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Suggested Citation:
Ismal, R., and Abduh, M. (2013). Depositors’ withdrawal behavior in Indonesian Islamic Banks.
Australian Journal of Islamic Banking and Finance, Vol. 2 No.1., pp.1-20.
(I have not received the printed copy from the publisher, just received the scanned
cover and table of contents from a colleague. Therefore, below is the final version
of the article submitted for publication to the Australian Journal of Islamic
Banking and Finance)
4
Depositors’ Withdrawal Behavior in Indonesian Islamic Banks
Rifki Ismal
Lecturer
Faculty of Economics,
University of Indonesia, Depok, Indonesia
Muhamad Abduh
IIUM Institute of Islamic Banking and Finance,
International Islamic University Malaysia, Kuala Lumpur, Malaysia
Abstract
Purpose – This paper aims to investigate factors determining depositors’ withdrawal behavior
based on the empirical survey of the Indonesian Islamic banking industry.
Design/methodology/approach – This paper conducts a direct survey towards Islamic banking
depositors in Indonesia. Particularly, it uses a combination of open and close questions assessing
information about depositors’ withdrawal behavior under different circumstances. Then, it
analyzes such primary data with statistical tool to find information and factors determining
depositors’ withdrawal behavior.
Findings – Firstly, the paper finds the general factors causing depositors to take their money
which is if the Islamic banks do not comply with Sharia. Secondly, it finds the specific factors,
which are: (i) the willingness to adjust the tenor of deposits, (ii) the need of funds for transactions
and, (iii) less payment of return sharing on deposits than the previous period. Further, it is also
found that depositors tend to deposit funds in Islamic banks rather than Islamic windows and
most of them have income of less than Rp5 million per month. Meanwhile, with regard to
interaction with the sources of information, news in the newspapers and news on the TV are the
dominant ones influencing the depositors banking behavior. However, in the daily life, they
interact intensively with internet. As such, this paper recommends Islamic banks to keep
complying with Sharia and maintaining the robust performance in order to be able to pay positive
and competitive return sharing on deposits. Further, they need to intensify internet banking
facilities to conduct intensive communication with depositors, facilitate the depositors’
transactions and monitor their schedule of withdrawals to manage deposit withdrawals.
Originality/value – This paper conducts an empirical research on deposit withdrawals and
provides useful recommendations for Islamic banks in Indonesia to manage the potential deposit
withdrawal. The best of authors’ knowledge, this is the first paper trying to analyze the deposits’
withdrawal in Indonesian Islamic banking emphasizing on the psychological aspects of
depositors to withdraw money and their interaction with the banks and media.
Paper type: Research paper
Keywords: Withdrawal risk, Islamic banking, Indonesia
5
1. Background
Islamic banking and finance is experiencing a rapid acceleration worldwide. According to the
report released by The Banker Magazine which conducted a worldwide survey of the
development of Islamic financial institutions during 2009, the assets held by Islamic commercial
banks and Islamic windows of the conventional banks rose 28.6% from USD639 billion in 2008
to USD822 billion in 20091. Whereby, the conventional banks’ assets posted only 6.8% annual
growth within the same period2. This is a two digit growth shown by the industry despite the
severe impact of the global financial crisis 2008-2009.
In the case of Indonesia, the development of Islamic banking can be traced from the
establishment of Bank Muamalat Indonesia, the first Islamic bank, in 1992. Even though
Indonesia is a country with the largest Muslim population in the world, the establishment of its
first Islamic bank in 1992 was actually ten years behind Malaysia and Turkey, and almost twenty
years behind Dubai which established its first Islamic commercial bank in 1975 namely, Dubai
Islamic bank.
Nonetheless, the Indonesian Islamic banking industry has been growing promisingly in
the last two decades with the rate of growth between 50-60%. It can be seen from the
performance of several Islamic banking indicators such as the number of Islamic commercial
banks (BUS), Islamic windows (UUS), Islamic rural banks and, their branches. Moreover, the
total assets, total financing, as well as total deposits managed by Islamic banking industry also
show a significant growth.
