Abstract: This study focused on the Islamic banking role in mitigating income disparity in Indonesia. The facts show that the financing held by Sharia-Based Commercial Banks and Sharia Business Units provides a positive and significant correlation with the level of disparity (inequality) of people’s income, namely the probability value of 0.027 < 0.005. Meanwhile, the financing carried out by the Islamic People’s Financing Bank also has a positive effect on the level of disparity in people’s income with a probability value of 0.0193 <0.05. The cause of the increasing disparity in people’s incomes is due to the distribution of financing which is dominated by the consumptive sector such as financing with murabahah contracts, rather than other financing based on profit sharing. In Islamic commercial banks and sharia business units, financing with murabahah contracts from 2014 to 2018 will be totaled Rp. 6,573,270,000 and in Islamic people financing banks it is worth Rp. 26,356,152,000.
However, if you look at the Gini ratio from 2014 to 2018, it has decreased gradually, this is because the government, in this case the Ministry of Agriculture, is trying to improve people’s welfare through various mechanization programs and massive infrastructure development. This effort is made to reduce the number of poor people and reduce income inequality. The population living in rural areas reaches 60%, where most of them are farmers with 70% of their main income coming from the agricultural sector.
Keywords: Islamic banking; disparity; income.
Abstrak: Penelitian ini mengungkapkan peranan perbankan umum yang berbasis syariah dalam menurunkan disparitas pendapatan. Fakta menunjukkan bahwa pembiayaan yang diselenggarakan oleh Bank Umum berbasis Syariah dan Unit Usaha Syariah memberikan korelasi yang positif dan signifikan dengan tingkat disparitas pendapatan masyarakat yakni nilai probabilitas 0.027 < 0,005. Sedangkan untuk pembiayaan yang dilakukan oleh Bank Pembiayaan Rakyat Syariah juga berpengaruh positif terhadap tingkat disparitas pendapatan masyarakat dengan nilai probabilitas 0.0193 < 0,05. Adapun penyebab meningkatnya disparitas pendapatan masyarakat yaitu disebabkan oleh penyaluran pembiayaan yang lebih banyak didominasi oleh sektor konsumtif seperti pembiayaan dengan akad murabahah, dari pada pembiayaan lain yang berbasis bagi hasil. Pada bank umum syariah dan unit usaha syariah pembiayaan dengan akad murabahah dari tahun 2014 hingga tahun 2018 jika ditotalkan akan bernilai Rp.6.573.270.000 dan pada bank pembiayaan rakyat syariah bernilai Rp.26.356.152.000.
Namun, jika diihat pada nilai rasio gini dari tahun 2014 hingga tahun 2018 telah mengalami penurunan secara bertahap hal ini dikarenakan pihak pemerintah yang dalam hal ini merupakan Kementerian Pertanian berupaya meningkatkan kesejahteraan masyarakat melalui berbagai program mekanisasi dan pembangunan infrastruktur secara masif. Upaya ini dilakukan untuk menurunkan jumlah penduduk miskin dan mengurangi ketimpangan pendapatan masyarakat. Penduduk yang tingggal di pedesaan jumlahnya mencapai 60%, dimana sebagian besar dari mereka merupakan petani dengan 70% pendapatan utamanya berasal dari sektor pertanian.
Kata kunci: perbankan syariah; disparitas; pendapatan
ISLAMIC BANKING AND ITS CONTRIBUTION TOWARD DISPARITY INCOME IN INDONESIA
Syawaluddin S
State Institute for Islamic Studies (IAIN) Sultan Amai Gorontalo, Indonesia Jl. Sultan Amay, Pone, Limboto Bar., Kabupaten Gorontalo, Gorontalo 96181
E-mail: [email protected]
Introduction
Economic disparity phenomena often become a critical problem in developing country, mostly because the economic disparity. The Interpreter, Lowy Institute website on an article “Indonesia: the not so good news” published on Monday, February,
3rd 2020 reported that indeed Indonesia is wealthy country, however the society are still poor, because the new wealthy of Indonesia is not distributed well. The pelt of four ballooners in Indonesia, who have 25 billion US Dollar income or equal to the income of 100 million poor people in Indonesia.
Todaro and Smith argued that the most popular indicator to measure the disparity level is Gini ratio. World Bank divided the population number into 3 (three) categories, namely 40%
group have low income, 40% group have standard income, and 20% group have high income, to measure income distribution.1 The higher the unbalanced distribution, the higher the economic disparity. Data were reported before indicated that Indonesia has high economic disparity.2
The Central of Statistic Institution called Badan Pusat Statistik (BPS) data on Maret 2021 showed that the level of expenditure of Indonesia people based on Gini ratio is 0,384. This score was decreased 0,001 point, compared by the Gini ratio on September 2020, namely 0,385, and increase 0,003 point, compared by Gini ratio on March 2020, namely 0,381. Gini ratio is different between urban area and rural area, Gini ratio was recorded 0,401 in urban area on March 2021, increase 0,399 from Gini ratio on September 2020 and Gini ratio 0,393 on March 2020. Meanwhile, Gini ratio was recorded 0,315 in rural area on March 2021, decrease 0,319 with Gini ratio on September 2020 and 0,317 Gini ratio on March 2020.
