Financial Inclusion and Sharia Banking Performance in Indonesia

Abstract

This study aims to examine the impact of financial inclusion indicators on the performance of Islamic banking in Indonesia. Financial inclusion is measured through the number of Islamic bank service offices and the number of Islamic bank ATMs, while Islamic banking performance is represented by Third-Party Funds, Islamic Financing, and Return on Assets (ROA). All variables are treated as endogenous within the Vector Autoregression (VAR) framework. The data were obtained from secondary sources, primarily the Islamic Banking Statistics published by the Financial Services Authority (Otoritas Jasa Keuangan/OJK), covering the period 2020–2024. This period was chosen to capture the development of Islamic banking amid economic uncertainty and Indonesia’s post-pandemic economic recovery. The findings reveal that financial inclusion has a significant short-term impact on the performance of Islamic banking in Indonesia, whereas its long-term influence is not statistically significant. These results suggest that the rapid advancement of non-cash payment systems and financial technologies has reshaped the relationship between financial inclusion and Islamic banking performance.