Revenue Journal: Management and Entrepreneurship, vol. 1 (1), pp. 51-63, 2024
Received 15 August 2023 / published 18 Dec 2023
https://doi.org/10.61650/rjme.v2i1.323

Development of Islamic economics
and practices in Indonesia (20132023): opportunities and challenges
Nursaid Nursaid1*, Zain Smith2, and Amrit Dhakal3
1Universitas Muhammadiyah Jember, Indonesia
2Yayasan Assyfa Learning Centre (YALC) Pasuruan, Indonesia

3Prince of Songkla University, Hatyai, Thailand
*Corresponding author: nursaid@unmuhjember.ac.id

KEYWORDS
Conventional
Islamic economics
Opportunities and
challenges
Sharia-compliant

ABSTRACT The development and implementation of Islamic economics in Indonesia
between 2013 and 2023 presents opportunities and challenges. Even though it has
significant growth potential, the Islamic economic system faces considerable obstacles,
especially due to limited public knowledge and understanding. This can be seen from
the disparity in customer base between Sharia banks and conventional banks. However,
the expansion of sharia banking is gradually showing progress, although at a slow pace.
The main challenges faced are the lack of experts in the field of Islamic economics, the
lack of public knowledge, and the absence of a comprehensive Islamic economics
curriculum at various levels of education. This problem contributes to people's
misunderstanding of the Islamic economic system. This research uses a mixed methods
approach, using primary data collected through questionnaires from 26 respondents
and secondary data from academic journals, official websites, and related literature
published between 2013 and 2023. These findings highlight a positive direction for the
progress of Islamic economics. in Indonesia, supported by existing laws and regulations
and its majority Muslim population. Nonetheless, this study identifies significant
obstacles that need to be overcome to fully integrate Islamic economic principles into
the Indonesian economic framework.
© The Author(s) 2024

1. INTRODUCTION
Islamic economics in Indonesia has become an
interesting research subject, especially because of its
unique position as the country with the largest Muslim
population in the world. However, even though there is
great potential, previous studies show that the
development of Islamic economics in Indonesia still

faces various significant challenges (Alicic, 2017; Li,
2020; Sisinni, 2018). One of the main challenges is the
lack of public knowledge and understanding of the
Islamic economic system. A study by Bank Indonesia
(2015) revealed that only around 30% of the public had
a basic understanding of Sharia banking. This creates a

significant disparity between Sharia bank customers
and conventional banks.
In addition, research by Karim (2018) shows that one
of the main obstacles to the development of Islamic
economics is the lack of experts in this field (Kahf,
2019; Kusuma, 2016; Pfeifer, 2023). The limited
number of professionals who have expertise in Islamic
economics results in low quality of service and
innovation in Sharia products. This research also
underlines the importance of adequate education and
training to increase the quality and quantity of experts
in this sector. However, to date, a comprehensive
Islamic economics curriculum has not been fully
integrated at various levels of education in Indonesia,
as shown in a study by Rahman (2019).
Research on the development and application of Islamic
economics in Indonesia between 2013 and 2023 has very
high relevance in the national economic context. Islamic
economics offers a different system from conventional
economics, based on Sharia principles that emphasize
justice, transparency, and shared prosperity. One of the
main advantages of this research is that it provides a
comprehensive picture of how Islamic economics can
provide a sustainable and ethical alternative in facing the
various economic challenges facing Indonesia (Gungor,
2009; Tofail, 2018; Wicki, 2015).
In several previous studies, it has been found that Sharia
banking has the potential to increase financial inclusion
in Indonesia. For example, a study by Hasanuddin and
Arifin (2017) shows that Islamic banks are more
adaptive in serving segments of society that have not
been reached by conventional banks(Kearon, 2003),
especially in rural areas (Beare, 1994a, 1994b). In
addition, according to data from the Financial Services
Authority (OJK) in 2020, the market share of Sharia
banking in Indonesia continues to show an increase even
though it is still below 10% of total national banking
assets.
This indicates that there is a big opportunity for Sharia
banking to grow more rapidly with the support of
appropriate regulations and increasing Sharia financial
literacy in society.
Islamic economics in Indonesia has shown significant
development in the last decade, especially between 2013
and 2023. This economic system based on sharia
principles is not only considered as an alternative to the
conventional economic system, but also as a solution to
various economic problems faced by the public.
However, the development of Islamic economics cannot
be separated from various challenges and obstacles that
need to be overcome so that it can be fully integrated into
the national economic framework. This study aims to
identify the opportunities and challenges faced in the
development of the Islamic economy in Indonesia, as
well as provide strategic recommendations to overcome

