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IJIF
14,2 Objectives and measures of
performance of Islamic
microfinance banks in Indonesia:
124 the stakeholders’ perspectives
Received 6 November 2020 Taufik Akbar
Revised 16 December 2020
16 June 2021 Graduate School of Business, Universiti Sains Malaysia, Penang, Malaysia and
2 September 2021 Fakultas Ekonomi dan Bisnis, Universitas Mercu Buana,
27 October 2021
Accepted 1 November 2021 Jakarta Barat, Indonesia, and
A.K. Siti-Nabiha
Graduate School of Business, Universiti Sains Malaysia, Penang, Malaysia

Abstract
Purpose – This study investigates both internal and external stakeholders’ views on the objectives and
measures of performance of Indonesian Islamic microfinance banks (IMFBs).
Design/methodology/approach – This study uses a qualitative approach. In-depth interviews were
conducted with a wide range of internal and external stakeholders of IMFBs in Indonesia. The primary
stakeholders interviewed comprised the board of directors of IMFBs located in several provinces in Indonesia,
including rural and urban areas. The external stakeholders were the regulators/supervisors, represented by the
Indonesian Financial Services Authority and Shar
ıʿah advisors of the National Shar
ıʿah Board as well as
Muslim scholars. The data were analysed using CAQDAS, a computer-assisted tool for qualitative analysis.
Findings – The objectives of the IMFBs are seen to represent more than profits or economic well-being. Their
objectives also comprise spirituality and daʿwah (Islamic propagation). Daʿwah is conducted through the
provision of funding and services that are aligned with Shar
ıʿah (Islamic law), the dissemination of information
about Islamic financing, which is based on Islamic values and principles, and the payment of zakat (Islamic alms)
and charitable contributions. The measures of performance are considered to be more holistic than those of
conventional banks. Profit and growth are deemed important as the means to achieve social well-being objectives.
Research limitations/implications – Better insights into the objectives and measures of IMFBs could be
achieved from interviews with other stakeholder categories, such as customers and the community. This could
be the focus of future research.
Originality/value – This study added a new discussion to the limited empirical literature on IMFBs by
investigating the views of stakeholders on the objectives and performance of IMFBs in Indonesia.
Keywords Indonesia, Islamic microfinance banks (IMFBs), Islamic microfinance institutions (IMFIs),
Islamic social finance, Performance
Paper type Research paper

Introduction
Islamic microfinance represents the intersection of two growing industries: microfinance and
Islamic finance (Abdelkader and Salem, 2013; El-Zoghbi and Tarazi, 2013). Microfinance

© Taufik Akbar and A.K. Siti-Nabiha. Published in ISRA International Journal of Islamic Finance.
Published by Emerald Publishing Limited. This article is published under the Creative Commons
Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works
of this article (for both commercial and non-commercial purposes), subject to full attribution to the
ISRA International Journal of
Islamic Finance original publication and authors. The full terms of this licence may be seen at http://creativecommons.
Vol. 14 No. 2, 2022 org/licences/by/4.0/legalcode
pp. 124-140
Emerald Publishing Limited The authors would like to express their gratitude to the Ministry of Higher Education Malaysia for
e-ISSN: 2289-4365 the funding of this research under the Fundamental Research Grant Scheme (Project Code: FRGS/1/
p-ISSN: 0128-1976
DOI 10.1108/IJIF-11-2020-0231 2018/SS01/USM/01/1).
facilitates access to financial services for the poor and the financially excluded, while Islamic Objectives and
financial activities and processes are aligned with Islamic principles of socio-economic measures of
justice. Islamic microfinance seeks to improve the well-being of the community by providing
Shar
ıʿah-compliant financing, especially to the poor, the financially marginalised and micro,
performance of
small and medium enterprises (MSMEs) (Al-Omar and Abdel-Haq, 1996; Siddiqui, 2001; IMFBs
Haron and Hisham, 2003; Hassan and Musa, 2003; Dusuki, 2008). The ultimate aim of Islamic
microfinance is to achieve the maq
asid al-Shar
ıʿah (the higher objectives of Islamic law),
notably that of serving the interests of_ all human beings in this world and the hereafter, and 125
enabling a just, honest and balanced society (Dusuki and Bouheraoua, 2011). Following this,
the key purpose of Islamic microfinance institutions (IMFIs) is not only to avoid rib
a (interest)
but also to achieve social justice and welfare (Siddiqi, 2006; Ayub, 2007; Iqbal and Mirakhor,
2017; Tisdell and Ahmad, 2018).
The role and existence of IMFIs is crucial in view of the lack of engagement of Islamic
commercial banks in microfinancing and in progressing towards socio-economic justice as
propagated in Islam. Alternative financial institutions such as Islamic microfinance banks
(IMFBs), known locally as Bank Pembiayaan Rakyat Shariah (BPRS) (Bank Indonesia
Regulation No. 10 of 1998), were established in Indonesia to cater for the segment of the
society that was not served by Islamic commercial banks (Bank Indonesia, 1998; Sakai, 2014).
This arose due to concerns among Indonesian Muslim economists that Islamic banks were
not upholding their role in establishing socio-economic justice; thus, the need to set up
financial institutions that provide financing to financially excluded groups so as to reduce
inequality in the society (Sakai, 2014). BPRS were established for such purposes in Indonesia.
They represent a formal microfinance institution which operates based on Shar
ıʿah principles
and provides credit to poor, low-income groups and MSMEs in rural and urban areas (Bank
Indonesia, 2008; Nugroho et al., 2018; Akbar and Siti-Nabiha, 2019).
IMFIs, however, face a similar predicament to that of Islamic banking in terms of
performance assessment. Their performance is still being assessed based on conventional
approaches, with the holistic objectives of Shar
ıʿah largely not considered (Alam et al., 2015;
Hartono and Sobari, 2017). Despite the objectives of microfinance being financial inclusion
and the alleviation of poverty, IMFIs’ performance measures have been mainly commercial in
nature, due to the focus on financial sustainability, which raised the concern that this could
lead to mission drift (Mader and Sabrow, 2019). Therefore, a more suitable and holistic
assessment of performance of IMFIs that is in accordance with their objectives and goals is
necessary to ensure the development of the Islamic microfinance banking industry and to
protect it from moving away from its mission (Kheder et al., 2013; Alam et al., 2015). Suitable
measures are required to assess IMFIs in the context of circumstances, as these measures
constitute part of the means (was
aʾil) to ensure the achievement of the objectives of Shar
ıʿah,
as noted by Laldin and Furqani (2013, p. 283):
While principles and objectives (maq
asid) are fixed, established and permanent, means (was
aʾil) are
_
subject to change as they must be tailored to effectively realize those fixed goals in the context of
ever-changing circumstances.
However, there is limited insight into suitable measures of the performance of IMFIs, both in
the empirical literature and in practice. Therefore, this research aims to investigate IMFBs’
objectives and goals from the stakeholders’ perspective and examine the measures used to
assess their performance. To this end, interviews were conducted with IMFBs’ primary and
secondary stakeholders – consisting of the management (i.e. board of directors (BOD)) of
BPRS in both rural and urban areas in several regions in Indonesia, Muslim scholars and
members of regulatory and supervisory bodies [the Financial Services Authority (OJK) and
the National Shar
ıʿah Board (DSN)]. This study will contribute to the development of
literature in this area, given that the measures used in empirical research to assess IMFIs’
IJIF performance are largely based on those used by conventional banks. Hence, it is imperative to
14,2 determine a holistic and relevant assessment of IMFBs.
This paper is structured as follows. The next section provides the literature review, with a
discussion of the fundamental nature of Islamic economics and finance and the performance
of Islamic microfinance. The research method employed in this study is presented in the
following section. The ensuing section then provides the findings and discussion of this
paper, followed by a conclusion in the last section.
126

