The Effect of Islamic Financing Schemes on Risk and Financing Performance in Islamic Banks in Indonesia

The purpose of this study is to prove the effect of the financing scheme on financing risk and financing performance in Islamic banks in Indonesia. This research applies a form of quantitative research with the type of explanatory research that aims to accept or reject hypotheses. The population in this study are Islamic banks in Indonesia. The data used in the study are secondary data in the form of financial ratios sourced from Islamic bank financial reports for 2015 to 2019. Data analysis techniques use partial least squares which are used to test the inner model and outer model. The results of the study found that the sharia financing scheme that uses the buying and selling system and the profit sharing system has a significant effect on the risk of financing. However, the sharia financing scheme that uses the lease system has no significant effect on financing risk. The results also found that financing risk has a significant effect on the performance of Islamic bank financing in Indonesia. The results showed that the management of Islamic banks must be able to manage buying and selling financing and profit-sharing and profit-sharing financing schemes carefully and minimizing the risk of financing.


INTRODUCTION
Based on data from the Financial Services Authority in 2019 there were 202 Islamic financial institutions consisting of 14 Islamic banks, 20 Islamic bank business units, and 168 Islamic people's credit banks. The amount is quite good, then increase the quantity of Islamic banking should be able to contribute to society. However, problems that still occur such as low public welfare, unstable company performance, the risk of default, and so forth. If calculated the age level of the emergence of Islamic banks starting in 1992 until now has reached 28 years, but the performance of Islamic banks is still relatively weak. Febrianti  and causes various risks. Roziq revealed that increasing the performance of financing based on profit-loss sharing means it will also increase the magnitude of the role of accounting in the implementation of profit-based financing and will return the operational system of Islamic banking to the actual system, 2 namely banks with equitable profit-sharing systems so will have a positive and beneficial impact on Islamic banks, stakeholders, and society. Islamic banking with a good level of financing performance is certainly inseparable from the risks to be faced. From the perspective of Islamic banks, the risk of financing itself can generally be understood as a risk of failure or inability of customers to repay loans/financing received from banks in accordance with the specified time period. 3 This risk if the solution is not immediately sought can continue continuously and can adversely affect the financial health of Islamic banks, resulting in the bank will experience an event called financial distress or bankruptcy. In distributing risk, Islamic banks offer a concept that is a profit-sharing system known as profit and loss sharing (PLS). In theory, the profit and loss sharing system have implications for risks that should also be able to help Islamic banks be more stable in dealing with moral hazard, especially in financing. Islamic bank operational activities certainly cannot be separated from the risk of financing problems.
Revealed that in the banking sector activities cannot be separated from existing risks, 4 so an effort is needed to deal with risks so that banks can survive in business competition.
Islamic banks set a strategy to minimize the occurrence of risks as measured by NPF so as not to be in a condition that is too worrying. The NPF ratio of Islamic banks tends to move faster and relatively high so that it can result in a vulnerable financial performance weakening. Managing risk, anticipating risk, and figuring out what will be caused by risk is a must in efforts to maintain the existence of financing products, one of which is Murabaha, which has experienced a significant increase compared to other products. The potential possessed by Murabaha products is 4 Dayu, P. Q. Effect of capital adequacy level, liquidity, market risk, and credit risk on financial performance in conventional banks. E-Jurnal Universitas Negeri Padang, (2015), 1-15. maintained as an effort to minimize risks in maintaining public trust. 5 Research conducted by Harahap found that there was a positive influence of Murabaha financing on financing risk. 6 The amount of risk arising from Murabaha financing can have an impact on company losses. When Murabaha financing is now superior to other financings, there will be a variety of risks that occur. Research conducted by Amalia proves that mudaraba financing and musharaka financing affect financing risk. Profit-sharing financing is classified as financing that has a high level of risk because Islamic banks cannot recover funds that have been distributed to mudarib. 7 The high risk of financing will also have an impact on the performance of banks in obtaining profits and lost opportunities to obtain revenue. Funding channeled by Islamic banks is very possible to contain risks, one of which is nonperforming finance. The results of some of these studies explain the can be used to provide working capital by empowering economic activities, especially the lower middle class by developing businesses, increasing people's income, and reducing poverty and unemployment. Waldelmi proves that buying and selling financing and profit-sharing have a significant effect on customer trends in Islamic banks. 12 This shows that Islamic banking financing can affect the interests of the community and will contribute positively. Islamic Bank gives goods/services contracts to the customer, then the customer will manage the leased appropriately. If the customer can manage it well, it will minimize the risks that occur and the damage caused is relatively small. Lease financing can be identified through risk monitoring and control. The greater the lease financing carried out, it increases the viability of the bank's operations but must also control the level of risk so that there is no huge loss. Islamic banks need to consider the risk of rental finance failures in meeting installment or asset payment obligations to customers. 13 The risk in the lease contract is the inability of the customer to pay large installments at the end of the period due to the swelling of the installments. Rental finance can reduce the risk associated with the loss or damage to rental assets. 14 Islamic banks in Indonesia with efforts to optimize the performance of Islamic banks, it must control problem financing (NPF). The lower the NPF, the better the performance of the financing undertaken. 15 Roziq's research proves that financing risks affect Islamic bank financing performance in East Java. 16 Based on the background above, the purpose of this study is to find out, test, and prove the effect of financing schemes on risk and financing performance in Islamic banks in Indonesia.

