The Performance of Competitiveness of Sharia Banking (Indonesia-Pakistan) Using Porter's Diamond Theory

This article provides an overview of the condition of the competitiveness of Islamic banking performance in Indonesia and Pakistan using the porter's diamond theory descriptive analysis method, namely (i) resource variables with indicators of Institutional Performance and Financial Performance, (ii) Demand Variables with Market share and financing indicators (iii) Industry variables related to indicators of the number of sharia business units, (iv) Strategy variables with the roadmap for the development of sharia banking. The conclusions in this study are: 1) The competitive advantages of Islamic banking in Indonesia in 2016-2020 namely Institutional Performance of Islamic commercial banks, average profit growth and average growth of third party funds, compared with the same indicators on Islamic banking in Pakistan. 2) Competitiveness of Islamic banking in Pakistan in 2016-2020, namely the Financial Ratio of NPF, FDR and BOPO which ranked first in terms of bank health level, and the average market share growth and financing growth compared to the same indicators in Islamic banking in Indonesia.


INTRODUCTION
Economic growth in a country is closely related to the role of the financial sector, especially those based on the banking sector in the financial intermediation process. Empirically many studies can provide evidence that economic growth is strongly influenced by the banking sector including Beck and Levine, (2004), Estrada et al., (2010), Hassan et al., (2011), Ascarya, (2012, Yarasevika et al., (2015), Aluko and Ajayi, 2018).
Likewise, with the economic conditions in Indonesia, the banking sector plays an important role in it. But in its journey, the banking sector still has problems that have surfaced on the surface. especially in Islamic banks, the problem that arises on the surface is that at least people are interested in investing in Islamic Banks due to the image in the middle of a society that is not yet strong so that public trust in Islamic banking is still low, which results in their tendency to prefer conventional banks. Therefore, the development of Islamic banks in the future needs to consider aspects that can explore and enhance the potential development of Islamic banks, find the problems faced and can determine the right strategy for the development of Islamic banks in the future. The Islamic banking market in Indonesia is currently a lower-class economic community so that it has not reached the expected level but is also driven more by the real sector. This is very different from the development of Islamic banking in other countries such as Malaysia, Iran, and Saudi Arabia, where the development is more dominated by the monetary sector, and government support by placing government funds and state-owned companies in Islamic financial institutions, thereby significantly increasing the total their banking assets The condition of the Islamic financial industry in Indonesia in 2017 according to GIFR data The Islamic financial industry is ranked fourth in terms of the potential development of the Islamic financial industry so that Indonesia is The Performance of Competitiveness of Sharia … Abd.Kadir Arno, et.al DOI: http://dx.doi.org/10.24952/fitrah.v7i2.4188 263 projected in the next few years to be ranked first for the development of Islamic banking in the world. Although it has the potential to be developed in the future it turns out that Islamic banking still has its challenges to be able to compete with conventional banks or other commercial banks These challenges are based more on the practical aspects of the customers, namely: first, trust in Islamic banking institutions; Second, convenience and benefits gained in sharia banking and third, aspects of sharia banking services whether professional or not, Fourth is the development of transaction contracts for customers. Therefore, to face the challenges of Islamic banking in Indonesia must have the strength (competitiveness) to attract customers in Indonesia in particular and the world community in general, both in the field of innovative products and the distribution of profit margins for competitive customers.
One model developed to analyze and determine industrial competitiveness in a country is the Diamond Porter Model developed by Michael Eugene Porter. The theory developed by Porter states that a country gains a competitive advantage if the industry/company in the country concerned is also competitive, namely the ability of industries and companies in the country to innovate and increase their capacity. (Firmansyah, 2002).
The key to competition in the banking market is total quality which includes emphasis on product quality, cost quality, service quality, delivery quality on time, aesthetic quality, and other forms of quality that continue to develop in order to provide continuous satisfaction to customers in order to create loyal customers. Loyal. So that increasing business competition spurs management to pay more attention to at least two important things, namely "excellence" and "value." Only companies that have advantages that can satisfy or meet consumer needs can produce quality products and are cost-effective Performance appraisal or measurement is one of the essential factors in the company. Besides being used to assess the success of the company. The management can also use the company's performance measurement to evaluate the past period. Like other banking companies in Indonesia, Islamic banking only uses financial benchmarks to see its business performance. Financial performance benchmarks in Islamic banks include return on assets (ROA), return on earning assets (ROEA), asset turnover (ATO), Capital adequacy ratio (CAR), loan to deposit ratio (LDR), liabilities to assets, earnings per share and several other financial ratios.
Meanwhile, non-financial elements (non-financing) have not become an essential aspect of sharia banking performance assessment. The assessment of banking performance from the financial aspect is not representative enough to conclude whether a company's performance is good or not. This is because financial measures do not provide an accurate picture of the company's condition. After all, they do not pay attention to other things outside of the financial side, such as Institutional Performance, market share, and development strategies, which are essential focuses driving the company's activities.
Research on industrial competitiveness using Porter's model approach has been carried out by Özlem, (2002Özlem, ( ), Smit, (2010. This study also uses the Diamond Porter model by adapting various elements of competitiveness to the type of industry being analyzed. is the competitiveness of Islamic banking. The framework of the porter model outlines four main determinants of competition, namely: resource dimension factors; demand dimensions; supporting industry dimensions and related industries as well as the corporate strategy dimension and the competitive structure (Porter, 1986). They were referring to the background above for the contribution of this article to determine the competitiveness of the performance of Indonesian Islamic banking with Islamic banking in Pakistan using Porter's Diamond Theory as an effort to evaluate the performance of Islamic banking in Indonesia by comparison with countries that also practice Islamic banking in their country.