Literature review
As the purpose of this research is to understand stakeholders’ views of the objectives and
performance of IMFBs, it is imperative to first discuss the foundations and objectives of
Islamic economics and finance as conceptualised in the literature. Consequently, the
measures of performance of Islamic microfinance used by researchers in the empirical
literature are discussed in the following section.

Objectives of Islamic economics and finance

Within the Islamic economics worldview, maximising profits within a Muslim community or
a business organisation is not the ultimate objective, as the essence of Islamic finance is the
embedding of ethics and morality to ensure justice, fairness and trust in financial
transactions (Vejzagic and Smolo, 2011; Choudhury, 2016; Iqbal and Mirakhor, 2017;
Kuanova et al., 2021). Obtaining profits must be in line with ensuring fairness at all levels of
muʿ
amal
at (social interaction) (Vejzagic and Smolo, 2011; Laldin and Furqani, 2013).
Although individual self-interest is a part of human nature, it should not be a fundamental
motive for human behaviour. As all beings have interests or rights, the focus is on huq
uq
(rights and obligations) rather than on maximising individual self-interest (Chapra, 2000;
Furqani, 2015). Rights and obligations explain the relationship between humans and nature,
and provide the ethical foundation for an Islamic framework. The huq
uq concept upholds
human identity with the capacity and tendency to fulfil personal interests, while at the same
time having the inclination and ability to pursue the interests of society, including the welfare
of others (Chapra, 2000; Furqani, 2015). The interests of individuals, characterised by high
moral standards and a strong spiritual foundation, are not primary or absolute, but limited by
the interests of others (Furqani, 2015). The rights and obligations entailed in the huq
uq
concept have become the basis of Islamic economic affairs in the allocation of resources, as
well as in choices and decisions at the micro and macro levels.
Economic agents in an Islamic framework “will seek maslahah (well-being) instead of
_ lah
seeking utility in the conventional sense” (Khan, 2002, p. 63). Mas _ ah constitutes benefits to
society, educating individuals and upholding justice (Mohamed_ and _ Dzuljastri, 2008). Thus,
only good and beneficial ends regarding individuals, the community and nature are
acceptable or permissible; while those that are immoral, exploitative or unethical are
unacceptable. Consequently, every individual, group or institution in the society must work
in a cohesive manner to obtain ultimate fal
ah (happiness/success), namely the balance of life
between worldly goals (material/financial and _ social) and the hereafter (spiritual) (Kamali,
2008; Wediawati et al., 2018).
In following this, the foundation and objectives of Islamic finance, including Islamic
microfinance, are based on the well-being prescribed by the maq
asid al-Shar
ıʿah (Vejzagic
and Smolo, 2011). The maq
asid al-Shar
ıʿah encompass all the standards,_ values and guidance
_ y) and integrated into every aspect of life for the achievement
based in divine revelation (wah
of success in this world and the_ hereafter (Kamali, 1998; Ibn Ashur, 2006; Laldin and Furqani,
2013). This means that for Islamic financial institutions, adherence to the maq
asid al-Shar
ıʿah
_
should represent more than mere compliance with legalistic requirements in their financial Objectives and
activities. It should also infuse in them a commitment to Islamic values and drive their efforts measures of
to achieve well-being of individuals and the wider society (Laldin and Furqani, 2013).
At the macro level, the IMFIs’ objective of socio-economic justice is achieved through
performance of
wealth circulation, efficient resource utilisation and poverty alleviation (Laldin and Furqani, IMFBs
2013). Therefore, IMFBs’ objectives should contribute to the improvement of the economic
welfare of the ummah (community), especially for communities in weak economic groups,
increase employment by providing financing to MSMEs and foster the spirit of ukhuwah 127
(brotherhood) through economic activities, which increase per capita income and promote
adequate quality of life (Haron, 1995; Al-Omar and Abdel-Haq, 1996; Siddiqui, 2001; Haron
and Hisham, 2003; Hassan and Musa, 2003; Dusuki, 2008; Ssemambo et al., 2021).
As noted by Hassan et al. (2021), the main focus of Islamic social finance is to alleviate
poverty and contribute to societal well-being. In this regard, IMFBs contribute to the society
through the provision of services to improve societal welfare (Saoqi, 2017). At the micro/
individual level, fulfilling maq
asid al-Shar
ıʿah requires IMFIs’ financial activities to be
governed by principles of justice, _ honouring equal rights and mutual consent, avoiding
exploitation and unfair dealings, and promoting fair business transactions (Vejzagic and
Smolo, 2011; Laldin and Furqani, 2013). In addition, they should consider the maq
asid in their
_ 2013).
internal processes, such as in setting their objectives and policies (Laldin and Furqani,

