Institutional Capacity, Financing Expansion, and Repayment Performance in Indonesian Islamic P2P Lending

Abstract

Purpose: This study examines the effects of financing expansion and institutional capacity on repayment performance in Indonesian Islamic peer-to-peer (P2P) lending using the 90-day Payment Success Rate (TKB90). Methodology: A quantitative approach was employed using 59 monthly industry-level observations from February 2020 to December 2024 based on Financial Services Authority (OJK) data. The Autoregressive Distributed Lag (ARDL) model was applied to estimate both long-run and short-run relationships. Results: Institutional capacity, measured by asset size, positively and significantly affects repayment performance in both the long run and the short run. In contrast, outstanding financing has no significant long-run effect but shows significant short-run lagged effects. The ECM confirms convergence toward long-run equilibrium. Conclusion: Repayment performance depends more on institutional capacity than financing expansion alone, highlighting the importance of governance, organizational resources, and risk management for sustainable Islamic P2P lending. Implications: The analysis is limited to aggregate industry-level data and a limited set of explanatory variables. Future studies should employ firm-level data and additional determinants of repayment performance. Originality: This study provides new evidence on the long-run and short-run determinants of repayment performance in Indonesian Islamic P2P lending using an ARDL framework and industry-level regulatory data, extending Financial Intermediation Theory and Firm Size Theory.