Does Financial Inclusion Improve Bank Performance? Evidence From Indonesian Islamic Banking

Abstract

Abstract

This study examines the impact of financial inclusion on performance of Islamic banking in Indonesia, considering specific bank factors and macroeconomic factors. Using monthly data from 2015 to 2024 and employing the ARDL approach, the results show financial inclusion does not have a significant impact on Islamic banking performance, neither in short term nor long term. Only capital adequacy consistently affects islamic banking performance positively. Financing risk and exchange rates have a negative impact in short term, while liquidity and bank size do not have an impact in either short term or long term. Inflation has a positive impact in short term but is not significant in long term. These findings emphasize the importance of developing strategies that connect Islamic banking with communities underserved by formal financial services, with the aim of reducing information asymmetry and enhancing financial inclusion in Indonesia.