Revisiting the Contribution of Islamic Banks’ Financing to Economic Growth: The Indonesian Experience

Abstract

The contribution of Islamic banking towards economic growth remains debatable amongst academicians and practitioners. This study investigates the relationship between Islamic banks’ financing and economic growth in Indonesia which is the largest Muslim population country. This study adopts Autoregressive-Distributed Lag (ARDL) and utilizes time-series quarterly data from 2011Q1 to 2019Q3. The study uses four predictors: financing to deposit ratio; inflation; gross capital fixed formation; and trade openness. The results from the auto-regressive distributed lag model indicate that, in the long-run, Islamic banks' financing has a significant impact on the Indonesian economy. However, in the short-run, financing does not make a substantial contribution to Indonesian economic growth. The study’s key implication is that financing by Islamic banks still makes a limited contribution to economic growth in Indonesia. This study enhances the literature review, specifically on evaluating the contribution of Islamic banks towards economic growth. Numerous existing studies on this topic covering the crisis period data, which might suffer from data bias. Therefore, this study addresses this topic, excluding the global financial crises period such as 1998, 2008, and 2020, to demonstrate Islamic banks' evident contribution to Indonesian economic growth.

The Pengaruh Kinerja Keuangan Perbankan Syariah Terhadap Produktivitas Umkm Dan Dampaknya Pada Pertumbuhan Ekonomi Indonesia

“…Hal ini mencerminkan bahwa pembiayaan yang disalurkan oleh perbankan syariah mampu mendorong perputaran siklus bisnis di Indonesia dengan peningkatan konsumsi maupun produksi bagi pelaku ekonomi yang menggunakan layanan berbasis syariah. Secara makroekonomi, hal ini terbukti berdampak pada peningkatan pertumbuhan ekonomi (Supriani et al, 2021).…”

“…Hal ini disebabkan karena, proporsi perbankan syariah dari seluruh industri perbankan di Indonesia masih sangat kecil yaitu 6,52 % (Otoritas Jasa Keuangan, 2021). Penelitian ini mendukung hasil penelitian terdahulu yang dilaksanakan oleh Supriani et al, (2021) yang menyebutkan bahwa dalam jangka pendek, perbankan syariah tidak berkontribusi signifikan terhadap pertumbuhan ekonomi. Sementara, hasil penelitian ini tidak sejalan dengan hasil penelitian Anita (2018); Nuriyah et al, (2018); yang membuktikan bahwa kinerja keuangan perbankan berpengaruh signifikan terhadap pertumbuhan ekonomi.…”

Effectiveness of Islamic Monetary Policy Transmission on Inflation and Economic Performance

“…Islamic banking financing is used to support the real sector through profit loss sharing cooperation agreements (Mubarok, 2021;Supriani et al, 2021). Financing with the sharia principle will increase the productivity of the community so as to enhance the real outputs (Bananuka, et al, 2020;Meslier et al, 2020).…”

Islamic Finance-Growth Nexus: Evidence from Indonesia

“…The financial sector is related to economic growth through its function of distributing funds to sectors in need so that a developing financial sector will strengthen the allocation of sources of funds for 141 p-ISSN: 2503-4235 economic growth. Furthermore, research on the Islamic financial industry is still very limited, as the majority of existing studies only look at the financial industry in the stock/capital market sector (Kapaya, 2020;Tan & Shafi, 2021), banking (Anwar et al, 2020;Elmawazini et al, 2020;Ledhem & Mekidiche, 2020;Supriani et al, 2021), bonds Smaoui & Nechi, 2017), and the insurance industry (Mainata & Pratiwi, 2019;Muye & Hassan, 2016;Osei-Bonsu et al, 2021) separately.…”