Does Islamic financial infrastructure enhance Islamic finance? Lessons from the Indonesian experience
DOI:
https://doi.org/10.13135/2421-2172/12366Keywords:
Islamic finance, Financial infrastructure, Financial inclusion, Islamic banks, ARDL model, IndonesiaAbstract
This study analyzes the relationship between Islamic financial infrastructure components and Islamic financing in Indonesia using the autoregressive distributed lag (ARDL) bounds-testing model, covering the period from the fourth quarter of 2013 to the third quarter of 2024. This study examines four key infrastructure indicators (the number of Islamic banks, number of branches, number of ATMs, and total volume of Islamic banking assets) as potential structural dimensions associated with Islamic finance expansion. The results reveal the existence of a long-run equilibrium relationship between these financial infrastructure indicators and Islamic financing, with all four components showing a positive and statistically significant long-run association. In the short run, the number of Islamic banks, ATMs, and Islamic banking assets exhibits a significant positive relationship with financing levels, whereas the number of branches shows no statistically significant immediate short-run relationship. This highlights a potential distinction between short-run dynamic responses and long-run structural alignments in financial infrastructure. Additionally, standard model diagnostic tests (including serial correlation, homoscedasticity, normality, and structural stability) confirm the statistical adequacy of the estimated model. This study suggests that institutional and technological infrastructure conditions may support the expansion and outreach of Islamic financing. In this context, the Indonesian experience provides useful insights for jurisdictions aiming to strengthen the structural foundations of their Islamic financial sectors.
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