Analysis of Determining the Financial Inclusion Index of Composite, Conventional and Sharia Banking in Indonesia

Transcription

1. “Analysis of determining the financial inclusion index of composite, conventional and sharia banking in Indonesia” Eleonora Sofilda Muhammad Zilal Hamzah AUTHORS Ari Mulianta Ginting ARTICLE INFO Eleonora Sofilda, Muhammad Zilal Hamzah and Ari Mulianta Ginting (2022). Analysis of determining the financial inclusion index of composite, conventional and sharia banking in Indonesia. Banks and Bank Systems, 17(1), 38-48. doi:10.21511/bbs.17(1).2022.04 DOI http://dx.doi.org/10.21511/bbs.17(1).2022.04 RELEASED ON Wednesday, 02 February 2022 RECEIVED ON Saturday, 03 July 2021 ACCEPTED ON Tuesday, 25 January 2022 LICENSE This work is licensed under a Creative Commons Attribution 4.0 International License JOURNAL "Banks and Bank Systems" ISSN PRINT 1816-7403 ISSN ONLINE 1991-7074 PUBLISHER LLC “Consulting Publishing Company “Business Perspectives” FOUNDER LLC “Consulting Publishing Company “Business Perspectives” NUMBER OF REFERENCES NUMBER OF FIGURES NUMBER OF TABLES 39 0 7 © The author(s) 2022. This publication is an open access article. businessperspectives.org
2. Banks and Bank Systems , Volume 17, Issue 1, 2022 Eleonora Sofilda (Indonesia), Muhammad Zilal Hamzah (Indonesia), Ari Mulianta Ginting (Indonesia) BUSINESS PERSPECTIVES LLC “СPС “Business Perspectives” Hryhorii Skovoroda lane, 10, Sumy, 40022, Ukraine www.businessperspectives.org Analysis of Determining the Financial Inclusion Index of Composite, Conventional and Sharia Banking in Indonesia Abstract Received on: 3rd July, 2021 Accepted on: 25th of January, 2022 Published on: 2nd of February, 2022 © Eleonora Sofilda, Muhammad Zilal Hamzah, Ari Mulianta Ginting, 2022 Eleonora Sofilda, Ph.D., Lecturer in Doctoral Program in Economics in Public Policy Studies, Faculty of Economics and Business, Trisakti University, Indonesia. Muhammad Zilal Hamzah, Ph.D., Professor in Doctoral Program in Economics in Public Policy Studies, Faculty of Economics and Business, Trisakti University, Indonesia. Ari Mulianta Ginting, Doctor, Researcher in Research Center, Secretary-General of the House of Representatives of Indonesia, Indonesia. (Corresponding author) This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International license, which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited. Conflict of interest statement: Author(s) reported no conflict of interest 38 In Indonesia financial inclusion remains a challenge. This study looked at how the human development index, gross domestic product, and the number of offices of banks affect the financial index in 34 Indonesian provinces for composite, conventional, and sharia banking. This study uses panel data from 2016 to 2019 to address research questions. According to the findings of this study, economic growth, human development index, regional gross domestic product per capita, and bank brances significantly influence the financial inclusion index of the composite banking. Meanwhile, economic growth, human development index, gross domestic product per capita, and the number of bank branches impact the financial inclusion index of conventional banking. However, the financial inclusion index for sharia banking shows that only economic growth variables, regional gross domestic product per capita, and the number of sharia bank branches have a significant influence. The human development index variable does not have a significant influence. Based on these findings, the Financial Service Authority (OJK) and Bank Indonesia must promote a conducive climate for increasing the financial inclusion of banking in Indonesia for both conventional and Islamic banks. Keywords financial inclusion, human development index, economic growth, Islamic banking, panel data regression JEL Classification G20, O15, 040, E44, C23 INTRODUCTION The World Bank (Demirguc-Kunt et al., 2017) reported that around 95 million individuals in Indonesia do not have a financial institution account. Indonesia has the world’s fourth-largest unbanked population, behind China, India, and Pakistan. However, access to financial services is a problem among individuals and micro, small and medium enterprises (MSMEs) in Indonesia. MSMEs in Indonesia are still experiencing trouble accessing finance (credit), according to Rosengard and Prasetyantoko (2011), Muthia et al. (2019), since the government limits MSMEs in such access and focuses more on consumer finance. The increased financial inclusion, keeping with the government’s goal of making Indonesia the global Sharia economy’s hub, will need a rise in sharia finance, which may be achieved by improving the Islamic Financial Inclusion Index. Consequently, there is still a lack of Islamic financial inclusion. According to statistics from the Financial Services Authority (OJK, 2020), the Islamic Financial Inclusion Index decreased in 2019 compared to 2016, falling from 11.1 to 9.10. Each financial sector reveals the extent of financial in- http://dx.doi.org/10.21511/bbs.17(1).2022.04