LITERATURE REVIEW Syirkah Theory
According to Djuwaini, shirkah is a cooperation agreement between two or more parties for a particular business/project in which both parties contribute capital by the agreement that the benefits and risks will be borne together by the agreement. 17 According to 18 Roziq, the theory of shirkah has been explained in the Qur'an verse Sad verse 24 (Depag, 2005: 650), namely that there are many conflicts between parties who make fellowship (unity) because they commit wrongdoing. Conflict will not occur if the parties to the association run the rules / Islamic union because of faith and good deeds. However, more people commit wrongdoing in the union than those who are trusted. This shirkah theory is very relevant in explaining the relationship between profit-sharing financing consisting of musharaka and mudaraba with financing risks that will occur due to conflicts between parties who conduct shirkah and if the financing is not managed properly.

Exchange Theory
Exchange theory is a theory relating to social actions that give or exchange objects that contain values between individuals based on a particular social order. Homans exchange theory rests on the assumption that people are involved in behavior to get rewarded or avoid punishment. This theory based on the principle of economic transactions where people provide goods or services and in return get the desired goods or services. Imbalance in the exchange can occur when giving more rewards to others and vice versa who receive rewards reciprocate. The smallest party in an unbalanced exchange can obtain social approval compensation or refer to as willingness. Willingness in unbalanced exchanges is a credit to superior parties, that is, their position becomes domination so that it is possible to govern others. 19

Islamic Banking
According to Banking Law No. 10/1998, banks are business entities that collect and distribute public funds in the form of credit and or other forms to improve the standard of living of the community. The Bank has funding and channeling activities. Islamic banks are financial institutions whose principal business is providing financing and other services in payment traffic and the circulation of money adjusted to Islamic values. In Act Number 10 of 1998 concerning amendment of Law No. 7 of 1992 concerning banking article 1 it is stated that Islamic principles are rules of agreement based on Islamic law between banks and other parties to save and / or finance business activities or other Theories of Modern Sociology, (Jakarta : Kencana,2003) activities declared by Islam among others, based on the principle of buying and selling, the principle of profit sharing, and the principle of leasing goods / capital. Islamic finance is the first choice in placing funds in Islamic banking.

Financing Performance
Helfert defines performance as a result of many individual decisions that are made continuously by management. 20 Performance is an indicator of a work level because it has given birth to an activity. So, the performance is defined as an achievement achieved by the company in a certain period that reflects the level of health of the company.

Risk Of Financing
One of the risks faced by Islamic banks is the inability of customers to fulfill agreed agreements.
The inability of customers to meet obligations to banks results in non-performing financing (NPF). The risk of financing that is accepted by Islamic banks is one of the business risks of the bank, which results from the non-payment of loans. 27 Non-Performing Financing is a ratio used to measure the ability of bank management in managing existing problematic financing so that it can be met with productive assets owned by a bank. 28 If the portion of problem financing increases, it will ultimately affect the possibility of a decrease in the amount of profit/income obtained by the bank. NPF is one of the performance appraisal instruments of an Islamic bank which is the interpretation of the valuation of productive assets, especially in the assessment of problem financing.

Financing Scheme
According to (Muhammad, 2005: 101) 29 there are two financing methods applied in Islamic banks, namely the non-profit loss sharing method in the form of financing using the sale and purchase system including lease and profit-loss sharing method in the form of financing with the profit and loss sharing system. According to Nizar 30 states that buying and selling financing consists of murabaha, istishna contracts', and salam contracts. Profit and loss sharing financing is a collaborative agreement between the bank as the owner of capital and the customer as the manager of capital to obtain profits and share the profits obtained based on agreed agreements Yudha. 31 The profitsharing system consists of mudaraba and musyaraka contracts. Mudaraba financing is a funding agreement from the owner of the fund (shahibul maal) to the fund manager (mudharib) to carry out certain business activities by Islam, with the distribution of business results between the two parties based on a predetermined ratio (OJK, 2019). Whereas, musyaraka financing is a financing agreement of two or more owners of funds and/or goods to carry out certain business by Islam with the distribution of business results between the two parties based on an agreed ratio, while the distribution of losses is based on the proportion of each capital. 32 According to Muhammad, 33 lease financing is a lease transaction of goods and/or services between the owner of the leased object, including ownership of the right to use the lease object and the lessee to get compensation for the object of the leased object. Ijarah means the transfer of use rights from goods or services followed by payment of wages or rental fees without being accompanied by a transfer of ownership. 34

