THE IMPACT OF IJARAH/LEASE FINANCING ON MALAYSIAN ISLAMIC BANK PERFORMANCE

  • Mohamud Said Yusuf Islamic Business School, Universiti Utara Malaysia
  • Mohamad Yazid Isa Research Fellow, Institute of Shariah Governance and Islamic Finance, Islamic Business School, Universiti Utara Malaysia

Abstract

Ijarah (lease contract) is one of the essential financing contracts offered by Islamic banking institutions to meet the demand of the clients. This study investigates the impact of Ijarah financing on Islamic bank performance in Malaysia for the period from 2004-2018 using Fixed and Random Effect Models. Ijarah financing (IJFA) which becomes the focus variable of this study with other six independent variables; operating efficiency (EXTA), bank size (LTA), total financing (TFTA), base rate (BR), consumer price index (CPI) and gross domestic product (GDP) were regressed against return on asset (ROA) and net profit margin (NPM). The results show that Ijarah financing has a positive and significant impact on NPM. The findings suggest that Islamic banks should increase their portfolio of Ijarah financing and this is also support the concentration strategy used by banks in improving Islamic bank performances. An increase in demand for Ijarah financing will increase Islamic banks performance and this reflects that Ijarah financing as an asset creation tool that banks prefer particularly for generating income.

Published
2021-06-24
How to Cite
YUSUF, Mohamud Said; ISA, Mohamad Yazid. THE IMPACT OF IJARAH/LEASE FINANCING ON MALAYSIAN ISLAMIC BANK PERFORMANCE. International Journal of Islamic Business, [S.l.], v. 6, n. 1, p. 49-58, june 2021. ISSN 0127-662X. Available at: <http://e-journal.uum.edu.my/index.php/ijib/article/view/14595>. Date accessed: 07 dec. 2021.
Section
Articles