The Influence of Financial Deepening in Sharia Banking And Non-Banking Sectors On Economic Growth In Indonesia

Abstract

The Sharia banking and non-banking sectors are business models carried out in a halal manner and line with Sharia principles. These sectors are growing, in line with Indonesia's vision as a center for the halal industry, by emphasizing the potential of the halal value chain (HVC). Financial deepening in the Sharia banking and non-banking sectors refers to expanding access to Sharia financial products and services and improving the capacity and efficiency of Sharia financial institutions in providing those products and services. Therefore, financial deepening is one of the prerequisites for improving economic growth in Indonesia. This study aims to determine the influence of the Sharia banking and non-banking sectors on economic growth in Indonesia from 2008 to 2022. The independent variables used in this study are third-party funds and financing of Sharia banks, and the total capitalization of Sharia-compliant government sukuk/bonds/securities and Sharia stocks. In addition, the dependent variable used is Gross Domestic Product (GDP). The multiple linear regression method was used in this study, which shows that the financial deepening of the banking sector represented by third-party funds significantly and positively impacted economic growth in Indonesia. Furthermore, shariah-compliant government sukuk/bonds/securities significantly and negatively impact economic growth in the non-banking sector. While all variables have a different impact, simultaneously, all independent variables used for analysis impact the dependent variable.