Until December 2009, for instance, there were six Islamic commercial banks (i.e., Bank
Syariah Mandiri, Bank Muamalat Indonesia, Bank Syariah Mega Indonesia, BRI Syariah,
BUKOPIN Syariah, and PANIN Syariah) with 711 branches and twenty five Islamic windows of
the conventional banks with 287 branches. The total number of Islamic rural banks also increased
significantly from 105 in 2006 to 138 in 2009. As a result, there were 1,223 branches of Islamic
banks spreading in the country (see table 1 below).
Table 1. Islamic Banking Networks
Islamic Banks Year
1992 1999 2002 2006 2009
Islamic commercial banks 1 2 2 3 6
Islamic windows 0 1 6 20 25
Islamic rural banks 9 78 83 105 138
Number of branches 1 40 127 637 1223 Source: Bank Indonesia monthly statistics.
Besides the growing number of offices and branches, table 2 in the following delivers
further information related to total assets, financing and deposits besides Financing to Deposit
Ratio (FDR) and, Non Performing Financing (NPF). The total assets were recorded Rp70.14
trillion in February 2010 while total financing and deposits were Rp50.13 trillion and Rp54.60
trillion subsequently. All of them have been increasing for more than 40% on average.
6
Meanwhile, FDR has been lying between 100%-120% annually since 2001 while in the
conventional banks it is around 60%. NPF is between 2%-4% while the total banking industry
records 6%-8% Non Performing Loan (NPL). Not only that, the number of workers employed by
the industry also increases throughout the years. It means that the Islamic banking industry in
Indonesia has contributed to not only banking industry and real sectors but also to the decreasing
rate of unemployment.
Table 2. Selected Islamic banking indicators in Indonesia
Banking
Indicators
Years
2005 2006 2007 2008 2009 2010*
Total assets† 21,465 27,618 37,753 51,248 68,213 70,142
Total financing† 15,649 21,060 28,834 39,451 48,472 50,132
Total deposits† 15,918 21,193 28,729 37,827 53,521 54,609
Number of
workers 5,996 7,376 8,685 11,752 15,443 15,999
* Up to February 2010 † in billion Rupiah
Source: Bank Indonesia
With regard to the performance of deposits in Islamic banks, for the last 5 years,
Mudharabah time deposits have dominated the total deposits with the shares of 55%. The total
number of time deposit accounts in February 2010 reached 154 thousands. Following
Mudharabah time deposits are Mudharabah saving deposits which capture 32% of total deposits
and have 5 millions accounts. The last one is Wadiah demand deposit with 13% shares and 100
thousand accounts.
2. Potential Problems of Deposit Withdrawal Risk in Islamic Banks
Despite all positive banking indicators above, the Indonesian Islamic banking is like other
financial institutions. It faces various banking risks such as liquidity risk, exchange rate risk,
market risk, reputation risk, deposit withdrawal risk, credits risk. Amongst all risks, deposit
withdrawal risk is the most important one to be anticipated. Nonetheless, not many studies had
been done with respect to this risk in the case of Indonesian Islamic banking industry.
Particularly, the study that focuses on the psychological aspects of depositors towards their
deposit withdrawal behavior is never found in the literature so far.
The general study on liquidity risk management done by Ismal (2009b) addressed several
potential problems that might cause deposit withdrawals in Islamic banks. He said that for the
case of Indonesia as well as other countries having dual banking systems (Islamic and
conventional banks), liquidity risk is indeed very imperative risk to be managed by Islamic
banks. At least there are three reasons underlying his argument:
i. The Islamic banks operate side by side with the conventional ones and this requires
Islamic banks to perform well and always generate sustainable profit for their depositors.
ii. Islamic banking depositors expect the banks to pay competitive return and provide
comprehensive banking services.
7
iii. During the global financial crisis 2008-2009 especially when the conventional banks
offered attractive (higher) return on deposits, Islamic banks appeared into a dilemma. It is
because such high interest return on deposit caused a higher expected return on Islamic
deposits while the business was in downturn. This might lead into a displaced commercial
risk and at the end is the deposit withdrawal risk.
His study on liquidity risk is very close with the topic of deposit withdrawal risk.
