Unlocking Green Productivity Through Green Lending, Digitalisation and Financial Literacy

Abstract

Purpose — This study aims to measure green productivity in the agricultural sector, specifically on Sumatra Island, with some driving factors such as green lending from rural banks (both conventional and Sharīʿah), digitalisation, and the intermediation of financial literacy. Design/Methodology/Approach — The study employs panel data from 154 regencies on Sumatra Island for the period 2018 to 2022. Data Envelopment Analysis was employed to generate agricultural green total factor productivity, followed by regression estimation to see the influence of each determining factor. Findings — This study reveals the significant impact of green lending on green productivity. However, in Sharīʿah rural banks, which adhere strictly to Sharīʿah rules, this impact is positive only when moderated by financial literacy. On the other hand, digitalisation is also found to influence green productivity, but the effect weakened when the level of financial literacy could not be controlled. Originality/Value — To the best of the author’s knowledge, this study is the first to observe green productivity in the agricultural sector within a dual economic system that fosters both Islamic and conventional financial practices at the regional level. Practical Implications — This study implies that governments and banks should integrate green lending and digitalisation across various levels of financial literacy.