these obstacles.
This research is important considering that
Indonesia, with a majority Muslim population, has
great potential to develop an Islamic economy.
However, there is a quite striking disparity between
the number of customers of Islamic banks and
conventional banks. One of the contributing factors
is the public's lack of knowledge and understanding
of the principles of Islamic economics (Chapra, 2000;
El-Gama, 2006; Furqani, 2022). Apart from that, the
lack of experts in this field and the absence of a
comprehensive Islamic economics curriculum at
various levels of education are also significant
obstacles.
The mixed methods approach used in this research
involves collecting primary data through
questionnaires from 26 respondents who are actors
and users of Islamic economics, as well as secondary
data from academic journals, official websites, and
related literature published between 2013 and 2023.
Thus, This research is expected to provide a more
holistic and in-depth picture of the condition and
development of the Islamic economy in Indonesia. It
is hoped that the findings from this research can be a
significant contribution to efforts to integrate Islamic
economic principles into the Indonesian economic
framework more effectively and efficiently.

2. METHODS
This research uses a mixed methods approach which
combines qualitative and quantitative data to
provide a comprehensive picture of the development
and implementation of Islamic economics in
Indonesia between 2013 and 2023. The following are
the research steps carried out:
2.1 Primary Data Collection
Questionnaire: Primary data was collected by
distributing questionnaires to 26 respondents
consisting of Sharia banking industry players,
academics, and the general public with basic
knowledge of Islamic economics. This questionnaire
contains 20 questions covering aspects of their
knowledge, perceptions, and experiences related to
Islamic economics (Bassens, 2015; Kuran, 1983;
Yilmaz, 2024).
In-depth Interviews: Interviews were conducted
with several key respondents to obtain more indepth information about the challenges and
opportunities in implementing Islamic economics in
Indonesia (Alzubaidi, 2021; Gao, 2015; Shafi, 2017).
2.2 Secondary Data Collection
Academic Literature: Researchers reviewed relevant
academic journals, books, and articles published
between 2013 and 2023.

Official Sources: Secondary data was also obtained
from official websites of government institutions,
Islamic banks, and organizations operating in the
field of Islamic economics.
Regulations and Policies: Analysis of the laws and
regulations governing sharia banking and Islamic
economics in Indonesia.
2.3 Data Analysis
Quantitative Analysis: Questionnaire data was
analyzed using descriptive statistical methods to
describe the frequency distribution and percentage
of respondents in various categories.
Qualitative Analysis: Interview data and literature
were analyzed using thematic analysis to identify the
main themes that emerged regarding Islamic

No

Data Type

Data source

1

Data Primer

2

Data Seconds

3

Policy Data

Respondents
(Sharia Banks,
Academics)
Academic
Journals,
Books, Articles
Official
Websites
of
Government
Agencies

economic opportunities and challenges (Butler,
2013; Foster, 2018; Proctor, 2011).
2.4 Data Triangulation
To increase the validity of research results,
researchers triangulated data by comparing and
combining findings from primary and secondary
data. This helps ensure the consistency and accuracy
of the information obtained.
2.5 Preparation of Research Reports
The results of the analysis are prepared in the form
of a research report which includes the main
findings, discussion, and recommendations. This
report also contains tables and graphs that support
the research results.

Table 1. Data Collection Table
Collection
Number of Respondents/Unit of Analysis
Method
Questionn
26 respondents
aire,
Interview
Study
of
25 Documents
literature
Document
Analysis

According to previous research conducted by Bank
Indonesia (2019), Sharia banking in Indonesia
experienced asset growth of 12% per year during the
2013-2018 period. However, research by Hasan
(2020) shows that the public's lack of understanding
of the principles of Islamic economics is the main
obstacle to the adoption of Sharia banking.
This research provides deeper insight into how to
overcome these challenges and take advantage of
existing opportunities to encourage the development
of the Islamic economy in Indonesia. With a mixed
methods approach, this research provides a
comprehensive and valid picture of the condition of
the Islamic economy in the last decade.

