Examining profit-sharing financing dynamics in Indonesian Islamic banking: ECM and ARDL approaches

Sep 4, 2026

This study analyzes the determinants of profit-sharing financing growth in Indonesian Islamic banks, with attention to both short-term adjustments and long-term dynamics. ECM and ARDL methods are applied to evaluate macroeconomic and banking variables across a sample of 35 Indonesian Islamic banks. Results show that money supply, liquidity ratio, and financial profitability support growth in both horizons, while inflation and financial risk reduce long-term expansion. Exchange rates, interest rates, and operational efficiency show no significant effect. Long-run relationships remain stable with temporary short-run imbalances.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages16

Reading Time40 min

AccessFree to download

Introduction

Purpose and background

Financing and profit-sharing mechanisms

Covid-19 impact and research gap

Examining profit-sharing financing dynamics in Indonesian Islamic banking: ECM and ARDL approaches Sandi Sandia1, Ascarya Ascarya2, Sulaeman Sulaeman3 1Master of Islamic Economics, Faculty of Islamic Economics and Business, Tazkia University, Bogor, Indonesia 2Lecturer of Islamic Economics Study Program, Faculty of Islamic Economics and Business, Tazkia University, Bogor, Indonesia 3Department of Islamic Economics, Faculty of Economics and Business, Universitas Airlangga, Indonesia 3Senior Resercher, R-Square Research Consulting, Bogor, Indonesia Article Info Abstract Article History Purpose – This study examines the key factors driving profit-sharing Received : 2025-01-13 financing growth in Indonesian Islamic banks and offers insights into post Revised : 2025-05-01 Covid-19 recovery strategies. Accepted : 2025-08-04 Published : 2025-08-06 Methodology – This study used the ECM and ARDL methods to analyze short-term adjustments and long-term dynamics in 35 Indonesian Islamic Keywords: banks. Profit-sharing financing, Islamic banking, banking policy, Findings – The results indicate that money supply, liquidity ratio, and COVID-19 crisis, Indonesia financial profitability drive both short- and long-term growth in profitsharing financing. Conversely, inflation and financial risk negatively affect DOI: the long-term expansion of such financing. Meanwhile, exchange rates, [10.20885/JEKI.vol11.iss2.art4](10.20885/JEKI.vol11.iss2.art4 interest rates)[ interest rates](10.20885/JEKI.vol11.iss2.art4 interest rates), and operational efficiency do not have a significant influence. Additionally, the findings highlight that long-term relationships in profit JELE44, ClaE58,sificG21a, tionO53: sharing financing remain stable, with temporary short-term imbalances. Implications – This study provides evidence for policymakers and Islamic Corresponding author: bank management to develop strategies to enhance profit-sharing financing, Sandi Sanida support Islamic banking growth, and guide post-Covid-19 recovery policies. [sandi.sandia89@gmail.com](sandi.sandia89@gmail.com) Insights highlight key areas for strengthening Islamic banking operations in Author’s email: Indonesia. [dr.ascarya@gmail.com](dr.ascarya@gmail.com) Originality – This study builds on previous research by applying the ECM [sulaeman-2024@feb.unair.ac.id](sulaeman-2024@feb.unair.ac.id and ARDL frameworks)[ and ARDL frameworks](sulaeman-2024@feb.unair.ac.id and ARDL frameworks), providing a more comprehensive analysis of profit sharing financing determinants in Indonesian Islamic banking. Paper type: Research paper Cite this article: Sandia, S., Ascarya, A., & Sulaeman, S. (2025) . Examining profit-sharing financing dynamics in Indonesian Islamic banking: ECM and ARDL Center for Islamic Economics Studies approaches. Jurnal Ekonomi & Keuangan Islam, 11 (2), 211-226 and Dand Eecvelopmeonomics,nt, Faculty ofUniversitas IBslusiamness [https://doi.org/10.20885/JEKI.vol11.iss2.art4](https://doi.org/10.20885/JEKI.vol11.iss2.art4) Indonesia Introduction Financing in Islamic banking refers to the provision of funds by parties with surplus resources to those in need, thus enabling planned investment activities through individual or institutional arrangements. Financing supports various investment projects (Al-Arif, 2011) . Rivai (2008) emphasized that financing is a trust-based transaction, wherein the lender entrusts the borrower with funds, trusting that they will be used responsibly. Indonesian Law No. 21 of 2008 on Islamic Banking defines financing as the provision of funds according to Sharia principles, encompassing a range of contracts such as mudharabah, musyarakah, ijarah, murabahah, salam, istishna, and qardh, all of which require mutual agreement and compliance with Islamic principles. In the Islamic banking sector, financing is crucial as it directly contributes to public investment activities. According

FAQs

Do exchange rates, interest rates, and operational efficiency significantly impact profit-sharing financing?

No. The findings indicate that exchange rates, interest rates, and operational efficiency do not have a significant influence on profit-sharing financing growth.

Sep 4, 2026

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