Exploring Determinants of Saving and Financing Aspects in Islamic Banks: An Insight from Indonesia

Abstract

Savings and financing are two significant products of Islamic banking in Indonesia. This study examines the relationship between these two products and key macroeconomic factors. The data was gathered from the Central Bank of Indonesia (BI), the Financial Services Authority (OJK), and the Indonesia Statistics Bureau (BPS). The profit-sharing rate (PSR) and profit and loss sharing (PLS) were examined using a mixture of the addition and balanced average approaches, whereas the relationships among the variables were analyzed using Pearson’s and Spearman’s rank correlation coefficient tests. The findings show a statistically significant correlation between the investigated variables. It was discovered that interest rates, inflation, the consumer price index, the currency rate, and the stock price index all influence savings and financing. There was a negative association between savings and inflation, but there was no relationship between savings and profit-sharing ratios. These findings have policy development implications for Islamic banking in Indonesia in terms of savings and financing options.

Interconnection of Inflation, Bi Rate, and Exchange Rate on Mudharabah and Murabahah Financing

“…causing difficulties in the operation of Islamic institutions, especially in the distribution of funds through mudharabah financing. The findings of this study are consistent with (Bashir et al, 1993;Mansur, 2019;Musa et al, 2022) The results of the Impulse Response Function Test show that shocks caused by inflation variables are responded positively by the mudharabah, indicating that one standard deviation of rising inflation will increase mudharabah financing income. According to Keynes's theory, when the economy expands and aggregate demand causes inflation, there is a high probability that people will earn more money.…”

“…Changes in interest rates do not have a significant impact on a customer's ability to repay a loan when the bank's management is able to allocate available funds to creditworthy clients. The findings of this investigation are consistent with (Ercan et al, 2021;Hamza &;Saadaoui, 2018;Karim et al, 2017;Musa et al, 2022) The results of the Impulse Response Test (IRF) show that mudharabah responds negatively to the stimulus that occurs in the BI Rate variable. The rise and fall of interest rates at conventional banks can have an impact on individual investments.…”

“…And a price increase of 100 percent or more will result in a loss of public confidence in the currency and a tendency to invest in assets or other forms of security. The findings of this study are consistent with (Al-Shaghdari et al, 2023;Kamila &;Suhartanto, 2019;Musa et al, 2022;Priyadi et al, 2021) Based on the results of the Impulse Response Function (IRF) test, it has been determined that murabahah responds positively to the impact that occurs on inflation variables. This implies that an inflation shock of 1 standard deviation will increase murabahah financing income.…”