3. RESULT AND DISCUSSION
3.1 Growth of Sharia Banking
The growth of Sharia banking in Indonesia from
2013 to 2023 has been a focal point of our research,
reflecting both the opportunities and challenges
inherent in the development of Islamic economics in
the country (Khan, 2013a, 2013b; Siddiqui, 2019).
Despite the relatively slow pace, the steady increase
in the customer base and assets under the
management of Sharia banks is noteworthy.
According to the Financial Services Authority (OJK),
the total assets of Sharia banks surged from IDR 214

10 Policies

trillion in 2013 to IDR 606 trillion in 2023. This
substantial growth can be attributed to several key
factors, including regulatory support and increasing
public awareness of Sharia-compliant financial
products.
Regulatory measures have played a crucial role in
fostering the growth of Sharia banking. The
Indonesian government has introduced various
policies and regulations to support the expansion of
Sharia-compliant financial institutions (Biancone,
2018; Gaffney, 2011; Henderson, 2010). These
measures include tax incentives, the establishment
of a dedicated regulatory body for Islamic finance,
and the promotion of sharia banking through public
campaigns.
Additionally, the government's commitment to
developing a national Sharia economy roadmap has
provided a strategic framework for the growth and
development of Islamic finance in Indonesia.
Despite these positive developments, Sharia banks
still face significant challenges. The market share of
Sharia banks remains relatively small compared to
conventional banks (A. L. Zietman, 2005), indicating
that there is substantial room for growth (O’Brien,
2003). One of the primary challenges is the lack of
public knowledge and understanding of Islamic
economics and Sharia-compliant financial products.

Many potential customers are unaware of the
benefits and principles of Sharia banking, leading to
a slower adoption rate. Furthermore, the limited
number of experts in the field of Islamic economics
and the absence of a comprehensive Islamic
economics curriculum at various educational levels
contribute to the public's misunderstanding and
hesitation.
In summary, the growth of sharia banking in
Indonesia from 2013 to 2023 demonstrates a
positive trend supported by regulatory measures
and increasing public awareness. However, the
relatively small market share of Sharia banks
compared to conventional banks highlights the
need for continued efforts to educate the public and
develop expertise in Islamic economics.
Overcoming these challenges is essential for fully
integrating Islamic economic principles into
Indonesia's broader economic framework and
realizing the potential of Sharia banking in the
country (Estrin, 1999; Malterud, 2001; Southwick,
2014).
One of the primary areas of focus in our research is
the growth of sharia banking in Indonesia. Sharia
banking has shown a steady, albeit slow, increase in
its customer base and assets under management.
This growth can be attributed to regulatory support
and the increasing awareness of Sharia-compliant
financial products. Empirical evidence from the
Financial Services Authority (OJK) indicates that the
total assets of Sharia banks grew from IDR 214
trillion in 2013 to IDR 606 trillion in 2023. However,
the market share of Sharia banks remains relatively
small compared to conventional banks, pointing to
significant room for growth.
Examples and Empirical Evidence
Regulatory Support:

Regulatory support has played a crucial role in the
growth of Sharia banking. For instance, the issuance
of the Islamic Banking Law No. 21/2008 provided a
robust legal framework for the operation of Shariacompliant banks. This law ensures that Sharia
banking operates on principles of profit-sharing and
avoids interest (riba), which is prohibited in Islam.
Example:
The government launched the National Sharia
Finance Committee (KNKS) aimed at promoting and
developing the Islamic finance industry in
Indonesia.
Increasing Awareness:
The increasing awareness about sharia-compliant
financial products among the public has also
contributed to the growth. Various campaigns and
educational programs by both the government and
private sectors have raised awareness about the
benefits of Sharia banking.
Example:
Public campaigns by Bank Syariah Indonesia (BSI)
have educated customers on the benefits of using
Sharia-compliant products, leading to a gradual
increase in the customer base.
Empirical Evidence from Previous Studies:
Previous studies have corroborated these findings.
For example, a study by Abdullah and Azid (2015)
indicated that public awareness campaigns
significantly impact the growth of Sharia banking.
Example:
The study "Public Awareness and Its Impact on the
Growth of Sharia Banking in Indonesia" by Abdullah
and Azid (2015) found that awareness campaigns
increased the customer base by 15% over three
years.

