The project is designed to strengthen the research capacities of Indonesian universities in the field of banking and finance by training and by increasing the international exposure of scholars and students to help them attain higher research standards in the field of banking and finance.
The target country, Indonesia, is confronted with the need to improve the capacity in research and innovation. The Indonesian universities’ contribution to international research environment is far behind some neighbouring countries such as Thailand, Malaysia and Singapore. As an example, the number of scientific publications of Indonesian scholars in reputable international journals are around 9,000 which is behind the three neighbouring countries mentioned earlier (Malaysia 23,000; Singapore 17,000; and Thailand 13,000) even though Indonesia has more human resources in terms of lecturers and students. Regarding ranking of Indonesian universities, only 2 (University of Indonesia and Bandung Institute of Technology (ITB)) are ranked in the top 500 universities in the world. According to the strategic planning of the Ministry of Research, Technology and Higher Education (MRTHE) of Indonesia, by 2019, at least 10 Indonesian universities should be included in the top 500 universities in the world, particularly, with respect to research quality assessment. Moreover, the objective of the government is also to increase the number of centers of excellence in Indonesia.
To move forward and fully develop their research capacities, Indonesian universities face the lack of: (i) teaching staff holding a PhD degree (according to the recent data from the MRTHE of Indonesia, only 12.76% of university lecturers hold a PhD degree); (ii) training in research methodologies and academic writing abilities to conduct and disseminate research; (iii) peer and external review mechanisms to ensure quality and relevance of academic research and; (iv) standards for the evaluation of research output/quality of research.
While, in the recent years, the Indonesian government has implemented new policies and programs to accelerate the quantity and quality of scientific publications, to increase the international exposure of faculty members (participation to international conferences, academic mobility), or to provide incentives for faculty members to undertake a PhD, more has to be done to further develop research capacities. In order to strengthen existing PhD programs, the Indonesian government has established competence standards for PhD programs in terms of output quality by requiring students to publish before their PhD defense. Although PhD programs exist in many large Indonesian universities, productivity of scientific publications is relatively low.
Strengthening research capacities in Banking is of particular importance for Indonesia. According to the European Report on Development 2015 “Indonesia Country Illustration”, there is a strong need to strengthen financial sector and financial stability in Indonesia. The damage due to the 1997/1998 financial crisis in Indonesia has highlighted that governance and risk management of banking institutions in this country should be strengthened to increase financial stability. The improvement of the quality of financial services is strongly needed to support the business and economy as a whole, particularly in providing access to financing especially to micro, small and medium enterprises in order to promote economic development. Moreover, the level of financial literacy and financial inclusion is relatively low in emerging economies such as Indonesia which means that financial deepening should be bolstered. Furthermore, some studies have revealed that Indonesian banking is relatively inefficient which creates a high cost of financial intermediation. Over the last few decades, Indonesian banking has been considered to be less efficient compared to its neighbouring countries (Trinugroho, Agusman and Tarazi, 2014, “Why have Bank Interest Margins been so high in Indonesia since the 1997/1998 Financial Crisis ?”, Research in International Business and Finance, vol. 32, August, pp. 139-158).
Finally, Islamic banking in Indonesia (banking institution providing Sharia-compliant financial products) has been growing significantly in recent years with an average asset growth of 33.2%, raising questions about the role of these new intermediaries and their impact on financial development.
In this regard, improvement of the quality of banking and finance research in Indonesia can play a vital role in financial system development. This project will allow to provide expertise to the different stakeholders (bankers, regulators, government) on the way to improve the governance of banking institutions and to assess the impact of the implementation of the new international banking regulatory framework (Basel III). Currently, banks, regulators or the government do not rely on the expertise of local researchers and appoint international experts when needed. Hence, the lack of strong academic base not only compromises the quality of research conducted in universities but also undermines the future employability of graduates from these universities. As these graduates will be the future decision-makers in banks or in regulatory bodies, enhancement of the quality of their university education will determine their prospects of getting appointed to high-level positions and their capacity to provide high-level expertise to banking regulators.
Focusing solely on Indonesia is explained by many factors. The size of the country (265 million population) and the strong heterogeneity of research capacities of higher education institutions (HEIs) within the archipelago will allow a large dissemination of the project’s outputs and be beneficial to HEIs from remote areas which experience difficulties in attracting and retaining well-trained scholars