Development of

Islamic Economy in
Indonesia:
Opportunities and
Challenges
The International Seminar The Role of a New Goverment to the
Development of Islamic Economics
Yogyakarta, 4 October 2014
Dr. Edi Prio Pambudi
Assistant Deputy Minister for Monetary, Balance of Payment and Job Expansion
Coordinating Ministry for Economic Affairs
Republic of Indonesia
The largest Moeslem population in the
World, most are modernist, inherited a
culture of tolerance and Gotong
Royong (mutual cooperation)
Halal Food
Finance
Fashion
Travel /
Tourism
Media /
Recreation
Pharmaceutical
/ Cosmetics
The development of Islamic
Economy has the potential
to make Indonesia as
producer rather than just
market
197
100
93
88
77
Halal Food Market
billion US$
Source: Global Islamic Economy Report, 2013
17.3
14.4
12.3
11.8
8.5
Food Exporters
to OIC
billion US$
2.28
1.47
1.41
0.95
0.8
OIC Food Importers
billion US$
Islamic Banking
249 Banks
Assets $985 bil.
Sukuk
1899 Outstanding
Assets $251 bil.
Islamic Fund
636 Islamic Fund
Worth $44 bil.
Takaful Insurance
216 Corporates
Assets $26 bil.
Microfinance
1.28 million Consumers
Assets $628 mil.
Moslem population influences the
development of Islamic Financial
Industries and targeted being
the center of Islamic Finance
24.9
20.5
16.8
16.2
15.3
Moslem Clothing
Consumption
US$ bil.
7.18
2.99
2.34
1.68
0.72
0
1
2
3
4
5
6
7
8
UEA Saudi
Arabia
Turkey Kyrgyztan Iraq
(
b
i
o

U
S
$
)
OIC Clothing Importer Countries
The total of
searching result for
muslim fashion on
Google, 77%-of the
results are from
Indonesia, 16%-
from Malaysia, and
2% from UK and
India
Factors to Push the Development of Islamic Economy in Indonesia
External
1
The external factor is the development of Islamic economy in both
Moslem-majority and non Moslem-majority countries.
Internal
2
The fact that Indonesia is the country with the largest Moslem population
in the world.
Awareness among scholars and economic practitioners about the
importance of economy that is suitable with the Islamic values held by
Indonesian Moslem.
Political
Factors
3
The stable political state has bring about positive impact on Islamic
economy.
Diversity
4
Increasing educated middle class Moslems triggers demand on Islamic
financial industry
Experiences
5
Islamic financial system has experienced stability in 1998 monetary
crisis shown by the existence of Islamic banks during that period.
Rationality
Factors
6
Economic motives is the key driver for those without personal
attachment to the Islamic value to get involved in the Islamic financial
industry.
Society
1
As a Moslem-majority country, the involvement of Indonesian Moslem
(approximately 85%) in Islamic financial system is still low.
Human
Resources
2
The amount of human resources in Sharia system is still struggling to
keep up with the dynamic of Islamic economic system and products
Increasing the quality and capacity of the human resources
More universities open Islamic Economics study program.
Government
3
Enhancing the existing regulations on Islamic financial system and
products.
The Challenges.
Real Sector
1
The Islamic financial system that limits speculative actions has led more
flows of fund to the real sectors.
Investment
2
Attracts investors from Middle East countries.
Economic
Behavior
3
The development of Islamic financial system is in line with the
improvement of the ethical practices among society since it promotes
Islamic value in the economic activity.
Social
Welfare
Government uses Islamic practices to improve social welfare (ex: Zakat
law).
4
Role of Sharia System in Indonesian Economy
Support on
Education
1
Islamic economy has developed since 1970s and reached its peak in 1990s.
Therefore, many Islamic Economics have been included in the study
programs of many universities.
Institutional
Support
2
The fast development of Islamic economy in 1990s was shown by the
development of Islamic banking products and real sector businesses that
include Sharia in its system and operational (ex: Hotel, MLM, book publisher,
restaurants, educational institutions)
Regulation
3
1992 Islamic banking is regulated through Law No. 7/1992
Bank Muamalat was established as the first Islamic Banking
1998 Conventional banks are permitted to open Sharia Business Units (regulated
through Law No. 10/1998)
Bank Indonesia officially permits the existence of Islamic banks on dual banking
system
1999 Law No. 23/1999 concerning on BIs responsibility to develop, regulate and
supervise Islamic banks
Law No. 38/1999 concerning on Zakat
2004 Law No.3/2004 to strengthen the role of BI
Law No 41/2004 concerning on wakaf
Support from the Government to Develop
Islamic Economy
High Moslem population benefits to the growth of
Islamic financial industries.
