Total Financing of Islamic Rural Banks and Regional Macroeconomic Factors: A Dynamic Panel Approach

Faaza Fakhrunnas

Abstract


Islamic rural bank is a special purpose of Islamic banks, which finances Small and Medium Enterprises (SMEs) in Indonesia. This research aims to investigate a long-run relationship of the influence of regional inflation and economic growth on the total financing of Islamic rural banks in Indonesia. By adopting panel dynamics approach, this study utilized a biggest Islamic rural bank in each Indonesian province from 2013 to 2017 based on quarterly data, which consisted of 420 observation period. The result of this study exhibited that a long-run relationship existed among regional inflation and economic growth to the total financing of Islamic rural banks. Specifically, the long-run relationship also appeared in big size Islamic rural banks, although it was not in small and medium size Islamic rural banks. Variance decompositions and Impulse response factors analysis’ result explained that the majority of all regional macroeconomic variables contributed to the influence of total financing on the Islamic rural bank. The directions of its influence were different from each sample group. According to the results, Indonesian central bank must maintain inflation rate in the safety level for financial industry by following determined inflation target through appropriate monetary policies. This recommendation for the central bank is aimed to maintain and boost Islamic rural banks’ financing that will give benefits for financial industry in Indonesia.

Keywords


Total Financing, Regional Inflation, Regional Economic Growth

Full Text:

PDF

References


Abedifar, P., Molyneux, P., & Tarazi, A. (2013). Risk in Islamic banking. Review of Finance, 17(6), 2035–2096. https://doi.org/10.1093/rof/rfs041

Asia Pacific Foundation of Canada. (2018). 2018 Survey of Entrepreneurs and MSMEs in Indonesia ; Building The Capacity of SMEs Through Human Capital.

Benczúr, P., Karagiannis, S., & Kvedaras, V. (2019). Finance and economic growth: financing structure and non-linear impact. Journal of Macroeconomics, 62, 1–28. https://doi.org/10.1016/j.jmacro.2018.08.001

Boyd, J. H., & Champ, B. (2006). Inflation, Banking, and Economic Growth. Federal Reserve Bank of Cleveland, 1–4.

Carlos, M., Ferreira, H., & Mendonça, D. (2011). Macroeconomic relevance of credit channels : Evidence from an emerging economy under inflation targeting. Economic Modelling, 28(3), 965–979. https://doi.org/10.1016/j.econmod.2010.11.012

Chiu, T.-K. (2017). Factors Influencing Microfinance Engagements by Formal Financial Institutions. Journal of Business Ethics, 143(3), 1–23. https://doi.org/10.1007/s10551-015-2811-1

Chong, B. S., & Liu, M. H. (2009). Islamic banking: Interest-free or interest-based? Pacific-Basin Finance Journal, 17(1), 125–144. https://doi.org/10.1016/j.pacfin.2007.12.003

Fakhrunnas, F., & Imron, M. A. (2019). Assessing Financial Risk and Regional Macroeconomic Influence to Islamic Rural Bank Performance. Global Review of Islamic Economics and Business, 7(1), 49–55. Retrieved from https://media.neliti.com/media/publications/296478-assessing-financial-risk-and-regional-ma-7edbb4fa.pdf

Fakhrunnas, F., Dari, W., & Mifrahi, M. N. (2018). Macroeconomic effect and risk-taking behavior in a dual banking system. Economic Journal of Emerging Market, 10(2), 165–176. https://doi.org/10.20885/ejem.vol10.iss2.art5

Farhan, M., Sattar, A., Chaudhry, A. H., & Khalil, F. (2012). Economic Determinants of Non-Performing Loans: Perception of Pakistani Bank. European Journal of Business and Management, 4(19), 87–99. Retrieved from https://www.iiste.org/Journals/index.php/EJBM/article/view/3588

Garcia-Herrero, A., Gavilá, S., & Santabárbara, D. (2009). What Explains the Low Profitability of Chinese Banks ? Journal of Banking & Finance, 33, 2080–2092. https://doi.org/10.1016/j.jbankfin.2009.05.005

