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.