Indonesia Gini ration undergo fluctuation since 2010 to September 2014, however on March 2015 to September 2018, it tends to decrease.
This condition showed that since March 2015 to September 2018, there was corrective to the expenditure or income distribution.
Gini Rasio Growth Graphic in Indonesia 2018-2021
Sources: Central Bureau of Statistics (2021)
1 Michael P. Todaro, Stephen C. Smith. Pembangunan ekonomi dunia ketiga. (Jakarta: Erlangga, 2003)
2 H. Syamsuddin. HM, “Perhitungan Indeks Gini Ratio Dan Analisis Kesenjangan Distribusi Pendapatan Kabupaten Tanjung Jabung Barat Tahun 2006-2010”, Jurnal Paradigma Ekonomika, vol.1, no.4 (2011).
While when viewed from the area of residence, the Gini ratio in urban areas shows that in September 2018 it was 0.381. This figure shows that there has been a decrease of 0.010 points compared to March 2018 which was 0.401.
When compared to the figures in September 2017, the figure decreased by 0.013 points. In rural areas, the Gini ratio figure in September 2018 was recorded at 0.319, which was down by 0.005 points when compared to conditions in March 2018 and decreased by 0.001 points when compared to conditions in September 2017. While the Gini ratio value in March 2018 and September 2017 were recorded at 0.324 and 0.320, respectively. The distribution of data can be seen in the following figure.
Gini Ratio Growth Graphic in Indonesia 2014-2018
Sources: Central Bureau of Statistics (2018)
Absolutely, the degradation of Gini ratio was excellent achievement and need to be appreciated, however the government should get more correction to anticipate the negative impact toward the disparity level and population welfare.
It was explained before that disparity will increase the poverty of society.
Islamic banking regulation no.21/2008 concerning Islamic banking chapter 1 verses 7 explains that Islamic banking is a bank which manage its systems under the Islamic law. There are two types of Islamic bank, namely General Islamic Bank and Islamic Finance bank. Islamic bank offers some type of financial products, by managing profit sharing, Islam term is (mudharabah), equity capital (musharakah), buy and sell products to get profit (murabahah), absolute rent (ijarah), or the choice to transference of ownership of goods which is rent by bank to others (ijarah wa iqtina), Charity Contract, istithna Contract’, leasing
by ownership (ijarah al-muntahiya bi al-tamlîk), and others contract and do not contradicted by Islamic Bank.3
Financial service based on Islamic banking, its implementation has been expanded by forming sub system which also based on Islamic banking system. It can be categorized into two in accordance to its significance to society, namely:
1. The productive financial, consisted to liquidity financial and general financial.
2. Consumptive financial both secondary and primary.4
Graphic Asset Growth, PYD, and DPK
Based on the graphic above, it can be seen the growth of asset score, disbursed financing, and third-party financial. The third-party financial in Islamic banking has showed positive trend and good work performance. Achil R Djayadiningrat stated that Islamic bank does not give negative effect to conventional bank, however it completed the society need, especially for Moslem who considered that interest system is usury.5 Bank has moral responsibility to distribute society finance or financial intermedidiary. Banking is also an agent of development, namely the distribution of development results, as well as national stability towards increasing the standard of living of the people at large.6 Law no.21/2008 concerning Islamic banking has mandated Islamic banking to support and support the implementation of nation building for the sake of creating justice,
3 Article 19 of Law Number 21 of 2008 concerning Sharia Banking
4 M. Syafi’i Antonio, Bank Syariah Dari Teori Kepratik, (Jakarta: Gema Insani, 2001), p.160
5 Achil R Djayadiningrat, ”Kualifikasi Sumber Daya Manusia (Insani) untuk Perbankan Masa Depan”, Mukaddimah, Jurnal Studi Islam, (Yogyakarta: Kopertais Wilayah III dan PTAIS DIY), no. 7 (1999), p. 93
6 Muhammad Djumhana, Rahasia Bank: Ketentuan Dan Penerapannya di Indonesia,(Citra Aditya Bakti, 1996), p.77
togetherness and equitable distribution of welfare.
Thus, the presence of Islamic banking is expected to contribute to the creation of conditions in accordance with the objectives of the law, at least in the spirit of achieving these goals, it can reduce or reduce the gap in income disparities in the community.
Asaad7 has revealed that the Islamic banking sector has a very important role to support the implementation of development, especially the agricultural sector, because the majority of Indonesia’s population relies on the agricultural sector. The agricultural sector has contributed to the absorption of labor for the nation’s economic growth, although the fact is that it is precisely from people who work as farmers that the highest level of disparity occurs. Meanwhile, Hidayat8 argues that the Islamic banking sector in Indonesia has not run according to what is expected by Law no.
21 of 2008, where the results of his research prove that the distribution of Islamic bank financing has a positive effect on the Gini ratio. This means that the greater the amount of financing disbursement carried out by Islamic banking, the greater the disparity in people’s income.