However, he did not explore the psychological aspects of depositors and the interaction of
depositors with the media as communication tools between Islamic banks and depositors. With
regard to studying on deposit withdrawal, this paper attempts to answer the question of how
Islamic banking depositors behave towards some essential issues such as Sharia compliant issue,
rate of return on Islamic deposits, interaction with various media and, responses of depositors
with the rumor about financial crises that could probably lead to deposit withdrawals.
3. Depositors’ Behavior in Withdrawing Money from Islamic Banks
Hitherto, researches about depositors’ behavior to withdraw money in Islamic banks are rarely
found particularly the specific research which accommodates depositors’ attributes to withdraw
money from Islamic deposits. But, there are many researches which utilize macro economic
variables to explain volatility of deposits in the conventional banks.
Some literatures related to the study of deposit withdrawals in the conventional banking
institution are presented in this section (see table 3). First of all was the study of deposit behavior
done by Lauchlin Currie, the former analyst of United States Treasury Department. He said that
demand deposits were susceptible to all forces that affected the volume of media of exchange of
the community, whereas time deposits were affected more by factors that affected saving and
investing (Currie, 2004). He further said that:
“The remarkable stability of the deposits of mutual savings banks throughout the depression suggests
that the decline shown in commercial bank time deposits was not so much a reflection of the
entrenchment on savings for living expenses as it was attributable to withdrawals because of loss of
confidence.”
In fact, the situation when depositors loose his confidence on banks and hence take their
funds from banks is determined by several factors. For example, when studying about
individuals’ behavior on deposit withdrawal based on rumors of financial crisis, Takemura and
Kozu (2009) found that depositors, who believed in media as sources of information such as
weekly/monthly magazines, internet, and conducted conversations within the social community,
would be more susceptible in trusting banks. Most of them are likely to withdraw their deposits
from banks because of negative rumors in media or social community.
The other research done by Yada et al (2009) focused on the individuals’ deposit behavior
after they heard rumors about financial crisis. They found that individuals with the following
characteristics: high annual incomes, less known about deposit insurance, self employed or
working in a family business, are most likely to withdraw money from banks because of the
rumors of financial crisis. This was what they found in Japanese Banks.
8
The next research done by Gilkeson and Ruff (1996) studied the early liquidity withdrawals
in American Banks. They found that early liquidity withdrawals from depositors were mainly
motivated by reinvestment incentives. However, after three years, Gilkeson et al (1999) found the
different results than Gilkeson and Ruff (1996). They discovered that early withdrawals were
significantly sensitive to changes in interest rates and the need for liquidity rather than higher
return on investment.
Meanwhile, literatures related to the Islamic banking depositors’ withdrawal behavior are
for example Ahmed (2003) and Ahmed (2002). Ahmed (2003), by using some mathematical
notations and logic, concluded that asset preservation in terms of minimizing the risk of loss due
to a lower rate of return was an important factor explaining depositors’ withdrawal behavior. In
another paper, Ahmed (2002) arranged a survey involving 468 respondents and covered three
different countries, which are: Bahrain, Bangladesh, and Sudan. The result was summarized in
the following:
o Depositors would withdraw funds if there were rumors about the poor performance of
Islamic banks.
o In the short run, the lower rate of return would not force depositors to withdraw funds. But
in the long run, it might lead significant number of depositors to take their funds from
Islamic banks.
o Depositors would shift their funds to other banks because of the non Sharia compliant
Islamic banks.
o Depositors would shift their funds to other banks if they found out that some parts of the
banks’ incomes came from interest incomes.
Table 3. Selected Literatures Regarding the Depositors’ Behavior on Deposit Withdrawals
Auhtor(s)
(Year) Country Type of bank Findings
Currie (2004) USA Conventional
banking
Loss of confidence on banks would lead depositors
to withdraw funds.
Gilkeson and
Ruff (1996) USA
Conventional
banking
Early deposit withdrawals were motivated by
reinvestment incentives.
Gilkeson,
List, and
Ruff (1999)
USA Conventional
banking
1. The early deposit withdrawals were significantly
sensitive to changes in interest rates.
