Abstract

It is crucial to comprehend the customer behaviour in Islamic banks in Indonesia due to the country's highly promising market. This study examines the effects of financial literacy, self-efficacy, and financial behaviour on debtors of Islamic banks in Jakarta, Indonesia. This study investigates the complex connection between subjective financial literacy (SFL), objective financial literacy (OFL), financial self-efficacy (FSE), financial skills (FSK), financial stress (FS), and risky paying behaviour (RPB) and risky borrowing behaviour (RBB). Using a quantitative methodology, information was gathered from 312 customers of Islamic banking through a well-organized survey and examined using SmartPLS. The findings revealed that SFL played a significant role in influencing FSE, while OFL did not have a notable impact on FSE. In addition, FSE has a significant impact on RPB, while RBB remains unaffected. The study also uncovers the adverse interaction effects of FSK with SFL on FSE and the influence of FS on RPB and RBB. These findings have important implications for Islamic banks and policymakers, highlighting the importance of customised financial literacy programmes to improve SFL, OFL, and FSE. The study's limitations and potential areas for future research involve expanding the geographic scope and investigating the impact of digital financial services on Islamic banking.