Article Sidebar

Download
Full text PDF
Statistic
Read Counter : 19 Download : 26

Main Article Content

Abstract

This study aims to analyze the factors that affect the distribution of financing in Islamic commercial banks in Indonesia for the period 2015–2023 with quarterly panel data on 34 Islamic commercial banks. This study applies the dynamic panel regression method with the GMM system. The results show that market power, as measured by the Lerner Index, has a significant negative effect, indicating that a less competitive market structure is suppressing financing expansion. Internal factors such as profits and bank size have a positive effect, while capital adequacy reduces financing disbursement. In profit-sharing financing (PLS), risk-based variables such as NPF and profitability have a significant negative influence, while bank size and economic conditions have a positive effect. Non-profit sharing (Non-PLS) financing is more sensitive to operational efficiency, financing risks, and macroeconomic conditions. The COVID-19 pandemic has been proven to reduce financing in all categories, especially PLS, which have higher risks. Overall, the results of the study confirm that the financing behavior of Islamic banks in Indonesia is influenced by a combination of market dynamics, the fundamental strength of banks, risk quality, and macroeconomic conditions, with significant differences between profit-sharing and non-profit-based financing.

Keywords

Financing Lerner Bank Fundamentals Macroeconomics

Article Details

License

Copyright (c) 2025 Arifa Pratami, Mohammad Nasrul Hakim Roslan, Ismail Ismail

Creative Commons License

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

How to Cite
Pratami, A., Roslan, M. N. H., & Ismail, I. (2025). Determinants of financing in Indonesian Islamic banking. Economics, Finance, and Business Review, 2(2), 67–77. https://doi.org/10.20885/efbr.vol2.iss2.art1
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Ardana, Y., & Nurmalia, G. (2025). Determination of Islamic social responsibility disclosure in Indonesian sharia commercial banks. Economics, Finance, and Business Review, 2(1), 32–42. https://doi.org/10.20885/efbr.vol2.iss1.art4
  2. Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58(2), 277–279. https://doi.org/10.2307/2297968
  3. Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
  4. Fitrah, J., & Widarjono, A. (2024). The Effect of Bank Fundamentals, Profit-Loss Sharing Financing, and Covid-19 on the NPF of Islamic Commercial Banks in Indonesia. Mutanaqishah: Journal of Islamic Banking, 4(2), 205–217. https://doi.org/10.54045/mutanaqishah.v4i2.1952
  5. Hendri, Z., Wulandari, E., & Sollehudin Shuib, M. (2025). Do we need large Islamic rural banks? Economics, Finance, and Business Review, 2(1), 1–11. https://doi.org/10.20885/efbr.vol2.iss1.art1
  6. Ibrahim, M. H. (2016). Business cycle and bank lending procyclicality in a dual banking system. Economic Modelling, 55, 127–134. https://doi.org/10.1016/j.econmod.2016.01.013
  7. Ibrahim, M. H., & Rizvi, S. A. R. (2018). Bank lending, deposits and risk-taking in times of crisis: A panel analysis of Islamic and conventional banks. Emerging Markets Review, 35, 31–47. https://doi.org/10.1016/j.ememar.2017.12.003
  8. Khattak, M. A., Ali, M., Khan, N. A., & Ahmad, F. (2022). the Adjusted Market Power, Competition, and Performance: Islamic Vs Conventional Banks. Journal of Islamic Monetary Economics and Finance, 8(4), 577–598. https://doi.org/10.21098/jimf.v8i4.1532
  9. Meslier, C., Risfandy, T., & Tarazi, A. (2020). Islamic banks’ equity financing, Shariah supervisory board, and banking environments. Pacific Basin Finance Journal, 62(4), 101354. https://doi.org/10.1016/j.pacfin.2020.101354
  10. Misanam, M., & Widarjono, A. (2023). Market Concentration, Bank Characteristics, Macroeconomic Conditions, and Indonesian Islamic Bank Financing. Muqtasid: Jurnal Ekonomi Dan Perbankan Syariah, 14(2), 165–184. https://doi.org/10.18326/muqtasid.v14i2.165-184
  11. Putri, D. W. E. P., & Misbah, H. (2025). The impact of funding risk on the stability of Islamic rural banks in Indonesia. Economics, Finance, and Business Review, 2(1), 12–21. https://doi.org/10.20885/efbr.vol2.iss1.art2
  12. Risfandy, T., Harahap, B., Hakim, A. R., Sutaryo, S., Nugroho, L. I., & Trinugroho, I. (2020). Equity Financing at Islamic Banks: Do Competition and Bank Fundamentals Matter? Emerging Markets Finance and Trade, 56(2), 314–328. https://doi.org/10.1080/1540496X.2018.1553160
  13. Risfandy, T., Tarazi, A., & Trinugroho, I. (2022). Competition in dual markets: Implications for banking system stability. Global Finance Journal, 52, 100579. https://doi.org/10.1016/j.gfj.2020.100579
  14. Rita, D. S., & Sugiarti, D. (2025). Islamic performance index and profitability with the moderating role of intellectual capital in Indonesian Islamic banks. Economics, Finance, and Business Reviews, 2(1), 43–54. https://doi.org/10.20885/efbr.vol2.iss1.art5
  15. Šeho, M., Bacha, O. I., & Smolo, E. (2020). The effects of interest rate on Islamic bank financing instruments: Cross-country evidence from dual-banking systems. Pacific Basin Finance Journal, 62(December 2019), 101292. https://doi.org/10.1016/j.pacfin.2020.101292
  16. Šeho, M., Bacha, O. I., & Smolo, E. (2024). Bank financing diversification, market structure, and stability in a dual-banking system. Pacific Basin Finance Journal, 86. https://doi.org/10.1016/j.pacfin.2024.102461
  17. Trinugroho, I., Risfandy, T., & Ariefianto, M. D. (2018). Competition , diversification , and bank margins : Evidence from Indonesian Islamic rural banks. Borsa Istanbul Review, 18(4), 349–358. https://doi.org/10.1016/j.bir.2018.07.006
  18. Widarjono, A., Alam, M. M., Rafik, A., Afandi, A., & Sidiq, S. (2025). Nexus between competition, concentration and bank risk-taking in Indonesian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management, 18(3), 672–690. https://doi.org/10.1108/IMEFM-02-2024-0099
  19. Widarjono, A., Mahmudul Alam, M., Rafik, A., Azra, K., & Mardhiyah, Z. (2025). Non-Risk-Sharing Financing in Indonesian Islamic Banks: The Role of Market Power. Management and Accounting Review, 24(2), 47–74. https://doi.org/10.24191/MAR.V24i02-03
  20. Widarjono, A., Mifrahi, M. N., & Perdana, A. R. A. (2020). Determinants of Indonesian Islamic Rural Banks ’ Profitability : Collusive or Non- Collusive Behavior ? The Journal of Asian Finance, Economics and Business, 7(11), 657–668. https://doi.org/10.13106/jafeb.2020.vol7.no11.657
  21. Widarjono, A., & Misanam, M. (2023). Determinant of Murabaha financing in Indonesian Sharia banking: The ARDL and NARDL approach. Journal of Islamic Economics Lariba, 9(2), 395–416. https://doi.org/10.20885/jielariba.vol9.iss2.art7
  22. Widarjono, A., & Misanam, M. (2024). Determinants of Bank Capital in Indonesian Islamic Banks. Shirkah: Journal of Economics and Business, 9(3), 229–241.https://doi.org/10.22515/shirkah.v9i3.592