Relatively high economic growth projection
(around 5.0% - 6.5%) is supported by solid
economic fundamental.
Increasing investors involvement in Islamic
financial industries
However, market share of Islamic financial
industry is still low (5-7%)
Asset growth rate reached 37.4% in the last five
years with the total of USD 21 billion.
Islamic banking industry has around 13 million
saving accounts and supported by 3000 office
networks in Indonesia
2012 2013 2014*
Islamic Bank
Amount of Bank 11 11 11
Amount of Office 1745 1858 2139
Islamic Business Unit
Amount of Conventional Banks that
have Islamic Business Unit 24 24 24
Amount of Office 517 538 425
Islamic People Credit Bank (BPRS)
Amount of Bank 158 159 163
Amount of Office 401 386 428
Islamic Banking Network
Source: OJK
The amount of workers in Islamic financial
industry reached 43.351 workers
Composition of Third-party Funds (DPK) on
Islamic Enterprises (BUS) and Islamic Business
Unit (UUS) until June 2014 is IDR 185,5 trillion
and DPK on BPRS is IDR 3,6 trillion
Indonesia Islamic
Finance
0
10
20
30
40
50
60
70
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Sukuk Emission (IDR
Billion)
outstanding Emission
Amount of Sukuk
Emission
Amount of outstanding
Emission
Sharia Stock in the list of Islamic Securities /
Daftar Efek Syariah (Des)
Value and Emission of Sukuk and
Outstanding Sukuk
Until June 2014, there has been 307
issuers with the total emission of
IDR 2.959,2 trillion. During the first
quarter of 2014, Sukuk has 64
emission with the value amounting
to IDR 11,9 trillion.
Regulations on Islamic Economy in Indonesia
ISLAMIC BANKING
1. FSA Regulation (Peraturan Bapepam-LK) No II.K.1
Criteria and Issuance of the List of Sharia Securities
2. FSA Regulation (Peraturan Bapepam-LK) No IX.A.13
Issuance of Sharia Securities
3. FSA Regulation (Peraturan Bapepam-LK) No IX.A.14
Contracts used in Issuance of Sharia Securities in Capital
Market
4. Fatwa MUI:
* Fatwa No. 20: Guidelines of Sharia Mutual Fund Investment
* Fatwa No. 40: the Capital Market and the General Guidelines
for Implementation of Sharia in the Capital Market
* Fatwa No. 65: Sharia Preemptive Rights (ER)
* Fatwa No. 66: Sharia Warrants
* Fatwa No. 36: Certificate of Wadiah Bank Indonesia (SWBI)
* Fatwa No. 63: Certificate of Bank Indonesia Syariah
* Fatwa No. 64: Certificate of Bank Indonesia Syariah Jualah
* Fatwa No. 32: Sharia Bonds
* Fatwa No. 33: Shariah Mudharabah Bonds
* Fatwa No. 41: Sharia Ijarah Bonds
* Fatwa No. 59: conversion of Sharia Mudharabah Bonds
Fatwa No. 69: the Government Sharia Securities (SBSN)
* Fatwa No. 70: the method of SBSH Issuance
* Fatwa No. 72: SBSN Ijarah Sale and Lease Back
ISLAMIC CAPITAL MARKET
1. Law No. 21/2008 : Islamic Banking
2. Bank Indonesia Regulation No. 15/14/PBI/2013
3. Bank Indonesia Regulation No. 15/13/PBI/2013
4. Bank Indonesia Regulation No. 14/20/PBI/2012
5. Bank Indonesia Regulation No. 14/6/PBI/2012
6. Bank Indonesia Regulation No. 13/23/PBI/2011
7. Bank Indonesia Regulation No. .13/14/PBI/2011
8. Bank Indonesia Regulation No. 13/9/PBI/2011
9. Bank Indonesia Regulation No. 13/5/PBI/2011
10.Bank Indonesia Regulation No. 11/33/PBI/2009
11. Bank Indonesia Regulation No. 11/31/PBI/2009
12.Bank Indonesia Regulation No. 11/29/PBI/2009
13.Fatwa MUI
* Fatwa No. 01: Checking Account
* Fatwa No. 02: Savings
* Fatwa No. 03: Term Deposit
* Fatwa No. 24: Safe Deposit Box
* Fatwa No. 08: Musyarakah Financing
* Fatwa No. 55: Musyarakah Bank Statement
* Fatwa No. 73: Musyarakah Mutanaqisah
* Fatwa No. 29: Hajj Financing
* Fatwa No. 30: Sharia Bank Statement
* Fatwa No. 44: Consumer Loan
* Fatwa No. 45: Line Facility (At-Tashilat As-Saqfiyah)
Fatwa No. 11: Kafalah