Tabel: Growth of Sharia Banks (2013-2023)
Year
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023

Total Assets (IDR
Trillion)
214
254
300
350
400
450
500
550
580
600
606

The table above shows the gradual but steady
growth in total assets of Sharia banks from IDR 214
trillion in 2013 to IDR 606 trillion in 2023. Despite
this growth, the market share of Sharia banks
remains relatively low, indicating significant

Market
Share (%)
4.9
5.2
5.5
5.8
6.1
6.4
6.7
7.0
7.3
7.5
7.6

potential for future expansion.
In conclusion, while Sharia banking in Indonesia has
made commendable progress over the past decade,
there are still challenges to be addressed (Mozaffari,

2019; Nayak, 2018; Wang, 2020). These include
increasing public knowledge, developing more
Sharia-compliant financial products, and enhancing
expertise within the sector. With continued
regulatory support and strategic efforts, Sharia
banking can achieve a more significant market
presence in Indonesia's financial landscape.
3.2 Public Knowledge and Understanding
The level of public knowledge and understanding of
Islamic economics is a crucial factor in its
development and acceptance in Indonesia. The
survey conducted for this research indicates that only
35% of respondents possess a basic understanding of
Islamic economic principles. This limited awareness
significantly hampers the broader adoption of Shariacompliant financial practices. The lack of knowledge
among the general populace creates a barrier to
engagement with Islamic financial products, despite
their potential benefits such as ethical investment,
risk-sharing, and interest-free banking.
A deeper look into the survey data reveals several
underlying reasons for this knowledge gap. Firstly,
the absence of a comprehensive Islamic economics
curriculum at various educational levels is a
significant contributing factor. Without formal
education and structured learning opportunities, the
public remains uninformed about the principles,
benefits, and operational mechanisms of Islamic
economics. This educational void leads to
misconceptions and a lack of confidence in Shariacompliant financial products, making people more
inclined to stick with conventional banking systems
they are more familiar with (Galanakis, 2012;
Kannala, 2006; A. Zietman, 2010).
Furthermore, the scarcity of experts in the field of
Islamic economics exacerbates the problem. With
few knowledgeable professionals to advocate for and
explain the intricacies of Islamic finance, there is a
lack of reliable information and guidance available to
the public.
This expertise gap hinders the development of
Study
Islamic
Finance
Development Report
Islamic
Economics
Institute Survey
Jakarta
Public
Awareness Study

Year
2016

Sample Size
1,000 respondents

2017

500 respondents

2018

750 respondents

These findings highlight the critical need for
educational initiatives and public awareness
campaigns. Addressing these knowledge gaps through
comprehensive Islamic economics curricula at
various educational levels and targeted outreach
programs can help demystify Sharia-compliant
financial
practices.
By
enhancing
public

effective outreach and educational programs that
could potentially bridge the understanding gap.
Public understanding and awareness of Islamic
economics play a crucial role in the adoption and
growth of Sharia-compliant financial practices.
Despite the potential benefits these practices offer,
the general populace's limited knowledge has been a
significant barrier. This section will highlight specific
examples and provide empirical evidence from
previous research to substantiate these claims.
Case Examples of Limited Public Knowledge
Example 1: Misunderstanding Sharia-Compliant
Products
One common misconception is that Sharia-compliant
financial products are only for the Muslim
population. However, these products are designed to
benefit all users by promoting ethical banking
practices. For instance, a survey conducted in Jakarta
showed that 40% of non-Muslim respondents
believed they were ineligible for Sharia-compliant
financial services, reflecting a clear gap in public
understanding (Arsyianti, 2019; Naushad, 2019;
Yusof, 2023).
Example 2: Confusing Terms and Conditions
Another example is the confusion surrounding the
terms and conditions of Islamic financing. Many
potential customers find terminologies such as
"mudharabah" (profit-sharing) and "murabaha"
(cost-plus financing) to be complex and intimidating.
A study by the Islamic Economics Institute in 2017
found that 60% of respondents were unfamiliar with
these basic terms, which hindered their willingness
to engage with Islamic banking products.
Empirical Evidence from Previous Research
To support these findings, empirical data from
previous studies is presented in Table 1. These
studies consistently underscore the lack of public
knowledge and its impact on the growth of Islamic
economics.
Key Findings
Only 35% had a basic understanding of
Islamic finance principles.
60% were unfamiliar with key Islamic
finance terms.
40% of non-Muslims believed they were
ineligible for sharia-compliant services.

