THE EFFECT OF SHARIA FUNDING AND FINANCING PRODUCT TOWARD PROFITABILITY OF ISLAMIC COMMERCIAL BANKS IN INDONESIA

As a country with the highest Muslim population in the world, Islamic banking system becomes an important element in Indonesia. However, the performance of Islamic finance has not been able to keep up with conventional financial growth. Actually, Islamic banks in Indonesia have quiet low profitability level. The profitability level can be seen from its return on assets (ROA). Islamic banks return on assets (ROA) is lower than small conventional banks. It was caused by high cost of financing and low third party funds growth of Islamic banking. Therefore, this study is aimed to examine the effect of Sharia funding and financing products toward profitability level of Islamic commercial banks in Indonesia. A quantitative approach is used by collecting the data from monthly financial statements of all Islamic commercial banks in Indonesia for the period of June 2014 until April 2019. The independent variables used for this analysis consist of Sharia funding which included Mudaraba demand and saving deposit, and also Sharia financing which included Mudaraba financing, Musharaka financing, and Qard financing, while net profit after tax becomes dependent variable which represents the profitability of Islamic commercial banks itself. A multiple linear approach was used to examine the hypotheses with fulfilling five classical assumptions. From this research, it could be found that Mudaraba saving deposit, Musharaka financing and Qard financing has a positive and significant effect on net profit of Islamic commercial banks. Meanwhile Mudaraba demand deposit and Mudaraba financing has did not have any significant relationship towards net profit of Islamic commercial banks. Another finding showed that Mudaraba saving deposit and Musharaka financing becomes the most significant influence on profitability of Islamic commercial banks in Indonesia. Keywords: 1 Islamic banks· 2 Sharia funding · 3 Sharia financing · 4 Net profit