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Characteristics of the Sharia Supervisory Board and Its Relevance to Islamic Social Reporting at Islamic Banks in Indonesia

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Characteristics of the Sharia Supervisory Board and Its Relevance to Islamic Social Reporting at Islamic Banks in Indonesia Ekuitas: Jurnal Ekonomi dan Keuangan p-ISSN 2548 – 298X Akreditasi No. 32a/E/KPT/2017 e-ISSN 2548 – 5024 DOI: 10.24034/j25485024.y2019.v3.i1.4160 CHARACTERISTICS OF THE SHARIA SUPERVISORY BOARD AND ITS RELEVANCE TO ISLAMIC SOCIAL REPORTING AT ISLAMIC BANKS IN INDONESIA Inten Meutia [email protected] Desi Aryani Sari Mustika Widyastuti Faculty of Economics, Sriwijaya University ABSTRAK Penelitian ini dilakukan untuk menguji pengaruh ukuran Dewan pengawas Syariah (DPS), jumlah rapat DPS, pendidikan DPS, dan rangkap jabatan DPS terhadap Islamic Social Reporting (ISR) menggunakan variabel kontrol ukuran perusahaan serta profitabilitas. Objek penelitian terdiri dari 13 Bank Umum Syariah dan 21 Unit Usaha Syariah yang terdata di Otoritas Jasa Keuangan pada periode 2015-2017. Content Analysis digunakan untuk mengidentifikasi tema dan item pada laporan tahunan bank. Analisis regresi linier berganda merupakan metode yang digunakan dalam pengolahan data. Penelitian ini membuktikan variabel jumlah rapat DPS, rangkap jabatan DPS, ukuran DPS serta profitabilitas berpengaruh signifikan terhadap Islamic Social Reporting. Sementara itu, variabel jumlah DPS dan latar belakang pendidikan DPS ditemukan tidak berpengaruh signifikan terhadap ISR. Hal ini menunjukkan jumlah anggota DPS tidak memberikan kontribusi terhadap pelaporan sosial jika jarang melakukan rapat. Adanya Sertifikasi Dewan Syariah Nasional menyiratkan tidak ada kekhususan latar belakang pendidikan DPS. Penentukan Indeks ISR sangat subjektif, maka diharapkan Dewan Syariah Nasional dapat merancang pedoman khusus penerapan Indeks ISR dan dikonvergensi dengan Indeks ISR lainnnya. Kata kunci: dewan pengawas syariah; bank syariah; islamic social reporting. ABSTRACT This study was conducted to examine the effect of the size of the Sharia Supervisory Board (SSB), the number of SSB meetings, SSB education, and duality in SSB positions on Islamic Social Reporting (ISR) using the control variable of company size and profitability. The object of the study consisted of 13 Sharia Commercial Banks and 21 Sharia Business Units recorded in the Financial Services Authority in the 2015-2017 period. Content Analysis is used to identify themes and items in the bank's annual report. Multiple linear regression analysis is a method used in data processing. This study proves the variable number of SSB meetings, duality in SSB positions, SSB size and profitability significantly influence ISR. Meanwhile, the variable number of SSB and SSB education was found to have no significant effect on ISR. This shows the number of SSB members did not contribute to social reporting if they rarely met. The existence of the National Sharia Board Certification implies that there is no specific SSB educational background. Determination of the ISR Index is very subjective, it is hoped that the National Sharia Board can design specific guidelines for the implementation of the ISR Index and converge with other ISR Indexes. Key words: sharia supervisory board; islamic bank; islamic social reporting INTRODUCTION funds to the public. Bank Indonesia, as the The definition of Law Number 10 of 1998 implementing monetary policy, has the explains that banks as financial institutions authority to issue licenses and revoke are tasked with collecting and distributing business licenses of a bank. Banks in 130 Characteristics of The Sharia Supervisory Board ...– Meutia, Aryani, Widyastuti 131 Indonesia based on their operational func- Halaby & Hussainey, (2015). According to tions are divided into 3 (three), namely Charles dan Chariri (2012), the party holding central banks, commercial banks, and the role in the implementation and disclo- people's credit banks (Roring, 2013); (Hakiim sure of the ISR is the SSB. SSB occupies a and Rafsanjani, 2016). Meanwhile, Islamic strategic position in the hierarchy of Islamic banking is a banking system whose imple- financial institutions (Nathan Garas & mentation is guided by Islamic principles or Pierce, 2010). SSB has the same authority and Islamic law (Ilhami, 2009); (Qolby, 2013). position in Islamic financial institutions as To carry out its business activities, the board of commissioners (Farook et al., companies that implement Sharia principles 2011). The existence of SSB is very important have broad potential to attract Muslim in the supervision process because SSB has investors, as well as other parties who are the authority to advise on Shariah compli- interested in investing and being involved in ance to management in Sharia financial the company's business activities (Othman & institutions (Al-Sadah, 2007); (Nathan Garas