The Performance of Islamic Rural Banks in Indonesia: 2010-2015

Muhamad Nadratuzzaman Hosen , Sabrina Fitria
European Research Studies Journal, Volume XXI, Special Issue 3, 423-440, 2018
DOI: 10.35808/ersj/1393


This research aims to examine the influence of concentration rate of the four largest full-fledged Islamic commercial banks (BUS) on the performance of Islamic Rural Banks (BPRS) using ordinary least square (OLS) method. The results show that BUS, Islamic Banking Subsidiary (UUS), and BPRS have always been operating within the same financing market of murabaha products and competing for the same Micro, Small and Medium Enterprises (MSME) sector. Another result finds that despite the high level of concentration from the four largest BUS, the concentration rate insignificantly affects the profitability level of BPRS. This insignificant influence indicates that BUS, UUS, and BPRS are operating in a monopolistic market. It also proves the efficiency hypothesis in Islamic banking industry in Indonesia. Furthermore, this research confirms the competition-fragility theory where the concentration rate of the largest BUS negatively influences non-performing financing (NPF) rate of BPRS.

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