Jurnal Keuangan dan Perbankan Universitas Merdeka Malang
Sharia Risk of Government-Owned Islamic Rural Banks during COVID-19 in Indonesia

Jurnal Keuangan dan Perbankan Universitas Merdeka Malang
Sharia Risk of Government-Owned Islamic Rural Banks during COVID-19 in Indonesia

Islamic Banking; Islamic Rural Bank; Non-halal Income; Ownership Structure; Sharia Performance; Sharia Risk

This study examines the effect of government ownership on the sharia risk of Islamic rural banks using all publicly available data of 156 BPRSs from 23 provinces in Indonesia. This research uses a quantitative method with secondary data obtained from the Financial Services Authority (OJK). Regressions using panel data regressions are employed to analyze the relationship between government ownership and sharia risk. Non-halal income is employed to measure the sharia risk between 2019 Q4 and 2020 Q3, representing the
timeline before and during COVID-19. In all models and periods, the results found a significant positive effect of government ownership variables on non-halal income. However, the degree decreases during the COVID-19 pandemic. It reveals that
government-owned Islamic rural banks are found to have lower non-halal income during the pandemic. We also find that more significant firms with higher leverage tend to have higher non-halal income. This study is expected to contribute to the still thin literature on sharia risk, especially in the context of Islamic rural banks in Indonesia. Results will have
implications to the regulator to assure the sharia compliance of the Islamic finance industry. This is essential to gain trust from the Islamic society, which is concerned about the observance of Islamic banks.

Riza Zahrotun Nisa, Yunieta Anny Nainggolan, Taufik Faturohman

DOI: 10.26905/jkdp.v25i4.5859

Universitas Merdeka Malang

October 2021

Sri Wahyuni

ISSN: 2443-2687 (Online) ISSN: 1410-8089 (Print)

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Jurnal Keuangan dan Perbankan Universitas Merdeka Malang