Investigating the Mediating Role of Islamic Banking Intermediation in Promoting Economic Growth in Aceh Province, Indonesia

Economic growth in Aceh is shaped by multiple sectors, including agriculture, fisheries, mining, and services. Among these, the Micro, Small, and Medium Enterprises (MSMEs) sector holds significant potential and warrants increased attention. This study examines the impact of Islamic banking financing and the presence of Islamic banking service offices on economic growth in Aceh, with micro and small medium enterprises (MSMEs) serving as a mediating variable. Employing the Ordinary Least Squares (OLS) method and multiple linear regression analysis, the research utilizes time-series data spanning from 2009 to 2023. The findings reveal that both Islamic banking financing and the expansion of service offices have a positive and significant effect on the development of MSMEs and, consequently, on economic growth. The study further highlights the reciprocal mediating relationship between these variables, demonstrating how Islamic banking can drive economic growth through the development of MSMEs. Based on these results, it is recommended that efforts be intensified to increase financing allocations for MSMEs, extend the reach of Islamic banking services to underserved areas, and promote technological innovation within Islamic financial products and services. The implementation of these measures is expected to strengthen the MSMEs sector and foster inclusive and sustainable economic growth in Aceh province, Indonesia.