JAKARTA: The world’s most populous Islamic country, Indonesia, in its quest to broaden the Islamic economy in the country, is considering the establishment of a halal economic zone in the capital Jakarta, according to the National Development Planning Board.
Such a zone could include Islamic banks and financial institutions, as well as halal restaurants, hotels, malls, halal fashion boutiques and halal entertainment, the board’s Shariah economy expert Adiwarman Karim said at a panel discussion themed “Jakarta as the Center of Islamic Finance” in Jakarta last week. The zone would also be aimed at international Islamic investors wanting to tap into the huge potential of Islamic finance, products and services in the world’s fourth-most populous nation.
Adiwarman pointed out that Islamic finance and the Islamic economy as a whole had huge potential in Indonesia owing to its large population of around 250mn people of which more than 200mn are of Muslim faith.
He said that the number of Islamic banking customers, those who invest in Shariah-compliant mutual funds and equities and those who use Islamic financing to fund property purchases and other assets, as well as people buying Islamic-based insurances, already amounted to 40mn people in Indonesia.
“That is almost the combined population of Malaysia, Singapore, Brunei and the UAE,” he said, adding that the time was right to expand the Islamic economy in Indonesia, starting with a special halal economic zone in Jakarta.
Indonesia has indeed come in the focus of Islamic investors since it hosted the 12th World Islamic Economic Forum in August last year, only the second time that the country held such a forum since 2009. At the forum, the government promoted investment opportunities in the country and marketed the growing range of halal-certified products deemed competitive in the international market. Apart from Islamic finance and investment, this included Islamic fashion and design, technology and innovation, small and medium-sized enterprises and startup in the Islamic economy, as well as Muslim-friendly tourism.
However, in terms of Islamic finance, Indonesia has not only high potential, but also a lot of catching up to do. Despite being such a populous Muslim country, Islamic banking has been underrepresented in the past.
The reasons for that are manifold. Being a developing country, more than half of the population is still unbanked, and the geographical structure of the archipelago with its thousands of islands makes it not easy for banks to reach out to new clients outside the urban and industrial centres. The outreach of Islamic banks in Indonesia is also limited as their online banking and IT infrastructure is not very well developed, at least in comparison to large conventional banks.
