Does Sharia Banking have the Capability to Increase Micro, Small and Medium Enterprises Financing?

Abstract

The contribution of Micro, Small, and Medium Enterprises (MSMEs) has played an important role in GDP and employment growth in Indonesia in the last decades, but still, MSMEs have difficulties accessing bank loans. This study examines the effect of internal factors of Islamic banking performance ratio, financing to deposit ratio, capital adequacy ratio, non-performing financing of total financing, and non-performing financing for MSMEs on the development of MSMEs financing in Islamic Banking in Indonesia. It consists of three Islamic Financial Institutions; Islamic Commercial Banking, Islamic Business Unit Bank, and Islamic Rural Banking from January 2015 until December 2021 (monthly base), using secondary data with 252 observations. The regression model used in this research is Generalised Least Squares (GLS), using Panel Data and the random effect model approach. The results of this study showed that all independent variables, financing to deposit ratio, capital adequacy ratio, non-performing financing of total financing, and non-performing loans for MSMEs, have a significant effect on MSMEs’ financing growth. This study indicates that the contribution of the capital adequacy ratio has a significant positive effect on the growth of MSMEs financing. Also, the financing to deposit ratio and non-performing financing from total financing negatively affect MSMEs financing growth. Besides that, the non-performing financing for MSMEs relatively had no strong negative effect on MSMEs financing growth in sharia banking in Indonesia.

From Crisis to Stability: How Macroeconomics Shapes Islamic Banking and MSME Futures?

“…Permataningayu and Mahdaria (2019) found that NPF and FDR do not directly affect the volume of financing in Islamic commercial banks, but DPK has a positive effect on financing. Yudiansyah et al (2022) highlight the importance of Islamic banking in increasing MSME financing, as MSMEs face challenges in accessing bank loans.…”

People's Business Credit, Capital Management, and Spiritual Value in Improving MSMEs Performance

“…The development of MSMEs is currently struck by many obstacles and challenges in According to various previous researchers, research conducted by Ramadhan and Official (2020) examines the influence of scientific capital on monetary execution in SMEs in the travel industry in Kambang Iwak (KI) Palembang and analysts in making oddities in research, specifically by adding several perspectives. In contrast, the research by Yudiansyah et al (2022) analyzes the ability of Islamic banking to increase MSMEs in Indonesia. This is a gap in this research.…”