Monthly Rainfall Forecasting Using the ARIMA Model as a Basis for Sharia Financing Risk Mitigation in Indonesia
Keywords:
ARIMA,, Rainfall forecasting, Box-Jenkins, Islamic financing risk, Risk mitigation, SARIMAAbstract
Climate change has made Indonesia's rainfall patterns increasingly volatile and difficult to predict, directly affecting weather-sensitive economic sectors such as agriculture, fisheries, and micro, small, and medium enterprises (MSMEs). This condition potentially increases financing risk in Islamic financial institutions, given that a substantial share of Islamic financing portfolios is channelled to the real sector, which is vulnerable to climate disruption. This study aims to construct a monthly rainfall forecasting model using the Autoregressive Integrated Moving Average (ARIMA)/Seasonal ARIMA (SARIMA) approach under the Box-Jenkins methodology, evaluate model accuracy, generate a 12-month-ahead forecast, and formulate its implications for Islamic financing risk mitigation. The dataset consists of simulated monthly rainfall data for the 2015-2024 period (120 observations), calibrated to follow Indonesia's tropical seasonal rainfall pattern, used as a methodological demonstration due to limited online access to authentic BMKG observational records at the time of the study. The Augmented Dickey-Fuller (ADF) test indicated non-stationarity at level (p = 0.2095), which became stationary after first-order differencing (p < 0.0001). Through ACF/PACF identification and a grid search across 162 model combinations, the best-fitting model was SARIMA(0,1,2)(1,1,1)12 with AIC = 770.82 and BIC = 782.73. The Ljung-Box diagnostic test at lag 24 showed no significant residual autocorrelation (p = 0.166), indicating an adequate model. Out-of-sample evaluation on the final 12 months yielded MAE = 17.28 mm, RMSE = 23.67 mm, and MAPE = 11.75%, categorised as highly accurate. The 12-month-ahead forecast confirmed the seasonal pattern, with high rainfall in December-January (>270 mm) and low rainfall in June-August (<85 mm). These findings are relevant as a basis for Islamic banks, Baitul Maal wat Tamwil (BMT), and Islamic guarantee institutions to design provisioning, restructuring, and climate-responsive financing products, while also supporting inter-institutional coordination among the Financial Services Authority (OJK), the Meteorology, Climatology, and Geophysics Agency (BMKG), and local governments.
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