Objectives and measures of performance of Islamic microfinance banks in Indonesia: the stakeholders' perspectives

Abstract

PurposeThis study investigates both internal and external stakeholders' views on the objectives and measures of performance of Indonesian Islamic microfinance banks (IMFBs).Design/methodology/approachThis study uses a qualitative approach. In-depth interviews were conducted with a wide range of internal and external stakeholders of IMFBs in Indonesia. The primary stakeholders interviewed comprised the board of directors of IMFBs located in several provinces in Indonesia, including rural and urban areas. The external stakeholders were the regulators/supervisors, represented by the Indonesian Financial Services Authority and Sharīʿah advisors of the National Sharīʿah Board as well as Muslim scholars. The data were analysed using CAQDAS, a computer-assisted tool for qualitative analysis.FindingsThe objectives of the IMFBs are seen to represent more than profits or economic well-being. Their objectives also comprise spirituality and daʿwah (Islamic propagation). Daʿwah is conducted through the provision of funding and services that are aligned with Sharīʿah (Islamic law), the dissemination of information about Islamic financing, which is based on Islamic values and principles, and the payment of zakat (Islamic alms) and charitable contributions. The measures of performance are considered to be more holistic than those of conventional banks. Profit and growth are deemed important as the means to achieve social well-being objectives.Research limitations/implicationsBetter insights into the objectives and measures of IMFBs could be achieved from interviews with other stakeholder categories, such as customers and the community. This could be the focus of future research.Originality/valueThis study added a new discussion to the limited empirical literature on IMFBs by investigating the views of stakeholders on the objectives and performance of IMFBs in Indonesia.

The integration of Islamic social and commercial finance (IISCF): Systematic literature review, bibliometric analysis, conceptual framework, and future research opportunities

“…However, countries in the Middle East and North Africa (MENA) have shown lower IMFI performance in terms of outreach when they record high-income diversification [ 85 ]. Nevertheless, IMFI performance measurement should be more holistic and not focus solely on profit and growth but also include spiritual and da'wah aspects (Islamic dissemination) [ 92 ].…”

The Governance Structure of Microfinance Institutions: A Comparison of Models of Sustainability and their Implication on Outreach

“…The microfinance industry is made up of hundreds of different financial institutions that are active all across the nation. Akbar & Siti-Nabiha [14] found that MFIs are primarily founded to eradicate poverty by elevating the borrowers' income, efficiency, and production [14]. MFIs now account for approximately 60% of the market.…”

“…Nevertheless, if the organisation does not discover a means to enhance its economic performance, its activities will not be sustainable in the long run. In their research, Akbar and Siti-Nabiha [14] pay particular attention to the effect microcredit has on the income of MFB and RDS households. It is clear from this that the borrowers of both MFIs benefited from the provision of microcredit, which increased their income level.…”

Modeling the significance of dynamic capability on the performance of microfinance institutions

“…The assets and membership of MFIs in Indonesia have expanded dramatically from 356,327 in 2000 to 3,636,559 in 2020 [ 13 ]. Owing to the high demand for microfinance in Indonesia, MFIs are highly adaptable therein, thereby facilitating strategic measures to gain competitive advantages and sustain their performances [ 14 ]. However, this also typifies that the performance measures of MFIs are considered more comprehensive than those of traditional banks and credit institutions, which in turn leads to the need for a holistic approach to the assessment and enhancement of MFIs’ performance.…”

“…However, for countries such as Indonesia, which has a large number of low-income people, the determinants of organizational performance are related to the sustainability of the organization and enhanced returns, especially for financial institutions such as MFIs, where organizational performance is related to the survival of the firm [ 14 ]. Based on the available studies, it is evident that there is a lack of research on the organizational performance and dynamic capabilities of MFIs in low-income countries, which in turn leads to a lack of awareness of the importance of organizational performance determinants in low-income countries [ 16 , 19 , 20 ].…”