DETERMINATION OF SME FINANCING RISK IN SHARIA BANKING IN INDONESIA 2010-2024 PERIOD
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Abstract
This study aims to analyze the effects of outstanding Micro, Small, and Medium Enterprise (MSME) financing, MSME financing growth, inflation, and the BI Rate on the Non-Performing Financing (NPF) of MSME financing in the Indonesian Sharia banking industry. The study employs a quantitative approach using quarterly time-series secondary data covering the period from 2010 to 2024, obtained from publications of the Financial Services Authority (OJK), Bank Indonesia (BI), and Statistics Indonesia (BPS). The Error Correction Model (ECM) is employed to examine both the short-run and long-run relationships between the independent variables and MSME financing NPF. Data were processed using EViews software through a series of analytical procedures, including stationarity testing, cointegration testing, long-run equation estimation, ECM estimation, and classical assumption testing. The results indicate that, in the short run, outstanding MSME financing has a significant negative effect on MSME financing NPF, whereas MSME financing growth, inflation, and the BI Rate have no significant effect. In the long run, outstanding MSME financing, MSME financing growth, and the BI Rate have significant negative effects on MSME financing NPF, while inflation has no significant effect. Simultaneously, all independent variables significantly affect MSME financing NPF. The findings suggest that MSME financing risk in the Indonesian Sharia banking industry is influenced more by financing dynamics and interest rate policy in the long run than by inflationary pressures. The study highlights the importance of strengthening financing analysis, enhancing financing quality monitoring, and implementing prudential principles to maintain the stability of MSME financing and support the sustainability of the Indonesian Sharia banking industry
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