E. Conclusion
5. CONCLUSION AND POLICY RECOMMENDATION 1. Conclusion
5.2. Recommendation
39 Table 4.8
Variance Decomposition of LNDIS and LNGDPR
According to variance decomposition function, the results show that (1) variance decomposition of LNDIS is attributable in a relatively huge proportion from LnGDPR, increasing from 7% in second period to 44% in 30 horizon period. Such increase indicates that the disbursement of zakat is really dependent on the growth of economy as a whole, even though zakat as a fiscal policy instrument is not yet prevailed in Malaysia economy system. In addition, the contribution of LnDIS towards economic growth seems to be recorded as a negligible portion, roughly 11% till 30 horizon period due to the small amount of zakat collected over a year compared to tax collection. However, yet zakat which can be considered as additional fiscal policy instrument could be powerful enough to underpin and fine tune the growth of Malaysia economy.
5. CONCLUSION AND POLICY RECOMMENDATION
40
d. Zakat does not create economic distortion in terms of equity accumulated and eventually does not also reduce government budget collection.
e. Lastly, zakat could be incorporated as one of the fiscal policy instrument to analyze the efficacy of fiscal policy to stabilize economic performance by non-discretionary policy integrated with the channel of transmission to the real sector.
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Al-Suhaibani, Muhammad Ibrahim. (1997). Effects of zakat on aggregate demand (Arabic). In Kahf, Monzer (ed.), Economics of zakat: book of reading. Jeddah: Islamic Research and Training Institute IDB.
Bakar, Nur Barizah Abu & Rahman, Abdul Rahim Abdul. (2007). A comparative study of zakah and modern taxation. J.KAU: Islamic Economics, 20(1), 25-40.
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Hassan, M. Kabir. (2007). Zakat, external debt and poverty reduction strategy in Bangladesh. Journal of Economic Cooperation, 28(4), 1-38.
Khan, M. Fahim. (1997). Macro consumption function in an Islamic framework. In Kahf, Monzer (ed.), Economics of zakat: book of reading. Jeddah: Islamic Research and Training Institute IDB.
Metwally, M.M. (1997). General equilibrium and aggregate economic policies in Islamic economy. In Kahf, Monzer (ed.), Economics of zakat: book of reading. Jeddah: Islamic Research and Training Institute IDB.
Nik Mustapha bin Hj. Nik Hassan. (1987). Zakat in Malaysia: present and future status. Journal of Islamic Economics, 1(1), 47-75.
Rashed, Jamal Abu & Abdelhafid, Belarbi. (1992). Zakat contributions and resource allocation: an optimal control approach. In Zaidi Sattar, Resource mobilization and investment in an Islamic economic framework. Herndon: The International Institute of Islamic Thought.
Sadeq, AbulHasan M. (1990). Economic development in Islam. Selangor: Public Publications.
Sadeq, AbulHasan M. (1996). Ethico-economic institution of zakat: an instrument of self-reliance and sustainable grassroot development. Humanomics, 12(2), 47-69.
Wiranata, Dimas et. al. (2009). The analysis of zakat distribution and its impact towards the aggregate consumption and the structural poverty alleviation in Indonesia. Paper presented at The International Conference on Islamic Economics and Economies of the OIC Countries, Kuala Lumpur, 28-29 April.
Wiranata, Dimas, et, al. (2011). Understanding and analyzing the role of zakat in poverty alleviation.
Paper presented at 8th International Conference on Tawhidi Methodology Applied to Islamic Microenterprise Development to Alleviate Poverty and Achieve Social Wellbeing, Jakarta, Indonesia.
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Yusoff, Mohammed B. (2006). Fiscal policy in an Islamic economy and the role of zakat. IIUM Journal of Economics and Management, 14(2), 117-145.
Yusoff, Mohammed B. (2009). An analysis of zakat expenditure and real output: theory and empirical evidence. Paper presented at The International Conference on Islamic Economics and Economies of the OIC Countries, Kuala Lumpur, 28-29 April.
