Bank Indonesia Reveals Strategy To Deepen Sharia Financial Markets

ISEF 2024 (Photo: Aris Nurjani/VOI)

JAKARTA - Bank Indonesia (BI) revealed that the strategy of deepening the Islamic financial market needs to be strengthened in terms of product innovation growth and liquidity management.

Bank Indonesia Governor Perry Warjiyo said to ensure that the strategy can run optimally, a formulation of a global standard policy framework is needed which applies the principle of prudence in managing Islamic financial instruments.

Therefore, Perry said that there are 5 main factors in building the progress of the Islamic financial market. First, developing innovations in Islamic financial products that are not only based on 3 main instruments, namely sukuk, takaful, and waqf.

"Indonesia as one of the largest Sukuk publishers has also initiated the issuance of Green Sukuk, which will optimize its benefits for the economy and green finance," he said in his statement, Thursday, October 31.

Perry conveyed the second factor, namely accelerating the development of Islamic financial markets through digitalization of Islamic economics and finance. Third, the integration of wholesale and retail financial system services so as to strengthen the interconnection of all Islamic financial institutions including insurance and social finance institutions.

Furthermore, fourth, support for a policy framework that also prioritizes risk management in mitigating cyber, operational, and anti-money laundering risks.

Then the fifth is education and literacy of the sharia financial system. To support the development of the Islamic financial sector and to foster innovation in a sustainable manner, public understanding and human resource capabilities need to be strengthened.

"Innovating the development of global Islamic financial instruments also adopts the need for sustainable investment financing," he explained.

According to the latest 2023 Islamic Financial Development Report, the value of the Green Sukuk and Environmental, Social, Governance (ESG) in circulation reached 24.4 billion US dollars in 2022. Malaysia and Saudi Arabia are ESG Sukuk leaders, followed by Indonesia and the UAE.

In addition, technology integration also encourages the growth of financial technology (fintech) which plays a role in increasing accessibility in the Islamic financial market.

Based on data from the Global Islamic Fintech Report 2023/2024, it shows that the development of sharia fintech is growing significantly. The global Islamic fintech market size is estimated to reach 138 billion US dollars in the 2022/23 period and is projected to increase to US$306 billion in 2027 with the combined annual growth rate of the Compound Annual Growth Rate (CAGR) of 17.3 percent.

Perry said this growth was higher than the global fintech sector as a whole, which is expected to grow in CAGR by 12.3 percent during the same period.

"The future sharia investment trend is expected to lead to the development of digital platforms that offer services ranging from digital banking to crowdfunding, making Islamic finance more user-friendly, competitive, and easily accessible," he said.

Perry conveyed that the financial deepening strategy in the strong Islamic money market will support the industry's ability to withstand unexpected liquidity shocks in the future, and will contribute to monetary transmission carried out through the sharia financial system.

Through this forum, Bank Indonesia together with the Islamic International Liquidity Management (IILM) and the Islamic Financial Services Board (IFSB), also encourage synergy and collaboration among various stakeholders to accelerate the development of new financial products, improve liquidity management strategies, and maintain financial stability.

Perry hopes that the products developed collaboratively can overcome certain market gaps, offer alternatives that are in line with Islamic financial principles, and better liquidity availability.