Islamic Finance in Indonesia; 3 State-Controlled Sharia Bank Units to Merge into 1 Big Sharia Lender

The idea of merging the Islamic finance units of several state-controlled banks has been around for a couple of years, with the main aim being to create a strong Sharia lender that can play a bigger role, not only at home in Indonesia, but also in the global finance industry. This should then help to raise the level of Indonesia’s entire Islamic finance industry.

It is rather ironic that Indonesia – home to the world’s biggest Muslim population – has an underdeveloped Islamic finance industry. It can be best illustrated by taking a looking at total assets. Total banking assets across Indonesia stood at IDR 8,874.7 trillion (approx. USD $603.7 billion) per July 2020. However, the country’s Islamic banking assets only accounted for 5.96 percent of these total banking assets. Clearly, the majority of Indonesians, including Muslims, prefer to use conventional banking services.

One of the mean reasons why Islamic finance plays a rather insignificant role, today, in Indonesia is that knowledge of this type of finance remains poor in Southeast Asia’s largest economy. And the limited number of small Islamic lenders across the country fail to engage in successful marketing and branding activities. Having one big player – that is reasonably on par with its conventional counterparts – could be a game changing development; the breakthrough this industry is waiting for.

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This article is part of the October 2020 (2nd half) report. It can be ordered by sending an email to [email protected] or a message to +62.8788.410.6944 (including WhatsApp).

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