Interaction Model of Macroeconomic and Microeconomic Variables on Growth Volatility of Various Types of Financing in Islamic Banks

Abstract

Islamic banks in Indonesia have three types of financing, namely: equity-based financing, debt-based financing, and leasing-based financing. This study aims to find an effective formula for encouraging the growth of the three types of financing. This study uses a quantitative approach with data analysis methods Error Correction Model (ECM) and Co-integration. Secondary data was selected as a sample from the fourth quarter of 2014 to the first quarter of 2022. Overall growth of Islamic bank financing is influenced by macroeconomic and microeconomic variables. In terms of macroeconomic variables, growth in equity-based financing is more influenced by economic growth than the interest rate and inflation. Meanwhile, the growth of debt-based financing and leasing-based financing is more influenced by interest rates than economic growth. In terms of microeconomic variables, the growth of third-party funds always affects the three types of financing, while non-performing financing and equivalent rate only affect the growth of equity-based financing. Macroeconomic variables such as economic growth and interest rate can be used as indicators in controlling the growth of the three types of Islamic bank financing, while microeconomic variables such as the growth of third-party funds are the determinants in encouraging the growth of the three types of financing, in addition to non-performing financing and the equivalent rate. It is recommended that Islamic banks focus more on raising third-party funds to encourage the growth of their financing, because the market share of Islamic banks is still small, which allows for the large potential for raising funds that have not been explored.