The Effect of Sharia Banking on Indonesian Economic Progress

Islamic banking has an important role in the progress of Indonesia's economic growth, this can be done in various ways. One way that can be done, for example, is by growing the investment sector through third party funds (DPK) or it can also be done by growing financing through financing provided (PYD) to the public. 

In Indonesia alone, the development of Islamic banking from year to year can be quite good and experiencing rapid growth. Bank Muamalat is the first Islamic bank to be the pioneer of the establishment of other Islamic banks today. 

Bank Muamalat was founded in 1991, the bank was founded by the Indonesian Ulema Council (MUI), the Indonesian Muslim Intellectual Association (ICMI), Muslim businessmen and also the government. Looking at the various types of Islamic banks that have been established in Indonesia today, we can feel that the influence of Islamic banking has quite an effect and is an important thing on the progress of the Indonesian economy.

The influence of Islamic banks is considered to be important for the progress of the Indonesian economy. This can be seen from the official website of the Financial Services Authority that Islamic banking third party funds (DPK) experienced a positive increase from 2012-2017. 

In 2012 third party funds (DPK) amounted to Rp. 150,449.802 billion, in 2013 amounting to Rp. 187,200,174, in 2014 amounting to Rp. 221,886,415 billion, in 2015 amounting to Rp. 235,976.888 billion, in 2016 amounting to 285,158,964 billion, and in 2017 amounting to Rp. 341,706.28 billion. 

We can see that in the last 6 years, third party funds (DPK) experienced significant growth or increase of 127% from 2012 to 2017. Not only until there in 2019 the total deposits reached Rp. 402.36 trillion.

After we see growth in DPK, several journals that I read say that third party funds (DPK) have a positive effect on economic growth in the real sector, meaning that the higher the DPK there will also be an increase in economic growth in the real sector.

However, in a journal, it is said, when the value of interest rates on conventional banks increases, the customer will choose to move their savings to conventional banking, rather than continuing to choose to save their savings in Islamic banking. 

This shows that the character of sharia banking customers is still influenced by the rate of return and there could be a bottleneck in the role of sharia banking in the progress of Indonesia's growth.

We can conclude, the influence of Islamic banking on the progress of the Indonesian economy provides several changes. Not only Islamic banking but conventional banking also has the same role.