Do Islamic banks have their benchmarks for financing rates in the dual-banking system?

Figures & data

Table 1. Descriptive statistics

	Islamic financing rate (IFR)		Conventional lending rate (CLR)		Correlation
Type of product	Mean	Std Dev	Mean	Std Dev
Indonesia
Mudharaba rate (Md)	14.005	3.639			0.818
Musharaka rate (Ms)	11.413	1.838			0.551
Murabaha rate (Mr)	13.336	1.771			0.881
Islami Financing rate (IFR)	12.917	2.235	11.758	1.183	0.807
Malaysia
Islamic Financing rate (IFR)	5.581	0.633	4.720	0.345	0.795

Note: Indonesian Islamic financing rate is the average of Mudharaba, Musharaka, and Murabaha.

Table 2. Unit root test

	Level				Difference
Var.	ADF		PP		ADF		PP
	No	Trend	No	Trend	No	Trend	No	Trend
Indonesia
Md	−1.68	−3.37**	−1.57	−3.95**	−12.86***	−12.82***	−12.87***	−12.822***
Ms	−1.00	−2.61	−1.10	−2.79	−16.06***	−16.11***	−17.44***	−18.26***
Mr	−1.24	−3.56**	−1.53	−4.71***	−16.65***	−16.60***	−17.93***	−17.88***
IFR	−1.17	−3.74**	−0/94	−3.65*	−14.56***	−14.53***	−14.60***	−14.58***
CLR	−0.93	−1.67	−1.08	−1.75	−9.55***	−9.51***	−10.88***	−10.84***
Malaysia
IFR	−0.89	−2.11	−0.93	−2.35	−8.67***	−14.23***	−14.03***	−13.99***
CLR	−0.78	−1.15	−1.69	−2.18	−7.29***	−7.40***	−9.64***	−9.58***

Note: ***, **, * report significant at 1%, 5%, and 10% respectively. Cr stands for conventional lending rate

Table 3. ARDL: Islamic financing rate

	Indonesia				Malaysia
	IFR	Md	Ms	Mr	IFR
Constant	−0.528	−1.063	−0.489	−0.251	−0.052
	(−0.880)	(−0.887)	(0.791)	(−0.520)	(−0.558)
$IF{R}_{t-1}$	−0.076**	−0.079*	−0.053	−0.111**	−0.019
	(−2.069)	(−1.951)	(−1.366)	(2.414)	(−1.233)
$CL{R}_{t-1}$	0.128	0.180	0.090	0.144**	0.029
	(1.606)	(1.311)	(1.234)	(2.067)	(0.991)
$\mathrm{\Delta }IF{R}_{t-1}$	-	-	−0.266***	−0.275***	−0.273***
			(−3.127)	(−3.361)	(−3.646)
$\mathrm{\Delta }IF{R}_{t-8}$	−0.179**	−0.336***	-	-	-
	(−2.147)	(−4.174)
$\mathrm{\Delta }CL{R}_t$	0.973***	1.557**	-	-	0.421***
	(2.639)	(2.345)			(5.113)
$\mathrm{\Delta }CL{R}_{t-3}$	-	-	-	-	0.243***
					(3.062)
$\mathrm{\Delta }CL{R}_{t-11}$	-	-	−0.700*	-	-
			(−1.764)
$R^2$	0.103	0.194	0.128	0.144	0.254
Diagnostic
$LM$	4.917	1.593	3.153	1.679	0.013
$ARCHLM$	0.142	0.186	1.551	11.352***	0.179
Cointegration
$t_{BDM}$	−2.070	−1.950	−1.370	−2.410	1.230
$F_{PSS}$	2.150	2.000	2.840	2.930	0.760
LR Coefficient
$CLR$	1.674***	2.275**	1.695*	1.299***	1.597*

Note: *, **, *** report significant at 10%, 5%, and 1%, respectively. The critical $t_{BDM}$ and$F_{PSS}$ statistics are 2.91, 3.22, and 3.82 and 4.78, 5.73, and 7.84 at 10%, 5%, and 1%, respectively (Pesaran et al., 2001).

