Journal of Islamic Monetary Economics and Finance, 2018
It is widely believed that Islamic finance is inherently stable since the principle of risk-shari... more It is widely believed that Islamic finance is inherently stable since the principle of risk-sharing and linking the financial to real counterpart in particular through its social finance are applied, hence the financial stability may successfully be attained. If mimicking the conventional finance, Islamic model will probably be facing instability, following the financial cycle. There has been a growing literature discussing credit cycle in mainstream perspective since 2008 global financial crash. However, it is quite rare to find study, in macro context, on credit cycles and the effectiveness of integrated Islamic commercial and social finance in achieving macroprudential objective: curtailing excessive credit. This study is designed to empirically examine the characteristics of cycles stemming from conventional and Islamic credit whether both have similar trend and also to investigate how the integrated Islamic commercial and social finance may be effective to hamper such cycles. By employing Hodrick-Presscot Filter, Markov Switching and Vector Error Correction Model, this study demonstrates that, in terms of cycle, Islamic model cycle has certain similarities with conventional counterpart since it functions under similar financial environment despite the fact that Islamic has less amplitude compared with conventional credit. Both credit and financing cycles tend to grow rapidly (excessive) several months before global financial crisis happened in 2008. This means that, in a dual banking system, credit and financing boom may precede financial crisis. Moreover, it is apparent also that the integrated Islamic finance is proven to be effective in curbing credit growth due to the effectiveness of both macroprudential instrument applied in banking sector and social finance in safeguarding financial stability.
Recent years saw the heated debates among prominent economists on the growinginequality in advanc... more Recent years saw the heated debates among prominent economists on the growinginequality in advanced economies, and accordingly, many solutions to this seriousproblem have been put forward. Among the practical-cum-workable solution isprogressive taxation for wealth and income, especially the top one percent. Such asolution, however, has been implemented in Islamic perspective what so-called, zakahwhich is now referred to as social finance. In this paper, using the Gini coefficient datacovering 34 provinces in Indonesia over a decade, we examine whether the role ofsocial finance in tandem with commercial finance can adequately solve the problemof wealth distribution in Indonesia, one of the largest Democratic-Muslim countriesin the world. Using the Generalized Method of Moments (GMM) model, the resultsdemonstrated that Islamic commercial finance solely is proven statistically incapable oftackling inequality while the social finance (zakah) is performing very well in this matterover al...
Since the enactment of the dual banking system in 1998, Bank Indonesia has a new mandate for regu... more Since the enactment of the dual banking system in 1998, Bank Indonesia has a new mandate for regulating both conventional and Islamic banking in Indonesia by enforcing dual monetary policy to attain and maintain the primary objective of Bank Indonesia: price stability. By reconstructing a conceptual model based mainly on Ascarya (2011), this study was designed to empirically examine whether the implementation of dual monetary is effective in ensuring the stability in price level as
represented in low inflation as well as stable exchange rate. The method applied in this research was Vector Auto-regression (VAR) Model to capture the response of inflation to the shocks arising from both monetary instruments. The results of this study indicate that conventional monetary policy in general—when compared to the Islamic counterpart—may certainly trigger instability of the price level since flawed-cum- vulnerable money system (fiat-based money) has fully been implemented, thereby inducing inflation. In addition, the debt system, interbank money market and the fractional reserve banking which are relied heavily on interest system have indeed contributed to the price volatility in Indonesia. In contrast, Islamic monetary policy shocks have proven to be capable of promoting price stability since they could hamper a highly volatile inflation.
Financial instability has been caused by many factors, one of which is the pro-cyclicality of cre... more Financial instability has been caused by many factors, one of which is the pro-cyclicality of credit expansion. Many empirical studies in developed countries proved that excessive credit during economic booms would be accompanied by financial crisis. In the Indonesian context, Islamic and Conventional rural bank have an important role in the provision of loans since Small Medium Enterprises still dominates economic activity.
