Mochamad Rofik

As a Muslim-majority country, Indonesia possesses significant potential to harness Islamic banking as a key driver of its economy. This study aims to examine the effects of Sharia-compliant financing provided by Islamic banks in Indonesia on the unemployment rate and economic growth. The analysis utilizes data on Sharia-compliant financing for non-bank third parties, open unemployment rate, and gross regional domestic product at constant prices as proxies for economic growth. Annual panel data from 33 provinces in Indonesia covering 2010 to 2021 are employed. The analysis employs a fixed-effect regression model using the generalized least squares (GLS) estimator. The findings of this study indicate that Sharia-compliant financing has a positive impact on reducing the unemployment rate and fostering economic growth. However, it is observed that the effectiveness of Sharia-compliant financing in reducing unemployment diminishes as the share of such financing increases. Conversely, a higher market share of Sharia-compliant financing is associated with a more significant role in promoting economic growth. These findings highlight a trade-off between the impact of Sharia-compliant financing on growth and unemployment, suggesting that although growth driven by Sharia-compliant financing in Indonesia is present, it may need more inclusivity and more optimal job creation.

This study investigates the impact of Global Economic Policy Uncertainty (GEPU) on the performance of Islamic banking, as measured by Non-Performing Financing (NPF) and Return on Assets (ROA). Utilizing quarterly data from 2014 to 2022 across three countries – Indonesia, Nigeria, and the UAE – and employing the Autoregressive Distributed Lag (ARDL) model with a Mean Group (MG) estimator, the findings indicate that GEPU does not significantly impact NPF in either the short or long term. In the short term, GEPU has the potential to reduce ROA; however, in the long term, it positively influences the profitability of Islamic banks. Specifically, in Indonesia, the results suggest an initial increase in NPF and a decrease in ROA in the short term. Conversely, in the long term, this trend reverses, with NPF declining and ROA increasing. In Nigeria, although GEPU may elevate NPF in the short term, this negative effect dissipates over time, with profitability remaining unaffected in both timeframes. In the UAE, NPF is stable in the short term, but there are indications of a long-term increase in NPF, while profitability remains stable across both short and long terms.