2. Most of early withdrawals were triggered by
depositors' liquidity needs rather than higher
returns on investment.
9
Lambert and
Simon (2000) Australia
Conventional
banking
1. Large depositors who were not covered by
deposit insurance would have a higher
motivation to withdraw money in banks than
smaller depositors who were are covered by
deposit insurance.
2. The ‘importance of deposit’ was shown to be
the most statistically significant factor affecting
the likelihood of deposit withdrawals.
3. Uninformed depositors would demonstrate the
antithesis of market discipline by running on a
sound financial institution if there was any
ambiguity or uncertainty surrounding the status
of their deposits.
Ahmed
(2003) General
Islamic
banking
Asset preservation in terms of minimizing the risk
of loss due to a lower rate of return was an
important factor determining depositors’ deposit
withdrawal behavior.
Ahmed
(2002)
Bahrain,
Banglades
h, and
Sudan
Islamic
banking
1. Depositors would withdraw funds if there were
rumors about the poor performance of banks.
2. In the short run, the lower rate of return would
not force depositors to take money from banks.
But in the long run, it might lead significant
number of depositors withdrawing funds from
their banks.
3. Depositors would shift their funds to other banks
if the Islamic banks are not Sharia compliance.
4. Depositors would shift their funds to other banks
if they found that some parts of the banks’
incomes came from interest incomes.
Takemura
and Kozu
(2009)
Japan
Conventional
banking
(rumors about
financial
crises)
1. Depositors, who believed in media as sources of
information such as weekly/monthly magazines,
internet, and conducted conversations within
social community, would be more likely to
withdraw their deposits from banks.
2. The increases in phone calls with friends and the
frequency of communication with neighbors and
colleagues in the working place also influenced
depositors to withdraw their funds from banks.
3. The tendency to withdraw deposits was affected
by the individuals’ attributes such as gender and
education.
10
Yada et.al
(2009) Japan
Conventional
banking
Individual with the following characteristics was
most likely to withdraw funds because of the
rumors about financial crises:
• High annual incomes,
• Less known about deposit insurance,
• Self employed/working in a family business.
Referring to the literatures above, this paper focuses on three important aspects as the
framework of its empirical survey on deposit withdrawal in the Indonesian Islamic banking
industry (see figure 1). Firstly, it investigates the responses of depositors against Islamic banks’
products and practices. Currie (2004), Gilkeson and Ruff (1996) and, Gilkeson, List, and Ruff
(1999) confirm the importance of this aspect. Secondly, it explores the banks’ rate of return on
deposits particularly when it is higher or lower than other banks. Gilkeson, List, and Ruff (1999),
Ahmed (2003) and Ahmed (2002) subscribe to this issue. Thirdly, it elaborates the impact of
rumor in media about financial/banking crisis. Lambert and Simon (2000), Takemura and Kozu
(2009) and Yada et.al (2009) address about this issue. At the end, the paper gives some
recommendations based on the result of empirical survey.
Figure 1. Framework of the Empirical Survey on Deposit Withdrawal in Indonesian Islamic Banks
4. Empirical Survey on Deposit Withdrawal Behavior
This paper conducts a direct survey to banking depositors. Particularly, it engages 232
respondents, consisting of 168 males (72.41%) and 64 females (27.54%). Most of the
respondents hold undergraduate degree (56.03%), followed by postgraduate degree (28.44%) and
senior high school (15.51%). Thus, this survey is believed representing the educated depositors
Islamic Banks’ products
and practices are not
Sharia compliance.
When the bank’s rate of
return is lower (higher)
than other banks.
There is a rumor in
media about
financial/banking crisis.
Empirical Survey to
depositors of the
Indonesian banks
The Result and
Recommendation
Depositors’ behavior
to (not to) withdraw
funds in Islamic banks
11
with good knowledge in banking and high frequency of dealing with banks especially Islamic
banks.
The following sub sections present the result of the empirical survey with regard to: (a)
general factors leading to deposit withdrawals, (b) specific factors leading to deposit withdrawals,
(c) analysis of type of depositors’ banks, (d) analysis of depositors’ incomes and amount of
deposits and, (e) the impact of media as sources of information.