3. Banks and Bank Systems , Volume 17, Issue 1, 2022 clusion. When compared to other financial sectors, such as the capital market (0.01 percent), insurance (1.9 percent), pension funds (0 percent), and pawnshops (0 percent), according to the Financial Services Authority statistics (OJK, 2020), inclusiveness in the banking system is still the greatest (9.6 percent) out of 12,773 respondents (0.7 percent). These numbers show that participation in the sharia non-bank financial market is still meager at all levels of society. The issue is affecting Indonesia and the rest of the world. According to Beck and Brown (2011), Brekke (2018), out of 29,000 persons in 29 nations, Muslims had fewer bank accounts than non-Muslims, with religious reasons being one of the underlying factors. The primary causes for financial exclusion in Muslim countries, according to Zulkhibri (2016), are cost, distance, belief, and religious reasons. As a result of the aforementioned factors, several Islamic nations have limited financial inclusion. According to Ahamed (2016) in Muthia et al. (2019), high financial inclusion will enhance bank profitability. Because a rise in banking profitability reflects the volume of lending, it will boost real-estate productivity and result in higher production. This study analyzes the economic growth, the Human Development Index (HDI), gross regional domestic product per capita, and the number of offices that affect the Financial Inclusion Index of composite, conventional, and Sharia banks in 34 Indonesian provinces from 2016 to 2019. 1. LITERATURE REVIEW 1.2. Financial inclusion 1.1. Financial institutions According to Ngo (2019), the notion of financial inclusion first appeared in Leyshon and Thrift (1996), According to Pass and Lowes (1988), a financial but it was not well stated. Therefore, the opposing intermediary is an institution or organization word of financial exclusion was used instead. The that connects payments from creditors to debt- process of a group of people not being able to enter ors. According to Sloman et al. (2012), financial the financial system is referred to as financial excluintermediation is another name for a financial sion. However, there is also much discussion about institution, such as a bank, whose purpose is the meaning of financial inclusion. According to to broker funds between savers and borrowers. Bank Indonesia (2014) in Saraswati et al. (2020), fiFinally, according to Siamat (1995) in Fahmi nancial inclusion is defined as all efforts to promote (2014), a financial institution is a commercial public access to financial services by removing firm whose primary wealth is financial assets price and non-price obstacles. or bills, such as bonds and shares, rather than tangible assets. According to Barr et al. (2007), the financial system of inclusion is linked to the development of Banking plays a significant role in facilitating access to financing facilities for individuals or the smooth transmission of monetary policy as businesses, as well as the mobilization of savings, an intermediate institution that provides ac- credit allocation, and risk management, all of cess to financial services (intermediation) to all which may deepen and extend the financial syssections of society, one example being the min- tem, increasing growth and lowering poverty. Barr imum reserves kept by commercial banks in et al. (2007) stated that there are two views on an central banks. One of the essential purposes of economy’s lack of financial inclusion. First, finankeeping minimum reserves at the central bank, cial inclusion occurs on-demand when potential according to Sloman et al. (2012), is to control consumers access financial services but do not utiliquidity risks associated with the time in terms lize them. The second is on the supply side, where of assets and liabilities to ensure financial sys- credit or financing institutions cannot effectively tem stability. Furthermore, banking has a sig- diversify risks due to their inability to mitigate nificant influence on the quantity of money in asymmetric information and, as a result, withhold or deny funding applications for specific debtors. circulation. http://dx.doi.org/10.21511/bbs.17(1).2022.04 39
4. Banks and Bank Systems , Volume 17, Issue 1, 2022 Financial intermediation is connected to the amount of access to financial services. Financial intermediation done through the creation of banks branch offices or the supply of such facilities will allow access in the collection of various financial products suited for underserved persons or groups or rural groups, according to the most thorough study such as Mishkin (2007) in Bongomin et al. (2017). According to other research, such as Kumar and Mishra (2011) and Bongomin et al. (2017), financial institution structures such as head offices and branch offices can increase financial services, particularly for rural groups. Financial institutions can facilitate the distribution of financial goods more efficiently with several offices, which influences the efficiency of monetary policy. As a result, quick access might be said to boost financial participation. Infrastructure factors such as paving roads, which can increase the number of bank branches in each town, have a favorable and significant influence on the level of financial inclusion, according to Sarma (2012). 