Indonesia’s Sharia economy has seen significant growth in recent years. Data from the Global Islamic Economy Indicator (GIEI) recorded Indonesia’s achievement ranking third in 2023, up from 11th place in 2018.
However, major challenges remain in developing the Sharia economy in the country, namely the low levels of Sharia economic literacy and inclusion.
Data from the Financial Services Authority in 2023 shows that Sharia financial literacy is only 39.11%, and Sharia financial inclusion is 12.88%.
The Director of Sharia Economic Infrastructure at the National Committee for Sharia Economics and Finance (KNEKS), Dr. Sutan Emir Hidayat, stated that limited access to Sharia financial services in rural areas and Central and Eastern Indonesia contributes to low financial inclusion and literacy.
“There are still many blank spots in Islamic financial services, especially in rural areas as well as Central and Eastern Indonesia,” said Dr. Hidayat during the 9th Gadjah Mada International Conference on Islamic Economics and Business (GamaICIEB) at the UGM Faculty of Economics and Business (FEB UGM), Saturday (Sep. 28).
Dr. Hidayat explained that increasing Sharia financial inclusion presents various challenges. One of them is the limited access to Sharia financial services in rural areas and Central and Eastern Indonesia, which is a challenge for the development of the Sharia economy in Indonesia.
The lack of access to these services hampers the fulfillment of Islamic financial needs, especially for financial transactions related to religious activities such as hajj, umrah, qurban, zakat, infaq, sadaqah, and waqf.
Another challenge in improving Sharia financial inclusion is the lack of support from community leaders and religious figures for recommending Sharia finance to the public.
Additionally, low Sharia financial literacy affects Sharia financial inclusion.
“Literacy barriers remain the main obstacle to increasing Sharia financial inclusion,” he added.
To address these issues, Dr. Hidayat stated that KNEKS aims to improve access to Sharia financial services for several groups. The Sharia financial literacy and inclusion program has four priority groups.
First, by age, the program will address individuals aged 15-17 and 51-79. Second, by region, it will consist of people in rural areas. Third, by occupation, it will consist of students, farmers, breeders, fishermen, the unemployed, and others. Fourth, by education level, it will include those who have completed elementary school or below.
“These groups represent segments of the population with lower financial literacy and inclusion rates compared to the national average, based on the 2024 National Survey on Financial Literacy and Inclusion (SNLIK),” he explained.
The event served as a forum for discussing and promoting the latest research in Islamic economics and business.
In addition to Dr. Hidayat, the conference featured Professor M. Kabir Hassan from the University of New Orleans, USA, and Professor Nurul Indarti from FEB UGM.
Professor Hassan from the University of New Orleans, USA, previously highlighted the importance of financial literacy.
He noted that financial literacy is essential to support economic stability and growth in Indonesia. Moreover, good financial literacy enables people to make sound financial decisions and reduces vulnerability to fraud and financial mismanagement.
Professor Hassan explained that Indonesia still faces major challenges in improving financial literacy. Some of these include demographic differences and varying levels of education, the impact of the pandemic on financial behavior, and the rise of cybercrime related to digital financial services.
He mentioned that the Indonesian government has launched the 2021-2025 National Strategy for Financial Literacy and Inclusion (SNLIK) to improve public financial literacy and inclusion.
On that occasion, Professor Hassan recommended that Indonesia strengthen financial literacy education, partly by collaborating with the public and private sectors and learning from global strategies to enhance public financial understanding.
Meanwhile, Professor Nurul Indarti focused more on the role of resources in company performance, both from conventional and Islamic perspectives.
In her research, conducted with her team, she compared Sharia companies to conventional companies. The results show that Sharia companies are generally more stable and efficient than non-Sharia companies.
“Sharia companies adopt a more cautious approach in conducting business operations, ensuring that every financial aspect complies with Islamic principles,” she said.
Furthermore, high human capital efficiency has also been proven to contribute to the overall performance of Sharia companies. Sharia companies highly value balanced growth and ethical profit-taking.
Conversely, non-Sharia companies rely more on Capital Intensity to drive their performance. Unlike Sharia, which prioritizes balanced growth, non-Sharia companies focus more on conventional approaches, emphasizing efficiency and capital management to achieve good performance.
“The findings provide important insights for the business and financial world on how applying Sharia principles can improve company performance,” said Indarti.
Author: FEB UGM/Kurnia Ekaptiningrum
Editor: Gusti Grehenson
Photo: UGM FEB Documentation
Post-editor: Afif