Revisiting Profit-Loss Sharing Financing: A Behavioral Intention Perspective through the Extended Valence Framework

Abstract

The low level of profit-sharing financing (PLS) requires a multidimensional study to explore why this type of financing, a hallmark of Islamic financial institutions, is underutilized. Unlike previous studies that relied on financial analysis, this study aims to analyze the factors influencing the intention to adopt PLS financing by examining the behavioral intentions of Islamic bank customers in Indonesia. Guided by the Extended Valence Framework, this study adopted perceived benefits, perceived risks, and Islamic financial knowledge as independent variables, while trust served as an intervening variable. Using purposive sampling, data were collected from 151 respondents, which were then analyzed using the partial least squares method. The main findings of this study indicate that perceived benefits play a significant role in building public trust in profit-sharing financing, ultimately influencing customers' financing decisions. Meanwhile, perceived risks undermine their trust and reduce their intention to adopt PLS financing. This study interestingly discovered that knowledge of sharia finance affects trust but not the desire to use PLS contracts. These results indicate that PLS adoption intentions are formed through evaluations of benefits, risks, and trust, rather than knowledge of Islamic finance. These findings have practical implications for Islamic banking institutions, especially in creating marketing strategies for PLS financing that highlight the benefits customers can experience and assure them of effective risk management to enhance their intention to adopt it