The External and Internal Factors on Small and Medium Enterprise (SMEs) Financing in Islamic Bank Empirical Evidence From Indonesia

The world recognises that micro, small and medium enterprises (SMEs) play a very vital role in developmental and economic growth. This study examines the influence of the external and internal factors on SME financing in Indonesian Islamic banks. The external factors consist of BI Rate and Inflation, while the internal factors consist of SBIS, CAR, ROA, NPF, FDR and ROA ratio on Islamic banking in Indonesia. This study uses quantitative methods. The data used was the monthly data from 2011 to the third quarter of 2016. The data was obtained from Bank Indonesia reports and the Islamic Bank Statistics from the Indonesian Financial Services Authority. The analysis technique used in this research was multiple linear regression. The results from this study are that BI Rate, Inflation, SBIS, CAR, ROA, NPF, FDR and BOPO ratio simultaneously have a significant effect on SME financing in Indonesian Islamic banks from the period 2011 until 2016. Changes in the macroeconomic conditions (external factor) will indirectly have an impact on the internal conditions of Islamic banks, which in turn have an impact on the Islamic banking intermediation function, especially for the SME sector. While partially, only BI Rate, CAR, NPF and FDR ratio have a significant effect on the SME financing of Indonesian Islamic Banks. The other variables, namely Inflation, SBIS, ROA and BOPO ratio, have no significant effect on the SME financing of Indonesian Islamic banks. BI Rate, CAR and NPF ratio have a negative and significant effect on SME financing, while FDR ratio has a positive and significant effect on the SME financing of Indonesian Islamic banks for the period 2011 to 2016.