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All Journal Islamic Economics and finance in Focus (IEFF)
Rachman, Farisah
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Religion Economics, Econometrics & Finance Social Sciences

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The Roles of Islamic Finance on Economic Growth: Evidence from Linkage of Efficiencies Rachman, Farisah; Trapsila, Aji Purba
Islamic Economics and finance in Focus Vol. 5 No. 3 (2026)
Publisher : Fakultas Ekonomi dan Bisnis Universitas Brawijaya

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.21776/

Abstract

Indonesia has significant potential in developing Islamic finance given its large Muslim population, yet the contribution of Islamic banking to regional economic growth remains limited. This gap suggests that Islamic finance development depends not only on the expansion of financing and deposits but also on technical efficiency in performing the intermediation function. This study analyzes the role of technical efficiency of Islamic banking in explaining the relationship between Islamic finance development and provincial economic growth in Indonesia. Using quarterly panel data from 33 provinces for the period 2016–2024, the analysis proceeds in two stages: first, technical efficiency is estimated using Stochastic Frontier Analysis (SFA) with a Cobb-Douglas production function; second, panel data regression with robust standard errors tests the effect of key variables. Results show that Islamic financing ratio and technical efficiency positively and significantly affect provincial economic growth, while the deposit ratio has no direct significant effect. Technical efficiency emerges as the most dominant factor driving regional economic growth, indicating that improving operational efficiency and intermediation quality is essential for Islamic finance to contribute more meaningfully to Indonesia's economic development.
Co-Authors Trapsila, Aji Purba