Profit and Loss Sharing System - Solution for Trade-offs between Banking Profitability and Economic Efficiency of Intermediation
Journal Title: GATR Journal of Finance and Banking Review - Year 2017, Vol 2, Issue 1
Abstract
Objective - The higher the difference between the loan interest and the deposit interest is, the better it is for a bank. This reflects a higher margin/profitability. However, it also shows less efficiency of the intermediation mechanism. Using literature research, this study aims to understand how the mechanism of Profit and Loss Sharing System (Islamic Banking System) can become the solution for the trade-off. Methodology/Technique - This study uses literature search and review as the method to gain an understanding of the fundamental concept as well as to offer critique by noting the trade-offs associated with the micro and macro objectives of banking. Findings - In the profit and loss sharing system made accessible through partnership, the returns that will be earned by one part depends on the other part. This requires each part to behave professionally and responsibly. Depositors' returns depend on banks' returns and banks' returns depend on mudharib's return. Therefore, there is no difference between banking profitability and efficiency of the intermediation. Novelty - With the same implications noted between the micro objective of banks (advantage as a business entity) and the efficiency of intermediation as well as the implications for the affordability and social justice, there is no trade-off between profitability and economic efficiency of intermediation. In addition, the profit and loss sharing system can also be a solution for the trade-off itself.
Authors and Affiliations
Asfi Manzilati
Keywords
Related Articles
- EP ID EP184479
- DOI -
- Views 176
- Downloads 0
An Awareness Model for an Islamic Pre-Need Funeral Plan
Objective - Failure to prearrange one's funeral may lead to financial hardship on one's family members. Despite the importance of a funeral plan, little is known regarding the awareness level among Muslims regarding the...
An Evaluation of Financial Stress for Islamic Banks in Indonesia Using a Bankometer Model
Objective – In recent years, the market share of Indonesian Islamic banks has declined. The purpose of this study is to assess the financial distress being experienced by Islamic banks in Indonesia by using the Bankomete...
The Influence of Financial Distress Using Altman Z-Score, The Beta of Stocks and Inflation To The Stock Return
Objective – Stock is one securities among other securities, as a high risk instrument. Stock classified as high risk due to reflection in the uncertainty of the rate of return to be received by investors in the future. T...
Black Gold Has Fallen - No More Gambling on the Prices
Objective - The crude oil, also known as black gold, is an essential commodity for the sustainability of various industries in the world. Oil prices play an important role in world economy because it causes repercussions...
The Impact of Good Corporate Governance on Financial Distress in the Consumer Goods Sector
Objective – Financial distress is referred to as a condition in which a company's operations result in insufficient funds to meet its obligations (insolvency). The success or failure of a company greatly depends on the c...