������gdd����������3����������s� ���������� ������� ���������� ��������� � ����������������������������� �����3������� ����������������������$��������� ��� �������������� !� ������,���������������������������� ��� role (s� �����{��� type <������� `���� � �� �� label credit status binominal mode = 9(@�&��d+"���������b>>@�&�� + 9(@�&��d+"�b>>@�&�� + 0 ������� sex binominal mode = %�&zd�+"���������]�&y z+ %�&zd�+"�]�&y z+ 0 ������� ��� ������ �������u��d����/��dy��dd ä/g�d�� �q�� zy� å 1 ������� amount of loan numeric ����� �g��z\��dy����/�uuu�d �� dg ä\yyyy�yy �q� ��\d�� � å 0 ������� n�� ������ ����� �\�ud����/�y�� gd ä�� �q�dgu� å 0 ������� amount of installment per month numeric ����� �yyyu��g ����/��z\ud\���� ä � �q�� y� � å 0 i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 1 3 2 218 ������� type of loan polynominal �������� �&gdd+"���������� � &gdd+ � �&gdd+ 0 ������� type of loan polynominal mode = 301 (720), least = 302 (5) 301 (720), 302 (5), 303 &d+"�y z�&d+"�y ��&�u+ 0 ������� bi economics sectors ������ ������d �y� zd���/���d��ud äd � �q�uuu � å 1 ������� col polynominal ���������&d +"�����������&�dd+ ��&d +"���&�dd+ 0 ������� bi debtor class polynominal �������\gz�&g�g+"���������\yz� (1) \gz�&g�g+"�\gd�&\+"�\yz� (1) 0 ������� 9 ���������� class polynominal ������� �&��u+"���������\y�� (1) \g��&��u+"� �&��u+"� \ �&\+"�\gz�&u+"�\y��&�+ 0 ������� ��� ������ balance numeric ������� gy\��g�����/� \g���\��yd ä/z � �q� � uz z u�� å 0 ������� principal arrears numeric ������gu \���u\���/� z�yu��d�dzz ä � �q�u�d�������z å 0 ������� interest arrears numeric ������\gg�g� \z���/� �d\�y��ggd ä � �q��� � å 0 <������}�9�������� ����������������� ��)������ � {���� 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p h p / i j i b e c / article info article history: keywords: bmt; customers’ trust; sharia compliance abstract this study is aimed at investigating people’s perceptions of baitul maal wa tamwil (bmt). since its first existence, bmt has operated with full of both positive and negative dynamics. negative perceptions and stigma are adhered to this kind of microfinance institution. therefore, this present study is also conducted to explain well-established steps in eliminating those perceptions. for bmt, people’s trust constitutes the foremost asset to exist, particularly in the process of collecting savings from customers. this research employed a qualitative-field approach by using observation, interview, and documentation. the results of this study reveal that based on the people’s negative stigma, bmt was considered resembling a conventional financial institution applying the principle of profit sharing, in which the customers pay more. several steps to eliminate these perceptions coped with socializing groups of people, promoting baitul maal with soft loans, carrying out a door-to-door marketing strategy, and empowering the roles of sharia supervisory board (dps). perceptions and reconstruction of customers’ trust of baitul maal wa tamwil (bmt) in pekalongan kuat ismanto, m. nasrullah, nalim faculty of islamic economics and business, iain pekalongan indonesia email: kuatismanto79@gmail.com received : 14 may 2017 accepted : 24 may 2017 published : 1 june 2017 i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 5 3 6 056 ��� �������� >��� �$� ������ ������ ����� �� �������� ��� ���� ������� �$� ���� �� ������ ��� �� )������ �� �� �� ��s��/� � $������ �$� ���� �� ��������� baitul maal wa tamwil� �)���� �� ��� ���� ���� !���� ��� ��� ��������� &9�3+� �� �� � ���!������ ��������� ������ ��� ����� � �������� ���� ������ ��� ���� �� � �� ����&���������4��=��"�k�� ��"����� n������������+��%��� 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(2004). 78����� '�8�� ����� 0�����8�� ������ 9%g; ����������&� \+��0��������! '��������� ��� ����8��� 78����� 2$���~�>��%����� ��b�����)���� ����������"� (�� @�� &� g+�� ���������� 3��� � (������� � <��� =���� )�� 2������ �8������� 2$���~�>� himpunan mahasiswa jurusan akuntansi, fakultas ekonomi, universitas negeri malang (vol. 24). ��������� ��&� \+��manusia dan ���� 2������; x������� ����� q������ %���� .