4) if there are financial products available, Muslims will want to use them. On the other hand, financial inclusion is connected to income inequality and assisting monetary authorities in reaching the ultimate goal of inflation stability. Saraswati et al. (2020) observed that, both in the short and long run, financial inclusion affects the inflation rate, which is a proxy for monetary policy efficacy. According to Mbutor and Uba (2013), the number of bank branch offices has a detrimental impact on monetary policy efficacy. Sarma (2012) also developed a model for computing the financial inclusion index, which is as follows: X1 = X 2 = 1− d12 + d 22 +…+ d n2 (w 2 1 + w22 +…+ wn2 ) , (1) ( w1 − d1 ) 2 + ( w2 − d 2 ) 2 +…+ ( wn − d n ) 2 , (2) ( ) The economics in Islam, with religious considerations, is one of the sole financial causes. According 1 (3) to Zulkhibri (2016), financial inclusion in the = IFI [ X1 + X 2 ] , 2 Islamic economy is linked to income equality based on risk-sharing contracts. Risk-sharing contracts can be used as an alternative to debt financing and 2 2 2 1  d1 + d 2 +…+ d n Islamic microfinance to help micro-businesses and IFI  = + 2 n the needy carry-out redistribution tasks. Shinkafi (4)  et al. (2020) found that microcredit and microfi2 2 2   nancing instruments, combined with a greater un- + 1 − (1 − d1 ) + (1 − d 2 ) +…+ (1 − d n )   ,   n derstanding of underserved populations (poor peo  ple, rural communities, and low-income persons), effectively increased financial involvement. where 0 ≤ w1 ≤ 1; IFI = index of financial inclusion; d1, d2…, dn = measurement dimension index; w1, According to Jouti (2018), there are several chal- w2...., wn = weight on dimensions. lenges with Islamic financial inclusion that are The financial inclusion index (IFI) is produced tied to religious reasons: using the average summation of weights and 1) the lack of bank accounts for religious reasons; dimensions utilized, as shown in the formula above. As previously stated, Sarma’s study 2) some Muslims who have accounts with con- (2012) divides the assessment of financial inventional financial services are limited to clusion into three dimensions: banking peneusing basic facilities, not financing products, tration, financial service availability, and use. Furthermore, if the dimensions employed are savings, or even insurance; regarded equally essential in measuring finan3) Muslims who use conventional financial ser- cial inclusiveness for the sake of simplificavices will prefer to use shariah-based financial tion, then the dimension weight (w) is worth 1. services and products if they are available; and Furthermore, according to Musau et al. (2018), 40 w12 + w22 +…+ wn2 http://dx.doi.org/10.21511/bbs.17(1).2022.04
5. Banks and Bank Systems , Volume 17, Issue 1, 2022 three characteristics are used to measure finan- and integration), particularly in Western nations cial inclusivity: availability, accessibility, and (Brekke, 2018). utilization. According to Sarma and Pais (2011), in the 49 1.3. Regional gross domestic product countries plotted, The Human Development Index (HDI) and the Financial Inclusion Index per capita (IIK) had a considerable and significant positive The distinction between Regional Gross Domestic association, meaning that nations with a high Product (GDPR) and Gross Domestic Product Human Development Index also have a high (GDP) is the measuring scale, which is regional. Financial Inclusion Index. Sarma and Pais (2011) Gross Domestic Product (GDP) is defined by Pass did a similar study and discovered that the Human and Lowes (1988) as the total monetary worth of Development Index (HDI) and the Financial all products and services generated in an econo- Inclusion Index had a significant positive assomy over one year. There is a relationship between ciation (IIK). Between 2011 and 2014, Datta and financial inclusion and income. Ummah et al. Singh (2019) found various positive associations (2015) concluded that income (an economic indi- in each cluster of income categories. cator) positively impacted financial inclusion. This study used the data panel technique to examine 33 provinces in Indonesia from 2007 to 2011. GDP 2. DATA, METHODS, per capita has a considerable beneficial influence AND HYPOTHESES on financial inclusion rates, according to Sarma and Pais (2011). This study uses secondary data financial inclusion, either in composite, conventional, and sharia bankFurthermore, income and financial inclusion have ing of 34 provinces from 2016 to 2019. Data collected a two-way relationship. Again, Adusei (2015) re- and gathered from the Financial Service Authority veals an indirect association between income and (FSA) of Indonesia report, from the website of Bank financial inclusion. The more significant the in- Indonesia, and macroeconomic data is gathered come, the higher the savings saved in bank account from the Central Bureau of Statistics of Indonesia. ownership. Therefore, according to the statement, having a bank account indicates banking penetra- To address research questions on the effect of ecotion, implying a positive relationship between in- nomic growth, gross regional product per capita, come and financial inclusion (Musau et al., 2018). human development index, and the number of bank offices on financial inclusion index for com1.4. Human development index posite, conventional, and sharia banking, equations (5), (6), and (7) are employed. According to Laha (2015), there is a causal link IKK Composite =∝ + Log β1 ( EG ) + between financial inclusion and human development, which are positively associated. Therefore, (5) + Log β 2 ( GDPR / Cap ) + nations with a high level of human evolution will + Log β3 ( HDI ) + Log β 4 ( Office ) + ε , also have a high level of financial inclusiveness. The regional income will, without a doubt, contribute to the HDI level in each region. According to IKKK Conventional =∝ + Log β1 ( EG ) + Sarma and Pais (2011), Chithra and Selvam (2013), + Log β 2 ( GDPR / Cap ) + Log β 3 ( HDI ) + (6) there is a positive relationship between income and financial inclusion, as stated in Ngo (2019). As + Log β 4 ( Office ) + ε , a result, these elements must be considered while improving Indonesia’s financial inclusivity. A preIKK Sharia = ∝ + Log β1 ( EG ) + vious study found the financial inclusion index in (7) + Log β 2 ( GDPR / Cap ) + both conventional and sharia law. Sharia finance has emerged as a critical topic concerning finan+ Log β3 ( HDI ) + Log β 4 ( Office ) + ε . cial inclusion (membership, faith in institutions, http://dx.doi.org/10.21511/bbs.17(1).2022.04 41
6. Banks and Bank Systems , Volume 17, Issue 1, 2022 The research variables of the analysis can be repre- 3) Stage 3: Perform a test to determine the data sented as shown in Table 2. panel’s regression model. Based on the aims of this study mentioned before 4) Stage 4: Using a fixed effect panel data model in the previous section, then to solve the analysis, to estimate panel regression. the regression data panel technique (panel data regression model) is used. Moreover, based on the 5) Stage 5: The empirical model is estimated usresults of model selection tests with chow tests, ing a panel regression model. The fixed-effect Breusch-Pagan Lagrange Multiplier (LM) and model was used to analyze the model. In adHausman tests showed that fixed effect (FE) moddition, STATA software packages were emels are better than random effect (RE) and pooled ployed to examine the data. the least square (PLS). The FE method eliminates Table 1. Research variables the effects of characteristics that do not vary between times (time-invariant) in each company to Variables Description Description Dependent variables evaluate the actual effects of independent variaFinancial bles that are suspected to affect variable dependAs a proxy of financial inclusion Inclusion Index of that people access to the ents. Based on the analysis of panel data using the IKKComposite Conventional and financial system Stata program, the following hypotheses will be Sharia banks Financial proposed: As a proxy of financial inclusion IKKConventional H1: Economic Growth positively affects the Financial Inclusion Index. IKK Sharia H2: H3: H4: Regional Gross Domestic Product per capita positively affects the Financial Inclusion Index. Inclusion Index of Conventional Banks Financial Inclusion Index of Sharia Banks of a conventional bank that people accessed Used as a proxy of financial inclusion of a sharia bank Independent variables EG The Human Development Index positively affects the Financial Inclusion Index. GDPR/Cap The number of banking offices positively affects the Financial Inclusion Index. HDI Economic Growth of a Province Regional Gross Domestic Product per Capita Human Development Index The number of office branches of banks Used as economic growth in a region or province in a period Total products and services produced in a province in a time divided by the number of people that lived in that province The high HDI index should increase the financial inclusion index The increased number of bank branches should increase the financial inclusion index As mentioned before in the previous section, this Office study aims to determine the impact of economic growth, HDI, gross regional domestic product per capita, and the number of offices on the Financial Inclusion Index of composite, conventional, and sharia banks in 34 provinces in Indonesia from 3. RESULTS the data 2016 to 2019. Before execution the empirical estimation, the following stages will be per- A statistical description of this study of each variaformed on several research variables as an analysis ble should be validated before conducting a quantitative analysis of existing data and models. The unit for testing successive hypotheses: examination of the data has been done before 1) Stage 1: Collect data related to financial inclu- quantitatively examining existing data and modsion index for conventional and sharia bank- els. Furthermore, the variable has gone above and above by implementing a screening method to ing in 34 provinces in Indonesia. ensure that the data used is not anomalous. The 2) Stage 2: Calculate the composite financial in- Financial Inclusion Index for the composite is dex using an iterative approach based on con- then calculated. Financial inclusion data from ventional and sharia financial inclusion indices. conventional banks and sharia banks were collect- 42 http://dx.doi.org/10.21511/bbs.17(1).2022.04