Purwanto’s research,9 states that financing carried out by Islamic Commercial Banks and Sharia Business Units has a significant positive impact on the level of community income disparity. This is because the financing carried out by Islamic Commercial Banks and Sharia Business Units is dominated by murabahah contracts, while the financing carried out by Islamic people’s financing banks has no significant effect on the level of disparity in people’s income. However, it is possible that the financing carried out by the Islamic People’s Financing Bank can affect the level of income disparity in the community. This is because the financing carried out is also more dominated by murabahah contracts. Ikhwanuddin Harahap’s
7 Asaad. Mhd, “Peningkatan Peranan Perbankan Syariah Untuk Pembiayaan Usaha Pertanian” Jurnal MIQOT, vol. XXXV, no. 1 (2017).
8 Yayat Rahmat Hidayat, “Analisis Pencapaian Tujuan Bank Syariah Sesuai UU No. 21 Tahun 2008”, Jurnal Amwaluna, vol.
I, no. 1 (2017).
9 Purwanto, “Kontribusi Pembiayaan Perbankan Syariah Terhadap Disparitas Pendapatan Di Indonesia Tahun 2015-2016”, Cakrawala: Jurnal Studi Islam, vol. XII, no. 1 (2017)
research,10 states that there is a relationship between Islamic banking and the resilience of a country’s economy. Although it still has to do optimization in various aspects of people’s lives.
The better the function and implementation of Islamic banking operations in a country, it is expected that the greater its contribution to the economic growth of a country will be. Research by Linda Tamin Umairoh Hasyim,11 states that the financing provided by Islamic banking has a positive effect on economic growth in the real sector in Indonesia. The more financing that is channeled for production activities in the real sector in the community will have an impact on economic growth. Rendy Okryadi Putra’s,12 states that the total number of Islamic banking assets is still relatively small when compared to the total assets of conventional banks so that Islamic banking assets do not have much effect on supporting Indonesia’s economic growth. Islamic banking financing has a positive effect on economic growth in Indonesia, because it can help people get capital to invest.
The studies that have been stated above have several similarities, namely the research above explains how the current development of Islamic banking is and how the contribution of Islamic banking to the improvement of people’s welfare. Financing carried out by Islamic banking will certainly help in improving the welfare of the community if it is followed by an increase in public interest in conducting transactions and financing through Islamic banking. So that further research is needed to find out whether Islamic banking financing can affect the level of disparity, as well as how big the contribution of Islamic banking financing to people’s income disparities and to find out what kind of financing can affect people’s income disparities. Based on the background that has been stated, the focus of the problem in this
10 Ikhwanuddin Harahap, “Peranan Perbankan Syariah Dalam Upaya Peningkatan Kesejaheraan Masyarakat”, vol. II, no. 1 (2016).
11 Linda Tamin Umairoh Hasyim, “Peran Perbankan Syariah Terhadap Pertumbuhan Ekonomi Sektor Rill Di Indonesia”, vol.
II, no. 2 (2016)
12 Rendy Okryadi Putra, “Pengaruh Perbankan Syariah Terhadap Perekonomian Di Indonesia Tahun 2007-2016”, vol.
IV, no.1 (2018).
study is “Islamic Banking and Its Contribution to Income Disparities in Indonesia”. The formulation of the problem is; Can the contribution of Islamic banking financing affect the income disparity of people in Indonesia?”
Method Data source
The type of data in this study is secondary data. Secondary data is data obtained indirectly or archive research containing past events. This secondary data can be obtained by researchers from journals, magazines, books, and statistical data and from the internet related to the contribution of Islamic banking financing to income disparities in Indonesia.13
Data collection technique
To obtain accurate data, the researchers used several data collection techniques as follows:
1. Observation is the basis of science, in the sense of facts about the world of reality which are obtained through observation.14 In a broad sense, observation is not only limited to observations made with one’s own eyes.
This method is used by the author to observe directly the situation of the level of inequality in Indonesia through the data that has been obtained by the author.
2. Documentation, namely a record of events that have passed either in the form of writing, pictures, and monumental works of someone.15
The data in question are Islamic banking statistics and Gini ratio data for 2014-2018. Statistical data on Islamic banking as well as data on the Gini ratio can be obtained online. The data that has been collected is then analyzed. The form of data in this study is semester data, namely data that is reported every six months in this study in March and September 2014–2018.
13 Rosady Ruslan, Metode Penelitian Public Relations dan Komunikasi, (Jakarta: 2004), p. 107
14 Rosady Ruslan, Metode Penelitian..., p. 403
15 Rosady Ruslan, Metode Penelitian..., p. 422
Technique analysis data
The data analysis technique in this research is using panel data regression method. The use of panel data in this study is because the data in this study is a combination of cross section data and time series data. According to Nachrowi and Usman16 in the analysis of panel data regression data, there are several techniques offered, namely:
1. The Ordinary Least Square method or commonly known as the common effect.
This technique assumes that the existing combined data (time series and cross section) show the actual conditions. The results of the regression analysis are considered valid for all objects at all times. The regression equation in the common effects model can be written as follows:
yit = α + X’ itβ + Ɛit description : i = area t = year
2. Fixed effect regression model (fixed effect).
Fixed effect here means that an object has a constant that is constant in magnitude over time (time invariant). This method also assumes that the slope is the same between objects and between times, so generalization is often added by including dummy variables to allow for different parameter values, both across unit cross sections and between different times. can be written as follows.
