DEVELOPING AN ISLAMIC FINANCIAL INCLUSION INDEX FOR ISLAMIC BANKS IN INDONESIA: A CROSS-PROVINCE ANALYSIS

Abstract

This study measures an Islamic financial inclusion index in Indonesia based on three
dimensions, namely the accessibility, availability and usage of Islamic banking services.
Additionally, it measures the relationship between the Islamic financial inclusion index
and the human development index (HDI). The study found that the level of Islamic
financial inclusion in Indonesia is relatively low at the national level. DKI Jakarta is the
most financially inclusive province in Indonesia, followed by East Java and Nanggroe
Aceh Darussalam. In contrast, East Nusa Tenggara has the lowest average Islamic
financial inclusion index. The findings also revealed a positive correlation between the
Islamic financial inclusion index and HDI. Those provinces with the highest Islamic
financial inclusion index were also likely to have a higher HDI. The findings of the
present study suggest that both policymakers and the Islamic financial industry should
play a greater role in improving financial access to low-income segments, especially in
the eastern part of Indonesia such as East Nusa Tenggara and Papua provinces.