The Indonesian financial regulator is preparing to engineer a holistic Islamic financial product ecosystem which includes digitizing Shariah instruments and rolling out new supporting policies as part of its newly unveiled five-year financial services master plan (MPSJKI).
The MPSJKI 2021–25 is built upon five main pillars: a national economic recovery program; strengthening the resilience and competitiveness of the financial services sector; developing a financial services ecosystem; accelerating financial digital transformation; and strengthening Otoritas Jasa Keuangan (OJK)’s internal capacity.
“This master plan is expected to answer the short-term challenges of the COVID-19 pandemic and structural challenges in realizing a national financial services sector [that] is competitive, contributive and inclusive,” explained OJK.
As expected, Shariah finance features prominently in the regulator’s strategy as it has been the last few years as OJK took on the mantle to aggressively develop the Republic’s Islamic financial industry. Like its global peers, COVID-19 battered Indonesia’s economy and exerted extreme pressures on the banking and finance industry. While banking intermediary performance shrank 2.41% year-on-year in 2020, Islamic banks however managed to grow by 9.5% according to OJK data.
Aside from digitizing Islamic financial products, to build the Islamic financial ecosystem envisioned by the regulator, OJK also plans to upscale Shariah financial businesses and introduce policies to expand public access to such faith-based products.
Among initiatives planned to democratize financial services is to integrate the Republic’s multiple financing programs including its micro Waqf banks with Laku Pandai and student savings.
“This effort will be coordinated by the Regional Financial Access Acceleration Team which will be in all provinces and city regencies in 2021. The new regulations regarding disgorgement funds are also expected to increase protection for investors in the capital market,” according to OJK which also confirmed that the second phase of its Sustainable Finance Roadmap 2021–25 will be implemented.
OJK will also develop a regulatory sandbox to support the growth of fintech start-ups and will push for greater consolidation in the financial services industry by introducing a minimum capital policy. The country is expected to conclude its years-long plan of merging three state-owned banks to form an Islamic “megabank” to boost its Islamic financial capacity.