Empirical research on the objectives and performance of Islamic microfinance

Daʿwah and well-being. Financial transactions are governed by the Shar
ıʿah and are argued to
be part of daʿwah (Islamic propagation), which can be used to spread the messages of
Almighty Allah (Gait and Worthington, 2007; Bustamam-Ahmad, 2008). Daʿwah, in a broader
context, signifies social welfare and missionary activities and is also used to enhance
knowledge about Islamic teachings, which will in turn induce ethical behaviour in the
workplace and the society (Bustamam-Ahmad, 2008; Latief, 2012). Daʿwah activities, besides
contributing to Islamic revival in several parts of the world, have also led to the development
of many economic activities (Timothy and Iverson, 2006). Charity and social welfare activism
can also be considered to be part of daʿwah, providing the necessary tools to implement the
five pillars of Islam (Latief, 2012; Don and Aini, 2021). Thus, daʿwah and charity activism can
also be viewed as ways to strengthen social cohesion as well as religious commitment.
However, empirical research regarding daʿwah as being an objective of Islamic finance, either
generally or specifically for Islamic microfinancing, is limited. One key piece of empirical
research is by Sakai (2014) who interviewed founders and managers of IMFIs and highlighted
that the respondents viewed their organisations’ business activities as an important part of
Islamic propagation by deeds (daʿwah bi al-h
al).
_ regarding the social and ethical principles of
Despite the views of the majority of scholars
Islamic microfinance, only a limited number of researchers sought to align the assessment of
performance with the objectives of Shar
ıʿah. Measuring these social and ethical aspects might
be problematic as they are not easily quantified (Kuanova et al., 2021). This is illustrated from
the study of Alam et al. (2015), which applied some of the elements of Al-Ghaz
al
ı’s view of the
maq
asid al-Shar
ıʿah, i.e. protection of the dar
uriy
at (essentials) in their performance
_
assessment of Islamic microfinance. Dar
uriy
at _refers to the essential needs of human beings,
_
which serve as the basis for the achievement of prosperity (maslahah) in this world and the
hereafter – the goal of Shar
ıʿah, which is intended to promote_ these _ components (Kamali,
2002; Auda, 2011). However, assessment measures based on the empirical nature of d ar
uriyah
are simplistic in nature. To date, the literature has not explored what constitutes the _ level of
performance and objectives of IMFIs from the perspectives of their key internal and external
stakeholders.
IJIF Financial and social measures of performance. Despite the different foundations that
14,2 underpin Islamic economics and finance, the performance measures of IMFIs which have
been used in empirical literature are, in general, similar to those used for conventional
institutions. They are mainly related to commercial performance, aiming to ensure the
sustainability of the institution by determining how to generate the maximum profit. Profit is
a target that must be achieved to maintain operations and for IMFIs and conventional
microfinance institutions to grow and develop (Tamanni and Haji Besar, 2019). The use of
128 financial measures would not have a significant impact on the IMFI if social values are
strongly embedded in the organisation, as shown by Siti-Nabiha and Siti-Nazariah (2021) in
their study of an NGO-based IMFI.
Most of the measures of financial performance used in previous empirical literature on
IMFIs are return on assets (ROA) and operational self-sufficiency, while the depth of outreach
is used to measure social performance. For example, Fithria et al. (2021) assess IMFBs’
performance in Indonesia based on the measures of profitability (ROA), operational efficiency
and financing risk. The main social performance measures used in many empirical studies
are average loan size (relative to the income of the target population), number of borrowers,
number of loans and savings accounts, number of branches established and lending (not only
to women, but also to the family as a whole) (Abdelkader and Salem, 2013; Kamaluddin and
Kasim, 2013; Mahmood et al., 2014; Farooq and Khan, 2014; Mobin et al., 2015; Widiarto and
Emrouznejad, 2015; Fersi and Boujelbene, 2016; Ibrahim et al., 2016; Hassan and Saleem, 2017;
Berguiga et al., 2020). In addition, other social performance measures used by researchers
include IMFIs’ impact on poverty alleviation, increase in quality of life, family harmony,
social and physical capital, religiosity, ethical and social well-being and empowerment of
women (Adnan and Ajija, 2015; Abdullah et al., 2017; Ahmad et al., 2017; Islam, 2021).
The conventional or commercial focus is dominant in research conducted on IMFIs. By
comparison, research that includes Shar
ıʿah principles in assessing IMFIs’ performance is
quite limited.