�$� ������ lentera 8 ������"�̀ �"�(� !�"�<�"�@n��$���"�̀ ��(�"�o�9�� ���"�(��<��&� \+��masyarakat ekonomi asean (mea), ���g; ������8��� ������� �27�| �� �����> 8������� ���#����;��l���� ��h�� ������ (<;({�"� o� (<;({�� <������� ���� &� \+�� asean economic community blueprint�� (���� ����� �$� <���������(� ���{������ <�� ����"� (�9�� &� z+�� h�� ����� %��$�� � @��� h�� ����� >���� ��� � <����� � '�� ����� )������� ��� @�����k��������(������;����h��n��)���� �@���< �� �3������ �%���������>���� ��� "�tesis magister��-�� � <��� ����&�u\z+��q���� �����8��z�� '����� ���l����*'��`�n���� k�������"�3��9�"�o�)������ �"�<��)��9��&� \+�������������;����� �(<;({�&�;(+�� ��}���� ������� < ���� �(<;({�� �3������h�� ��� �b������ 3� ������"�)��&� d+��0�����8��! '���������! q�� q���� �8������� 2$����>��%3�̀ �n�b��!����%������� *�� ������"� ��� w�� &� z+�� h�� ����� � ���� )��� ������ � (������� %��� �}� `�#��� � k�� �� %���� ���� empiris. jurnal akuntansi dan keuangan, 4&�+"� /gu� determinants of intellectual capital performance (empirical study: indonesian syariah bank 2010 – 2015) karimatul hidayah & ade adityawarman perceptions and reconstruction of customers’ trust of baitul maal wa tamwil (bmt) in pekalongan kuat ismanto, m. nasrullah, nalim protecting batik customers and the existence of pekalongan original batik by augmented reality technology based on cloud computing in batik label paminto agung christianto, eko budi susanto, ichwan kurniawan ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / editorial team editor in chief kuat ismanto department of islamic economics, islamic state institute of pekalongan, indonesia managing editor am. m. hafidz ma’shum department of islamic economics, islamic state institute of pekalongan, indonesia editorial board shinta dewi rismawati, department of islamic economics, state institute of islamic studies pekalongan, indonesia tamamudin r, department of islamic economics, state institute of islamic studies pekalongan, indonesia agus fakhrina, department of islamic economics, state institute of islamic studies pekalongan, indonesia muhammad nasrullah, department of islamic economics, islamic state institute of pekalongan, indonesia state institute of islamic studies pekalongan, indonesia gunawan aji, department of islamic economics, state institute of islamic studies pekalongan, indonesia agus arwani, department of islamic economics, state institute of islamic studies pekalongan, indonesia m. izza, department of islamic economics, state institute of islamic studies pekalongan, indonesia staff nafilah office department of islamic economics, islamic state institute of pekalongan, indonesia corespondence: ijibec@gmail.com jl. kusumabangsa no. 9 pekalongan jawa tengah indonesia http://e-journal.stain-pekalongan.ac.id/index.php/ijibec ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / contents determinants of intellectual capital performance (empirical study: indonesian syariah bank 2010 – 2015) karimatul hidayah & ade adityawarman 1-13 data attribute selection with information gain to improve credit approval classification performance using k-nearest neighbor algorithm ivandari, tria titiani chasanah, sattriedi wahyu binabar, & m. adib al karomi 15-24 protecting batik customers and the existence of pekalongan original batik by augmented reality technology based on cloud computingin batik label paminto agung christianto, eko budi susanto, & ichwan kurniawan 25-31 the future of the profession of accountant sharia enter mea in 2017 agus arwani 33-43 the relation between price, product quality, and image of a batik brand toward customer satisfaction tamamudin 45-54 perceptions and reconstruction of customers’ trust of baitul maal wa tamwil (bmt) in pekalongan kuat ismanto, m. nasrullah, nalim 55-62 ijibec international journal of islamic business and economics international journal of islamic