The Jakarta Post
The sharia economy could become the “new wave” of Indonesia’s economy and strengthen the country’s economic resilience, Vice President Ma’ruf Amin has said.
He cited a Boston Consulting Group (BCG) estimate that there were 64.5 million middle-class Muslims in Indonesia in 2020. This presents a huge opportunity for sharia finance, as they will need to have options of halal products and sharia-compliant financial services to fit their lifestyle and principles.
Ma’ruf also believed that the sharia economy could have a huge potential in strengthening national economic resilience and improving public welfare.
“That said, I think it’s appropriate to call the sharia economy the new wave for Indonesia’s economy,” he said during the Jakpost Up Close webinar “Sharia finance gaining momentum in Indonesia’s economic recovery” on Wednesday.
Despite having the largest Muslim population of any country, Indonesia’s sharia financial literacy rate was only 8.93 percent in 2019, Financial Services Authority (OJK) data show. Moreover, the sharia finance market share was less than 10 percent of Indonesia’s overall financial industry in July.
Although the government has shown its commitment to developing the sharia economy through the issuance of a presidential decree on the National Committee for Sharia Economy and Finance (KNEKS) earlier this year, Ma’ruf admitted that, at its current state of development, the sharia economy was still far from its full potential.
Indonesia’s halal products only account for about 3.8 percent of the global halal market, which was valued at US$2.2 trillion in 2018 and is projected to reach $3.2 trillion in 2024. It is well behind Brazil, a Catholic-majority country, which was the number one contributor to the global halal product market at $5.5 billion in 2019.
The country has also yet to be able to maximize the commercial and social sharia finance potential, according to Ma’ruf. The government, he said, was currently working to tackle the issue by merging three state-owned Islamic banks and developing micro-finance and sharia cooperatives.
It also aimed to maximize the social funds collected through zakat (alms), infaq (disbursements), sedekah (simple alms) and waqf to improve public welfare.
“With these efforts, I hope the sharia economy can complete our economic system, make the economy more inclusive and universal as well as contribute to the national economic efforts and help us emerge from the COVID-19 pandemic,” he said.
Indonesia’s economy shrank 5.32 percent year-on-year in the second quarter due to falling household and investment, as the coronavirus outbreak disrupted business activity and hit purchasing power.
Prudential Indonesia sharia, government relations and community investment director Nini Sumohandoyo said that, despite having the largest Muslim population in the world, the majority of Indonesian Muslims were not familiar with the sharia concept, making it important to improve the sharia finance literacy.
“Language often becomes a barrier to educate people with the sharia concept, as it often involves Arabic words that intimidate them,” Nini said in the webinar.
To solve this issue, Islamic Development Bank regional hub Indonesia operations team leader Eddie Omar Davis said stakeholders should be able to demystify sharia terms to make them more understandable for consumers to increase literacy.
He also suggested that the government ensure a wider utilization of various sharia financing instruments to promote inclusion.
“Sukuk, for example, can be used to finance transportation projects in Java,” he explained. “We can also use waqf assets to help improve the healthcare system, especially during times of a pandemic like today.”
KNEKS director of Islamic economy-supporting ecosystem Sutan Emir Hidayat also emphasized the need for collaboration of various stakeholders, including Islamic boarding schools and business players, to improve sharia finance literacy.
Such a collaboration was also expected to promote the use of more sharia financial products, thus boosting the rate of sharia financial inclusion in the country, he said.
According to the OJK, the sharia financial inclusion rate was 9.1 percent in 2019, down from 11.1 percent recorded in 2018.
All stakeholders should pay more attention to research and development to help develop the sharia finance industry, said Indonesian Islamic Economic Expert Association (IAEI) deputy secretary-general Friderica Widyasari Dewi.
“The other important thing is that the government should also be able to ensure that there is demand for sharia financial products in the real sectors so we can fully develop the sharia economy as a whole,” she said.