This study aims to examine the pro-cyclicality of the credit channeled into Small Medium Enterprises by both conventional and Islamic rural banks in Indonesia; by comparing of both of which are categorized as pro-cyclicality. This study applies both Autoregressive Distributed Lag (ARDL) model to explore the extent to which the pro-cyclicality derived from indicator variables of rural banks may affect the real sector, and frequency-based filter to construct credit/financing cycle characterised by rapid growth in credit from both conventional and Islamic rural banks.
The results of this study demonstrate that in the short term, conventional and Islamic rural credit banks do not follow economic growth. This means, both conventional and Islamic procyclicality do not behave in the short term. However, in the long term when the economy is in the expansion phase, Conventional rural bank tends to be more procyclical than Islamic rural banks. From the capital side, Islamic rural banks compared to Conventional bank show countercyclical behavior both in the short and long term. Moreover, to the credit risk of their bad loans, conventional rural banks have a negative response to the increase in credit risk, while Islamic rural banks are positively affected by credit risk. Finally, the results of frequency-based filter suggest that credit of conventional rural banks and financing in Islamic rural banks have different cycles in response to changing economic conditions.
This research is designed to empirically investigate the determinants of Islamic rural banking fi... more This research is designed to empirically investigate the determinants of Islamic rural banking financing in Indonesia after 2008 global financial crisis covering period 2009.1-2014.12. The methods applied in this research are Error Correction Model (ECM) and VAR/VECM. The results of ECM model demonstrate that the variable third party funds (DPK) and non-performing financing can significantly affect Islamic rural banking financing both in the short run and long run, while Return on Asset (ROA) and Profit-and-loss sharing does not have a significant influence. Islamic rural bank financing, however, was influenced by inflation and exchange rate as the proxy of macroeconomic variables in the short and long run. Furthermore, Impulse Response Function (IRF) and variance decomposition results show that Profit-and-loss sharing (PLS) has the largest positive impact to financing (39.08%), followed by third party fund (19.6%) and inflation (8.9%). While, the variables that contribute to reduce...
Islamic banking acceleration has been the major theme discussed for years, indicating the importa... more Islamic banking acceleration has been the major theme discussed for years, indicating the importance of such topic to be reexamined comprehensively. This study is aimed to empirically examine several aspects and condition which may play a leading role in accelerating (preventing) the growth of Islamic bank in two countries, namely Malaysia and Indonesia. To that end, this study attempts to incorporate selected internal bank condition and macroeconomic situation in a single model to exhibit the dynamics relationship between both and the total asset of Islamic banking. In terms of methodology, this study employs the dynamic panel model that is expected to be able to address the research questions. The result of this study demonstrates that both third party fund and financing-to-deposit ratio are proven to be effective in accelerating the Islamic banking asset, as opposed by the non-performing financing ratio that has a negative impact on it. Moreover, it becomes apparent the accelerat...
Journal of Islamic Educational Thoughts and Practices, 2017
Recently, there has been an increasingly concern to completely address social problems particular... more Recently, there has been an increasingly concern to completely address social problems particularly those faced by the oppressed people who have no access to economic wealth and have been marginalized by unjust structure at the same time. As an idealistic organization, Muhammadiyah student association (IMM) aspires to be in the frontline of tackling that matter. In dealing with such a multidimensional problem, IMM attempts to adopt multidisciplinary approach proposed by Amin Abdullah and Kuntowijoyo since currently, it has been successfully adopted by many scholars. This paper was intended to enhance the idea of combining natural and social sciences, as well as philosophy and humanities into more transformative and liberal movement in order to solve the exacerbated problems of humanity in recent decades. This purpose can be accomplished through exploring and directing transformative paradigm as proposed by Moslem Abdurrahman, Kuntowijoyo and Omid Safi into a multidisciplinary approa...
Abstract: Money demand has an important role for monetary policy authorities in determining appro... more Abstract: Money demand has an important role for monetary policy authorities in determining appropriate policies to maintain economic stability. Analysis of the demand for money is an economic analysis of the quantities required to support the measures taken by the government in the monetary sector. This research aims to know the determinants of money demand function in Indonesia period 1990.1-2014.1. The analysis methode used in this research is Error Correction Model (ECM). The results showed that the variable Gross Domestic Product (GDP) is not significantly influences money demand. Exchange Rate (Exchange), and the Price Level positively and significantly affect the demand for money (M1) in the short term. While the rate of 3-month deposit rate negatively and significantly influences the money demand (M1). The results of this study also showed that in the long term demand for money (M1) in Indonesia positively and significantly influenced by variables Gross Domestic Product (GDP...
