ISLAMIC FINANCIAL INTERMEDIATION OF INDONESIAN ECONOMIC GROWTHIN 2003: Q1-2015: Q4

Indonesia applies Islamic financial instruments in its financial system. Indonesia adheres to a bank-based industry financial system that puts Islamic banking as the driving force of the economy. This study aimed to examine the effect of Islamic financial performance in the intermediation function using representative Islamic banking instruments and the Islamic capital market (JII) on Indonesia's economic growth from 2003 to 2015. This study used a quantitative approach with Autoregressive Distributed Lag (ARDL) method with Eviews 9. The data used were secondary data from the official website of the Financial Services Authority and the Central Bureau of Statistics.The intermediation performance of the Islamic financial system (Islamic banking and Islamic capital market) had a significant and positive relationship to economic growth, both in the long term and short term, during the period of March 2003 to December 2015.Thus, the performance of the Indonesian Islamic financial system consisting of Islamic banking and the Islamic capital market through the proxy of Islamic banking financing and market capitalization of JII had been proven to be able to encourage industrial productivity and public consumption in increasing Indonesia's economic growth in the short term.