How Islamic and conventional bank in Indonesia contributing sustainable development goals achievement

Abstract

This study aimed to prove that social goal in improving social living standards is implanted on banking’s objective in Indonesia. This research also tried to prove that there were differences between conventional and Islamic banks in defining the company goals, whether the goals are profit-oriented or socially oriented. This social goal is also aligned with sustainable development goals (SDGs) as international agendas in the world. The banks’ contribution will be measured its impact on sustainable development goals. The developed hypotheses are equipped with good financing quality control. Furthermore, this research will compare the social goals of conventional banks and Islamic banks (sharia banks). This research used 801 data from the annual reports of conventional and Islamic banks in Indonesia from 2011 to 2018. Meanwhile, the reflection of sustainable development goals used several indicators, so that the statistical analysis used is WarpPLS. This research proved that there were differences between Islamic and conventional banks in promoting sustainable development. Generally, high financing or credit will increase sustainable development, while the sufficient/low bank profit demanded from the bank financing/credit also will increase sustainable development achievement. In conclusion, the financing quality is able to differentiate whether the low profits earned by banks are due to social orientation for sustainable development or because of poor market conditions (bad credit/financing).

Keywords:

• sustainable development goals
• social living standards improvement
• the goal and function of bank
• credit distribution

PUBLIC INTEREST STATEMENT

Sustainable Development Goals are international goals adopted by more than 190 countries, including Indonesia. All parties need to participate to achieve the goals; both individually and involving institutions, including banking institutions. Indonesia is a country with the majority of the population is Muslim. Thus, the right banking system is an Islamic bank. This study has proven that banking with an Islamic system has better implications for the SDGs than conventional banks. Because Islamic principles do not only regulate business systems and ethics but also determine the entities’ goals, that is the goals oriented to the welfare of all society. However, the market capitalization of Islamic banks in Indonesia is still low so that the impact cannot be felt much. Thus, Islamic banking must be supported by extending its market power in the country. The bank with the Islamic principle is also suitable for other countries due to the good system.

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Nunung Ghoniyah

Nunung Ghoniyah is an associate professor and a senior lecturer in Faculty of Economics, Universitas Islam Sultan Agung (UNISSULA). Her research interests are in business management for SMEs, finance, economic, Islamic banking, and Islamic Business Ethics. Sustainable Development Goals (SDGs) is the current issue which must be encouraged by every entity including the Banking Sector. This study tried to accommodate it and found that the effort of Corporate sector (Banking sector) in achieving the Global Sustainable Goals must be seen by the proper ethic of the corporate to achieve it. Thus, the future research is combining her research in Islamic banking, economic, SDGs, and Islamic Business Ethics.

Sri Hartono is an associate professor at the Economics Faculty, UNISSULA. Interest in financial management, business feasibility studies, business budgeting, and management accounting. His current research is the effectiveness of corporate governance in increasing the Maqasid Shariah index of Islamic Banking.