Islamic Finance

Indonesia regulator looks to seven new ’strategic programmes’ to boost Islamic finance

Photo: Muliaman Hadad, the central bank's deputy governor speaks in an interview in Jakarta June 21, 2010. Hadad is also the chairman of the board of commissioners of the Financial Services Authority (OJK). REUTERS/Crack Palinggi

Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan, OJK) last week released seven strategic programmes as part of its roadmap to develop the Islamic finance industry through 2019, building on its five-year strategy published in Jun 2015.

According to Muliaman Hadad, chairman of OJK board of commissioners, the roadmap is dynamic and can be updated based on current progress and input from stakeholders.

Since 2015, OJK has introduced wide-ranging initiatives to increase financial inclusion and boost the share of the Islamic finance industry to 15 percent by 2023 from around 5 percent currently.

The new strategic programmes for 2017-2019 range from public awareness campaigns to developing fintech for Islamic financial institutions.

There is a continued focus on expanding branchless banking, which has not gained as much traction in the Islamic finance industry as in the conventional sector.

New areas of development include Islamic fintech, following regulations for IT-based lending services that were introduced in December 2016.

Shariah-based initiatives include developing sukuk-based waqf and a Shariah Maqasid Index. 

Programme 1: Strengthening capacity of Islamic financial institutions

Includes: 1) Coordination between Islamic financial institutions and related regulators; 2) Joint study to harmonise the regulation of rural micro lenders (BPRs) and Islamic micro financing institutions (LKMS); 3) Studying incentives/ relaxing policy for Islamic financial institutions.

Programme  2: Increasing availability and variety of Islamic financial products

Includes: 1) Developing products for corporate financing, trade finance, fund management, and start-up financing; 2) Conducting survey and coaching about IPOs for Islamic banks and non-banking institutions; 3) Studying implementation of policy about Islamic Venture Capital divestment.

Programme 3: Utilise financial technology to expand Islamic finance access

Includes: 1) Developing IT to increase Islamic finance access through web-based or platform fintech; 2) Studying regulations about fintech utilisation for Islamic financial institutions.

Programme  4: Expand Islamic financial services network

Includes: 1) Pursuing branchless banking for Islamic banking; 2) Studying about network expansion for Islamic non-banking industries; 3) Pursuing establishment of ‘investment corners’ at universities, regional capital market offices and Islamic boarding school in regions.

Programme 5: Optimise Islamic finance promotions

Includes: 1) Holding interactive talk shows in electronic media, holding roadshows, business gatherings, business matching exhibitions and expos; 2) Holding short courses on Islamic finance industry development.

Programme 6: Increase human resources capacity

Includes: 1) Training for trainers including lecturers; 2) Pursuing ‘link and match’ programmes; 3) Conducting research on Islamic finance with other institutions.

Programme 7: Increasing coordination between stakeholders

Includes: 1) Conducting comparative study about financial centres in Islamic finance; 2) Coordinate with central bank about developments for Islamic repo, sukuk-based waqf, and Shariah Maqasid Index.


Branchless banking

The Laku Pandai branchless banking platform that was launched in Mar 2015 addressed financial access for micro, small and medium-sized businesses.

However, Islamic banks are not a big part of Laku Pandai. The platform currently holds 328,466 branchless banking agents of 19 conventional banks and only 2 Islamic banks. It serves around 5,119,595 accounts with savings reaching 2.1 billion Indonesian rupiah ($157,421).

Laku Pandai serves basic savings accounts with maximum balance of 20 million rupiah ($1,499) and cash debit of 5 million rupiah per month.

The latest addition to the platform, a zakat collection programme, was launched last week. Authorities are working to optimise zakat, infaq, sadaqat and waqf (Ziswaf) funds on Laku Pandai.

Sukuk, Pension funds

In a bid to boost the sukuk market, from 2016 OJK required all pension funds to allocate at least 20 percent of their portfolio to government bonds and sukuk.

However, tax incentives to lure more corporate sukuk issuers are out of OJK’s jurisdiction and would require the ministry of finance’s approval.

Mutual funds

OJK has said it will ease the licence fees for mutual funds sales agents to increase participation from Islamic banks.

There is currently only one Shariah-compliant bank with an Islamic mutual funds agent licence (APERD).



To attract Shariah-sensitive investments, OJK is targeting the end of 2017 for the establishment of the Jakarta International Islamic Finance Center.

The independent agency to manage haj funds (Badan Pengelola Keuangan Haji, BPKH) is also slated to start operating by the end of this year. The agency is aimed at increasing transparency and profitability for the fund that holds around 90 trillion Indonesia rupiah ($6.7 billion).


At the end of March 2017, Islamic finance market share stood at 967.9 trillion rupiah ($72.5 billion) or around 5 percent of the total financial market. This is up 8.8 percent from 889.3 trillion rupiah at the end of 2016.

Islamic banking is the biggest sector. The value of Indonesia’s Islamic banking assets crossed the psychological 5 percent barrier at the end of September 2016 to reach 331.76 trillion Indonesian rupiah ($25 billion), or 5.13 percent of the country’s 6,465.68 trillion rupiah banking assets. Since then, Islamic banking assets grew to 368.17 trillion rupiah ($27.6 billion) at the end of March 2017, equivalent to around 5.29 percent of total banking assets. This is up 0.7 percent from 365.6 trillion rupiah at the end of 2016.


($1 = 13,292 Indonesian rupiah)

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