The role of banking regulation in the development of Islamic banking financing in Indonesia

Nur Dyah Nastiti and Rahmatina Awaliah Kasri

International Journal of Islamic and Middle Eastern Finance and Management, 2019, vol. 12, issue 5, 643-662

Abstract: Purpose - The 2015 global economic crisis has triggered the issuance of several banking regulations in Indonesia, including those related to temporary stimulus for Islamic banks and branchless banking (fintech). However, few studies attempt to evaluate the effectiveness of such regulations. Thus, this study aims to determine the role and assess the effectiveness of such banking regulations. Design/methodology/approach - The data used cover all 12 Islamic commercial banks in Indonesia during the stimulus period of Q3.2015 to Q2.2017. The variables included were banks’ fundamental factors (Islamic financing, capital adequacy ratio, investment, non-performing financing, return on asset, efficiency, financing deposit ratio and fintech) and macroeconomic variables (inflation, exchange rate and money supply). The model was analyzed by using multiple linear regressions with generalized least square estimation technique. Findings - The main finding suggests that the stimulus regulation indeed played a positive role in the acceleration of Islamic bank financing. However, the fintech-related regulation was not yet effective to achieve the goal, at least in the short term. Furthermore, the study found that return of assets, operational efficiency, financing deposit ratio and money supply also influenced Islamic financing. Practical implications - For policymakers, the effectiveness of the temporary stimulus in accelerating Islamic banking financing and preventing the possible negative impacts of the external crisis provides indications that the regulator could conduct similar policy in the future. More generally, the findings are also expected to enrich Islamic banking literature. Originality/value - This is possibly one of the few studies to investigate the role and effectiveness of banking regulations on Islamic banking financing in Indonesia.

Keywords: Banking regulation; Bank stimulus; Islamic financial technology; Islamic banking in Indonesia; Islamic banking and finance; G18; G32; E50; E59 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-10-2018-0365

DOI: 10.1108/IMEFM-10-2018-0365

Access Statistics for this article

International Journal of Islamic and Middle Eastern Finance and Management is currently edited by Prof M. Kabir Hassan

More articles in International Journal of Islamic and Middle Eastern Finance and Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().