THE PROSPECTS FOR ISLAMIC SOCIAL BANKING IN INDONESIA

  • M Luthfi Hamidi
  • Andrew Worthington,
  • Tracey West
  • Rifki Ismal

Abstract

Despite significant growth and development in recent years, Islamic banking (IB) continues to face widespread criticism given its apparently weak social outcomes. This study investigates the social performance of Islamic banking in Indonesia, including its justification as an IB objective and the means of improvement. We do this by surveying 506 current and potential Islamic banking customers across six Indonesian provinces, combined with in-depth interviews with 10 Islamic banking experts (regulators, practitioners, Syariah scholars, and academics). The findings strengthen previous results on the topic in that 42.89% of respondents consider that IB in Indonesia is defensive (doing the least that is required in terms of social outcomes), while 6.92% believe that it is reactive (doing less than that required). Of the remaining respondents, 34.78% consider the social performance as accommodative (doing all that is required) and 15.42% see it as proactive (doing more than is required). Most respondents (52.96%) suggest improvement by combining corporate social responsibility and the ZIS (Zakat, Infaq, shadaqah)-Waqf system. Only some (7.11%) suggest the establishment of Islamic social banking, whose main feature would be to design an alternative to collateral so that low- and middle-income customers could more readily access bank financing. We recommend that regulators and practitioners take action to address these weaknesses through incentives and long-term strategic planning.   

Published
2019-07-23
How to Cite
Hamidi, M. L., Worthington, A., West, T., & Ismal, R. (2019). THE PROSPECTS FOR ISLAMIC SOCIAL BANKING IN INDONESIA. Journal of Islamic Monetary Economics and Finance, 5(2). https://doi.org/10.21098/jimf.v5i2.1062
Section
Articles