3. Model random effect.
This model does not use quasi-variables but uses residuals which are thought to have a relationship between time and between objects.17 The equation of the random effects model can be written as follows
16 Nachrowi, D. N. & H. Usman. 2006. Pendekatan Populer dan Praktis Ekonometrika untuk Analisis Ekonomi dan Keuangan.
Jakarta:Lembaga Penerbit FE UI.
17 Sugiono, Metode Penelitian Pendidikan Pendekatan Kuantitatif, Kualitatif, dan R&D, (Bandung : 2013), p. 330
Income Distribution Inequality
Inequality is a condition that is not evenly distributed between one another. Inequality in development also still occurs at this time between developed and developing countries, developed countries have high knowledge in terms of human resources and can process their natural resources effectively and efficiently, while developing countries that do not have good human resources do not process natural resources effectively.
According to Andrinof A. Chaniago Inequality is
“the fruit of development that only focuses on the economic aspect and forgets about the social aspect.18 And according to Budi Winarno, inequality is the result of the failure of development in the era of globalization to meet the physical and psychological needs of citizens.19
According to Syafrizal, the inequality that occurs between regions is caused by “differences in the wealth of natural resources owned and differences in demographic conditions found in each region, so that each region has different capabilities in the development process”.20 The difference in this region gives rise to developed regions and underdeveloped regions. The distribution of national income reflects the equitable or unequal distribution of the results of a country’s development among its population.21
The prosperity of society is not only based on the size of the national income and per capita income, but also how the national income is distributed, whether the national income is distributed evenly or unequally. Income is considered to be perfectly distributed if every individual gets an equal share of the economy’s
18 Andrinof A. Chaniago, Gagalnya Pembangunan: Membaca Ulang Keruntuhan Orde Bar, (LP3ES, 2012), p.102
19 Budi Wimarno, globalisasi: peluang atau ancaman bagi indonesia, (Jakarta: Erlangga, 2008), p.56
20 Syafrizal, Ekonomi Regional Teori dan Aplikasi, (Jakarta:
Niaga Swadaya,2008), p. 84
21 Dumairy, perekonomian indonesia cetakan kelima, (Jakarta: Erlangga, 2004), p. 78
output, and conversely the distribution of income is considered unfair if most of the national output is controlled by a small part of the population, but it can be very unfair if most of the national output is enjoyed by a few groups of people just.22
According to Taft Morris (lincolin Arsyad) there are eight things that cause inequality in income distribution in developing countries, namely23: 1. High population growth which can result in
a decrease in per capita income.
2. Inflation in which the income of money increases but is not followed in proportion to the increase in the production of goods.
3. Inequality of development between regions.
4. There is a lot of investment in capital-intensive projects, so that the percentage of working capital income is greater than the percentage of income that comes from community work, resulting in an increase in the unemployment rate.
5. Low social mobility.
6. Implementation of import substitution industrial policies that result in an increase in the prices of industrial goods to protect the businesses of the capitalist group.
7. Deteriorating exchange rates for developing countries in trade with developed countries, as a result of the inelastic demand for developed countries for NSB (National Science Board) export goods.