We analyze the influence of CPO production, exchange rate, international CPO price and the terms ... more We analyze the influence of CPO production, exchange rate, international CPO price and the terms of trade on Indonesian CPO exports in October 2011-December 2015. In doing so, we use the Autoregressive Distributed Lag (ARDL) approach to analyze the monthly time-series data for the periods of 2011:M10-2015:M12. Our findings suggest that both in the short- and long-term, the international CPO price has a significantly negative impact on Indonesia's CPO exports. Meanwhile, the CPO production and exchange rate have negative and significant effects on Indonesia's CPO exports both in short- and long-term. Taken together, all the independent variables have significant effects on Indonesia’s CPO export. Finally, based on CUSUM and CUSUMQ test, it shows that the long-term coefficient of the CPO exports model is stable.
This study aims to analyze the financing of Sharia Commercial Banks in Indonesia that is influenc... more This study aims to analyze the financing of Sharia Commercial Banks in Indonesia that is influenced by the internal quality of banking performance and macroeconomic situation turmoil. It was quantitative research using Data Panel method analysis tool. This study used secondary data in the form of time series and individual (cross section) data in quarterly form during the period of 2011 to 2015, obtained from the Otoritas Jasa Keuangan (OJK), the report of the dollar exchange rate against the rupiah published in daily newspaper Bisnis or Kontan, and Financial Statements published by Sharia Commercial Banks. The results of this study indicate that the third party fund as the main source of banking funds that can encourage the growth of financing, and variable exchange rate dollar / Rp have a significant positive effect on Islamic banking financing. As for the variable Capital Adequacy Ratio (CAR) and Interest Rate does not significantly affect the financing of sharia banking in Indonesia. Macroeconomic factor that can affect the financing of sharia banking is the dollar/Rp. When the dollar exchange is strengthened, demand for financing in sharia banks is also high.
Journal of Islamic Monetary Economics and Finance, 2018
It is widely believed that Islamic finance is inherently stable since the principle of risk-shari... more It is widely believed that Islamic finance is inherently stable since the principle of risk-sharing and linking the financial to real counterpart in particular through its social finance are applied, hence the financial stability may successfully be attained. If mimicking the conventional finance, Islamic model will probably be facing instability, following the financial cycle. There has been a growing literature discussing credit cycle in mainstream perspective since 2008 global financial crash. However, it is quite rare to find study, in macro context, on credit cycles and the effectiveness of integrated Islamic commercial and social finance in achieving macroprudential objective: curtailing excessive credit. This study is designed to empirically examine the characteristics of cycles stemming from conventional and Islamic credit whether both have similar trend and also to investigate how the integrated Islamic commercial and social finance may be effective to hamper such cycles. By employing Hodrick-Presscot Filter, Markov Switching and Vector Error Correction Model, this study demonstrates that, in terms of cycle, Islamic model cycle has certain similarities with conventional counterpart since it functions under similar financial environment despite the fact that Islamic has less amplitude compared with conventional credit. Both credit and financing cycles tend to grow rapidly (excessive) several months before global financial crisis happened in 2008. This means that, in a dual banking system, credit and financing boom may precede financial crisis. Moreover, it is apparent also that the integrated Islamic finance is proven to be effective in curbing credit growth due to the effectiveness of both macroprudential instrument applied in banking sector and social finance in safeguarding financial stability.