Yusoff, Mohammed B. (2011). Zakat expenditure, school enrollment, and economic growth in Malaysia. International Journal of Business and Social Science, 2 (6), pp 175-181.
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DISCLOSURE OF ISLAMIC CORPORATE SOCIAL RESPONSIBILITY AND FINANCIAL PERFORMANCE ON ISLAMIC BANKING IN INDONESIA
YASMIN UMAR ASSEGAF FALIKHATUN SALAMAH WAHYUNI
ABSTRACT
This study aims to provide empirical evidence about the influence of Islamic Corporate Social Responsibility Disclosures of the financial performance of Islamic banking with the characteristics of the company, as a control variable in Islamic banking in Indonesia. ICSR disclosures is an independent variable, while the Financial Performance is the dependent variable (proxied by Return on Assets (ROA), Return on Equity (ROE), Income Expense Ratio (IER), and Non-net Interest Margin (NIM)) . The control variables used are firm size, firm age and the type of audit.
The population of the study was all Islamic Banks (BUS) operate in Indonesia. The research sample is Islamic Commercial Bank which has existed in Indonesia since 2002 and publishes financial statements between the years of 2007-2011. The sample of the study were include 31 Annual Report published.
The results of this study concluded that there are significant influences between the ICSR Disclosures and financial performance. The disclosure is partially affect on ROA, IER and NIM, whereas there is no influence on ROE. Further result shows that all control variables (Firm Size, Age and Type of Audit Companies) does not have any influence on ICSR Disclosures in Indonesia.
This research gives a suggestion for furthur research to compare this the ICSR Disclosures in Indonesia with ICSR Disclosures in other countries that have Islamic banking, by using other measure variables of financial performance, to get more comprehensive model and real picture.
Key words:, ROA, ROE, IER, NIM, Company Size, Age of the Company, Audit Type, Islamic Banking.
INTRODUCTION
Corporate Social Responsibility (CSR) defined by the World Business Council for Sustainable Development (WBSD) is a sustainable business commitment to contribute to the economic development and also to improve the quality of life of labor and their families as well as the community and the social at large. Elkington (1997) in Solihin (2009:30) has the concept of Triple Bottom Lines which states that CSR is an impact that comes from a company, which consist of social, economic and environment to improve sustainability of the company.
Dusuki (2005) states that there are some things that drive CSR trends, namely: 1) the growing market pressure by customers, employees or capital markets. 2) an increase in pressure of reporting rules issued by the government that company must comply; 3) the growing power of information that was driven by consumers and social media pressure, non-governmental organizations (NGO) and trade unions that may affect the company to conduct social based activities, and 4) the benefits that can be obtained in implementing CSR.
CSR disclosure practices has been widely applied by public companies in Indonesia, although it is common practice of CSR is mostly done by the mining and manufacturing companies. However, in line with the global trend of CSR practices, the banking industry have also mentioned aspects of social responsibility in their annual report, although in relatively simple form. Such disclosure is not only done by conventional banks but also carried out by the Islamic banking (Assegaf, 2012: 1-2).
Indonesian constitutions no. 21, 2008 on Islamic Banking, shows that Islamic banking can run the social functions in the form of baitul maal institution, receive funds from zakah, infaq, charity, donation or other social funds to be distributed to the zakah organizations. CSR practices in Islamic banking institutions (according to Ahmad, 2002 in Assegaf, 2012), are institutions that run their business based on sharia is essentially based on the fundamental philosophy of the Qur'an and Sunnah, so it builds the basis for the practitioners to interact with the environment and the people around them.
Syariah Banking become a pioneer of financial institutions in carrying out CSR programs based on Islamic values. Yusuf (2011) stated that CSR implemented in Islamic banking is not just to meet
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legal order or to build good corporate governance, but also to create a strong based foundation and philosophy of Islam that can bring prosperity for the people. Thus the application of CSR in Islamic banking is a form of accountability to God, humans and the environment.