Methodology
To determine the stakeholders’ views of the objectives and performance of BPRS, qualitative
methodology has been used in this research. Qualitative methodology enables a more
in-depth inquiry as compared to the quantitative approach. The qualitative interviewing
method has been selected as it enables researchers to understand what respondents think
about the issues investigated and allows for their views and opinions to be explored in detail
(Frankel, 2000). The respondents selected by the researchers were stakeholders of BPRS.
According to Freeman (1984, p. 46), a stakeholder is “any group or individual who can affect
or is affected by the achievement of an organisation[’s] purpose”. Stakeholders can be
categorised as primary stakeholders (who are engaged in direct economic transactions and
are thus affected by the focal organisation) or secondary stakeholders (who are not engaged
in direct economic transactions but still affect or are affected by the focal organisation).
In BPRS, the primary stakeholder is the BOD. The board is also referred to as an internal
stakeholder. The BOD is selected as the members determine the strategic direction of the
organisation’s goals, establish operational policies and, most importantly, are responsible for
ensuring that the BPRS survives, develops and achieves good organisational performance.
Secondary stakeholders can be grouped into:
(1) Regulatory stakeholders – who are tasked with overseeing matters relating to the
regulation/supervision of BPRS, as represented by the OJK;
(2) Shar
ıʿah advisors/experts, as represented by the DSN; and
(3) Muslim scholars, including ulema, academic scholars and experts in Islamic finance.
The representative from the regulator side who was selected for the interviews has Objectives and
significant experience and knowledge of BPRS as he has worked for over 20 years in the measures of
regulatory body. The selection criteria for the Muslim scholars were as follows:
performance of
(1) Having a solid background in Islamic knowledge, specifically in Islamic banking and IMFBs
finance;
(2) Having conducted extensive research in the field of Islamic banking and finance; and
129
(3) Having wide experience in the practices of the Islamic banking and finance industry,
being conversant with the issues facing the industry, and being aware of the policies
and regulations issued to support and develop Islamic banking and finance in
Indonesia.
Such selection criteria were applied to ensure that those interviewed could provide detailed
insights into the pertinent issues faced by BPRS.
Interviews with the BODs of BPRS were conducted in several provinces, comprising both
rural and urban areas in Indonesia, including:
(1) Medan and Bengkulu Provinces, which are located on the island of Sumatra;
(2) Makassar Province, which is located on the island of Sulawesi; and
(3) West Java Province and DKI Jakarta Province, which are located on the island of Java.
The reason for the researchers selecting different provinces is that the BPRS facilitates credit
to poor, low-income people and MSMEs in rural and urban areas. Based on data from the
Central Bureau of Statistics Indonesia (2019), the above provinces represent rural and urban
areas. West Java Province and DKI Jakarta Province are both located in Java, which has the
highest number of cities in Indonesia; Medan and Bengkulu Provinces in Sumatra and
Makassar Province in Sulawesi are rural areas with few cities.
With different informants across the provinces, it was hoped that they could provide more
holistic insights about issues faced at the level of BPRS. Other stakeholders, such as Muslim
scholars and representatives of OJK and DSN, are located in their respective offices in Jakarta,
the capital city of Indonesia.
Interviews were conducted from June to September 2019. Table 1 shows detailed
information on the people interviewed in this study, notably six directors of BPRS, three
Muslim scholars, one representative from OJK (representing the regulator/supervisor
category) and two members of DSN (representing the Shar
ıʿah advisor category).
The experience of those interviewed ranged from 3 to 24 years.
All the interviews were recorded and transcribed in a Word document. The transcripts of
the interviews were analysed using NVivo, a computer-assisted qualitative data analysis tool
(CAQDAS), as this enables efficient qualitative research and works well with most research
designs and analytical approaches (Lin et al., 2019). The first step involved identifying the
concepts and their relationships by using unsupervised seeding and mapping in NVivo.
The NVivo interactive function was used to extract quoted text containing concepts. Text
excerpts contain the context of stakeholder interactions with the interviewer, with
stakeholders providing answers about the objectives and performance measurement of the
BPRS, and the key similarities and differences among the views of the various stakeholder
groups.