8. The destruction of folk craft industries such as carpentry, home industries, and others.
Analysis of Islamic Bank Financing and Gini Ratio
This research was conducted by processing and analyzing data on Islamic bank financing and the Gini ratio in order to obtain the final results of this study. The data on Islamic bank financing and the Gini ratio can be obtained online at the ojk and bps websites, then the data that has been collected is analyzed. The presentation of the data is as follows:
22 Prathama Rahardja, Pengantar Ilmu Ekonomi Edisi Ketiga,(
Jakarta: Lembaga Penerbit Fakultas Ekonomi Universitas, 1999), p.245
23 Lincolin Arsyad, ekonomi pembangunan, (Sekolah Tinggi Ilmu Ekonomi- YKPN, 1988), p. 89
Table 1. Financing by Type of Contract in Rupiah (Islamic Commercial Banks and Sharia Business Units)
Indicator 2014 2015 2016 2017 2018
1. Profit Sharing
Financing 60,466 70,146 86,973 111,081 136,854 a. Mudharabah 14,094 14,815 15,263 15,984 14,940 b. Musyarakah 46,320 55,331 71,710 95,097 121,914 c. Other Profit
Sharing Financing
51 - - - -
2. Credit 117,481 20,324 39,565 52,837 160,854 a. Murabahah 110,885 115,605 133,956 145,301 151,580 b. Qardh 5,963 3,948 4,731 6,346 7.665
c. Istishna' 633 770 878 1,189 1,609
3. Rental Financing/
Ijarah 9,257 8,972 8,105 8,535 9,288
a. Other Rental
Financing 9,016 8,812 8,099 8,506 9,097
4. Salam - - - - -
Total Financing 187,204 398,723 69,280 44,876 306,996 Source: Sharia Banking Statistics (2018)
Table 2. Financing by Type of Contract in Rupiah (Islamic People’s Financing Bank)
Indikator 2014 2015 2016 2017 2018
Mudharabah 122.467 168.516 156.256 124.497 180.956 Musyarakah 567.658 652.316 774.949 776.696 837.915 Murabahah 3.965.543 4.491.697 5.053.764 5.904.751 6.940.397 Qardh 97.709 123.588,1 145.865 189.886 185.360 Istishna' 12.881 11.135 9.423,1 21.426 35.387 Rental
Financing 5.179 6.175 6.763 22.316 46.579
Salam 16 15 14 0 0
Multi service 233.456 311.729 515.523 724.398 857.890 Total
Financing 5.004.909 5.765.171 6.662.556 7.763.951 9.084.467 Source: Sharia Banking Statistics (2018)
Table 3. Table of Developments in the Value of Indonesia’s Gini ratio in 2014-2018
Area
Gini Ratio Value
2014 2015 2016 2017 2018
Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Urban 0,428 0,433 0,428 0,419 0,410 0,409 0,407 0,404 0,401 0,391 Rural 0,319 0,336 0,334 0,329 0,327 0,316 0,320 0,320 0,324 0,319 Urban+Rural 0,406 0,414 0,408 0,402 0,397 0,394 0,393 0,391 0,389 0,384
Source : Central Bureau of Statistics (2018)
To estimate the model, panel data regression was used which was carried out in three ways,
namely common effect, fixed effect, and random effect. In statistics, significant means it is possible or likely to be true, not true by chance (probably true). As for determining the value is significant or not significant can be measured using the level of significance (significance levels). The level of significance is usually indicated by the sign .05 (in Indonesian it becomes 0.05) or .01 (in Indonesian it becomes 0.01). Significant level (sig.) is often changed to a level of confidence (p.value) denoted by the number 95% or 99%. So, sig. 0.05
= p.value 95%, while sig. 0.01 = p.value 99%. If the number (computer result) obtained from statistical analysis is greater than the standard number at the significance level, it is said that there is a significant correlation. Following are the estimation results using three methods:
a. Common Effect
The common effects model is the simplest panel data approach. This model does not pay attention to individual dimensions and time so it is assumed that the behavior between individuals is the same in various periods of time. This model only combines time series and cross section data in the form of a pool, estimating it using a pooled least square approach. The following are the results of the estimation of the Common Effect model:
Common Effect Estimation Results
Source: Output eviews 10 (2019)
From table above, it can be seen that for the X1 variable, namely Islamic Commercial Banks and Sharia Business Units, the common effect model has a significant effect on disparity. This can be seen from the results of the variable probability
obtained, if the value is <0.05 then the results will be significant. In the table, it can be seen that the financing of Islamic Commercial Banks and Sharia Business Units is worth 0.0227 < 0.05, so the results have a significant effect on disparity.
While the variable X2 is the financing of the Islamic People’s Financing Bank with a value of 0.0193
< 0.05, so it can be said that the results have a significant effect on disparity.
b. Fixed Effect
Fixed effects model assumes that there are different effects between individuals. The difference can be accommodated through the difference in the intercept. The following are the results of the fixed effect estimation:
Table 4. Fixed Effect Estimation Results
Source: Output eviews 10 (2019)
From table above, it can be seen that the X1 variable, namely the financing of Islamic Commercial Banks and Sharia Business Units, has no significant effect on the disparity, this can be seen from the probability value, which is 0.1812 >
0.05, while the X2 variable, namely the financing of Islamic People’s Financing Banks, has a significant effect. to disparity, this is because the probability value is 0.0186 < 0.05
c. Random Effect
In contrast to the fixed effects model, the specific effects of each individual are treated as part of the error component which is random and uncorrelated with the observed explanatory
variables, such a model is called the random effects model (REM). This model is often referred to as the error component model (ECM).
The following are the results of the random effect estimation:
Table 5. Random Effect Estimation Results
Source: Output eviews 10 (2019)
Based on table above, it is known that the X1 variable (Islamic Commercial Bank financing and Sharia Business Unit) and the X2 variable (Islamic People’s Financing Bank financing) have no significant effect on the disparity. This can be seen from the probability value of the two variables greater than 0.05.
Model Fit Test
In order to find out which model is the most appropriate to use, several model tests are carried out. The first is the Chow test to find out the right model between Poopled Least Square (common effect) or fixed effect. The second LM test was carried out to find out the right model between Pooled Least Square (common effect) or random effect. The third Hausman test is carried out to find out the right model between random effects or fixed effects. Here are the results of the Chow Test:
Table 6. Chow Test Results
Source: Output eviews 10 (2019)
In order to find out which model is the right one to use, it can be seen from the probability value of chi square (cross-section chi square). If the value is > 0.05, then the correct model is Pooled Least Square (H0) and vice versa if the probability value of chi square <0.05, then the correct model is fixed effect (H1). After the Chow test is done, if the selected method is the common effect (H0), the test is complete, so there is no need to do the Hausman test. On the other hand, if a fixed effect is selected, it is necessary to continue testing to the Hausman test. Based on the results of the Chow test obtained, it can be concluded that the right method to be used is the Pooled Least Square (common effect) model, so there is no need to continue testing the Hausman Test model.