There are several studies related to CSR implementation on Islamic banks, among others, Farouk and Lanis (2005) investigated the implemen tation of CSR in annual reports of Islamic banks and assessing the important factors that may exist. Furthermore Dusuki and Dar (2005) assess perceptions towards CSR stakeholders of Islamic banks in Malaysia. Sairally (2005) identify social responsibility of Islamic banks included objectives, practices and commitment to the bank, that allow members to contribute to human welfare. Maali, et al (2006) set the standard for transparency of CSR reports for Islamic banks that includes responsibility, fairness and ownership. Furthermore Farouk, Sayd (2007) examine the principles of CSR to be used as a framework for CSR implementation in Islamic financial institutions.
Furthermore Otman, Rohana., Azlam M. Thani, and Erlane K. Ghani (2009) examined the characteristics of Islamic banking on the disclosure of Islamic social responsibility (ISR). The results found and concluded that company size, profitability, and composition of the board of commissioners affect the Islamic social responsibility disclosure in Malaysia. El Mosaid and Bautti (2012) conducted a study on the relationship between corporate social responsibility and financial performance of Islamic banks in Malaysia, the results showed that there was no significant relationship between corporate social responsibility with financial performance. The results of the study of Islam (2012) suggests that corporate social responsibility has a positive relationship with Size, ROE, and Asset Quality, but also has a negative relationship with CAR. Based on the researches finding before, the problems formulation in this study can be stated as follow: (1) whether the Islamic corporate social responsibility affect the performance of the company on Islamic banking in Indonesia? and (2) whether the characteristics of the company is the control variable in the examination of the influence of Islamic social accountability on financial performance of Islamic banking in Indonesia?.
LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
Conventional concept of CSR developed in the West is different from the CSR concept in Islam.
The first difference is the flourish values and culture. The second difference is the principles of culture and values. Islamic principles of CSR are based on the philosophy of the company according to the Qur'an and Sunnah.
The Qur'an also considered that the environmental sustainability is a part of social responsibility, so that every business entity has to ensure environmental sustainability as their responsible (Yusuf, 2011). Allah says in the Qur'an Surat al-A'raf verse 56. Shihab (2002, Vol 5, p 118) interprets that this verse prohibits the destruction of the earth. Destruction is a form of lending limits. Universe was created by Almighty Allah in a very harmonious, harmony, and fulfill the needs of all human beings.
God has made it best and ordered people to maintain it too. Ruin after being repaired is much worse than ruin it before repaired. Therefore, this verse clearly underlines the ban, although of course destroy the good also deplorable.
Furthermore the company's CSR is not just a concern for human being, but more than that, CSR is one of human obligation to obey the law and command of Allah to people to ensure the survival of human and the natural surrounding (Yusuf, 2011). Baydoun and Willet (2000) and Haniffa (2002) states that the disclosure of information related to social activity is a voluntary disclosure (Voluntary Disclosure). Disclosure as it relies heavily on management's decision to enter or not additional information in the financial statements (Zhou and Panbuyuen, 2008). Disclosure on social responsibility is part of voluntary disclosure in the Islamic banking.
El Mosaid and Bautti (2012) conducted a study on the relationship between corporate social responsibility and financial performance of Islamic banks in Malaysia. Financial performance measured by ROA and ROE. CSR disclosure is divided into nine categories (dimensions), namely:
mission and vision, the board of directors and top management, products, alms, charity and benevolent loans (qardul hasan), employees loan, borrowers, community, environment, Shariah Supervisory Board (SSB). The sample is based on the annual report of 8 Islamic banks in Malaysia during 2009 and 2010. The results showed that there was no significant relationship between corporate social responsibility with ROA and ROE.
Furthermore, Islam (2012) conducted a study on the relationship between financial performance and corporate social responsibility of Islamic Bank in Bangladesh. Size is measured by financial performance, ROE, Asset Quality and CAR. 47 banks in Bangladesh are taken as research sample
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during the years 2007-2010. The results showed that corporate social responsibility has a positive relationship with Size, ROE, and Asset Quality and has a negative relationship with the CAR. Based on the above research findings, the main hypothesis proposed in this study are:
H1: Disclosure of Islamic social responsibility has a positive effect on financial performance.