7. Banks and Bank Systems , Volume 17, Issue 1, 2022 Table 2. Descriptive statistic of variables Definition Variable IKKComposite Financial Inclusion Index of Conventional and Sharia Banks Mean Std. dev Min Max 67.876 5.332 58.50 78.20 IKKConventional Financial Inclusion Index of Conventional Banks 56.30 5.751 55.30 78.20 IKK Sharia Financial Inclusion Index of Sharia Banks 10.923 8.062 2.20 41.50 EG Economic Growth of a Province 5.359 1.74 –0.36 9.98 GDPR/Cap Regional Gross Domestic Product per Capita 39.246 29.890 11.47 149.83 HDI Human Development Index 69.159 4.150 58.05 79.60 Office The Number of Office Branches of Banks 108.647 128.41 16.00 545.00 ed from 34 provinces in Indonesia and produced the Financial Inclusion Index Composite, as described in the previous section. Table 1 shows the statistical reports for the variables used in regression calculations. The Hausman test on the four models reveals that they are fixed-effect models. In this study, the next step is to use the FEM model for panel data regression. This study’s panel regression model result can be seen in Table 5. Table 5. Effect of EG, HDI, GDPR/Cap and Office Several tests were undertaken before the regres- on IKK Composite sion analysis to identify the regression model of Source: Author estimation (2021). the panel utilized in the study. After the data has been obtained, the following step is to decide the Dependent (1) (2) (3) (4) model used by applying the Wald Test to see if the IKKComposit e FE1 FE2 FE3 FE4 common effect or fixed effect model will be utilized. The Wald Test results for models 1 through 0.279*** 0.0234*** 0.494*** 0.260** EG 4 are shown in Table 3. Table 3. The Wald test on the panel regression model Model Prob (F) Result Cluster I Cluster II Cluster III Cluster IV 0.0000 0.0000 0.0000 0.0000 FEM FEM FEM FEM (0.0016) (0.036) (0.110) (0.113) – 4.438*** 3.258*** 3.436*** – (0.177) (0.636) (0.621) – – 0.006** 0.0057*** – – (0.0034) (0.0025) – – – 0.105** – – – (0.0057) HDI GDPR/Cap Office Note: Wald test: using a critical value of 1%, 5%, and 10%. 72.045*** 92.66*** 103.796** 110/665*** Constanta According to the Wald test results on the model (0.670) (10.626) (9.509) (11.521) in four models, the four-model panel model uti- R2 0.919 0.975 0.964 0.977 lized is FEM. However, more testing is required Adjusted R2 0.950 0.917 0.949 0.923 to verify whether the fixed effect or random-effect 0.000 0.000 0.000 0.000 model is correct. The Hausman method is used to F decide the panel regression model. Table 4 shows Note: * significant at the level of 10%, ** significant at the level of 5%, and *** significant at the level of 1%. the Hausman test results. Table 4. The Hausman test on the panel regression model According to Table 5, EG, HDI, GDPR/Cap, and Office positively correlate with IKKСomposite. This empirical finding has shown that the independModel Cluster I Cluster II Cluster III Cluster IV ent variables positively and significantly affect Prob (F) 0.0000 0.0000 0.0000 0.0000 IKKСomposite. Therefore, model 1 concludes that each Result FEM FEM FEM FEM variable will increase by increasing the financial Note: The Hausman test: using a critical value of 1%, 5%, inclusion index composite in 34 provinces in and 10%. Indonesia. http://dx.doi.org/10.21511/bbs.17(1).2022.04 43
8. Banks and Bank Systems , Volume 17, Issue 1, 2022 Table 6. Effect of EG, HDI, GDPR/Cap and Office on IKKConventional Source: Author estimation (2021). Dependent IKKConventional EG HDI GDPR/Cap Office Constanta (1) FE1 (2) FE2 (3) FE3 (4) FE4 0.0349*** 0.532*** 0.332** 0.381*** (0.0017) (0.076) (0.105) (0.111) – 5.277*** 4.225*** 4.678*** – (0.023) (0.576) (0.601) – – 0.004*** 0.004*** (0.0002) (0.0002) 0.1567** – – – – – – – (0.005) 70.801*** 84.940*** 95.425** 105.614*** (0.0124) (1.676) (31.172) (32.253) R2 0.993 0.996 0.993 0.996 Adjusted R2 0.986 0.984 0.986 0.991 F 0.000 0.000 0.000 0.000 Note: * significant at the level of 10%, ** significant at the level of 5%, and *** significant at the level of 1%. Meanwhile, the financial inclusion index for Sharia banking is influenced by economic growth, regional gross domestic product, and the number of Islamic banking branch offices, according to the results of panel regression research. Meanwhile, the human development index does not significantly affect the sharia banking financial inclusion index (IKKSharia). The panel regression findings are shown in Table 7. 4. DISCUSSION The model of the Financial Inclusion Index for composite, conventional, and sharia banks are on average positively and significantly influenced by economic growth and regional gross domestic product per capita. Based on this study, the first hypothesis (H1) indicates that economic growth has a positive and significant impact on the financial inclusion index for conventional, sharia, and composite banks. The result is consistent with Ummah et al. (2015), who found that income has a positive and significant influence on financial inclusion. Kim et al. (2018) stated that from panel data for 55 Organization of Islamic Cooperation (OIC) countries, economic growth has a positive and significant impact on the financial inclusion index. According to Table 6, the panel regression findings reveal that numerous factors influence the financial inclusion index for conventional banking, including economic growth, human development index, gross regional domestic product per capita, and the number of conventional banking offices. The findings demonstrate that increasing these variables is required to improve financial incluThis study also found that the second hypothesion through conventional banking. sis (H2) indicates that Gross Domestic Product Table 7. Effect of EG, HDI, GDPR/Cap and Office Regional per capita (GDPR/capita) positively imon IKKSharia pacts conventional, sharia, and composite finanSource: Author