Contribution of Islamic Banks to Income Inequality in Indonesia
Based on the results of the analysis that has been carried out using the common effect method (see table 2), it is known that both the financing variable for Islamic Commercial Banks and Sharia Business Units and the Islamic People’s Financing Bank variable are variables that have a significant effect on disparity. This can be seen in the probabilities of Islamic commercial banks and
Islamic business units with a value of 0.0227 < 0.05 and Islamic people’s financing bank variables which have a value of 0.0193 < 0.05, which means that it has a significant effect on disparity. Financing carried out by Islamic banks has a significant effect, meaning that financing carried out by Islamic banks can increase the disparity rate. Based on the results of this study, this is because the financing carried out by Islamic banks, both Islamic commercial banks and sharia business units as well as Islamic people’s financing banks is more dominated by financing in murabahah contracts which are more involved in the consumptive sector.
Financing aimed at the consumptive sector will not increase business fields and increase people’s income, this type of financing will even reduce people’s income because they have to pay a margin as compensation for the financing, so things like this will create gaps in society. The following is data showing the percentage of financing in various sectors:
Chart Percentage of Islamic Banking Transactions
Source: Islamic Banking Snapshot (March 2019)
The graph shows that transactions in the consumption sector are more dominated than other sectors. This is what can cause financing carried out by Islamic banks to increase income disparities, so it is necessary to increase transactions in productive sectors such as investment and working capital. The transactions carried out by Islamic banking can be categorized into the five largest sectors, including:
1. The household sector is 41.90%
2. The wholesale and retail trade sector is 10.23%
3. The construction sector is 8.31
4. The manufacturing industry sector is 7.75%
5. The financial intermediary sector is 5.61%
The five largest sectors can be grouped into the consumptive sector and the productive sector. The consumptive sector consists of household sector by 41.90%, construction sector by 8.31%, and working capital by 32.69%. Meanwhile, the productive sector consists of the wholesale and retail trade sector at 10.23%, the manufacturing industry sector at 7.75%, and the financial intermediary sector at 5.61%. So that because Islamic bank transactions in the form of consumption are carried out more than transactions in the form of productive.
When viewed from the statistical data of Islamic banking from 2014 to 2018 financing with murabahah contracts is still more dominant than other contracts. This data shows that financing carried out by Islamic Commercial Banks and Sharia Business Units as well as financing carried out by Islamic people’s financing banks from 2014 to 2018 was dominated by financing with murabahah contracts. In Islamic commercial banks and sharia business units, financing with murabahah contracts from 2014 to 2018 will be totaled Rp.
6,573,270,000,000 and at Islamic people financing banks it is worth Rp. 26,356,152,000,000. The following is the percentage data for bank financing contributions. sharia in various types of contracts:
GRAPHIC
Sumber: Islamic Banking Snapshot (March 2019)
The viewed from the graph, it will be seen that of the 6 compositions of financing contracts carried out by both Islamic Commercial Banks and Islamic Rural Financing Banks, it is more dominated by financing with murabahah contracts and even tends to increase every year. So it can be seen that the financing carried out by Islamic banks can increase the disparity of people’s income.
Meanwhile, in the graph, it can also be seen that financing with musharaka contracts has a fairly
high percentage, besides murabahah, musyarakah contracts also include financing contracts engaged in the consumptive sector.
According to the nature of its use, financing can be divided into two, namely productive financing and consumptive financing. Meanwhile, according to the need, financing can also be divided into two, namely working mode financing and investment financing. In addition to consumptive and productive financing, Islamic banks also provide working capital financing for entrepreneurs who need additional working capital, both for the purpose of purchasing raw materials, payment of production costs, procurement of goods and services, project work as well as for other working capital needs. The type of financing contract offered can be chosen according to need, using a sale and purchase scheme (murabahah) or a profit- sharing partnership scheme (mudharabah and musyarakah). Based on this explanation, as well as murabahah contracts, Musyarakah contracts can also be said to be engaged in the consumptive sector so that financing with Musyarakah contracts can also increase the disparity of people’s income.
Islamic banks in Indonesia tend to prefer financing with a relatively low risk value. The dominance of murabahah financing compared to other types of contracts actually proves the assumptions that rationally, to maintain profitability and efficiency and manage financing risk, Islamic banks will tend to maximize financing under murabahah contracts compared to other contracts.
One of the reasons for the financing risk faced by Islamic banking is the unique character of the financing contracts that are channeled by the characteristics of the financing contracts, which can guide Islamic banks to understand the financing risk profile so that they can determine the right strategy in tackling the risks that occur to achieve optimum results. from its operational activities. Each contract has the characteristics of credit risk, price risk, operational risk, liquidity risk and risk at different levels, which are described in the following table.
