Indonesia to Unveil Sharia Economic Master Plan

Ami Afriatni
190513_ID_syariah-economy_1000.jpg Women work in a Muslim clothing factory in Jakarta, May 11, 2019.
Afriadi Hikmal/BenarNews

Indonesia will aim to push interest-free Islamic banking into the mainstream and boost domestic production of halal (permissible) foods, products and services when the world’s most populous Muslim-majority country unveils its first Sharia economic master plan on Tuesday, a government official said.

The plan outlines efforts to grow Islamic economic sectors such as finance, manufacturing, food, fashion and tourism, Muhammad Cholifihani, director of financial services at the National Development Planning Board, told BenarNews.

The Sharia plan will not replace the economic system of the multi-religious country but instead support development through Islamic-friendly programs as a component of the overall economy.

“We aim for improvements in terms of economies of scale, economic independence and our ranking in the Global Islamic Economy Report,” Cholifihani said, adding that strengthening small- and medium-sized enterprises was among the goals.

Officials hope that by improving the climate for Islamic finance, the government would attract investment from oil-rich Middle Eastern countries and others, which want to invest in ethically and socially responsible projects, according to the planning board.

Officials did not release the master plan ahead of its unveiling.

The government began promoting Sharia economic development in the 2015-2019 National Medium-Term Development Plan. It included Islamic banking as a foundation.

In 2015, the Indonesian Sharia Financial Architecture (AKSI) roadmap was released, followed the next year by a presidential regulation that paved the way for the creation of the National Islamic Finance Committee (KNKS).

Indonesia ranked 10th in the 2018 State of the Global Islamic Economy report in the category of Islamic finance.

Islamic banking accounted for only 5.7 percent, or 444.43 trillion rupiah ($30.8 billion), of the country’s total banking assets, as of June 2018. Cholifihani blamed a shortage of funding and skilled manpower for hampering growth in the financial sector, adding that officials would like to the figure grow to 10 percent.

“Growth is not as massive as in other countries,” Cholifihani said.

Halal certification

Cholifihani said the government had adopted a law on halal certification issued in 2014. The law mandates the establishment of a Halal Product Guarantee Agency (BPJPH) as a regulator for halal certification.

While BPJPH was established in 2017, the Indonesian Council of Ulema (MUI), a semi-official body of Islamic scholars, has not relinquished its role in handling certifications.

“Such an agency is needed because certification will allow Indonesian halal products to be recognized abroad. We have a food and drug department at MUI, but it’s not a government agency and not recognized by the OIC (Islamic Conference Organization),” he said.

“There are 17 industrial sectors including agriculture, manufacturing and services that can be labeled halal. The public will be more comfortable because there is halal certification,” Cholifihani said.

“The potential will be large in terms of gross domestic product if we can export. Our trade balance will also improve.”

Cholifihani said that lower cost of halal certification for micro, small and medium enterprises would improve their value. Under halal or ethical investment standards, Muslims are prohibited from investing in companies involved with alcohol, tobacco, gambling, pork and weapons.

In 2017 alone, consumption of halal products in Indonesia reached 37.6 percent of the total global consumption estimated at U.S. $2.1 trillion. Most of the goods were not produced in Indonesia, according to officials.

“Globally, Indonesia is not a major producer. In fact, many halal products sold in Indonesia come from (non-Muslim) countries like Thailand,” Cholifihani said.  “That is a challenge. We are more consumers than producers.”

An alternative

Islamic economics offered an alternative for Muslim- and non-Muslim-majority countries amid global uncertainty, said Greget Kalla Buana, a Sharia finance expert at the United Nations Development Program.

The Islamic finance industry, as part of its own sharia economic ecosystem, has grown 10 percent to 12 percent per year on the global scale and has become one of the fastest growing industrial sectors in the world, he said. Islamic financial assets alone are expected to break $3 trillion by 2020.

“This is just Islamic finance, not including other sharia economic sectors. It is clear that the Islamic economy has enormous potential,” Greget told BenarNews.

Sharia economic goals are similar to the U.N. Sustainable Development Goals (SDGs), Greget said.

“Linkage with various aspects of human life as explained through the SDGs make Islamic economics not simply about growth figures, but also the substance behind that growth,” he said.

“For example, there is a focus on alleviating poverty, hunger and inequality seen from the moral, material, spiritual, social and environmental dimensions. Sharia economic development is needed to support the attainment of the SDGs,” Greget said.

The Islamic economic system could offer more benefits than the conventional one, said Rahmatina Awaliah Kasri, a lecturer in Islamic economics at the University of Indonesia.

“In the banking system for example, the profit-sharing system practiced by Islamic banking institutions is conceptually fairer and more stable than the banking system based on the interest system,” Rahmatina told BenarNews, adding the sharia economic system could increase financial inclusiveness.

“There are Muslim groups who don’t want to use conventional banking and insurance services because they are considered usurious,” she said.

Islamic economic instruments such as zakat (alms) and waqf (endowment) could complement conventional government anti-poverty policies, she said.

In addition, growth in Islamic economic sectors could attract global investors, according to Abra Talattov, an economist at the Institute for Development of Economics and Finance.

“Unless Indonesia takes swift action, it will be left behind, because it’s lagging behind even countries whose majority of people are not Muslims,” ​​Abra told BenarNews.

“Of course the government also needs to build infrastructure both physically and non-physically,” he said.

Abara said Sharia economic systems were not in opposition to the conventional ones.

“In the end people think rationally. If a practice is profitable, people will be interested,” he said.


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