Thani, 2010); (Ramadhani 2016); (Nuralam, & Pierce, 2010); (Farook et al., 2011); (Nathan 2017). Therefore, the report presented by the Garas, 2012). The Accounting and Auditing company must be based on Sharia principles Organization for Islamic Financial Insti- and carry out corporate social responsibility tutions (AAOIFI) established Governance disclosure Corporate Social Responsibility Standard no. 1 in the Governance Standards (CSR) according to Ramadhani (2016). CSR is for Islamic Financial Institutions (GSIFI) an active role of companies in contributing to governing the existence of SSB in Sharia the achievement of public welfare (Fried- financial insti- tutions (Charles dan Chariri, man, 2007); (Murphy & Ng’ombe, 2009); 2012); (Sulai- man et al. 2015); (El-Halaby & (Garriga & Melé, 2013); (Masrurroh & Hussainey, 2016). In Indonesia, SSB is legally Mulazid, 2017). protected by Law Number 40 of 2007 Disclosure of social responsibility in concerning Limited Liability Companies in Islamic financial institutions better known as article 109 discussing the SSB position. Then Islamic Social Reporting (ISR) is now a Act Number 21 of 2008 concerning Sharia necessity and an interesting topic of banking, article 23 regulates the position of conversation (Fitria & Hartanti, 2010) ISR is SSB in Sharia banking. Another thing that the development of social reporting not only becomes a reference in SSB supervision is involving the holistic expectations of society Bank Indonesia Regulation Number 11/33/ about the role of companies in the commu- PBI/2009 which regulates the implement- nity but also viewed from a spiritual per- ation of good governance for Sharia Com- spective (Othman & Thani, 2010); (Hafiez et mercial Banks and Sharia business units. al., 2012); (Zanariyatim et al., 2016); (Meutia SSB is an independent Sharia body and & Febrianti, 2017). ISR becomes very impor- economist that has the role of directing, tant because it can show the accountability of controlling, reviewing and ensuring compli- the company to stakeholders (Maali et al., ance with Sharia principles in Islamic finan- 2006); (Othman & Thani, 2010); (Lestari, cial institutions (Al-Sadah, 2007); (Nathan 2013). The ISR index was expanded again by Garas & Pierce, 2010); (Garas, 2012); (Rokan, researchers consisting of ISR indicator items 2017); (Sulistyawati & Yuliani, 2017). Accor- that must be disclosed by Islamic financial ding to Nuha, (2018) SSB as the body in institutions (Hafiez et al., (2012). The ISR charge of overseeing the implementation of index has 6 (six) themes covering finance and fatwas and decisions determined by the investment, products and services, employ- National Sharia Council. Some of these ees, social, environment and corporate opinions were confirmed by Hashim et al., governance, in total 49 indicators (Othman et (2015); Mukhibad (2018) who stated the al., 2009); (Othman & Thani, 2010); (El- existence of SSB is an internal advisor in 132 Ekuitas: Jurnal Ekonomi dan Keuangan – Volume 3, Nomor 1, Maret 2019: 130 – 147 Islamic financial institutions, has a holistic This study also added the dual position function of Shariah compliance related to variable as a new variable that had not economic and social performance. Further- previously been studied. This is based on more, Rahajeng (2013) explains that SSB also Bank Indonesia regulation No. 11/3/2009 acts as an independent body of legal article 36 paragraph stating that SSB mem- specialists in fiqh al muamalat (Islamic bers can perform duality in their positions as commercial jurisprudence). Considering the SSB members in 4 (four) different Sharia role of SSB is very important in Islamic financial institutions. Because it is suspected financial institutions and the effect of SSB on that if SSB implements duality in positions in ISR, this study will examine in more detail more than 4 (four) Islamic financial insti- the characteristics of SSB and its relevance to tutions, it will interfere with SSB perfor- ISR. mance. Previously some studies tried to identify Based on the description stated above, factors that influenced ISR including, Billzha this study was conducted to provide a (2018); Prastiwi (2017); Rahayu dan Cahyati complete picture of the role of SSB through (2014); Rosiana et al., (2015); Ramadhani, SSB characteristics consisting of SSB size, (2016); Maghfur (2018). Billzha (2018) exa- number of SSB meetings, SSB education mines SSB characteristic variables including background, and duality in SSB positions on SSB educational background, SSB expertise, ISR disclosure using ISR control variables SSB size, duality in SSB positions and SSB company and profitability. reputation. Prastiwi (2017) identified SSB characteristic variables namely SSB size, SSB STUDY LITERATURE AND HYPO- meeting frequency, and SSB education back- THESIS DEVELOPMENT ground. Rahayu dan Cahyati (2014) tested Stewardship Theory SSB size variables, SSB
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