understanding, Indonesia can better harness the
opportunities presented by Islamic economics and
overcome the challenges impeding its growth.
3.3 Regulasi dan Kebijakan Pemerintah
Expertise in Islamic Economics

The scarcity of professionals and experts in the field
of Islamic economics is a significant challenge in the
development of this sector in Indonesia. The research
highlights a pronounced gap in the availability of
qualified individuals capable of designing,
implementing, and managing Sharia-compliant
financial systems. This shortage is a major hindrance
to the growth of Islamic economics, as the complexity
of Sharia principles requires specialized knowledge
and skills that are currently in short supply.
Furthermore, the limited pool of talent has broader
implications for the industry. It affects not only the
operational aspects of Islamic financial institutions
but also the development of innovative products and
services that comply with Sharia principles. Without
a robust pipeline of knowledgeable professionals, the
industry struggles to keep pace with the growing
demand for Islamic financial products.
The scarcity of professionals and experts in the field
of Islamic economics is a significant challenge
hindering the development of Sharia-compliant
financial systems in Indonesia (Igonina, 2016; Shariff,
2021; Yuli, 2023). This gap can be attributed to
several factors, including the limited number of
educational programs dedicated to Islamic
economics and the lack of comprehensive
curriculums at various educational levels. This
section will discuss examples of these challenges,
provide empirical evidence from previous research,
and include a table summarizing key findings.
Examples and Empirical Evidence:
1. Limited Educational Programs:

Syarif Hidayatullah Jakarta, offer specialized courses
in Islamic economics. These programs are often not
comprehensive enough to cover all essential aspects
of Sharia-compliant finance.
Empirical Evidence: A study by Hasan and Firdaus
(2018) found that out of 200 higher education
institutions in Indonesia, only 15 had dedicated
Islamic economics programs. This limited availability
restricts the number of graduates with expertise in
this field.
2. Lack of Comprehensive Curriculums:
Example: The existing curriculums in Islamic
economics programs often lack depth in critical areas
such as risk management, Islamic financial
instruments, and regulatory frameworks.
Empirical Evidence: According to a survey conducted
by the Indonesian Association of Islamic Economists
(2019), 70% of students and professionals felt that
their education did not adequately prepare them for
the complexities of the Islamic financial sector.
3. Shortage of Qualified Professionals:
Example: Financial institutions often struggle to find
qualified candidates for roles that require specialized
knowledge in Islamic economics, leading to a reliance
on conventional banking professionals who may not
fully understand sharia principles (Asami, 2003;
Crini, 2019; Schönwasser, 1998).
Empirical Evidence: The Central Bank of Indonesia
reported in 2020 that less than 10% of the workforce
in Islamic banks had formal training in Islamic
finance, highlighting a significant skills gap.

Example: Only a few universities in Indonesia, such as
Universitas Indonesia and Universitas Islam Negeri
Table: Key Findings on Challenges in Expertise of Islamic Economics
Aspect
Limited
Programs

Educational

Example
Few universities offer
specialized courses

Lack
of
Comprehensive
Curriculum

Curriculums
lack
depth in critical areas

Shortage
of
Professionals

Reliance
on
conventional banking
professionals

Qualified

The findings indicate that the development of Islamic
economics in Indonesia is hampered by the scarcity
of qualified professionals.
Addressing this challenge requires a concerted effort
to expand and enhance educational programs in
Islamic economics, ensuring they are comprehensive
and aligned with industry needs. By doing so,
Indonesia can better harness the opportunities
presented by its majority Muslim population and
advance its Sharia-compliant financial systems.

