Does Sharia Board Foster Islamic Microfinance Bank Performance of Indonesia

This study analyses the impact of a Sharia supervisory board on the performance of Islamic microfinance institutions (MFIs). The study employs balanced panel data from 2017 to 2021, comprising 540 bank-year observations from Indonesian Islamic rural banks. To investigate this, a panel data regression method, specifically the Fixed Effect Model (FEM), is applied for hypothesis testing and to identify determinants of the respective dependent variables. In this study, the Sharia boards, depicted as the independent variable, encompass the Sharia supervisory board and the qualifications of Sharia supervisors. The findings indicate that the mechanisms of Sharia boards do not exhibit a significant correlation with the performance of Indonesian Islamic rural banks in MFIs. The findings concluded that the sharia board mechanisms seem passive in strategic decision-making. This research will give an additional suggestion to improve the role of sharia board mechanisms for the better performance of Islamic banks. This research addresses a void in the existing literature concerning Islamic MFIs in Indonesia, notably focusing on BPRS. Additionally, it offers an understanding of governance practices within Islamic MFIs, utilising BPRS data to analyse their performance. The conclusions derived from this study offer valuable insights for policymakers and regulators.