Islamic Banks and Local Development in Indonesia

Objective – This paper was aimed to explain the development of Islamic banks and their contributions in Indonesia local development.Methodology/Technique – The paper described data on essential financial data of Islamic bank in 8 provinces in Indonesia mainly in their economic growth, percentage of population living under the poverty line, along with Islamic financial indicators, i.e. asset, third parties fund, and financing.Findings – The results indicate that Islamic banks accomplish impressive financial performance reflected in fast growing in asset, third parties fund, and financing. In terms of financial intermediaries, Islamic bank also performs well as presented in a larger share of financing compared to third parties fund. Islamic banks are also resilient to local short-run shocks in the economy. However, the relation between these financial indicators with economic indicators is not likely very supportive mainly because Islamic bank's limited market share and issue in financial inclusion in Indonesia.Novelty – As a preliminary research in the relation between Islamic finance and local development particularly in a new emerging decentralized economy, this paper bear a worthy endeavour in expanding this field of study in the future