The sustainability and performance of Bank Wakaf Mikro: waqf-based microfinance in Indonesia

This study aims to empirically investigate the sustainability and performance of Bank Wakaf Mikro (hereafter called BWM), which is a waqf-based microfinance in the context of Indonesia.

The authors use several model specifications. The specifications mainly take the BWM’s characteristics and governance into account. The authors use a standard-panel data approach with a fixed-effects model as the Hausman test result favors the fixed-effects model. The authors collected monthly data from the Indonesia Financial Services Authority for the period 2018–2020. The detailed data, 39 BWM enabling us to observe the financial, social and governance elements of BWMs.

The results reveal interesting findings. The authors find that BWM characteristics, governance and social capital are significant in shaping BWM’s sustainability, performance and risk. Furthermore, the authors find that BWM located in a province with higher lending density has lower performance than those located in a province with lower lending density. The results provide some evidence on how waqf-based microfinance could achieve both economic and social goals. It could provide perspectives for stakeholders in designing microfinance institutions.

This paper is the first to empirically study the waqf-based microfinance institutions in Indonesia by looking at the determinants of performance and sustainability of those institutions.