Fatwa No. 74: Islamic Guarantee Scheme
SHARIA INSURANCE
1. Regulation of the Minister of Finance No 11/PMK.010/2011
2. Regulation of the Minister of Finance No 18/PMK.010/2010
3. Regulation of Bapepam-LK Chairman No:PER-08/BL/2011
4. Regulation of Bapepam-LK Chairman No :PER-07/BL/2011
5. Regulation of Bapepam-LK Chairman No :PER-06/BL/2011
6. Fatwa MUI :
Fatwa No. 21: Guidelines of Sharia Insurance
Fatwa No. 39: Hajj Insurance
Fatwa No. 51: Akad Mudharabah Musytarakah in Sharia
Insurance
Fatwa No. 52: Akad Wakalah bil Ujrah on Sharia Insurance
and Reinsurance
Fatwa No. 53: Akad Tabarru on Sharia Insurance
1. Regulation of Minister of Religious Affairs No 4 /2009
2. Regulation of Minister of Religious Affairs No 42 / 2006
3. Law No 41 / 2004: Wakaf
ZAKAT
1. Decision of Director General for Guidance of the Muslim
Community and Hajj No D / 291 year 2000
2. Decision of Minister of Religious Affairs No 373/2003
3. Decision of Minister of Religious Affairs No 581/1999
4. Law no 38/1999
WAQAF
Since 2002, the amount of zakat collected by Badan
Amil Zakat Nasional (BAZNAS) has been increasing.
The increase in the last five years is 24.56 %.
Research by Baznas and the Faculty of Economy and
Management IPB in 2011 shows that the national
potential for zakat reach 3.4% of GDP which means
the zakat potential each year is about IDR 217 trillion.
ZAKAT IN INDONESIA
Source : BAZNAS
Regulations on Islamic Economy in Indonesia
1,379,589
Intl Pilgrims
240,000
Indonesia
178,000
Pakistan
177,000
India
148,000
Bangladesh
80,000
Egypt
Housewife 27.8 %
Private Employees 22.8 %
Civil Servant 20.5 %
Farmer 12.5 %
Trader 7.7 %
SOEs Employees 2 %
Student 1.1 %
Indonesian Army/Police 0.8 %
Others 4.9 %
Indonesian Hajj Pilgrim 2013 by Occupation
% of 156,466 pilgrims
Hajj Quota 2014
Source: Ministry of Religious Affairs 2014
Islamic Economy Organizations/Communities in Indonesia
1. Masyarakat Ekonomi Syariah (MES)/ Islamic Economic Society
MES was established on 1 Muharram 1422 H or 26 March 2001 M. It was declared on 2 Muharram 1422 H in
Jakarta. The founders are individuals, financial institutions, educational institutions, research institutions and
businesses who want to develop Islamic economy.
2. Pusat Komunikasi Ekonomi Syariah (PKES) / Center of Islamic Economic Communication
PKES is an independent institution established as an organization that socializes and communicates the Islamic
economy. On 14 May 2003, the charter of PKES establishment was signed
3. Forum Silaturahim Studi Ekonomi Islam (FoSSEI) / Islamic Economy Study Forum
This student organization has faith in the glorious of Islamic civilization, including in the terms of Islamic economy. It
was established based on the result of Islamic Economic Study Group Congress attended by 70 University on 13
May 2000 in Semarang.
4. Gerakan Ekonomi Syariah (Gres) / Islamic Economy Movement
The high interest on Islamic financial portfolio is related to the fact that Indonesia is a Moslem-majority country. This
becomes the basis of the Gres establishment.
5. Indonesia Islamic Economic Expert Association / Ikatan Ahli Ekonomi Islam Indonesia (IAEI)
This association consists of academics practitioners who review, develop, educate and socialize Islamic economy.
IAEI was declared on 3 March 2004 at Universitas Indonesia.
6. Asosiasi Akutansi & Keuangan Syariah Indonesia (AASI) / Indonesia Islamic Finance & Accounting
Association
7. Asosiasi Baitul Mal wa Tamwil (BMT) Seluruh Indonesia (ABSINDO) / Indonesia Baitul Mal wa Tamwil
Association
THANK YOU
www.ekon.go.id
Deputy for Fiscal and Monetary Coordination
Coordinating Ministry for Economic Affairs
Jalan Lapangan Banteng Timur 2-4
Jakarta