Micro, Small and Medium Enterprises Financing of Islamic Banking in Indonesia During The Covid-19 Pandemic

Abstract

Introduction to The Problem: Share of Micro, Small and Medium Enterprises (MSMEs) financing  in Islamic banking is still limited, however during the Covid-19 pandemic, the share of MSME financing has increased when the indonesian economy contracted.

Purpose: This study aims to analyze the allocation of MSMEs financing of Islamic banking in Indonesia during the Covid-19 pandemic and determinants of MSME financing allocation.

Methodology: Data obtained from the Indonesian Islamic Banking Statistics, published by the Indonesian Financial Services Authority (OJK), for the 2015-2020 monthly period. The estimated Islamic banking consists of 3 types: Sharia Commercial Banks, Sharia Business Units, and Sharia Rural Banks. The independent variables tested were asset growth, non-performing MSMEs financing (NPF), profit rate, and two dummy variables, namely the threshold for NPF and the Covid-19 pandemic period. Data analysis using panel data regression.

Findings: The results showed that the NPF MSMEs variable, profit rate, and dummy pandemic period have a significant effect on MSME financing of Islamic banking in Indonesia, while the asset growth and dummy threshold NPF are not significant. An increase in NPF will reduce the allocation of MSME financing, but an increase in profit will encourage an increase in the allocation of MSME financing. The allocation of MSME financing during the Covid-19 pandemic was higher than in the previous period. This implies that Islamic banking also contributed to national economic recovery.

Paper Type: Research Article