Paper Isefid

THE INTERMEDIATION OF INDONESIAN ISLAMIC BANKS

TO ENCOURAGE SMALL AND MEDIUM BUSSINESS

(The Indonesian Cases from 2003.01 to 2009.12)

By: Shochrul Rohmatul Ajija        

The aim of this paper is to examine the determinant of finance to deposit ratio (FDR) in Indonesian Islamic banking. Using vector autoregressive model (VAR), this paper will document dynamic interactions among FDR, position of Wadiah sertificate in the Bank Indonesia to the asset (SWBI), Industrial Production Index (IPI), Non Performance Financing (NPF) and Return on Assets (ROA). The results seem to provide that IPI as an indicator of small and medium business’s productivity is not too much accounted by FDR. On the other hand, SWBI as a variable that should not influence FDR too much is accounted more than IPI. However, this paper also shows that shocks of FDR are accounted significantly by NPF. Therefore, we can conclude that Indonesian Islamic banks still distribute their funds to the high risk sector such as small and medium business.

Keywords: Small and Medium Business, VAR, Indonesian Islamic Banks