business and economics av a i l a b l e a t h t t p : / / e j o u r n a l . i a i n p e k a l o n g a n . a c . i d / i n d e x . p h p / i j i b e c / ������� �� article history: received : 5 may 2017 accepted : 15 may 2017 published : 1 june 2017 keywords: intellectual capital, syariah banks, indonesia, vaic � ������ the purpose of this research is to examine the determinants of intellectual capital performance in indonesia’s syariah banks ����� ���� �� ��� � � � �� � ���� � ���� ��� ������� ��� ������ �� �� ����� ��� ����� ���� ��������� � �������� ���� ��� ������� variable and the dependent variable–intellectual capital performance. the value added intellectual capital (vaic) developed by public is used to measure the intellectual capital performance in indonesia’s syariah banks. results indicate ����� ������� ������������� ������ ��� ���� ��� ������� ��� ����� ������ �� ��������� �� !�������������� �� ������� ������������ capital performance. the other independent variable, bank ��!��� � ��� ���� ����� � ��"� ���� �� �������� �#������ ��� ���� ������������ �� ���� ��$��������� ������ ��"� ���� ���� ��� entry in the corporate sector, bank size, and bank size are not � �� !������� �#���� ��� ���� ������������ �� ���� ��$��������� there are several measurements of intellectual capital ��$����������������%�� ��&'()*+"�'()*���� !���������-���� &�/'()*+"� ��� 3�� �/4�� 3����� �������� � 6������� ������ ���� ��������� ��� � ���� 3� �� ��������� ���� � ��� �$�������� �������� to the determinants of intellectual capital performance for syariah������� ���������������� ������������� �������� ����� ��� � ��������� ��� � ���� 3� �� ��������� �� ���� !���� ��������� ����� tests the determinants of intellectual capital performance in indonesia’s syariah banks over the period 2010 – 2015. determinants of intellectual capital performance (empirical study: indonesian syariah bank 2010 – 2015) karimatul hidayah & ade adityawarman diponegoro university semarang e-mail: karimatulhidayah96@gmail.com i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 1 1 22 ��� �������� 8�����9����& ��;�/9������"�� ��+����������������������� ����������$������ �#���� ���������� ����� ��� �������� � $�� ���������� -��6� et al &� �+� ������� ����� ���������"� ��� ��� ������ ���� ��������"� ���� �� � ���� ����� �� ������ ��� ���� ��� ������ ����������� %������ & �� <� �"� � � +� ����!��� $���� ��� �� ������ ������ �$� ���� ��� ������ ���������� �$� �� �����"� ������� $������ ���� ���"� ������� ���� ���"� ������ ����������������� ���"���������� � ��=������������3���$���� ����������������� ��� �� ������������������������� ���������� ��������������������������� ��� >���� ?�����$���;����� ��*�� �����������@����� �����&>;*@+�& ��b�� �"�� d+���!���� ���������/������������ ������e;����� �������� ��� ���������������� ��������"�� ��� �����"����� ������������������� �$�������f��*����� ��"��� ���������������� ������������/������������ ��"� � ������ ����� ����������� �������� ������ �������� ��������������g��� �������"�g ����������<����� h����� ���� ������ �� ��� ���� ���������/����� ������ ���� k����"� ����� ���� ��� ���� ���� �l���� �� ������ �������������� ������ ����������� ���������������/����������� ����&3n���������n��o� (� ���������"�� ��+� )��������$����������/����������� ��"�-��6�������&� �+������������� �������������� �������� ������ �������� ������������������������l � 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<��� ���/������ ��� �� ��� �� ���� ��� ���� ������������ �� ���� �� ����� �$� ��� �� �� ������=� �������������������� ���������������������$���� ������ ����!l����������������������"����� ��"����� ���������������������������������l � ?������� �����������&;�/9������"�� ��+��g ��������8 �� ���� &� y+� ����� $�� ���� ��� ������� ��� �� ������� � ��� � ��� ������������ �� ���� �����/������� (����� ��� ��� ���� � ��&� y+"����� ���������� ������ �� � ���� �����$������������� �������������� ������������� due to the reliable data availability, the intellectually intensive business character, and the more ��������������6�& �������������+������������������������ )�� � ��������� ����"� )������ �=�� ������ ���� ����� !