Comparison of Risk and Return on Trading and Profit Sharing Based
Financing Contract in Indonesian Islamic Bank
Fatin Fadhilah Hasib, Puji Sucia Sukmaningrum, Nisful Laila and Achsania Hendratmi
Faculty of Economics and Business, Universitas Airlangga, Jl. Airlangga 4, 60286, Surabaya, Indonesia
Keyword: Financing, Islamic Bank, Return, Risk.
Abstract: This study aims to analyze the difference between return and risk between profit sharing-based and trading-
based financing in Islamic bank. This study uses quantitative approach using Mann Whitney Test data
sampled from 6 Indonesian Islamic banks, collected from their quarterly financial reports from 2011 to 2015.
The result shows the significant difference in return, while the risk of profit sharing based and trading based
are almost the same. From the analysis, it can be concluded that profit sharing-based financing is less desirable
not because of its risk. Trading-based financing is more desirable then the profit sharing because of its
return. This study is discussing about the comparison between risk and return of trading and profit sharing
contract in Islamic bank. Until now still there is no study about this topic, because many of the topics of the
bank are contracts, while to compare the risk and return alone there are still not much.
1 INTRODUCTION
During the last 30 years, Islamic banking has been
growing very fast, because supported by many
emerging international conventional banks that open
sharia business units such as bank CIMB, Astra, etc.
(Mahdi and Abbes, 2017). Although relatively newer
and smaller than the conventional banking industry,
Islamic banking can still show significant growth in
innovation and scale. (Wulandari et al., 2015).
One of the functions undertaken by Islamic
banking is the function of financing, all types of
financing offered by Islamic banks in Indonesia
should be adjusted to the principles of Islamic sharia
if the bank wants to perform its financing functions.
Various types of financing that are available and well
developed in the Islamic banking industry in
Indonesia are financing with the principle of profit
sharing (mudharabah and musyarakah). Financing by
the law of sale and purchase (murabahah and
istishna), financing by the law of lease (ijarah) and
financing by debt principle (qardh).
As a profit based oriented business entity, Islamic
banks are required to consider the rate of return of all
financing provided. That is done to detect which
financing that gives advantages and which are not,
due to by such financing, the Islamic bank can gain
profit. In addition to the rate of return, Islamic banks
also need to consider the risks of financing given due
to the rate of return is always directly proportional to
the risk that is owned and every contract offered by
Islamic banks have different risks and returns. So, this
study aims to compare the risks and returns that are
held by a deal based on profit sharing to based on the
sale and purchase agreement. Since seen from the
financial report of all Islamic banks, the most
financed contract is based on the profit sharing and
based on sale and purchase, the rest is not much
found.
2 LITERATURE REVIEW
The most widely used Islamic bank contracts are
based on sale and purchase and profit sharing. For
contracts based on sale and purchase such as
murabahah and salam while for the contract based on
profit sharing is mudharabah and musyarakah. Until
now, many studies compare the risk and return to a
thing, but the object of study on risk and return is
mostly still about capital market investments,
company, and Islamic banks. While study compares
the risk and return of Islamic bank contract based on
profit sharing to contract based on the sale and
purchase simultaneously are rarely. Credits risk in
Islamic banks is in the form of settlement/payment
Hasib, F., Sukmaningrum, P., Hendratmi, A. and Laila, N.
Comparison of Risk and Return on Trading and Profit Sharing Based Financing Contract in Indonesian Islamic Bank.
In Proceedings of the 1st International Conference on Islamic Economics, Business, and Philanthropy (ICIEBP 2017) - Transforming Islamic Economy and Societies, pages 131-134
ISBN: 978-989-758-315-5
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
131

risk arising when one party to a business transaction
pays money or deliver assets before receiving its
assets or cash thereby exposing it to potential loss
(Khan and Ahmed, 2001).
Here are some studies that have the same topic.