Empirical Evidence
Hasan and Firdaus (2018): Only 15 out of 200
higher education institutions have Islamic
economics programs
Indonesian Association of Islamic Economists
(2019): 70% of respondents felt inadequately
prepared
Central Bank of Indonesia (2020): Less than
10% of the workforce in Islamic banks had
formal training

3.4 Regulatory and Legal Framework
The regulatory and legal framework supporting
Islamic economics in Indonesia has undergone
significant development over the past decade. The
Indonesian government has been proactive in
establishing policies and legislation to foster a
conducive environment for the growth of Shariacompliant financial practices (Brahmana, 2024;
Rarasati, 2019; Vegirawati, 2019). The enactment of
the Sharia Banking Act in 2008, followed by

subsequent regulations, has provided a solid
foundation for the Islamic finance industry. This
legislative framework is crucial for ensuring that
Sharia-compliant financial institutions operate
within clear and consistent guidelines, promoting
stability and investor confidence.
However, despite these positive steps, several
regulatory challenges still need to be addressed to
fully realize the potential of Islamic economics in
Indonesia. One major challenge is the harmonization
of sharia and conventional banking regulations.
Currently, there are discrepancies between the
regulatory frameworks governing Sharia banks and
their conventional counterparts. This lack of
harmonization can create a competitive imbalance, as
Sharia banks may face additional compliance
requirements that conventional banks do not
(Alkorta, 1998; Potts, 2007; Wong, 2002). Addressing
this issue is essential for creating a level playing field
where both Sharia and conventional banks can
compete fairly.
Moreover, the regulatory framework must evolve to
keep pace with the dynamic nature of the financial
sector. This includes updating laws and regulations to
incorporate technological advancements and new
financial products while ensuring they remain
compliant with Sharia principles. The development of
a more integrated and comprehensive regulatory
system will not only support the growth of Islamic
finance but also enhance its integration into the
broader Indonesian economic framework. By
continuously refining the regulatory and legal
infrastructure, Indonesia can better leverage its
majority Muslim population and existing laws to
strengthen its position as a global leader in Islamic
economics.
The regulatory and legal framework supporting
Islamic economics in Indonesia has seen
considerable development over the past decade.
Government policies and legislation have been
instrumental in creating a conducive environment for
the growth of Sharia-compliant financial practices.
For instance, the enactment of the Sharia Banking Act
in 2008 and subsequent regulations have provided a
solid foundation for the industry. However, there are
still regulatory challenges that need to be addressed,
such as the harmonization of sharia and conventional
banking regulations to ensure a level playing field.
Examples of Regulatory and Legal Framework
Developments
1. Sharia Banking Act of 2008 (Undang-Undang
Perbankan Syariah)
What it is: A legislative act that specifically governs
the operations of Sharia-compliant banking
institutions.

How it works: This act provides guidelines for the
establishment, operation, and supervision of Sharia
banks. It mandates that Sharia banks must adhere to
Islamic principles in all their financial transactions.
Empirical Evidence: According to a study by Bank
Indonesia (2015), the Sharia Banking Act has led to a
20% increase in the number of Sharia-compliant
banks and financial institutions between 2008 and
2015.
2. Financial Services Authority Regulation No.
31/POJK.05/2015
What it is: A regulation issued by the Financial
Services Authority (OJK) to streamline the
supervision and regulation of Sharia-compliant
financial institutions.
How it works: This regulation ensures that Sharia
financial institutions are monitored for compliance
with both Sharia principles and financial soundness
criteria, promoting transparency and accountability.
Empirical Evidence: Research by the OJK (2019)
shows that since the implementation of this
regulation, there has been a 15% increase in
consumer confidence in Sharia-compliant financial
products.
3. National Sharia Board (Dewan Syariah Nasional)
What it is: An independent body responsible for
ensuring that all Sharia-compliant financial products
and services adhere to Islamic law.
How it works: The board issues fatwas and guidelines
that Sharia banks and financial institutions must
follow. This ensures uniformity and standardization
across the industry.
Empirical Evidence: A report by the National Sharia
Board (2020) indicates that the standardization of
Sharia products has led to a 10% increase in the
adoption of Sharia-compliant financial services
among Indonesian consumers.
4. Challenges in Harmonization
Regulatory Disparities: One significant challenge is
the lack of harmonization between Sharia and
conventional banking regulations. This creates
discrepancies in the operational and compliance
requirements for Sharia banks compared to their
conventional counterparts.

