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Jurnal Ekonomi Malaysia

53 (2) 2019 139 – 152

Sharia Banking Dynamics and the Macroeconomic Responses: Evidence from Indonesia
Kedinamikan Perbankan Syariah dan Tindak Balas Makroekonomi: Bukti dari Indonesia

Radius Prawiro Building 6th Floor
Jl. Dr. Wahidin 1
Jakarta – Indonesia

alfan.mansur@gmail.com

Abstract

Sharia banking industry in Indonesia has been established since early 1990s and growing remarkably after 1998. How the industry contributed to the Indonesian economy and what shocks drove the sharia banks’ credit in Indonesia were investigated in this paper using a Structural Vector Auto-regression (SVAR) model with recursive short run restrictions as its identification strategy. The results showed that GDP growth, core inflation, and business activity responded to increase in sharia banks’ financing positively, but with lags. Expanding sharia financing by 1 percent boosted up GDP growth by 0.06 percent. In the short-run, the contribution of sharia banks’ financing to the macroeconomic variables was limited, but it then escalated in the long run with the main channel of transmission through its ability to drive
people’s purchasing power. Another result showed that sharia banks’ financing had a negative relationship with the central bank’s monetary policy. In order to improve the performance of sharia banking in Indonesia, the demands of domestic sharia financing have to be strengthened with regards to the large number of Moslems in Indonesia. At the same time, Islamic banks have to improve their business processes. Rather than capping their profit margins or murabahah-based financing, they should promote more profit sharing mudharabah-based financing with prioritizing principle of mutual help among Moslems.

Keywords

macroeconomic variables; Sharia banks’ financing; Shock; Structural Vector Auto-regression (SVAR)

Author’s Acknowledgement

The author would like to thank the Indonesian Financial Services Authority as well as the participants in the Forum Riset Ekonomi dan Keuangan Syari’ah (FREKS) XVI, 12–13 September 2017 held in Solo. In particular, the author thanks to Dr. Irwan Trinugroho from Sebelas Maret University and Dr. Doddy Setiawan from the Indonesian Financial Services Authority for their constructive comments and suggestions. The author’s gratitude is also given to Pusbindiklat LIPI for providing the opportunity to the author to take part in Researchers’ Functional Education Training Course. Also, thanks to Professor Dr. Dewa Ketut Sadra Swastika from the Indonesian Center for Agricultural Socio-Economics and Policy Studies, The Ministry of Agriculture for his valuable supervision and guidance in the completion of this article.

http://dx.doi.org/10.17576/JEM-2019-5302-10
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Mansur, (2019). Sharia Banking Dynamics and the Macroeconomic Responses: Evidence from Indonesia. Jurnal Ekonomi Malaysia, 53(2), 139–152. http://dx.doi.org/10.17576/JEM-2019-5302-10

@article{mansur2019sharia,
  title={Sharia Banking Dynamics and the Macroeconomic Responses: Evidence from Indonesia},
  author={Mansur, Alfan},
  journal={Jurnal Ekonomi Malaysia},
  volume={53},
  number={2},
  pages={139—152},
 

year={2019},
}

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