Sensitivity Analysis of the Demand for Financing in Riau Province

Abstract

This research aimed to analyze sensitivity of the demand for financing in Riau Province, with the focuses on the elasticity of the demand for financing, cross elasticity, and income elasticity. The data of this research were quantitative secondary and time series obtained from the publications of the Central Bureau of Statistics (BPS), Bank Indonesia (BI), and the Financial Services Authority (OJK). The data analysis was done by first estimating the non-linear financing demand equation transformed through multiple linear regression equation using Eviews application. The results were in the form of elasticity as a measure of sensitivity. The research variables consisted of profit sharing, conventional bank’s interest rate, and gross regional domestic products (GRDP) as independent variables and the demand for financing as a dependent variable. The results of the research showed that profit sharing, conventional bank’s interest rate, and GRDP simultaneously influenced the demand for financing in Riau Province with a significant level of 5% and the probability of F value of (0.000)<α (0.05). Partially, profit sharing, conventional bank’s interest rate, and GRDP had significant influence on the demand for financing. The ability of these independent variables to explain the dependent variable was 99.36 % while the remaining 0.6 % was influenced by other factors outside of this research.The sensitivity value of the demand for financing in sharia banking during the observation period was 1.40 (Ɛ_P>1), meaning that the demand for financing in Riau Province was elastic. Besides, the cross elasticity value of the demand for financing was 0.42 or positive (Ɛ_C>0), and this was categorized that conventional bank’s interest rate as a substitution of profit sharing. In addition, the income elasticity value of the demand for financing in Riau Province during the observation period was 1.31 (Ɛ_I> 1), and it was categorized as luxurious goods.

Keywords: Sensitivity, Financing, Profit Sharing, Interest Rate, and Gross Regional Domestic Products (GRDP)