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This study aimed to compare the financial performance of Islamic banking with conventional banking. Analysis showed that the average financial ratios of Islamic banking is significantly better compared with conventional banking, while at other ratio of Islamic banking is lower quality. But if you look at the overall Islamic shows better performances than conventional banking. Bank is one of the financial institution that have an important role in the economy of a country as a financial intermediary.
forth. The fundamental difference between them is concerning legal aspects, organizational structure, business-funded and the work environment (Shafi'I Antonio, 2001). Late in 1999, coinciding with the issuance of the banking law showed general Islamic banks and commercial banks are open syariah. Since the operation of the Bank Muamalat Indonesia (BMI), as the first Islamic bank in 1992, with an initial service offices with assets of about Rp100 Billion, then the data of Bank Indonesia as of May 30, 2007 indicates that the current national Islamic banking has grown rapidly, when the perpetrators consisted of 3 Syariah Commercial Banks (BUS), 23 Syariah Business Unit (SBU), and 106 Syariah Rural Banks (BPRS ), while the national Islamic banking assets under management as of May 2007 had amounted to USD. 29 trillion. This fundamental difference between conventional financial institutions with syariah is situated on the return and the sharing of the benefits provided by the customer to the institution financial and or provided by financial institutions to customers (Muhammad, 2005). The operations of Islamic banks use the principle of profit sharing (profit and loss sharing). Islamic banks do not use flowers as a means to earn income or charge interest for the use of funds and the loan because interest is forbidden usury. As one financial institution, the bank needs to maintain its performance in order to operate optimally. More over Syariah banks must compete with conventional banks are dominant and have been growing rapidly in Indonesia.
The significan differences between the financial performance of Islamic Banks and Bank conventional?
financial ratio.
2. To determine significant differences from each bank in financial performance.
The study of bank profitability is an important tool to evaluate bank operations and to determine management planning and strategic analysis. Banks contribute to economic growth. The fundamental sources of Islam Quran and the Sunnah of the Holy Prophet Muhammad SAW. Provide guidelines for economic behavior of how economic system should be organized. (Khan S. Mohsin & Mirakhor, Abbas 1992). Islam is not a new religion, it is the same truth that God revealed through all His prophets. All religions are the same in essence, whether given, for example, to Noah, Abraham, Moses, or Jesus, or to the holy Prophet of Islam. For a fifth of the worlds population, Islam is both a religion and a complete code of life. Economic growth is the main transmission channel for development. Islam does not contradict growth, it promotes sustainable development and growth. The ultimate objectives of an Islamic economic system are achieving development, based on socio-economic justice, care and compassion for all, in terms of complete human personality. Tools prescribed to achieve the socio-economic objectives of the Islamic economic system are the system of Zakat, prohibition of Riba and the Islamic Law of Inheritance. Prohibition of Riba is the cornerstone of Islamic financial transactions, the basis of
cooperation between capital and enterprise in Islam is sharing of the risks and gains between the two. (Hussain, Dr. Ishrat 2004). In Islam the practice of paying and receiving interest is prohibited between individuals and the state as much as between one individual to another. (Siddiqi, Muhammad Nejatullah 1983). Those interested in Islamic economics have been endeavouring to develop and crystallize economic concept and theories which confirm to the Islamic ideology and postulates. On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money. The functions and operating modes of conventional banks are based on fully manmade principles. Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. It can charge additional money (penalty and compounded interest) in case of defaulters. The conventional banks give greater emphasis on credit-worthiness of the clients.
2.1 Hypotheses
1. There was significant difference between the performance of Islamic bank with
3. There are significant differences between Islamic banking performance with conventional
banking as a whole.
profitability ratio), Operating Expenses divided by Operating Revenue (representing the ratio efficiency), and Loan to Deposit Ratio (representing the liquidity ratio). After that, to know the overall bank performance is done by summing all the previous ratio had been given weight a certain value.
a. Capital ratio, which is represented by the variable CAR (Capital Adequacy Ratio).
According to Bank Indonesia regulation of a commercial bank must have a minimum CAR of 8%.
b. The ratio of earning assets quality, represented by the NPL (non performing loans).
The best standard of NPLs by Bank Indonesia is when the NPL was under 5%.
c. Profitability ratios, represented by the variable ratio of ROA (Return on Assets) and
ROE (Return on Equity). The best standard ROA by Bank Indonesia is 1.5%. And ROE by Standard Bank Indonesia is 12%.
d. The ratio of cost / efficiency of banks, represented by the variable BOPO ratios.
Overall bank performance is known by summing all financial ratios, the ratio of CAR, NPLs, ROA, ROE, ROA, and LDR previously been given weight a certain value.
3.3
Analysis
Processing the data in this study was done by using statistical techniques such as two different test average (independent-sample t test). The purpose of hypothesis testing of two different test average in this study were to determine accept or reject the hypothesis that has been created.
t-test for equality of Mean df = 70, confidence interval = 95% T Sig. Mean 2-tailed Diff -0.506 0.615 -1.269 -2.121 0.035 -1.186 -9.427 0.000 -1.854 -9.873 0.000 -24.915 12.314 0.000 14.961 10.482 0.000 32.073 3.718 0.000 6.115
In the Table can be seen that Islamic Banking has the average (mean) "Performance" of 87.96%, higher than the mean "Performance" Conventional Bank of 81.84%. This means that during the period June 2001-March 2007 the overall performance of Islamic banking (CAR, NPLs, ROA, ROE, ROA, and LDR) is better compared with conventional banking. But in hypotheses analysis seen that the F test for the "Performance" with the Equal variance assumed (both assumed equal variance) was 1.91 with a probability of 0169. Therefore the probability> 0.05, then H is rejected or it can be stated that both variances equal 0. If both variances equal, it is to compare two populations by t-test should be the basis of the Equal variance assumed (assumed both variants of the same). After testing is complete equality variants, followed by subsequent analysis using t-test to determine whether the average "performance" of Islamic banking with the conventional banking are significantly different. Seen that t to "Performance" with the Equal variance assumed was 3718, with a probability of 0.000. Therefore, 0000 <0:05, then H0 is rejected or it can be said that overall performance of Islamic banking and conventional banking there are significant differences.
REFERENCES
1. http://www.zaharuddin.net/content/view/297/72/ 2. http://www.scribd.com/doc/12785337/Islamic-Banking
3. http://docs.google.com/viewer?a=v&q=cache:E-
Available at http://siddiqi.com/mns/Interest_Prohibition.html (accessed 11 September 2005), La Riba meeting, Los Angeles, USA.