estimation (2021). cial inclusion index of banks. The result is in line (1) (2) (3) Dependent (4) with a previous study by Umar (2017) that the FE1 FE2 FE3 IKKSharia FE4 increase in GDPR/capita imposes the increasing 0.073*** 0.218** 0.309*** 0.487*** financial inclusion index. Moreover, the increase EG (0.0006) (0.105) (0.105) (0.119) in GPDR/capita will increase the income, with 2.903 – 0.218 2.566 the increase in income the savings rate in bank HDI – (0.283) (2.913) (3.01) accounts will increase, increasing financial inclu0.009** – – 0.0086*** sion (Adusei, 2015; in Musau, 2018). Government GDPR/Cap – – (0.006) (0.003) efforts to improve community welfare through so0.173*** – – – cial assistance and improved income for the disOffice – – – (0.022) advantaged have increased a bank’s financial in10.633*** 70.774*** 156.005*** 197*** clusion index. Habibullah research in 2019 discovConstanta (0.031) (10.350) (9.388) (15.538) ered that providing community improvement aid 0.994 0.997 0.984 0.995 R2 through social assistance affects banking financial Adjusted R2 0.994 0.968 0.992 0.987 inclusion. F 0.000 0.000 0.000 0.000 Note: * significant at the level of 10%, ** significant at the level of 5%, and *** significant at the level of 1%. 44 Based on this study, the third hypothesis (H3) indicates that the Human Development Index (HDI) http://dx.doi.org/10.21511/bbs.17(1).2022.04
9. Banks and Bank Systems , Volume 17, Issue 1, 2022 positively and significantly affects the financial inclusion index of conventional, sharia, and composite banks. The result is in line with a previous study by Sarma and Pais (2011) and Umar (2017) that there is a strong and significant positive correlation between the Human Development Index (HDI) and the level of financial inclusion, especially for composite and conventional banking. This study shows that the human development index has a positive and significant impact on the financial inclusion index both for composite and conventional banks. Nevertheless, the human development index does not significantly impact the financial inclusion index for sharia banking in Indonesia. Based on this study, the fourth hypothesis (H4) indicated that the number of banking offices positively affects the financial inclusion index for conventional, sharia, and composite banks. This study means that the increasing number of banking offices will increase the financial inclusion index. The number of branch offices expands the complexity of banking requirements, and the unequal development of the financial system in each region may limit participation in banking products. Sun and Siagian (2015) stated that the most significant barrier to financial inclusion in Indonesia is the complexity of banking procedures, particularly for microbusiness financing. Based on this study, the increasing number of banks positively and significantly affects Indonesia’s financial inclusion index for composite, conventional, and sharia banking. Islamic banking, Kim et al. (2020) found that other factors are needed to drive the financial inclusion index of Islamic banking, including religious and social factors. They were conducted by Kim et al. (2018) specifically related to the financial inclusion of Islamic banking, which found a significant influence between economic growth and financial inclusion of Islamic banking in the Organization of Islamic Cooperation (OIC). The increasing financial inclusion index of sharia banking in Indonesia needs several policies. Zulkhibri (2016) stated that using instruments such as zakat, waqf, Sadaqah, and Qardh AlHasan is related to income redistribution to increase financial inclusion. According to Zulkhibri (2016), tools like zakat, waqf, Sadaqah, and Qardh Al-Hasan are used to redistribute income and improve the financial inclusion of sharia banking in Indonesia. Furthermore, Widarwati et al. (2019), explained that increasing the financial inclusion index of sharia banking requires an increase in financial stability. Further, the Financial Services Authority (OJK, 2016) issued Financial Services Authority Regulation No. 76/POJK.07/2016 on Improving Financial Literacy and Inclusion in the Financial Services Sector for The Community and Society, affirming a detailed strategy related to improving financial inclusion in society for both conventional banking and sharia banking. Continuously improving people’s financial literacy is one effective strategy to enhance financial inclusion in public. This study aligns with several policies that need The Financial Services Authority (OJK) has estabto be achieved to increase the financial inclusion lished a literacy process for financial education index for sharia banking in Indonesia. Economic and infrastructure development that supports figrowth, regional gross domestic product per cap- nance and banking for consumers and the public. ita, and several offices influence the financial in- This program is projected to enhance the public’s clusion index based on this study. This study is financial inclusion index, suggesting that more in line with a previous study by Kim et al. (2018). people access financial services, especially in the Furthermore, regarding the financial inclusion of banking sector. CONCLUSION This study analyzes the effect of economic growth, human development index, regional gross domestic product per capita, and the number of banks on the financial inclusion index for composite, conventional, and sharia banks in 34 provinces in Indonesia. This study found that the financial inclusion index for composite and conventional banks is influenced by economic growth, human development index, regional gross domestic product per capita, and branch offices. Meanwhile, it was found that the financial http://dx.doi.org/10.21511/bbs.17(1).2022.04 45
