In 2016 investors will be able to purchase about IDR 13.7 trillion (approx. USD $1.4 billion) worth of Islamic bonds (known as sukuk) to be issued by the Indonesian government. This amount is nearly double the amount of planned sharia-compliant sovereign debt paper this year (IDR 7.14 trillion). Indonesia will use proceeds from next year's bond sales to boost the nation’s infrastructure development (such as roads, ports, power plants, rail lines, bridges and Islamic universities).

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Indonesian President Joko Widodo stated during the launch of the “I Love Sharia Finance Program” that Indonesia should become the global center for Islamic finance (also known as sharia banking). The program, initiated by the country’s Financial Services Authority (OJK), was launched in Jakarta on Sunday (14/06). Islamic finance is a form of banking or banking activity that is consistent with the principles of sharia (Islamic law). In recent years, the global market for sharia-compliant financial instruments has risen robustly.

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Indonesia eyes to raise IDR 20 trillion (USD $1.6 billion) from the sale of sukuk, Islamic bonds, to Indonesian citizens between 23 February and 6 March 2015. These three-year Sharia-compliant retail bonds (SR-007 retail sukuk) offer an 8.25 percent coupon rate, the highest premium over existing securities in two years. The minimum order for these bonds starts at IDR 5 million and the maximum is IDR 5 billion. The Indonesian Finance Ministry said that proceeds of the debt sales will be used to finance the country’s state-budget deficit.

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In a bid to enhance monitoring on Indonesia’s financial services sector, to deepen financial markets, and to widen people’s access to financial services, the Financial Services Authority (OJK) has introduced 20 new rules ranging from corporate governance to microfinance. The institution also revised Islamic banking rules involving asset quality and capital adequacy in an effort to increase the role of Islamic banking (sharia banking) in Indonesia’s financial system. Authorities target that Islamic banks hold more than 15 percent of the market by 2023.

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Having the world’s largest Muslim population and experiencing sustained economic growth at a pace of +5 percent implies that Indonesia harbours great potential for Islamic finance (sharia banking). However, Indonesia is yet to tap the full potential of the Islamic financial services market. As an illustration, with a figure of USD $24 billion, Indonesia’s Islamic banks only held 4.9 percent of the country’s total banking assets in 2013. This is small compared to Malaysia (where Islamic banking holds a 20 percent market share).

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An unit of Bank Mandiri - Bank Syariah Mandiri - is aiming for an initial public offering (IPO) in 2014. This step would make Bank Syariah Mandiri the first publicly listed Islamic lender of Indonesia. In Indonesia, 11 Islamic lenders are active but total assets of these lenders are small compared to the country's total banking assets. In recent years, however, Islamic financing has experienced substantial growth in Indonesia.

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The month October in the year 2020 was another volatile month. At the beginning of the month (which we covered in our preceding report) the passing of the Omnibus Job Creation Law triggered a series of demonstrations that have been continuing up to the time of writing this introduction.

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Indonesia is known for being home to the world’s largest Muslim population. More than 230 million Indonesians – which is about 88 percent of Indonesia’s total population – are categorized as Muslim. In fact, nearly 13 percent of all Muslims in the world, today, live in Indonesia. These are very impressive numbers and surely impact heavily on Indonesian society, the economy, and politics.

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Bank BRISyariah (BRISyariah), the Islamic finance unit of leading conventional financial institution Bank Rakyat Indonesia (BRI), received the green light from the Financial Services Authority (OJK) on April 30, 2018, to go-ahead with the company's planned initial public offering (IPO) on the Indonesia Stock Exchange. BRISyariah provided the following statement to Indonesia Investments:

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The stock exchanges of Indonesia and Malaysia agreed to join hands to develop a World Sharia Stock Market Center. Both sides signed a memorandum of understanding (MoU) on Tuesday (02/08) at the 12th World Islamic Economic Forum (WIEF) in Jakarta. Both exchanges - the Indonesia Stock Exchange (IDX) and the Bursa Malaysia - are eager to establish a global benchmark for Islamic capital markets. This is part of an effort to broaden the usage and availability of Islamic liquidity and products worldwide.

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There is strong demand for Indonesia's sharia-compliant government retail bonds (in Indonesian: Sukuk Negara Ritel, abbreviated Sukri). Since the launch of series SR-008 on Friday (19/02), a number of sales agents have run out of quota. These financial institutions now request additional quota from the government. The three year SR-008 series carries a fixed coupon of 8.3 percent per year (and is tradable on the secondary market). The government of Indonesia targets to collect up to IDR 30 trillion (approx. USD $2.2 billion) in funds from the issuance. Sukri bonds are only available to Indonesian citizens.

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Indonesia's Financial Services Authority (OJK), the government agency that regulates and supervises the nation's financial services sector, is preparing a new regulation that requires conventional financial institutions in Indonesia to spin off their Islamic financial units before 17 October 2024. Islamic finance or Islamic banking is a type of banking that is in accordance to the principles of sharia (Islamic law). Based on the regulation, those financial institutions that generate at least 50 percent of their capital through Islamic finance have to comply with the new rule.

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Indonesian financial authorities are considering to ease foreign ownership limits for local Islamic banks and to promote new sharia-compliant financial tools in an effort to make the Islamic finance industry more attractive to foreign investors and the Indonesian population. Despite having the world’s largest Muslim population and being a dynamic emerging economy, Indonesia plays only a very minor role in the global Islamic banking industry. Meanwhile, domestically, Islamic banking still seriously lags behind conventional banking.

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Syariah banking or Islamic finance is a large untapped potential in Indonesia, a country where about 13 percent of the total global Muslim population live. With nearly 90 percent of the 250 million people in Indonesia adhering to Islam, the market share of syariah (sharia) finance is remarkably low. At USD $24 billion, Islamic banks in Indonesia only held 4.9 percent of the country’s total banking assets in 2013, hence making Indonesia’s Financial Services Authority (OJK) decide to launch a five-year roadmap in a move to boost syariah banking.

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