Nurafini, (2014) studied the comparison of risk,
return, and coefficient of variation of musyarakah,
mudharabah, and murabahah in which the results
indicate that there is a significant difference to the rate
of return between all contracts. As for the level of risk
and coefficient of variation there is no significant
difference between the three. Mahdi and Abbes,
(2017) studied the relationship between capital, risk,
and liquidity between conventional banks and Islamic
banks in MENA countries. The results of this study
show that there is a definite relationship between risk
and capital in Islamic banking. Moreover, most of the
risks faced by banks related to the practice of
financing, adherence to the principle of sharia in
mudharabah and musyarakah. Also, if there is a
change of liquidity, it will have a direct effect on the
risk owned by the bank. Rifki Ismail (2010)
conducted a study with VAR approach to analyze the
changes occurred to the rate of return of financing and
expect losses from such financing in the period 2000
- 2008. The result of that study is a different resistance
rate of return on three groups financing those are
profit sharing, sale and purchase, and services in the
period 2000 - 2008. Khan and Ahmed (2001) explain
in his study that the risk rating of the contracts in
Islamic banks. In that study, contracts murabahah as
the financing with the lowest risk rating. While the
profit-sharing contract tends to has high-risk rating.
Based on the introduction and literature review that
existed above then the hypothesis in this study are:
H1: there is a significant difference between the
return of profit sharing financing and sell and
purchase financing in Islamic banking in
Indonesia.
H2: There is a significant difference between the risk
of profit sharing financing and sell and purchase
financing in Islamic banking in Indonesia.
3 METHODOLOGY
The study approach used in this study is a quantitative
approach. The variables used in this study are the
Rate of return and Risk. Types and sources of data
used in this study are secondary data in the form of
the quarterly financial report of Islamic Commercial
Banks from the years 2011-2015 and from some other
sources such as the financial report of the authority of
the Financial Services and Bank Indonesia. The
population in this study is Sharia Banking in
Indonesia. The sampling method used in this study is
purposive sampling. The requirement criteria for the
sample in this study are 1. Islamic Commercial Bank
which has published quarterly financial report during
the observation period that is 2011-2015. 2. Islamic
Commercial Bank which has the completeness of data
based on the variables studied. Based on the sample
selection criteria above the Islamic banks that meet
the criteria to be sampled are six Islamic commercial
banks, which are PT. Bank Muamalat Syariah, PT
Bank Mega Syariah, PT Bank Syariah Mandiri, PT.
Bank BRI Syariah, PT. Bank Central Asia Syariah
and PT. Bank BNI Syariah.
The analytical technique in this study use is paired
sample t-test since the purpose of this study is to
compare two means from two paired samples with an
assumption that the existing data is normally
distributed by normality test using one sample, in
Kolmogorov-Smirnov test with the level of 5%. If the
p-value is more than 5%, then the data is normally
distributed and vice versa. The test equipment used is
a nonparametric test by using Mann-Whitney test.
The next is t-test of two paired samples for data that
is normally distributed and Mann-Whitney test for
data that is not normally distributed.
In this study, the analysis technique used is the t-
test analysis technique of Paired Samples t-Test. This
Paired Samples t-Test is used to compare the
difference of two mean between the two paired
sample assuming the data are normally distributed
(Uyanto, 2009).
To test whether or not the data is normally
distributed or not, then normality test was conducted
by using the One-Sample Kolmogorov-Smirnov Test
with the significance level of 5%, then the data
distribution is not normal. If the data is not normally
distributed then the test equipment used is a different
test by using a non-parametric Wilcoxon Signed-
Rank Test.
After being conducted the normality test, then the
next process is carried out using the difference test by
using two-paired sample t-test for normal distribution
of data and Wilcoxon Signed-Rank Test for data that
is not normally distributed. The steps for difference
test using the two-paired sample t-test are as follows:
4 RESULTS AND DISCUSSION
The discussion in this study is about the comparison
of return and risk for profit sharing and sell and
purchase financing in Islamic banking in Indonesia.
ICIEBP 2017 - 1st International Conference on Islamic Economics, Business and Philanthropy
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This study used 6 sample of sharia banks which are
Bank Muamalat Indonesia, Bank Syariah Mandiri,
Bank Rakyat Indonesia Syariah, Bank Mega Syariah,
Bank Nasional Indonesia Syariah, and Bank Central
Asia Syariah. The data used in this study obtained
using documentation method that is in the form of
quarterly financial report of Islamic banks in the
period 2011- 2015. After that, the data was processed
using Mann Whitney Test then analyzed and
interpreted. So that finally the conclusion of
conducted study could be made.
4.1 Comparison of return rate of profit
sharing financing with sale and
purchase financing of Islamic
banking in Indonesia
Table 2: Result of hypothesis return test.