��� ��� ������� ��� ������ ������ ��� ����� non-syariah and syariah� � �� ���&-����et al"�� �z+��(����� ������(���������>����&� ��+"��[��� e�����uu\�����/� ���� ����� � �f"�� ����������������"�)������ ���������������������$������ ������ �������� ��� ��������� ]����� �������� ������ ��� ��� ���� �� ����"� �������� �� �� syariah� ���� ��� development. syariah� ���� ��� ���� � ���� ��������� $����������� ����� ��� � ��� ��� ���� ��������� indonesia’s economic development. @��� ��� ���� ������ ����"� 9���� �$� )������ �� ��������� ���� ���� � ��� �$� syariah� ���� ��� ������ ����� �� )������ �� �� � ��� 3��� ���� � ��� ���� ����� �$� � � ��"� � �� ��"� ���� ��n������ �$� syariah� ���� ��� ������ ����� �� ����� �$� �� ������� &-����� et al, 2014). one of the blueprint ��n������� �������� ����������������$�!��� ��������$�syariah�������������� ��� u��k������"� �� $���"�������n������ ������$��!������3���syariah����� ��������� ����"���������������������������� ������������� � �����������"���� ������ ������ �� !����������� ������g����� ������� ��"�syariah �����=������� ������������\�_�$����` ���d��y�� �� ������` ��zd�d��� �� ��"�������� �� ��!�� ������� i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 1 1 2 3 ���������d �dd�_�$����` ��" dz�� �� ������` ��"g u�� �� ���&-�����et al, 2014). the rapid syariah� ���� ��� ������� �� )������ �� ������� ��� �j� � ������� � ��� ���� ����� ���������� ��� �$� ������������ �� ���� ��� ����� ������ )�� ����� �$� ���������/������ ������ ��"� ���� ��� ��������$������������ ������ ��������� ������������ ���������� �����@���������� � ������� ����� �����"� �������������� ���������������������������$���syariah banks. 3� ������������ �����������?������������ �������$� �������������� ���� ��$������������������ �������������� ���� ���������������������������������� ��������l ������3�������������� ������� are internal capital, external capital, and human capital. the previous research had examined the ������ ������ �$� ������������ �� ���� ��$�������� �� ��� � 6������ ����� ��� ����� ��� ����� � ?�"� ������� !���� ����� � �"� �������������)3"������ � ��=�������"�� �������q���������������"�����&;�/9������"�� ��q� (�/������ �����)��� �"�� ��q�w��� "�� � q�{�������"�� ��+��3��������������������������)������ �=�� syariah banks over the period 2010-2015 as the sample yet. ��� ����������������� �������������������� � � 2.1 intellectual capital )�� ������� �����"� ����� �� � ������ ���� ���� �� $���� ��� ���� � �� � ���� ��� ��� ��� ������ ��� ���� ��������� ��!� ���� �$� ������������ �� ���� &{�?�� � ���� k��������"� � g+�� ;�� ������ ���� ������� &�uug+�� � �����!���� �������������� ��������������������������������������� �����������<������� &�uug+� �l ������ ���� ��!� ���� �$� ������������ �� ���� ��� e ������������ ��� ������� &���������"� �$�������"� ������������ �� ����"������l �� ����+��� ��������������������� ?����������� �� ����f� ��� ������ ��� ��� ������ ���������� �� ��� ����� ?������ k���� �� ���� ������ ���� ����� �$� ���� �������������� ������!� �����$�����������������������} !� ������ �����������"���������# ��� � ���������� �����������"���������# ��� (� ����& ��{�������"� 2015) 3��� ������� �$� ���������"� �l �� ����"� �������"� ������"� ���� ��� ������ ������� �#��������������� � ��� bukh et al (2005) <�������$����������� ��$�����$��� �����"���������"� ������"� ���������������� ��������� ����������������������� ������� 9�����& ��b��"�� �+ ;������ �������������������� ���������� ?���������� ��������� ������������� ���������������� )��� �& ��b��"�� �+ )����� ���� ������ ����� ��� ��������� ����������"� ���������=� �$�������"� �����"� �� ������"� ���� ����� ?