The Impact of Islamic Monetary Instruments and Islamic Social Funds on Indonesia’s Economic Growth

INKUBIS: Jurnal Ekonomi dan Bisnis Volume 8, Issue 1, 429-441 e_ISSN: 2775-3913 https://inkubis.polteksci.ac.id/index.php/ink/index DOI: doi.org/10.59261/inkubis.v8i1.227 The Impact of Islamic Monetary Instruments and Islamic Social Funds on Indonesia’s Economic Growth *Khairina Tambunan1 Andri Soemitra2 Isnaini Harahap3 Universitas Islam Negeri Sumatera Utara, Indonesia Universitas Islam Negeri Sumatera Utara, Indonesia Universitas Islam Negeri Sumatera Utara, Indonesia *Corresponding author: Khairina Tambunan, Universitas Islam Negeri Sumatera Utara, Indonesia. 🖂 Article Info: Article history: Received: April 07, 2026 Revised: May 06, 2026 Accepted: May 08, 2026 Abstract Background: Indonesia still faces economic development disparities, making it important to examine whether inclusive growth can be achieved through Islamic monetary instruments and Islamic social funds. This study employs Gross Domestic Product (LGDP), Bank Indonesia Sharia Certificates (LSBIS), Bank Indonesia Sharia Deposit Facilities (LFASBIS), and Zakat, Infaq, and Sadaqah (LZIS) as variables. Keywords: Objective: This study aims to explore how Islamic monetary instruments economic growth; indonesia; and Islamic social funds affect Indonesia’s economic growth. islamic monetary instruments; Methods: A quantitative explanatory approach was employed using islamic social funds; VECM monthly data from 2017–2023 obtained from BPS, Bank Indonesia, and BAZNAS. Data were analyzed using the Vector Error Correction Model (VECM), supported by the Augmented Dickey–Fuller (ADF), Johansen cointegration, Granger causality, Impulse Response Function (IRF), and Forecast Error Variance Decomposition (FEVD) tests through EViews 11. Results: The results show sparse and predominantly unidirectional Granger causality relationships. Based on the short-run and long-run coefficients, the Islamic variables do not have a significant influence on LGDP in the short run, while LSBIS, LZIS, and LFASBIS significantly contribute to economic growth in the long run. The FEVD results indicate that LSBIS accounts for the highest percentage of variance in LGDP (23.30%), followed by LZIS (2.16%) and LFASBIS, which contributes only 0.16%. Conclusion: The results indicate that Islamic monetary instruments and Islamic social funds have weak short-term effects but strong long-run relationships with economic growth, suggesting a gradual adjustment process in Indonesia’s Islamic economic transmission mechanism, as well as the need for timely policy coordination to foster more inclusive and sustainable growth. To cite this article: Tambunan, K., Soemitra, A., & Harahap, I. (2026). The impact of Islamic monetary instruments and Islamic social funds on Indonesia’s economic growth. INKUBIS: Jurnal Ekonomi dan Bisnis, 8(1), 429–441. https://doi.org/10.59261/inkubis.v8i1.227 INTRODUCTION Monetary policy plays a central role in maintaining macroeconomic stability and sustaining real economic activity (Rahman et al, 2024). If communication mechanisms work effectively, financial instruments can influence investment decisions, financing conditions, and ultimately national production (Soedarmono et al., 2023). However, maintaining its effectiveness becomes more difficult during periods of severe disruption, especially during the COVID-19 period in Indonesia (Safuan et al, 2024). The GDP data for 2019-2021 reflects this instability, as shown in Figure 1. 429 | INKUBIS: Jurnal Ekonomi dan Bisnis Khairina Tambunan, Andri Soemitra, Isnaini Harahap The impact of Islamic ... Figure 1. Indonesia’s GDP Growth Rate, 2019-2021 Indonesia's economy experienced a sharp contraction of 5.32 percent in the second quarter of 2020 and a recovery of 7.07 percent in the second quarter of 2021. The pattern of volatility indicates that recovery cannot rely solely on expansionary policy settings. Tools that can sustainably transmit effects to and from the real sector are also needed (Herianingrum et al., 2024; Soemitra et al., 2021). As a nation with a dual currency system, Indonesia has established Sharia financial activities alongside conventional financial products. There are two primary Sharia financial instruments issued by the central bank, namely the Bank Indonesia Sharia Certificate (SBIS) and the Bank Indonesia Sharia Deposit Facility (FASBIS) (Ridlo and Wardani 2020; Siswantoro 2023). As depicted in Figure 2, a high growth rate has been observed during the study period Figure 2. Indonesia's Economic and Financial Statistics, Bank Indonesia, August 2021 From 2017 to August 2021, the trajectory of sharia currency operations was not uniform across banks (Figure 2). Open market financial instruments showed a general upward trend, whereas both standing facilities and FASBIS were volatile and declined during several periods. However, the empirical evidence suggests the opposite of this indicative trend, implying that the Islamic monetary transmission mechanism does not function optimally in all respects. Meanwhile, the prospect of Indonesia's sharia economy extends beyond the commercial sector. This is also supported by social finance aspects, especially Zakat, Infaq, and Sadaqah (ZIS). Between 2002 and 2020, the national ZIS collection increased by an average of 34.75% per year. This demonstrates the potential multiplier effect created through increased household consumption and the productive empowerment of low-income communities (Herianingrum et al. 2024; Soemitra et al. 2021). Nevertheless, Islamic social funds are often treated as peripheral in INKUBIS: Jurnal Ekonomi dan Bisnis | 430 Khairina Tambunan, Andri Soemitra, Isnaini Harahap The impact of Islamic ... macroeconomic analysis and are rarely integrated into a unified national growth framework alongside Islamic financial and banking variables (Ridlo and Wardani 2020; Siswantoro 2023). Previous studies have also produced mixed evidence. Yudi (2018) claimed that the transmission channel of Islamic financial policy in Indonesia is not fully functional. Harahap (2022) suggested that the effects of Islamic monetary instruments are not consistently strong across contexts. Marpaung (2024) found that FASBIS and PUAS affect economic growth, while Octaviani (2018) reported that SBIS plays a positive role in explaining the Industrial Production Index as a proxy for the real sector. Regarding Islamic social funds, Ashfahany (2023) showed that Zakat distribution positively affected the economic growth of Indonesia, Malaysia, and Singapore. Nevertheless, Arwani and Wahdati (2020); as well as Isnaini (2024) also showed that the magnitude of the ZIS effect varies across regions and time periods. Against this background, this study simultaneously examines Islamic financial instruments, Islamic bank liquidity, and Islamic social funds within a single empirical framework. Unlike prior studies that examined these variables in isolation, this research provides an integrated empirical framework combining Islamic (...truncated)