Agency problems in Mudarabah financing: The case of Shari’ah rural banks, Indonesia

Mudaraba financing in Indonesian Rural Shari‘a banks gives rise to many agency problems. The project attributes and the Mudaribs’ attributes that are financed by the banks under consideration are investigated in the study. The Mudaraba projects point of view considers six attributes. They are: the prospect of project, availability of collateral, healthiness of project, project’s financial statements, clarity of contract conditions, and conformity of time period. There were five Mudarib attributes that are considered important are five: business capacity, (personal) collateral, Mudarib’s reputation and family background, and their business commitments. These attributes can be further analyzed into five most important factors. They include the skill, reputation and commitment in business of the Mudarib and the financial report and the length of contact of the project.