Recent years saw the heated debates among prominent economists on the growinginequality in advanc... more Recent years saw the heated debates among prominent economists on the growinginequality in advanced economies, and accordingly, many solutions to this seriousproblem have been put forward. Among the practical-cum-workable solution isprogressive taxation for wealth and income, especially the top one percent. Such asolution, however, has been implemented in Islamic perspective what so-called, zakahwhich is now referred to as social finance. In this paper, using the Gini coefficient datacovering 34 provinces in Indonesia over a decade, we examine whether the role ofsocial finance in tandem with commercial finance can adequately solve the problemof wealth distribution in Indonesia, one of the largest Democratic-Muslim countriesin the world. Using the Generalized Method of Moments (GMM) model, the resultsdemonstrated that Islamic commercial finance solely is proven statistically incapable oftackling inequality while the social finance (zakah) is performing very well in this matterover al...
Since the enactment of the dual banking system in 1998, Bank Indonesia has a new mandate for regu... more Since the enactment of the dual banking system in 1998, Bank Indonesia has a new mandate for regulating both conventional and Islamic banking in Indonesia by enforcing dual monetary policy to attain and maintain the primary objective of Bank Indonesia: price stability. By reconstructing a conceptual model based mainly on Ascarya (2011), this study was designed to empirically examine whether the implementation of dual monetary is effective in ensuring the stability in price level as
represented in low inflation as well as stable exchange rate. The method applied in this research was Vector Auto-regression (VAR) Model to capture the response of inflation to the shocks arising from both monetary instruments. The results of this study indicate that conventional monetary policy in general—when compared to the Islamic counterpart—may certainly trigger instability of the price level since flawed-cum- vulnerable money system (fiat-based money) has fully been implemented, thereby inducing inflation. In addition, the debt system, interbank money market and the fractional reserve banking which are relied heavily on interest system have indeed contributed to the price volatility in Indonesia. In contrast, Islamic monetary policy shocks have proven to be capable of promoting price stability since they could hamper a highly volatile inflation.
Financial instability has been caused by many factors, one of which is the pro-cyclicality of cre... more Financial instability has been caused by many factors, one of which is the pro-cyclicality of credit expansion. Many empirical studies in developed countries proved that excessive credit during economic booms would be accompanied by financial crisis. In the Indonesian context, Islamic and Conventional rural bank have an important role in the provision of loans since Small Medium Enterprises still dominates economic activity.
This study aims to examine the pro-cyclicality of the credit channeled into Small Medium Enterprises by both conventional and Islamic rural banks in Indonesia; by comparing of both of which are categorized as pro-cyclicality. This study applies both Autoregressive Distributed Lag (ARDL) model to explore the extent to which the pro-cyclicality derived from indicator variables of rural banks may affect the real sector, and frequency-based filter to construct credit/financing cycle characterised by rapid growth in credit from both conventional and Islamic rural banks.
The results of this study demonstrate that in the short term, conventional and Islamic rural credit banks do not follow economic growth. This means, both conventional and Islamic procyclicality do not behave in the short term. However, in the long term when the economy is in the expansion phase, Conventional rural bank tends to be more procyclical than Islamic rural banks. From the capital side, Islamic rural banks compared to Conventional bank show countercyclical behavior both in the short and long term. Moreover, to the credit risk of their bad loans, conventional rural banks have a negative response to the increase in credit risk, while Islamic rural banks are positively affected by credit risk. Finally, the results of frequency-based filter suggest that credit of conventional rural banks and financing in Islamic rural banks have different cycles in response to changing economic conditions.
This research is designed to empirically investigate the determinants of Islamic rural banking fi... more This research is designed to empirically investigate the determinants of Islamic rural banking financing in Indonesia after 2008 global financial crisis covering period 2009.1-2014.12. The methods applied in this research are Error Correction Model (ECM) and VAR/VECM. The results of ECM model demonstrate that the variable third party funds (DPK) and non-performing financing can significantly affect Islamic rural banking financing both in the short run and long run, while Return on Asset (ROA) and Profit-and-loss sharing does not have a significant influence. Islamic rural bank financing, however, was influenced by inflation and exchange rate as the proxy of macroeconomic variables in the short and long run. Furthermore, Impulse Response Function (IRF) and variance decomposition results show that Profit-and-loss sharing (PLS) has the largest positive impact to financing (39.08%), followed by third party fund (19.6%) and inflation (8.9%). While, the variables that contribute to reduce...
