Has the growth of Islamic banking had impact to economic growth in Indonesia?

Abstract

Islamic banking development is rife in many countries, including Indonesia. The first Islamic bank in Indonesia was established in 1992. Having experience for almost a quarter decade, there is a question whether the growth of Islamic banking has had impact to the economic growth in Indonesia or not. We choose 3 (three) indicators of the growth of Islamic banking, which are TPF (Third Party Funds), the assets, and total funding. The indicators of economic growth in Indonesia used in this research are GDP (Gross Domestic Product), the growth rate of GDP by Bank Industry and Inflation. The data is taken for period 2003–2013 from public domain in Indonesian Financial Services Authority's website and other resources. The relationship among those variables is made using Time Series model. The results show that the Islamic Banking growth has not given significant impact to economic growth. Using the some simplified assumptions, we do the analysis again using the estimated model of growth whether this condition will happen in 10 and 15 years ahead. If the defined assumption is fulfilled, we conclude that the existence of Islamic Banking in Indonesia would fully give significant impact on economic growth in 2028.