4. 1. General Factors Leading to Deposit Withdrawals
The survey finds that depositors give much faith on the compliance of Islamic banking products
and operations with Sharia principles and practices. This factor is confirmed by 57.49% of total
respondents and implies that depositors have high expectation to Islamic banks to have Islamic
products and operate based on Sharia principles and practices. Whenever depositors find Islamic
banks violate Sharia principles and practices, it is most likely that they will take their money out
from the banks (deposit withdrawals). This group of depositors is commonly called religious
depositors (see table 4).
Table 4. General Factors Causing Deposit Withdrawals
General Factors Agree % Disagree %
If Islamic banks are not Sharia compliance. 192 57.49 33 9.88
If other banks offer higher return. 51 15.27 162 48.5
If financial crisis is going to occur. 91 27.25 120 35.93
Besides religious depositors, there are other groups of depositors who often compare the
return of Islamic deposits of all Islamic banks. They prefer the best (highest) return offered by
certain Islamic banks. This group of depositors is only recorded 15.26% of total respondents (see
table 4). However, from the perspective of liquidity management in particular managing deposit
withdrawals, the intention of this group to compare the return on Islamic deposits could
potentially cause volatility in the Islamic bank’s deposits. The liquidity may move among Islamic
banks and make certain Islamic banks difficult to plan for the robust long-term financing
portfolio. This group of depositors is commonly called return oriented depositors.
Then, there is another group of depositors who depend on the economic/business
condition to withdraw money from banks. Particularly, when there is an indication of
financial/economic crisis, they will take some monies from Islamic banks. Compared with the
first or the second group of depositors, this group is neither return oriented nor religious oriented.
For them, those two orientations are not their ultimate objectives; instead their demand for
liquidity depends on the up coming economic condition. This group of depositors is commonly
called economic condition depositors. In this survey, they take over 27.25% of total respondents
(see table 4).
4. 2. Specific Factors Leading to Withdrawing Funds
Following the general factors leading to deposit withdrawals, this sub section elaborates specific
factors directing depositors to take their funds from Islamic banks. In this case, four specific
factors are investigated, which are:
12
• Return sharing is paid less than the previous period.
• Return sharing is paid less than interest on conventional deposits.
• Willingness to adjust the tenor of deposits.
• The need of funds for transaction purposes.
The survey adopts a rating based computation to find the most influential factor and the
least influential factor. In every specific factor above, every respondent has to decide his/her
deterministic factor to withdraw money from Islamic banks. It can be either his/her 1st, 2
nd, 3
rd or
4th
factors. The highest weight of 4 is given to the 1st factor, 3 to the 2
nd factor, 2 to the 3
rd factor
and 1 to the 4th
factor. Finally, the rating scores are calculated by dividing total answers times
weight with total answers. The result is given by table 5 afterwards.
Table 5. Specific Factors Leading to Withdrawing Funds
Specific Factors Leading to Deposit Withdrawals Rating
Scores Final result
Willingness to adjust the tenor of deposits 3.52 1st factor
The need of funds for transaction purposes 2.34 2nd
factor
Return sharing is paid less than the previous period 2.16 3rd
factor
Return sharing is paid less than interest on conventional deposit 1.77 4th
factor
Among those four factors, the willingness to adjust the tenor of deposits stands as the rank
number one among depositors to withdraw funds from banks (see table 5). Following it is the
need of funds for transaction purposes (rank number two); the return sharing is paid less than the
previous period (rank number three) and; the return sharing is paid less than interest on
conventional deposits (rank number four).
Connecting these specific factors with the general factors delivers some important
messages with regard to managing liquidity in Islamic banks as in the following:
1. If Islamic banks operate Islamically and the economy is stable (pleasant to support the
business activities), the intention of depositors to withdraw money is only for adjusting the
tenor of deposits. Normally, depositors look for the highest return sharing ratio of the sets of
deposit’s tenors. As such, promising the highest return sharing in the longer term deposit
tenor is recommended.