Table 4. NARDL: Islamic financing rate

Variable	Indonesia				Malaysia
	IFR	Md	Ms	Mr	IFR
constant	3.608***	4.043***	2.073***	4.674***	1.703***
	(3.976)	(3.599)	(2.969)	(4.923)	(4.550)
$IF{R}_{t-1}$	−0.198***	−0.195***	−0.125***	−0.279***	−0.236***
	(−4.178)	(−3.954)	(−2.915)	(−5.085)	(−4.531)
$CL{R}_{t-1}^{+}$	−0.039	0.053	−0.180*	−0.042	0.101***
	(−0.416)	(0.285)	(−1.661)	(−0.425)	(3.235)
$CL{R}_{t-1}^{-}$	0.196**	0.311**	0.042	0.187***	0.213***
	(2.503)	(2.279)	(0.612)	(2.756)	(4.367)
$\mathrm{\Delta }IF{R}_{t-1}$	-	-	−0.251***	-	-
			(−3.063)
$\mathrm{\Delta }IF{R}_{t-6}$	0.191**	0.175**	-	-	-
	(2.433)	(2.143)
$\mathrm{\Delta }IF{R}_{t-8}$	−0.188**	-	-	-	-
	(2.417)
$\mathrm{\Delta }IF{R}_{t-12}$	−0.216***	-	-	-	-
	(2.782)
$\mathrm{\Delta }CL{R}_t^{+}$	2.617***	3.580***	-	-	-
	(3.764)	(2.785)
$\mathrm{\Delta }CL{R}_{t-2}^{+}$	-	-	−1.580**	2.310***	-
			(−2.082)	(3.356)
$\mathrm{\Delta }CL{R}_{t-8}^{+}$	-	-	1.896**	-	-
			(2.499)
$\mathrm{\Delta }CL{R}_t^{-}$	-	-	-	-	0.596***
					(6.171)
$\mathrm{\Delta }CL{R}_{t-4}^{-}$	1.071**	-	-	-	-
	(2.116)
$\mathrm{\Delta }CL{R}_{t-10}^{-}$	-	-	0.978*	-	-
			(1.733)
$R^2$	0.269	0.160	0.213	0.204	0.309
Diagnostic
$LM$	0.769	0.076	1.352	3.076	8.308***
$ARCHLM$	0.315	0.729	0.279	21.260	0.001
Cointegration
$t_{BDM}$	−4.178**	−3.954***	−2.915*	−5.085***	−4.531***
$F_{PSS}$	6.055*	5.311*	4.248	8.681***	6.590**
Asymmetric
Long-run	19.690***	6.707**	9.251***	18.450***	215.98***
Short-run	4.753**	7.757***	0.363	11.270***	38.08***
LR coefficient
$CL{R}^{+}$	−0.024	0.270	−1.440	−0.149	0.429***
$CL{R}^{-}$	−0.994***	−1.597***	−0.342	−0.671***	−0.902***

Note: *, **, *** report significant at 10%, 5%, and 1%, respectively. The critical $t_{BDM}$ and$F_{PSS}$ statistics are 2.91, 3.22, and 3.82 and 4.78, 5.73, and 7.84 at 10%, 5%, and 1%, respectively (Pesaran et al., 2001).

Figure 1. Indonesian Islamic financing-lending rate dynamic multiplier.

Figure 2. Indonesian Mudharaba-lending rate dynamic multiplier.

Figure 3. Indonesian Musharaka- lending rate dynamic multiplier.

Figure 4. Indonesian Murabaha-lending rate dynamic multiplier.

Figure 5. Malaysian Islamic financing-lending rate dynamic multiplier.

Table 5. Panel unit root

	Level				First difference
	LLC		IPS		LLC		IPS
Variable	No trend	Trend	No trend	Trend	No trend	Trend	No trend	Trend
IFR	−0.813	0.865	1.469	−0.976	−3.407***	−3.716***	−5.791***	−5.286***
CLR	−0.193	1.559	−0.082	1.433	3.265	4.713	−3.973***	−3.856***

Note: *, **, *** report significant at the 10%, 5%, and 1%, respectively

Table 6. Panel cointegration test

	Symmetric Model		Asymmetric model
Statistic test	No trend	Trend	No Trend	Trend
Pedroni test
Panel v	0.942	1.978**	2.025**	3.692***
Panel rho	−1.215	−3.000***	−1.810**	−4.398***
Panel PP	−1.138	−2.536***	−1.846**	−3.429***
Panel ADF	−0.743	−1.74**	−1.409*	−2.130**
Group rho	0.363	−0.685	−2.129**	−3.412***
Group PP	−0.392	−1.039	−2.204**	−3.210***
Group ADF	1.669	−0.059	−1.331*	−1.779**
Westerlund test
Gt	−2.036	−2.383	−3.894***	−4.267***
Ga	−5.334	−11.910	−24.496***	−29.254***
Pt	−2.575	−4.990**	−4.498**	−5.119**
Pa	−7.053	−19.815***	−16.942***	−26.210***

Note: *, **, *** report significant at the 1%, 5%, and 10%, respectively.

Table 7. Pool mean group (PMG) estimation

	Symmetric			Asymmetric
Variable	Coeff.	t-statistic	Variable	Coeff.	t-statistic
Long run			Long run
$CL{R}_t$	1.727***	3.199	$CL{R}_t^{+}$	0.453***	4.406
			$CL{R}_t^{-}$	−0.927***	11.043
Short run			Short run
$c$	−0.311	1.470	$c$	1.829***	16.991
$\mathrm{\Delta }IF{R}_{t-1}$	−0.275**	−2.335	$\mathrm{\Delta }CL{R}_t^{+}$	0.974	0.883
$\mathrm{\Delta }CL{R}_t$	0.606***	4.931	$\mathrm{\Delta }CL{R}_t^{-}$	0.249**	2.222
$\mathrm{\Delta }CL{R}_{t-1}$	0.056	0.410
$E{C}_{t-1}$	−0.041	−1.487	$E{C}_{t-1}\hspace{0.17em}$	−0179***	−3.069

Note: *, **, *** report significant at the 10%, 5%, and 1%, respectively. SC is selected to choose the optimal number of lags. EC is an error correction term.

Table 8. Panel cointegration results

	Symmetric			Asymmetric
Variable	FMOLS	DOLS	Variable	FMOLS	DOLS
$CL{R}_t$	1.350***	1.376***	$CL{R}_t^{+}$	0.399*	0.422**
	(8.125)	(8.075)		(1.888)	(2.019)
			$CL{R}_t^{-}$	−1.077***	−1.115***
				(8.309)	(8.666)
$R^2$	0.916	0.921	$R^2$	0.962	0.968
N	288		N	286

Note: *, **, *** report significant at the 10%, 5%, and 1%, respectively. The t-statistic is reported in parentheses.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616

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