The Impact of Ijarah/Lease Financing on Malaysian Islamic Bank Performance

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.

Do Financing Schemes Affect the Functions of Islamic Banks in Indonesia?

“…In this study, the Ijarah contract was proven to have a positive effect on the profitability of Full-Fledged Islamic banks. This result is in line with research conducted (M. S. Yusuf & Isa, 2021). Indeed, the place of research presented is different, that research was happened in Malaysia.…”

“…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 (M. S. Yusuf & Isa, 2021).…”

Pengaruh Shariah Compliance, Pendapatan Ijarah Dan Pembiayaan Bagi Hasil Terhadap Kinerja Bank Syariah Periode 2017 – 2020

“…Berdasarkan penelitian yang dilakukan oleh Alzoubi (2018), Yusuf & Isa (2021), dan Abubakar et al, (2020) menunjukkan hasil pendapatan ijarah berpengaruh positif terhadap kinerja bank syariah. Dengan berkaca pada penelitian terdahulu, hipotesis yang diajukan adalah sebagai berikut:…”