������� �������� �� ��� �����$���$�������� � ��=����� ���������� kamath (2007) ;��������������$�� ����������� ����� ������������������������ ����� �����<����� �& �� ��������� �d+ )����� ���� ������ ����� �� ���� ���������� ��#������ ��� ���� enterprise’s balance. mavridis (in el-bannany, � \+ (�� ����� ����� ������� ������������������������$������������ � ��� and the society itself. mouritsen (in el-bannany, � \+ 3����������� j�������� ?�������������������������� � ��"��� ��� ���������������� ���� ������������������������� ��������������� {��������&� ��+ 3��� � 6������� �������� ����� � ��=�� ������� ������ ���� enterprise’s replacement asset.enterprise’s market value �j��������������������������������� � ��=�� �������������� ����� i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 1 1 24 `��������`����& ��-���"� 2014) ;���� � ��=�� ����� ���� ������ ����� ��� �����"� ���������"� ���� �� �� ���"�������������������� ������������!���� �������������� intellectual capital is an important source for the company’s ������������� ����������������� �������& ��-���"�� �z+ 3�����������$������������� ������������� ?��������������� ?����� ��������� ����� ������������ ��������� ����������������� )�������������� ���������������� ����������������� ��������������������� ��������3����� �� �� �������������� �����������������������������<�� ���&�uug+������������� ����&�� �����+"� �������� &����������+� �� ���"� ���� �l������� &������������������+� �� ���&8� ���� o� 8�������"� � ��+�������������������������� ?������������ ����������������$����������������������� ������������ �� ��������� ��&;�/9������"�� ��+��k���� ��������!� ������$���������������� ������} 1. k������� ��� k����� �� ���� ���� ��� ����� ���� ��� ���� ������� �$� ��� ����� ����� ��� $���� ���� ��l � ?�� ���� ��� ����� ������ &;�/9������"� � ��+�� k����� �� ���� ���� ����� �������� ���� ����� � ��=�� ���� ���� ������ ����� ��� ���� ������� �$� �� ������� ���� ����� �������� ���� ����� ���� ������ ��� ���� $���� ������� ������"������ ��"����� ������������ ����� ������&`����et al"��uug+��k������� �����$���� ����� � ��� �����$��������� ���������� � ��� �������� � �������� �� � ������������� ����� ���� ��� ������ ������������������ ���������� � �������������� ��������� ������� ����� ���������� 2. internal capital )���������� ���������������� ����������� �������� ������� � ������������ � ����&;�/9������"�� ��+�� 8������"������� ������%�s������*���������& ��;�/9������"�� ��+"� ���������� ���� ������������ �� ��� �� ���� ����� ?����=�� ���������� ���� �������� )������������ �� ����� ������ ��� �������� �� ���� ��� ��������������� � ��=���������"��������� "������� �����"�������� ��� ������"� �$�������� ������"�)3"��������"���� �������[����"��������������� ������&;�/9������"�� ��+�� 3. external capital (����� �����������& ��{�?�� "�� g+"��l��������� ������������� ?����=���� �� � ������ �� ������ �������� ��� ��� ����� ������ ��� �������� ��� �������� ���� �������� �$� �� ����=�� ��������� ;l������� �� ���� ���� ��� ����� ���� ��� ���� �������� ����� $���� ���� ���� ��� �$� ���� ����� � ��"� ����� ���������"������ ��"����������=��������"����������=�����$�����"����������=������� ���"� ����� ��� ���������������&;�/9������"�� ��+��;l��������� �������$���$����������������$� �� ���� ��������� ������������������ � ���������� �����l������� ������������������������������ ����� ��������� {�?�� � ���� k��������� &� g+� ������� ����� ����� ������������ ��� ������� ���� �6�������� $��������������� � ��"��������������� ��!��������������� ����������������������� ������������ capital. <������� �������� ��� �������� ���� ����������� �$� ������������ �� ���� ���� ����� $����"� 3�� �/4� ���� �������������� ���h� ��������{������9�������<���������� �����"� ����� ��������������������� ���������<�� ��"�����'����/(�����)������������*� ����&'()*+������� ������%��� ��&h�����"�� g+��>�� ���� � ��������� �������� ��� ���� ��� ������������ �� ���� ��$�������"� '����/(����� )������������ *� ���� (vaic it +"� �������������%�� ��&�uug+"� ���������������������� ���������������������������� ������������ capital performance (el-bannany, 2012). vaic it can be stated as the easy, appropriate, and common method used to measure the intellectual capital performance in this research. '()*� ������� ��������� ���� ����� � ��� �����/������ ��������� $���� ���� ��� ����� �$� ���� �l ����� intellectual capital (joshi et al"�� � +��(����� ������h������&� g+"�������������������� �� !