Findings and discussion

IMFBs (BPRS in this case) provide intermediary financial services, and their activities, products
and services should be organised in compliance with the principles of Shar
ıʿah (Baskara, 2013;
IJIF Board of directors (top management): operational directors
14,2 ID Years of experience Organisation/location Ownership Region

B1-U 12 BPRS 1 Jakarta (Urban) Foundation (Business Group) Java Island

B2-R 7 BPRS 2 Bengkulu (Rural) Muslim Businessman Sumatra Island
B3-R 10 BPRS 3 Medan (Rural) Muslim Group Sumatra Island
B4-R 4 BPRS 4 Makassar (Rural) Foundation (Business Group) Sulawesi Island
130 B5-R 10 BPRS 5 Makassar (Rural) Foundation (Business Group) Sulawesi Island
B6-U 3 BPRS 6 Bekasi (Urban) Muslim Businessman Java Island

Muslim scholars/regulators/Shar
ıʿah advisors

ID Years of experience Organisation Position Region

S/C 12 Ulema/University Muslim Scholar/Islamic Jakarta

Lecturer Banking Consultant
S/O 3 Lecturer/Islamic Muslim Scholar/Owner of Jakarta
Cooperative Islamic Cooperative
MS 10 University Lecturer Muslim Scholar Jakarta
OJK 24 Indonesia Financial Officer at Banking Sector Jakarta
Services Authority Supervision Division
(Financial Services
Authority)
NSB-1 9 DSN Shar
ıʿah advisor, Jakarta
Member of DSN
NSB-2 15 DSN Shar
ıʿah advisor, Jakarta
Table 1. Member of DSN
Interviewees’ details Source(s): Authors’ own

Jenita, 2017). IMFBs are supervised and monitored by OJK and the Central Bank, especially
where their activities relate to issues of governance, management, reporting mechanisms and
performance. Thus, the Islamic microfinance banking industry is regulated in a similar way to
any other commercial banking industry, albeit with the additional requirement to follow
Shar
ıʿah principles. This means that IMFBs should operate as sound financial institutions by
adhering to certain standards pertaining to their capital, assets, management, earnings and
liquidity. Besides compliance with the requirements of OJK, IMFBs also have to comply with
the guidelines of the DSN of the Majelis Ulama Indonesia (Indonesian National Ulema Council),
which formulates principles and laws relating to the activities of Islamic financial institutions
(Zein, 2018; Siti-Nabiha and Adib, 2020). For example, IMFBs need to obtain approval from DSN
for newly issued financial products (Siti-Nabiha and Adib, 2020). Even though the regulatory
and supervisory bodies have imposed certain standards to measure performance, it is
anticipated that the measures used will be influenced by the goals and objectives of the banks
and by the interests of the founders and owners.
Objectives and goals of Islamic microfinance banks: profit, social and daʿwah
The stakeholders interviewed in this study viewed the role of BPRS to be wider than the view
found in the existing literature. The latter advocates the role of BPRS in increasing the income
and welfare of the community and helping to increase economic empowerment and
community productivity by facilitating credit to poor, low-income people and MSMEs
(Masyita, 2017; Mulyati and Harieti, 2018). The stakeholders interviewed in this study look at
BPRS not only in terms of profit and clients’ economic well-being but also see it as enhancing
spirituality and carrying out daʿwah.
The views of the various stakeholder groups, i.e. the Muslim scholars, the top
management of the banks and the supervisor/regulator, are aligned with the principle of
Islamic finance being a mechanism to obtain economic and social well-being for society, both Objectives and
in this world and the hereafter (e.g. Iqbal and Mirakhor, 2017; Kuanova et al., 2021; Hassan measures of
et al., 2021). This is reflected in the comments of one of the Muslim scholars, who argued that
IMFBs should focus on both worldly and spiritual performance:
performance of
IMFBs
Shar
ıʿah banks are also required to be concerned about spiritual performance . . . not only oriented
towards worldly matters, but also the hereafter. The real aim is actually fal
ah (success) in this world
and in the hereafter (Muslim Scholar, S/C). _
131
The activities of IMFBs that benefit society and their daʿwah role are also noted by directors
of BPRS as shown below:
The objective is to achieve both profit and daʿwah . . . The existence of BPRS actually helps the
pursuit of real activities in the community (BPRS Director B5-R, Sulawesi).
Our mission [is] to carry out the daʿwah of rahmatan lil alamin [mercy to mankind]. If this company
has not reached or implemented that mission, it is of no use to others (BPRS Director B1-U, Jakarta).
Therefore, when faced with conflicting goals from investors, i.e. those that require
commercial profit and those in favour of daʿwah purposes, the management of IMFBs seek to
maintain a balance between the two interests, as noted by a BOD member of an institution
located in a rural area of Sumatra:
Our goal depends on our investors: some investors have business-oriented goals, some others have
daʿwah goals. So, BPRS have two interests that must be achieved in terms of both business and
daʿwah (BPRS Director B2-R, Bengkulu).
On further analysis, the daʿwah role was interpreted in several ways by the stakeholders in
this study. First, the existence of IMFBs is itself seen as being a form of daʿwah that would
benefit mankind. This daʿwah role is fulfilled through the provision of financial services that
comply with the Shar
ıʿah, thus helping society to avoid interest and speculative activities.
This finding is similar to the insights of Sakai’s (2014) study on Islamic savings and credit
cooperatives (BMT), where the organisational founders and employees viewed their
economic activities as daʿwah bi al-h
al (Islamic propagation by deeds) to achieve social justice
through fair business transactions _in accordance with Shar
ıʿah requirements. Consequently,
working to develop and grow Islamic microbanking ― especially when the officers’
remuneration is small when compared to earnings at bigger commercial banks ― is also
viewed as engaging in daʿwah, as shown by the following remark of a member of DSN:
Developing BPRS is part of daʿwah. Working in BPRS is also a form of daʿwah despite the small pay
[received by the employees]. Thus, the spirit of jihad [sacrifice] is critical in the development of this
Shar
ıʿah-based institution, as many challenges lie ahead (NSB-1).
In the view of the BOD, BPRS also fulfilled the role of daʿwah through the dissemination of
information and knowledge on the Islamic financial services offered, thus enabling Muslims
to avoid rib
a. Such actions were also believed to be part of ʿib
adah (worship of God).
Furthermore, the top management of the IMFBs were concerned about Muslims seeking the
services and financing of conventional microfinance banks, even though there are wide
avenues for Muslim customers to use their Shar
ıʿah-compliant products and financing
services. Such a view was held among the top management, probably because of the
perception that Islamic values among the Indonesian Muslim community do not necessarily
translate into the use of Islamic financial services, as there are differences of opinion
regarding the permissibility and definitions of interest among Indonesian Muslim groups
(Pepinsky, 2013; Sakai, 2014). However, in 2004, the Ulema Council of Indonesia (MUI) issued
the fatwa that rib
a, i.e. “additional charges levied on the postponement of agreed payments” is
prohibited (har
am) (Lindsey, 2012, p. 109 as quoted by Sakai, 2014, p. 206). As mentioned,
_
IJIF IMFBs also need to comply with the MUI guidelines on Shar
ıʿah banking principles. It could
14,2 thus be inferred from the insights of the interviews that the daʿwah role of IMFBs is believed
to be fulfilled when they educate the public about the permissibility and notions of rib
a as per
the MUI fatwa through dissemination of information on their products and services.
Interestingly, the concept of muʿ
amal
at (social and business relations) is interpreted as not
merely being limited to business relations but also developing relations with the Muslim
community to propagate Islamic values, and this is considered as part of ʿib
adah. The
132 comments below reflect such an endeavour:
Those in charge of the services get the chance to help the community to avoid rib
a. That counts as
ʿib
adah. It is better than [doing] highly profitable work that benefits only us and our family, which in
the end generates no or little pahala (merit) or reward for us (Muslim Scholar, S/O).
So daʿwah is connected to the provision of Shar
ıʿah financing. This, in my opinion, is also one form of
daʿwah (OJK).
The IMFBs are also believed to be engaged in daʿwah when they pay zakat and sadaqah.
Zakat is an obligatory levy, generally paid at the rate of 2.5%, charged on certain _types of
wealth, such as business or personal wealth. Only those Muslims who own the wealth beyond
a certain limit are commanded to pay zakat, whereas sadaqah is a voluntary charitable
contribution. The IMFBs also act as Islamic charities_ when they channel zakat, inf
aq
(spending to meet social obligations), sadaqah, waqf (Islamic endowment) and other
specialised sources of funding such as qard_ hasan (benevolent loans) to those who are entitled
to receive such funds. In this respect, one_of_ the directors commented:
We also have other activities that are conducted during the fasting month, such as raising funds for
orphans. Another mandatory social and daʿwah activity is conducted yearly, where BPRS disburses
zakat (BPRS Director B5-R, Makassar).