Results
Mann-Whitney U
256.000
Wilcoxon W
721.000
Z
-2.876
Asymp. Sig. (2-tailed)
.004
Table 2 shows us that the value of P-value of the
variable rate of return is 0.004, which is smaller than
the value of a (0.05) so it can be concluded that Ho is
rejected and Ha accepted. In other words that the rate
of return on profit sharing with sale and purchase
financing, there was a significant difference. This
significant difference occurred because of the
different characteristics of Islamic banking financing
and the level of income that will be received by the
bank. That is supported by the explanation of Rosly
and Zaini (2008) explaining that the Islamic banking
industry has several models of sharia financing that
aims to meet the needs of customers in financial
facilities.
Antonio (2011) explained that the financing
system for sale and purchase financing is much more
straightforward and more comfortable in handling
administration at Islamic bank compared to profit
sharing financing system. Muhammad (2014) added
the pre-determined price of the contract of sale and
purchase financing should not change during the time
of the agreement. The customer will bear all current
administrative costs and recognized as income by the
bank. No proposition in sharia is related to the
determination of the maximum limit of business
profit taking of sale and purchase financing so that the
bank can determine the maximum profit in the
financing. The profit sharing financing has a more
complicated system than the sale and purchase
financing.
According to Muhammad (2014) profit sharing
system used in Islamic banking in Indonesia is a
profit-sharing system based on revenue sharing
system. The revenue sharing system is a profit sharing
calculation system based on the total revenue
received before deducting the expenses incurred to
obtain the income. That is done so that the level of
profit sharing received by the fund owner more
significant than the prevailing market interest rates.
Nurafini (2014) warned Islamic bank to pay more
attention to the management and handling of profit
sharing financing due to the profit or rate of profit
sharing is determined by the result of the condition of
the business financed by the Islamic bank. Karim
(2010) added in this profit sharing financing, in the
event the profit from the business financed by large
banks, then both parties including banks will get a
significant portion. Otherwise, in the event the profit
of the business is small, then the portion earned by
both parties will also be small. Muhammad (2014)
added that in case of the business in this mudharabah
contract brings losses, then the distribution of the loss
is not based on the ratio, but based on the portion of
the capital of each party. Due to there is a difference
in the ability to bear losses between the two sides.
Currently, all Sharia banks in Indonesia rely on
sale and purchase financing as the primary financing.
That is very adverse since this sale and purchase
financing includes consumptive financing unlike
profit sharing financing, which is productive
financing. Islamic banks should be more active in
finding for profit sharing financing which can support
the income of Islamic bank. In table 1. Explains the
significance Level of return on profit sharing
financing is larger than the sale and purchase
financing and it is followed by the significance level
of the risk obtained that the risk of profit sharing
financing is more significant than the risk of sale and
purchase financing. Tandelilin (2010) added the
larger return of an asset also the larger the risk
obtained.
4.2 Comparison of Risk of Profit
Sharing Financing with Sale and
Purchase Financing of Islamic
banking in Indonesia.
Table 3: Results of risk hypothesis test.
Results
Mann-Whitney U
403.500
Wilcoxon W
868,500
Z
-.697
Asymp. Sig. (2-tailed)
.486
Comparison of Risk and Return on Trading and Profit Sharing Based Financing Contract in Indonesian Islamic Bank
133

Table 3 shown us the P-value of the variable rate
of return is 0.486 which is larger than (0.05), so it can
be concluded that Ho is accepted and Ha is rejected.
In other words that the risk of profit sharing financing
with sale and purchase financing have no significant
difference. The absence of any difference between the
risk of profit sharing financing with sales and
purchase financing significantly can be due to the risk
management owned by the bank. Muhammad (2011)
explained that in an investment or business must be
followed by risk so that the main problem is how
investment or business can minimize risk. Therefore,
we need a proper risk management in investment or
business. According to Sundarajan and Errico, (2002)
most significant difficulty faced by Islamic banking
is handling and overcoming the risks that exist
because of the level of complexity that continues to
grow due to some specific risks and losses gain which
exists on the financing concept in Islam.
5 CONCLUSION
The conclusion from this study are: there is a
significant difference between the rate of return from
the profit sharing financing with the sale and purchase
financing. Moreover, there is no significant
difference between the risks of profit sharing
financing and sale and purchase financing. The
implication of this study is becoming the reference for
practitioners of Islamic banks to decide the contract
optimization and for academicians to develop this
study furthermore.
ACKNOWLEGMENTS
Thanks to our research assistant, Dewi Nuraini
Rahmiasasi. Thank you helping finish this research.
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