2. Besides adjusting the tenor, for those who need immediate liquidity, their intention is to fulfill
the routine transaction needs. Recognizing that the deposits grow progressively in the last two
decades, it can be assumed that the demand for liquidity for such transaction motive is not
significant or relatively normal (see figure 2). Further, the volatility of deposits is shown
increasing meaning that the incoming funds is higher than the outgoing funds (see figure 3).
3. The last two specific factors belong to the return oriented depositors. For them, withdrawing
funds refers to the highest return paid in between the current period and the previous one and
the interest return pain in conventional deposits. As such, if the economy is stable and the
banks operate Islamically, maintaining the robust banking performance is one way to prevent
deposit withdrawal from return oriented group of depositors.
13
Figure 2. Total Deposits in Islamic Banks Figure 3. Volatility of Deposits
0
10000000
20000000
30000000
40000000
50000000
60000000D
ec
-00
Ju
n-0
1
De
c-0
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Ju
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2
De
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4
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4
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5
De
c-0
5
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n-0
6
De
c-0
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n-0
7
De
c-0
7
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n-0
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De
c-0
9
-10,000,000
-5,000,000
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
De
c-0
0
Ju
n-0
1
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c-0
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n-0
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c-0
9
Wadiah demand deposits
Mudarabah saving deposits
Mudarabah time deposits
Source: Bank Indonesia Source: Bank Indonesia
4. 3. Analysis of Type of Depositors’ Banks
After knowing the general and specific factors that might cause liquidity withdrawals, this sub
section exercises the type of banks where depositors save their funds. Interestingly, the survey
identifies that most of the respondents (90.94%) save their funds in Islamic banks (BUS) rather
than Islamic windows (Islamic unit) (UUS). Realizing the legal status of BUS as full fledge
Islamic banks and independent from the parent company (such as in UUS), such preference is
very reasonable. In fact, Islamic banks in the country have been equipped with the office
channeling facility, which is using the existing networks of the parent company (for UUS) or
shareholder bank (for BUS), to reach depositors from rural areas.
With respect to the resilience of Islamic banks against severe deposit withdrawals from
depositors, BUS has some advantages in terms of size of the institution, legal status, banking
operations, etc. Meanwhile, UUS is only a unit in the parent company (conventional bank) so that
their resilience against severe deposit withdrawals is not as strong as BUS. Nonetheless unlike
BUS, UUS have an option to borrow funds from the parent company to mitigate unanticipated
liquidity withdrawals.
4. 4. Analysis of Depositors’ Incomes and Amount of Deposits
In addition to the analyses of the depositors’ banks, this part assesses the approximate incomes of
depositors and their saving allocation in banks. Regarding the incomes of respondents, most of
them have incomes of less than Rp5 million per month (66.38%). Following it are the
respondents who have incomes between Rp5 million – Rp10 million per month, between Rp10
million – Rp25 million per month and, more than Rp25 million per month (see table 6). Hence,
this survey reveals that most of the Islamic banking depositors are those coming from middle to
low incomes group of depositors.
14
Table 6. Range of Incomes of Respondents
Incomes of Depositors Number %
Less than Rp 5 million per month 154 66.38
Between Rp 5 – 10 million per month 47 20.26
Between Rp 10 – 25 million per month 19 8.19
More than Rp 25 million per month 12 5.17
Those facts correlate with the amount of deposits deposited by depositors in Islamic
banks. Because most of the respondents are from the middle to low incomes groups of depositors,
the amount of their deposits in Islamic banks is mostly less than Rp5 million per month as
declared by 134 respondents of the survey. Meanwhile, the same amount of deposits in
conventional banks is recorded higher than the one in Islamic banks as informed by 181
respondents of the survey (see figure 4).
Figure 4. Amount of Deposits in Islamic and Conventional Banks
0
20
40
60
80
100
120
140
160
180
200
Less than Rp 5 million
per month
Between Rp 5 - Rp 10
million per month
Between Rp 10 - Rp 25
million per month
More than Rp 25 million
per month
Islamic Banks
Conventional Banks
number of respondents
Nonetheless, for the amount deposits between Rp5 – Rp10 million per month, depositors
of Islamic banks have more amount of funds than depositors of conventional banks (see figure 4).
