The role of sharia-based financing in enhancing MSME growth: Empirical evidence  from BPRS in Indonesia

M. Iqbal; Syahrul Gunawan; Ajeng Lestari

doi:10.38156/imka.v6i1.736

M. Iqbal UIN Raden Fatah Palembang
Syahrul Gunawan Universitas Islam Negeri Raden Fatah, Palembang South Sumatera
Ajeng Lestari Universitas Islam Negeri Sunan Kalijaga

DOI: https://doi.org/10.38156/imka.v6i1.736

Keywords: Sharia Financing; Mudharabah; Musyarakah; Ijarah; MSME Growth; ARDL Model

Abstract

This study aims to analyze the impact of sharia financing instruments Mudharabah, Musyarakah, and Ijarah on the growth of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia, with particular attention to differences between short-term and long-term effects.This study employs a quantitative approach using the Autoregressive Distributed Lag (ARDL) model to examine time series data from 2020 to 2024. The data were sourced from the Financial Services Authority (Otoritas Jasa Keuangan/OJK) database and focus on financing disbursed by Islamic Rural Banks (Bank Pembiayaan Rakyat Syariah/BPRS) in Indonesia. The ARDL approach allows for the analysis of both short-run dynamics and long-run relationships among variables with different levels of integration. The results indicate that Mudharabah and Musyarakah financing have a negative and significant effect on MSME growth in the short term but a positive and significant effect in the long term. In contrast, Ijarah financing shows a positive and significant impact on MSME growth in both the short and long term. Furthermore, the cointegration test confirms the existence of a long-term equilibrium relationship between sharia financing instruments and MSME growth in Indonesia. The findings suggest that policymakers and financial regulators should strengthen institutional support and optimize the design of sharia financing schemes, particularly profit-sharing mechanisms, to enhance their effectiveness in promoting sustainable MSME growth.This study contributes to the literature by providing empirical evidence on the short-term and long-term effects of multiple sharia financing instruments on MSME growth using the ARDL approach in the context of Indonesian BPRS.

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