Table 7. Risk Level of Each Financing Contract
Type of
financing Credit
risk Price risk Liquidity risk Operational risk Average
Murabahah 2,56 2,87 2,67 2,93 2,76
Mudharabah 3,25 3,0 2,67 3,08 3
Musyarakah 3,69 3,4 2,92 3,18 3,3
Ijarah 2,64 2,92 3,1 2,9 2,89
Isthisna’ 3,13 3,57 3,0 3,29 3,25
Salam 3,2 3,5 3,2 3,25 3,29
Source: www.kompasiana.com
Note: a scale of 1 to 5, where 1 is the least risky financing and 5 is the most risky financing.
From the table above, it can be seen the reasons why murabahah contract financing is more in demand by the public. This is because the level of risk owned by the murabahah contract is lower than other contracts. In practice, Islamic banks use more murabahah schemes in financing distribution.
The definite characteristics of murabahah in the amount of installments and margins also give birth to the perception that the use of murabahah contracts can reduce the level of financing risk.
Although the ijarah contract can be said to have a low level of risk as well, if it is seen from the previous data (graph 4.9) which explains how big the percentage of financing using sharia contracts is, financing with ijarah contracts is still slightly utilized, which is 3.2% compared to financing with a murabahah contract that is equal to 48.24%.
There are two arguments to explain why financing using a murabahah contract can increase income disparities, namely:
1. Financing with murabahah contracts, which are generally only consumptive in nature, does not improve economic stability, especially if it is pragmatic in the short term.
2. Determination of the margin in the murabahah contract is more profitable for the owner of the capital because it will get a big profit, this is because the murabahah contract is basically a sale accompanied by an addition or margin, while for the recipients of financing will only get goods without getting income from the results of murabahah financing.
Financing carried out by Sharia Commercial Banks and Sharia Business Units as well as Sharia Rural Financing Banks can have a positive effect
on income disparity, which means that financing by Sharia Banks can increase the disparity of people’s income due to the effect of economic financialization. Financialization is a term used to describe the dynamics of the relationship between the financial sector and the real sector, namely the increasingly dominant role of financial actors and institutions in economic activity. The automotive industry, for example, is now increasing profits from the insurance, leasing and vehicle loan businesses, compared to profits from vehicle production itself. The influence of financialization on income distribution can be grouped into three channels, namely:
1. There is an increase in income from rent- seeking economic activity.
2. An increase in income in the financial sector, which is usually in the form of bonuses, causes the income distribution gap to widen.
3. Financialization has shifted the balance of power between financiers and workers in a variety of ways from changes in corporate governance to the increased opportunities opened to companies by the globalization of finance.
The profit of Islamic banking can be guaranteed because of the determination of the margin, while the recipient of the financing will not necessarily be able to increase their income. So that the more financing using murabahah contracts, basically it will increase the income of the owners of capital, namely Islamic banking, while the people who are the recipients of financing cannot increase their income.
However, if we look at the Gini ratio value that has been stated previously, it can be said that the Gini ratio value from 2014 - 2018 both in urban and rural areas continues to decrease gradually. So that it can be interpreted that the level of disparity in Indonesia has decreased, if the level of disparity decreases, it can also be said that the level of poverty also decreases. This is because the government’s efforts, especially in the agricultural sector, have yielded good results.
The Ministry of Agriculture continues to strive to improve the welfare of the community through various mechanization programs and massive infrastructure development. This effort
is made to reduce the number of poor people and reduce income inequality. The population living in rural areas reaches 60%, where most of them are farmers with 70% of their main income coming from the agricultural sector. So that it can be said that the financing carried out by Islamic banks in the agricultural sector also has a major role in reducing the level of poverty or the level of inequality in society.
Financing in the consumptive sector as described previously can increase the level of disparity, on the contrary, financing in the productive sector, be it the agricultural sector, industrial sector, trade sector, and other productive sectors can reduce the level of disparity or the level of inequality in society.
One of the Islamic banking financing that is often implemented with agricultural businesses is bai’ al-salam. The concept of bai’al-salam is a sale and purchase contract in which the buyer pays the price for the goods whose specifications have been stated, while the goods to be traded will be delivered later on the agreed date. However, when viewed based on the data obtained, the public’s interest in financing the bai’ al-salam contract is still lacking compared to other contract financing.
The presence of Islamic banking institutions is very appropriate to develop the agribusiness sector or agricultural businesses, both commercial banks and Islamic people’s financing banks. This is because, Islamic banks use profit-sharing schemes (mudharabah, muzara’ah, and musyarakah), in addition to other schemes such as buying and selling greetings and murabahah. The agricultural production sharing system, especially for rice crops, takes place between the cultivators and the owners of land capital with relatively diverse profit sharing proportions.
There are several problems that cause the lack of role of Islamic banks in agribusiness financing, including:
1. The financing provided by Islamic banks to agribusiness businesses is still less compared to other businesses, some of the contributing factors include: the character of farmers who have a consumptive lifestyle, so they are easily deceived by parties such as middlemen, which
ultimately results in farmers living in poverty.
poverty.
