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Exploring the potential role of green-oriented Islamic agricultural financing in national food security: empirical insights from Indonesia

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TL;DR

This study analyzes the association between green-oriented Islamic agricultural financing and Indonesia's food security using provincial panel data from 2019–2023. Results indicate a positive link, especially with food affordability and utilization, with regional heterogeneity observed—stronger effects in Java–Kalimantan and Eastern Indonesia, supporting policy integration of green Islamic finance for sustainable agriculture.

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Purpose This study examines the nexus between green-oriented Islamic agricultural financing and national food security in Indonesia, using agricultural financing provided by Islamic banks as a proxy for Islamic green financing. Design/methodology/approach This study uses provincial panel data from 34 Indonesian provinces over 2019–2023. Fixed-effects estimation is employed to control for unobserved heterogeneity, while robust least squares are applied to address outliers and violations of classical assumptions. Findings The results show that green-oriented Islamic agricultural financing is positively and statistically associated with national food security, without implying causal effects. The fixed-effects estimates indicate stronger associations with food affordability and food utilization, while no significant relationship is found with food availability. Robustness checks confirm that the positive association remains significant for national food security and food availability after controlling for outliers and influential observations. Further, regional analysis reveals marked heterogeneity, with the strongest and most consistent effects observed in Java–Kalimantan, followed by Eastern Indonesia, while the relationship is weaker and only marginally significant in the Sumatra region. Research limitations/implications This study employs Islamic agricultural financing as a proxy for green-oriented Islamic financing, which captures its potential contribution rather than fully reflecting Sharia-compliant green financing activities. Future research should develop more precise indicators incorporating environmental performance, climate resilience, governance quality, and Islamic sustainability principles. Practical implications The findings support the integration of green-oriented Islamic finance into regionally differentiated food security and sustainable agriculture policies. Originality/value This study provides recent subnational evidence on the potential contribution of green-oriented Islamic agricultural financing to food security in Indonesia using official indicators from the National Food Agency.

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Food Security in Indonesia: Current Challenges and the Long-Run Outlook
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