Religiosity and depositor funds: evidence from Islamic banks in Indonesia

We examine the impact of Islamic religiosity, based on an area at the province level, on the amount of depositor funds per capita in Islamic banks. We rely on the religious actors (per capita mosque, per capita Islamic school, and per capita Islamic seminary school) and religious practice (per capita hajj) to capture the religiosity level by province in 33 provinces in Indonesia from 2013 to 2018. We performed pooled least square regressions to test our hypothesis. 2SLS and 3SLS procedures were selected to tackle endogeneity issues, i.e., simultaneity and omitted variable bias. The relationship between religiosity and the amount of depositor funds has a simultaneity problem since the decision to deposit money in a bank increases the funds available to the society. A higher supply of funds could be used not only to increase the quantity of religious actors, but also to enhance the quality of religious actors and religious practices. Consequently, the religiosity level of the people will be improved since both religious actors and religious practices shape the behavior of the people by promoting religious ideas, norms, and values. We find that Islamic banks in the stronger religiosity area receive more deposits from the customers. Our result is robust to endogeneity problems. Our study has an important practical implication since it allows businesses, including Islamic banks, to develop effective strategies when entering or expanding business in a new area, especially in the absence of the survey data of individuals' religiosity in certain areas.