Islamic banking industry in Indonesia - statistics & facts
Indonesia, home to the world's largest Muslim population, ranks comparatively low when it comes to Islamic banking penetration. Despite nearly 242 million Muslims, representing about 87 percent of the population, Islamic banking accounted for just 7.5 percent of total banking assets in 2023, far behind countries such as Saudi Arabia and Malaysia. In a market still dominated by conventional banks, Shariah-compliant banks have struggled with a lack of Islamic financial inclusion, skepticism about product complexity, and insufficient infrastructure. This low adoption rate highlights a potential for significant growth, supported by government initiatives and financial sector reforms aimed at bridging the gap. Improved financial literacy programs, mergers between Islamic banks, and digital transformation efforts are beginning to change perceptions and extend the sector’s reach.
The merger of three state-owned Islamic banks into Bank Syariah Indonesia (BSI) in 2021 marked a turning point. It resulted in a more competitive player, capable of expanding its services and improving public confidence in Islamic financial products. This consolidation has improved the accessibility and attractiveness of products that comply with religious rules. Finally, the Financial Services Authority (OJK) has implemented measures to promote Sharia finance, while the National Sharia Council - Indonesian Council of Ulemas (DSN-MUI) ensures compliance with religious principles.
The disparity between Indonesia's demographic advantage and its low penetration of Islamic banking highlights the challenges and opportunities ahead. Continued investment in digital innovation, infrastructure and literacy campaigns could make Islamic banking a mainstream financial choice. With sustained growth and greater consumer awareness, Indonesia could become a key player in Islamic banking.
Challenges and opportunities in Islamic banking
The low penetration of Islamic banking in Indonesia can be attributed to historical, cultural, and systemic factors. A significant share of Indonesian Muslim consumers cite comfort with conventional banking and the perceived lack of differences between conventional and Islamic banking as leading reasons for not using Sharia banks. Indeed, the sector development has been constrained by competition from well-established conventional banks and the historical absence of large-scale Sharia-compliant institutions. Nevertheless, Islamic banking in Indonesia has grown steadily in recent years, with total assets reaching almost 869 trillion Indonesian rupiah in 2023, with an annual growth rate of over 11 percent. Shariah-compliant services, such as sukuk (Islamic bonds), have recorded growing value, and the rising operating revenues of Islamic banks point to a promising future.The merger of three state-owned Islamic banks into Bank Syariah Indonesia (BSI) in 2021 marked a turning point. It resulted in a more competitive player, capable of expanding its services and improving public confidence in Islamic financial products. This consolidation has improved the accessibility and attractiveness of products that comply with religious rules. Finally, the Financial Services Authority (OJK) has implemented measures to promote Sharia finance, while the National Sharia Council - Indonesian Council of Ulemas (DSN-MUI) ensures compliance with religious principles.
Digital transformation and Islamic fintech
Indonesia is emerging as a major figure in Islamic fintech, ranking third in the Global Islamic Fintech Index in 2023. Digital transformation is a key element in the democratization of the sector, as mobile banking and fintech solutions enable greater accessibility to Sharia-compliant services. This digital adoption underscores its potential to bridge gaps in financial inclusion through innovative platforms. By aligning Islamic finance with modern tools, Indonesia is well placed to strengthen financial inclusion and attract younger consumers looking for ethical banking solutions.The disparity between Indonesia's demographic advantage and its low penetration of Islamic banking highlights the challenges and opportunities ahead. Continued investment in digital innovation, infrastructure and literacy campaigns could make Islamic banking a mainstream financial choice. With sustained growth and greater consumer awareness, Indonesia could become a key player in Islamic banking.
