Non-parametric Efficiency of Islamic Rural Banks in Indonesia

Abstract

In the midst of economic challenges and uncertainty due to the pandemic, BPRS as part of the banking industry has a specific goal, namely to provide financial services and products to people with a weak economic level and also the MSME sector, therefore it is necessary to accelerate improvements in the Islamic rural banks (BPRS) industry. This study aims to measure the relative efficiency level of BPRS in Indonesia, see the impact of the pandemic on BPRS operations and compare the efficiency level of BPRS spread across Java and outside Java. This study uses a sample of 92 BPRS in Indonesia with an observation period from 2016 to 2021. This research method uses Data Envelopment Analysis (DEA) with secondary data sourced from the financial statements of each BPRS on the OJK official website. The input variables used include third-party funds, fixed assets and operating expenses. Meanwhile, the output variable consists of financing provided and operating income. The results showed that the average BPRS in Indonesia from the 2016-2021 period fluctuated. Then the CRS and VRS analysis found that BPRS outside Java were more efficient than BPRS spread across Java. Then, based on the trend analysis, the efficiency of BPRS in Indonesia has a fluctuating trend. Furthermore, in the efficiency analysis during the Covid-19 pandemic, there was a continuous decline in the efficiency level of the BPRS, although the decline that occurred was still small. This study also analyzes the potential improvement for program improvement that causes inefficiency of the input and output variables. And in general, the biggest cause of BPRS inefficiency comes from the output variable, namely the financing provided. This study also provides recommendations to BPR practitioners, regulators, and academics as a basis for decision making in achieving optimal efficiency and for further research