������� ���� ��� '()*��������������$������� ������� ��$�������"�������}�&�+�)����������� ������� ����������� � ������� i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 1 1 2 5 ����������$������ � ��=���������"��� �� �����������������/����������� ��q�&�+�;����� ��������!� ����� �$� ����������� ������� ������� � ����"����� ���"������������������������������������������������ ����� �������q�&y+�'()*����� ����������� �� � ����������������������������������� ������������� �������q�&z+� g�������������������� � �������� ������l �����$��� ����������� ������������������$� ��� ������ ���"����� vaic is the reliable indicator of the intelectual potency. )������"� <��������� &� \+� ������� ����� ����� ������� ��� �������� '()* it are available in the !���� ��������������)��� ��������������������"������� �������������� ���������������������������$��� ����=�� �������������� ���� ��$�������"������� ���������6��������� �� ���������� ��������������� 2.2 market structure and intellectual capital performance (��� {��� ���uuu� ��!���� ������� ���������� ��� ������� ���� ���� � � ��� �� ������ ������ ���� ������ �������$���� ������������������������������ ��$�������"� ����� ���������������$�������� ���������"����� ���������������������l ���$�����������"� �������� ���� ��"�� ��� ������������"����� ������� ��������� 3��� ����!�� �$� ���� ��� ������� ���������� �� ����� ���� ����� � ��� ���� ��� �� ���� �l ��������������������������������������� �� ��������� ��� �#������� ��������������������������� enterprise’s performance (el-bannany, 2012). �������������������#������������������ ��������� ���������������������� �������������� ���������������������� ������������������ �����9���������������� ���"������������������������� ����� !��� ���� ��$�������� � ��$������� ������&;�/9������"� ��+��%��$������� ������������� ������������ �������������������������������������������� ��������%� ��� ��$���������������� ������ ��� ���� ���������� �$� ������� ���� �� ��"� ��� ���� ������ ���� ������� ���� ���� �#������ ���� � ���&(� n����+��)� ��$������� ������������� ��� �� ����$����� ��$���������3����� ����$��� ������������������������������������������ ������� � ����)������ ���� ��������"������������������� is the most used indicator to measure the market structure (el-bannany, 2012). @��� �� ���� %����6� & �� g�n� "� � �y+� ����� ���� ������� ������������� ��� ���� ������� � �$� ����������� �������������������$��������� ����������3�������������������������� �#���������� ��� �������������$���� ���������3��� �� �����$���� ����������������� � ����� ����6����������� ����� ��l ���� ����� � ��=�� ������� 3��� �l ����� ��� ������ ������ ���� ��� ����� ��� �� ��������� ��� �������� ���� ������������ �� ���� ��$�������� �� ������ ��� ��l � ?�� ���� ����� � ��=�� ��!�� &;�/ 9������"�� ��+��>����������������"� $������� �������� �����"���������� � ���� ������������������� to enhance the three components of intelectual capital performance (el-bannany, 2012). 3���� ������������� ���������������������������������������� ����$�����>������������ ����"�������������������������� ���������������������������������� � ��$��������������������� $�����3���� �����������������$�������"������ ����� �������������� �����)�� ��������������������� �� �� � ��� �� ����� ��� ��� � ���� ��� �� � ��� ���������� ��� ������� )������"� ����=�� ������������ �� ����������� ���� ������������� ���� ������� �����������������������$ ���� ������������ ����� ������� ������������������ ���� �������� ���������j��� $ ��� ���������������������� �� � ��� ���������� &�������"� � �d+�� `�������� ���������� ��� �������� &� �d+� ������ ���� � �� $ ������� �� � ����������������������������������� ������� �������������� ���� ��$��������� h1a: there is a positive relationship between market concentration level and intellectual capital performance. bain (in carlton, 2004) described that barriers can determine the number of enterprises that also �#���������� ������ ������ �����������)��� �������� �#������������������������$����������� � ��� <������� & �� *������"� � z+� ��!