The Influence of Islamic Banking on Economic Growth

The financial sector plays an important role in driving economic growth. The bank is one of the institutions that can be analogized as the pulse of an economy. The higher the bank is able to channel various funding, the higher the opportunities for new businesses to be built by public. If the financial sector can grow and develop well, more sources of funding can be allocated to productive sectors which is will have a positive effect on economic growth. Economic growth can be assessed as an impact of government policies, especially in the economic field.

Indonesia is an archipelago country with the largest Muslim population in the world. 209.1 inhabitants of Indonesia or 87.2% are Muslims. This fantastic amount should be able to have a positive influence and could be a factor in developing the country's economic growth through Islamic finance.

Islamic banking has great potential to continues to grow, based on the large number of the country's population who embraced the religion of Islam, although for now the demand is still inferior to conventional banking. Some factors that influence the least contribution of third party funds (DPK) are the availability of capital owned by Islamic banks is only around 1-5 trillion. The second factor is because the majority of Indonesian people who embrace Islam do not understand the essence of Islamic banks. The third factor is the lack of training institutions in the field of Islamic banking so that the workforce is still inferior to conventional banks that have many experts and professionals. Another factor is the lack of support from the government, pilgrimage funds are still kept in conventional banks,

One of the biggest contributors of income for Islamic banking is financing. Financing is funding provided by one party to another party to support planned investments, both self-employed and institutional. Over the past 6 years, the total increase in financing undertaken by Islamic banking has fluctuated, so the contribution made is also relatively volatile.

Besides that, gross domestic product has increased drastically but the increase in GDP is not equivalent to the total financing disbursed by Islamic banking, causing a small contribution of total financing to the Gross Regional Domestic Product. That means the presence of Islamic banking in Indonesia has not been able to attract the interest of the public to save funds and propose capital assistance to Islamic banks and the role of Islamic banking for economic growth has not been significant.

Islamic banking still requires stronger efforts to compete with conventional banking which has been present in the midst of society. When third-party funds (DPK) have been collected, Islamic banking will immediately channel these funds into financing. So that the wheels of the economy which are driven by financing from Islamic banking will help increase Gross Regional Domestic Product. With the increase in Gross Regional Domestic Product, it means that community income is increasing, where one of them is allocated back to Islamic banking in the form of savings. Why is the role of Islamic banking not yet significant? the answer may be one of them because the Islamic banking market share is still low compared to conventional banking.