How Sharia Banks' Profits Change with Small Business Funding

Indonesia sees more small businesses every year, but Sharia banks aren't keeping up. They're financing fewer small businesses, even though total deposits are growing. This study looks into how much money comes from outsiders (third parties) affects how much Sharia banks lend to small businesses. It also checks if this lending helps the banks make more profit. The banks should be clever about bringing in more money. When they do, they usually lend more to small businesses.

The study used a special model called Vector Error Correction Model (VECM) to see the long-term effects and sudden changes in the numbers. It found that in the short and long run, a measure called CAR (Capital Adequacy Ratio) hurts small business lending. But other factors like TPF (Total Funds from the Public), NPF (Non-Performing Financing), and BOPO (Business Opportunity) help in the long run. Some of these things also help banks make more money in both the short and long run. If there's a sudden change in CAR, it makes small business lending go down. If small business lending changes suddenly, it hurts how much profit the banks make. This effect stays the same in the long run.

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