���� ���� ���� ��� ������ ��� ���� ��!�� �$� ���� �l ����� �������� �$� ���� ����� � ���������������������$���������������k�� ��������������������"������ � ����������������� ������ ������� � ��������� ��������� ��!��� i n t e r n a t i o n a l j o u r n a l o f i s l a m i c b u s i n e s s a n d e c o n o m i c s , 1 ( 1 ) j u n e 2 0 1 7 , 1 1 26 3���n� ����$������ ���� ����� �������� ������������ �����$����������������������������6���� the intellectual capital performance (el-bannany, 2012). barriers to entry in a sector include the � ����������������������$�� � ������ �����;�/9�������&� \+������������������ ������������� ���� ��������� ����������"������������������ ����������������������������������������$� ������������ �� ���� ��$��������� 3��� ������� �$� ��������� ���������� ��� ;�/9������� &� \o� � ��+� ������ �� � �� !������������������������ ����������������� ������������� ���������� � ��=����������������� intellectual capital performance. �� �$�!���������� �%����������� ����� ����� � ������������ ����� �� �� ��������&��������� � ��� ������������������������� � ���� 2.3 bank risk and intellectual capital performance ` ��� ���� ��� ��!���� ��� ����� ������� � � ��� $���� � 6������ �������"� $��� �l�� ��"� ����������� � ��"� �������� � ��� ��� ������ ���� � ��� &;�/9������"� � ��+�� (�/������ � ���� )��� �� &� ��+� ������� ����� ����������������� �� � ��� ��� �����"������� ���� ���� ������� ������ ���� ����� ������ ������ �� ���������=�� ����)��� ���������6���������������������$�������� ��������3����������� �"������������ ����� �������������� �������$������������ ������������ ;�/9������� &� \"� � ��+� ������� ����� ����� ������������ �� ���� ��$�������� ���� ��������� �������� � ��� ��� ����� � ����� ��� ����� ��� ������ � ����� k����"� � ���� ������ � ��� �������������� ��� ��s����������������������������� ������������������s�� ������ � � ?���������������6�����$����� � �����3��������������������$�;�/9�������&� \"�� ���o�� ��+���������� �� !������� �� ����������� ������������������ ����������� �������������� ���� ��$��������� ��$�!������������������������ ����� ����� � � '����'�� ��� ������������������������� � ��� 2.4 bank size and intellectual capital performance @�� �et al & ���������"�� �d+������������������ ������������ ����"������ ��������� �������������� ���� ����� �� ����� ]����� ����� � ���� ��� ��� ����� ���� ���� ����� ��� ����� ��s��� �������� )3� ����������� ��������)��� ��������������� �������������� ���� ��$�������� ������������������"������������ � �������� ���� ����������������� ������� ������� ����������<�������� �����$������������ � ������������������ ����������� ���������� ����������&�������"�� �d+�� g�� � ���� ��� ������ �� ������ ����� � ���� ��� � ��� �� � ��������� ��s��� ��s��� ����� ������ �$� ���� ������ ����� � ���� ���� 3��� $�� � ���� ������� ���� ������� ��� �l������� $��� ��� ���� ���� ���� ��� �$� ��� �������� ������ �����3������#������������� � ��=��� �� !����������� ����� ���������� ������ ������������� ���� ������������s���������� �����������������/j��� !������6�&;�/9������"�� ��+�� 3����$���"������� ?����� ����������� �� ������������� �� ��� �������������� ���� ��$���������3��� ��������$�;�/9�������&� ��+������������������� �� !������� �� ������������� ������������������ size and the intellectual capital performance. �($�!������������������������ ����� ����� � � '���)������������ ������������������������� � ��� 2.5 bank profitability and intellectual capital performance. %��!��� � ��� �� ���� ����� �$� ����������� �6���������� ������ ��� ���� �� ������� ������� �� ��� �� ��������$����������������� ����������&k����� ��� �"�� �y+��b��������"���������� � ���!���� ��� 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