RESEACH METHOD
The types of data used in this study are secondary data obtained from the

Resource
In general, the development of resources, especially Islamic banking in Indonesia and Pakistan, has experienced very good growth in terms of institutional performance and financial performance. As for the performance improvements referred to as follows:

Institutional Performance
The Financial Services Authority notes in the 2016-2020 sharia banking statistics the following conditions for sharia financial institutions:   percent.

Profit
One of the objectives of establishing a financial institution is to obtain an optimum profit because profit is a supporting factor for the operational continuity of the bank itself. Statistics of Islamic banking in 2016-2020 from the financial services authority recorded the number of profits of Islamic banking in Indonesia

Third-Party Funds (DPK) in the form of deposits
The main function of Islamic financial institutions is the collection of funds from third parties. Sharia banking statistical data for 2016-2019 from the financial services authority records the number of Third Party Funds (DPK), namely:

CAR (Capital Adequacy Ratio)
Capital Adequacy Ratio (CAR) is the ratio of bank performance to measure the adequacy of capital owned by banks to support assets that can generate risk. Mathematical CAR calculation is as follows: The CAR ranking criteria according to Bank Indonesia regulations can be seen in the following Matrix table:

Sharia Banking Market Share
Islamic banking market share is a percentage of the overall financial market achieved by Islamic banking. Islamic banking market shares can be calculated using the following mathematical equations: The development of Indonesian and Pakistani sharia banking market shares from 2016-2020 can be seen as follows: Average

5.49
Source: Bank Indonesia SPI data processed The   percent so that the average growth the average Islamic banking market share in Pakistan in the past 5 years (2016-2020) was 12.78 percent.

Financing
One function of Islamic banking is channeling funds to the public who need it in the form of providing financing for venture capital. The amount of has decreased to 15.9 percent, and finally, in 2020 the amount of funding is Rs.
1,623 billion with growth back down to 7.4 percent, bringing the average growth of Islamic banking financing in Pakistan to 32.5 percent.

Related Industries (Sharia Business Units)
Sharia Business Unit is defined as a work unit of a Conventional Commercial Bank head office that functions as the main office of an office or unit that conducts business activities based on Sharia Principles. The establishment of UUS is a requirement that Conventional Commercial Banks can also provide sharia services. The number of Sharia Business Unit services in Indonesia and Pakistan from 2016-2020 are as follows:

Strategy
Facing the challenges to improve the competitiveness of Islamic banking while developing Islamic banking in Indonesia requires directional steps. Therefore the banking authority needs to develop strategies related to coordination between the government and the Islamic banking authority in the context of developing and enhancing the competitiveness of Islamic banking, not only at the national level but also at the international level.
Strategies for floating Islamic banking as stated in the 2016-2020 Roadmap, with the vision of Realizing sharia banking that contributes significantly to sustainable economic growth, equitable development and financial system stability and high competitiveness (Financial Services Authority, 2015: x) policy direction and the strategy is formulated as follows: a. Strengthening policy synergies between the authorities and the government and other stakeholders.
b. Strengthen capital and business scale and improve efficiency with work programs.
c. Improve the fund structure to support the expansion of the financing segment;

DISCUSSION
The ability of banking institutions to maintain their competitiveness will greatly support the operational sustainability of the banking sector itself. Jess Cornaggia et al (2015) found that competition in the banking world in a country can reduce the portion of innovation associated with public companies to get financing.
Competitiveness is a conceptual mechanism that takes into account a group of indicators outside the company that emphasizes the relative performance between companies. Therefore, competitiveness must be placed in a comparative context with other similar companies Meanwhile, to face competition in the present, Porter argues that a company is not only enough to be seen from the aspect of its operational effectiveness. Companies need to do more than just achieve operational effectiveness in terms of performance. The company must develop a competitive strategy so that the company it manages is different from its competitors.

Resource
The

Third-Party Funds
The

Related Industries (Sharia Business Units)
The However, only impacts the economy and does not affect inflation.