10. Banks and Bank Systems , Volume 17, Issue 1, 2022 inclusion index for sharia banks is influenced by economic growth, regional gross domestic product per capita, and the number of branch offices. Based on the findings of this study, a policy strategy consisting of increasing economic growth, increasing human quality through increasing the human development index, increasing regional gross domestic product per capita, and branch offices is recommended to increase the financial inclusion index in the banking sector for conventional, sharia and composite banking. According to this study, Bank Indonesia and the Financial Authority should implement a set of policies, particularly enhancing financial literacy to increase financial inclusion and increase the combination of policies that support the climate of financial inclusion, predominantly in banking. AUTHOR CONTRIBUTIONS Conceptualization: Eleonora Sofilda, Muhammad Zilal Hamzah, Ari Mulianta Ginting. Data curation: Eleonora Sofilda. Formal analysis: Eleonora Sofilda, Muhammad Zilal Hamzah. Funding acquisition: Eleonora Sofilda, Ari Mulianta Ginting. Investigation: Eleonora Sofilda. Methodology: Eleonora Sofilda. Project administration: Eleonora Sofilda, Ari Mulianta Ginting. Resources: Eleonora Sofilda, Muhammad Zilal Hamzah, Ari Mulianta Ginting. Software: Eleonora Sofilda. Supervision: Muhammad Zilal Hamzah, Ari Mulianta Ginting. Validation: Muhammad Zilal Hamzah, Ari Mulianta Ginting. Writing – original draft: Eleonora Sofilda. Writing – reviewing & editing: Muhammad Zilal Hamzah, Ari Mulianta Ginting. REFERENCES 1. 2. 3. 4. 46 Adusei, M. (2015). The impact of bank size and funding risk on bank stability. Cogent Economics & Finance, 3(1), 1111489. https:// doi.org/10.1080/23322039.2015.1 111489 Asian Development Bank. (2020). Asia Small and Medium-Sized Enterprise Monitor 2020: Volume 1 – Country and Regional Review. Mandaluyong City: Asian Development Bank. https://dx.doi. org/10.22617/TCS200290-2 uploads/2020/12/Building-Inclusive-Financial-Systems.pdf 5. 6. Bank Indonesia. (2020). Financial Inclusion. Retrieved from https:// www.bi.go.id/en/fungsi-utama/ stabilitas-sistem-keuangan/keuangan-inklusif/Default.aspx Barr, M. S., Kumar, A., & Litan, R. E. (2007). Building Inclusive Financial Systems: A Framework for Financial Access. Washington, DC: The Brookings Institution. Retrieved from http://www.ascdegreecollege.ac.in/wp-content/ 7. Beck, T., & Brown, M. (2011). Which Household Use Banks? Evidence from the Transition Economies (ECB Working Paper No. 1295). https://dx.doi. org/10.2139/ssrn.1761435 Bongomin, O. G., Munene, J. C., Mpeera, N. J., & Malinga, C. A. (2017). Financial Intermediation and Financial Inclusion of The Poor: Testing The Moderating Role of Institutional Pillars in Rular Uganda. Cogent Economics & Finance, 5(1), 1-16. https://doi. org/10.1080/23322039.2017.136 2184 Brekke, T. (2018). Halal Money: Financial Inclusion and Demand for Islamic Banking in Norway. Research and Politics, 5(1), 1-7. https://doi.org/10.1177%2F2053168018757624 8. Chithra, N., & Selvam, M. (2013). Determinants of financial inclusion: An empirical study on the inter-state variations in India. Available at SSRN 2296096. https://doi.org/10.2139/ ssrn.2296096 9. Datta, S. K., & Singh, K. (2019). Variation and Determinants of Financial Inclusion and association with Human Development: A Cross Country Analysis. IIMB Management Review, 31(4), 336-349. https://doi.org/10.1016/j. iimb.2019.07.013 10. Demirguc-Kunt, A., Klapper, L., Singer, D., Ansar, S., & Hess, J. (2017). The Global Findex Database 2017: Measuring Financial Inclusion and The Fintech Revolution. Washington, DC: World Bank Group. Retrieved from http://hdl.handle. net/10986/29510 http://dx.doi.org/10.21511/bbs.17(1).2022.04
11. Banks and Bank Systems , Volume 17, Issue 1, 2022 11. Fahmi, I. (2014). Bank & Lembaga Keuangan Lainnya: Teori dan Aplikasi. Bandung: Alfabeta. 12. Financial Action Task Force (FATF). (2020, March 17). Financial Inclusion and NPO issues. Retrieved from http://www. fatf-gafi.org/publications/financial inclusion/?hf=10&b=0&s=desc(fa tf_releasedate) 13. Gujarati, D. N. (2004). Basic Econometrics (4th ed.). United States: The MacGraw-Hill Companies. Retrieved from http:// eprints.stiperdharmawacana. ac.id/180/1/Basic%20Econometrics%20-%20Gujarati.pdf 14. Habibullah, H. (2019). Inklusi Keuangan dan Penurunan Kemiskinan: Studi Penyaluran Bantuan sosial Non Tunai. Sosio Informa, 5(1), 38-53. https:// dx.doi.org/10.33007/inf.v5i1.1657 15. Jouti, A. T. (2018). Islamic Finance: Financial Inclusion or Migration? ISRA International Journal of Islamic Finance, 10(2), 277-288. https://doi.org/10.1108/ IJIF-07-2018-0074 16. Kim, D.-W., Yu, J.-S., & Hassan, M. K. (2018). Financial inclusion and economic growth in OIC countries. Research in International Business and Finance, 43, 1-14. https://doi.org/10.1016/j. ribaf.2017.07.178 17. Kim, D.-W., Yu, J.