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Economy

Measuring the Future of Indonesia’s Sharia Economy

27 Dec 2024, 19:44 WIB

Indonesia has great potential in terms of the number of domestic markets.

JAKARTA – The development of Malaysia’s sharia economy has recorded higher growth compared to Indonesia. Economist at the Center of Sharia Economic Development Institute for Development of Economics and Finance (CSED Indef) Hakam Naja said that Indonesia has great potential in developing the sharia economy, by making Malaysia a  benchmark . 

According to the State of the Global Islamic Economy Report (SGIER) 2023/2024 data, Malaysia is a country that has consistently ranked number one in Islamic banking for the past 10 years. Meanwhile, Indonesia is crawling, and the 2023 report notes that Indonesia is in third place, below Saudi Arabia. The indicators assessed in the ranking include six indicators, namely Islamic finance, halal food, Muslim-friendly travel, modest fashion, media and recreation, and pharmaceuticals-cosmetics. 

“We are ranked third but our score is almost a third of Malaysia’s. Malaysia’s GIEI (global Islamic economy indicator) is 193.2, while Indonesia’s is 80.1. So it’s a big homework if we want to catch up with Malaysia which is very agile in developing the sharia economy,” Naja said in a public discussion entitled ‘Sharia Economic Outlook 2025: Contribution of Sharia Economy to 8 Percent Economic Growth’ which was held online, Friday (12/27/2024).

Although lagging quite far behind Malaysia, Indonesia has great potential in terms of the number of domestic markets. The population of Indonesia is recorded to have reached 281 million with 245 million of them or 87 percent being Muslims, while the total population of Malaysia alone reaches 34 million. This condition also places Indonesia in the top ranking as an OIC country with the highest Gross Domestic Product (GDP), with a figure of 1.371 trillion US dollars, while Malaysia is in sixth place with a GDP figure of 416 billion US dollars. 

Attention to MSMEs 

To catch up with Malaysia, Naja said, Indonesia needs to concentrate more on the most dominant sectors, namely micro, small and medium enterprises (MSMEs) to be able to improve the national economy, especially the sharia economy. The number of MSMEs in Indonesia is very large, reaching up to 99.99 percent with 97 percent employment. 

“We should focus on MSMEs, this is our future that has not been noticed so far. If we work on this, we will bounce, we will jump beautifully if MSMEs are noticed,” said Naja. 

According to his records, the total assets of Islamic banking in Indonesia, including BPRS, reached up to Rp918 trillion with a market share of 7.44 percent. This figure is still far compared to Malaysia which is Rp4,226 trillion, or four times, with a market share reaching 37 percent in 2024. 

But looking at the MSME financing figures, the percentage in Malaysia is at 15 percent, while MSME financing by Islamic banking in Indonesia reaches 17.7 percent. 

“It should be pushed even harder, I hope that next year 30 percent of MSME financing will be,” said Naja. 

Seven Prospective Points of Indonesian Islamic Banking 

Furthermore, Naja explained several points that are the prospects for Indonesian Islamic banking in the future. First, regarding  the spin-off of  Islamic business units (UUS) and the merger of Islamic General Banks (BUS)/UUS. 

As mandated by the Financial Services Authority Regulation (POJK) Number 12 of 2023, it is stated that banks with UUS assets reaching 50 percent of the total assets of their parent or UUS assets of at least IDR 50 trillion are required to spin off into BUS no later than 2026. For example, UUS BTN (IDR 55.54 trillion) and UUS CIMB Niaga (IDR 65.99 trillion). CIMB Niaga is known to be a commercial bank group in Malaysia. 

“So, Malaysians are good at trading in Indonesia, even CIMB Niaga people once said they could jump 700 percent in 10 years. Extraordinary, so I think in the future  we must encourage spin-offs , merger processes, between Islamic banks or Islamic business units,” he said. 

Second, the conversion of regional development banks (BPD) into BUS. Naja said that several BPDs have taken steps to convert into BUS, such as Bank Aceh in 2016, Bank NTB in 2018, and Bank Riau in 2022. It is reported that BPD South Sulawesi, BPD West Sulawesi, and BPD West Sumatra will also follow. 

“This conversion is the most significant, truly from conventional to sharia. We must support so that the work of boosting Indonesia’s extraordinary potential continues to be carried out and the future is in sharia banking,” he explained. 

Third, digitalization and literacy inclusion. Naja said that digitalization in the future is inevitable. According to him, in Malaysia, 40 percent of banks that apply for digital permits are Islamic banks. 

In Indonesia, there are already several banks, for example BSI which recently launched the superapp Byond. However, according to him, it is still lacking in excitement in Indonesia, especially when targeting the millennial and gen z generations. 

“Security issues must be key because in the digital world security is a very absolute and significant thing. It is dangerous to ignore it,” he said. 

Fourth, the sharia economic ecosystem and the halal industry. Naja said that it synchronizes the sharia economy, sharia banking, and sharia finance to grow, so that the halal industry must develop. 

“No sharia economy can grow without integrating with the real, financial, and banking sectors. So, with a Muslim population of 245 million, the sharia economy should be the future of Indonesia to reach 8 percent by 2028,” he said. 

Fifth, sharia economy as a lever for economic growth. According to Naja’s estimates, with such heavy economic challenges, economic growth is expected to be at 5 percent next year, then increase to 6 percent in 2026, 7 percent in 2027, and up to 8 percent in 2028. 

“Sharia economics is one of the important keys for us to be able to leverage the economy in the future,” he said.

Sixth, the prospect of a green economy  . Naja said that the implementation of ESG in the business world in line with the values ​​of maqashid sharia in the sharia economy, could be a force for sharia banking to grow rapidly. “Sharia economy is the key because the concept applied in the banking world that is now pro-environment has been covered, and of course the sharia banking industry is an industry that is very ready,” he said.

Seventh, downstreaming. Naja said, processing of Indonesia’s natural resources to advance the economy through the development of the manufacturing industry and the financial sector and sharia banking. “Including the establishment of a gold bank or bullion bank,” said Naja. 

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source https://www.republika.id/posts/56137/menakar-masa-depan-ekonomi-syariah-indonesia