Efforts to Increase the Growth of Islamic Bank Financing by Diversifying the Right Financing Types

Abstract

Purpose: This study aims to find an effective formula in encouraging the growth of the three types of financing, equity-based financing, debt-based financing and lease-based financing. Theoritical Framework: Some factors originating from both internal and external bank may affect bank in channeling its financing. The development of total Islamic bank financing is affected by microeconomic and macroeconomic factors. Several microeconomic factors, including non-performing financing (Nastiti & Kasri, 2019), profitability (Murni et al., 2018; Nastiti & Kasri, 2019), third party funds (Annisa & Yaya, 2015; Arnan & Kurniawasih, 2014; Destiana, 2016; Furqaini & Yaya, 2016; Giannini, 2013; Ispad, 2019; Jamilah, 2016; Priyanto et al., 2016) and equivalent rate (Kiswanto, 2013; Kurniawanti & Zulfikar, 2014; Pramono, 2013; Riyanto, 2016). While macroeconomic factors are economic growth (Anwar et al., 2020; Ayyubi et al., 2017; Hafizh et al., 2020), inflation (Mubarok et al., 2020; Nastiti & Kasri, 2019), interest rates (Hafizh et al., 2020; Mubarok et al., 2020). Design/Methodology/Approach: This study employed a quantitative approach with data analysis methods error correction model and co-integration. The secondary data selected as the sample range from quarter four (2014) to quarter first (2022). Findings: Overall the growth in Islamic bank financing is influenced by macroeconomic and microeconomic variables. From a macroeconomic perspective, equity-based financing is more influenced by economic growth than interest rates and inflation. Meanwhile, debt-based financing and lease-based financing are more influenced by interest rates than economic growth. From a microeconomic perspective, the growth of third-party funds always affects the three types of financing, while non-performing financing and the level of profit sharing only affect equity-based financing. Research, Practical & Social Implications: It is recommended that Islamic banks focus more on collecting third party funds in order to encourage financing growth. Suggestions for further research are that the time period is made in years and use a more comprehensive analysis method to see the two-way interaction between the existing research variables. Originality/Value: Economic growth and interest rates can be used as macroeconomic indicators in controlling the growth of the three types of Islamic bank financing. The high interest rate will encourage the growth of equity-based financing, but on the other hand it will slow down the amount of debt-based financing. Meanwhile, microeconomic indicators such as the growth of third party funds are the determinants in encouraging the growth of the three types of financing, in addition to non-performing financing and the equivalent rate.