The influence of founders and investors on the objectives of IMFBs

As IMFBs can be established by a Muslim group, a foundation owned by a business group,
individuals or by local or regional governments, the differing interests of the founders and
owners have significant influence on the IMFBs’ objectives. For example, one operational
director of a BPRS in Medan explained that his bank was initially established from the ideas
of Muslim scholars in the 1990s who advocated the socio-economic development of the
community, and accordingly, the initial focus during the early years of establishment of the
IMFB was imprinted in its objectives. This is in line with the findings of Siti-Nabiha and Siti-
Nazariah (2021) which showed the social influence on current practices of IMFIs. For this
particular bank, social consideration is prioritised over commercial purposes, as suggested
by the BPRS director:
The idea from Muslim scholars was to establish banks which at least [have] the same system of
conventional microbanks but using Shar
ıʿah principles . . .. This is why BPRS was established, to
carry out social purposes. The benefit and orientation are not only for money or commercial
purposes; it is clear that [this bank] prioritises social benefit while at the same time it contributes to
economic development (BPRS Director B3-R, Sumatra).
The influence of the founders on IMFBs’ objectives was also raised by the regulator, OJK,
whose representative provided an example of such a bank in Jakarta. This bank was
established by a Muslim group for the benefit of the community and still holds fast to its
social purpose:
[T]here was a BPRS in South Jakarta founded by an Islamic recitation group. The members of the
group thought about actions to improve lives of the community. Their bank remain[s] in operation
 until now, and they are consistent with their goal of establishing the institution for the benefit of the Objectives and
people (OJK).
measures of
The findings of this research showed that IMFB is viewed as being both a profit-seeking and performance of
socially oriented organisation with daʿwah being part of its existence and reflected in its IMFBs
activities. Such goals are aligned with the concept of huq

uq whereby humans are not only
motivated by personal interests at the expense of others but also have an obligation to work
for the ummah and nature by giving, caring, maintaining and developing relationships 133
(Laldin and Furqani, 2013).