In this group of incomes, there are 49 respondents of Islamic banking depositors and only 29
respondents of conventional banking depositors. The rests of the amount of deposits (between
Rp10 million – Rp25 million and more than Rp25 million) are relatively less significant to be
compared with the previous two amount of deposits.
In addition, the industrial data reveals that on average, 97.44% of 4.3 million total
accounts belong to individuals and Mudarabah time deposits are found to be the favorite deposit
for them with the amount of Rp13.2 trillion or equivalent with 94.08% of total accounts (Ismal,
2009a). The frequency of depositing money is noted two times per month and Bank Muamalat
Indonesia is their favorite bank for that time deposit account (Mars, 2008).
These findings deliver some essential messages related to deposit withdrawals and
liquidity management in Islamic banks which are:
15
i) Most of the depositors of Islamic banks are retail depositors from middle to low incomes
groups of depositors and have the amount of deposits of less than Rp5 million per month. It is
believed that constructing an optimal portfolio financing of the funds coming from so many
retail depositors with small amount of deposits is much difficult than the funds coming from
big depositors with high amount of deposits and clear schedule of withdrawals.
ii) Such retail depositors, as they have small amount of deposits, tend to have high frequency of
deposit withdrawals. Information from this survey as well as from the industry should alert
the Islamic banking industry about the potential problem of withdrawal risk. Especially, the
potential of short-term deposit termination from these groups of depositors.
iii) Most of the depositors of Islamic banks have two accounts, in Islamic banks and conventional
banks. Interestingly, for the less than Rp5 million deposits, depositors locate most of them in
conventional banks. This can be interpreted that they still position Islamic banks indifferently
with conventional banks. Further, they use Islamic banks for transaction purposes rather than
investment purposes.
4. 5. The Impact of Media/Social Community as Sources of Information
The last exercise is about the impact of media/social community as sources of information for
depositors to (not to) take money from Islamic banks. There are two observations for this purpose
namely: (i) the depositors’ preference in interacting with media as sources of information and, (ii)
the frequency of interaction with media as sources of information. For the former, seven
media/social community as sources of information are asked to depositors, namely:
o News in newspapers
o News on TV
o News in magazines
o News from colleagues in the office
o News from internet
o News in blog/email
o News from neighbors
The same as computing the specific factors leading to withdrawing funds, the result
observation is determined by a rating based computation. Respondents have to rate the most
preferred source of information. The highest weight of 7 is given to the 1st source, 6 to the 2
nd
source, 5 to the 3rd
source, 4 to the 4th
source, 3 to the 5th
source, 2 to the 6th
source and 1 to the
7th
source. Then, the rating score is calculated by dividing total answers times weight with total
answers. The result is given by table 7 afterwards.
Table 7. Sources of Information for Depositors
Interaction with Media/Community as
Sources of Information
Rating
Scores Final Result
News in newspapers 3.44 1st source
News on TV 3.34 2nd
source
News in magazines 3.32 3rd
source
16
News from colleagues in the office 3.16 4th
source
News from internet 3.12 5th
source
News in blog/email 2.99 6th
source
News from neighbors 2.97 7th
source
The table expresses that, depositors prefer interacting with electronic media to interact
with people. Among those seven media/social community as sources of information, the top three
are: news in newspapers (the 1st rank), news on TV (the 2
nd rank) and, news in magazines (the 3
rd
rank). The rests are: news from colleagues in the office (the 4th
rank), news from internet (the 5th
rank), news in blog/email (the 6th
rank), and news from neighbors (the 7th
rank).
Furthermore, the frequency of interaction with media/social community as sources of
information studies the frequency of depositors’ interaction with those seven media/social
community above. Respondents have to rate the most frequent source of information used in their
daily activities. The highest weight of 7 is given to the 1st source, 6 to the 2
nd source, 5 to the 3
rd
source, 4 to the 4th
source, 3 to the 5th
source, 2 to the 6th
source and 1 to the 7th
source. Then, the
rating score is calculated by dividing total answers times weight with total answers as given by
table 8 below.
