Islamic financial inclusion as a transmission channel: evidence from digital payments and inflation in Indonesia

Pantas, Pribawa E and Othman, Norfaizah and Mohamad Puad, Noor Aimi (2026) Islamic financial inclusion as a transmission channel: evidence from digital payments and inflation in Indonesia. Al-Tijary: Jurnal Ekonomi dan Bisnis Islam, 11 (2). pp. 251-266. ISSN 2460-9404 E-ISSN 2460-9412

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Abstract

This study investigates the role of Islamic financial inclusion as a transmission channel linking digital payments and inflation in Indonesia's dual banking system. While digital payment systems have expanded rapidly and are known to influence monetary policy transmission, the mechanism through which these effects occur—particularly within an Islamic finance context—remains underexplored. Using monthly data from January 2016 to June 2025, this study employs an Autoregressive Distributed Lag (ARDL) model combined with a mediation framework to examine both direct and indirect effects. The findings reveal that digital payments significantly enhance Islamic financial inclusion, thereby influencing inflation dynamics through an indirect transmission mechanism. Mediation analysis confirms that Islamic financial inclusion partially transmits the impact of digital payments to inflation, with the indirect effect accounting for approximately 15.5% of the total effect. These results contribute to the literature by integrating Islamic finance into macroeconomic transmission analysis and provide policy implications for strengthening inclusive, sharia-compliant financial ecosystems in emerging economies.

Item Type:	Article (Journal)
Uncontrolled Keywords:	ARDL, digital payments, inflation, Islamic financial inclusion, monetary policy transmission
Subjects:	BPH Islamic Economics BPH Islamic Economics > BPH72 Economic development. Growth. Sustainable development. Sustainability
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Finance Kulliyyah of Economics and Management Sciences
Depositing User:	DR NOOR AIMI MOHAMAD PUAD
Date Deposited:	17 Aug 2026 11:45
Last Update:	17 Aug 2026 11:45
Queue Number:	2026-08-Q4762
URI:	http://irep.iium.edu.my/id/eprint/130825

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