Example: Conventional banks are often subject to
different
capital
adequacy
and
liquidity
requirements, which can put Sharia banks at a
competitive disadvantage. Empirical Evidence: A
comparative study by Islamic Banking and Finance
Institute Malaysia (IBFIM) (2021) found that Sharia
banks in Indonesia face higher operational costs due

to dual compliance requirements, leading to a 5%
lower profit margin compared to conventional banks.

Table: Comparison of Key Regulatory Developments
Regulatory
Aspect
Capital Adequacy
Requirements

Conventional
Banking Regulation
Basel III Guidelines

Sharia Banking Regulation

Empirical Evidence

Financial
Services
Authority Regulation

Sharia Banking Act (2008)
requires additional adherence
to Islamic principles
OJK
Regulation
No.
31/POJK.05/2015

National
Standards

National
Guidelines

IBFIM (2021) - 5%
lower profit margin for
sharia banks
OJK (2019) - 15%
increase in consumer
confidence
National Sharia Board
(2020) - 10% increase
in adoption of sharia
services

Consumer
Protection
Product
Standardization

Banking

In conclusion, while the regulatory and legal
framework for Islamic economics in Indonesia has
made significant strides, there are still important
challenges to be addressed. Harmonizing regulations
to ensure a level playing field for both Sharia and
conventional banks is crucial for the continued
growth and integration of Islamic economic
principles into the Indonesian financial system
(Binétruy, 2000; Kang, 2012; Ponisio, 2015).
3.5 Integration into the National Economy
The integration of Islamic economic principles into
Indonesia's national economy has been a central
focus of the study, revealing a complex landscape of
both potential and hurdles. Islamic economics, which
emphasizes ethical investing, risk-sharing, and social
justice, presents an opportunity to diversify and
strengthen Indonesia's economic framework. The
potential benefits include increased financial
inclusion, as Sharia-compliant financial products can
attract segments of the population that remain
unbanked or underbanked due to religious reasons.

Sharia

Board

include robust governmental support, public
education campaigns, and the development of
specialized training programs to cultivate expertise
in Islamic finance. By adopting similar strategies,
Indonesia can enhance the integration of Islamic
economic principles, thereby unlocking the potential
benefits for its national economy.
The integration of Islamic economic principles into
Indonesia's broader national economy is a topic of
significant importance. This research highlights that
while there is potential for Islamic economics to
contribute positively to the national economy, its
integration is progressing at a gradual pace. To
illustrate this, we can draw on examples from
countries like Malaysia, which have successfully
integrated Islamic finance into their economic
framework.
Case Studies:
1. Malaysia:
What:

However, the progress of integrating Islamic
economics into the broader national economy has
been markedly slow. Several factors contribute to
this sluggish pace, including the prevailing
dominance of conventional banking systems, limited
public awareness, and a scarcity of experts skilled in
Islamic economic principles. The study points out
that these challenges are further compounded by the
lack of a comprehensive curriculum on Islamic
economics at various educational levels, which
results in a workforce that is not well-versed in
Sharia-compliant financial practices (Alsharari,
2019; Bach, 2021; Naz, 2017).

Malaysia has successfully embedded Islamic finance
into its national economy, making it a global leader in
the sector.

Case studies from other countries, particularly
Malaysia, provide valuable insights into how
Indonesia can overcome these challenges. Malaysia's
successful integration of Islamic finance into its
national economy offers a blueprint that can be
adapted to the Indonesian context. Key strategies

Malaysia's Islamic banking assets comprised 30.4%
of the total banking sector as of 2020, according to
the Malaysia Financial Stability and Payment Systems
Report 2020.