-S., & Hassan, M. K. (2020). The Influence of Religion and Social Inequality on Financial Inclusion. The Singapore Economic Review, 65(1), 193-216. https://doi.org/10.1142/ S0217590817460031 18. Kumar, C., & Mishra, S. (2011). Banking outreach and household level access: Analyzing financial inclusion in India. In 13th Annual Conference on Money and Finance in the Indian Economy (pp. 1-33). 19. Laha, A. (2015). Association between Financial Inclusion and Human Development in South Asia: A Cross-Country Analysis with Special Reference to India. Journal of Economic Policy and Research, 10(2), 69-91. Retrieved from https://www.ipeindia.org/ http://dx.doi.org/10.21511/bbs.17(1).2022.04 wp-content/uploads/journals/jepr/ JEPR_10_2_4.pdf 20. Leyshon, A., & Thrift, N. (1996). Financial Exclusion and the Shifting Boudaries of the Financial System. Environment and Planning A: Economy and Space, 28(7), 1150-1156. https:// doi.org/10.1068/a281150 21. Mbutor, M. O., & Uba, I. A. (2013). The Impact of Financial Inclusion on Monetary Policy in Nigeria. Journal of Economics and International Finance, 5(8), 318-328. https://doi.org/10.5897/ JEIF2013.0541 22. Musau, S., Muathe, S., & Mwangi, L. (2018). Financial Inclusion, GDP, and Credit Risk of Commercial Banks. International Journal of Economics and International Finance, 10(3), 181195. https://doi.org/10.5539/ijef. v10n3p181 23. Muthia, F., Raneo, A. P., & Andaiyani, S. (2019). Financial Inclusion and Bank Efficiency in Indonesia. Journal of Advanced Research in Law and Economics, 10(2), 595-602. https://doi. org/10.14505//jarle.v10.2(40).21 24. Ngo, A. L. (2019). Index of Financial Inclusion and The Determinants: an Investigation in Asia. Asian Economic and Financial Review, 9(12), 13681382. Retrieved from https:// archive.aessweb.com/index. php/5002/article/view/1896/2928 25. Otoritas Jasa Keuangan (OJK). (2016). Peraturan Otoritas Jasa Keuangan Nomor 76/ POJK.07/2016. tentang Peningkatan Literasi dan Inklusi Keuangan di Sektor Jasa Keuangan bagi Konsumen dan/ atau Masyarakat. Jakarta: Otoritas Jasa Keuangan. Retrieved from https://peraturan.bpk.go.id/Home/ Details/128403/peraturan-ojk-no76pojk072016-tahun-2016 26. Otoritas Jasa Keuangan (OJK). (2020). Survey Nasional Literasi Keuangan 2019-SNLK 2019. Jakarta: Otoritas Jasa Keuangan. Retrieved from https://sikapiuangmu.ojk.go.id/FrontEnd/CMS/ DetailMateri/494 27. Pass, C., & Lowes, B. (1988). Dictionary of Economics (2nd ed.). United Kingdom: HarperCollins Publishing, Ltd. 28. Rosengard, J. K., & Prasetyantoko, A. (2011). If the Banks are Doing so Well, Why Can’t I Get a Loan? Regulatory Contraints to Financial Inclusion in Indonesia. Asian Economic Policy Review, 6(2), 273296. https://dx.doi.org/10.1111/ j.1748-3131.2011.01205.x. 29. Saraswati, B. D., Maski, G., Kaluge, D., & Sakti, R. K. (2020). The Effect of Financial Inclusion and Financial Technology on Effectiveness of The Indonesian Monetary Policy. Business: Theory and Practice, 21(1), 230243. https://doi.org/10.3846/ btp.2020.10396 30. Sarma, M. (2012). Index of Financial Inclusion-A Measure of Financial Sector Inclusiveness (Working Paper No. 07/2012). Berlin Working Papers on Money, Finance, Trade and Development. Retrieved from https://financeand-trade.htw-berlin.de/ fileadmin/HTW/Forschung/ Money_Finance_Trade_Development/working_paper_series/ wp_07_2012_Sarma_Index-ofFinancial-Inclusion.pdf 31. Sarma, M., & Pais, J. (2011). Financial Inclusion and Development. Journal of International Development, 23(5), 613-628. https://doi.org/10.1002/ jid.1698 32. Shinkafi, A. A., Yahaya, S., & Sani, T. A. (2020). Realizing Financial Inclusion in Islamic Finance. Journal of Islamic Marketing, 11(1), 143-159. https://doi.org/10.1108/ JIMA-02-2017-0020 33. Sloman, J., Wride, A., & Garratt, D. (2012). Economics (8ht ed.). Edinburgh Gate: Pearson Education Limited. 34. Sun, Y., & Siagian, P. (2015). Financial Inclusion in Indonesia and Its Challenges. Pertanika Journal of Social Sciences and Humanities, 23(1), 85-96. Retrieved from https://research.binus.ac.id/publication/ D68F70A1-6015-475D-BFDF3E431EFE8D59/financial- 47
12. Banks and Bank Systems , Volume 17, Issue 1, 2022 inclusion-in-indonesia-and-itschallenges/ 35. Umar, A. I. (2017). Index of Syariah financial Inclusion in Indonesia. Buletin Ekonomi Moneter dan Perbankan, 20(1), 99-126. https://doi.org/10.21098/ bemp.v20i1.726 36. Ummah, B. B., Nuryartono, N., & Anggraeni, L. (2015). Analisis Inklusi Keuangan dan Pemerataan Pendapatan di Indonesia. Jurnal Ekonomi dan 48 Kebijakan Pembangunan, 4(1), 1-27. Retrieved from https:// media.neliti.com/media/ publications/228317-analisisinklusi-keuangan-dan-pemerataan-190aecba.pdf 37. United Nations (UN). (2020). Latest Human Development Index Ranking. Human Development Reports. Retrieved from http://hdr. undp.org/en/content/latest-human-development-index-ranking 38. Widarwati, E., Sari, P., & Nurmalasari, N. (2019). Role of Financial Inclusion to Stability: The Case of Indonesia’s Sharia Banking. HOLISTICA– Journal of Business and Public Administration, 10(1), 7-15. https://doi.org/10.2478/hjbpa-2019-0001 39. Zulkhibri, M. (2016). Financial inclusion, Financial Inclusion Policy, and Islamic Finance. Macroeconomics and Finance in Emerging Market Economies, 9(3), 1-17. https://doi.org/10.1080/1752 0843.2016.1173716 http://dx.doi.org/10.21511/bbs.17(1).2022.04