CONCEPTUAL FRAMEWORK AND RESEARCH
Based on the theoretical basis and a review of previous research described above, the conceptual framework of this study is described as follows:  often referred to as soft modeling because it excludes assumptions such as data that must be normally distributed multivariate and there is no multicollinearity problem between exogenous variables. PLS is used to test weak theories and small sample data or problems with data normality. Although PLS is used to explain the presence or absence of relationships between latent variables, PLS can also be used to confirm theories. So, PLS aims to predict theory. 37

RESEARCH DISCUSSION
This study uses the SmartPLS basis is a powerful analysis method. 38 The purpose of PLS is to predict theories. PLS analysis consists of two sub-models, namely the measurement model (outer model) and the structural model (inner model Validity test with the SmartPLS program can be seen from the loading factor value for each construct indicator> 0.7 for confirmatory research and the loading factor value between 0.6 -0.7 for explanatory research is still acceptable and the average variance extracted (AVE) value must be more than> 0.5. 39 Based on this, the variable of buying and selling financing, profit and loss sharing financing, lease financing, and financing risk meet the contract validity because it gets a scale of > 0.7 (see Table 1).
Reliability tests are carried out to prove the accuracy, consistency, and accuracy of the instrument in measuring constructs. The PLS program is used to measure reliability with reflexive indicators in two ways, namely Cronbach's Alpha and Composite Reliability. However, Cronbach's Alpha tests the reliability of the contract by giving a value that is more render (underestimate) so it is advisable to use Composite Reliability. Composite Reliability value must be more than> 0.7 for confirmatory research while for explanatory research the value 0.6 -0.7 is still accepted. Composite Reliability is called Dillon-Goldstein's which is calculated using a formula developed by Werts, Linn, and Joreskog (1974)

Figure2. Inner Model
Testing of the structural model is also carried out by looking at the significance of the influence of the financing scheme variables on the financing risk variable and the effect of the financing risk variable on the financing performance variable by looking at the parameter coefficient and the significance value of tstatistics (see table 1). Based on the results of path analysis using SmartPLS (see table 1), first finding of the of research show that variable of buying and selling financing has a negative significant effect on financing risk variable with a coefficient of -0.120 and significant with a statistical T of 2.804 greater than T-table of 1.94. The first hypothesis in this study is that buying and selling financing affects the risk of financing, so H1 is accepted. Second finding of the results show that variable of profit and loss sharing financing has a significant negative effect on financing risks with a coefficient of -0.146 and significant with a statistical T of 1.994 greater than Ttable of 1.94. The second hypothesis in this study is the variable of profit and loss sharing affects the risk of financing, so H2 is accepted. Third finding of the results show that variable of lease financing has no significant effect on financing risks with a coefficient of 0.028 and significant with a statistical T of 0.243 smaller than T-table of 1.94. The third hypothesis in this study is lease financing affects the risk of financing, so H3 is rejected. And fourth finding of the results are that the variable of financing risk has a significant positive effect on financing performance with a coefficient of 0.466 and significant with a statistical T of 3.298 greater than T-table 1.94. The fourth hypothesis in this study is that financing risk influences financing performance, so H4 is accepted. show that the financing of profit and loss sharing affects the risk of financing, so H2 is accepted. The results of this study support the theory explained by Arfan 47 and Sabrina, 48 that Islamic banking is minimal in openness to financial statements, whereas openness is an important principle for preventing fraud. This condition will trigger information asymmetry. Profitsharing based financing is caused by six factors, namely high risk, lack of quality and human resources, complicated handling, no product innovation, information asymmetry, and lack of socialization. and Sabrina 52 finding that profit and loss sharing financing affects financing risk.
Based on the results of the path analysis using SmartPLS, the results show that lease financing does not influence the risk of financing, so H3 is rejected. The results of this study do not support the theory explained by Rustam, 53 and Kurnia 54 that Islamic banks need to consider the risks of lease failure in meeting installment payment obligations. The risk arising from the lease contract is caused if the bank's belongings arise unproductive risk. Non-bank goods arise the risk of damage to goods by customers due to abnormal usage. If in the case of manpower services directed by the bank, then the customer risks the quality of the service provider which may not be as expected.  Saleem 57 proving that lease financing has a significant effect on financing risk.
Based on the results of path analysis using SmartPLS, the results are that the financing risk influences financing performance, so H4 is accepted. The results of this study do not support the theory explained by Firmansyah 58 that NPF is very influential on cost control and at the same time also affects the performance of financing policies to be carried out by banks. Agency theory has a role to reduce the risk that occurs between shahibul maal and mudarib. The financing performance will not be separated from the financing risks faced by Islamic banks. The smaller the financing risk faced, the better the performance of the banking financing. This study supports research findings from Firmansyah, 59 Kurniawansyah 60 that