Measures of performance: financial (profit) and maslahah (well-being)

_ _ the goals of IMFBs to cover a wider
The stakeholders interviewed in this study considered
scope than mere commercial interests. Therefore, performance is not only measured through
financial indicators; a more holistic view of performance is important. One Muslim scholar
who is also a consultant to Islamic banks argued for the holistic assessment of IMFBs,
covering economic, social and spiritual performance:
When we talk about BPRS performance, ROA is not the only thing; we should also consider the social
and spiritual dimensions (Muslim Scholar, MS).
Concurrently, the objective of IMFBs should be to achieve the maq
asid al-Shar
ıʿah.
Assessment of performance should accordingly be conducted beyond commercial_ measures.
Through their activities and provision of financing – especially to those excluded by the
larger banking institutions – BPRS fulfil an important role in contributing to the
improvement of the economic welfare of the ummah and in fostering socio-economic
justice. The stakeholders interviewed in this study argued that IMFBs, being Islamic
financial institutions, need to achieve maslahah (well-being). One of the Muslim scholars
argued: _ _
When we talk about benefit, it is based on these words: “The best of men are those who benefit
others.” This takes into account the following: hablum min al-n
as (human responsibility to other
people), hablum min All
ah (human responsibility_to God) and fal
ah. Benefit is about how we spread
goodness_ and [are] useful to the world. Thus, the indicators should
_ go beyond the ROA (Muslim
Scholar, S/C).
An interesting finding from this study is that, despite the consensus on the goal to achieve
maslahah, there are different views regarding the means of achieving it. The regulators and
_ _
supervisors, i.e. those from OJK and DSN, argued that in order to achieve well-being and
benefits for the community, the key measures for IMFBs should be the organisations’ profits
and growth. These key measures are viewed as being important as they lead to the
sustainability and development of the industry and thus enable continual services to the
community, enabling them to avoid interest, which itself is part of daʿwah. This is expressed
by a member of the DSN, an expert in Islamic economics, as follows:
When we are talking about performance, it is the growth, then the profits . . . growth and
performance are crucial, as this is part of the daʿwah and ʿib

adah, in the sense of continual provision
of interest-free banking services to the community (NSB-1).
Similarly, the representative of the regulatory body considered profits to be necessary for the
ongoing provision of commercial activities and for the development of this sector, but also
stated that these profits must be gained in a lawful and ethical manner:
BPRS are allowed to make profits based on Islamic principles, such as from profit-and-loss sharing
transactions. Our Prophet taught us to trade – there should be profits. The Islamic value in this
IJIF principle is that we must have good morals, not deceive people, must be fair, and must avoid
rib
a (OJK).
14,2
The supervisors and regulators’ focus on profit and growth as the key measures of IMFBs’
performance is due to their concern regarding the sustainability of the banks. This concern is
understandable in view of the poor financial performance of BPRS in Indonesia over the last
few decades compared to their conventional counterparts (Siti-Nabiha and Adib, 2020). Even
134 in terms of non-financial measures, such as the number of branches and customer base,
BPRS’ performance is still deemed unsatisfactory. BPRS’ financial sustainability is also
required to comply with the standards set by the regulator (OJK) and by shareholders.
Profitability is among the measures used by the regulator to assess the financial health of
BPRS – an unhealthy financial position will obtain an “unsatisfactory” assessment from OJK.
The supervisors and regulators consider that providing maslahah to communities that
have difficulty in obtaining financing requires BPRS to be in turn_ financially
_ sustainable, so
that they can continue serving the segments of the society that are usually not served by
commercial banks, namely MSMEs. This view is further emphasised by the BOD of a BPRS
located in the Jakarta area:
Financial performance is an important aspect. The keyword is the bank’s soundness assessment,
which is a strong financial parameter assessed by the OJK. We (BPRS) do prioritize maslahah, but if
the finances are not good, then we shall not pass the assessment of the OJK or_ satisfy _ the
shareholders; so we (BPRS) consider finances to be an essential aspect to pay attention to, because it
is one thing that all parties and authorities can see. Maslahah, on the other hand, comes in the form
that we continue to serve and focus on the MSME level . ._ . . _Thus, we continue to pursue maslahah by
maximizing profits (BPRS Director B1-U, Jakarta). _ _

The focus of sustainability is aligned with the financial approach, which is the dominant
paradigm within the microfinance industry (Siti-Nabiha and Siti-Nazariah, 2021). However,
the push for financial sustainability has led to concerns about the mission drift of IMFIs,
which is further precipitated by the lack of social performance measures being used in the
industry (Siti-Nabiha and Siti-Nazariah, 2021) and the difficulty in quantifying social
performance (Kuanova et al., 2021). This same issue could arise in the case of BPRS. The
findings in this study show that despite the fact that the interviewees argue for the need for
more holistic measures of performance, they did not suggest the use of measurable and
quantifiable indicators in assessing the social well-being promoted by BPRS, beyond the
payment of zakat and charitable donations. According to the stakeholders interviewed,
BPRS’ goals of making positive impact on the welfare of people are measured through the
banks’ fulfilment of their obligation to provide Shar
ıʿah-compliant financial services which
allow the community to avoid rib
a, the creation of spiritual values through the dissemination
of knowledge on Islamic financial principles and practices, and the provision of zakat and
sadaqah for the well-being of the community, as reflected by various comments:
_
The indicator is that when the enterprise we manage is generating profits, we can pay sadaqah to
many. If our success is enjoyed by us only, Allah will ask about our sadaqah . . .. If wealth_ is enjoyed
_ lahah is [in its meaning] not
by others, besides ourselves and our family, the value will be high. Mas
_ _
only for money or commercial purposes but also [for] developing a community’s economy whose
main purpose is to derive benefits in the hereafter (BPRS Director B3-R, Sumatra).
Zakat is a source of funds owned by BPRS. The BPRS has social activities intended for the people’s
and the community’s long-term benefit; this is called maslahah . . .. We build a toilet for those who do
not have a toilet . . . develop literacy programmes _for_ mothers and teachers . . . encourage
community-based savings such as at schools and markets . . . provide scholarships to achieving
students. That’s a form of our social commitment that leads to wellbeing (BPRS Director BU-1,
Jakarta).
Assessment of IMFBs’ performance can also be seen from the way they have improved Objectives and
community welfare through the provision of loans and services. Thus, despite the higher measures of
business risk associated with the traditional market segment – i.e. the MSMEs, which are
highly influenced by economic conditions – the BPRS still focus on this segment.
performance of
Nevertheless, the desire to be financially sound institutions led to efforts to diversify their IMFBs
risks, with some movement towards customers with fixed income, as reflected by the
following comment:
135
The majority of our customers are MSMEs. However, if we only focus on MSMEs in the midst of
challenging conditions, the business risk is large. We will still focus on MSMEs; we never leave them
behind. But we do product diversification [in] other segments . . . to mitigate risks when the economic
situation goes down. Thus, we hold on to the initial idealism of BPRS’s establishment for the MSME
sector, but on the other hand, the shareholders also need to get profits. Now, the fixed income
segment can provide better income security than the MSMEs. As a consequence, we enter the fixed
income segment too (BPRS Director BU-1, Jakarta).