Table 8. Frequency of Using Media as Sources of Information
Frequency of Using the Sources of Information Rating
Scores Final Result
Reading news on internet 3.88 1st source
Reading news from blogs 3.63 2nd
source
News/information from colleagues in the office 3.54 3rd
source
Watching TV 3.53 4th
source
Reading newspapers 3.50 5th
source
Reading magazines 3.13 6th
source
News/information from neighbors 2.92 7th
source
The rating interestingly informs that reading news from internet stands in the 1st rank
followed by reading news from blog in the 2nd
rank and news/information from colleagues in the
office. The top three preferred sources of information in table 7 before sit in the next ones. The
last source of information frequently used by depositors is news/information from neighbors.
Finally, the two observations suggest some interesting facts related to managing liquidity
withdrawals from depositors and their withdrawals behavior. Those are:
o Depositors prefer interacting with media (newspaper, TV and magazine) to interacting
with human to gain information. Nonetheless, in the daily activities, they frequently
occupy internet and blog. Hence, in order to control and manage the liquidity
withdrawals of depositors, Islamic banks could post information via internet such as in
their website, TV website, mailing list, etc.
o Islamic banks should intensify internet banking facilities to facilitate the depositors’
transactions and monitor their schedule of withdrawals.
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o Islamic banks should do intensive communication via internet with their depositors to
manage the liquidity withdrawals
5. Policy Recommendations
Based on the result of empirical survey above, there are some policy recommendations to
be implemented by Islamic banks and all related parties in order to properly manage deposit
withdrawals. Such policy recommendations are:
a) Islamic banks should keep maintaining the compliance with Sharia particularly with
respect to their banking products and banking operations. This is very important
recommendation to keep maintaining the trust and positive expectation of depositors to
the banks.
b) Islamic banks should have a robust portfolio financing in order to be able to pay positive
and competitive return on Islamic deposits and a conversion of UUS to BUS is
recommended as depositors prefer BUS to deposit their funds to UUS.
c) Intensive communication with retail depositors needs to be established to successfully
manage the deposit withdrawals from depositors.
d) Particularly, communication via newspapers, TV and internet is so recommended as most
of depositors deal with those media to search information about their Islamic banks.
6. Conclusion and Areas for Future Research
Islamic banking is a growing industry worldwide unexceptionally in Indonesia. In fact, the
country has had a promising Islamic banking industry in the last two decades. However, the same
as other financial institutions, Islamic banks in Indonesia face some risks and one of the
important risks to be anticipated is withdrawal risk. There are limited literatures studying this
type of risk and the paper attempts to study the withdrawal behavior of depositors in Indonesian
Islamic banks.
The paper finds that in general depositors consider the compliance of Islamic banks with
Sharia principles and practices as the most important factor determining deposit withdrawals.
Then, there are three specific factors determining deposit withdrawals namely: (i) if the return
sharing is paid less than the previous period; (ii) if the return sharing is paid less than interest on
conventional deposits and; (iii) the willingness of depositors to adjust the tenor of deposits.
Further, the paper finds that Islamic banks (BUS) is preferred than Islamic windows
(UUS) and most of depositors of Islamic banks come from middle to low incomes groups of
depositors. Then, in terms of effective communication with depositors, sharing news via
newspapers, TV and internet is the most effective way to do.
For the future research, it would be more informative if corporate depositors are included
in the survey and analysis since this paper only concentrates on individual depositors. This would
hopefully give more comprehensive analysis on the management of deposit withdrawals in
Islamic banks. The other idea is to use the more sophisticated statistical tools for the analysis
such as applying logit/probit model, Bayesian approach and, dynamic model to give more
information on this issue. A cross country research on this issue is also recommended to study the
18
similarities and differences of the deposits withdrawals and to find the best solution to improve
the current practices of deposit withdrawals in Islamic banking industry.
Notes
1 The Banker. (2010). http://top500islamic.thebanker.com/index. Access date 21st April 2010.
2 Arabian Business. (2010). http://www.arabianbusiness.com. Access date 21
st April 2010.
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