The Effect of Macroeconomic Variables on Financing in Islamic Banks

Abstract

Macroeconomic variables are closely related to financial conditions. During the 1997-1998 crisis, the achievement of the financial sector was tested through the depreciation of the rupiah exchange rate and the uncertainty of domestic economic growth. The 2008 crisis tested the achievements of the financial sector through the global financial crisis and in 2020 it was tested through the Covid-19 crisis. However, Islamic banking is relatively unaffected by some of these crises, this is because Islamic banking has a unique business model and Islamic banking is a productive intermediary institution compared to conventional banks. This study aims to examine macroeconomic variables such as domestic interest rates, inflation, exchange rates and foreign interest rates on Islamic bank financing. The study uses time-series data and multiple regression method. These findings highlight that stable monetary conditions, particularly interest rates and exchange rates, are essential for sustaining the performance of Islamic banking. The implication of the research is that maintaining exchange rate stability and price stability is the main agenda of the government in maintaining the growth of the financial sector, especially the Islamic financial sector.