Conclusion
The purpose of this paper is to investigate stakeholders’ views on the objectives and
measures of performance of IMFBs. In-depth interviews were conducted with the primary
and secondary stakeholders of IMFBs in Indonesia. The findings showed that the objectives
of the banks cover a far wider scope than mere profits or economic well-being; they also
include spirituality and daʿwah. The daʿwah activities were reflected in the banks’ very
purpose of providing financing and offering services that are aligned with the Shar
ıʿah; i.e.
the dissemination of information and creation of awareness about Islamic financial principles
and products; also, the payment of zakat and charitable contributions, which will lead to the
well-being of the society. As the findings also showed, the owners/founders’ interest
influenced the objectives and goals of the IMFBs; the banks also seek to balance the
commercial and social/daʿwah goals of their various investors/owners.
Given the wider objectives and goals of IMFBs as compared to their conventional
counterparts, their measures of performance are more holistic than those of conventional
banks. Profits or commercial measures are not the only measures of performance.
Nevertheless, being regulated financial institutions, IMFBs need to operate in a financially
sound manner. Even though the regulator/supervisor viewed bank profitability and growth
to be key measures of performance, achieving profit was not seen as the end but the means to
achieve social well-being objectives. The measurement of achievement can be seen in the
banks’ fulfilment of the obligation to provide services that provide avenues for communities
to avoid rib
a while developing the socio-economic status and welfare of communities.
The measures of well-being also include spiritual value from knowledge gained through the
dissemination of Islamic products and principles to communities. Consequently, marketing
and client relationships constitute both economic and daʿwah activities. The social benefits
are derived from the zakat given and also from other activities conducted with the use of
zakat and donation funds.
Despite the argument, especially among Muslim scholars, that a more holistic assessment
of performance is needed for BPRS, those interviewed in this study did not provide clear
operationalisation mechanisms of what constitutes maslahah. Nevertheless, stakeholders
alluded to the need for social well-being to be included in_ the
_ performance measures. This
would require BPRS to develop client-based measures so as to see the impact of their
financing on the well-being of their clients. As noted by various scholars (e.g. Laldin and
Furqani, 2013; Kuanova et al., 2021), Islamic financial institutions need to ensure that their
activities and processes lead to the achievement of the objectives of Shar
ıʿah. Following this,
IJIF BPRS need to develop a more holistic assessment of performance, including the use of
14,2 process-based measures, ensuring that their activities and procedures lead to the
achievement of social well-being. In addition, it is imperative for the regulator to institute a
holistic assessment of BPRS’ performance in addition to the focus on financial measures.
Such a holistic assessment, including social and process-based measures, would ensure that
BPRS stay true to their mission and, thus, do not deviate from fulfilling both the end and
means of the maq
asid al-Shar
ıʿah.
136 _
This study has limitations as the interviews were not conducted with other stakeholder
categories. Thus, better insights into the objectives and measures of IMFBs could be gleaned
from interviews with other stakeholders, such as the IMFBs’ customers and the wider
community. Therefore, this issue remains a fertile area for research, as further research is
required before a suitable model of performance measurement can be determined for IMFBs,
balancing their need for profitability and the growth of the industry with economic, social and
spiritual well-being, developed as part of the process to fulfil the potential and promise of
Islamic microfinance.

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About the authors

Taufik Akbar is a Lecturer at the Faculty of Economics and Business, Universitas Mercu Buana,
Jakarta, Indonesia. He is currently pursuing a PhD degree at the Graduate School of Business (GSB) at
Universiti Sains Malaysia (USM), Minden, Malaysia. His research interests are Islamic accounting,
management accounting and corporate governance.
A.K. Siti-Nabiha is a Professor at the Graduate School of Business, Universiti Sains Malaysia. Her
research interest is in the area of management accounting, specifically on issues related to accounting
and organisational change, performance measurement and sustainability control systems in both the
public and private sectors. A.K. Siti-Nabiha is the corresponding author and can be contacted at:
nabiha@usm.my

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