2. Farmers manage their farming business in an unprofessional way due to the lack of ability of farmers to manage their business properly, as well as the government’s lack of attention to agricultural business which is the basis of all other types of business, including in terms of price certainty.
3. Farmers find it difficult to get the legality of their business so they do not get the trust of Islamic banking to provide Islamic financing.
4. Farmers’ lack of knowledge of sharia banking is due to the location of sharia banking which tends to be far from agricultural businesses, little introduction by sharia banking to agricultural businesses and the nature of farmers who tend to be difficult to accept changes.24
Furthermore, there are at least three characteristics inherent in agricultural credit schemes that have the potential to cause ineffectiveness, including:
1. Loans are always based on fixed interest. If farmers fail in their farming business, either because of crop failure or low market prices, they will not be able to repay the loan so they can get into a bigger debt because of the interest-bearing principle.
2. here is a gap in the business space between borrowers (debtors) and lenders (creditors).
The debtor is purely working in the real sector, while the creditor is only engaged in the monetary sector. As a consequence, business risk will generally only be borne by the debtor, while the creditor will still benefit at the interest rate that is set.
3. The agricultural financing system has been integrated with non-agricultural financing.
The business calculation system in the non- agricultural sector, especially industry and services, if applied to agricultural businesses tends to overestimate. If forced, this will prevent agricultural businesses from receiving
24 Mhd. Assad, “Peningkatan Peranan Perbankan Syariah Untuk Pembiayaan Usaha Pertanian”, Jurnal Ekonomi, vol. XXXV, no. 1 (2011).
credit support in the amount needed.25 Islamic banking financing has been seen in the Islamic financial system in Indonesia which is still in the growth stage (infant industry) which still has many weaknesses in various ways, including:
operational weaknesses, such as the low level of equity-based financing, such as mudharabah and musyarakah, and the dominance of debt-based financing, such as murabahah (buying and selling), which makes Islamic banking similar in nature to conventional banking.
Based on the above discussion, it can be said that the contribution of Islamic banking financing can increase the disparity of people’s income, this is because Islamic bank financing is still dominated by financing in the form of consumptive financing rather than financing in the form of productive.
However, if it is seen that the public’s interest in conducting transactions or financing Islamic banks is still very minimal.
The following data shows how big the contribution of Islamic banks in community activities is:
GRAPHIC
Source: Islamic Banking Snapshot (March 2019)
Based on the graph, it can be seen that people do more transactions with conventional banks than Islamic banks. This proves that Islamic bank financing can increase the disparity of people’s income, apart from the fact that Islamic bank financing is more dominated by murabahah contracts that are engaged in the consumptive sector, the contribution of Islamic banks in transaction activities or public financing
25 Ashari Dan Saptana, Prospek Pembiayaan, p. 133
is still less than transactions in conventional banks. In Islamic banks, there are three types of institutions, including Islamic Commercial Banks which contributed 64.62% and Sharia Business Units contributed 32.86% and Islamic People’s Financing Banks contributed 2.52%.
The results of this study are different from the results of research conducted by Purwanto (2017), where financing carried out by Islamic commercial banks and sharia business units has a significant positive effect on community income disparities because the distribution of financing carried out by Islamic banks is dominated by the consumptive sector. While the financing carried out by Islamic people’s financing banks does not affect the disparity, but it does not rule out the possibility that the financing carried out by Islamic people’s financing banks can also increase the disparity of people’s income.
Conclusion
Financing carried out by Islamic Commercial Banks and Sharia Business Units as well as financing carried out by Islamic People’s Financing Banks in Indonesia from 2014 to 2018 contributed positively to the disparity of people’s income.
Based on the results of financing data processing carried out by Islamic Commercial Banks and Sharia Business Units, it has a significant positive effect on the level of community income disparity with a probability value of 0.0227 <0.05. Meanwhile, the financing carried out by the Islamic People’s Financing Bank also has a positive effect on the level of income disparity in the community with a probability value of 0.0193 <0.05. The cause of the increasing disparity in people’s incomes is due to the distribution of financing which is dominated by the consumptive sector such as financing with murabahah contracts, rather than other financing based on profit sharing. In Islamic commercial banks and sharia business units, financing with murabahah contracts from 2014 to 2018 will be totaled Rp. 6,573,270,000 and in Islamic people financing banks it is worth Rp. 26,356,152,000.
However, if it looks at the Gini ratio from 2014 to 2018, it has decreased gradually, this is because the government, in this case the Ministry of Agriculture, is trying to improve people’s welfare
through various mechanization programs and massive infrastructure development. This effort is made to reduce the number of poor people and reduce income inequality. The population living in rural areas reaches 60%, where most of them are farmers with 70% of their main income coming from the agricultural sector. Meanwhile, the role of sharia banking in terms of financing for agribusiness businesses is still very minimal compared to other businesses, so a strategy is needed to increase the role of sharia banking for agribusiness businesses.
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