Abstract
In Indonesia financial inclusion remains a challenge. This study looked at how the human development index, gross domestic product, and the number of offices of banks affect the financial index in 34 Indonesian provinces for composite, conventional, and sharia banking. This study uses panel data from 2016 to 2019 to address research questions. According to the findings of this study, economic growth, human development index, regional gross domestic product per capita, and bank brances significantly influence the financial inclusion index of the composite banking. Meanwhile, economic growth, human development index, gross domestic product per capita, and the number of bank branches impact the financial inclusion index of conventional banking. However, the financial inclusion index for sharia banking shows that only economic growth variables, regional gross domestic product per capita, and the number of sharia bank branches have a significant influence. The human development index variable does not have a significant influence. Based on these findings, the Financial Service Authority (OJK) and Bank Indonesia must promote a conducive climate for increasing the financial inclusion of banking in Indonesia for both conventional and Islamic banks.
Highlights
The World Bank (Demirguc-Kunt et al, 2017) reported that around 95 million individuals in Indonesia do not have a financial institution account
This study analyzes the effect of economic growth, human development index, regional gross domestic product per capita, and the number of banks on the financial inclusion index for composite, conventional, and sharia banks in 34 provinces in Indonesia
This study found that the financial inclusion index for composite and conventional banks is influenced by economic growth, human development index, regional gross domestic product per capita, and branch offices
Summary
The World Bank (Demirguc-Kunt et al, 2017) reported that around 95 million individuals in Indonesia do not have a financial institution account. Access to financial services is a problem among individuals and micro, small and medium enterprises (MSMEs) in Indonesia. MSMEs in Indonesia are still experiencing trouble accessing finance (credit), according to Rosengard and Prasetyantoko (2011), Muthia et al (2019), since the government limits MSMEs in such access and focuses more on consumer finance. The increased financial inclusion, keeping with the government’s goal of making Indonesia the global Sharia economy’s hub, will need a rise in sharia finance, which may be achieved by improving the Islamic Financial Inclusion Index. There is still a lack of Islamic financial inclusion. According to statistics from the Financial Services Authority (OJK, 2020), the Islamic Financial Inclusion Index decreased in 2019 compared to 2016, falling from 11.1 to 9.10.
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