Smart Policy: Why Islamic Banks Matter in Indonesia
Since the Government of Indonesia issued the Sharia Banking Law in July 2008, the Islamic banking industry has shown a strong growth. According to data from Bank Indonesia, between 2008 and 2012, Islamic bank assets tripled, increasing by an average of 31.5% annually. But despite their growth, Sharia-compliant financial service providers accounted for only 4.5% of total banking sector assets. Policy discussions around Islamic bank development in Indonesia have largely taken place in the context of increasing financial access, especially to micro, small, and medium enterprises, or MSMEs. Bank officers are the key to stimulate demand for Sharia-compliant financing since they are the main source of education on Islamic products. Empowering Islamic financial service providers to reach more clients is not only good for business, but it is also smart policy.