H2: The characteristics of the company is the control variable in the influence of Islamic corporate social responsibility disclosure on financial performance
The conceptual framework of this research are:
Figure 1. Conceptual Framework RESEARCH METHODS
Population, Sample, and Data
The population of this study is all Islamic Banks (BUS) in Indonesia, and the sample are Islamic Banks as Foreign Exchange Bank which has existed in Indonesia since 2002 and publishes financial statements between the years 2007-2011.
Further data needed here are: (1) data of the Islamic corporate social responsibility disclosure which are disclosures that related with identification of social responsibility on Islamic banks, included the objectives, practices and commitments that banks contribute to human well-being, and (2) Achievement data of financial performance from investment used in the operation of Islamic banks.
These data were obtained from financial statements published and collected from the Internet at http://www.banksyariah.co.id.
Operational Definition and Measurement of Variables
The variables of study include independent variables that Islamic corporate social responsibility disclosure in Islamic banks, while the dependent variable is financial performance of the bank.
Islamic corporate Social responsibility disclosure variables measured by the index of ISR (Islamic Social Reporting), which consists of four focus disclosure, namely Finance and Investment (6 items), Products and Services (4 items), social (11 items) and Disclosure of Corporate Governance (5 items).
Total disclosure used is 26 items. The disclosure refers to research of Othman et. al. (2009). ISR scores measured by using dichotomous scale so that independent variable regression model is expressed by a dummy variable, that is, each item in the ISR research instrument was given a value of 1 if disclosed and the value of 0 if it is not disclosed. Then, the scores of each item are summed to obtain the overall score for each bank.
Referring to the research of Arshad et. al. (2012), the formula for disclosure is determined as follows:
j :Σ Xij nj Note:
j = ISR Index company j
Xij = dummy variable, with score 1 if item i was disclose
Financial Performance (ROA, ROE, IER, NIM) Islamic Corporate Social
Responsibility Disclosure
Company‘s Characteristics (Company‘s Size, Company‘s
Age, Audit Types)
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with score 0 if item i was not disclose nj = the sum of item for j company, nj ≤ 26
The dependent variable (financial performance) consists of Return on Assets (ROA) that is income before taxes divided by average assets in the same period. Return on Equity (ROE) that is income before taxes divided by average capital in the same period, Income Expense Ratio (IER) that is operating income divided by operating costs, and Non net Interest Margin (NIM) that is Net Non- interest revenue divided by average productive earning assets. This ratio refers to research of Samad and Hassan (1999).
Hypothesis testing used is multiple linear regression analysis, and the regression equation as follow:
ROA= β0 + β1 ISRDI + εi
ROE = β0 + β1 ISRDI + εi IER= β0 + β1 ISRDI+ εi
NIM = β0 + β1 ISRDI + εi Notes:
ISRD = Islamic Social Responsibility Disclosure ROA = Return on Equity
ROE = Return on Equity IER = Income Expense Ratio NIM = Nonnet Interest Margin β0 = intercept,
β1 = regresion coeficient ε = error
RESULTS AND DISCUSSION
Data was collected on 11 Islamic banks for the period 2007-2011 with a total sample of 31 financial statements. The following descriptive of data statistics is:
Table 1 Descriptive Statistics
Explanation N Lowest Highest Average Deviasi std
31 0.09 0.64 0.3326 0.16176
ROA 31 -2.53 6.93 1.5406 1.62988
ROE 31 -4.71 64.84 18.3432 20.05434
IER 31 10.43 195.14 29.2790 36.34339
NIM 31 16.93 289.20 93.8571 43.25614
Hypothesis testing is performed by multiple linear regression and shows the following results in the following table:
Table 2
Regression Model Analysis of the results of the Financial Performance Islamic Banking in Indonesia
Coefficient B t Signicancy
Konstanta 0,115 0,504 0,617
0,058 2,076 0,043
ROA 0,069 3,624 0,001
ROE -0,007 -0,159 0,876
IER 0,086 1,852 0,077
NIM 0,072 0,871 0,004
Model Adjusted R2 F Signifikansi
0,367 4,386 0,005
Source: Processed Data, 2014
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Table 2 above shows the adjusted R ² of 0.367, means that this model can explain the variables in this study was 36.7%, while the rest, 63.3% of the model is explained by other variables outside the model. Results of ANOVA or F test obtained calculated F value of 4.386 with a probability of 0.005.