Islamic banking acceleration has been the major theme discussed for years, indicating the importa... more Islamic banking acceleration has been the major theme discussed for years, indicating the importance of such topic to be reexamined comprehensively. This study is aimed to empirically examine several aspects and condition which may play a leading role in accelerating (preventing) the growth of Islamic bank in two countries, namely Malaysia and Indonesia. To that end, this study attempts to incorporate selected internal bank condition and macroeconomic situation in a single model to exhibit the dynamics relationship between both and the total asset of Islamic banking. In terms of methodology, this study employs the dynamic panel model that is expected to be able to address the research questions. The result of this study demonstrates that both third party fund and financing-to-deposit ratio are proven to be effective in accelerating the Islamic banking asset, as opposed by the non-performing financing ratio that has a negative impact on it. Moreover, it becomes apparent the accelerat...
Journal of Islamic Educational Thoughts and Practices, 2017
Recently, there has been an increasingly concern to completely address social problems particular... more Recently, there has been an increasingly concern to completely address social problems particularly those faced by the oppressed people who have no access to economic wealth and have been marginalized by unjust structure at the same time. As an idealistic organization, Muhammadiyah student association (IMM) aspires to be in the frontline of tackling that matter. In dealing with such a multidimensional problem, IMM attempts to adopt multidisciplinary approach proposed by Amin Abdullah and Kuntowijoyo since currently, it has been successfully adopted by many scholars. This paper was intended to enhance the idea of combining natural and social sciences, as well as philosophy and humanities into more transformative and liberal movement in order to solve the exacerbated problems of humanity in recent decades. This purpose can be accomplished through exploring and directing transformative paradigm as proposed by Moslem Abdurrahman, Kuntowijoyo and Omid Safi into a multidisciplinary approa...
Abstract: Money demand has an important role for monetary policy authorities in determining appro... more Abstract: Money demand has an important role for monetary policy authorities in determining appropriate policies to maintain economic stability. Analysis of the demand for money is an economic analysis of the quantities required to support the measures taken by the government in the monetary sector. This research aims to know the determinants of money demand function in Indonesia period 1990.1-2014.1. The analysis methode used in this research is Error Correction Model (ECM). The results showed that the variable Gross Domestic Product (GDP) is not significantly influences money demand. Exchange Rate (Exchange), and the Price Level positively and significantly affect the demand for money (M1) in the short term. While the rate of 3-month deposit rate negatively and significantly influences the money demand (M1). The results of this study also showed that in the long term demand for money (M1) in Indonesia positively and significantly influenced by variables Gross Domestic Product (GDP...
We analyze the influence of CPO production, exchange rate, international CPO price and the terms ... more We analyze the influence of CPO production, exchange rate, international CPO price and the terms of trade on Indonesian CPO exports in October 2011-December 2015. In doing so, we use the Autoregressive Distributed Lag (ARDL) approach to analyze the monthly time-series data for the periods of 2011:M10-2015:M12. Our findings suggest that both in the short- and long-term, the international CPO price has a significantly negative impact on Indonesia's CPO exports. Meanwhile, the CPO production and exchange rate have negative and significant effects on Indonesia's CPO exports both in short- and long-term. Taken together, all the independent variables have significant effects on Indonesia’s CPO export. Finally, based on CUSUM and CUSUMQ test, it shows that the long-term coefficient of the CPO exports model is stable.
This study aims to analyze the financing of Sharia Commercial Banks in Indonesia that is influenc... more This study aims to analyze the financing of Sharia Commercial Banks in Indonesia that is influenced by the internal quality of banking performance and macroeconomic situation turmoil. It was quantitative research using Data Panel method analysis tool. This study used secondary data in the form of time series and individual (cross section) data in quarterly form during the period of 2011 to 2015, obtained from the Otoritas Jasa Keuangan (OJK), the report of the dollar exchange rate against the rupiah published in daily newspaper Bisnis or Kontan, and Financial Statements published by Sharia Commercial Banks. The results of this study indicate that the third party fund as the main source of banking funds that can encourage the growth of financing, and variable exchange rate dollar / Rp have a significant positive effect on Islamic banking financing. As for the variable Capital Adequacy Ratio (CAR) and Interest Rate does not significantly affect the financing of sharia banking in Indonesia. Macroeconomic factor that can affect the financing of sharia banking is the dollar/Rp. When the dollar exchange is strengthened, demand for financing in sharia banks is also high.