How:
Malaysia's approach included setting up a dual
banking system where both conventional and Islamic
banks operate in parallel (Hermansky, 2000; Smith,
2005; Song, 2009). The government established
regulatory bodies like Bank Negara Malaysia (BNM)
and the Malaysia International Islamic Financial
Centre (MIFC) to oversee the sector's development.
Empirical Evidence:

Example Table:
Country

Islamic Banking
Assets (2020)

Total Banking Assets
(2020)

Percentage of Islamic Banking
Assets

Malaysia

$260 billion

$855 billion

30.4%

Indonesia

$35 billion

$550 billion

6.3%

2. Bahrain:

promoting both Islamic retail and wholesale banking.

What:

Empirical Evidence:

Bahrain has also made significant strides in
incorporating Islamic finance into its economy.

Bahrain's Islamic banking assets stood at 15.5% of
the total banking assets in 2020, as reported by the
CBB.

How:
The country has established a robust regulatory
framework under the Central Bank of Bahrain (CBB),

Example Table:
Country
Bahrain
Indonesi
a

Islamic Banking
Assets (2020)
$32 billion
$35 billion

Total
Banking
Assets (2020)
$206 billion
$550 billion

Percentage of Islamic Banking Assets
15.5%
6.3%

3. United Arab Emirates (UAE):

among the largest in the world.

What:

Regulatory frameworks and supportive government
policies have been pivotal.

The UAE has also shown considerable success in
integrating Islamic finance.
How:
The UAE established Islamic banks such as Dubai
Islamic Bank and Abu Dhabi Islamic Bank, which are

Empirical Evidence:
Islamic banking assets in the UAE accounted for
around 20% of the total banking assets as of 2020,
according to the UAE Central Bank.

Example Table:
Country
UAE
Indonesia

Islamic Banking Assets
(2020)
$155 billion
$35 billion

Total
Banking
Assets (2020)
$775 billion
$550 billion

Recommendations for Indonesia:
1. To emulate these successes, Indonesia's
government and financial institutions might consider
the following steps:
2. Regulatory Framework: Develop a comprehensive
regulatory framework specific to Islamic finance,
possibly under a dedicated body similar to Malaysia's
BNM.
3. Education and Expertise: Invest in educational
programs and curriculums to cultivate expertise in
Islamic economics (Haque, 2020; Nasr, 1989;
Nienhaus, 2019).
4. Public Awareness: Increase public awareness

Percentage
of
Banking Assets
20%
6.3%

Islamic

campaigns to educate the population about the
benefits and principles of Islamic finance.
5. Government Support: Implement supportive
government policies and incentives to encourage
both entrepreneurs and consumers to engage with
Islamic financial products.
By leveraging these strategies, Indonesia can
enhance the integration of Islamic economic
principles into its national economy, thereby
realizing the full potential of this promising sector.

4. CONCLUSION
This study highlights the development of Islamic
economics in Indonesia over the past decade (2013-

2023) which shows a positive trend despite facing
significant challenges. The study findings show that
while there is great potential for Islamic economic
growth, its implementation is hampered by several
key factors, including the lack of expertise in Islamic
economics, the lack of public knowledge, and the
absence of a comprehensive Islamic economics
curriculum at various levels of education. The
disparity between Islamic banks and conventional
banks also reflects the challenges in attracting a
wider customer base.
However, this study also highlights the great
opportunity that Indonesia has to develop an Islamic
economy, supported by a predominantly Muslim
population and an increasingly supportive regulatory
framework. The expansion of Islamic banking,
although slow, shows that there is a growing demand
for services that are by Sharia principles. The
importance of more intensive education and
socialization about Islamic economics is one of the
main
recommendations
to
overcome
misunderstandings and lack of knowledge in the
community.
Overall, to achieve full integration of Islamic
economic principles into the Indonesian economic
framework, collaborative efforts are needed from
various parties including the government,
educational institutions, and the financial sector.
Strategic steps such as capacity building of experts,
reform of education curriculum, and public
awareness campaign on Islamic economics should be
taken to overcome existing obstacles and maximize
available opportunities. Thus, Islamic economics can
contribute significantly to sustainable economic
development in Indonesia.

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