Islamic Banking and Unemployment: Determining Factors of Unemployment Rate and its Implications on Poverty Level

Abstract

Purpose: This research aims to analyze whether the development of sharia banking and several other variables such as Gross Domestic Product (GDP), population and social factors have a significant effect on the unemployment rate and poverty alleviation in Indonesia.   Method: this research uses quantitative research with the research object being Indonesian macroeconomic data using semiannual data for the period 2010 – 2020. The analysis used is multivariate analysis based on the Partial Least Square-Structural Equation Model (PLS-SEM).   Results and conclusions: This research finds that social variables have a negative influence on the unemployment rate compared to population, Islamic banking, or GDP. Another finding is that GDP and Islamic banking have a very detrimental impact on poverty levels. This is different from the unemployment rate which has a positive impact. Regarding the use of mediating factors, namely the unemployment rate, it turns out that sharia banking, population and GDP do not have a significant effect on the poverty rate. However, the amount of poverty is negatively influenced by social variables.   implications: This research provides implications for government policy to continue to strengthen capital policies, networks, education and socialization of sharia banking. Apart from that, systematic, conducive, serious and measurable positive efforts in various economic sectors will have an impact on poverty alleviation.   Originality/value: This research offers novelty in the form of connecting Islamic banking with poverty levels and is found to have a negative relationship. We use data from 2010 to 2020. We suspect that this condition is caused by a lack of Indonesian government policies regarding capital, networks and education.