Ibrahim, M. H., & Rizvi, S. A. R. (2017). Do we need bigger Islamic banks? An assessment of bank stability. Journal of Multinational Financial Management, 40, 77–91. https://doi.org/10.1016/j.mulfin.2017.05.002

Imam, P., & Kpodar, K. (2016). Islamic banking: Good for growth? Economic Modelling, 59, 387–401. https://doi.org/10.1016/j.econmod.2016.08.004

Juwana, H., Berlinti, Y. S., & Dewi, Y. K. (2014). Shariah Law As A System of Governance in Indonesia : The Development of Islamic Finance Law. Wisconsin International Law Journal, 25(4), 774–795. https://doi.org/10.1525/sp.2007.54.1.23

Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7

Otoritas Jasa Keuangan (2018). Statistik Perbankan Syariah. Retrieved from https://www.ojk.go.id/id/kanal/syariah/data-dan-statistik/statistik-perbankan-syariah/Pages/Statistik-Perbankan-Syariah---Desember-2018.aspx

Pedroni, P. (2000). Fully Modified OLS for Heterogeneous Cointegrated Panels. Advances in Econometrics, 15, 93–130. https://doi.org/10.1016/S0731-9053(00)15004-2

Pedroni, P. (2004). Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests With an Application to The Econometric. Econometric Theory, 20(3), 597–625. https://doi.org/10.1017/S0266466604203073

Perron, P. (1991). Test Consistency with Varying Sampling Frequency. Econometric Theory, 7(3), 341-368. https://doi.org/10.1017/S0266466600004503

Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modeling approach to cointegration analysis, in Strom, S. (Ed.). Paper presented at Econometrics and Economics Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, Cambridge University Press, Cambridge.

Rosylin, M. Y., & Bahlous, M. (2013). Islamic banking and economic growth in GCC & East Asia countries. Journal of Islamic Accounting and Business Research, 4(2), 151–172. https://doi.org/10.1108/JIABR-07-2012-0044

Sari, M. D., Bahari, Z., & Hamat, Z. (2016). History of Islamic Bank in Indonesia : Issues Behind Its Establishment. International Journal of Finance and Banking Research, 2(5), 178–184. https://doi.org/10.11648/j.ijfbr.20160205.13

Sufian, F. (2009). Determinants of Bank Profitability in a Developing Economy : Empirical Evidence from the China Banking Sector Determinants of Bank Profitability in a Developing Economy : Empirical Evidence from the China Banking Sector. Journal of Asia-Pacific Business, 10(2009), 37–41. https://doi.org/10.1080/10599230903340205

Tan, Y., & Floros, C. (2012). Bank profitability and inflation : the case of China. Journal of Economic Studies, 39(6), 675–696. https://doi.org/10.1108/01443581211274610

Undang-Undang Nomor 21 Tahun 2008 Tentang Perbankan Syariah.

Zarrouk, H., Ben Jedidia, K., & Moualhi, M. (2016). Is Islamic bank profitability driven by same forces as conventional banks? International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 46–66. https://doi.org/10.1108/IMEFM-12-2014-0120

Zulkhibri, M., Naiya, I., & Ghazal, R. (2015). Structural Change and Economic Growth in Selected Emerging Economics. International Journal of Development Issues, 14(2), 98–116. https://doi.org/10.1108/MBE-09-2016-0047




DOI: https://doi.org/10.18196/jesp.21.1.5028

Refbacks

  • There are currently no refbacks.


Copyright (c) 2020 Jurnal Ekonomi & Studi Pembangunan

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

 

Office:
Redaksi JESP UMY, Gedung E2 Lantai 2, Fakultas Ekonomi dan Bisnis, Universitas Muhammadiyah Yogyakarta
Jalan Brawijaya, Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta 55183
Telp: (0274) 387656 ext.184
Fax: (0274) 387646
Email: jesp@umy.ac.id


Jurnal Ekonomi & Studi Pembangunan (JESP) is licensed under Creative Commons Attribution-ShareAlike 4.0 International.