Islam and its Impact on Economic and Financial Attitudes in Indonesia

Sunday, June 26, 2016: 9:00 AM-10:30 AM
87 Dwinelle (Dwinelle Hall)
Fauziah Rizki Yuniarti, Universitas Indonesia, Jakarta, Indonesia
Mehmet Asutay, Durham University Business School, Durham, United Kingdom

Discussion about the impact of religion on people’s economic and financial attitudes have been flourished since the first Max Weber (1905)’s argument about the essential role of religion in social change and economic development (Weber, 1930). Furthermore, religion (together with morals and cultures) is perceived that it could enhance economic levels by affecting individuals’ economic attitudes thus economic outcomes (Akerlof and Kranton, 2000; Iannaccone, 1998; McCleary and Barro, 2006; Weber, 1905). Moreover, Guiso et al. (2003) suggest that people’s attitudes are considered to be a better tool to see the effect of religious belief on people’s preference than their economic outcome.

However, religion has been neglected in developing economic theories or studies. It is due to difficulties to define the degree of religiosity since it is a self-assessment, something that people perceived of what they are (Gaduh, 2012).

To the best of my knowledge, there has been no research explaining the impact of religion on economic and financial attitudes by using religiosity index as a measurement of religious level. Thus, this paper will first construct the Islamic religiosity index, and use religious participation, religious upbringing, and religious self-perception, then relates them with the attitudes.

This research hence aims to explore the impact of religion (Islam in this case) on economic and financial attitudes in Indonesia. There are two reasons why Indonesia had been choosen for this study. First, Indonesia is the best case in capturing the evidence of the impact of religion, Islam in this case, since it has the biggest Muslim population in the world (Pew Research Center, 2011). Second, Islam viewing men as the basis of the Islamic strategy for economic development; the principal agent for developing life on earth (El-Ghazali, 1994) makes this research become more important to see how far Islam affects these agents’ attitudes.


Religion is inseparable with Muslims daily life, as for Muslims, Islam is the main guidance by giving meaning to every aspect of life shaping behaviours, actions, morals, and attitudes (Abdullah and Majid, 2003). It is therefore expected from religiously practicing individual Muslims to implement Islamic principles in every aspect of their life to be the true obedient human-being (Arif, 1989, cited in Asutay, 2007b).

The emergence of Islamic economics and finance in the early 1960s is closely related to the critiques raised by Islamic economists to the capitalist and communist economic system ignoring the importance of human-being as the basis of development and its well-being in an attempt to constitute an alternative economic system that can respond to economic problems (Asutay, 2007b). The failure of economic development in the Muslim world encouraged Islamic economist (Maududi, 1970) to develop a new economics paradigm and system so that an embedded system of economics based on values and norms of Islam can be developed in the form of Islamic economics. Islamic economics is thus described as the application of Islamic values, norms and principles (e.g. injunction and rules) guiding the individuals in treating and organizing the earth’s resources through cooperation in order to provide social justice and human well-being as well as to fulfil their obligation to God and society thus falah (success or happiness) in this world and life hereafter can be achieved.

Furthermore, in accordance with the definition of Islamic economics itself, this alternative economic system describes homo-Islamicus defined as individual having two-dimensional utility functions in the form of this world and hereafter, while homo-economicus have one dimensional utility function which is only the world (Asutay, 2007a, b). However, as Islamic economics have been flourished and seeing how these homo-Islamicus responded to the system, the phenomena has showed that Islamic norms, which is an essential part differentiating homo-Islamicus and homo-economicus, have not been significantly shaping the Muslim behaviours (e.g. choice and preferences) making the homo-Islamicus looked no substantially different from the homo-economicus confirming Iannaconne (1998) and Maurer (2005). In other words, the aim of Islamic economics transforming homo-economicus into homo-Islamicus has failed since individuals still prefer to economic and financial efficiency (e.g. profit) to social efficiency (El-Gamal, 2006); still incentivised by economic and rational expectation (Kuran, 1983; 1995). Hence, it seems that human behaviour is solely affected by the utility maximization function which then creates greed and/or selfishness, not other things (e.g. religion and moral) (Zaman, 2008).


The start of Islamic economic movement in Indonesia was not that good. Even the largest Muslim organization namely Nadhatul Ulama (NU) rejected the concept of Islamic economy, especially Islamic banking concept in the early stage. However, the establishment of Bank Muamalat in 1992 marked as a formal introduction of Islamic economic concept to the general public.

The developments of Islamic finance have followed a gradual development trajectory in the last forty years. Indonesia, having 238 million total population (as of 2010), ranked as the 4th largest population, (after China, India and U.S., respectively) with 87% of them are Muslims thus has the largest Muslim population in the world (Pew Research Center, 2011), is ranked 9th in the global financial assets in 2013 (IFDR, 2013).


The methodology used to collect data for this study is based on online questionnaire. The dependent variables are attitudes toward others, women, government and legal institutions, legal norms, market and its fairness, thrift, risk aversion, and Islamic economic and finance; and the independent variabls are religiosity index, religious participation, religious upbringing, and religious self-perception. Religiosity index is constructed based on 3 (three) categories, which are obligatory deeds (OD), recommended deeds (RD), and prohibited deeds (PD).


With 677 Muslim Indonesian respondents, statistical and econometrics analyses were conducted. The findings indicate that religion has positive impact on attitudes toward others, thrift, government and legal institutions, and legal norms, and interestingly mixed results on attitudes toward women, market and its fairness, and Islamic economic and finance. It also shows that religiosity index has the highest impact on attitudes, followed by religious participation, religious self-perception, and religious upbringing.