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Papers by Arif Widodo
represented in low inflation as well as stable exchange rate. The method applied in this research was Vector Auto-regression (VAR) Model to capture the response of inflation to the shocks arising from both monetary instruments. The results of this study indicate that conventional monetary policy in general—when compared to the Islamic counterpart—may certainly trigger instability of the price level since flawed-cum- vulnerable money system (fiat-based money) has fully been implemented, thereby inducing inflation. In addition, the debt system, interbank money market and the fractional reserve banking which are relied heavily on interest system have indeed contributed to the price volatility in Indonesia. In contrast, Islamic monetary policy shocks have proven to be capable of promoting price stability since they could hamper a highly volatile inflation.
This study aims to examine the pro-cyclicality of the credit channeled into Small Medium Enterprises by both conventional and Islamic rural banks in Indonesia; by comparing of both of which are categorized as pro-cyclicality. This study applies both Autoregressive Distributed Lag (ARDL) model to explore the extent to which the pro-cyclicality derived from indicator variables of rural banks may affect the real sector, and frequency-based filter to construct credit/financing cycle characterised by rapid growth in credit from both conventional and Islamic rural banks.
The results of this study demonstrate that in the short term, conventional and Islamic rural credit banks do not follow economic growth. This means, both conventional and Islamic procyclicality do not behave in the short term. However, in the long term when the economy is in the expansion phase, Conventional rural bank tends to be more procyclical than Islamic rural banks. From the capital side, Islamic rural banks compared to Conventional bank show countercyclical behavior both in the short and long term. Moreover, to the credit risk of their bad loans, conventional rural banks have a negative response to the increase in credit risk, while Islamic rural banks are positively affected by credit risk. Finally, the results of frequency-based filter suggest that credit of conventional rural banks and financing in Islamic rural banks have different cycles in response to changing economic conditions.
represented in low inflation as well as stable exchange rate. The method applied in this research was Vector Auto-regression (VAR) Model to capture the response of inflation to the shocks arising from both monetary instruments. The results of this study indicate that conventional monetary policy in general—when compared to the Islamic counterpart—may certainly trigger instability of the price level since flawed-cum- vulnerable money system (fiat-based money) has fully been implemented, thereby inducing inflation. In addition, the debt system, interbank money market and the fractional reserve banking which are relied heavily on interest system have indeed contributed to the price volatility in Indonesia. In contrast, Islamic monetary policy shocks have proven to be capable of promoting price stability since they could hamper a highly volatile inflation.
This study aims to examine the pro-cyclicality of the credit channeled into Small Medium Enterprises by both conventional and Islamic rural banks in Indonesia; by comparing of both of which are categorized as pro-cyclicality. This study applies both Autoregressive Distributed Lag (ARDL) model to explore the extent to which the pro-cyclicality derived from indicator variables of rural banks may affect the real sector, and frequency-based filter to construct credit/financing cycle characterised by rapid growth in credit from both conventional and Islamic rural banks.
The results of this study demonstrate that in the short term, conventional and Islamic rural credit banks do not follow economic growth. This means, both conventional and Islamic procyclicality do not behave in the short term. However, in the long term when the economy is in the expansion phase, Conventional rural bank tends to be more procyclical than Islamic rural banks. From the capital side, Islamic rural banks compared to Conventional bank show countercyclical behavior both in the short and long term. Moreover, to the credit risk of their bad loans, conventional rural banks have a negative response to the increase in credit risk, while Islamic rural banks are positively affected by credit risk. Finally, the results of frequency-based filter suggest that credit of conventional rural banks and financing in Islamic rural banks have different cycles in response to changing economic conditions.