• Bismi Khalidin State Islamic University of Ar-Raniry, Banda Aceh, INDONESIA



Monetary Policy, Macroeconomic Variables, Islamic Banks Financing


Islamic banks are  banks that operate based on sharia, where one of the principles  is free from usury or interest rates. Instead of the rates, the banks uses a profit sharing system. In Indonesia, the Islamic banks grow  significantly, even though the prevailing monetary policy is still based on the interest system. This phenomenon is interesting to study, because on the one hand there is a close relationship between banking and monetary policy, but on the other hand monetary policy is based on interest rates while the Islamic banks are based on profit sharing rates. This study aims to examine the relationship and influence of monetary policy and macroeconomic variables on the performance of the Islamic bank financing. This research was conducted from 2010 to 2019, by using statistical approaches of Vector Auto Regression (VAR) and Pearson Correlation. The results show that the performance of Islamic bank financing, both profit-sharing-based and murabahah financings, is influenced by monetary policy and several selected macroeconomic variables. In addition, the profit sharing rates of financing is influenced by conventional bank interest rates and the rates of some monetary instruments. One important thing in this finding is that the financing and the profit sharing rate applied by Islamic banks resemble those of conventional banks, so that the influence of interest rates is very dominant in the operations of Islamic banks, both from monetary policy instruments and other interest rates.


Adnan, M. A., & Muhamad. (2007). Agency Problems in Murabahahh Financing : The Case of Sharia (Rural) Banks Indonesia. IIUM Journal of Economics and Management , 15(2), 219-243.

Ahmad, A. U., & Hassan, M. K. (2015). Riba and Islamic Banking. Journal of Islamic Economics, Banking and Finance.

Ahmad, Z., & Ismail, A. G. (2018). Alternative of Monetary Policy Indicator: Panel Data Analysis from Islamic Banks in Malaysia. Journal of Islamic Monetary Economics and Finance, 4(2), 279 - 292.

Al-Harbi, A. (2015). Development of the Islamic Banking System. Journal of Islamic Banking and Finance, 3(1), 12-25.

Ascarya. (2014). Monetary Policy Transmission Mechanism under Dual Financial System in Indonesia: Interest-Profit Channel. International Journal of Economics, Management and Accounting , 22(1), 1-32.

Berger, A. N., Boubaki, N., Guedhami, O., & Li, X. (2019). Liquidity Creation and Financial Stability Implications of Islamic Banking: Evidence from a Multinational Study . Journal of Financial Stability.

Bidabad, B., Hassan, A., & Ali, M. S. (2011). Interest-Free Bonds and Central Banking Monetary Instruments. International Journal of Economics and Finance, 3(3), 234-241.

Egresi, I., & Belge, R. (2015). Development of Islamic Banking in Turkey. Annals of the „Constantin Brâncusi” University of Târgu Jiu, , Economy Series, Issue 6/2015.

Fakhri, U. N., & Darmawan, A. (2021). Comparison of Islamic and Conventional Banking Financial Performance during the Covid-19 Period. International Journal of Islamic Economics and Finance (IJIEF), 4(SI), 19-40.

Fikri, R. J. (2018). Monetary Transmission Mechanism under Dual Financial System in Indonesia: Credit-Financing Channel. Journal of Islamic Monetary Economics and Finance, 4(2), 251 - 278.

Furqany, H., & Mulyany, R. (2009). Islamic Banking and Economic Growth; Emperical Evidence from Malaysia. Journal of Economic Coorperation and Development, 30(2), 59-74.

Hamza, H. (2016). Does investment deposit return in Islamic banks reflect PLS principle? Borsa Istambul Review, 16(1), 32-42.

Hanif, M. (2011). Differences and Similarities in Islamic and Conventional Banking. International Journal of Business and Social Science, 2(2), 1-10.

Johnston, J., & Dinardo, J. (1997). Econometric Methods. McGraw-Hill Companies.

Juhro, S. M., & Iyke, B. N. (2019). Monetary Policy and Financial Conditions in Indonesia. Bulletin of Monetary Economics and Banking, 21(3), 283 - 302.

Kader, R. A., & Leong, Y. K. (2009). The Impact of Interest Rate Changes on Islamic Bank Financing. International Review of Business Research Papers , 5(3), 189-201.

Khalidin, B. (2021, May). Monetary Policy in an Islamic Economics. International Journal of Research - GRANTHAALAYAH, 9(5), 315–326.

Khalidin, B., & & Masbar, R. (2017). Interest Rate and Financing of Islamic Banks in Indonesia (A Vector Auto Regression Approach). International Journal of Economics and Finance, 9(7), 154-164.

Khan, F. (2010). How "Islamic" is Islamic Banking? Journal of Economic Behaviour and Organization, 76, 805-820.

Korkut, C., & Ozgur, O. (2017). Is there a link between Profit Share Rate of Participation Banks and Interest Rate?: The Case of Turkey. Journal of Economic Cooperation and Development, 38(2), 135-158.

Majid, M. S., & Hasin, Z. (2014). Islamic Banks and Monetary Transmission Mechanism in Malaysia. Journal of Economic Cooperation and Development, 35(2), 137-166.

Omar, M. N. (2011). The Islamic View on Money and Its Implication for Financial Instruments. ISRA International Journal of Islamic Finance Vol.3, Issue 1, 161-167.

Omer, M. (2019). Monetary Policy Pass-Through, Excess Liquidity and Price Spillover: A Comparative Study of Conventional and Islamic Banks of Pakistan. Journal of Islamic Monetary Economics and Finance, 5(2), 287-320.

Rasheed, R., & Chauhan, A. (2015). Challenges in Marketing of Islamic Banking Products in Malaysia. Journal of Accounting and Finance in Emerging Economies, 1(1).

Rashid, A., & Jabeen, S. (2016). Analyzing performance determinants: Conventional versus Islamic Banks in Pakistan. Borsa Istambul Review, 16(2), 92-107.

Samad, A. (2019). Determinants of Efficiency of the Islamic Banks of Bangladesh during 2008-2012 . Journal of Islamic Banking and Finance, 7(1), 1-13 .

Samhan, H. M., & Al-Khatib, M. A. (2015). Determinants of Financial Performance of Jordan Islamic Bank . Research Journal of Finance and Accounting , 6(8), 37-47.

Sari, N. M., & Mirakhor, A. (2012). Islamic Monetary Policy in Malaysia : A Conceptual Framework. The Second ISRA Colloquium, (hal. 1-22). Sasana Kijang, Malaysia.

Shah, B. A., & & Niazi, G. S. (2019). Issues in Contemporary Implementation of Murabahah. Turkish Journal of Islamic Economics, 6(2), 1-24.

Shofawati, A. (2014). Murabahahh Financing in Islamic Banking: Case Study in Indonesia. Proceedings of 5th Asia-Pacific Business Research Conference, (hal. 1-18).

Siddiqi, M. N. (2004). Riba, Bank Interest and the Rationale of Its prohibition (1st ed., Vol. Visiting Scholars' Research Series). Jeddah: Islamic Development Bank.

Tabash, M. I. (2019). An Empirical Investigation on the Relation between Disclosure and Financial Performance of Islamic Banks in the United Arab Emirates. Journal of Asian Finance, Economics and Business, 6(4), 27-35.

Tahir, S. (2013). Fiscal and Monetary Policies in Islamic Economics: Contours of an Institutional Framework. Islamic Economic Studies, 21(2), 1-22.

Yahya, A. T., Akhta, A. F., & Tabash, M. I. (2017). “The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: an empirical evidence”. Investment Management and Financial Innovations, 14(4).




How to Cite