It means that the regression model can be used to predict the effect on the financial performance of Islamic banking in Indonesia.
1a hypothesis testing aimed to examine the effect of ICSR disclosures on financial performance proxied by ROA, showed the results which indicate regression coefficient of 0.069 with p-value of 0.001. The test gives a positive significant result, which mean that ICSR disclosures has the significant positive influence on ROA in Islamic banking in Indonesia. This result is in contrast with the results of Mosaid and Rachid (2012) which states that there is no influence of CSR on ROA. This is possible because of ―difference results for different research objects‖. Mosaid and Rachid (2012) object is the conventional banking whereas the object of this research is Islamic banking.
1b hypothesis aimed to examine the effect of ICSR disclosure on ROE at Indonesian Islamic banking. Regression coefficients showed the number of -0.007 with p-value of 0.876. It means that ICSR disclosures has no effect on ROE of Islamic banking in Indonesia. This result is in line with Titisari, et al. (2010) who stated that CSR issue is a relatively new thing in Islamic banking, and that most investors still have a low perception of the matter. More over, the quality of CSR disclosure is not easy to measure and companies do CSR disclosure only as part of the advertising, so they just avoid to provide relevant information. However, the results of this study contrasts with the results of Islam (2012) that there is no influence between ICSR disclosures and ROE.
1c hypothesis aims to test the influence of ISCR disclosures on IER on Islamic banking in Indonesia. The results showed that regression coefficient is 0.086 with p-value of 0.077. Test yielded significant results at the level of 10 %, so it can be stated that ICSR disclosures had no effect on IER on Indonesian Islamic banking at the level of 5%. This results are consistent with Titisari, et al.
(2010). The results also indicate lower quality of human resources in Islamic banking, so they have not been able to create relevant and possible information will be used by stakehorder as decision-making input.
1d hypothesis aims to examine the effect on ICSR disclosures on NIM at Indonesian Islamic banking. Hypothesis testing showed regression coefficient of 0.072 with p-value of 0, 004. The results showed that ICSR disclosures has positive significant effect on NIM. Islamic Corporate Social Responsibility disclosures can be used to predict the direction of NIM, and positive coefficient, meaning that if the ICSR disclosures increase, so the NIM will go up or in other words, financial performance will increase. These results indicate that information related with the vision and mission indicate that Islamic banking is an interest-free banking.
To avoid possible biases, this study uses the control variables that alleged influence on financial performance. Control variables used include firm size, firm age, and the type of auditor. The second hypothesis result using the control variables can be shown in the following table.
Table 3
Result of Regression Analysis Model of Financial Performance on Indonesian Islamic Banking with Variable Control
Koefisien B t Signifikansi
Konstanta 13,187 1,675 0,101
0,479 2,953 0,073
Kinerja Keuangan 0,435 2,498 0,016
Ukuran perusahaan (LNTA) 0,179 0,950 0,346
Umur perusahaan 0,035 0,161 0,873
Audit type 0,550 1,345 0,186
Model Adjusted R2 F Signifikansi
0,116 2,079 0,046
Source: Processed Data, 2014
The first control variable is the firm size (LNTA) with t value of 0.950 and has a significance value of 0.346. Meaning that the company size is not a variable control for the relationship between ICSR disclosures and company's financial performance. This result is in contrast to previous study,