Factors Influencing Islamic Financial Inclusion in Indonesia: A Structural Equation Modelling Approach

Abstract

The study examines the determinants of Islamic financial inclusion in Indonesia by applying Structural Equation Modelling (SEM) and Binary Logistic Regression. Through a field survey across Indonesia’s five main islands, the study gathered responses from 291 primary data samples. The study discovered that Islamic financial inclusion in Indonesia is determined by both the demand and supply sides. Two most significant determinants of Islamic financial inclusion in Indonesia from the demand side are financial literacy and social influence  while on the supply side is human capital. The study also includes references and policy recommendations to help Indonesia’s financial regulators in formulating effective policies and strategies to foster the country’s Islamic financial inclusion agenda.