Three research method approaches: musharaka financing performance model in Indonesian Islamic banks

Purpose This paper aims to create a model of musharaka financing performance and Islamicizing agency theory to explain issues related to musharaka financing and propose solutions to these problems. Design/methodology/approach This research focuses on Islamic banks located in East Java Province, Indonesia, as the population for investigation. This study used primary data collected through a questionnaire instrument. The research adopts a mixed method approach, integrating quantitative data using the smartPLS program, qualitative data using a case study and kasyif research. Findings This research revealed that employee competence, Islamic business ethics and monitoring significantly impact the risk of musharaka financing. In contrast, information asymmetry does not significantly influence the risk of musharaka financing in Islamic banks. On the contrary, information asymmetry, Islamic business ethics and monitoring significantly affect the performance of musharaka financing. However, employee competence and risk of musharaka financing do not significantly influence the performance of musharaka financing in Islamic banks. Research limitations The responses to the questionnaire are analyzed from the perspective of directors and financing managers of Islamic banks who possess expertise in management and act as financing providers. However, musharaka partners who receive financing may have different perceptions and experiences of implementing musharaka financing. Practical implications Financing managers and directors at Islamic banks need to minimize the risk of musharaka financing and alleviate information asymmetry by enhancing employee competence and selecting musharaka partners capable of adhering to Islamic business ethics. Social implications Partners of musharaka financing should enhance their Islamic business ethics. Next, other researchers should improve this study by expanding the research locations, increasing the sample size, incorporating additional variables and involving musharaka partners as respondents. Originality/value It is a new research using three methods to construct a model of musharaka financing performance. The research refines agency theory by integrating Islamic values into Sharia agency theory.