Between Growth and Justice: The Contribution of Islamic Finance to Reducing Socio-Economic Inequality in Indonesia

Agung Suwandaru; Shaifurrokhman  Mahfudz; Ginanjar Indra Kusuma  Nugraha; Almer Rasyid; Della Novita  Purwanti

doi:10.15408/jisi.v6i1.53232

Authors

Agung Suwandaru University of Merdeka Malang
Shaifurrokhman Mahfudz Tazkia University, Indonesia
Ginanjar Indra Kusuma Nugraha University of Merdeka Malang
Almer Rasyid University of Merdeka Malang
Della Novita Purwanti University of Merdeka Malang

DOI:

https://doi.org/10.15408/jisi.v6i1.53232

Keywords:

Islamic Finance, Socioeconomic Inequality, Gini Ratio, Maqasid al-Shariah, Zakat Effectiveness, Financial Inclusion, Indonesia

Abstract

This study examines the relationship between Islamic Financial sector indicators and socioeconomic inequality in Indonesia, questioning whether the industry’s quantitative growth genuinely reduces social disparities or merely creates exclusive benefits. Using a quantitative approach with ARDL time-series and panel data regression analysis (2017-2025), the findings reveal a complex relationship. Islamic Regional Financial Depth has a positive direct effect on income inequality with spillover effect, while Islamic banks contribute to inequality reduction in both the short and long run. Zakat shows a significant short-run poverty reduction effect (coefficient = –0.131), though it weakens over time, reflecting consumption-based rather than productive distribution. The study concludes that the link between Islamic finance and inequality reduction is not automatic, as financing remains concentrated in the consumption sector, nearly 70% of MSMEs remain unbanked, and the regulatory framework is not fully maqasid-compatible. This study recommends a paradigm shift from sharia compliance to sharia impact, hybrid financing models, strengthened zakat governance, and enhanced Islamic financial literacy to achieve meaningful social transformation addressing structural inequality in Indonesia.

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